Opportunity Partners L.P. v. BlackRock New York Municipal Bond Trust, C.A. No. 6255-VCN (Del. Ch. Mar. 30, 2011) (Noble, V.C.)
In this letter opinion, the Court of Chancery denied the defendants’ motion for expedited proceedings where the defendants, investment companies organized as Delaware statutory trusts (the “Funds”) and their trustees (together with the Funds, the “Defendants”), failed to demonstrate a material risk that they would suffer irreparable harm in the absence of an expedited trial.
Each of the Funds had a staggered board consisting of approximately ten trustees. Following the Funds’ 2010 annual meeting, the Defendants amended the Funds’ bylaws. In these bylaw amendments, the Defendants (i) adopted demanding trustee qualifications, (ii) implemented restrictive advance notice requirements, applicable when shareholders nominate a candidate to a Fund’s board, and (iii) accelerated the annual shareholder meeting from September 2011 to July 2011, thereby triggering the restrictive advance notice requirements (the “Amendments”). In response to the Amendments, the plaintiffs, holders of auction market preferred securities issued by the Funds (the “Plaintiffs”), brought suit against the Defendants alleging that the Defendants breached their fiduciary duties and violated substantive Delaware law by adopting the Amendments. The plaintiffs claimed that the Amendments made it impossible, or almost impossible, to exercise their voting rights and nominate representatives to the boards of the Funds.
Before filing a responsive pleading, the Defendants moved to expedite proceedings so that a trial would take place in early May 2011, prior to the July 2011 annual shareholder meeting. The Defendants alleged that, if the Court of Chancery declared the July 2011 annual shareholder meeting null and void, they would suffer irreparable harm because the Funds may be subject to delisting under New York Stock Exchange policies. Rejecting this allegation that the Funds faced a material risk of delisting, the Court of Chancery noted that, if a candidate for a single seat on the board of a Fund was improperly excluded from the election process, the equitable relief for that wrong would be unlikely to impair the status of the other trustees whose election is not challenged.
While acknowledging that the cost of holding a new election for a trustee would, from the Defendants’ perspective, be an adverse outcome, the Court of Chancery stated that the Defendants failed to quantify that cost. In addition, the Court of Chancery noted the difficulty, in the abstract, of characterizing an outlay for regulatory compliance as irreparable harm. The Court of Chancery also stated that any harm from the exclusion of the plaintiffs’ candidate would cause the plaintiffs to suffer, not the Defendants, and, regardless of whether the plaintiffs’ candidate was elected, the Defendants would continue to have a sufficient working majority on the board of each Fund to maintain control. The Court of Chancery, therefore, having found the Defendants’ irreparable harm claims abstract and hypothetical, dismissed the Defendants’ motion for expedited proceedings.