In Openwave Systems, Inc. v. Harbinger Capital Partners Master Fund I, Ltd., (Del. Ch., May 2007), read opinion here, the Chancery Court denied an attempt by a hedge fund-shareholder to validate the election of its chosen board member pursuant to DGCL Section 225. [ As a summary proceeding, it is notable that the trial took place on March 12 (about 2 months after the complaint was filed), post-trial briefing was completed on March 23, and this opinion was issued less than 2 months later. In addition, the court denied summary judgment in a prior decision summarized here, shortly before trial.]
The centerpiece of the two complaints consolidated in this matter was the "allegation that the provisions of the bylaws relating to the nominations of directors are so confusing as to excuse compliance." The court rejected that theory.
The corporation on the other hand, "relying on those same bylaws…seeks to declare invalid the nomination of the hedge fund’s slate of two directors and to validate the reelection of the management’s two candidates". The court concluded that: "the incumbent directors were the only properly nominated candidates and, thus, were rightfully reelected."
The main issue about the bylaws was the deadline by which names had to be submitted for proposed nominees to the board. There were two possible deadlines depending on who was reading the bylaws. The court was not surprised by testimony at trial by the hedge fund indicating that the bylaws were "too confusing to comply with", but what did surprise the court was the lack of evidence of any effort: "to comply with either deadline and, indeed, [the shareholder] produced no evidence that it even considered the issue of compliance until after both deadlines had passed."
The court also found a good faith basis for the board’s decision to reduce the size of the board to eliminate a vacancy. In addition the court rejected a claim as speculative to the extent it alleged that the proxy statement was false and misleading for not mentioning an alleged "plan" to appoint another board member immediately after the election. Lastly, the court denied reciprocal requests for attorneys’ fees, finding that the exception to the American Rule did not apply here.
ASIDE: Including the Chancery Court’s Desimone opinion of a few days ago that is summarized below, I am again "up to date" on summarizing all the key decisions of the Delaware Chancery Court and Delaware Supreme Court (as published on each court’s website), on important issues of corporate and commercial law . I only leave out those opinions that in my view are not announcing any new rules for those who focus on business litigation, or do not contain anything of great usefulness for the business litigation practitioner’s toolbox .( This includes the matters that the Chancery Court decides on such topics as enforcement of, or restraining application of, land use regulations [see, e.g., 2007 WL 1584632], and injunctions to enforce special statutory obligations relating, for example, to school districts’ duties to their students [ see, Harden v. Christina School District, 2007 WL 1594297 (Del. Ch., May 31, 2007].)
Consistent with the focus of this blog, I sometimes include relevant commentary from corporate law professors and decisions of other courts in Delaware and elsewhere that relate to electronic discovery (that should be of interest to all litigators), as well as legal ethics. On occasion I also include practical decisions on topics such as mechanics’ liens as well as opinions that address the overlap between creditors claims in bankruptcy and Delaware corporate law.
It has been over 2 years since I started summarizing these cases, and loyal readers have told me that it is a worthwhile resource for them, so I plan to find the time to continue the effort on this blog. Thank you to those of you who comment.