Siegel v. Morse, et al., C.A. No. 2024-0628-NAC (Del. Ch. Apr. 14, 2025) (Cook, V.C.)

In its first ruling on the validity of advance notice bylaws since the Delaware Supreme Court’s seminal decision last summer in Kellner v. AIM Immunotech, Inc., the Court of Chancery (“Court”) rejected as unripe an attempt by a stockholder to plead an “as applied” challenge to certain “acting in concert” and “ownership” provisions.

The AES Corporation (“AES”) amended its bylaws in August 2023, including advance notice provisions. The amended bylaws were approved by the AES Board of Directors (the “Board”) after it reviewed a slide deck prepared by counsel, which largely recommended the amendments to align with other companies’ responses to the SEC’s recent Universal Proxy Rule. One slide in the deck noted that the Universal Proxy Rule could make it easier for activist stockholders to successfully wage proxy contests.

Ten months later, after the Court of Chancery’s decision in Kellner, Plaintiff Martin Siegel challenged the amended bylaws as facially invalid and brought a breach of fiduciary duty claim against the Board. But after the Supreme Court issued its opinion in Kellner reaffirming that bylaws should only be invalidated if they cannot operate lawfully under any circumstance and holding certain bylaws struck down by the Court of Chancery were facially valid, Siegel amended his complaint to explicitly disavow any facial challenge. Instead, Siegel pressed forward with an equitable, as applied challenge, even though he did not intend to nominate any candidates to the Board. Siegel claimed that the “acting in concert” definition and “ownership provision” of the advance notice bylaws inequitably chilled the stockholder franchise by deterring stockholders from bringing nominations in the first instance.

Vice Chancellor Cook held that the Court lacked subject matter jurisdiction over the dispute and dismissed Siegel’s amended complaint without prejudice because Siegel failed to present a live controversy. Siegel’s sole evidence that stockholders were supposedly “chilled” was the boilerplate language in a “vanilla” slide deck prepared by counsel and reviewed by the AES Board concerning the possibility that the Universal Proxy Rule could allow activist stockholders to successfully nominate candidates. This was not enough to establish the Board acted defensively in adopting the advance notice provisions, particularly where Siegel could not name a single stockholder who was deterred from submitting nominations. As such, Siegel’s challenge was “hypothetical” and “imagined.”

Additionally, the Court rejected Siegel’s comparison of his challenge to stockholder rights plan cases such as Williams Companies Stockholder Litigation, which invalidated an acting in concert definition like the one adopted in the AES bylaw. Vice Chancellor Cook reasoned that the high stakes associated with and potentially dire consequences that could result from triggering a rights plan or dead hand proxy put are simply not present in the advance notice bylaw context. The stockholder whose nomination is rejected under the advance notice bylaw “does not suffer devastating equity dilution, nor does the company confront a potentially ruinous debt acceleration. The stockholder instead faces a rejection of her nominees.” Consequently, rights plans cases are ineffective comparisons to advance notice bylaw challenges and “do not ripen otherwise unripe claims.”

About Potter Anderson

Potter Anderson & Corroon LLP is one of the largest and most highly regarded Delaware law firms, providing legal services to regional, national, and international clients. With more than 100 attorneys, the firm centers its practice on corporate and alternative entity law and litigation, commercial litigation, bankruptcy, intellectual property, labor and employment, and real estate.