The Delaware Court of Chancery has recently allowed activists a second chance to comply with an advance notice bylaw after initially rejecting their non-compliant director nomination notice. This decision came after the court concluded that the board’s reduction in size during a proxy fight constituted a breach of fiduciary duty.
Vice Chancellor Bonnie W. David issued the ruling on May 21, 2025, in the case of Vejseli v. Duffy, where she invalidated a board resolution that reduced its size and permitted activists another opportunity to nominate two new directors. The court found that while the enforcement of advance notice bylaws was reaffirmed, the board’s actions were not taken under clear circumstances and breached fiduciary duties.
In January 2024, Ionic Digital, Inc., formed from digital currency mining assets spun off from Chapter 11 proceedings, experienced management turnover leading to dissatisfaction among stockholders who aligned with third parties for a proxy contest at the company’s first annual meeting. The company’s board reduced its size without disclosure before announcing an annual meeting date which triggered nominations under the advance notice bylaw. Activists submitted nominations but failed to disclose agreements with third-party entities, leading to rejection post-deadline.
The court ruled that reducing board size was unjustified under Unocal and Blasius standards since it interfered with director elections and wasn’t necessary for stated objectives like cost savings or avoiding deadlock. The rejection of nomination notices was upheld due to non-disclosure of relevant agreements but allowed a do-over due to prior fiduciary breaches.
Gibson Dunn lawyers Andrew Kaplan, Mark Mixon, and Justine Drohan prepared this update on developments in securities litigation and corporate governance.
For further inquiries or legal assistance regarding these developments, Gibson Dunn offers contact details for their securities litigation team including Monica K. Loseman (Denver), Brian M. Lutz (San Francisco), Jason J. Mendro (Washington D.C.), Mark H. Mixon Jr. (New York), Craig Varnen (Los Angeles) among others across various practice groups such as mergers and acquisitions and private equity.
