Strict Interpretation of Advance Notice Bylaws Guides Chancery Court in Issuing Preliminary Injunction and Partial Final Judgment Orders
By William Axtman and Ryan Drzemiecki
In the ongoing dispute of Opportunity Partners L.P. v. Hill International, Inc., Vice Chancellor J. Travis Laster granted plaintiff Opportunity’s motion for preliminary injunction with respect to an annual meeting of stockholders and defendant’s motion to enter the injunction order as partial final judgment for purposes of appellate review. In reaching its decision on the preliminary injunction, the Court relied on strict interpretation of defendant Hill’s advance notice bylaws.
Defendant’s advance notice bylaws provided that stockholders’ notice of business or nominees to be presented in an annual meeting must be furnished “not less than sixty (60) days nor more than ninety (90) days prior to the meeting,” with an exception that “in the event that less than seventy (70) days notice or prior public disclosure of the annual meeting is given or made to stockholders,” the stockholders’ notice would be considered timely if received “no later than the close of business on the tenth (10th) day” thereafter.
Defendant’s definitive proxy statement for its 2014 annual meeting stated an anticipated date for the 2015 meeting “on or about June 10, 2015” and stipulated that stockholder proposals had to be submitted between March 15 and April 15, 2015. Defendant’s definitive proxy statement for the 2015 annual meeting, issued on April 30, 2015, provided for a meeting date of June 9.
On May 7, 2015, Plaintiff delivered a letter giving notice of its intent to offer two proposals for consideration and two nominees for election at the annual meeting. Defendant took the position on May 11 that this notice was untimely. Plaintiff subsequently brought suit on May 14, 2015 seeking injunctive relief and alleging Defendant’s breach of the bylaws and inequitable conduct.
In considering the motion for preliminary injunction, it was Plaintiff’s burden to demonstrate (1) its likely success on the merits, (2) that it will suffer irreparable injury without an injunction, and (3) that its harm without an injunction outweighs the harm to the Defendants that will result from the injunction.
The Court noted that “the bylaws of a Delaware corporation constitute part of a binding broader contract” formed within the statutory framework of the Delaware General Corporation Law and must be interpreted using normal contract principles. The Court found that the plain meaning of “notice” in the advance notice bylaws referred to “statutory notice” under 8 Del. C. § 222, which requires notice for an annual meeting including board elections be given not less than 10 nor more than 60 days before the date of the meeting. The Court noted that Defendant’s bylaws provided for a 10-day filing window if notice of the annual meeting was made less than 70 days in advance of the meeting date but that statutory notice, by definition, could never be given more than 60 days in advance. While the bylaws contemplated alternative “prior public disclosure,” the Court stated that any such alternative public disclosure must state the “actual” date of the meeting as the advance notice bylaws controlled the timing for stockholder submissions and based the requisite time period on the actual date of the meeting, not speculative future dates.
The Court found that Defendant’s April 30 proxy statement constituted the first time it had given notice or publicly disclosed the date of the 2015 annual meeting on June 9. Defendant’s 2014 proxy statement anticipating a date “on or about June 10” was found to be speculative and insufficient.
The April 30 proxy statement was filed only 40 days prior to the June 9 meeting, which the Court found triggered the 10-day window under the advance notice bylaws and rendered Plaintiff’s May 7 notice timely. The Court found the undisputed facts clearly established Plaintiff’s reasonable probability of success on the merits, that irreparable harm existed where shareholders would be denied the right to vote their shares or were unnecessarily frustrated in attempting to obtain representation on the board, and that the balance of harms weighed in Plaintiff’s favor where there was a threat of thwarting the will of the stockholders. The injunction order was granted on June 5 and Defendant was ordered to postpone the annual meeting and to permit Plaintiff to present its business and nominations.
On June 10, Defendant sought the Court to enter the injunction order as a partial final judgment under Court of Chancery Rule 54(b) or, alternatively, to certify the injunction order for interlocutory appeal. The Rule 54(b) test requires the court find that (1) the action involves multiple claims or parties, (2) at least one claim or the rights and liabilities of at least one party has been finally decided, and (3) there is no just reason for delaying an appeal. The Court found the first two elements to have been satisfied, as the injunction order did not reach Plaintiff’s claim of inequitable conduct but was tantamount to summary judgment on the plain terms of the advance notice bylaws.
The Court’s inquiry hinged on the third element, whether there was just reason for delaying an appeal. This determination is a matter of discretion, though the Court noted that Rule 54(b) is “not to be used as a vehicle to trigger routine appellate review” and exists to afford a remedy in only the “infrequent harsh case.” Noting the importance of providing for timely appellate review of a mandatory injunction and recognizing that if the injunctive order was incorrect, it would be impossible to go back in time and undo that event through post-annual meeting appellate review, the Court directed entry of the injunction order as a partial final judgment upon Count I of the complaint.
Opportunity Partners L.P. v. Hill International, Inc., C.A. No. 11025–VCL (Del. Ch.) (Laster, V.C.)
June 5 – Order Granting Preliminary Injunction