Chancery Finds Enforcement of Advance Notice Bylaw Was Lawful and Equitable
Strategic Investment Opportunities, LLC v. Lee Enterprises, No. 2021-1089-LWW (Del. Ch. Feb. 14, 2022)
This case reflects that incumbent directors’ decision to enforce an advance notice bylaw generally will be upheld where a stockholder’s nomination materials do not comply with the bylaw’s plain terms and enforcement is not inequitable in the circumstances. Here, directors rejected an activist stockholder’s nominees for election because of non-compliance with certain requirements of an advance notice bylaw, specifically that nominations (i) must be made by the record holder (here, Cede & Co.), and (ii) must include information on a form required by the company. Given the context – the defense of a proxy contest – the Court proceeded to review whether the decision to enforce the bylaw complied with the directors’ fiduciary duties, applying enhanced scrutiny under Unocal and Blasius. Because the bylaw was adopted on a “clear day,” because it served valid corporate purposes and because the board did not engage in any manipulative conduct impeding the stockholder’s ability to comply with the bylaw, the Court held that the board’s decision to uphold the bylaw was valid.