224 A.3d 964
Del.2020Background
- Two BlackRock closed-end funds (BTZ and BQH) have identical bylaws with an advance-notice provision (Art. I §7(e)(ii)) that allows the board to request "subsequent information reasonably requested" to determine whether a nominee meets Article II §1 qualifications and sets a five-business-day response deadline.
- Saba timely submitted nomination notices for four dissident trustee nominees; the notices were high-level and lacked detail on some qualifications.
- On April 22, 2019 the Boards (via counsel) emailed a nearly 100-question standard Questionnaire (including Annex A) requesting supplemental information; the email did not cite §7(e)(ii) or the five-day deadline.
- Saba did not return completed questionnaires by the five-business-day deadline (April 29); it later submitted responses and argued the request was premature or overbroad (Trigger Theory and duplicative/unreasonable requests).
- Court of Chancery held §7(e)(ii) was the exclusive mechanism to request supplemental information but that the Questionnaire was overbroad and therefore the Boards could not enforce the five-day deadline; it enjoined the Boards from deeming Saba’s nominees ineligible. On appeal, Delaware Supreme Court affirmed the bylaw interpretation but reversed the injunction and held Saba’s nominees were ineligible for failing to timely respond; it also affirmed that laches did not bar Saba’s claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §7(e)(ii) may be invoked before record-date events (Saba's "Trigger Theory") | §7(e)(ii) is read conjunctively with §7(e)(i); supplemental requests apply only after record date/update events | §7(e)(ii) is an independent, standalone means to request subsequent information at any time | Court: §7(e)(ii) is unambiguous and may be used before record-date events; Boards could request supplemental info on April 22 |
| Whether the Questionnaire exceeded the scope of §7(e)(ii) (overbreadth/necessity/reasonableness) | Many questions were duplicative or unrelated to Article II §1 qualifications and thus unreasonable or unnecessary | At least one-third to two-thirds of questions were relevant to §1; Questionnaire serves regulatory, conflict, and SEC filing purposes | Court of Chancery: Questionnaire was overbroad and not reasonably or necessarily limited to §1; Supreme Court: even if overbroad, Saba should have objected or responded timely and could not ignore the deadline |
| Whether failure to timely respond to a §7(e)(ii) request renders nominees ineligible | Saba: deadline not triggered; late responses and objections were permissible; relief equitable | Boards: bylaws impose a five-business-day deadline; noncompliance makes nominations invalid | Supreme Court: bylaws clear; Saba’s silence and failure to raise objections before deadline meant nominees are ineligible for missing the deadline |
| Whether laches bars Saba’s equitable claims | Saba: filed promptly enough given expectations about meeting date; no unreasonable delay | Boards: Saba unreasonably delayed (filed June 4), prejudicing defendants and voters | Supreme Court: affirmed Court of Chancery — laches not established (meeting timing and some prejudice were self-imposed by defendants) |
Key Cases Cited
- Hill Int’l, Inc. v. Opportunity P’rs L.P., 119 A.3d 30 (Del. 2015) (standard of review for injunctions and contractual interpretation principles)
- Centaur P’rs IV v. Nat’l Intergroup, Inc., 582 A.2d 923 (Del. 1990) (bylaws/charters treated as contracts; interpretation rules)
- C & J Energy Servs., Inc. v. City of Miami Gen. Empls.’ Ret. Tr., 107 A.3d 1049 (Del. 2014) (injunction standards for mandatory relief and summary-judgment-like showing)
- Openwave Sys. Inc. v. Harbinger Capital P’rs Master Fund I, Ltd., 924 A.2d 228 (Del. Ch. 2007) (advance-notice bylaw purpose and interpretation favoring stockholder franchise when ambiguous)
- Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988) (board actions for the primary purpose of impeding shareholder voting can be invalidated)