Delaware Court Dismisses Hypothetical Bylaw Challenge

Sidley reports that in Siegel v. Morris, the Delaware Court of Chancery reaffirmed that challenges to corporate bylaws must arise from real, not hypothetical, controversies.

The Court dismissed Siegel’s complaint for lack of ripeness, emphasizing that without an actual attempt to nominate directors or a live dispute over a board’s application of a bylaw, judicial review is inappropriate.

This decision strengthens Delaware’s jurisprudence that courts will not entertain speculative claims about corporate governance provisions.

The case began in June 2024, when stockholder Siegel filed a complaint challenging an amended advance notice bylaw that governs the process for 9nominating directors.

Initially, Siegel asserted a facial challenge, arguing that the bylaw was invalid solely based on its language. After the Delaware Supreme Court’s Kellner decision clarified a high bar for facial challenges, requiring that a bylaw be incapable of lawful operation under any circumstances, Siegel amended his complaint to present an “as-applied” challenge instead.

Nevertheless, the Court found Siegel’s challenge still facial in substance. Siegel admitted he did not intend to nominate directors and could not identify any stockholder who did.

He relied on generalized concerns and indirect references to stockholder activism, but failed to show any concrete application of the bylaw that harmed a stockholder. The Court also distinguished advance notice bylaws from other corporate mechanisms, such as rights plans, noting that the former does not impose comparable financial consequences.

Sidley writes that the decision reaffirms that “Delaware courts are interested in hearing actual, existing disputes and not hypothetical ones,” and companies should assess their bylaws in light of these ongoing case law developments.