Delaware Court Of Chancery Holds That Company And Its Directors Did Not Breach Bylaws Or Fiduciary Duties In Rejecting Director Nomination Notice
On February 14, 2022, Vice Chancellor Lori W. Will of the Delaware Court of Chancery entered judgment in favor of Lee Enterprises, Inc. (the “Company”) and its directors following an expedited trial on claims for breach of the Company’s bylaws and the directors’ fiduciary duties. Strategic Investment Opportunities LLC v. Lee Enterprises, Inc., C.A. No. 2021-1089-LWW (Del. Ch. Feb. 14, 2022). Plaintiff, a beneficial stockholder, sought declaratory and injunctive relief to allow its nomination of directors—attempted in conjunction with a takeover bid by plaintiff—to move forward. The Court found that plaintiff did not comply with advance notice requirements for director nominations in the Company’s “clear and unambiguous” bylaws. Applying “enhanced scrutiny,” the Court also concluded that the board did not breach fiduciary duties by rejecting plaintiff’s nomination based on “a validly adopted bylaw with a legitimate corporate purpose.”
Delaware Court Of Chancery Finds Transfer Restrictions On Stock Issued In Connection With A De-SPAC Merger Inapplicable To A Legacy Operating Company Stockholder Based On The Language Of The Relevant Bylaw
On January 10, 2022, Vice Chancellor Lori W. Will held that shares of defendant Matterport Inc. (“New Company”) issued to plaintiff in connection with the acquisition of Matterport Operating, LLC (“Legacy Company”) by a special purpose acquisition company (“SPAC”) in a “de-SPAC” merger were not subject to a transfer restriction in the New Company’s bylaws. As part of the transaction, Legacy Company stockholders, including plaintiff, were given the right to receive shares of the New Company. Prior to closing, the SPAC adopted a bylaw that restricted the transfer by such stockholders of shares “held . . . immediately following the closing” of the transaction. After a two-day trial, the Court found that plaintiff was not issued shares of the New Company until more than three months after the merger when he executed letters of transmittal to the transfer agent. Concluding that the “plain language” of the bylaw was “straightforward,” and that plaintiff had not held shares “immediately” following the merger, the Court granted declaratory relief in favor of plaintiff.
Delaware Court Of Chancery Rejects Challenge To Board’s Enforcement Of Advance Notice Bylaw
On October 13, 2021, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery denied a request for injunctive relief in a stockholder action against the board of CytoDyn (the “Company”). Rosenbaum v. Cyotodyn Inc., C.A. No. 2021-0728-JRS, 2021 WL 4775140 (Del. Ch. Oct. 13, 2021). Plaintiffs attempted to nominate a dissident slate of director candidates. They alleged that the board wrongfully rejected plaintiffs’ timely notice of their nominations. After a trial on a “paper record,” the Court found that plaintiffs’ notice did not comply with the Company’s advance notice bylaw—because it omitted information that was required under the bylaw to have been disclosed—and the board was thus “justified in rejecting” the notice.
Delaware Supreme Court Finds Dissident Board Nominees Ineligible Because Of Noncompliance With Bylaws Deadline To Respond To Supplemental Information Request
On January 13, 2020, in an opinion authored by Justice Karen L. Valihura, the Supreme Court of Delaware held that defendants—two investment trusts—were permitted to disqualify the board nominees of a plaintiff shareholder for missing a deadline in the trusts’ bylaws to respond to board requests for additional information. Blackrock Credit Allocation Income Trust v. Saba Capital Master Fund Ltd., C.A. No. 2019-0416-MTZ (Del. Jan. 13, 2020). The Supreme Court’s decision reversed in part a ruling by Vice Chancellor Morgan T. Zurn of the Delaware Court of Chancery that plaintiff’s nominees were improperly excluded. Even though the requests for information may have exceeded the contemplated scope and plaintiff may have misread the bylaws and believed the deadline was inapplicable, the Delaware Supreme Court held that a rule that would excuse deadline non-compliance could “potentially frustrate the purpose of advance notice bylaws” intended to facilitate orderly meetings and election contests.