Ted D. Kellner v. AIM ImmunoTech Inc.

• Court: Supreme Court of Delaware
• Decided: July 11, 2024
• Docket: 3, 2024
• Status: Published

Opinion

EFiled: Jul 11 2024 03:04PM EDT Filing ID 73633189 Case Number 3,2024 IN THE SUPREME COURT OF THE STATE OF DELAWARE

TED D. KELLNER, § § No. 3, 2024 Plaintiff Below, § Appellant/Cross-Appellee, § Court Below: Court of Chancery § of the State of Delaware v. § § C.A. No. 2023-0879 AIM IMMUNOTECH INC., § THOMAS EQUELS, WILLIAM § MITCHELL, STEWART § APPELROUTH, and NANCY K. § BRYAN, § § Defendants Below, § Appellees/Cross- § Appellants. §

Submitted: April 10, 2024 Decided: July 11, 2024

Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and GRIFFITHS, Justices; constituting the Court en Banc.

Upon appeal from the Court of Chancery. AFFIRMED in part, REVERSED in part.

John M. Seaman, Esquire, Eliezer Y. Feinstein, Esquire, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Teresa Goody Guillén, Esquire, Richard Raile, Esquire (argued), BAKER & HOSTETLER LLP, Washington, D.C.; Marco Molina, Esquire, BAKER & HOSTETLER LLP, Costa Mesa, California; Alexandra L. Trujillo, Esquire, BAKER & HOSTETLER LLP, Houston, Texas for Plaintiff Below, Appellant/Cross-Appellee Ted D. Kellner.

William R. Denny, Esquire, Matthew F. Davis, Esquire, Nicholas D. Mozal, Esquire, Caneel Radinson-Blasucci, Esquire, Eric J. Nascone, Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Stefan Atkinson, Esquire (argued), Mary T. Reale, Esquire, Mason E. Reynolds, Esquire, Joseph Taglienti, Esquire, KIRKLAND & ELLIS LLP, New York, New York; Michael F. Williams, Esquire, Don Hong, Esquire, KIRKLAND & ELLIS LLP, Washington D.C. for Defendants Below, Appellees/Cross-Appellants AIM ImmunoTech Inc., Thomas Equels, William Mitchell, Stewart Appelrouth, and Nancy K. Bryan.

Brett M. McCartney, Esquire, Sarah T. Andrade, Esquire, BAYARD, P.A., Wilmington, Delaware; Edward J. Fuhr, Esquire, Steven M. Haas, Esquire, Johnathon E. Schronce, Esquire, James M. Lockerby, Esquire, HUNTON ANDREWS KURTH LLP, Richmond, Virginia for Amicus Curiae, Chamber of Commerce of the United States of America, in support of Appellees.

2 SEITZ, Chief Justice:

A group of AIM ImmunoTech, Inc. stockholders thought that the board of

directors was mismanaging the company. They launched an activism campaign and

proxy contest to elect new directors. The insurgents included two felons convicted

of wire fraud, insider trading, and other crimes. The campaign escalated into two

attempts to nominate directors to the AIM board.

The board rejected both nomination notices under its existing bylaws, which

led to a lawsuit over the second notice. The Court of Chancery denied the

insurgents’ request for a mandatory preliminary injunction to place their nominees

on the annual meeting ballot. The court held that factual disputes about the veracity

of the insurgents’ disclosures precluded temporary mandatory injunctive relief.

Undeterred, the insurgents reshuffled their membership, with Ted D. Kellner

leading a third attempt to nominate three new directors to the AIM board.

Meanwhile, the board amended its bylaws to include sweeping new advance notice

provisions. The amended bylaws required detailed disclosures by Kellner and his

nominees. Many of the amendments were approved by the AIM board as a direct

response to the insurgents’ campaign.

The AIM board once again rejected Kellner’s nominations for failing to

comply with the new advance notice bylaws. Kellner filed suit. After trial, the Court

of Chancery invalidated four of the six main advance notice bylaws and reinstated

3 the 2016 version of one of the invalidated bylaws. Ultimately, the court upheld the

board’s rejection of the third nomination notice because it failed to comply with the

two advance notice bylaws left standing, including the reinstated 2016 bylaw

provision.

On appeal, Kellner argues that the court improperly used the 2016 bylaw to

reject his notice because the AIM board did not rely on it as a basis for rejection. In

addition, according to Kellner, the enactment of the amended bylaws repealed the

2016 bylaw, which meant that the court had no basis to reinstate it. He also argues

that the court erred when it held that two of the amended bylaws withstood enhanced

scrutiny when, at the same time, the court found that many of the other bylaws were

preclusive and adopted for an improper purpose. Finally, Kellner contends that the

court erred when it found that the nomination notice did not comply with the

amended bylaws left standing.

By way of cross appeal, the defendants object to the Court of Chancery’s

invalidation of four of the amended bylaws. As they argue, the Court of Chancery

erred when it confused a “facial” challenge to the bylaws with an “as-applied”

challenge. According to the defendants, Kellner brought only an as-applied

challenge. The court, therefore, should not have invalidated the amended bylaws.

The defendants also contend that, in any event, the amended bylaws withstand

enhanced scrutiny review.

4 In a challenge to the adoption, amendment, or enforcement of a Delaware

corporation’s advance notice bylaws that is ripe for judicial review, the court should

consider the following: first, if contested, whether the advance notice bylaws are

valid as consistent with the certificate of incorporation, not prohibited by law, and

address a proper subject matter; and second, whether the board’s adoption,

amendment, or application of the advance notice bylaws were equitable under the

circumstances of the case.

Applying this framework to the current appeal, we hold that: (1) one

“unintelligible” bylaw is invalid; (2) the remaining amended advance notice bylaws

subject to this appeal are valid because they are consistent with the certificate of

incorporation, not prohibited by law, and address a proper subject matter; and (3)

the AIM board acted inequitably when it adopted the amended bylaws for the

primary purpose of interfering with, and ultimately rejecting, Kellner’s nominations.

Thus, the remaining bylaws challenged on appeal are unenforceable.

I.

A.

We rely on the facts as found after trial.1 AIM ImmunoTech, Inc. is a publicly

traded pharmaceutical company incorporated in Delaware and headquartered in

1 Kellner v. AIM ImmunoTech Inc., 307 A.3d 998 (Del. Ch. 2023).

5 Florida. AIM develops treatments for immune system disorders, viral diseases, and

cancers. Its lead product is the investigational drug Ampligen. AIM has a four-

member board of directors – Thomas Equels, William Mitchel, Stewart Appelrouth,

and Nancy K. Bryan. Equels is AIM’s Chief Executive Officer, having served in his

role since 2008. Mitchell, a scientist who has studied Ampligen since the 1980s, is

the chairman of the board. Appelrouth, an accountant, has served on the board since

2016. Bryan, the President of BioFlorida Inc., an LLC of which AIM is a member,

is the latest addition, beginning her board tenure in March, 2023. The directors and

the company are the defendants in the litigation.

Ted D. Kellner, the plaintiff in this litigation, is a retired founder, portfolio

manager, philanthropist, minority owner of a professional basketball team, and a

major AIM stockholder. In 2023, Kellner sought to nominate a competing slate of

directors to serve on the AIM board. The competing slate of directors was Kellner

himself, Todd Deutsch, and Robert Chioini. Deutsch, a private investor, has known

Kellner for over two decades and is the owner of about 3.5% of AIM’s shares.

Chioini is the co-founder of Rockwell Medical Technologies, a dialysis company,

and was its Chief Executive Officer until the Rockwell board terminated his

employment in 2018. Chioini is not an AIM stockholder.

Deutsch and Chioini were both involved in a prior nomination effort led by

Franz Tudor – a business associate of Deutsch. The prior nomination dispute was

6 the subject of a separate and related Court of Chancery action – Jorgl v. AIM

ImmunoTech, Inc. – where Tudor led the effort to place nominees on AIM’s

universal proxy card.2 In 2009, Tudor pleaded guilty to securities fraud and insider

trading. Tudor is permanently enjoined from engaging in certain activities relating

to penny stocks – a class of microcap publicly-traded companies that includes AIM.

B.

Since 2016, AIM’s stock price has fallen precipitously. In the summer of

2020, Tudor contacted AIM management. He wanted to “be taken seriously.”3

Tudor told the board that he represented over one million AIM shares between his

ownership and the funds he consults. He sought a formal role with AIM. Equels

investigated Tudor’s past and discovered his criminal background.

When AIM management did not respond, Tudor attempted to contact other

directors and AIM representatives but, once again, was ignored. Tudor began to

represent to third parties that he was formally associated with AIM. In response,

AIM demanded that Tudor stop his misrepresentations. Tudor ignored the demand,

which caused AIM to file suit against him in Florida state court. Tudor eventually

2 Jorgl v. AIM ImmunoTech Inc., 2022 WL 16543834 (Del. Ch. Oct. 28, 2022). 3 Kellner, 307 A.3d at 1007 (quoting the record).

7 agreed to a stipulated permanent injunction, which enjoined Tudor from contacting

any of AIM’s business relationships regarding AIM or its products and activities.4

Other Tudor associates joined the pressure campaign. Deutsch, Tudor’s

former colleague, who had suffered significant losses from his AIM investment,

began working with Tudor to engage with the board. Tudor also recruited others to

the activism effort: Chioini – whom he had worked with at Rockwell – and

acquaintances Daniel Ring and Walter Lautz. Lautz sent AIM a notice to nominate

Ring and Chioini to the board. Tudor drafted the notice without Lautz’s review. It

did not mention Tudor or his involvement in the nomination.

The AIM board rejected Lautz’s notice for noncompliance with federal

securities law. In reaction to the rejection, Chioini sought financial support from his

fellow Rockwell co-founder, Michael Xirinachs. Later, in the same year, Xirinachs

pleaded guilty to criminal charges involving fraudulent securities trading, promotion

and material misrepresentations to investors, and misuse of funds.

Chioini sent Xirinachs a copy of AIM’s bylaws and flagged the advance notice

provisions. Tudor began working with counsel at Baker & Hostetler LLP on a

4 AIM ImmunoTech, Inc. v. Tudor, No. 21-CA-393 (Fla. Cir. Ct. Aug. 13, 2021) (order granting permanent injunction).

8 potential proxy contest. He continued to contact AIM about his nomination effort.

Tudor was met with silence to which he responded, “you now get the gloves off.”5

Meanwhile Deutsch kept Kellner, his fellow AIM stockholder, apprised of the

nomination effort. Kellner first purchased AIM stock in early 2021 at Deutsch’s

suggestion. Deutsch would send Kellner information from Tudor about AIM’s stock

performance – mostly by forwarding him emails written by Tudor. Kellner saw

promise in AIM but, like the other insurgents, thought it was mismanaged. One day

after the Lautz nomination notice, Deutsch sent Kellner an investment analysis

prepared by Tudor. Kellner marked up the analysis by hand and scribbled “48

million shares. What do we own? 15 to 18%[?]”6 Kellner was later surprised to

learn that Tudor owned significantly fewer shares than Kellner had believed.

Deutsch vouched for Tudor, stating “I promise [you] he is as smart [as] they come

in [the] space.”7 Kellner answered that Tudor “doesn’t need to worry nor you about

Teddy!!![13 emojis, including thumbs up and smiley faces].”8

At this point the nomination effort hit another obstacle. Tudor expected Lautz

to submit a new nomination notice to the board. But Lautz told Tudor that he had

5 Kellner, 307 A.3d at 1010 (quoting the record). 6 Id. at 1009 (quoting the record). 7 Id. at 1011 (quoting the record). 8 Id. (alteration in original) (quoting the record).

9 been the subject of “a FINRA investigation” and “was terminated from one of the

largest brokerage houses on the planet,” which “may not be a good look” for the

nomination effort.9 AIM’s counsel later told Deutsch, Kellner, and Tudor’s counsel

that they had to comply with Section 13(d) of the Securities and Exchange Act of

1934. The advice came about after counsel learned that Deutsch was attempting to

have Tudor attend “as an undisclosed party, a telephone conference between AIM’s

[investor relations] firm,” Deutsch, and Kellner.10 The AIM communication

revealed to Kellner, for the first time, that Tudor was a felon subject to a permanent

injunction against AIM.11 Kellner hand wrote on a printed copy of AIM’s letter,

“FRANZ TUDOR – IS A FELON?” and “INSIDER TRADING?”12 Kellner also

wrote the names “Robb [sic] Chioini” and “Michael Zeaniack [Xirinachs],” noting:

“our plans – get a lawyer.”13

Ring dropped out and with Lautz no longer the nominator, the nomination

effort needed both a stockholder to make the nomination and a new nominee.

Chioini recruited a business associate, Michael Rice, to be his co-nominee. Rice

9 Id. at 1011 (quoting the record). 10 Id. (alteration in original) (quoting the record). 11 Id. at 1012. 12 Id. (quoting the record). 13 Id. (quoting the record).

10 supplied the face of the investor, a friend he surfed with – Jonathan Jorgl. Jorgl had

never heard of AIM when Rice made his request. Rice and Xirinachs made sure that

Jorgl held shares recorded to his name before the nomination deadline.

On July 8, 2022, Jorgl submitted a notice with Chioini and Rice as his

proposed nominees. Shortly thereafter, AIM rejected Jorgl’s nomination notice

because the notice, as AIM’s General Counsel put it, “fail[ed] to satisfy Section 1.4

of [AIM’s] [b]ylaws and applicable law by, among other things, making false and

misleading statements in lieu of providing [the required] information.”14 Section

1.4(c) of AIM’s bylaws, as adopted in 2016, required a stockholder proposal to

disclose “arrangements or understandings . . . pursuant to which the nomination(s)

are to be made.”15

AIM’s rejection triggered the first round of litigation in the Court of Chancery,

Jorgl v. AIM ImmunoTech, Inc.16 Following expedited discovery, the court declined

to grant Jorgl judgment as a matter of law because, on the record before it, the court

could not conclude that Jorgl’s nomination notice complied with the existing bylaw

requirements. The court also concluded that the “swirl of lingering factual disputes”

14 Id. at 1013 (alterations in original) (quoting the record). 15 Id. (quoting the record). 16 2022 WL 16543834.

11 also precluded mandatory preliminary injunctive relief.17 AIM continued to

prosecute claims in Florida against Tudor, Deutsch, Kellner, Jorgl, Lautz, Chioini,

and Rice. In the Florida action, AIM alleged that the investor group violated Section

13(d) of the Exchange Act – later amending its complaint to drop Chioini and Rice.

AIM sought an injunction against the group to prohibit them from further violating

federal securities law.18

Meanwhile, Kellner prepared for AIM’s 2022 annual meeting. He drafted an

update to his college investment club, for which he managed the investment

portfolio, which included AIM stock. In the update, Kellner said he was “now a

party to that proxy fight.”19 Kellner attended AIM’s annual meeting in person. He

was disappointed by the lack of engagement and felt “angry” over what had

occurred.20 Kellner reached out to the investment group to gauge their level of

commitment to continue their nomination efforts.

C.

Following the 2022 annual meeting, the AIM board took a new look at its

governance structure. In response to stockholder feedback, the board sought to add

17 Id. at *17. 18 AIM ImmunoTech, Inc. v. Tudor et al., No. 5:22-cv-323 (M.D. Fla.). The court dismissed the complaint as moot following the 2022 annual meeting. 19 Kellner, 307 A.3d at 1013 (quoting the record). 20 Id. at 1014 (quoting the record).

12 additional directors who would “bring diversity and additional biotechnology

commercialization experience.”21 Chioini viewed this as an opportunity to get onto

the board. He instructed his counsel, John Harrington of BakerHostetler, to relay to

AIM his and Rice’s continued interest. Harrington informed AIM’s Delaware

counsel at Potter Anderson & Corroon LLP that Chioini and Rice wanted to “avoid

another proxy contest” and instead would be amenable to “mutually agreeable

directors” joining the board.22 Harrington stressed that they were otherwise “ready

to come out guns blazing” next year.23 Soon after, Chioini and Kellner spoke for the

first time. Chioini told Harrington that Kellner was “very interested in working with

[them] to remove these guys” and “want[ed] to keep in touch.”24

Before the 2023 annual meeting, the board considered amendments to AIM’s

advance notice bylaws. The board engaged Potter Anderson for the review. Potter

Anderson circulated a proposed set of amendments. The proposed bylaw

amendments were intended to respond “to significant activist activity during 2022

in which an activist group . . . engag[ed] in efforts to conceal who was supporting

and who was funding the nomination efforts and to conceal the group’s plans for the

21 Id. (quoting the record). 22 Id. at 1015 (quoting the record). 23 Id. (quoting the record). 24 Id. (alterations in original) (quoting the record).

13 Company,” and to modernize and bring the bylaws in line with recent amendments

to the Delaware General Corporation Law (“DGCL”) and federal law.25 Potter

Anderson presented the amendments at a board meeting where counsel discussed

the Jorgl nomination. The board concluded that the bylaw provisions were not

“preclusive or unreasonably restrictive” of stockholders’ ability to make proposals

or nominations.26 The board made minor changes and thereafter adopted the bylaws

by unanimous vote (the “Amended Bylaws”).27

As the third nomination effort commenced, Tudor, who was supposedly

employed by Deutsch to do back-office tasks, dropped out of sight. The remaining

individuals were Kellner, Deutsch, Chioini, and Rice. They met with their counsel

to strategize. Kellner promised to fund the effort if Chioini and Deutsch also made

a smaller contribution. Kellner, Deutsch, and Chioini signed an engagement letter

with BakerHostetler.28

BakerHostetler contacted AIM on Kellner’s behalf to request the company’s

director and officer (D&O) questionnaire and a representation and agreement

referred to in the Amended Bylaws. The Amended Bylaws gave AIM five days to

25 Id. at 1016 (quoting the record). 26 Id. (quoting the record). 27 A408. 28 A541.

14 complete and send the questionnaire, during which the board revised the

questionnaire to require additional information from Kellner and his nominees.

Kellner submitted a Schedule 13D filing with the Securities and Exchange

Commission. Equels contacted the board to schedule a discussion about the “second

attempt of [a] hostile takeover.”29 On August 3, 2023, the evening before the

nomination deadline – Kellner submitted his notice that he intended to nominate

himself, Chioini, and Deutsch as director candidates at the 2023 annual meeting.30

The twenty-page notice contained lengthy disclosures.31 It contained

information regarding the nominees such as: biographical details;32 employment

history;33 group agreements;34 statements on affiliations with Lautz, Tudor, Rice,

Jorgl, and Xirinachs;35 prior board service;36 meeting dates;37 equity ownership in

29 Kellner, 307 A.3d at 1018 (alteration in original) (quoting the record). 30 A683. 31 A683–702. 32 A685. 33 Id. 34 A688. 35 A690–91. 36 A692. 37 A693.

15 AIM and its competitors by the nominees and their families;38 and intent to solicit

stockholders.39 Notably, the notice rejected the existence of any sort of agreement,

arrangement, or understanding (“AAU”) involving Tudor for the Jorgl nomination;40

disclosed that Chioini had no AAUs with Lautz or Tudor, despite Chioini having

been nominated by Lautz in the invalid 2022 attempt;41 disclosed no AAUs of

Chioini despite Chioini incurring significant legal fees with no equity ownership of

AIM stock;42 and did not disclose any AAU of Xirinachs, despite his financial

support of the activist effort.

The nominees’ D&O questionnaires contained information regarding the

nominees such as their: educational background;43 trade qualifications;44 prior board

38 A697–99. 39 A701. 40 A690. 41 Id. 42 A689. 43 A717. 44 Id.

16 service;45 criminal history;46 financial information;47 regulatory action;48 diversity;49

group agreements;50 economic interest in the nomination;51 and social media

presence.52

Four days later, AIM’s outside communications advisor sent a draft press

release concerning the nomination to Equels, AIM’s counsel, and AIM’s investor

relations team. The draft stated, “[a] hostile takeover of the Board would not only

put shareholders’ investments at risk, it would also be detrimental to the patients for

whom we are working to bring new life-saving oncology therapies to market – most

notably by repurposing our lead drug, Ampligen.”53 Counsel recommended

revisions to the messaging as “no determination ha[d] been made yet as to whether

the notice complies with AIM’s advance notice bylaws.”54

45 A718. 46 Id. 47 Id. 48 A722. 49 A724. 50 A730. 51 A732. 52 A733. 53 Kellner, 307 A.3d at 1018 (alteration in original) (quoting the record). 54 Id. (alteration in original) (quoting the record).

17 The board met over three sessions in a two-week period to discuss the

nomination. In an August 8 meeting, Equels emphasized that “protecting

stockholders was paramount” considering the overlapping people between the prior

and current nomination efforts and their troubling backgrounds.55 The board hired

Potter Anderson and Kirkland & Ellis LLP to evaluate the notice. In addition, AIM

filed a motion seeking to revive the dismissed Florida action, characterizing the

Kellner notice as misleading and a continuation of the 2022 activism.56 Based on

the omissions and misstatements, AIM’s complaint characterized Kellner, Deutsch,

and the other group members as posing an “ongoing . . . threat to AIM and its

shareholders.”57

At the August 21 meeting, counsel advised the board that the Kellner notice

did not comply with the Amended Bylaws. Specifically, absent from the notice, as

interpreted by counsel, were: (1) undisclosed AAUs among the activists; (2)

disclosure of known supporters of the nomination; (3) disclosure of the specific date,

rather than windows of time, of first contact between the activists; and (4) other

information, such as past adverse recommendations for public board service from

independent proxy advisory firms. After explaining the purported deficiencies,

55 Id. at 1019 (quoting the record). 56 AIM ImmunoTech, Inc. v. Tudor et al., No. 5:22-cv-323 (M.D. Fla.). The motion was denied. 57 Kellner, 307 A.3d at 1019 (quoting the record).

18 counsel reviewed litigation options with the board. The board concluded that it

required additional time to consider its course of action.

The following morning, the board reconvened to reject unanimously Kellner’s

nomination notice for not complying with the Amended Bylaws. The board

concluded that the notice was “designed to omit and conceal information and to

provide incomplete or misleading disclosures that destabilize the important

disclosure function that [AIM’s] Advance Notice Provisions were designed to

serve.”58 The board authorized a letter to notify Kellner of the rejection. AIM’s

counsel notified BakerHostetler of the rejection by letter.59 The rejection letter sent

to Kellner, which explained the various disclosure deficiencies, stated that the

deadline for submitting a timely notice had passed. The board would not, therefore,

consider an updated notice for the 2023 annual meeting. Kellner issued a press

release announcing that he had filed litigation and urged AIM stockholders to

disregard board proxy contest communications.

The rejection letter described several instances of non-compliance with AIM’s

bylaws – but was primarily focused on the deficient disclosure of AAUs.60 The

notice alleged that Kellner failed to disclose various AAUs relating to the 2022 and

58 Id. at 1020 (alteration in original) (quoting the record). 59 A1055. 60 A1055–68.

19 2023 annual meetings.61 Among other things, AIM found it not credible that

nominee Chioini had no AAUs other than the July 2023 agreement based on the

factual history between the company and the insurgents, as well as the fact that

Chioini owned no shares of AIM and expended both time and money on the

nomination effort.62 Similarly, AIM doubted that Xirinachs lacked AAUs given his

extensive history of working with Chioini and Tudor on nominating new board

members.63

Additionally, the letter identified “other” instances of “material” omissions,

such as: providing materially false information regarding nominee qualifications;64

material omission of nominee biographical information;65 failure to disclose certain

affiliations;66 failure to disclose certain ownership information;67 failure to disclose

61 A1057, 59. 62 A1060. 63 Id. 64 Id. 65 A1062. 66 Id. 67 A0163.

20 relevant dates;68 failure to disclose information required by the proxy rules;69 and

making an inaccurate certification regarding compliance with legal requirements.70

D.

Kellner filed a complaint in the Court of Chancery, naming AIM and its board

members as defendants.71 In his complaint, Kellner asked for declarations that the

Amended Bylaws are unlawful, or in addition and in the alternative, that the

defendants’ application of the bylaws to reject his notice is unlawful and/or

inequitable; that each of Equels, Mitchell, and Appelrouth breached their fiduciary

duties by adopting the Amended Bylaws; and that the board breached its fiduciary

duties by rejecting the notice under the Amended Bylaws.72 The defendants

answered and counterclaimed against Kellner, seeking declarations that: the

Amended Bylaws are lawful and valid; the notice did not comply with the Amended

Bylaws; the notice was lawfully and validly rejected for failing to comply with the

Amended Bylaws; and that AIM’s directors did not breach their fiduciary duties by

68 A1064. 69 Id. 70 A1067. 71 B588. 72 B635.

21 adopting the Amended Bylaws or by rejecting Kellner’s notice.73 Following a three-

day expedited trial, the court concluded that many of the provisions in the Amended

Bylaws were invalid, but the board’s rejection of Kellner’s nominations was

nevertheless equitable.74

First, the court determined that the Amended Bylaws were not adopted on a

clear day.75 As such, the court treated the Amended Bylaws adoption as a defensive

measure, applied the enhanced scrutiny standard of review, and placed the burden

of proof on the defendants.76 The court focused its analysis on six bylaws used to

support the notice’s rejection:

• Section 1.4(c)(1)(D), “the AAU Provision,” requiring “a complete and accurate description of all agreements, arrangements or understandings [AAUs] (whether written or oral, and including promises)” between a broadly defined group of people including any “Holder” and “Stockholder Associated Person [SAP],” “with respect to the nominations or [AIM] . . . existing presently or existing during the prior twenty-four (24) months . . . .”77

o A Holder is defined as “the Noticing Stockholder and each beneficial owner, if any, on whose behalf the nomination is made or other business is being proposed.”78

73 Dfs.’ Ans. Ver. Compl. and Ver. CC. at 100. 74 Kellner, 307 A.3d at 1045. 75 Id. at 1024. 76 Id. 77 A409. 78 A412.

22 o A SAP is defined “as to any Holder, (i) any person acting in concert with such Holder with respect to the Stockholder Proposal or the Corporation, (ii) any person controlling, controlled by, or under common control with such Holder or any of their respective Affiliates and Associates, or a person acting in concert therewith with respect to the Stockholder Proposal or the Corporation, and (iii) any member of the immediate family of such Holder or an Affiliate or Associate of such Holder.”79

• Section 1.4(c)(1)(E), “the Consulting/Nomination Provision,” requiring disclosure of AAUs “between or among each Holder and/or any Stockholder Associated Person . . . to consult or advise on any investment or potential investment in a publicly listed company . . . and/or . . . to nominate, submit, or otherwise recommend the Stockholder Nominee for appointment, election or re-election . . . to any officer, executive officer or director role of any publicly listed company . . . during the past ten (10) years . . . .”80

• Section 1.4(c)(4), “the Known Supporter Provision,” requiring the names and contact info “of other stockholders . . . known by any Holder or Stockholder Associated Person to support such Stockholder Proposal or Stockholder Proposals . . . .”81

• Section 1.4(c)(3)(B), “the Ownership Provision,” a 1,099-word run-on sentence of 13 subsections, requiring, among other things, disclosures relating to ownership of any equity interest in AIM and “any principal competitor” of AIM, by a broadly defined group of people including SAPs.82

• Section 1.4(c)(1)(H), “the First Contact Provision,” requiring “the dates of first contact between any Holder and/or Stockholder Associated Person, on the one hand, and the Stockholder Nominee, on the other hand, with respect 79 Id. 80 A409. 81 A411. 82 A410. Mitchell, AIM’s board chair, testified that if the directors had read the bylaw “line by line” they “would still be in the meeting.” Kellner, 307 A.3d at 1034 (quoting the record). Like AIM’s board, we will not lengthen this opinion by reviewing line-by-line the Ownership Provision’s requirements.

23 to (i) [AIM] and (ii) any proposed nomination or nominations of any person or persons (including, without limitation, any Stockholder Nominee) for election or re-election to the Board of Directors.”83

• Sections 1.4(c)(1)(L) and 1.4(e), “the Questionnaire Provisions,” requiring director nominees to complete a form of the D&O questionnaire. Upon request for a form questionnaire, the corporate secretary must issue the form within five business days. The form questionnaire required disclosure, “to the extent known” of any adverse recommendations by proxy advisory firms.84 Next, the court considered whether the board responded to a legitimate

threat.85 The court held that, given the composition and history of the insurgent

group, the board was reasonable when it concluded that it faced a threat to its

objective of gathering complete information regarding director nominations,

including the identity of those making and supporting the nominations.86

The court reviewed next whether the board’s defensive acts were reasonable

and not preclusive of a proxy contest.87 After engaging in a context-specific analysis

of each of the six provisions, the court held that four of the six challenged bylaws

were inequitable and “facially invalid.” The four invalidated bylaws, and the court’s

reasoning, follow:

83 A409. 84 A410–11. 85 Kellner, 307 A.3d at 1025–26 (citing Coster v. UIP, 300 A.3d 656 (Del. 2023)). 86 Id. at 1026. 87 Id. at 1027.

24 • The AAU Provision was more “akin to tripwire than an information gathering tool.”88 The bylaw’s disclosure requirements coupled with the definition of a SAP resulted in vague and overbroad requirements ripe for subjective interpretation by the board.89

• The Consulting/Nomination Provision imposed ambiguous and onerous requirements across a lengthy term. The provision contains the same SAP requirement as the AAU and goes even further than the AAU, by requesting any investment advice involving any public company over a ten-year term. The court concluded that “[a]t worst, it is draconian,” because “it would give the board license to reject a notice based on a subjective interpretation of the provision’s imprecise terms.”90

• The Known Supporter Provision was vague about what qualifies as “support.” A similar bylaw, which withstood scrutiny in a separate action in the Court of Chancery, only requested “financial” information. The bylaw here was unqualified in the nature of the support sought, and therefore impeded the stockholder franchise.91

• The Ownership Provision was “indecipherable” and seemingly designed to preclude a proxy contest.”92

The court found that the First Contact and Questionnaire Provisions survived

enhanced scrutiny review. As the court held, the First Contact Provision was not

preclusive because the information requested was readily discernible.93 And Kellner

88 Id. at 1030. 89 Id. 90 Id. at 1031. 91 Id. at 1032 (citing Rosenbaum v. CytoDyn, Inc., 2021 WL 4775140, at *19 (Del. Ch. Oct. 13, 2021)). 92 Id. at 1034. 93 Id. at 1035.

25 only challenged the timing aspect of the Questionnaire Provisions, which the court

held was reasonable.94

After finding the AAU Provision “invalid,” the court reverted to AIM’s prior,

valid AAU version.95 The 2016 AAU Provision, which the court reviewed in the

Jorgl litigation and was a subset of the 2023 AAU Provision, lacked the SAP terms

which rendered the 2023 AAU Provision inequitable.96 Central to the court’s

reasoning was that “[g]iven the vital corporate considerations at risk if nominating

stockholders conceal AAUs, it would risk further inequity to excuse the Kellner

Notice from disclosing them when AIM had a validly enacted provision in place pre-

amendment.”97

The court then held that Kellner’s notice and the director nominees’ D&O

responses did not comply with the 2016 AAU Provision, the First Contact Provision,

and the Questionnaire Provisions. Specifically, the court ruled that: the notice was

misleading because it did not disclose the actual date when an AAU among Kellner,

94 Id. at 1036. 95 Id. at 1038 (citing Hollinger Int’l, Inc. v. Black, 844 A.2d 1022 (Del. Ch. 2004), aff’d, 872 A.2d 559 (Del. 2005); Rainbow Mountain, Inc. v. Begeman, 2017 WL 1097143 (Del. Ch. Mar. 23, 2017)). 96 Id. (citing Jorgl, 2022 WL 16543834, at *11); A277–78. 97 Kellner, 307 A.3d at 1038.

26 Deutsch, and Chioini arose;98 Kellner did not disclose the date of his first contact

with Deutsch and only provided a vague date for his contact with Chioini;99 and the

D&O responses were false as all three of the nominees had prior adverse

recommendations from proxy advisors.100 In light of the noncompliance with the

prior version of the bylaws, the court held that, after applying enhanced scrutiny, the

board acted reasonably when it rejected Kellner’s notice.101 The court also found

that the board’s actions were not manipulative nor was the rejection “preordained,”

and the nominees were the ones engaging in manipulative conduct.102

The Court of Chancery concluded as follows: “[r]egarding Kellner’s claim

concerning the validity of the Amended Bylaws and AIM’s counterclaim, judgment

is entered for Kellner in part and for AIM in part. Regarding Kellner’s claim

concerning his compliance with the Amended Bylaws and the board’s rejection of

the Kellner Notice, judgment is entered in favor of the defendants.”103

98 Id. at 1040. 99 Id. at 1041. 100 Id. 101 Id. at 1042–43. 102 Id. at 1043–44. 103 Id. at 1044–45.

27 E.

Kellner raises three issues on appeal.104 First, he claims that the court

erroneously determined that his notice was deficient under the 2016 AAU

Provision.105 He argues that the board did not rely on the 2016 AAU Provision to

reject his notice, and therefore the court cannot apply an after-the-fact reason for the

board’s rejection.106 In the alternative, he argues that the 2016 AAU Provision was

repealed in March 2023 and therefore cannot support the rejection many months

later.107

Next, according to Kellner, the court erred by concluding that certain bylaw

amendments satisfied enhanced scrutiny.108 He argues that the court failed to

evaluate “inextricably related bylaws together” and that it cannot be the case that

some bylaws were inequitably designed to thwart the nomination effort while others

supported an equitable rejection of the notice.109 And regardless, he claims, the

isolated provisions the court upheld fail enhanced scrutiny.110

104 Opening Br. at 3. 105 Id.at 12. 106 Id. 107 Id. at 15. 108 Id. at 18. 109 Id. at 19 (citing Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1387 (Del. 1995)). 110 Id. at 27.

28 Kellner also argues that the First Contact Provision is inequitable because it

serves no important corporate interest, is preclusive, and unreasonable.111 Further,

according to Kellner, the Questionnaire Provisions solicited unimportant

information and the five-business-day window to produce the questionnaire allowed

for gamesmanship by the board.112 Kellner points out that the court did not address

the portion of Kellner’s complaint that sought a declaration that the board violated

its fiduciary duties – despite finding four of the bylaws inequitable.113

Finally, Kellner argues that the court erroneously upheld the rejection by not

applying the Amended Bylaws properly to the notice.114 He contends that his notice

complied in all material respects with the 2016 AAU Provision and would have

ensured an informed stockholder vote.115 Kellner also argues that the notice

complied with the First Contact Provision and Questionnaire Provisions by

providing the dates of first contact, and that the nominees disclosed the adverse

recommendations by proxy advisors “to the extent known.”116

111 Id. 112 Id. at 29. 113 Id. at 31. 114 Id. at 32. 115 Id. at 33, 37. 116 Id. at 43–44.

29 The defendants raise three issues on cross-appeal and ask that we affirm the

rest of the court’s decision.117 First, they contend that the court misconstrued

Kellner’s as-applied challenge as a facial challenge.118 According to the defendants,

Kellner made only an as-applied challenge.119 Second, they claim the court

misapplied the facial validity standard.120 The defendants argue that, under

Delaware law, bylaws are presumed valid, and the burden is on the plaintiff to

demonstrate that they “‘cannot operate lawfully or equitably under any

circumstances.’”121 As such, the court erred when it invalidated four of the Amended

Bylaws by applying enhanced scrutiny. And third, they argue that the court erred

by finding that four provisions of the Amended Bylaws failed enhanced scrutiny

review because they are all proportional to the threat of an uninformed stockholder

vote.122

On appeal, we accept the court’s factual findings if they are “sufficiently

supported by the record and are the product of an orderly and logical deductive

117 Answering Br. at 6. 118 Id. at 27. 119 Id. 120 Id. at 30. 121 Id. (quoting Salzberg v. Sciabacucchi, 227 A.3d 102, 113 (Del. 2020)). 122 Id. at 34–40.

30 process.”123 Only when they are “clearly wrong and the doing of justice requires

their overturn” are we “free to make contradictory findings of fact.”124 We review

de novo the court’s legal conclusions.125 We review the results of the court’s

enhanced scrutiny analysis and interpretation of corporate bylaws de novo.126

II.

The DGCL is broadly enabling and offers “immense freedom for businesses

to adopt the most appropriate terms for the organization, finance, and governance of

their enterprise.”127 Consistent with this legislative choice, the DGCL places

minimal procedural and substantive requirements on stockholders and directors

when addressing bylaws.128 As a matter of procedure, stockholders have the “power

to adopt, amend or repeal bylaws,”129 and directors may do so if authorized by the

123 Levitt v. Bouvier, 287 A.2d 671, 673 (Del. 1972). 124 Id. 125 Coster, 300 A.3d at 663. 126 Id.; Airgas, Inc. v. Air Prod. & Chemicals, Inc., 8 A.3d 1182, 1188 (Del. 2010). 127 Salzberg, 227 A.3d at 116. 128 See 8 Del. C. § 211(b) (“Unless directors are elected by written consent in lieu of an annual meeting as permitted by this subsection, an annual meeting of stockholders shall be held for the election of directors on a date and at a time designated by or in the manner provided in the bylaws.”); id. § 211(e) (“All elections of directors shall be by written ballot unless otherwise provided in the certificate of incorporation; if authorized by the board of directors . . . .”). 129 8 Del. C. § 109(a). This power must be read with Section 141(a) of the DGCL. CA, Inc. v. AFSCME Emps. Pension Plan, 953 A.2d 227, 232 (Del. 2008) (“[T]he shareholders’ statutory power to adopt, amend or repeal bylaws is not coextensive with the board’s concurrent power and is limited by the board’s management prerogatives under Section 141(a).”).

31 certificate of incorporation.130 As a matter of substance, bylaws “may contain any

provision, not inconsistent with law or with the certificate of incorporation, relating

to the business of the corporation, the conduct of its affairs, and its rights or powers

or the rights or powers of its stockholders, directors, officers or employees.”131

Advance notice bylaws require stockholders to provide the board with prior

notice of, and information about, their director nominations. They are “designed and

function to permit orderly meetings and election contests and to provide fair warning

to the corporation so that it may have sufficient time to respond to shareholder

nominations.”132 Advance notice bylaws assist the board’s “information-gathering

and disclosure functions, allowing boards of directors to knowledgeably make

recommendations about nominees and ensuring that stockholders cast well-informed

130 8 Del. C. § 109(a) (“[A]ny corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors . . . .”). As a result of Section 109’s enabling language, stockholders, through the certificate of incorporation, may “assent to not having to assent to board-adopted bylaws.” Boilermakers Loc. 154 Ret. Fund & Key W. Police & Fire Pension Fund v. Chevron Corp., 73 A.3d 934, 956 (Del. Ch. 2013) (citing CA, 953 A.2d at 231). Regardless of the authority vested in the board, stockholders retain the power to adopt and amend bylaws and may repeal bylaws adopted by the board. Id. 131 8 Del. C. § 109(b). 132 Openwave Sys. Inc. v. Harbinger Cap. Partners Master Fund I, Ltd., 924 A.2d 228, 239 (Del. Ch. 2007).

32 votes.”133 They have evolved over time to meet changing market conditions and to

adjust to evolving federal securities regulations.134

Under Delaware law, bylaws are “presumed to be valid” and must be

interpreted “in a manner consistent with the law.”135 A facially valid bylaw is one

that is “authorized by the Delaware General Corporation Law (DGCL), consistent

with the corporation’s certificate of incorporation, and not otherwise prohibited.”136

When a bylaw is challenged in court, it is insufficient for a plaintiff to simply assert

that “under some circumstances, a bylaw might conflict with a statute, or operate

133 Paragon Techs., Inc. v. Cryan, 2023 WL 8269200, at *7 (Del. Ch. Nov. 30, 2023) (internal quotation marks omitted). 134 Early advance notice bylaws required advance notice of the nomination accompanied by basic information. Donald F. Parsons & Jason S. Tyler, Activist Stockholders, Corporate Governance Challenges, and Delaware Law, RESEARCH HANDBOOK ON MERGERS AND ACQUISITIONS 7 n.13 (Claire A. Hill & Steven Davidoff Solomon eds., 2016). Over time, bylaws imposed more onerous disclosure requirements about the stockholder nominator and nominees. Id. The information sought typically related to the nominator’s financial positions with respect to the company, such as any derivative positions held, and the identities of persons acting in concert with the nomination group. Id. Until recently, dissident stockholders had a separate proxy card, meaning stockholders could only vote between competing slates. In 2021, the SEC adopted Rule 14a-19, which mandated a single universal proxy card. It allowed stockholders to pick directors from both the incumbent and rival slates from the same card. 17 CFR § 240.14a-19. The universal proxy rules prompted further evolution of advance notice bylaws to better conform to the rules. Aaron Wendt & Krishna Shah, 2023 Proxy Season Briefing: Key Trends and Data Highlights, Harvard Law School Forum on Corporate Governance (Aug. 17, 2023), https://corpgov.law.harvard.edu/2023/08/17/2023-proxy-season-briefing-key-trends-and-data- highlight/ (“More than 685 companies in our coverage amended advance notice bylaws in response to universal proxy[.]”). 135 Frantz Mfg. Co. v. EAC Indus., 501 A.2d 401, 407 (Del. 1985). 136 ATP, 91 A.3d at 557–58.

33 unlawfully.”137 Instead, the plaintiff must demonstrate that the bylaw cannot operate

lawfully under any set of circumstances.138

Even if facial validity is not at issue, bylaws are still subject to judicial review.

If the court has before it a “genuine, extant controversy” involving the adoption,

amendment, or application of bylaws, the Court of Chancery reviews corporate acts

not only for their legality but also for their equity.139 The General Assembly’s

“capacious grant of power is policed in large part by the common law of equity, in

the form of fiduciary duty principles.”140 As we have repeated time and again since

137 Id. 138 Id. See also Salzberg, 227 A.3d at 113 (“[T]he plaintiff must show that the charter provisions ‘cannot operate lawfully or equitably under any circumstances.’ Plaintiffs must demonstrate that the charter provisions ‘do not address proper subject matters’ as defined by statute, ‘and can never operate consistently with law.’” (quoting Cedarview Opportunities Master Fund, L.P. v. Spanish Broad. Sys., Inc., 2018 WL 4057012, at *20 (Del. Ch. Aug. 27, 2018); Boilermakers, 73 A.3d at 949)). 139 Boilermakers, 73 A.3d at 949 (“Thus, a plaintiff can challenge the real-world enforcement of a forum selection bylaw. But that review happens when there is a genuine, extant controversy in which the forum selection bylaw is being applied.”). A court should only hear bylaw adoption, amendment, and application claims that are “ripe for judicial determination.” Stroud v. Milliken Enterprises, Inc., 552 A.2d 476, 480 (Del. 1989). A bylaw dispute is ripe when litigation is “unavoidable” and the “material facts are static.” Id. at 481 (citing Stabler v. Ramsay, 88 A.2d 546, 550 (Del. 1952); Rollins Int’l, Inc. v. Int’l Hydronics Corp., 303 A.2d 660, 662 (Del. 1973)). Fiduciary review standards are meant to address “real-world concerns when they arise in real- world and extant disputes, rather than hypothetical and imagined future ones.” Boilermakers, 73 A.3d at 963. Here, the AIM board amended its bylaws during a prolonged proxy contest with dissidents, and ultimately used those bylaws to keep the insurgents off the ballot. The defendants have not argued that the dispute is premature for adjudication. 140 Hollinger, 844 A.2d at 1078.

34 our 1971 decision in Schnell v. Chris-Craft Industries, Inc., “inequitable action does

not become permissible simply because it is legally possible.”141 In other words,

when corporate action is challenged, it must be twice-tested – first for legal

authorization, and second by equity.142 The same principles apply to board-adopted

advance notice bylaws.

Delaware courts scrutinize closely corporate acts that affect stockholder

voting. As Chancellor Allen famously stated in Blasius Industries, Inc. v. Atlas

Corp., “[t]he shareholder franchise is the ideological underpinning upon which the

legitimacy of directorial power rests.”143 Advance notice bylaws can be misused to

thwart stockholder choice and entrench the existing board of directors. To pass

judicial review, bylaws must, as a matter of equity, “be reasonable in their

application” and not unfairly interfere with stockholder voting.144

141 285 A.2d 437, 439 (Del. 1971). 142 See In re Invs. Bancorp, Inc. S’holder Litig., 177 A.3d 1208, 1222 (Del. 2017) (“[D]irectors’ exercise of [their] authority must be done consistent with their fiduciary duties.”); Hollinger, 844 A.2d at 1077–78 (“In general, there are two types of corporate law claims. The first is a legal claim, grounded in the argument that corporate action is improper because it violates a statute, the certificate of incorporation, a bylaw or other governing instrument, such as a contract. The second is an equitable claim, founded on the premise that the directors or officers have breached an equitable duty that they owe to the corporation and its stockholders.”). 143 564 A.2d 651, 659 (Del. Ch. 1988). 144 Frantz, 501 A.2d at 407 (citing Schnell, 285 A.2d at 407); Hubbard v. Hollywood Park Realty Enterprises, Inc., 1991 WL 3151, at *11 (Del. Ch. Jan. 14, 1991) (holding that an advance notice bylaw must “afford the shareholders a fair opportunity to nominate candidates”).

35 C.

In Coster v. UIP Companies, Inc., we folded Schnell and Blasius review into

Unocal enhanced scrutiny review when a board interferes with a corporate election

or a stockholder’s voting rights in contests for control.145 If a board adopts, amends,

or enforces advance notice bylaws during a proxy context, Coster requires a two-

part analysis. As explained in Coster, for the first step:

the court should review whether the board faced a threat “to an important corporate interest or to the achievement of a significant corporate benefit.” The threat must be real and not pretextual, and the board’s motivations must be proper and not selfish or disloyal. As Chancellor Allen stated long ago, the threat cannot be justified on the grounds that the board knows what is in the best interests of the stockholders.146

145 300 A.3d at 672 (citing Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)). Prior to our decision in Coster, there was debate in the Court of Chancery over whether Blasius’ “compelling justification” standard should function as an independent standard of review from enhanced scrutiny review. See, e.g., Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786, 788 (Del. Ch. 2007) (stating that, rather than functioning as a standard of review, Blasius was more an “an after-the-fact label placed on a result”); Chesapeake Corp. v. Shore, 771 A.2d 293, 323 (Del. Ch. 2000) (“Given this interrelationship and the continued vitality of Schnell v. Chris–Craft, one might reasonably question to what extent the Blasius ‘compelling justification’ standard of review is necessary as a lens independent of or to be used within the Unocal frame.”). Blasius is now subsumed in enhanced scrutiny review. 300 A.3d at 672. 146 300 A.3d at 672 (quoting Phillips v. Insituform of N. Am., Inc., 1987 WL 16285, at *7 (Del. Ch. Aug. 27, 1987)). “When Unocal is applied in this context, it can ‘subsume[ ] the question of loyalty that pervades all fiduciary duty cases, which is whether the directors have acted for proper reasons’ and ‘thus address[ ] issues of good faith such as were at stake in Schnell.’” Id. (alterations in original) (quoting Mercier, 929 A.2d at 807).

36 If the board adopted advance notice bylaws for a selfish or disloyal motive –

meaning for the primary purpose of precluding a challenge to its control – the

remedy is to declare the advance notice bylaws inequitable and unenforceable.147

Second, if the board’s actions pass muster under the first step of enhanced

scrutiny review, then the court considers:

whether the board’s response to the threat was reasonable in relation to the threat posed and was not preclusive or coercive to the stockholder franchise. To guard against unwarranted interference with corporate elections or stockholder votes in contests for corporate control, a board that is properly motivated and has identified a legitimate threat must tailor its response to only what is necessary to counter the threat. The board’s response to the threat cannot deprive the stockholders of a vote or coerce the stockholders to vote a particular way.148

147 Schnell, 285 A.2d at 437; see Frantz, 501 A.2d at 407 (“Schnell prohibits incumbent management from entrenching itself by taking action which, though legally possible, is inequitable.”). MM Companies, Inc. v. Liquid Audio, Inc., 813 A.2d 1118, 1132 (Del. 2003) (citing Schnell, 285 A.2d at 439) (holding that a bylaw amendment expanding the board’s size was intended to interfere with the stockholder franchise, invalidating the appointment of new board members, thereby rendering the expansion bylaw unenforceable); AB Value Partners, LP v. Kreisler Mfg. Corp., 2014 WL 7150465, at *5 (Del. Ch. Dec. 16, 2014) (holding that “[p]laintiff must provide compelling facts indicating that enforcement of the [advance notice bylaw] is inequitable” to enjoin application of an otherwise valid bylaw under Schnell); Hollinger, 844 A.2d at 1081 (finding bylaw amendments implemented by controller to facilitate a favored transaction and neutralize board’s opposition “were clearly adopted for an inequitable purpose and have an inequitable effect”); Hubbard, 1991 WL 3151, at *13 (ordering waiver of an advance notice bylaw to allow shareholders to nominate an opposing director slate in response to a material change in company policy instituted after nomination deadline); Lerman v. Diagnostic Data, Inc., 421 A.2d 906, 914 (Del. Ch. 1980) (holding that a 70-days’ notice bylaw was inequitable in a situation where the board announced the annual meeting only 63 days before it was to occur, rendering compliance impossible); Linton v. Everett, 1997 WL 441189, at *10 (Del. Ch. July 31, 1997) (“[D]irectors’ decision to provide only thirty days’ notice, which would inevitably trigger the advance notice provision in a manner foreseeably adverse to any shareholders desiring to nominate an opposing slate, constituted an inequitable manipulation of the election process.”). 148 Coster, 300 A.3d at 672 (citing Blasius, 564 A.2d at 656).

37 Enhanced scrutiny review ensures that a board’s actions are sufficiently

tailored to the threat at hand such that the act does not unfairly impede the free

exercise of the stockholder franchise.149 If a board is motivated to counter a

legitimate threat, but its response is disproportionate, the Court of Chancery has the

discretion to impose an equitable remedy.150 In the context of advance notice

bylaws, if the bylaws were adopted for a proper purpose but some of the advance

notice provisions were disproportionate to the threat posed and preclusive, the Court

of Chancery has the discretion to decide whether to enforce, in whole or in part, the

bylaws that can be applied equitably.151

149 Id. (“Unocal can also be applied with the sensitivity Blasius review brings to protect the fundamental interests at stake – the free exercise of the stockholder vote as an essential element of corporate democracy.”). 150 Following proportionality review, the Court of Chancery “has broad power to fashion an equitable remedy.” Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1391 (Del. 1995); see also Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 176 (Del. 2002) (“[T]he Court of Chancery’s ‘powers are complete to fashion any form of equitable and monetary relief as may be appropriate.’” (quoting Weinberger v. UOP, Inc., 457 A.2d 701, 714 (Del. 1983))). 151 Kellner relies on Unitrin to argue that all defensive actions by a board must stand and fall together. In Unitrin, we held that when defensive actions are “inextricably related,” they should be “scrutinized collectively” under the proportionality prong of Unocal. 651 A.2d at 1387. Unitrin’s relatedness language refers to the method of analysis, not a limitation on what relief is available. Id. at 1391. As noted in the current case, it may be necessary to assess how bylaws work together, but one problematic bylaw does not invalidate others when the board has a proper motive. Overbroad invalidation would be extreme and unnecessary when the board acted with proper motive to protect a legitimate corporate interest. Kellner, 307 A.3d at 1037 & n.331. Unitrin does not require an all-or-nothing approach to relief but rather stresses that defensive actions should be assessed “individually and collectively.” 651 A.2d at 1390. Just as the Court of Chancery will not endorse a tripwire against an activist stockholder, it should not endorse a reverse tripwire by the activist. See also Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 728 A.2d 25, 44 & n.47 (Del. Ch.), aff’d sub nom. Quickturn Design Sys., Inc. v. Shapiro, 721 A.2d 1281 (Del. 1998) (after determining that there was no dispute as to motive, that under enhanced scrutiny,

38 The Coster two-part enhanced scrutiny review – first, discerning a threat and

board motive, and second, determining whether the board’s actions were

proportionate to the threat posed and not preclusive or coercive – is meant to balance

the legitimate concerns of the board to respond to real threats with the equally

legitimate concern of allowing fully-informed stockholders to have the final say. As

stated in Unocal:

The restriction placed upon a [defensive measure] is that the directors may not have acted solely or primarily out of a desire to perpetuate themselves in office. Of course, to this is added the further caveat that inequitable action may not be taken under the guise of law. Schnell v. Chris-Craft Industries, Inc., Del.Supr., 285 A.2d 437, 439 (1971). The standard of proof . . . is designed to ensure that a defensive measure to thwart or impede a takeover is indeed motivated by a good faith concern for the welfare of the corporation and its stockholders, which in all circumstances must be free of any fraud or other misconduct. . . . However, this does not end the inquiry. A further aspect is the element of balance. If a defensive measure is to come within the ambit of the business judgment rule, it must be reasonable in relation to the threat posed.152 III.

In this appeal, it is apparent that confusion existed in the Court of Chancery

between a “validity” challenge and an “enforceability” challenge. Some of that

the court held that a bylaw amendment could operate equitably, but not a redemption plan); QVC Network, Inc. v. Paramount Commc’ns Inc., 635 A.2d 1245, 1271 (Del. Ch.), aff’d and remanded, 637 A.2d 828 (Del. 1993) (enjoining most, but not all defensive measures taken by the board in responding to a corporate takeover). 152 493 A.2d at 955 (citations omitted).

39 confusion might be attributed to how courts, including this Court, have used different

words or expressions to describe the outcome of a successful bylaw challenge.153

The Court of Chancery understood that Kellner “argue[d] that the Amended Bylaws

are invalid,” and assessed whether the Amended Bylaws were “facially valid.”154

But instead of undertaking a facial validity analysis, the court employed enhanced

scrutiny review to declare four of six Amended Bylaws invalid. The court relied on

153 The confusion stems from the use of different words or expressions like invalid, void, inequitable, unenforceable, nullified, struck down, and no force and effect. The choice of words has been imprecise regarding the “thorny area” of voidness. Holifield v. XRI Inv. Holdings LLC, 304 A.3d 896, 930 (Del. 2023). For example, in Hollinger, the Court of Chancery referred to bylaw amendments as being “inequitable,” “ineffective,” “of no force and effect,” and “struck down.” 844 A.2d 1022. This Court in Frantz equated “strik[ing] down” a bylaw with rendering it “void.” 501 A.2d at 407. Other decisions have described the exercise of the board’s authority under a facially valid but inequitable bylaw as being “nullif[ied],” “invalid,” and “not being permitted to stand.” Schnell, 285 A.2d at 440 (nullifying the change in a meeting date for a stockholder vote, under a legal bylaw); Liquid Audio, 813 A.2d at 1132 (invalidating a board expansion carried out under a valid bylaw). As described above, a facially valid bylaw must be consistent with the DGCL, the certificate of incorporation, and not otherwise prohibited by law. 8 Del. C. § 109(b). An invalid bylaw is ab initio void. See Michelson v. Duncan, 407 A.2d 211, 218–19 (Del. 1979) (“The essential distinction between voidable and void acts is that the former are those which may be found to have been performed in the interest of the corporation but beyond the authority of management, as distinguished from acts which are ultra vires . . . .”). A valid bylaw, when inequitable, is rendered unenforceable. See, e.g., Hollinger, 844 A.2d 1022; Hubbard, 1991 WL 3151, at *13 (enjoining the board’s use of a valid bylaw after conducting review under Blasius and Schnell). See also Liquid Audio, 813 A.2d at 1132 (“At issue in this case is not the validity generally of either a bylaw that permits a board of directors to expand the size of its membership or a board’s power to appoint successor members to fill board vacancies. In this case, however, the incumbent board timed its utilization of these otherwise valid powers to expand the size and composition of the Liquid Audio board for the primary purpose of impeding and interfering with the efforts of the stockholders’ power to effectively exercise their voting rights in a contested election for directors.”). 154 Kellner, 307 A.3d at 1021.

40 several hypothetical scenarios where the bylaws would be patently unreasonable if

applied in that fashion.155

When a validity challenge is raised, as might have been the case here, the

court should undertake an analysis distinct from enhanced scrutiny review.156 As

explained earlier, to assess validity, the court reviews whether the bylaw is contrary

to law or the certificate of incorporation and addresses a proper subject matter.157 A

bylaw is presumed valid, and the court should not consider hypotheticals or

speculate whether the bylaw might be invalid under certain circumstances. Instead,

the burden is on the party asserting invalidity to demonstrate that the bylaw cannot

be valid under any circumstance.158

Here, with one exception, we have no trouble concluding that the Amended

Bylaws are valid. As explained earlier, under the DGCL, and as provided in AIM’s

155 Id. at 1027–35 (conducting a proportionality analysis of the AAU Provision, Consulting/Nominating Provision, Known Supporter Provision, and Ownership Provisions). 156 We do not fault the Court of Chancery for the confusion. It appears that the parties were less than clear about the nature of their claims. Kellner argues that this Court has applied enhanced scrutiny to invalidate bylaws through “adoption” claims. Reply Br. at 34. In each of the decisions cited, the reviewing court either held the bylaw unenforceable, not invalid or void – or invalidated a corporate act which misused a valid bylaw. Schnell, 285 A.2d at 439–40; Liquid Audio, 813 A.2d at 1132; Blasius, 564 A.2d at 655 (invalidating an act, not a bylaw); In re Williams Companies S’holder Litig., 2021 WL 754593, at *40 (Del. Ch. Feb. 26, 2021), aff’d sub. nom. Williams Cos., Inc. v. Wolosky, 264 A.3d 641 (Del. 2021) (TABLE) (holding an inequitable shareholder rights plan unenforceable). 157 ATP, 91 A.3d at 558. 158 Id. See also Salzberg, 227 A.3d at 113 (applying the same rule for charter provisions).

41 certificate of incorporation, the directors have the “power to adopt, amend or repeal

bylaws.”159 Kellner has not argued that the AIM board lacked such power. And

AIM’s bylaws “may contain any provision, not inconsistent with law or with the

certificate of incorporation, relating to the business of the corporation, the conduct

of its affairs, and its rights or powers or the rights or powers of its stockholders,

directors, officers or employees.”160 Kellner has not argued that the Amended

Bylaws are outside the broad subject matter permitted by the General Assembly.

With one exception, the Amended Bylaws are valid.

The one exception is the Ownership Provision. The Court of Chancery

concluded that the 1,099-word single-sentence provision was “indecipherable.”161

We agree. The bylaw, with its thirteen discrete parts, is excessively long, contains

vague terms, and imposes virtually endless requirements on a stockholder seeking

to nominate directors.162 AIM’s chairman stated “that the bylaw was written in such

159 8 Del. C. § 109(a). 160 Id. § 109(b). 161 Kellner, 307 A.3d at 1034 (“Though I have tried to read and understand it, the bylaw—with its 1,099 words and 13 subparts—is indecipherable.”). 162 The defendants do not meaningfully defend the structure or drafting of the bylaw, only its subject matter. Answering Br. at 39. The court considered the subject matter of the bylaw and concluded that “[a]ny justifiable objectives that might be served by aspects of the Ownership Provision are buried under dozens of dense layers of text.” Kellner, 307 A.3d at 1035.

42 a way that “no one would read it.”163 As he testified, if the directors had started

reading it “line by line” during their March 2023 board meeting, they “would still

be in the meeting.”164 An unintelligible bylaw is invalid under “any

circumstances.”165

IV.

The Court of Chancery found that, before amending AIM’s bylaws, the board

“had an objective of obtaining transparency from a stockholder seeking to nominate

director candidates.”166 The court also found that the AIM board made a reasonable

assessment that its current advance notice bylaws were insufficient to prevent a

repeat of the manipulative, misleading, and improper conduct in the 2022

nomination process.167

Given the insurgents’ troubling history, we agree with the Court of Chancery

that there was a threat to the board’s information-gathering function, and that the

163 Kellner, 307 A.3d at 1034 (quoting the record). 164 Id. (quoting the record). 165 The defendants argue that Kellner did not “bring a facial relief claim” and therefore the Court of Chancery should not have invalidated any of the bylaws. Answering Br. at 30. As Kellner points out, he challenged the Amended Bylaws’ adoption, and with respect to the Ownership Provision, he correctly argued that “it fails any and every standard of review.” Reply Br. at 35, 45. In any case, the defendants put the issue before the court when they sought a declaration that the bylaws are “valid and lawful.” Dfs.’ Ans. Ver. Compl. and Ver. CC. at 100. 166 Kellner, 307 A.3d at 1026. 167 Id.

43 AIM board identified an important corporate objective in amending its bylaws –

transparency in board elections. The court also found, however, that the AIM board

likely acted with an improper purpose when adopting the Amended Bylaws that,

unsurprisingly, were used to reject Kellner’s nomination, most notably the AAU

Of the six Amended Bylaws that are the focus of this appeal, one was

nonsensical and therefore invalid. According to the Court of Chancery, the invalid

bylaw “seem[ed] designed to preclude a proxy contest for no good reason; none were

given.”168 The court also found that, in essence, the AIM board acted inequitably

when it adopted the three remaining Amended Bylaws. It observed that the bylaws

“suggest[ed] an intention to block the dissident’s effort,”169 were “akin to a

tripwire,”170 could be “draconian,”171 and “exceed[ed] any reasonable approach to

ensuring thorough disclosure.”172 The court concluded that, when the AIM board

adopted various advance notice provisions in the Amended Bylaws, their actions

168 Id. at 1034–35. 169 Id. at 1031. 170 Id. at 1030. 171 Id. at 1031. 172 Id. at 1032.

44 “seem[ed] designed to thwart an approaching proxy contest, entrench the

incumbents, and remove any possibility of a contested election.”173

We consider these findings dispositive on appeal to the enhanced scrutiny

motive inquiry. As explained below, the Court of Chancery’s assessment about the

unreasonableness of a majority of the Amended Bylaws lead us to conclude that the

AIM board amended its bylaws for an improper purpose – to thwart Kellner’s proxy

contest and maintain control.174 The board’s conduct fails the first prong of

The AAU Provision required the disclosure of all arrangements, agreements,

or understandings, “whether written or oral, and including promises,” relating to a

board nomination.175 The Court of Chancery found the SAP term unreasonable.176

It noted that the “Holder” SAP definition included:

173 Id. at 1036. 174 We limit our ruling to the six Amended Bylaws on appeal. Other bylaws were amended for different purposes and were not challenged on appeal. As the court noted, “[c]ertain of the Amended Bylaws reflect changes to address Rule 14a-19 and cohere with the DGCL,” and are unaffected by our decision. Kellner, 307 A.3d at 1025. 175 A409. 176 Kellner, 307 A.3d at 1030.

45 (i) any person acting in concert with such Holder with respect to the Stockholder Proposal or the Corporation, (ii) any person controlling, controlled by, or under common control with such Holder or any of their respective Affiliates and Associates, or a person acting in concert therewith with respect to the Stockholder Proposal or the Corporation, and (iii) any member of the immediate family of such Holder or an Affiliate or Associate of such Holder.177 The SAP provision, according to the court, created an ill-defined web of

disclosure requirements through the interaction of terms such as “acting in concert,”

“Associate,” “Affiliate,” and “immediate family.”178 The defendants argue on

appeal that the AAU Provision is equitable because the board relied on counsel and

had a legitimate objective in seeking multi-level relationships among the activists.179

They contend that the AAU does not require knowledge the nominator does not

know and could not obtain.180 We disagree. As the Court of Chancery determined,

the SAP term in the AAU Provision requires a nominator to disclose not only

personal knowledge but also to take steps to gather information about agreements

and understandings between any members of potentially limitless class of third

parties and individuals unknown to the nominator.181

177 A412. 178 Kellner, 307 A.3d at 1030. 179 Answering Br. at 37. 180 Id. at 36. 181 Kellner, 307 A.3d at 1030.

46 We agree with the Court of Chancery that the AAU Provision, as drafted, did

not further the AIM board’s stated purpose of preventing stockholders from

misconstruing or evading the Amended Bylaws’ disclosure requirements. Instead,

it functioned as a “tripwire” rather than an information-gathering tool and

“suggest[ed] an intention to block the dissidents’ effort.”182

Next, the court determined that the Consulting/Nomination Provision was

unreasonable.183 The provision required disclosure of AAUs spanning a ten-year

window “between the nominating stockholder or an SAP, on one hand, and any

stockholder nominee, on the other hand, regarding consulting, investment advice, or

a previous nomination for a publicly traded company within the last ten years.”184

The court held that the bylaw suffers from the same SAP problem as the AAU

Provision by imposing “ambiguous requirements,” this time “across a lengthy

term.”185

182 Id. at 1031. The court, after invalidating the AAU Provision, applied the 2016 AAU Provision to reject the notice. As we have determined, the AAU Provision is still valid, even if unenforceable, and thus a reversion to the 2016 bylaw is not possible. 183 Kellner, 307 A.3d at 1031. 184 Id. (citing A409). 185 Id.

47 The court also held that the Provision was unreasonable because it sought

AAUs involving other publicly traded companies over an onerous ten-year period

and between and among a broadly defined set of third parties. The defendants argue

that the court’s reading is incorrect and that the provision only sought information

involving the nominee.186 We disagree. The provision requires the nominating

stockholder to disclose, as to each nominee, AAUs between or among each

nominator and/or any SAP, and the nominee.187 This is not just a requirement to

disclose AAUs involving the nominee, but also among the vague categories of SAPs

and the nominee.

The defendants do not address the problematic lengthy ten-year term

encompassing any public company. AIM’s Chairman characterized the relevance

of the information sought by the Provision as “arguable.”188 We agree with the Court

of Chancery that the Provision imposed ambiguous requirements across a lengthy

term; sought only marginally useful information; gave the board “license to reject a

notice” based on a subjective interpretation of its imprecise terms; and, at worst, was

“draconian.”189

186 Answering. Br. at 38. 187 A409. 188 Kellner, 307 A.3d at 1031(quoting the record). 189 Id. at 1030.

48 C.

The Court of Chancery was also troubled by the unreasonableness of the

Known Supporter Provision, which requires the nominator and nominees to list any

person who acted in “support” of a stockholder proposal.190 The defendants argue

that this provision is similar in scope and purpose to a bylaw approved by the Court

of Chancery in Rosenbaum v. CytoDyn, Inc.191 The court observed that, unlike the

CytoDyn bylaw, which only sought disclosure of known “financial support” from

stockholders, the AIM provision operates more broadly and seeks disclosure of any

support whatsoever from both stockholders and SAPs.192

The defendants point out that the bylaw in CytoDyn and the Known Supporter

Provision use virtually identical language.193 Even so, the court took issue with the

use of the troubling SAP term in the bylaw, which rendered the bylaw’s requirements

190 Id. (citing A409). 191 2021 WL 4775140, at *19 (approving a bylaw that mandated disclosure of supporters). 192 Kellner, 307 A.3d at 1032. 193 Compare CytoDyn, 2021 WL 4775140, at *9 (“[I]dentification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporations’ capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s) . . . .”), with Kellner, 307 A.3d at 1031 n.306 (“the names (including, if known, the full legal names and any alias names used) and addresses of other stockholders (including beneficial owners) known by any Holder or Stockholder Associated Person to support such Stockholder Proposal or Stockholder Proposals (including, without limitation, any nominations), and to the extent known, the class or series and number of all shares of the Corporation’s capital stock owned beneficially or of record by each such other stockholder or other beneficial owner.”).

49 far more expansive than the one at issue in CytoDyn. Like the AAU Provision, the

nominating stockholder must not only respond based on personal knowledge, but

also an ill-defined daisy chain of persons. We agree with court’s conclusion that the

Known Supporter Provision “impedes the stockholder franchise while exceeding

any reasonable approach to ensuring thorough disclosure.”194

We have also described earlier the problematic nature of the Ownership

Provision. As the court held, it is “unintelligible” and “seems designed to preclude

a proxy contest for no good reason; none were given.”195 A stockholder “could not

fairly be expected to comply.”196

V.

In the middle of a proxy contest, the AIM board adopted one unintelligible

bylaw and three unreasonable bylaws. It then used the Amended Bylaws to reject

Kellner’s nomination notice. The Court of Chancery found that the Amended

Bylaws “seem[ed] designed to thwart an approaching proxy contest, entrench the

incumbents, and remove any possibility of a contested election.”197 It also observed

194 Kellner, 307 A.3d at 1031. 195 Id. at 1034–35. 196 Id. 197 Id. at 1036.

50 that the Amended Bylaws precluded stockholders, such as Kellner, from a “fair

opportunity to nominate candidates.”198 The unreasonable demands of most of the

Amended Bylaws show that the AIM board’s motive was not to counter the threat

of an uninformed vote. Rather, the board’s primary purpose was to interfere with

Kellner’s nomination notice, reject his nominees, and maintain control. As the

product of an improper motive and purpose, which constitutes a breach of the duty

of loyalty, all the Amended Bylaws at issue in this appeal are inequitable and

therefore unenforceable.199

We also note that, according to the Court of Chancery, Kellner submitted false

and misleading responses to some of the requests.200 Given the court’s

countervailing findings about Kellner’s and his nominees’ deceptive conduct, no

further action is warranted. The judgment of the Court of Chancery is affirmed in

part and reversed in part. The case is closed.

198 Id. at 1036. 199 Kreisler Mfg. Corp., 2014 WL 7150465, at *5 (“The clearest set of cases providing support for enjoining an advance notice bylaw involves a scenario where a board, aware of an imminent proxy contest, imposes or applies an advance notice bylaw so as to make compliance impossible or extremely difficult, thereby thwarting the challenger entirely.”). 200 Kellner, 307 A.3d at 1039–40 & n.353 (finding that Kellner’s AAU disclosures were “false” and “omitted and misrepresented meaningful AAUs,” and that the 2022 AAU disclosures concealed Tudor’s role in the nomination process); Kellner v. AIM ImmunoTech Inc., 2024 WL 62666, at *2 (Del. Ch. Jan. 5, 2024) (Letter Op.) (“The resolution of that claim turned on factual findings that arrangements or understandings animating Kellner’s nomination were obfuscated from AIM’s board and stockholders. Kellner was required to disclose these arrangements or understandings. He did not.”).