Current Month (August 2025)
Delaware Court of Chancery Dismisses Facial Challenge to Advance Notice Bylaw’s “Acting in Concert” Provision
By K. Tyler O’Connell, Morris James LLP
In this recent decision addressing “one of many similar challenges to advance notice bylaws pending in the [Delaware] Court of Chancery,” Vice Chancellor Lori W. Will dismissed a stockholder’s claim that an advance notice bylaw that was adopted on a “clear day” was facially invalid as a matter of law. See Carroll v. Burstein, No. 2024-0317-LWW, 2025 WL 2446891 (Del. Ch. Aug. 25, 2025).
Although the stockholder-plaintiff did not intend to nominate any directors for election under the bylaw, the Court reasoned the plaintiff alleged the bylaw constituted an ongoing deterrent to the exercise of voting rights, making a facial challenge ripe. The Court thus reasoned this situation was “the opposite” of the Court’s recent decision in Siegel v. Morse, No. 2024-0628-NAC, 2025 WL 1101624 (Del. Ch. Apr. 14, 2025), in which the plaintiff disclaimed any facial validity challenge and the Court dismissed the claim as unripe absent allegations that any stockholder was in fact deterred or otherwise impeded from nominating directors.
The Court reasoned that a facial validity challenge examines whether the bylaw is authorized by the Delaware General Corporation Law, consistent with the certificate of incorporation, and not otherwise prohibited by law. If so, then provided there are any circumstances in which the bylaw could be applied lawfully, it will be upheld as facially valid. Here, the plaintiff challenged the bylaw’s provision requiring disclosures from not only the nominating record and/or beneficial stockholder, but also from anyone “acting in concert” with them, as using a too-broad definition. The plaintiff also challenged “wolf pack” and “daisy chain” provisions, which the plaintiff argued further complicated identifying persons from whom disclosures may be required in various circumstances. The plaintiff contended that these broad provisions could require stockholders to make disclosures concerning individuals not actually known to the nominating stockholder. The defendants argued, by contrast, that each such provision included a knowledge requirement.
The Court of Chancery reasoned it did not need to resolve that textual dispute, because there undisputedly were circumstances in which the bylaw could be applied lawfully. The Court reasoned, for example, that a stockholder “who openly coordinates” with a single other person could easily make the required disclosures. Moreover, the Court reasoned, although the acting in concert definition was “broad and dense—even muddled—one can parse through it and understand its purpose.” The Court distinguished this provision from “the monstrous ownership provision” held invalid in Kellner v. AIM ImmunoTech Inc., 320 A.3d 239 (Del. 2024), which the Court explained was “over five times longer and far more impenetrable.”
Accordingly, because the plaintiff failed to state a claim that the bylaw was facially invalid, the Court granted the defendants’ motions to dismiss.
Tyler O’Connell is a Partner at Morris James LLP in Wilmington, Delaware. Any views expressed herein are not necessarily those of the firm or any of its clients.
