Delaware Court of Chancery on nominating directors
The Delaware Court of Chancery has held that being dilatory in figuring out somewhat confusing bylaws is not a ground for excusing compliance with those bylaws. In Openwave Systems Inc. v. Harbinger Capital Partners Master Fund I, Ltd., Openwave called its annual meeting of stockholders on December 1, 2006, with the meeting to be held January 17, 2007. Under Openwave’s bylaws, advance notice of nominations for directors had to be given to the corporation by the close of business on December 11th.
Harbinger, which owned about 10% of Openwave, decided to run a slate of nominees for the two open seats on Openwave’s board. Harbinger submitted its nominees to Openwave on December 28th and simultaneously changed from a 13G to a 13D filing. Openwave allowed the two nominees to appear on the ballot but reserved its right to challenge their nomination and election. The two highest vote-getters were one of Harbinger’s nominees and one of Openwave’s nominees. Hilarity (read, litigation) obviously ensued.
After a one day trial, Vice Chancellor Lamb held that Harbinger’s nominees had not been properly nominated, thus the two Openwave management nominees were the validly elected directors. The Vice Chancellor did not believe testimony that Harbinger’s principals were diligent but confused about the application of Openwave’s bylaws and so were unable to nominate candidates by December 11th. Rather, he found that Harbinger was simply lax in deciding whether to run a slate at all and, by the time it decided to do so, had missed the bylaw deadline. Although Harbinger sought legal advice about the effect of Openwave’s bylaws, it did not receive that advice before mid-December, after the December 11th deadline.
Vice Chancellor Lamb certainly decided this case correctly. Pedagogically, this case could be taught in conjunction with McKesson Corp. v. Derdiger (casebook page 546).
The bylaws in effect when this case arose are here.
As usual, Francis Pileggi has good posts on this case here and here.
