{"id":261,"date":"2024-07-19T12:40:51","date_gmt":"2024-07-19T16:40:51","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/?p=261"},"modified":"2024-07-19T13:20:49","modified_gmt":"2024-07-19T17:20:49","slug":"supreme-court-clarifies-treatment-of-valid-but-unfair-corporate-rules","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/2024\/07\/19\/supreme-court-clarifies-treatment-of-valid-but-unfair-corporate-rules\/","title":{"rendered":"Supreme Court Clarifies Treatment of Valid But Unfair Corporate Rules"},"content":{"rendered":"

Last week, the Delaware Supreme Court handed down a decision in Kellner v. AIM\u00a0 Immunotech,<\/em> Inc.<\/a>, partially reversing a decision from the Court of Chancery this past December<\/a>.\u00a0 The opinion gives color to an important topic in Delaware corporate law: when a corporate board adopts bylaws into the corporation’s constitutive contract which are valid in the abstract, but does so in an inequitable manner, how should a court remedy the unfairness?\u00a0 \u00a0<\/span><\/p>\n

Kellner\u00a0<\/em>related to a long-running effort by a group of dissident stockholders to get allies elected to the corporation’s board.\u00a0 In this latest litigation, the stockholders challenged recently-enacted corporate bylaws which the incumbent board used to block their nomination of candidates.<\/p>\n

As we have previously discussed on this blog<\/a> in relation to the\u00a0Coster v. UIP Companies\u00a0<\/em>case last year, Delaware courts describe fiduciary conduct as “twice-tested,”\u00a0 first for legal authority, and second for equity.<\/p>\n

For legal authority, the Court found that all but one of the bylaws passed.\u00a0 Each was directed to important goals of disclosure and transparency in corporate elections.\u00a0 Had they been enacted on a clear day — meaning, in the absence of a dissident group of stockholders trying to unseat the incumbent board — there was nothing wrong with them.\u00a0 But, at the second step, deferring to the trial court’s factual findings, the Court found that the board had crafted the bylaws for the improper purpose of de facto <\/em>preventing stockholders from voting in a contested election at all.<\/p>\n

The Court explains the correct remedy following from that structure of analysis: the bylaws were successfully adopted and incorporated into the corporate contract, but should not have been applied to the dissidents in the specific election at issue.<\/p>\n

With the recent amendments to the Delaware General Corporate Law permitting internal corporate affairs ordinarily contained in the corporate constitutive contract — the charter and bylaws —\u00a0 to be addressed by stockholders’ agreements, this framework of analysis may see frequent use in the coming years.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Last week, the Delaware Supreme Court handed down a decision in Kellner v. AIM\u00a0 Immunotech, Inc., partially reversing a decision from the Court of Chancery this past December.\u00a0 The opinion gives color to an important topic in Delaware corporate law: when a corporate board adopts bylaws into the corporation’s constitutive contract which are valid in … <\/p>\n

Continue reading “Supreme Court Clarifies Treatment of Valid But Unfair Corporate Rules”<\/span><\/a><\/p>\n","protected":false},"author":598,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"ppma_author":[166],"class_list":["post-261","post","type-post","status-publish","format-standard","hentry","category-general"],"authors":[{"term_id":166,"user_id":598,"is_guest":0,"slug":"mbgonen","display_name":"Michael Gonen","avatar_url":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-content\/uploads\/sites\/16\/2023\/01\/gonenmichael-100x100.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts\/261","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/users\/598"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/comments?post=261"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts\/261\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/media?parent=261"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/categories?post=261"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/tags?post=261"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/ppma_author?post=261"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}