United States: Delaware Supreme Court Provides Guidance On The Interpretation Of Advance Notice Bylaws

According to a recent Delaware Supreme Court decision, advance notice bylaws are to be interpreted by "their commonly accepted meaning unless the context clearly requires a different one or unless legal phrases having a special meaning are used."¹ The plain meaning of "date"  means "the actual date of the meeting, not a possible future date" for the purpose of determining whether the shareholder has made a timely proposal or director nomination.

In Hill International, Inc. v. Opportunity Partners LP, Hill International, Inc. (Hill), a Delaware corporation, and its shareholder, Opportunity Partners L.P. (Opportunity), litigated whether Opportunity had delivered its shareholder proposals and nominees for election to the Board of Directors in accordance with Hill's advance notice bylaws.

Hill's bylaws stated that shareholders must deliver a notice of intent to present a business proposal to Hill (i) not less than 60 days nor more than 90 days prior to the shareholder meeting, if Hill provides at least 70 days' notice or prior public disclosure of the date of the annual meeting to shareholders, or (ii) no later than 10 days following the day on which such notice of the date of annual meeting was mailed or such public disclosure was made, if Hill provides less than 70 days' notice or prior public disclosure of the date of the annual meeting to shareholders. A similar provision for shareholder nominees was in Hill's bylaws.

At the crux of the dispute between Hill and Opportunity was the question of when notice of the annual meeting was provided. Hill attempted to rely onits 2014 definitive proxy statement as notice of the 2015 annual meeting, which read that the meeting would be held "on or about June 10, 2015." The proxy further specified that stockholders "must submit [their] proposal no earlier than March 15, 2015 and no later than April 15, 2015."

In Opportunity's view, the notice was provided on April 30, 2015, when Hill fixed its 2015 annual meeting date to June 9, 2015 in its 2015 definitive proxy statement. Opportunity submitted its notice of intent to present shareholder proposals and nominees for election on May 7, 2015.

Hill argued that it had provided more than 70 days' notice or prior public disclosure of its annual meeting date, and Opportunity failed to abide to the time limit specified in its bylaws. Opportunity, on the other hand, claimed that it only needed to meet the second time limit of Hill's advance notice bylaws given that Hill had provided less than 70 days' notice of the date of the annual meeting.

The legal issue turned on the interpretation of whether the wording of "on or about June 10, 2015" would constitute "notice or prior public disclosure of the date of the annual meeting" within the meaning of Hill's advance notice bylaws. The court ultimately decided against Hill, holding that the plain meaning of "the date" must be used.

In arriving at this determination, the court reaffirmed that the "bylaws of a Delaware corporation constitute part of a contract among directors, officers and stockholders formed within the statutory framework." Consequently, because Delaware bylaws are contracts, rules of contract interpretation apply to them. Further, the court stated that "if charter or bylaws provisions are unclear, [the courts] resolve any doubt in favour of the stockholder's electoral rights".

Footnote

1 Hill International, Inc. v. Opportunity Partners L.P., No 305, 2015 (Del).

The author would like to thank Lucy Liu, articling student, for her assistance in preparing this legal update.

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