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Court Permits “Do-Over” for Non-Compliant Nomination Notice under Company’s Advance Notice Bylaw
In Vejseli v. Duffy (“Ionic”) (May 21, 2025), the Delaware Court of Chancery, in a post-trial decision, held that the directors of Ionic Digital, Inc., who were facing an imminent proxy contest over control of the board, (i) breached their fiduciary duties when they reduced the size of the board so that only one director would be elected […]
Gail Weinstein is a Senior Counsel, Philip Richter is a Partner, and Steven Epstein is the Managing Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. Epstein, and Steven J. Steinman, and is part of the Delaware law series; links to other posts in the series are available here.
In Vejseli v. Duffy (“Ionic”) (May 21, 2025), the Delaware Court of Chancery, in a post-trial decision, held that the directors of Ionic Digital, Inc., who were facing an imminent proxy contest over control of the board, (i) breached their fiduciary duties when they reduced the size of the board so that only one director would be elected at the upcoming annual meeting; but (ii) did not breach their fiduciary duties when they rejected Plaintiffs’ nomination notice on the basis that it did not comply with the requirement under the company’s advance notice bylaw that all agreements relating to the nominations be disclosed. The court ordered that, given the directors’ breach in reducing the board size, the company had to reopen its window for nominations so that all stockholders, including Plaintiffs, could nominate the two directors that would have been up for election if the board size had not been reduced.
Key Points
- The court stressed the critical informational function served by an advance notice bylaw requirement that all agreements relating to the nomination be disclosed. Of note, the court suggested that even such agreements that had been recently terminated potentially had to be disclosed. And, in any event, the court held, a provision in a terminated agreement that survived termination of the agreement had to be disclosed.
- The court permitted Plaintiffs a “do-over” although they had submitted a non-compliant nomination. The court explained that, although normally a party that submitted a non-compliant nomination notice would not be permitted to submit a corrected notice, in this case, where it was the wrongful conduct of board that necessitated reopening the nomination window, there was no reason not to permit Plaintiffs to submit a new nomination notice.
- The court, applying the Coster standard of review to both actions by the board, focused on the directors’ motivations and justifications. The court reaffirmed that the standard established in Coster v. UIP (Del. Supreme Court 2023) applies to board actions that are defensive in nature, not adopted on a “clear day,” and affect the stockholder franchise. While some practitioners speculated that the Coster standard might be more objective than the former Blasius standard, with less focus on directors’ motivations and justifications, in each case in which the new standard has been applied (Coster, Kellner v. AIM (2024), and Ionic), the judicial focus has been on the directors’ motivations and justifications—suggesting that the court’s analyses and outcomes may not may not be significantly different than they were under Blasius.
