Williamson v. Cox Communications, Inc.
Delaware Chancery Court
2006 WL 1586375 (2006)
Telecommunications, Inc. (TCI) founded the At Home Corporation (At Home) in 1995. At Home provided high-speed internet access. The following year, Cox Communications, Inc. (Cox) (defendant) and Comcast Corporation (Comcast) (defendant) acquired minority holdings in At Home. Later, At Home sold stocks and bonds to public investors. Initially, At Home’s certificate of incorporation said that a majority of Series B directors must approve all board decisions. TCI could appoint three of the five Series B directors, giving it control of At Home’s board decisions. Cox and Comcast each appointed one director. Through a Master Distribution Agreement (MDA), Cox, Comcast, and TCI agreed: (1) to use At Home exclusively to provide high-speed internet access to their cable subscribers, and (2) to give At Home 35 percent of the revenue for this internet access. In the MDA, TCI also agreed to sign up a certain number of customers or else Cox and Comcast could walk away from the MDA. In 1998, AT&T acquired TCI. However, AT&T was not able to sign up enough customers to meet TCI’s obligations under the MDA. To keep Cox and Comcast from walking away, AT&T agreed to amend the certificate of incorporation to say that four of the five Series B directors must approve board decisions. This gave Comcast and Cox the ability to veto board decisions. Then, in 2000, AT&T proposed a new set of transactions. These transactions greatly benefited AT&T, Comcast, and Cox, at the expense of At Home. The majority of the shareholders and Series B directors approved the new transactions. At Home then filed for bankruptcy. At Home’s bondholders sued Cox and Comcast for breaching their fiduciary duty as controlling shareholders by helping cause the new transactions. Cox and Comcast moved to dismiss the claim, arguing that they were not controlling shareholders.
Rule of Law
Holding and Reasoning (Chandler, J.)
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