DealLawyers.com Blog

When a Delaware court concludes that dissident stockholders haven’t complied with a valid advance notice bylaw, it doesn’t usually give them another bite at the apple, but that’s what the Chancery Court did earlier this week in Vejseli v. Duffy, (Del. Ch.; 5/25). In that case, Vice Chancellor Bonnie David concluded that allowing the dissidents to resubmit their nominations was an appropriate remedy for actions by the board that inequitably interfered in the election process.

In an effort to thwart a proxy contest seeking to replace two members of the board of Ionic Digital, the company’s directors adopted a resolution reducing the size of the board to five and the number of directors to be elected at the company’s annual meeting to one. The board also rejected the dissidents’ nominees because of their failure to comply with certain informational requirements contained in Ionic’s advance notice bylaw.  Applying the “Blasius minus” standard of review, Vice Chancellor David upheld the board’s decision to reject those nominations but concluded that the board breached its fiduciary duties when it reduced the number of directors up for election.

In fashioning a remedy, the Vice Chancellor determined that the dissidents were entitled to an injunction invalidating the board’s resolution reducing the size of the board & number of nominees. The defendants argued that the board should be able to fill the vacancy created by her decision, but she concluded that “[a] remedy that would permit the directors who breached their fiduciary duties to choose who will serve on the Board is no remedy at all” and opted to reopen the nomination window under the company’s advance notice bylaw.

The defendants argued that since the dissidents failed to comply with information requirements contained in the bylaw, they should be barred from resubmitting nominations during the new nomination period. Vice Chancellor David didn’t agree:

Under the unusual facts of this case, I disagree for two reasons. First, it is true that in most circumstances, Plaintiffs would not get a “do-over” after failing to comply with the Advance Notice Bylaw. But here, it is not Plaintiffs’ but the Board’s wrongful conduct that necessitates reopening the nomination window.

Second, the trial record does not support Defendants’ position that Plaintiffs intentionally “concealed” material information. . . Defendants offer no real reason why Plaintiffs should not be permitted to submit a new nomination notice during the reopened nomination window so that, with the benefit of full disclosure, Ionic’s stockholders, who have not been able to exercise their voting rights since the Company’s incorporation, can finally decide for themselves who should serve on the Board.

She also ordered Ionic to disclose the key aspects of the Court’s ruling to its stockholders, including the new date for its annual meeting and the order to reopen the nomination window.

– John Jenkins