In re The AES Corporation and Owens Corning, C.A. No. 2024–0628, C.A. No. 2024–0688 (Del. Apr. 29, 2026)

In this consolidated appeal, the Delaware Supreme Court affirmed the Court of Chancery’s decision dismissing stockholder challenges to advance notice bylaws adopted by AES Corporation and Owens Corning as allegedly “defensive and entrenching.”  Without an intended proxy contest or allegations that the adopted bylaws “chilled” another stockholder from launching a proxy contest, the Supreme Court determined plaintiff’s equitable claims did not present a “genuine, extant controversy” and were therefore unripe for judicial review.

Background

After the Securities and Exchange Commission (SEC) adopted Exchange Act Rule 14a-19, commonly known as the universal proxy rule, which requires proxy cards to name all candidates nominated by management or dissidents, AES Corporation and Owens Corning amended their bylaws.  Both companies’ advance notice bylaws share four common features: 1) the exclusive means for a stockholder to nominate directors is compliance with the advance notice provisions; 2) nominations may be disregarded by the presiding officer if such nominations do not comply with requirements set forth in the bylaws; 3) an “acting in concert” definition that reaches beyond formal agreements and a “daisy-chain” provision; and 4) stockholders must give notice of substantial ownership- and relationship-related disclosures, including disclosures concerning derivative interests, legal proceedings, certain contacts or relationships, and performance-based fees.

The stockholder plaintiffs challenged the new advance notice bylaws as facially invalid and claimed that the boards who adopted them breached their fiduciary duties.  Following Kellner v. AIM ImmunoTech Inc., 320 A.3d 239, 259 (Del. 2024), the plaintiffs amended their complaints to disclaim the facial validity challenges, but their equitable claims proceeded.   Under Rule 12(b)(1), the Court of Chancery reasoned that the cases contained no “genuine, extant controversy” for equitable review, as plaintiffs were unable to “identify a stockholder who either intends to run a proxy contest” or was “chilled” from running a proxy contest.  Further, the Court determined that the companies’ adoption of these bylaws was “not the kind of circumstance” to prompt equitable review under Kellner.

On appeal, the stockholders argued that the Court of Chancery erroneously misconstrued their actions as pre-enforcement challenges that require an ongoing proxy context or identify a “chilled” nominator.  The stockholders also asserted that the Court of Chancery should have utilized Rule 12(b)(6) instead of Rule 12(b)(1), as the ripeness issue overlaps with merits questions concerning defensive purpose and deterrent effect. 

Analysis

First, the Supreme Court addressed the ripeness claims.  The Court referenced its holding in Kellner, which established that advance notice bylaws are “twice-tested.”  That is, they must be “consistent with the certificate of incorporation, not prohibited by law, and address a proper subject matter.”  In addition, courts examine “whether the board’s adoption, amendment, or application of the advance notice bylaws were equitable under the circumstances of the case.”  However, courts will not review bylaws under this standard “in the abstract.”  The Supreme Court clarified that as-applied challenges do not ripen upon adoption of a bylaw, even if such challenges are accompanied by deterrence arguments and policy concerns.  The Supreme Court noted, however, that deterrence could act as a present harm in certain circumstances, citing Williams, Solak, and Pontiac, but noted that “self-executing, economically coercive consequences” were absent in the advance notice bylaw context.  The effect of an advance notice bylaw, and whether compliance with such a bylaw is feasible, depends heavily on their operation in a concrete nomination setting, with that actual nomination leading to a clearer analytical framework,  “either because the company accepts the nomination, in which event no injury arises, or because the company rejects it, in which event a concrete record will support expedited, as-applied equitable review.”  Otherwise, Delaware courts will not review the hypothetical application.

Next, the Supreme Court identified Rule 12(b)(1) as an appropriate vehicle for dismissal.  The Court emphasized that when parties seek injunctive or declaratory relief, a threshold requirement is that an actual controversy exists.  The Court further noted that ripeness objections are routinely resolved under Rule 12(b)(1) and that no rule required courts to decide ripeness challenges under Rule 12(b)(6).  In any event, if Rule 12(b)(6) applied, the conclusion would be the same. 

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