Fanta Toure, a law clerk in the Delaware office of Lewis Brisbois, prepared this post.

The Supreme Court of Delaware issued a significant ruling in Kellner v. AIM Immunotech Inc., No. 2023-0879 (Del. Supr. July 11, 2024), addressing a legal challenge related to advance notice bylaws adopted by AIM Immunotech’s board in response to new universal proxy rules. The case arose after a group of dissident stockholders sought to nominate a slate of directors to AIM’s board. Following a previous proxy contest, the AIM board amended its bylaws, and the stockholders failed to meet the new requirements, leading the board to reject their nominations. The Delaware Court of Chancery initially found several provisions of the amended bylaws invalid but upheld the board’s decision to reject the nominations.

The Supreme Court affirmed some aspects of the lower court’s decision while reversing others. It clarified the standards for determining the validity of bylaws, emphasizing that the burden of proving a bylaw invalid rests with the party challenging it. The Court held that bylaws must align with the law and the corporation’s charter, and they must address legitimate corporate matters. While the Court found most of the contested bylaws to be valid, it ruled that the “Ownership Provision” bylaw, which required extensive disclosure of ownership interests, was overly broad and invalid due to its excessive complexity.

The Court further refined the test for evaluating bylaws, referencing its earlier decision in Coster v. UIP Companies, Inc., which required a two-pronged approach. First, it must be determined whether the board faced a genuine threat to a corporate interest, and second, whether the board’s response was reasonable and not unduly coercive to shareholders. The Supreme Court agreed with the lower court’s finding that several amended bylaws were designed to undermine the stockholders’ proxy contest, and breached the duty of loyalty, rendering them unenforceable. The Court ultimately declined to offer relief to the plaintiff, citing false and misleading submissions.