In Acciptier Life Sciences Fund, L.P. v. Helfer, et al., read opinion here , the Delaware Chancery Court refused to exercise its equitable powers to grant relief to a shareholder who did not read diligently the notice of a shareholders’ meeting that was arguably "slipped in" to the 7th paragraph of a 34 paragraph press release. The notice was given pursuant to a bylaw provision that required 10 days’ notice before a shareholders’ meeting, and that time period was also when nominations to the board needed to be made. The plaintiff was a hedge fund that was a major shareholder and they "simply missed" that part of the press release. Though they were sophisticated analysts that followed the company, in fairness to them there was no specific mention in the caption or in any subheadings of the press release to indicate that the press release, which announced recent financial statistics, would also include the 10-day notice of a shareholders’ meeting. Thus, they also missed the deadline to nominate new members of the board.
There is an important equitable principle recited in the highly regarded case of Schnell v. Chris-Craft , 285 A.2d 437 (Del. 1971) , and its progeny, that a corporation may not take action towards its stockholders which, though legally possible, would be inequitable–especially to the extent it manipulates timetables to cut short the time available for shareholders to conduct a proxy contest. In sum, the Court found that the facts of the present case did not rise to the level required to apply that principle. Though the Court did not approve of the less that conspicuous notice in the press release, it found that a diligent reading, especially by sophisticated hedge fund analysts, would have resulted in seeing the notice. Along the way, the Court also made important legal insights. For example, it found that the principles of "constructive notice" relied on by defendants, to the extent the notice was also contained in SEC filings, did not apply.
The Court also noted that the "buried facts" doctrine, such as failing to provide adequate disclosure by including an important fact in a footnote on the next to last page of a prospectus, did not apply here. Nor did the Court think that federal law was necessary to resolve the issues, though it observed that the same action or omission can be the basis for both common law claims or equitable relief, and securities law claims, both of which can be made independently. In footnote 38 the Court noted that conduct violative of the federal securities law may also breach the implied covenant of good faith and fair dealing, or other Delaware law.
Without being glib, the Court was persuaded by the fact that a careful reading of the press release by the sophisticated hedge fund managers could have avoided the whole dispute. Of equal importance in my view is the discussion of the landmark Schnell case and its progeny, and a further clarification of the factual situation where the Court will not apply the principles enshrined in that decision.