DealLawyers.com Blog

In Brancous, LP1 v. Braemar Hotels & Resorts, (D. Md.; 12/25), a Maryland federal court issued an oral ruling denying a plaintiff’s motion to preliminarily enjoin an annual meeting of shareholders. In doing so, the Court concluded the plaintiff was unlikely to succeed on the merits of its claims challenging the application of the company’s advance notice bylaw and alleging that the company failed to comply with its obligations under Exchange Act Rule 14a-19 by refusing to list the plaintiff’s nominees on its proxy card.

A key factor in this decision was the plaintiff’s delay in asserting its claims. The plaintiff did not submit its nominations until four months after the deadline specified in the company’s advance notice bylaw, did not file its lawsuit until a month after its nominations had been rejected, and did not seek a preliminary injunction until 10 days before the date scheduled for the meeting. None of those facts escaped the attention of the Company – or the Court.

Nevertheless, the plaintiff alleged that the company improperly manipulated its advance notice bylaw provisions by refusing to accept its nominations. It pointed to the company’s decision to postpone its annual meeting without adjusting the notice deadline set forth in the advance notice bylaw.  The Company argued that the nomination deadline was clearly specified in the bylaw, and that it also stated that postponing or rescheduling the meeting would not reopen the nomination window.

Pointing to SEC guidance that Rule 14a-19 did not require a company to include a shareholder’s nominees on its proxy card where a company determines that the shareholder did not comply with advance notice bylaw requirements, the Company also argued that its refusal to include plaintiff’s nominees on its proxy card did not violate the universal proxy rule.

The Court concluded that the Company had the better of these arguments and denied the plaintiff’s motion for a preliminary injunction. It also concluded that the plaintiff’s dilatory approach to the lawsuit was independently fatal to its claims. This White & Case memo on the decision highlights the following key takeaways:

– For activists, the decision reinforces the need to comply with both company bylaws and SEC proxy rules. The court supported the SEC’s guidance that Rule 14a-19’s universal proxy requirements only apply in a contested election—meaning the activist must actually file a proxy statement and solicit proxies. In this case, Brancous did not do so, and that failure was fatal to its claims. Without a contested election, the company was not required to include Brancous’s nominees on its proxy card or treat the situation as a proxy contest.

– The ruling also highlights the importance of acting promptly. Activists who delay challenging a nomination rejection or seeking court relief are unlikely to succeed, as courts are reluctant to grant emergency relief when the activist’s own delay created the urgency. At the same time, companies should not wait until the last minute to notify shareholders of deficiencies in their nomination notices. Prompt communication is essential to avoid claims of unfairness or gamesmanship.

Another thing that makes this case interesting is that, as White & Case points out in its memo, this is the first time that a federal court has addressed the application of Rule 14a-19 in the context of a rejected nomination.

– John Jenkins