Editor’s note: Jenness E. Parker is a Partner, Lauren Rosenello is a Counsel, and Emily M.
Marco is an Associate at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on
their Skadden memorandum, and is part of the Delaware law series; links to other posts in the
series are available here.
Advance notice bylaws are commonplace among public companies, with nearly all S&P 500 companies having some form of these requirements. Traditionally, stockholder challenges to these bylaws arose where the investor had a real gripe: having their efforts to nominate a director slate blocked by an incumbent board. More recently, after the Securities and Exchange Commission’s (SEC’s) began requiring a universal proxy, many companies refreshed their advance notice bylaws, leading to a flurry of books and records demands and stockholder challenges.
The Delaware Supreme Court weighted in on one such challenge in Kellner v. AIM ImmunoTech Inc., 320 A.3d 239 (Del. 2024) (Kellner II), holding that “[i]n a challenge to the adoption, amendment, or enforcement of a Delaware corporation’s advance notice bylaws that is ripe for judicial review, the court” will first evaluate the bylaws legal validity, and then look to whether the bylaw was equitably applied. Kellner II, 320 A.3d at 259.
In the year since Kellner II was decided, four advance notice bylaw cases have come before the Delaware Court of Chancery. In two of those cases, the court dismissed the complaints as unripe pursuant to Kellner II’s direction that the threshold question is whether an “genuine and extant controversy” exists — meaning the stockholder has suffered an identified harm, not merely a hypothetical one. In two other cases, the controversy was ripe and, pursuant to Kellner II, the court applied enhanced scrutiny, but ultimately enforced the advance notice bylaws because they were adopted on a “clear day” (i.e., not in response to any threat) and were not inequitable
For further information, please contact:
Jenness E. Parker, Partner, Skadden
jenness.parker@skadden.com
