Securities Regulation Daily Wrap Up, PROXIES—Del. Ch.: Gripe isn’t ripe; shareholder complaint about company’s advance notice bylaws dismissed, (Apr 16, 2025)
Law Firms Mentioned:Bernstein Litowitz Berger & Grossmann LLP | Richards, Layton & Finger, P.A.
Organizations Mentioned:AES Corp | Richards Layton & Finger, PA | The AES Corp.
By Rebecca E. Hoffman, J.D.
The court underscored that the named plaintiff does not intend to nominate anyone for the board, nor does he assert that the disclosure requirements would apply to him if he did.
The Delaware Court of Chancery April 14 granted The AES Corporation’s motion to dismiss a shareholder action challenging the board’s amended advance notice bylaws, finding that, currently, no shareholders are running up against the bylaws by submitting nominations for board seats, and thus the dispute is not yet ripe (Siegel v. Morse , No. 2024-0628 (Del. Ch. Apr. 14, 2025)).
The board of directors of Fortune 500 power company AES amended its advance notice bylaws, apparently in response to the SEC’s “Universal Proxy Rule” making it easier for shareholders to seek board representation, and a shareholder filed a complaint against the company and its board members. “Plaintiff neither intends to nominate a director to the AES Board, nor is aware of any stockholder who does,” the court observed.
The plaintiff objected to certain disclosure requirements in the bylaws. His complaint asserted that the bylaws were facially invalid, but in his amended complaint, “[q]uite notably, in a complete reversal from three months prior, Plaintiff now expressly purported to disclaim any facial validity challenge,” the court said, and instead asked the court to find that the bylaws are “unenforceable.” The court said that this calls for an equitable review, requiring a ripe dispute that “allows this Court to specify against whom the bylaw cannot be enforced.”
No contest. The court concluded that the dispute is not ripe. “Plaintiff admits he is uninterested in running a proxy contest, but alleges that the Advance Notice Bylaws ‘chill and impermissibly burden the free exercise of the stockholder franchise,’” the court explained. However, “Plaintiff does not point to a single stockholder who is deterred by the Advance Notice Bylaws from nominating a director for election to the AES Board,” or that the “Advance Notice Bylaws’ disclosure requirements that he challenges would apply to him if he were to submit a nomination.”
The court pointed to Kellner v. AIM ImmunoTech Inc., 320 A.3d 239 (Del. 2024), which noted that companies dusted off their advance notice bylaws in response to the Universal Proxy Rule’s adoption. The plaintiff argued that AES Corp.’s outside counsel showed the board slides that triggered a “defensive” fortification of its advance notice requirements. But “[w]ithout a proxy contest, or even a stockholder saying he or she is chilled from making a nomination, a few slides with generic references to stockholder activism do not transform this dispute from an ‘imagined’ one to a ‘real-world’ one,” the court concluded.
The case is No. 2024-0628.
Judge: Cook, N.
Attorneys: Gregory V. Varallo (Bernstein Litowitz Berger & Grossmann LLP) for Martin Siegel. Blake Rohrbacher (Richards, Layton & Finger, P.A.) for Jay Morse, Gerard M. Anderson, Janet Davidson, Andrés Gluski, Holly Keller Koeppel, Julie Laulis, Alain Monié, Moisés Naim, Teresa Sebastian, Maura Shaughnessy, Tarun Khanna, and The AES Corp.
Companies: The AES Corp.
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