Advance Notice: Del. Chancery Upholds Bylaw & Torpedoes Activist Slate
A Gibson Dunn memo reviews the Chancery Court’s recent transcript ruling in Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., (Del. Ch.; 8/19), which involved a challenge to a bylaw provision limiting the ability to submit director nominations to shareholders of record.
Bay Capital was a disappointed suitor that had twice made unsolicited proposals to buy Barnes & Noble Education. So, it decided to submit a slate of director nominees for a potential proxy contest. Under the terms of the company’s advance notice bylaw, director nominations had to be submitted between 120 and 90 days prior to the anniversary of the prior year’s annual meeting, and could only be submitted by holders of record. Bay Capital wasn’t a record holder when it submitted its slate, and the company rejected its nominees.
Bay Capital filed a lawsuit challenging the bylaw provision. Vice Chancellor McCormick shot that down in short order – and this excerpt from the memo suggests that Bay Capital wasn’t exactly a sympathetic plaintiff:
On June 27, 2019, the last day to submit director nominations for the 2019 annual meeting of stockholder, Bay Capital noticed the nomination of a slate of director candidates. Although the notice was timely, as of June 27 Bay Capital was just a beneficial owner of BNED stock and not a record holder. BNED’s Board of Directors therefore rejected the notice as invalid. Two weeks later, Bay Capital filed a complaint in Delaware Court of Chancery seeking injunctive relief to run its slate of directors at the upcoming annual meeting of stockholders.
The Court found that despite being reminded no fewer than four times by its advisor of the record holder requirement set forth in the BNED bylaws, Bay Capital did not acquire shares until three days before the nomination deadline. And when the shares were acquired, it was done through a broker such that there was not sufficient time to get the shares transferred in Bay Capital’s record name.
The Court dismissed various arguments advanced by Bay Capital in seeking an injunction, including a purported ambiguity in the BNED bylaws as to the need for the nominating stockholder to be a holder of record at the time it delivered the notice of nomination.
The facts of the case weren’t great for Bay Capital, but it seems to have made things worse for itself with its conduct during the lawsuit. First, the transcript notes that shortly after requesting expedited proceedings, Bay Capital objected to the hearing date because it interfered with its managing partner’s travel schedule. Then, its managing partner threw gasoline on the fire with his deposition antics. Here’s what the Vice Chancellor had to say about those:
As I stated earlier, the conduct was not optimal. After making defense counsel fly to London to depose him, Mr. Suri showed up a half hour late, left in the middle of the deposition for over two and a half hours to attend personal appointments scheduled that same day, and then unilaterally terminated the deposition when it suited him. He was evasive and obstructive in his responses,ultimately going as far as to say that the deposition was an “accommodation” to the defendants. This, of course, ignores the fact that it was Mr. Suri who instigated this lawsuit and requested expedition in the first place.
VC McCormick went on to note that although she hadn’t been asked to address whether this deposition conduct warrants fee shifting, that remains “an open issue.” It amazes me that people continue to act like this in Chancery Court depositions, particularly since the Delaware Supreme Court has so recently made it clear that not only it isn’t going to tolerate deposition shenanigans, but that it’s going to call out the deponent’s counsel for allowing them to occur.
-John Jenkins, DealLawyers.com August 21, 2019
Want to keep reading?
Great. Enter your email address and gain instant access to this article