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Delaware Courts Continue to Reject Hypothetical, Unripe Bylaw Challenges
On April 14, 2025, the Court of Chancery issued a decision in Siegel v. Morris that reaffirms the limits of challenges to companies’ bylaws based on their language alone. This latest decision (pending appeal) will likely limit bylaw litigation to stockholder claims concerning any bylaw’s actual impact, rather than hypotheticals. In June 2024, Siegel filed claims challenging […]
Charlotte K. Newell is a partner, and Ram Sachs is a managing associate at Sidley Austin. This post is based on a Sidley Austin memorandum by Ms. Newell and Mr. Sachs, and is part of the Delaware law series; links to other posts in the series are available here.
On April 14, 2025, the Court of Chancery issued a decision in Siegel v. Morris that reaffirms the limits of challenges to companies’ bylaws based on their language alone. This latest decision (pending appeal) will likely limit bylaw litigation to stockholder claims concerning any bylaw’s actual impact, rather than hypotheticals.
In June 2024, Siegel filed claims challenging the company’s amended advanced notice bylaw, which governs the timing and procedure for a stockholder to nominate a candidate for election as a director. Plaintiff initially argued that the bylaw was facially invalid, meaning that the plain language of the bylaw alone was subject to judicial review and should be held invalid. This facial invalidity challenge differs from a so-called “as-applied” challenge, where a stockholder argues that a board has actually wielded a bylaw in an inequitable manner (e.g., by declaring the stockholder’s nomination notice invalid for failure to comply with an advance notice bylaw).
In July 2024 — just weeks after Siegel was filed — the Delaware Supreme Court issued its decision in Kellner (which we have discussed in prior publications). Kellner underscored the very narrow and high standard for a facial validity claim: a plaintiff must show that the challenged bylaw “cannot operate lawfully under any set of circumstances.” Siegel thereafter amended his complaint to disclaim a facial validity challenge, and attempted to fashion an as-applied challenge instead.
This amendment left plaintiff attempting to fit a square peg into a round hole. Siegel attempted to challenge the company’s advance notice bylaw despite (i) admittedly having no intention to nominate directors for election, nor (ii) identifying any other stockholder who had such intention. As the Court put it, “Plaintiff asks this Court to review the Advance Notice Bylaw now, even though no stockholder presently seeks to nominate a director for election….” It was, therefore, essentially a facial challenge in all but name. (more…)
