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Delaware Supreme Court Finds That Stockholder Failed to Satisfy Unambiguous Requirements of Advance Notice Bylaw

Blackrock Credit Allocation Income Tr., et al. v. Saba Capital Master Fund, Ltd., No. 297, 2019 (Del. Jan. 13, 2020).

The Delaware Supreme Court reversed the Court of Chancery’s decision requiring two closed-end trusts (together, the “Trusts”) to count the votes of Saba Capital Master Fund, Ltd’s (“Saba”) slate of dissident nominees at the Trusts’ respective annual meetings. The Supreme Court ruled that Saba’s nominations were ineligible because Saba had failed to respond to the Trusts’ request for supplemental information within the clear and unambiguous 5 day compliance deadline in the Trusts’ advance notice bylaws (the “Bylaws”). 

In response to Saba’s notice that it planned to present a slate of dissident nominees at the Trusts’ annual meetings, the Trusts sent out supplemental questionnaires (the “Questionnaires”) requesting more information about the slate. Saba failed to make any response to the request within the 5 business day compliance deadline, and the Trusts declared the nomination notice invalid. In the proxy contest that followed, the Trusts urged stockholders not to return proxy cards sent by Saba. 

Saba filed suit and asked the Court of Chancery to enjoin the Trusts from interfering with its attempt to present a slate of nominees. On “a highly expedited and pre-discovery record,” the Court granted Saba’s request and required the Trusts to count the votes for Saba’s nominees. While the Court agreed that the Trusts could request supplemental information from Saba pursuant to the Bylaws, it held that the Questionnaires “went too far” because the information was not “reasonably requested” or “necessary” as required by the Bylaws. The Trusts appealed.

The Supreme Court held that, although the Court of Chancery interpreted the Bylaws correctly, it erred in granting injunctive relief because Saba failed to meet the Bylaws’ clear and unambiguous 5 day compliance deadline. The Court noted that while concerns about the breadth of the Questionnaires could be valid, Saba should have raised those concerns before the expiration of the deadline. The Court “was reluctant to hold that it is acceptable to simply let pass a clear and unambiguous deadline in an advance-notice bylaw, particularly one that had been adopted on a ‘clear day.’” The Court further noted that “encouraging [] after-the-fact factual inquiries into missed deadlines could potentially frustrate the purpose of advance notice bylaws”—to permit orderly meetings and proxy contests and provide fair warning to the corporation. Thus, the Court found Saba’s nominations to be ineligible and remanded the case to the Court of Chancery for further proceedings.