Advance notice bylaws are a commonplace tool used by publicly traded corporations for structuring and safeguarding elections for corporate directors. These bylaws generally require not only disclosure of director candidate nominations by a set deadline in advance of corporate meetings, but also disclosure of the nominees’ qualifications and relationships, including with backers, shareholders, and other allies. Dissident stockholders raising a challenge may allege that the bylaws are unfair entrenchment by incumbent boards meant to chill or frustrate alternative directors, or that the bylaws are being applied unevenly or inequitably by the incumbent board to maintain their hold on power. Defenses of the provisions generally emphasize the need for stockholders to have the opportunity to make an informed decision, and thus the propriety of the board’s conduct in seeking information necessary to make an informed recommendation.

In May 2025’s Vejseli v. Duffy, C.A. No. 2025-0232-BWD, Vice Chancellor Bonnie David—recently elevated after two years as a Magistrate in Chancery—issued a post-trial decision illustrating how the Court of Chancery approaches these challenges. In a decision typifying the commercially sophisticated and pragmatic equity jurisprudence for which Delaware’s courts are internationally recognized, Vejseli provides invaluable insight to corporate practitioners designing and implementing advance notice bylaws on how to ensure that their provisions color inside the proverbial lines. The decision also illustrates the extraordinary speed with which the court operates in expedited matters. The 53-page opinion came down twelve days after a two-day trial, and just 79 days after commencement of the lawsuit.

Vejseli related to a contested election at Ionic Digital, Inc., a cryptocurrency company spun off from Celsius Network, LLC during bankruptcy proceedings in January 2024. Ionic started with eight initial directors in three classes, two appointed by the bankruptcy plan’s sponsor and the remaining six by a creditors’ committee. Ionic subsequently experienced a great deal of churn in management, and by November 2024 was down to just four directors. After redeeming the shares of the bankruptcy plan sponsor in December, and eliminating the corresponding seats of the sponsor’s designees, the board was left with four directors and two vacancies for its three classes of two directors each.

Under pressure from Ionic’s stockholders, including through books-and-records litigation, the board called a meeting, triggering a 10-day window for nomination notices for director candidates under Ionic’s advance notice bylaw. The board also voted to shrink the board to five members, but did not disclose that change to stockholders immediately. A dissident group of stockholders put forth nominees, but the board rejected the nominations under the bylaws. According to the board, the dissident nominees failed to disclose agreements with two outside entities seeking commercial partnerships with Ionic. The dissidents sued, challenging both the elimination of the board seat and the rejection of their candidate slate. The company agreed to delay the meeting until the case’s resolution.

After expedited discovery and trial, the court disallowed the elimination of the board seat. As it explained, the first step in analyzing any election-related act by an incumbent board is to consider whether the act occurred “on a clear day,” i.e., before a dispute has risen. A board’s decision to adopt an advance notice provision which would be accorded deference by a Delaware court under the business judgment rule may be subject to heightened scrutiny if the board is instead acting with the awareness of a nascent or ongoing dispute.

Here, since the dispute was already underway when the board acted, the court applied heightened scrutiny. As a test, heightened scrutiny first looks at whether there is a threat to the corporation and then whether the board’s measures for meeting the threat were proportional to the threat and nonpreclusive. The board offered some legitimate explanations at trial—including adopting an odd-numbered board to avoid deadlocks and shrinking the board to cut costs. But the board provided no evidence (such as board meeting minutes) that it was actually motivated by those legitimate reasons, or even considered them at the time. Instead, those justifications gave the appearance of post hoc pretexts or rationalizations for the board’s actions to entrench itself against the corporation’s own stockholders, a prohibited purpose. And even if the legitimate explanations were treated as the real motivation, the modest purposes of cost-cutting and avoiding deadlock were out of step with the board’s action. Eliminating the seat was, the court held, preclusive: the voice of the stockholders in filling the seat was entirely silenced in what would have been a first-ever stockholder election for the corporation.

The board’s rejection of the dissidents’ nominees fared better. The advance bylaw itself, which predated the dispute, was not challenged, only the board’s application of it to reject the dissidents’ nomination slate. Though the nominees had disclosed active agreements and relationships, they had not disclosed prior agreements with the would-be commercial partners backing them, including at least one prior agreement which had still-active provisions. As a result, the court agreed with the board that the dissidents failed to satisfy the disclosure requirements of the advance notice bylaw.

Fiduciary acts are “twice-tested” in Delaware, for both legality and equity. Since the directors charged with enforcing the bylaws are also fiduciaries charged with dealing fairly with the stockholders, the court having concluded that the dissents fell afoul of the bylaw, it next examined whether the board’s decision to reject the nomination was nevertheless inequitable. The court held it was not and upheld the board’s action. As the court explained, it found the directors credibly testified that they believed the information the dissidents had failed to disclose about agreements with the outside companies seeking a commercial partnership with Ionic was “highly material to stockholders” at the upcoming vote. Even though the court found the directors had acted inequitably in eliminating a seat, in its evaluation of the board’s motivation in applying the advance notice bylaw, that conduct did not so poison the well as to persuade the court to reject the legitimacy of its enforcement of the bylaw on grounds of equity.

As a result of these findings, the court negated the board’s elimination of the sixth seat but upheld its rejection of the dissidents’ nomination. The court ordered the board to reopen nominations for the restored seat. In so doing, the court gave both the dissidents and incumbent board half a loaf based on the manner in which their respective conduct fell short of the candor Delaware demands of fiduciaries. Because the dissidents failed to satisfy the advance notice bylaw’s transparency requirements in their initial nomination, they lost out on challenging the incumbent director running for reelection. But, because the board acted inequitably by trying to eliminate the second seat, the dissidents got a second bite at the apple. The court’s judgment aligns the incentives, as to both incumbent directors and dissidents seeking to unseat them, in favor of the equitable principles enshrined in Delaware decisional law, while in a practical sense ensuring Ionic’s stockholders for the first time have an opportunity for a competitive election on one of the six board seats.

The court’s analysis on the equitability of the board’s rejection of the nomination slate is of particular importance. Because a board makes recommendations to stockholders on how those stockholders should vote on directorships, such a board has a fiduciary obligation of candor toward the stockholders. But a board’s disclosures to stockholders are necessarily affected by the completeness of the disclosures the nominees themselves provide. As a result, the court analyzed the nominees’ obligations of disclosure under the bylaws using language and principles parallel to the board’s own obligations of candor toward the stockholders. Implicit in this analysis is the conclusion that a would-be director aspiring to a fiduciary post is expected to show fiduciary-like transparency and candor in response to nomination disclosures mandated by corporate bylaws.

The Vejseli decision thus emphasizes the strength of advance notice bylaws as a tool for incumbent boards, as well as the limitations and considerations those incumbent boards should take in adopting and enforcing them. Ideally, boards should consider and adopt advance notice bylaws at a time of corporate calm, to avoid any inference that the provisions are self-interested entrenchment. When a board cannot, and acts in reaction to an active dispute, it is particularly important for the board to document its deliberations in formal, contemporaneous minutes which explain and justify its enactments. Those justifications need to be grounded in the stockholders’ interests rather than the directors’ own. A board’s good faith belief in its own acumen and fidelity, or its similar doubts about a dissident’s, generally can be communicated to stockholders in management’s recommendation for how to vote. But, a board cannot use that evaluation to frustrate the stockholders’ opportunity to make an informed vote on the matter. A board considering adoption or enforcement of an advance notice bylaw needs to keep center of mind Delaware courts’ frequent rejoinder that stockholder democracy is the normative foundation for director power under the Delaware General Corporation Law.

Reprinted with permission from Delaware Business Court Insider, © ALM Media Properties LLC. All rights reserved.