In Strategic Investment Opportunities v. Lee Enterprises (Feb. 14, 2022), the Delaware Court of Chancery reviewed the decision by the board of directors of Lee Enterprises, Inc. (“Lee”) to reject the director nominations notice provided by its dissident stockholder Strategic Investment Opportunities LLC (“Opportunities”). Opportunities is an affiliate of hedge fund Alden Global Capital LLC, which is in the midst of a hostile takeover bid for Lee. The court found, first, that the nomination notice plainly did not comply with the technical requirements of Lee’s advance notice bylaw. The court then applied an enhanced scrutiny standard of review to determine whether Lee’s directors had breached their fiduciary duties by not waiving, or allowing Opportunities to cure, any technical defects in the nomination notice. The court found that the directors’ actions had been “reasonable and appropriate” under the circumstances and upheld their rejection of the nominations.
Key Point
The decision emphasizes that, generally, a stockholder must comply precisely with the technical requirements of advance notice bylaws—but also reaffirms that a board must act in good faith and equitably in rejecting even a plainly non-compliant nomination notice. Reaffirming long-standing principles relating to the validity of advance notice bylaws, the court stressed that Lee’s advance notice bylaw was adopted on a “clear day,” far in advance of Alden’s takeover bid and the nomination notice; that the bylaw requirements were unambiguous and reasonable; and that Lee had not interfered with Opportunities’ ability to comply. The court endorsed a corporation’s “genuine interest in enforcing its Bylaws so that they retain meaning and clear standards that stockholders must meet” and readily found that Opportunities’ notice did not comply with “the letter” of Lee’s bylaw. The decision serves as a reminder, however, that a board must act in good faith and equitably when deciding to reject a nomination notice, even when the notice is non-compliant with the bylaw, is submitted outside a takeover context, and/or involves nominations for a minority of the board seats.