When an incumbent board of directors claims that a potential proxy insurgent has failed to comply with an advance notice bylaw, who decides whether the bylaw has been satisfied? The board (subject to judicial review and, if so, under what standard) or does the court make an independent determination?
Facts: Target company has a bylaw permitting shareholders to nominate directors. Target company also has an advance notice bylaw that, inter alia, requires that potential nominees fill out a questionnaire that “include[s] all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest.” Activist shareholder informed company it intended to nominate directors and provided answers to the required questionnaire. The target board determined that the answers were inadequate and refused to include the nominees on the proxy statement/card. Activist sues. Court determines that Maryland law requires that it review the board decision under the business judgment rule and holds that plaintiff has failed to show bad faith or uninformed decision, so BJR applies.
It seems to me that if the court is correct that Maryland law limits review to BJR (and it looks like it does) and that the advance notice issue is one for the board (that's the issue on which I am uncertain) the decision is correct.
Thoughts? Comments open.
