Advance notice bylaws are commonplace among public companies. Nearly all S&P 500 companies have a version of advance notice bylaws. Generally speaking, advance notice bylaws require that stockholders provide written notice and certain information to a corporation prior to submitting a proposal, nominating directors, or raising other business at a stockholder meeting. Following the adoption of the “universal proxy rule” by the Securities and Exchange Commission, boards of many public companies reviewed their advance notice bylaws wholesale and decided to amend such provisions. Those amendments were met by a wave of litigation culminating in the Delaware Supreme Court’s decision in Kellner v. AIM ImmunoTech Inc., 320 A.3d 239 (Del. 2024). In Kellner, the Delaware Supreme Court clarified that the framework for analyzing the validity of advance notice bylaws depends on whether the challenge is facial (i.e., a challenge to adoption or amendment of a bylaw in the abstract, when there is no ongoing proxy contest or threat thereof, also referred to as a “clear day”) or as applied (i.e., a challenge to adoption, amendment, or enforcement of a bylaw during an actual or threatened proxy contest, also referred to as a “cloudy day”). In a facial challenge, Kellner instructs that advance notice bylaws are presumed valid unless a plaintiff can show “that the bylaw cannot be valid in any set of circumstances.” On the other hand, Kellner clarifies that challenges to the adoption, amendment, or enforcement of advance notice bylaws on a cloudy day (sometimes referred to as “equitable review”) are subject to heightened scrutiny under the two-prong test set forth in Coster v. UIP Companies, Inc., 300 A.3d 656 (Del. 2023).

Kellner significantly impacted several ongoing challenges to advance notice bylaws. Since Kellner, the Delaware Court of Chancery has dismissed at least two challenges to amendments of advance notice bylaws as unripe and confirmed a board’s right to enforce its advance notice bylaw. These cases, briefly summarized below, cement the analytical framework spelled out in Kellner and its underlying precedent as well as Delaware courts’ continued desire to uphold advance notice bylaws adopted on a clear day and skeptical view of defensive board actions undertaken during the threat of a potential proxy contest. Further, these cases make clear that Delaware courts will not permit an as-applied or enforceability challenge to advance notice bylaws when such challenge is based on hypothetical or theoretical applications of such provisions.

Delaware Court of Chancery Rejects Hypothetical Challenges to Advance Notice Bylaws

In two recent decisions, the Delaware Court of Chancery ruled that challenges to advance notice bylaws were not ripe for review.

In Siegel v. Morse, C.A. No. 2024-0628-NAC (Del. Ch. Apr. 14, 2025), the plaintiff challenged AES Corporation’s amendments to its advance notice bylaw based on the “acting in concert” definition^[1] and the ownership disclosure requirements^[2] within the advance notice bylaw, both of which require stockholders to make certain disclosures when nominating a director.

According to the plaintiff, these advance notice requirements make it “unreasonably difficult, if not impossible” for stockholders to nominate candidates to the corporation’s board. The original complaint (prior to Kellner) alleged that the corporation’s advance notice bylaw provisions were facially invalid. The amended complaint (after Kellner) disclaimed any facial validity challenge and instead claimed that such provisions were unenforceable. Notably, the plaintiff did not attempt or intend to nominate a director, nor did the plaintiff identify a stockholder who attempted or intended to nominate as a director. Because there was no facial validity challenge in front of the Chancery Court and no attempt or intent to use or comply with the advance notice bylaw provisions, the Chancery Court dismissed the challenge as unripe, noting that Delaware law permits equitable challenges to bylaws only when there exists a genuine and existing controversy and does not permit such challenges based on hypotheticals. In making the decision, the Chancery Court noted that in order for a claim to be ripe under these circumstances (i.e., in the absence of a live proxy contest), the stockholder bringing the claim at least must allege that one or more stockholders have been “chilled from making a nomination” for the corporation’s board. The Chancery Court’s decision in Siegel has been appealed to the Delaware Supreme Court.

As was the case in Siegel, in Assad v. Chambers, C.A. No. 2024-0688-NAC (Del. Ch. June 2, 2025), the plaintiff challenged Owens Corning’s amendments to its advance notice bylaw based on the same features of the bylaw at issue in Siegel (i.e., the acting in concert definition and ownership provision). As in Siegel, the Assad plaintiff also amended his complaint after Kellner to convert a facial validity challenge into an enforceability challenge (expressly disclaimed any facial validity challenge), did not attempt or intend to nominate a director, nor did the plaintiff identify a stockholder who attempted or intended to nominate a director (or who felt “chilled” from so doing). With nearly identical facts before it, the Chancery Court reached the same decision as in Siegel and dismissed the plaintiff’s complaint because it was not ripe. As in Siegel, the Chancery Court’s decision in Assad has been appealed to the Delaware Supreme Court.

While neither of these rulings stands for the proposition that there must be an active proxy contest to allow a stockholder to bring a facial challenge to advance notice requirements, they do set a threshold that the stockholder at least must allege having been “chilled” from putting forth a nomination for the board. Since the plaintiffs in these cases did not make this kind of allegation, it is unclear what will be adequate allegations of chilling, which the Chancery Court may expound on in future decisions.

Delaware Court of Chancery Upholds Enforcement of Advance Notice Bylaw but Gives Stockholders Another Bite at the Apple for Defensive Board Action Taken on a Cloudy Day

In contrast to Siegel and Assad, a third case, Vejseli v. Duffy, 2025 WL 1452842 (Del. Ch. May 21, 2025), involved a ripe dispute over the rejection of the plaintiffs’ notice to nominate directors to Ionic Digital Inc.’s board.

In Vejseli, the plaintiffs challenged (among other claims) the Ionic board’s rejection of their nomination notice for failing to disclose and provide copies of certain material agreements between the plaintiffs and nonstockholders that had proposed commercial arrangements with Ionic, which Ionic’s board felt were required by Ionic’s advance notice bylaw. The plaintiffs’ position was that the rejection was inequitable because the agreements in question were no longer operative at the time plaintiffs submitted the nomination notice. Noting that one of the agreements in question was terminated on the same date as the submission of the nomination notice, the Chancery Court highlighted the importance of informational and disclosure requirements in advance notice bylaws and noted that stockholders would undoubtedly want to know about recently terminated agreements when making a voting decision. Because the nomination notice failed to disclose a material provision in one of the agreements that survived termination, the Chancery Court found that the notice did not fully comply with the advance notice bylaw.

Next, the Chancery Court turned to the equitability of the rejection under the two-prong test set forth in Coster. Under Coster, the Chancery Court applied enhanced scrutiny to determine “(1) if the Board rejected the Nomination Notice for legitimate, rather than pretextual, selfish, or disloyal, reasons, and (2) if the rejection was reasonable and was not preclusive.” Under the first prong of the Coster test, the Chancery Court found that the Ionic board rejected the notice for legitimate, nonpretextual, selfish, or disloyal reasons, because the disclosure requirements served legitimate objectives and the lack of disclosure threatened an informed stockholder vote. The Chancery Court also found that the board’s failure to provide an opportunity to supplement the notice was not inequitable because the notice was submitted two days before the nomination window closed. Under the second prong, the Chancery Court found that the enforcement of the bylaw was reasonable and not preclusive because the plaintiffs were able to submit a notice and had the opportunity to comply with the disclosure requirements.

However, facing the threat of a proxy contest, Ionic’s board adopted resolutions setting the date of the stockholder meeting and reducing the board size, eliminating one of the open director seats. The Chancery Court applied enhanced scrutiny to its review of the Ionic board’s resolution reducing the size of the board because it was adopted on a cloudy day. The court found that the Ionic board did not prove a valid, nonpretextual corporate purpose for adopting the resolution, finding that the testimony suggested the board adopted the resolution so that the board (as opposed to the stockholders) could identify better candidates, which the court found is not a valid purpose. Additionally, the Chancery Court found that even if the board’s purpose was justified, the board resolution was neither reasonable nor necessary to achieve the purpose for the resolution provided by the board. Further, the court found that the resolution was preclusive because it rendered the proxy contest unattainable by eliminating one of the two open seats and imposed the board’s favored outcome on the stockholders. Because Ionic failed both prongs of the enhanced scrutiny test, the Chancery Court held that the Ionic board breached its fiduciary duties in adopting the resolution. Therefore, the court ultimately granted the plaintiffs’ request for an injunction, invalidating the board resolution to reduce the size of the Ionic board and reopened the 10-day director nomination period under Ionic’s advance notice bylaw to permit the board, the plaintiffs, and other stockholders to submit director nominations for the two open seats.

Vejseli underscores and highlights the importance for corporations to review and amend their bylaws on a clear day rather than a cloudy day. Defensive board actions undertaken on a cloudy day that disenfranchise stockholders or interfere with that franchise will place the corporation at risk of being locked into costly litigation where those actions will be viewed skeptically by Delaware courts. While not recommended, if for some reason a corporation determines it to be necessary and in the best interest of the corporation and its stockholders to amend its bylaws on a cloudy day, it is imperative that the corporation contact legal counsel to discuss in advance and, at a minimum, the board must document in the minutes of the meeting(s) the valid business reasons for adopting the amendment. As noted by the court, retrospective testimony asserting purported valid business reasons, without contemporaneous documentation citing those reasons at the time of adopting an amendment, will not survive enhanced scrutiny. Despite the ultimate “do over” granted to the plaintiffs in Vejseli, it is notable that the Chancery Court upheld the Ionic board’s rejection of the noncompliant notice and its enforcement of the requirements of the advance notice bylaw under enhanced scrutiny.

Advance notice bylaws continue to be a key driver of orderly and effective governance processes at stockholder meetings. Because the Delaware courts continue to uphold advance notice bylaws adopted on a clear day, we continue to recommend that companies review their advance notice bylaws if they have not done so recently to confirm that such bylaw provisions are modernized and in line with current market practice. Waiting to amend until there is a need for an advance notice bylaw may be too late.

[1] The acting in concert portion of the bylaw requires disclosure of any compensation or reimbursement in the past three years and disclosure of relationships between or among any person nominating a director for election or stockholder or beneficial owner on whose behalf such nomination is to be made and each proposed director nominee, and their respective affiliates and associates, or others acting in concert therewith, whether or not pursuant to an express agreement, arrangement, or understanding.

[2] The ownership disclosure requirement requires (i) nominating stockholders to disclose any equity interest in the corporation (including synthetic and derivative ownership interests, short interests, and hedging arrangements), along with their history of ownership of stock or derivative interest in the corporation, (ii) nominating stockholders and any person acting in concert with such stockholder to disclose any performance-related fees they would receive if the corporation’s stock appreciated or depreciated, and (iii) disclosure of any material relationship with, or any direct or indirect material interest in any material contract or agreement with, either the corporation or any principal competitor held by the nominating stockholder and anyone they are acting in concert with.