DealLawyers.com Blog

Yesterday, in In re The AES Corporation and Owens Corning, (Del. 4/26), the Delaware Supreme Court upheld a prior Chancery Court decision rejecting efforts by two plaintiffs to obtain declaratory and injunctive relief against advance notice bylaws adopted by two companies in 2023.

The plaintiffs were stockholders who neither intended to nominate directors nor identified a stockholder who was deterred from doing so by the bylaw.  Under those circumstances, the Supreme Court unanimously supported the Chancery Court’s ruling that the plaintiffs’ claims were unripe. Here’s an excerpt from Justice LeGrow’s opinion:

Delaware law recognizes that advance notice bylaws are “twice-tested”: first for legal authorization and second by equity. But our decision in Kellner v. AIM ImmunoTech Inc. also makes clear that those challenges must be “ripe for judicial review.” Here, the stockholders who filed these cases expressly disclaimed facial validity challenges and instead pursued equitable, as-applied claims directed to the boards’ adoption of the bylaws.

Yet the controversy they present remains abstract. No stockholder has attempted or threatened to nominate directors under the challenged provisions. Neither appellant-stockholder alleges that he intends to run a proxy contest or identifies a stockholder who is presently chilled from doing so. On this record, any ruling on whether these bylaws operate inequitably would amount to an advisory opinion based on hypotheticals about how the bylaws might function or be applied in future nomination disputes.

Justice LeGrow’s opinion noted that the Court did not decide whether under appropriate circumstances, an as-applied challenge to an advance notice bylaw could proceed despite the absence of a would be nominator.  She suggested that such a challenge might more plausibly arise “where the challenged bylaws’ operation imposes concrete, present burdens on stockholder conduct untethered to any nomination attempt, or where a would-be challenger can plead non-conclusory facts regarding the real-world deterrent effect of a particular provision.”

– John Jenkins