Strategic investment Opportunities LLC v. Lee Enterprises, Incorporated

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

STRATEGIC INVESTMENT )
OPPORTUNITIES LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-1089-LWW
)
LEE ENTERPRISES, )
INCORPORATED, MARY E. JUNCK, )
STEVEN FLETCHER, MARGARET
R. LIBERMAN, BRENT MAGID, )
HERBERT W. MOLONEY, KEVIN D. )
MOWBRAY, DAVID PEARSON and )
GREGORY P. SCHERMER,
)
)
Defendants.
)

MEMORANDUM OPINION

Date Submitted: February 7, 2022
Date Decided: February 14, 2022

John D. Hendershot, Matthew W. Murphy, and John T. Miraglia, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; Adrienne Marie Ward, Lori
Marks-Esterman, Peter M. Sartorius, and Theodore J. Hawkins, OLSHAN FROME
WOLOSKY LLP, New York, New York; Counsel for Strategic Investment
Opportunities LLC

Michael A. Pittenger, Christopher N. Kelley, Daniel M. Rusk, IV, and Justin T.
Hymes, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Stefan
Atkinson, Byron Pacheco, and Brittney Nagle, KIRKLAND & ELLIS LLP, New
York, New York; Counsel for Lee Enterprises, Incorporated, Mary E. Junck, Steven
Fletcher, Margaret R. Liberman, Brent Magid, Herbert W. Moloney, Kevin D.
Mowbray, David Pearson, and Gregory P. Schermer

WILL, Vice Chancellor
 A beneficial holder of Lee Enterprises, Inc. seeks to nominate two director

candidates at Lee’s upcoming annual stockholder meeting. The plaintiff is a vehicle

for hedge fund Alden Global Capital, which made a bid for Lee at the same time that

the plaintiff attempted to notice the director nominations. After a board vote, Lee

rejected the nomination for failing to comply with the terms of Lee’s advance notice

bylaw.

Noncompliance with two bylaw requirements formed the grounds for Lee’s

rejection. First, the notice was not submitted by a stockholder of record. The

plaintiff had attempted to become a record holder three business days before Lee’s

nomination deadline but the transfer was not completed in time. The plaintiff had

also asked Cede & Co.—the record holder for its shares—to provide what amounted

to a cover letter for its nomination in an alternative attempt to meet the requirement.

Second, the plaintiff did not use Lee’s nominee questionnaire forms, which were

made available to record holders.

This highly expedited litigation followed, culminating in a trial on a paper

record. The plaintiff claims that Lee breached the bylaws and that Lee’s board of

directors breached its fiduciary duties by rejecting the plaintiff’s nomination notice.

The parties agree that the plaintiff’s compliance with the bylaws must first be

assessed under principles of contract interpretation. They disagree on whether

1
equity requires a further review, what standard of review is required, and what the

outcome of that review should be.

On the question of the plaintiff’s compliance with the bylaws, I find that the

nomination notice failed to satisfy both the record holder and form requirements.

Lee’s rejection of the notice was therefore contractually proper.

Fundamental principles of Delaware law mandate that the court go on to

conduct an equitable review of the board’s rejection of the nomination. Applying

enhanced scrutiny, I conclude that the board acted reasonably in enforcing a validly

adopted bylaw with a legitimate corporate purpose. It did not engage in

manipulative conduct or move the goal posts to make compliance more difficult.

The plaintiff could easily have met the bylaw’s record holder and—by extension—

form requirements had it not delayed. Equity does not demand that the court

override the board’s decision in those circumstances.

My verdict is therefore for the defendants. The plaintiff’s request for

declaratory and injunctive relief is denied.

2
I. RELEVANT BACKGROUND

Unless otherwise noted, the facts described in this section were proven by a

preponderance of the evidence. To the extent that any conflicting evidence was

presented, I have weighed it and made findings of fact accordingly.1

A. Lee Faces a Withhold Campaign

Defendant Lee Enterprises, Inc. (“Lee” or the “Company”) is an Iowa-based

print and digital local news provider in mid-sized markets across the United States.2

Its board of directors (the “Board”) is classified.3 Each class serves a three-year term

with the term of one director class expiring each year.4 The Board has eight

members.5

Lee’s certificate of incorporation authorizes the Board “to make, alter, amend

and repeal [Lee’s] By-Laws, subject to the power of the stockholders to alter or

repeal the By-Laws made by the Board.”6 Its bylaws were first amended on February

22, 2017.7 The 2017 bylaws required the nominating stockholder and nominees to

1
Where facts are drawn from exhibits jointly submitted by the parties at trial, they are
referred to according to the numbers provided on the parties’ joint exhibit list (cited as
“JX __”) unless defined.
2
JX 218.
3
JX 4.
4
Id.
5
JX 218.
6
JX 4.
7
JX 10.

3
provide certain information by a set deadline, but did not require that the nominating

stockholder be a holder of record or complete a specific questionnaire.

In late 2018, Cannell Capital LLC, a significant Lee stockholder, expressed

concerns over the Company’s direction and the composition of its Board. 8 Cannell

threatened to run a “withhold the vote” campaign against the directors who were up

for renewal at Lee’s February 2019 stockholders meeting: defendants Mary Junck,

then the Executive Chairman of the Board and a director since 1999; Herbert W.

Moloney, a director since 2001; and Kevin D. Mowbray, Lee’s Chief Executive

Officer and a director since 2016.9

On February 5, 2019, Junck, Moloney, and Mowbray met with Institutional

Shareholder Services (“ISS”) to discuss issues raised by Cannell.10 ISS issued a

report two days later recommending that Lee stockholders vote for Junck, Moloney,

and Mowbray.11 In its report, ISS noted that although Cannell’s campaign

“highlighted governance issues that shareholders may want to monitor more closely,

the dissident critique does not rise to the level where removal of the company’s board

8
JX 15; JX 16; JX 28.
9
JX 16; JX 20.
10
JX 27.
11
JX 28.

4
leadership would appear to be beneficial.”12 Junck, Moloney, and Mowbray were

each subsequently elected at the annual meeting for a three-year term. 13

B. Lee Amends Its Bylaws
Around the same time, Lee’s Board began to assess amending its bylaws to

“modernize them and improve them.”14 The Board’s Nominating and Corporate

Governance Committee met on February 19 and May 7, 2019 to discuss potential

amendments.15 The full Board met on May 8, 2019 and, upon the recommendation

of the Nominating and Corporate Governance Committee, passed a resolution

directing Lee’s management and counsel “to prepare definitive documentation” to

enact several governance changes.16 These changes included shortening the deadline

“for nominating a director to 90 to 120 days,” changing director elections from a

plurality to a majority voting standard, providing proxy access to the Company’s

long-term stockholders, and adopting an exclusive forum provision under Delaware

law.17

12
Id.
13
JX 32.
14
JX 228.
15
JX 30; JX 38.
16
JX 37.
17
Id.

5
 Lee’s counsel provided the Board with draft amended bylaws on June 5,

2019.18 The Board held a special meeting on June 12, 2019 to discuss the proposed

changes to Lee’s corporate governance structure and bylaws.19 The Board

unanimously approved the Second Amended and Restated By-Laws of Lee (the

“Bylaws”), which took effect on June 26, 2019.20

C. The Advance Notice Bylaws
Article II Section 2 of the Bylaws outline detailed requirements for

stockholders seeking to nominate candidates to Lee’s Board.21 To make a

nomination, a stockholder must provide written notice to Lee’s corporate Secretary

between 90 and 120 days before the “first anniversary of the preceding year’s annual

meeting.”22

Section 2(a) of the Bylaws outlines how a Lee stockholder may nominate a

director. It provides, in relevant part:

Nominations of persons for election as directors and the
proposal of other business to be considered by the
stockholders of the Corporation may be made at an annual
meeting of stockholders . . . by any stockholder of the
Corporation entitled to vote at the meeting who complies
with the notice procedures set forth in this Section 2 and
18
JX 39.
19
JX 42.
20
JX 41; JX 43 (“Bylaws”).
21
When referring to “Section 2” of the Bylaws throughout this decision, I am referring to
Article II Section 2.
22
Bylaws art. II, §§ 2(a), 2(c).

6
 who is a stockholder of record at the time such notice is
delivered to the Secretary of the Corporation (the
“Secretary”), on the record date for the determination of
stockholders of the Corporation entitled to vote at the
meeting, and at the time of the meeting.23
Section 2(b) of the Bylaws describes the form a nomination notice must take,

including:

To be in proper form, a stockholder’s notice to the
Secretary (the stockholder providing such notice, the
“Noticing Stockholder”) under this Section 2 must . . . as
to each person whom the Noticing Stockholder proposes
to nominate for election or re-election as a director, set
forth or provide (i) the name, age, business address and
residence address of such person . . . (viii) a completed
and signed questionnaire and written representation and
agreement, each as may be required by Section 2(b)(4).24

Section(b)(4) of the Bylaws specifies that the signed questionnaire and written

representation must be completed “in the form to be provided by the Secretary upon

written request of any stockholder of record within 10 days of such request.”25

Section 2(d) of the Bylaws states that “[o]nly such persons who are nominated

in accordance with the procedures set forth in this Section 2 shall be eligible to serve

as a director” and “any proposed nomination . . . not in compliance with these By-

laws . . . shall be disregarded.”26

23
Id. art. II, § 2(a).
24
Id. art. II, § 2(b)(1).
25
Id. art. II, § 2(b)(4).
26
Id. art. II, § 2(d).

7
 D. Opportunities Invests in Lee

Plaintiff Strategic Investment Opportunities LLC (“Opportunities”), a wholly

owned affiliate of MNG Enterprises, Inc., acquired 3,400,000 shares of Lee stock in

late January 2020. At the time, Alden Global Capital LLC—the indirect owner of

MNG—served as Opportunities’ investment manager pursuant to an investment

management agreement.27 Alden is a hedge fund and a significant investor in

newspaper companies.28

On January 29, 2020, Alden and its affiliates, including Opportunities,

disclosed in a Schedule 13D filed with the Securities and Exchange Commission

(“SEC”) that they owned 5.9% of Lee’s common stock.29 On May 15, 2020, Alden

filed a Form 13F with the SEC disclosing that it managed over 3,500,000 shares of

Lee stock on behalf of affiliates including Opportunities.30 Alden continued to make

similar disclosures on quarterly Form 13Fs through February 2021.31

In March 2021, Alden went through an internal restructuring. It ceased

managing assets of third parties, terminated its registration with the SEC as an

27
JX 9.
28
See JX 113.
29
JX 49.
30
JX 54.
31
JX 56; JX 62; JX 248.

8
investment advisor, and converted into a family office.32 As a part of that

reorganization, Opportunities and Alden terminated the investment management

agreement and MNG took over the management of Opportunities’ investments.33

And, as a result, Alden did not disclose any interest in Lee in its May 17, 2021

Form 13F filing.34 The next day, an investor relations firm working for Lee emailed

Alden to inquire about its recent 13F filing. The email asked if Alden could “confirm

[it] liquidated its position over the quarter.”35 Alden’s general counsel told Alden’s

President Heath Freeman that Alden “no longer ha[d] discretion over the [Lee

shares] so [they were] removed from our filings” and that he “d[idn’]t plan to return

[that] email.”36

E. Alden Decides to Bid for Lee and Nominate Board Candidates

Alden first began to evaluate a potential acquisition of Lee in the fall of 2021.

On October 20, 2021, an investment banker at Moelis & Company sent a text to

32
JX 68.
33
JX 67.
34
JX 74. Form 13F filings cover those investments in which a “Manager exercises
investment discretion.” U.S. Sec. & Exch. Comm’n, Form 13F,
https://www.sec.gov/pdf/form13f.pdf (last visited Feb. 13, 2022).
35
JX 77.
36
Id.

9
Freeman suggesting “it may be a good time to make a run at Lee Enterprises.”37

Freeman responded, “[l]et’s talk Lee.”38

Representatives of Moelis met with Freeman later that month to discuss a

potential acquisition of Lee. On November 1, 2021, Moelis provided Alden with

financial models of different acquisition structures.39 Moelis and Alden continued

to engage in discussions about the potential acquisition over the next several

weeks.40 On Friday, November 19, 2021, Alden made the decision to bid for Lee.41

Over the weekend, Alden considered nominating a slate of candidates for the

three Board seats up for election at Lee’s 2022 annual meeting—those held by

Mowbray, Junck, and Moloney.42 Freeman turned to Moelis for help in identifying

potential nominees. During a November 20, 2021 call, Moelis mentioned Colleen

Brown, John Zieser, and Carlos Salas as potential candidates.43

F. Opportunities Attempts to Become a Record Holder
Just after midnight on November 22, 2021, Chris Scholfield of Alden

requested that its broker, J.P. Morgan Securities LLC and affiliates (“JPM”), “move

37
JX 93.
38
Id.
39
JX 95; JX 97.
40
See JX 98; JX 100; JX 101; JX 102; JX 103; JX 104; JX 106; JX 107; JX 108.
41
JX 232 (“Freeman Dep. Tr.”) 128-29.
42
Id. at 59-71.
43
Id. at 60-61.

10
1,000 shares of LEE US to book entry form as soon as possible.” 44 Alden’s Chief

Financial Officer Josh Kleban emailed JPM again a few hours later, acknowledging

that the transfer “can take 2-3 days” and requesting that JPM “facilitate asap due to

Thanksgiving and voting deadlines.”45

“[B]ecause of time constraints,” Alden also requested that JPM arrange for

certain letters attached to its email “to be executed.”46 The attachments included a

letter from JPM to The Depository Trust Company and a proposed letter from Cede

& Co.—the record holder of the Lee shares beneficially owned by Opportunities—

to Lee.47

G. Alden Bids for Lee and Opportunities Requests Lee’s Form of
Questionnaire

Hours after contacting JPM, on November 22, 2021, Alden sent a non-binding

proposal to Lee’s Board offering to purchase Lee for $24 per share, a 30% premium

over the previous day’s closing share price.48 Later that day, Alden, MNG, and

Opportunities jointly filed an amended Form 13D with the SEC disclosing

ownership of 6.1% of Lee’s common stock.49

44
JX 149.
45
JX 156.
46
Id.
47
JX 119.
48
JX 113.
49
JX 141. More precisely, Opportunities disclosed beneficial ownership of 6.1% of Lee’s
common stock; MNG disclosed that, as a managing member of Opportunities, it could be

11
 Around noon on November 22, 2021, Lee’s Secretary C. Dana Waterman

received an email attaching a letter from Opportunities, which “request[ed] that Lee

provide [Opportunities] an electronic copy of the form of questionnaire . . . and

written representation and agreement . . . as set forth under Article II, Sections

2(b)(1) and (4)” of the Bylaws.50 Opportunities asked that it receive the forms “as

soon as possible, but in any event no later than 12:00 p.m. Eastern time on Tuesday

November 23, 2021.”51

Waterman forwarded the letter to Junck, Moloney, and Mowbray, discussing

its contents with those directors and certain of Lee’s outside advisors on a call later

that day.52 Opportunities’ letter was not provided to the rest of the Board at that

time.53

Meanwhile, on the afternoon of November 22, 2021, Freeman spoke with the

three prospective Board nominees Moelis had identified. Each agreed to serve as a

nominee.54

deemed the beneficial owner of 6.1% of Lee’s common stock; and Alden disclosed that, as
the investment manager of funds that collectively hold a majority voting interest in MNG,
it could also be deemed a beneficial owner of 6.1% of Lee’s common stock. Id.
50
JX 132.
51
Id.
52
JX 116; JX 230 (“Mowbray Dep. Tr.”) 143-48.
53
Mowbray Dep. Tr. 143-44.
54
Freeman Dep. Tr. 59-70.

12
 H. Lee Rejects Opportunities’ Form Request

On November 23, 2021, Waterman sent a letter from Lee rejecting

Opportunities’ request for the forms.55 The letter stated that the Bylaws required the

Secretary to provide forms “upon written request of any stockholder of record within

10 days of such request” but that “the Company’s list of registered holders . . .

confirmed that Opportunities was not a stockholder of record of the Company.”56

The letter further explained that Lee had “questions” about the “purported

ownership” of Lee shares by Opportunities and its affiliates.57 It noted that “Alden’s

public filings with respect to its purported ownership of the Company’s shares ha[d]

created confusion over the nature of Alden’s ownership interests in the Company.”58

Lee’s letter offered that “[s]hould Opportunities subsequently become a

stockholder of record of the Company and submit a compliant request for the

[forms], the Company w[ould] evaluate that request.”59

I. Opportunities Seeks to Become a Record Holder and Asks Cede to
Submit the Nomination Notice
As of November 23, 2021, Alden’s request to convert 1,000 of Opportunities’

shares in record name was not complete. Scholfield updated Kleban on the lack of

55
JX 150.
56
Id.
57
Id.
58
Id.
59
Id.

13
progress, who responded that “the entire takeover bid [wa]s dependent on it.”60

Kleban asked Scholfield about “progress” on the DTC and Cede letters, noting

“[t]his is why we went 2 routes.”61

The letters were still “being worked on.”62 JPM had sent Cede the draft letter

on November 22, 2021 but did not provide any information about the individuals

Opportunities was seeking to nominate.63 The draft referred to an “attached letter”

for additional information about Opportunities’ nomination.64 That “attached letter”

was not provided to Cede.

On November 24, 2021, Cede responded with comments to the draft letter.

Cede noted that it had not been provided with Opportunities’ nomination letter and

that it “need[ed] to be included in the copy of the letter that [JPM] [wa]s asking Cede

to sign[, or, i]n the alternative, the Cede letter c[ould] reference the [nomination]

letter as being provided separately by Opportunities.”65 Alden responded that it

would prefer the latter.66

60
JX 278.
61
Id.
62
JX 156.
63
JX 112.
64
Id.
65
JX 272.
66
JX 156.

14
 Also on November 24, 2021, the Board approved a rights plan.67

On November 25, 2021—the Thanksgiving holiday—Freeman emailed JPM

to say that getting shares into record name was “very important” to Alden.68

As Lee had disclosed in January 2021, November 26, 2021 was Lee’s

nomination deadline.69 As of that day, none of Opportunities’ shares were in record

name. JPM was “urgently chasing DTC and stressing the importance of getting [the

Cede letter] completed today.”70

Cede provided additional comments noting that Opportunities’ letter was not

“attached” to Cede’s letter but was “separate.”71 Cede’s edited and signed letter (the

“Cede Letter”) stated that:

At the request of [JPM], on behalf of Opportunities, Cede
& Co. in its capacity as holder of record of the Shares,
hereby delivers the nomination by Opportunities of certain
individuals for election as directors at the 2022 annual
meeting of stockholders of the Company . . . . Cede
understands that Opportunities is also delivering a separate
letter in connection with this Letter, which, Cede
understands, provides additional information regarding
the nomination.72

67
JX 134; JX 154.
68
JX 166.
69
JX 57.
70
JX 179.
71
Id.
72
JX 177.

15
 J. Opportunities Delivers Its Nomination Notice and the Board
Rejects It
On the afternoon of November 26, 2021, Opportunities’ counsel sent an email

to Waterman and Lee’s General Counsel that attached two documents: a “notice of

stockholder nomination” (the “Nomination Notice”) and the Cede Letter, which the

email described as “a letter signed by Cede, as a stockholder of record.”73

The Nomination Notice said “[t]his letter serves as notice to Lee . . . as to the

nomination by . . . Opportunities . . . of nominees for election to the Board.” 74 The

Nomination Notice also explained that “the process to move 1,000 shares of

Common Stock into the record name of Opportunities ha[d] begun.”75 The letter

defined Opportunities as the “Nominating Stockholder”76—a term not found in the

Bylaws.

The Nomination Notice did not include Lee’s form of questionnaire. Instead,

it explained that for each of Brown, Salas, and Zieser, Opportunities was submitting

“comprehensive customary written questionnaire[s] . . . that [are] substantially

similar in scope to the forms of written questionnaires provided by a company’s

73
JX 170.
74
JX 186.
75
Id.
76
Id.

16
secretary in like situations.”77 The submitted questionnaires gave a detailed

description of the nominees’ backgrounds and qualifications.78

From November 26 to December 2, 2021, Lee’s Corporate Governance

Committee—which included Junck, Moloney, and Mowbray—met several times

with Lee’s outside counsel to discuss Opportunities’ nomination.79 On December 1,

2021, Moloney shared with the Board an article about Alden called “A Secretive

Hedge Fund is Gutting News Rooms”80 and Waterman sent a legal memorandum for

discussion.81

The full Board met to discuss the Nomination Notice on December 2, 2021.82

The minutes provide that after opening statements by Junck, Lee’s counsel led a

discussion about whether the Nomination Notice complied with the Bylaws. The

Board voted and approved a motion to declare the Nomination Notice invalid.83

On December 2, 2021, Opportunities became a Lee stockholder of record.84

77
Id.
78
Id.; see JX 94, 96, 99.
79
JX 190; JX 287; JX 288; JX 289; JX 290; JX 291; JX 292.
80
JX 286.
81
JX 191.
82
JX 196; Mowbray Dep. Tr. 199. The Board included Junck, Moloney, Mowbray, along
with defendants Steven Fletcher, Margaret Liberman, Brent Magin, David Pearson, and
Gregory Schermer. JX 218.
83
JX 196.
84
JX 281.

17
 On December 3, 2021, Lee’s counsel responded to the Nomination Notice and

Cede Letter. Lee’s response informed Opportunities that the Nomination Notice had

been rejected because it did not comply with Section 2 of the Bylaws:

First, the purported nominations were not made by a
stockholder of record as required by the plain language of
the Bylaws. Specifically, (1) Cede & Co. was the record
holder of the shares that Opportunities beneficially owned,
but Cede & Co. did not make the nominations; and (2)
Opportunities purported to make the nominations but was
not a record holder by the notice deadline. Second, the
record holder failed to comply with numerous
requirements for the contents of the notice. Finally, the
[November 26, 2021 letters] did not include a completed
and signed questionnaire from each [p]roposed [n]ominee
in the Company’s form.85

Lee’s counsel also explained that, as a result of those deficiencies, the Nomination

Notice did “not constitute a valid notice of nominations” for the Company’s 2022

annual meeting.86

On December 9, 2021, Lee informed Alden that the Board had unanimously

rejected Alden’s proposal to acquire the Company.87

K. This Litigation and Subsequent Events

On December 15, 2021, Opportunities filed a Verified Complaint for

Declaratory Judgment and Breach of Fiduciary Duties (the “Complaint”) in this

85
JX 200.
86
Id.
87
JX 211.

18
court.88 The Complaint advances two claims: breach of contract against Lee, and

breach of fiduciary against the members of the Board. In support of its breach of

contract claim, Opportunities alleges that the Nomination Notice complied with the

plain language of the Bylaws and that the Company’s rejection of the Nomination

Notice violated the Bylaws’ terms.89 The breach of fiduciary duty claim, as pleaded,

concerns the Board’s approval of the Bylaws, refusal to provide the forms to

Opportunities, and rejection of the Nomination Notice.90 Opportunities dropped the

first aspect of that claim regarding the Board’s approval of the Bylaws.91

Opportunities seeks declaratory and injunctive relief.

On December 22, 2021, Vice Chancellor Slights granted a motion to expedite

this litigation.92

On January 18, 2022, Opportunities informed Lee that it was no longer

seeking to nominate Salas to the Board and would be moving forward with only

Brown and Zieser as its nominees.93

88
Dkt. 1 (“Compl.”).
89
Id. ¶¶ 75-76.
90
Id. ¶¶ 82-84.
91
Trial Tr. Feb. 7, 2022, at 6.
92
Dkt. 20. The case was subsequently reassigned to me.
93
JX 270.

19
 On January 24, 2022, Lee announced that its 2022 annual meeting of

stockholders would be held on March 10, 2022.94 On January 27, 2022,

Opportunities filed with the SEC its preliminary proxy to elect its nominees.95

After the parties each submitted opening and answering pre-trial briefs, the

court convened a trial on a paper record on February 7, 2022.96 The record presented

included 310 joint exhibits. The matter was submitted for decision that day.

II. LEGAL ANALYSIS

Opportunities asks the court to declare that its nominees may stand for election

at Lee’s 2022 annual meeting and seeks (in addition to declaratory relief) a

permanent injunction barring Lee from holding the meeting until the nominees are

included on the ballot and Opportunities has sufficient time to solicit proxies in

support.97 Its request for permanent injunctive relief requires Opportunities to show

that “the merits of [its] claim are supported by the law and the preponderance of the

evidence,” irreparable harm, and that the balance of the equities favors injunctive

relief.98

94
JX 238.
95
JX 282.
96
Dkt. 81.
97
Pl.’s Opening Pre-Trial Br. 65 (Dkt. 66); Compl. at Prayer for Relief ¶¶ A-F.
98
Rosenbaum v. CytoDyn Inc., 2021 WL 4775140, at *13 (Del. Ch. Oct. 13, 2021); see N.
River Ins. Co. v. Mine Safety Appliances Co., 105 A.3d 369, 384 (Del. 2014) (noting that
a plaintiff “must demonstrate ‘actual, rather than probable success on the merits’” when

20
 Although the parties also disagree on who the equities favor, the bulk of their

briefing focuses on the merits. There are some areas of consensus that form the

boundaries of my merits-based analysis. The parties agree on which of the

requirements in Section 2 of the Bylaws are in question. They agree that principles

of contract law apply in interpreting the Bylaws. And they (largely) agree that the

relevant Bylaw language is not ambiguous.99 Beyond that, there is little common

ground, including on whether equity should provide an overlay and what standard

of review would apply to any equitable analysis.

Given these basic disagreements, I begin by discussing the general legal

principles that inform my analysis. I go on to address Opportunities’ breach of

contract claim and find, by a preponderance of the evidence, that Lee did not breach

the Bylaws because the Nomination Notice was deficient. I then turn to and

equitable analysis that resolves Opportunities’ claim for breach of fiduciary duty.

After determining that enhanced scrutiny applies, I conclude that that equity does

not provide a basis for overriding the Board’s rejection of the Notice because the

seeking a permanent injunction (quoting Draper Comm’ns, Inc. v. Del. Valley Broads. Ltd.
P’ship, 505 A.2d 1283, 1288 (Del. Ch.1985))).
99
See JX 222. Opportunities notes that, to the extent there is any uncertainty or ambiguity,
it should be interpreted in favor of Opportunities and against Lee. See Pl.’s Opening Pre-
Trial Br. 44.

21
Board has demonstrated that it acted reasonably. Because Opportunities’ claims fail

on the merits, it is not entitled to injunctive or declaratory relief.

A. Advance Notice Bylaws
Delaware law recognizes that stockholders’ fundamental right “to participate

in the voting process includes the right to nominate an opposing slate.” 100 Beyond

broadly requiring that corporations hold “[a]n annual meeting of stockholders . . .

for the election of directors,” the Delaware General Corporation Law is silent as to

how a stockholder may propose a nominee for election.101 Corporations have come

to fill this gap through their bylaws.102

These so-called advance notice bylaws have become “commonplace” tools

for public companies to ensure “orderly meetings and election contests.”103 To serve

that end and provide corporations with sufficient time and information to respond,

100
Linton v. Everett, 1997 WL 441189, at *9 (Del. Ch. July 31, 1997); Harrah’s Ent., Inc.
v. JCC Hldg. Co., 802 A.2d 294, 310-11 (Del. Ch. 2002) (noting the “fundamental electoral
rights of stockholders . . . such as the right . . . to elect new directors or enact a charter
amendment”); Williams Cos. S’holder Litig., 2021 WL 754593, at *20 (Del. Ch. Feb. 26,
2021) (discussing the “subsidiary rights,” including the right to nominate directors, that
“flow” from stockholders’ fundamental rights “to vote, to sell, and to sue”).
101
8 Del. C. § 211(b).
102
See id. § 109(b) (“The bylaws may contain any provision, not inconsistent with law or
with the certificate of incorporation, relating to the business of the corporation, the conduct
of its affairs, and its rights or powers or the rights or powers of its stockholders, directors,
officers or employees.”).
103
Openwave Sys. Inc. v. Harbinger Cap. P’rs Master Fund I, Ltd., 924 A.2d 228, 238-39
(Del. Ch. 2007); see also BlackRock Credit Allocation Income Tr. v. Saba Cap. Master
Fund, Ltd., 224 A.3d 964, 980 (Del. 2020) (describing advance notice bylaws as
“commonplace”).

22
advance notice bylaws often have two primary aspects. The first is to set a time

period by which stockholders must give notice of their intention to nominate director

candidates in advance of an annual meeting. The second is an informational

requirement that serves an important disclosure function, allowing boards of

directors to knowledgably make recommendations about nominees and ensuring that

stockholders cast well-informed votes.104

Delaware courts generally enforce clear and unambiguous advance notice

bylaws to avoid “uncertainty in the electoral setting.”105 Because bylaws are part of

a “flexible contract between corporations and stockholders,”106 consideration of an

advance notice bylaw’s application begins with a contractual analysis. Several

questions form the heart of that inquiry: were the bylaws clear and ambiguous, did

the stockholder’s nomination comply with the bylaws, and did the company interfere

with the plaintiff’s attempt to comply.

104
See Saba Cap., 224 A.3d at 980 (discussing an informational requirement); Openwave,
924 A.2d at 239 (describing advance notice bylaws’ function of “provid[ing] fair warning
to the corporation so that it may have sufficient time to respond to shareholder
nominations”); see also Arthur Fleischer, Jr., Gail Weinstein, & Scott B. Luftglass,
Takeover Defense: Mergers and Acquisitions, § 6.06[C][1] (9th ed. 2022) (“Advance
notice bylaw provisions provide several benefits to a company, including giving a board
time to evaluate the proposed candidates and preventing last-minute ‘surprise attacks’ by
third parties for control or board representation.”).
105
Saba Cap., 224 A.3d at 980 (declining to excuse stockholder’s failure to comply with
advance notice deadline for providing supplemental information); see also Openwave, 924
A.2d at 239 (explaining that “simple and unambiguous” bylaws are “given the force and
effect required”).
106
Boilermakers Loc. 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 940 (Del. Ch. 2013).

23
 The court’s analysis does not necessarily end if a stockholder fails to comply

with the plain terms of an advance notice bylaw. If circumstances require, the court

will go on to consider whether the fiduciaries’ actions were unreasonable or

inequitable. Equity will prohibit, for example, attempts to “utilize the corporate

machinery” for the “purpose of obstructing the legitimate efforts of dissident

stockholders in the exercise of their right to undertake a proxy contest against

management.”107 Delaware courts have also excused noncompliance in limited

situations where, for example, the bylaws are unreasonable or a board causes

significant changes to the company’s position after compliance became

impossible.108

The court must determine whether the advance notice bylaw “has afforded the

shareholders a fair opportunity to nominate director candidates.”109 Where the

107
Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del.1971) (stating that such
actions reflect “inequitable purposes, contrary to the established principles of corporate
democracy”).
108
See, e.g., Hubbard v. Hollywood Park Realty Enters., Inc., 1991 WL 3151, at *11 (Del.
Ch. Jan. 14, 1991) (holding that a board had a duty to waive an advance notice bylaw where
there was a “radical shift in the board’s position” after the nominations deadline had passed
and stockholders sought to nominate an insurgent slate); AB Value P’rs, LP v. Kreisler Mfr.
Corp., 2014 WL 7150465, at *4 (Del. Ch. Dec. 16, 2014) (discussing Hubbard and noting
that the requisite “compelling facts indicating that enforcement” of the bylaw would be
inequitable were absent).
109
Hubbard, 1991 WL 3151, at *11.

24
bylaw was equitable at the time of adoption, the court will consider whether the

board had a duty to waive the bylaw requirement.110

B. The Nomination Notice Did Not Comply with the Bylaws
Bylaws are a contract between the stockholders, directors, and company.111

Thus, “[w]hen construing a corporation’s bylaws, the court is bound by principles

of contract interpretation.”112 If a “bylaw’s language is unambiguous, the Court need

not interpret it or search for the parties’ intent,” giving the bylaw the “force and

effect” required.113 The bylaw will be construed as written with words and phrases

“given their commonly accepted meaning” unless context requires otherwise.114

110
See AB Value, 2014 WL 7150465, at *4 (holding that a change in stockholder
composition, in which the board had no involvement, did not give rise to a duty to waive
an advance notice bylaw); Openwave, 924 A.2d at 242 (considering whether directors
breached their fiduciary duties when they “considered waiving the bylaws and declined to
do so”); Hubbard, 1991 WL 31581, at *8 (finding that “[n]o inequity ha[d] been visited
upon the shareholders by the [board’s] commitment not to waive the by-law”).
111
Hill Int’l, Inc. v. Opportunity P’rs L.P., 119 A.3d 30, 38 (Del. 2015) (“The bylaws of a
Delaware corporation constitute part of a binding broader contract among the directors,
officers and stockholders formed within the statutory framework of the Delaware General
Corporation Law.”).
112
Brown v. Matterport, 2022 WL 89568, at *3 (Del. Ch. Jan. 10, 2022) (“When construing
a corporation’s bylaws, the court is bound by the principles of contract interpretation.”
(citing Saba Cap., 224 A.3d at 977)).
113
Gentile v. SinglePoint Fin., Inc., 788 A.2d 111, 113 (Del. 2001).
114
Hill Int’l, 119 A.3d at 38 (quoting Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d
1182, 1188 (Del. 2010) (internal quotation marks omitted)).

25
Any ambiguity or lack of clarity in an advance notice bylaw provision is to be

resolved “in favor of the stockholder’s electoral rights.”115

The parties’ dispute centers around whether the Nomination Notice complied

with Section 2 of the Bylaws. Two primary requirements of the Bylaws are in

question: one, the record holder requirement in Section 2(a); and two, the form of

questionnaire requirement in Sections 2(b)(1)(viii) and 2(b)(4).

I consider each in turn, finding that Opportunities’ nomination materials

satisfy neither. The nomination was not made by a record holder and Lee’s form of

questionnaire was not included with the Nomination Notice. Lee did not interfere

with Opportunities’ ability to comply with the provisions. The rejection of the

Nomination Notice therefore did not constitute a breach of contract.

Opportunities further asserts that if I find Lee complied with the Bylaws, I

should alternatively determine whether the Bylaws “improperly restrict stockholder

rights or impose unreasonable conditions on the ability of stockholders to put forth

Nominees to the Board and violate public policy.”116 I consider those issues in the

subsequent section of this decision where I address the Board’s rejection of the

nomination.

115
Saba Cap., 224 A.3d at 977 (quoting Hill Int’l, 119 A.3d at 38).
116
Compl. ¶ 78.

26
 1. The Record Holder Requirement

The Company’s letter rejecting Opportunities’ nominations stated that the

Nomination Notice “failed to satisfy Section 2 of the Bylaws in several respects,”

including that “the purported nominations were not made by a stockholder of

record.”117 Section 2(a) of the Bylaws requires that a stockholder giving notice of a

nomination must be “a stockholder of record at the time such notice is delivered to

the Secretary of the Corporation.”118 That language is unambiguous.

Opportunities acknowledges that it was not a record holder at any point before

the November 26, 2021 nomination deadline.119 It contends that the Cede Letter

“furnishing” Opportunities’ Nomination Notice satisfied the Bylaws’ requirements

because Cede is a “holder of record” of the Lee shares Opportunities beneficially

owns.120 It also asserts that the Cede Letter and Nomination Notice should be viewed

together because they were delivered as a single package and referenced each

other.121

The Bylaws do not prohibit a record holder from making a nomination

alongside of a beneficial holder. Rather, the Bylaws expressly contemplate that a

117
JX 200.
118
Bylaws art. II, § 2(a).
119
JX 215; see JX 168; JX 281.
120
Pl.’s Pre-Trial Opening Br. 32-36; see JX 177.
121
Pl.’s Pre-Trial Opening Br. 33-34; see JX 170.

27
“Noticing Stockholder”—by definition, a stockholder of record—may make a

nomination on behalf of a beneficial owner.122 The defendants acknowledge that

separate letters from a record holder and beneficial holder that, together, form a

nomination could hypothetically satisfy Section 2(a). But the letters must still meet

the requirements of the Bylaws. The Nomination Notice and Cede Letter do not for

at least two reasons.

First, Cede did not “ma[k]e” the nomination, as the Bylaws require.123

Section 2(b) of the Bylaws specifies that the Noticing Stockholder must “propose to

nominate for election” the individual nominees.124 The Cede Letter stated that the

nomination was “by Opportunities of certain individuals for election.”125 Simply

put, Cede provided a cover letter for Opportunities’ nomination. The evidence

demonstrates that Cede refused (as Opportunities requested) to describe

Opportunities’ separate letter detailing the nominations as “attached” because

Opportunities had declined to share a copy of its own nomination letter with Cede.126

The non-committal language that Cede included in the Cede Letter suggests that it

122
Bylaws art. II, §§ 2(a), 2(b)(1). Opportunities referred to itself as the “Nominating
Stockholder” in the Nomination Notice. See JX 173. That term appears nowhere in the
Bylaws.
123
Bylaws art. II, § 2(a).
124
Id. art. II, § 2(b)(1). That language is also not ambiguous.
125
JX 177 (emphasis added).
126
JX 272; see also JX 179.

28
distanced itself from having any role in the nomination: “Cede understands that

Opportunities is also delivering a separate letter . . . regarding the nomination.”127

Second, Cede did not provide, “as to each person whom the Noticing

Stockholder proposes to nominate,” information required by the Bylaws, including

the nominees’ names, ages, and addresses, or employment history.128 At the most

basic level, the Cede Letter did not name the nominees. It couldn’t. Opportunities

never told Cede who the nominees were.129 Certain other representations required

of a Noticing Stockholder, such as a statement of its intent “to appear in person or

by proxy at the annual meeting to propose such . . . nominations,” were also

absent.130

Opportunities argues that its noncompliance should be excused on the grounds

that Cede typically operates as a neutral party that declines to take steps beyond

transmitting a beneficial holder’s nomination.131 The defendants’ expert disagreed,

127
JX 177. The email from Opportunities’ counsel transmitting the nomination materials
to Lee further make Cede’s limited role apparent. That email states that counsel was
sending “[o]n behalf of [his] client, Strategic Investment Opportunities LLC . . . a notice
of nomination and a letter signed by Cede & Co.” JX 170.
128
Bylaws art. II, § 2(b)(1); JX 177.
129
JX 231 (“Anstandig Dep. Tr.”) at 113-114; JX 272.
130
Bylaws art. II, § 2(d).
131
JX 226 (“Davis Report”) ¶¶ 64-65; see JX 235 (“Grubaugh Report”) ¶ 51.
Opportunities’ expert states that Cede serves a “ministerial function” and “does not act in
its own capacity and will not make certain statements on its own behalf.” Davis Report
¶ 64. The defendants assert that the Davis report should be considered an inadmissible
legal opinion or excluded for failure to provide a “reasoned basis” for conclusions under

29
assembling examples of Cede “submit[ting]”—rather than “deliver[ing]”—

nominations.132 But that is beside the point. Lee’s Bylaws required the Noticing

Stockholder (i.e., a stockholder of record) to propose the nominees. Nothing in the

Cede Letter reflects an intention by Cede to “nominate” directors under any

commonly accepted meaning of that word.133 Cede did not nominate the candidates

to Lee’s Board—Opportunities did.

The Cede Letter did not satisfy the Bylaws’ record holder requirement.

Section 2(d) of the Bylaws provides that “[o]nly such persons who are nominated in

accordance with the procedures set forth in . . . Section 2 shall be eligible to serve as

a director.”134 The Company therefore did not breach the Bylaws by rejecting

Delaware Rule of Evidence 702. See Defs.’ Corrected Opening Pre-Trial Br. 44 n.169
(Dkt. 70). I decline to exclude the report. In my view, the Davis report is not offering a
legal opinion but proffering testimony more relevant to the factual issues in this case. Both
the Davis report submitted by Opportunities and the Hamermesh report submitted by the
defendants address, at a high level, legal issues regarding advance notice bylaws. The court
views those recitations not as improper legal opinions but as introductory descriptions of
relevant principles that the court will assess in its decision. See Beard Rsch., Inc. v. Kates,
2009 WL 7409282, at *6 (Del. Ch. Mar. 31, 2009) (“[A]lthough it is critical in a jury trial
for a court to exercise its gatekeeper function in advance of allowing an expert to testify,
the importance of addressing issues raised under Daubert and Rule 702 before an expert
testifies is more attenuated in a bench trial.”). I give the Davis report the weight deemed
appropriate.
132
Grubaugh Report ¶¶ 46-55.
133
Nominate, Merriam-Webster, https://www.merriam-webster.com/dictionary/nominate
(last visited Feb. 13, 2022) (defining “nominate” as to “designate, name” and “to appoint
or propose for appointment to an office or place”); see Black’s Law Dictionary 1075 (11th
ed. 2019) (defining “nominate” as “[t]o propose (a person) for election or appointment”
and “[t]o name or designate (a person) for a position”).
134
Bylaws art. II, § 2(d).

30
Opportunities’ notice for violating the record holder requirement. This deficiency

alone is fatal to Opportunities’ breach of contract claim.

2. The Forms Requirement

Another ground the Company cited in rejecting Opportunities’ nomination

materials was that they “did not include a completed and signed questionnaire from

each Proposed Nominee in the Company’s form.”135 Section 2(b)(1) of the Bylaws

states that the Noticing Stockholder must submit “a completed and signed

questionnaire and written representation and agreement, each as may be required by

Section 2(b)(4).”136 Section 2(b)(4) provides that the questionnaire is to be “in the

form to be provided by [Lee’s] Secretary upon written request of any stockholder of

record within 10 days of such request.”137 That requirement is not ambiguous: the

nominees were required to provide responses to Lee’s form of questionnaire.138

135
JX 204.
136
Bylaws art. II, § 2(b)(1)(viii).
137
Id. art. II, § 2(b)(4).
138
The parties do not argue that the word “form” is ambiguous but disagree on which side
the meaning of that word supports. In Opportunities’ view, “form” implies a pre-made
document that could have readily been provided to its nominees for completion with little
notice. The defendants, however, contend that there was a prepared form only for
incumbent directors and that, for new nominees, the documents were prepared on an ad
hoc basis so that Lee could tailor its requests to the situation. See Defs.’ Answering Pre-
Trial Br. 42 n.85, 45 (Dkt. 74). Under either definition, a form of questionnaire prepared
by Lee was not submitted with the Nomination Notice. The reasonableness of that
technical requirement is addressed later in this decision.

31
 Opportunities concedes that its nominees did not complete a questionnaire on

a form provided by Lee. Instead, they completed a questionnaire “substantially

similar in scope to forms of written questionnaire provided by a company’s secretary

in like situations.”139 That is, Opportunities made its own judgment to provide

“information . . . that [it] believed complied with what the corporation was asking

for, what Lee wanted to know.”140

Opportunities advances two arguments intended to excuse its noncompliance

with that requirement. The first argument is, in effect, that the questionnaire

completed by its nominees was close enough to any form the Company would have

provided. The record demonstrates that Opportunities submitted extensive, detailed

information about its nominees to the Company.141 But that is meaningless for

purposes of assessing whether the Nomination Notice satisfied the letter of Section

2 of the Bylaws.

Opportunities’ second argument is a practical one: it could not complete Lee’s

forms because Lee never sent them. That is, if Lee interfered with Opportunities’

attempt to comply with the forms requirement, Lee could not refuse to put forward

139
JX 186; see also JX 223.
140
Anstandig Dep. Tr. 157.
141
JX 171.

32
Opportunities’ slate of directors based on the failure to meet the requirement.142

Opportunities requested the form of questionnaire on November 22, 2021.143

Waterman—after consulting with the Board’s Executive Committee of Junck,

Moloney, and Mowbray—refused to provide it because Opportunities had not

“identif[ied] [itself] as a stockholder of record” in making the request.144

Opportunities’ failure to satisfy the record holder requirement is also

determinative on the matter of the form requirement. If a record holder had asked

for the forms, Lee would have been contractually obligated to provide them within

ten days. Opportunities, however, was a beneficial owner on November 22, 2019

when it demanded that Lee provide its forms promptly.145 The Bylaws did not

require Lee to comply.

As Lee’s secretary stated in his response to Opportunities’ request, if

Opportunities “subsequently bec[ame] a recordholder” and “submit[ed] a compliant

request for the [forms],” Lee would be obligated to “evaluate that request as

142
Clear and unambiguous advance notice bylaw requirements act, in some respects, as
conditions precedent to companies being contractually obligated to take certain actions.
“Delaware courts follow the principle that a party who wrongfully prevents a thing from
being done cannot avail itself of the nonperformance it has occasioned.” W & G Seaford
Assocs. v. E. Short Mkts., 714 F. Supp. 1336, 1341 (D. Del. 1989) (describing the “cardinal
principle of contract law regarding conditions” (citing Restatement (Second) of Contracts
§ 245 (1981))).
143
JX 132.
144
JX 150.
145
JX 115.

33
contemplated by the Bylaws.”146 But Opportunities did not become a stockholder

of record until December 2, 2021—six days after the Nomination Notice deadline.

And it did not submit an additional request for Lee’s forms.147 Lee cannot be said

to have interfered with Opportunities’ attempted compliance.

For purposes of this contractual analysis, the Bylaws unambiguously required

that Opportunities submit its nominees’ completed form of Lee’s questionnaire.

Opportunities did not submit those forms with the Nomination Notice. This

deficiency provided additional grounds for Lee to reject the Nomination Notice.

C. The Board Did Not Improperly Reject the Nomination Notice

Having found that the Nomination Notice did not comply with the clear and

unambiguous requirements of the Bylaws, I turn to whether the Board’s rejection of

the Nomination Notice should nonetheless be set aside. I begin by considering the

standard of review and go on to apply that standard to the facts of this case. I

conclude that, under the enhanced scrutiny standard of review, the directors’

decision to reject the Nomination Notice was equitable.

1. The Standard of Review

The parties agree on the fundamental point that Schnell empowers the court

to invalidate certain board actions, including those that inequitably manipulate the

146
JX 150.
147
JX 281.

34
corporate machinery to impair the rights of stockholders. Put simply, directors’

inequitable acts towards stockholders do not become permissible because they are

legally possible.148 There is less accord between the parties on whether the court

should even undertake that analysis in this case.

In Opportunities’ view, if the Nomination Notice failed to comply with the

Bylaws, Opportunities should nevertheless prevail because the Board’s actions in

enforcing the Bylaws cannot withstand enhanced scrutiny. It asserts that the Board’s

fiduciary duties obligated the directors to exercise their discretion in favor of the

stockholder franchise by waiving, or allowing Opportunities to cure, any legal

defects.

The defendants, for their part, contend that if a stockholder fails to comply

with the unambiguous requirements of an advance notice bylaw, the Nomination

Notice is “invalid and of no force and effect.” To continue on to an analysis of

equitable principles, they assert, a plaintiff stockholder must first prove manipulative

conduct or “compelling circumstances” that could justify a finding of irreparable

148
Schnell, 285 A.2d at 439; see In re Invs. Bancorp, Inc. S’holder Litig., 177 A.3d 1208,
1222 (Del. 2017) (“[D]irector action is ‘twice-tested,’ first for legal authorization, and
second by equity.”).

35
conduct under Blasius.149 In the absence of that showing, the defendants say that the

court’s inquiry should end because the business judgment rule applies.150

As Opportunities points out, the defendants’ approach would put the rabbit in

the hat. If the court must find that the board acted for the primary purpose of

disenfranchisement to trigger a more stringent review, it will have already made a

normative judgment about whether the board engaged in manipulative conduct

requiring judicial intervention. Then-Vice Chancellor Strine described Blasius as

more of an “after-the-fact label placed on a result” than a standard of review that

guides the court’s decision making for that reason.151

149
See Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988).
150
To forgo any further review where a clear and unambiguous advance notice bylaw is
enforced begs the question of when the court would look to the reasonableness of the
board’s application of its requirements. Take a scenario posed by Opportunities’ counsel.
“Imagine a bylaw that says to be in proper form, your advance notice of nomination has to
be handwritten, in cursive, in purple ink, on pink paper that has a watermark of a
hippopotamus wearing a spacesuit.” Trial Tr. Feb. 7, 2022 at 57. That bylaw might not
violate any provision of the DGCL or the company’s certificate of incorporation. But it
would be ridiculous and do nothing to serve the purposes of advance notice bylaws. To
uphold a board’s rejection of a nomination notice for failing to satisfy that requirement
would be inconsistent with Schnell.
151
Mercier v. Inter-Tel (Del.), Inc., 929 A.2d 786, 788, 806 (Del. Ch. 2007) (describing
the “trigger” for the application of Blasius to be a “label for a result” rather than “useful
guide to determining what standard of review should be used by a judge to reach an
appropriate result”); Chesapeake Corp. v. Shore, 771 A.2d 293, 323 (Del. Ch. 2000) (“In
reality, invocation of the Blasius standard of review usually signals that the court will
invalidate the board action under examination. Failure to invoke Blasius typically indicates
that the board action survived (or will survive) review under Unocal.”).

36
 At the other extreme, business judgment deference would not permit the court

to adequately assess the Board’s enforcement of the advance notice bylaw.152

Delaware law necessarily leaves room for assessing whether a board’s actions in

enforcing a clear advance notice bylaw were justified, consistent with the doctrine

of Schnell. This court must have the opportunity to consider whether the bylaw is

being enforced fairly, in furtherance of a legitimate corporate purpose, or whether

equity demands that it be set aside in the given context.153

The Delaware Supreme Court has observed that board action interfering with

the stockholder franchise often arises in a takeover context.154 Here, Opportunities’

nominations were part and parcel of Alden’s hostile bid to acquire Lee. 155 I cannot

ignore the defensive mindset in which the Board was operating when it rejected the

Nomination Notice.

152
See Kallick v. Sandridge Energy, 68 A.3d 242, 258-59 (Del. Ch. 2013).
153
See CytoDyn, 2021 WL 477510, at *19 n.188 (“The Board is obliged to review a
nomination notice carefully and with an open mind.”); Healthcor Mgmt., L.P. v. Allscripts
Healthcare Sols., Inc., C.A. No. 7557-CS, at 3-4 (Del. Ch. May 25, 2012) (TRANSCRIPT)
(“[T]he board is subject to . . . review for how it uses a[n advance notice] by-law and
whether it’s using it for proper purposes consistent with its duty of loyalty.”).
154
See Stroud v. Grace, 606 A.2d 75, 92 n.3 (Del. 1992) (“Board action interfering with
the exercise of the franchise often arose during a hostile contest for control where an
acquiror launched both a proxy fight and a tender offer.”); Unitrin, Inc. v. Am. Gen. Corp.,
651 A.2d 1361, 1379 (Del. 1995).
155
JX 113; JX 115; see generally supra Parts I.G, I.I.

37
 In my view, enhanced scrutiny—Delaware’s intermediate standard of

review—is the appropriate standard of review to apply in this case. Whether labeled

as Unocal or Blasius, enhanced scrutiny review “recognize[s] the inherent conflicts

of interest that arise when a board of directors acts to prevent shareholders from

effectively exercising their right to vote either contrary to the will of the incumbent

board members generally or to replace the incumbent board members in a contested

election.”156 That is so here, even though a minority of the Board members were at

risk of losing his or her board seat.157

Delaware law’s requires that the court’s inquiry be undertaken “with a special

sensitivity” where directors’ actions may affect the stockholder franchise or the

result of director elections.158 Chancellor Allen’s iconic decision in Blasius

reaffirmed the proposition that Delaware courts will hold directors to account where

they take actions that impair the stockholder franchise.159 But the court’s careful

156
MM Cos. v. Liquid Audio, Inc., 813 A.2d 1118, 1129 (Del. 2003); see also Coster v.
UIP Cos., 255 A.3d 952, 962 (Del. 2021).
157
See CytoDyn, 2021 WL 4775140, at 14 (“When it comes to the enforcement of bylaws
against stockholders, the board does not act simply as an arms-length contracting
partner.”); Aprahamian v. HBO & Co., 531 A.2d 1204, 1206 (Del. Ch. 1987) (“A candidate
for office, whether as an elected official or as a director of a corporation, is likely to prefer
to be elected rather than defeated. He therefore has a personal interest in the outcome of
the election even if the interest is not financial and he seeks to serve from the best of
motives.”).
158
Kallick, 68 A.3d at 258-59 (explaining when Delaware courts apply enhanced scrutiny
“with a special sensitivity towards the stockholder franchise”).
159
Blasius, 564 A.2d at 660-63.

38
review of alleged vote manipulation cannot appropriately be confined to the sort of

blunt efforts to disenfranchise stockholders confronted in Blasius. Enhanced

scrutiny may be invoked beyond that scenario, where the board’s actions “could

have the effect of influencing the outcome of corporate director elections or other

stockholder votes having consequences for corporate control.”160

2. Application of the Standard of Review

The enhanced scrutiny standard of review requires a context-specific

application of the directors’ duties of loyalty, good faith and care.161 Fundamentally,

the standard to be applied is one of reasonableness.162 The defendants must “identify

the proper corporate objectives served by their actions” and “justify their actions as

reasonable in relation to those objectives.”163 If the incumbent directors actions’

160
Mercier, 929 A.2d at 810; see Giuricich v. Emtrol Corp., 449 A.2d 232, 239 (Del. 1982)
(“[Delaware courts] will not allow the wrongful subversion of corporate democracy by
manipulation of the corporate machinery . . . [and] careful judicial scrutiny will be given
[to] a situation in which the right to vote for the election of successor directors has been
effectively frustrated and denied . . . .”); Blasius, 564 A.2d at 659 (“[W]hen viewed from
a broad, institutional perspective, it can be seen that matters involving the integrity of the
shareholder voting process involve consideration not present in any other context in which
directors exercise delegated power.”).
161
See Reis v Hazelett Strip-Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011).
162
Mercier, 929 A.2d at 810 (providing that the standard of review to be applied where
directors’ actions affect the corporate franchise is “a reasonableness standard consistent
with the Unocal standard”).
163
Id. at 810.

39
“operate[d] as a reasonable limitation upon the shareholders’ right to nominate

candidates for director,” they will generally be validated.164

Here, the Board was justified in rejecting the Nomination Notice.165

Opportunities failed to comply with a validly enacted bylaw that had a legitimate

purpose. The relevant bylaw requirements could readily have been satisfied by any

stockholder. And there is no evidence of manipulative conduct.

To start, though the Board rejected the Nomination Notice under the shadow

of Alden’s bid, the Bylaws were adopted on a clear day long before Alden surfaced.

Cannell’s withhold campaign had concluded four months before the Bylaws’

adoption, but the Board was not faced with an imminent threat—much less a threat

from Alden—at that time.166 This reality may be why Opportunities wisely dropped

its claim that the Board members breached their fiduciary duties by approving the

challenged aspects of the Bylaws.167

164
Hubbard, 1991 WL 3151, at *11.
165
See CytoDyn, 2021 WL 4775140, at *15 (“Delaware courts have reserved space for
equity to address the inequitable application of even validly-enacted advance notice
bylaws.”); AB Value, 2014 WL 7150465, at *3 (“[B]ylaws are said to be ‘useful in
permitting orderly shareholder meetings, but if notice requirements unduly restrict the
stockholder franchise or are applied inequitably, they will be struck down.’” (quoting
Openwave, 924 A.2d at 239)).
166
See AB Value, 2014 WL 7150465, at *3; supra nn.9-14 and accompanying text.
167
See Trial Tr. Feb. 7, 2022, at 6. This claim was initially included in Count II of the
Complaint. Compl. ¶ 82.

40
 Next, the Bylaws’ record holder requirement was neither facially problematic

nor unreasonable as a matter of policy.168 It is not an empty formalism. Under

Delaware law, corporations are entitled to “rely upon record ownership, not

beneficial ownership, in determining who is entitled to notice of and to vote at the

meeting of stockholders.”169 The reason for that is simple: the corporation wants to

confirm that an individual or entity making proposals has “skin in the game.” 170

Reliance on record ownership ensures order and gives the corporation certainty that

the party attempting to take action based on a right incidental to share ownership is,

in fact, a stockholder.171 As Mowbray testified, the requirement gave the Company

168
See IBS Fin. Corp. v. Seidman & Assoc., LLC, 136 F.3d 940, 948 (3d Cir. 1998) (holding
that the board properly exercised its discretion to reject board nominees where the charter
was violated and the provision was enforceable because it did not offend public policy and
was “reasonable on its face”); see also Bay Cap. Fin., L.L.C. v. Barnes & Noble Educ.,
Inc., 2020 WL 1527784, at *5, *8 (Del. Ch. Mar. 30, 2020) (enforcing an advance notice
bylaw where the stockholder failed to satisfy the recordholder requirement); Travel Ctrs.
of Am., LLC v. Brog, C.A. No. 3516-CC, at 255-61 (Del. Ch. Apr. 3, 2008)
(TRANSCRIPT) (enforcing a stock certificate requirement for a nominating stockholder).
169
Berlin v. Emerald P’rs, 552 A.2d 482, 494 (Del. 1988); see 8 Del. C. § 219(c).
170
Hamermesh Report ¶¶ 32-38.
171
Salt Dome Oil Corp. v. Schenck, 41 A.2d 583, 585 (Del. 1945) (explaining that
insistence on record holder status can prevent “corporate chaos” from “intervention by
strangers in intracorporate affairs”); Marcel Kahan & Edward B. Rock, The Hanging
Chads of Corporate Voting, 96 Geo. L.J. 1227, 1233 (2008) (“[T]here is a statutory and
judicial concern for definiteness which is maximized by a system of reliance on the stock
list. Whatever flaws are generated by giving entitlements to record owners, it has the
benefit that the owner is clearly specified and known to the company.”).

41
clarity on “who holds our stock” and was “by and far the cleanest way and the fairest

way for all shareholders to know who actually owns the stock.”172

There is also “no evidence of any manipulative conduct” by the Board

suggesting that its enforcement of the Bylaws was not made even handedly and in

good faith.173 The Board did not, for example, “significant[ly] change [the]

corporate direction or policy” after the notice deadline had expired as in Hubbard v.

Hollywood Park Realty Enterprises;174 set meeting dates that made it impossible for

a stockholder to give timely notice of a nomination as in Lerman v. Diagnostic Data,

Inc.;175 amend the date of the stockholder meeting to “obtain an inequitable

advantage” as in Schnell v. Chris-Craft Industries, Inc;176 or fail to announce an

interpretation of a bylaw that effectively thwarted a stockholders’ ability to present

a stockholder proposal until the nomination deadline had passed as in Mesa

172
Mowbray Dep. Tr. 120-23. The minutes of the Board's December 2, 2021 meeting state
that: “The Board considered that Alden failed to become a record holder of any Company
shares by the advance notice deadline, but still attempted to deliver a nomination notice in
spite of the By-Laws requirement that the nominating party must be a record holder. The
Board and its advisors also discussed how Alden attempted to circumvent the record holder
requirement and how Alden’s failure to become a record holder created further potential
invalidities with respect to representations and attestations required to be given under the
By-Laws.” JX 196; see also Mowbray Dep. Tr. 120.
173
Saba Cap., 224 A.3d at 981 (“Delaware law protects stockholders in instances where
there is manipulative conduct or where the electoral machinery is applied inequitably.”)
174
1991 WL 3151, at *11-13.
175
421 A.2d 906, 912-14 (Del. Ch. 1980).
176
285 A.2d at 439.

42
Petroleum Co. v. Unocal Corporation.177 Here, nothing—and certainly no actions

of the Board—precluded Opportunities from complying with the Bylaws’

requirements.

This leads to an overarching point: Opportunities’ own delay is what

ultimately prevented it from satisfying the Bylaws’ record holder (and, by extension,

form) requirements. The Bylaws plainly afforded Opportunities “a fair opportunity

to nominate director candidates.”178 Alden had known about Lee’s November 26,

2021 director nomination deadline since early 2021.179 Yet Opportunities waited

until the weekend before the nomination deadline to consider the Bylaw’s

nomination requirements.180 It only began the process of transferring shares into

record name on November 22, 2021—three business days before the deadline.181

177
1985 WL 44692, at *6 (Del. Ch. Apr. 22, 1985).
178
Hubbard, 1991 WL 3151, at *11; see also AB Value, 2014 WL 7150465, at *3 (“The
clearest set of cases providing support for enjoining an advance notice bylaw involves a
scenario where a board, aware of an imminent proxy contest, imposes or applies an advance
notice bylaw so as to make compliance impossible or extremely difficult, thereby thwarting
the challenger entirely.”); Blasius, 564 A.2d at 661 (stating that a court may infer that the
board breached its fiduciary duties when it adopts a bylaw with “the primary purpose of
impeding the exercise of stockholder power”).
179
JX 57; JX 61.
180
Freeman Dep. Tr. 130-31.
181
JX 149. Alternatively, Opportunities could have engaged with Cede early enough that
Cede could have requested the forms or provided the nomination in compliance with
Section 2(a) of the Bylaws. Opportunities contends that would be beyond Cede’s typical
ministerial role. But I cannot credit that argument because Opportunities never asked.

43
 The decision to nominate directors is generally not one that a well-intentioned

stockholder should make hastily. Here, Opportunities chose to wait until the last

minute to begin the process of submitting a nomination. Submitting a nomination

less than three hours before the deadline eliminated any window of time for

Opportunities to cure deficiencies.182 That choice left no room for error. But

Opportunities did not submit a compliant notice.183 In fact, the Board observed that

Opportunities “very likely ran out of time in moving shares into their record name

and developed its own nomination process to circumvent its failure.”184

The Board’s enforcement of the forms requirement was, in effect, an

extension of these same considerations. Requiring that nominees submit responses

to a questionnaire Lee created furthers the information-gathering and disclosure

functions of advance notice bylaws.185 And if only record holders could make

182
See Bylaws art. XI § 1(b); JX 170.
183
CytoDyn, 2021 WL 4775140, at *17 (“Given that Plaintiffs waited until the last minute
to submit their Nomination Notice, they were obligated to submit a compliant notice.”);
Accipiter Life Scis. Fund, L.P. v. Helfer, 905 A.2d 115, 127 (Del. Ch. 2006) (ruling against
the stockholder plaintiff where it “could easily have preserved its rights with reasonable
diligence” but failed to do so); see also Openwave, 924 A.2d at 238-39 (explaining that
advance notice bylaw deadlines “provide fair warning to the corporation so that it may
have sufficient time to respond to shareholder nominations”); Saba Cap., 224 A.2d at 980
(noting that “missed deadlines could potentially frustrate the purpose of advance notice
bylaws”).
184
JX 196.
185
See Hamermesh Report ¶ 46. The plaintiffs note that the provision—and specifically,
its requirements in conjunction with the recordholder requirement—is unusual. Pl.’s
Answering Br. 34 n.16; see Davis Report ¶ 52. But that is not the test. The hypothetical
abuses of the questionnaire requirement raised by Opportunities’ expert—such as the

44
nominations, it seems justifiable that Lee would not undertake the process of

providing a questionnaire unless a record holder inquired. And Waterman invited

Opportunities to renew its request for the forms if it became a record holder.186

More generally, the Board had a genuine interest in enforcing its Bylaws so

that they retain meaning and clear standards that stockholders must meet. The

December 2, 2021 Board minutes show that the directors were mindful of “the

reasonable expectation that Alden, like any other shareholder, should abide by the

plain language of the By-Laws.”187 That expectation was neither manipulative nor

unfair.

The Board’s decision to stand by the Bylaws’ requirements was not

inequitable in these circumstances. The Board was undoubtedly not thrilled that

Alden had made a bid and that Opportunities sought to nominate director candidates.

But the actions that it took in response to the nomination were reasonable and

appropriate. The Bylaws were validly enacted on a clear day. The Board did not

submission of arbitrary and onerous questions to dissident stockholders’ nominees—are
not before me. See Openwave, 924 A.2d at 240 (finding no grounds for a challenge to a
bylaw based on “hypothetical” abuse).
186
JX 150. The outcome might be different if Opportunities had been a record holder when
it requested the forms (or asked Cede to request the forms in its capacity as the stockholder
of record) and Lee refused its request anyway. In that scenario, if Opportunities had
attempted to submit detailed information about its nominees but had its nomination rejected
for failure to use Lee’s own “form,” one would question the purpose of the Board’s
formalistic adherence to the bylaws. That is not, however, this case.
187
JX 196.

45
unfairly apply those Bylaws or engage in inequitable conduct that made

Opportunities’ compliance difficult. The directors enforced requirements that were

long known to Opportunities and that could have been complied with had it not

delayed. Those actions cannot constitute a breach of fiduciary duty and are far from

the sort of inequitable conduct that would require this court to intervene.

III. CONCLUSION
For the foregoing reasons, Opportunities has not succeeded on the merits of

its breach of contract claim or breach of fiduciary duty claim. Opportunities’ request

for declaratory and injunctive relief is denied. Final judgment is entered in favor of

the defendants.

46