Delaware Court of Chancery Upholds Incumbent Directors’ Decision not to Excuse Stockholders’ Non-Compliance with Advance Notice Bylaw
Previously posted on Business Law Today
Rosenbaum v. CytoDyn Inc., 2021 WL 4775410 (Del. Ch. Oct. 13, 2021)
The Delaware Court of Chancery recently upheld incumbents’ decision not to include insurgent director nominees on the ballot due to their failure to comply with an advance notice bylaw. For months, the director nominees and certain affiliated stockholders were aware of the requirements of the bylaw, which had been adopted on a clear day. On the eve of the deadline, they submitted a deficient notice that failed to disclose (i) the supporters of the nominees or their proposals, and (ii) the fact one nominee recently tried to have the corporation purchase his separate business, and that he may do so again. The court reasoned that, had the stockholders proceeded sooner, and submitted a deficient notice with “ample time” before the deadline, then directors exercising their fiduciary duties may have had to work with the dissidents to address the deficiencies. Id. at *17. As it stood, however, the incumbents’ decision to enforce the bylaw did not evince “manipulative conduct” in violation of the incumbents’ fiduciary duties. See id. at *14-17.