In Siegel v. Morse, 2025 WL 1101624 (Del. Ch. Apr. 14, 2025), the Delaware Court of Chancery dismissed a stockholder’s challenge to advance notice bylaws of The AES Corp. (the company) on ripeness grounds, reinforcing the court’s stance that such claims require a concrete dispute. The bylaws, adopted in 2023 following the SEC’s universal proxy rule, imposed enhanced disclosure obligations on nominating stockholders, including requirements to reveal any compensation or relationships with their director nominees from the past three years and to disclose complex ownership structures, including synthetic interests and performance-based fee arrangements. The bylaws also included broad definitions of “acting in concert,” encompassing shared intent and coordinated activity, such as meetings or communications.
Procedural History
The plaintiff, a stockholder of the company, initiated litigation alleging that the company’s advance notice bylaws were facially invalid and that the company’s directors had breached their fiduciary duties in adopting them. The plaintiff admitted to not intending a proxy contest, explaining that the lawsuit was prompted by evolving Delaware case law. However, following the Delaware Supreme Court’s July 2024 decision in Kellner v. AIM ImmunoTech, 320 A.3d 239 (Del. 2024), which clarified the legal standard for reviewing advance notice bylaws, the plaintiff amended his complaint to drop the facial validity challenge. Instead, he asserted that the bylaws were unenforceable on equitable grounds due to their “chilling effect” on stockholder nominations. The company moved to dismiss.
The Court’s Ruling
Vice Chancellor Nathan Cook granted the motion to dismiss under Rule 12(b)(1), finding the plaintiff’s claims unripe. Relying on Kellner, the court observed that equitable review of advance notice bylaws requires a “genuine, extant controversy”—a standard not met here since no stockholder had attempted or even considered submitting a nomination under the challenged bylaws. The plaintiff admitted he had no intention of nominating a director and failed to identify any stockholder deterred from doing so by the bylaws. The court reaffirmed that hypothetical concerns, even if framed as having a general chilling effect, are insufficient to invoke equitable review.
Key Reasoning
The plaintiff relied on a presentation by outside counsel that led to the board’s adoption of the advance notice bylaws to argue that the company had acted defensively in adopting the advance notice bylaws. The court however found the presentation was “vanilla” and contained “generic” text where it noted that recent legal and market changes, including the universal proxy rule, justified a full review of the company’s advance notice bylaws and warned that the new rule lowers barriers for proxy contests, encouraging companies to strengthen their procedural defenses, citing that 44% of S&P 500 companies had already amended their bylaws in response. The court thus rejected the plaintiff’s claim that the presentation supported a ripe Unocal claim, emphasizing that Delaware courts require a genuine, existing controversy before engaging in equitable review. The plaintiff’s reliance on a few slide excerpts was insufficient to demonstrate such a controversy. Without evidence of an actual proxy contest or a stockholder that was deterred from nominating, the concern remained hypothetical. The court noted that many companies updated bylaws due to the Universal Proxy Rule, and in the absence of a real threat, the company’s actions did not warrant judicial scrutiny.
The plaintiff also attempted to analogize the advance notice bylaws to more coercive entrenchment devices, like rights plans and dead hand proxy puts. The court similarly rejected these attempts and emphasized that, unlike those measures—which can have immediate and severe financial impacts—advance notice bylaws result only in the rejection of nominees. This, the court noted, does not create the kind of “devastating consequences” that demand preemptive equity intervention. Stockholders rejected under the advance notice bylaw could still engage with the board or litigate any perceived unfairness on an as-applied basis.
Takeaways
This decision confirms that Delaware courts will not entertain speculative challenges to advance notice bylaws absent an active or imminent nomination effort. The ruling also underscores the high bar plaintiffs must clear to state an equitable Unocal-style claim against a board’s defensive measures. In the wake of Kellner, companies may continue to refine advance notice bylaws, provided they avoid obvious overreach and ensure enforcement is tied to actual proxy activity.
Reprinted with permission from the May 7, 2025 edition of “Delaware Business Court Insider” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.