On January 13, 2020, the Delaware Supreme Court reversed the Court of Chancery's decision to enjoin the boards of directors of two BlackRock Inc. trusts (BlackRock) from disqualifying Saba Capital Management LP's (Saba) director candidates (BlackRock Credit Allocation Income Trust v. Saba Capital Master Fund, Ltd., (Del. Jan. 13, 2020)). The Supreme Court held that:

In reaching its conclusions, the Supreme Court noted that, while part of BlackRock's questionnaire seeking additional information on Saba's board nominees exceeded the scope of the trusts' by-laws, another part of the questionnaire was directly applicable. Not only did Saba not make any effort to respond to any questions in the questionnaire within the clear and unambiguous deadline in the by-laws, Saba did not even raise its concerns regarding the overbreadth of the questionnaire and its ability to meet the deadline with BlackRock before the expiration of the deadline. The Supreme Court stated that Saba's failure to raise any objections undercuts its later arguments about the questionnaire.

The Supreme Court acknowledged that BlackRock's request for supplemental information did not mention the five-business day deadline nor specify the by-law provision under which the supplemental information was being requested. However, the Supreme Court noted that Saba was a sophisticated corporate entity and should have been able to review and understand BlackRock's advance notice provisions.

The Supreme Court stated that the deadline in BlackRock's advance notice by-laws was clear, and allowing election-contest participants to ignore clear and unambiguous deadlines in advance notice by-laws (especially ones adopted on a "clear day") only to offer after-the-fact justifications for non-compliance would:

Because of its finding that the Chancery Court erred in granting injunctive relief, the Supreme Court held that Saba's nominations are deemed ineligible under Section 7 of the BlackRock by-laws due to Saba's failure to timely respond to BlackRock's request for supplemental information.

For a complete background of the initial case and additional information on the Court of Chancery decision, see Legal Update, Saba Capital v. BlackRock Credit Allocation Income Trust: Delaware Court of Chancery Finds BlackRock Breached its Advance Notice Bylaws.

For more information on drafting advance notice by-laws and stockholder nominations generally, see Standard Document, Public Company By-Laws (Delaware Corporation): Section 2.12 Advance Notice of Stockholder Nominations and Proposals.

The Supreme Court's reversal of the Chancery Court's decision in BlackRock reinforces the importance of advance notice by-laws, particularly those adopted by public companies during a "clear day" (before a proxy contest is announced or when facts present themselves that make it likely that a stockholder may seek to use the company's advance notice by-laws).

In recent years, a significant percentage of public companies have amended their advance notice by-laws to add or expand information requirements, including requirements that the nominating stockholders and their nominees must provide supplemental information (for example, director nominee questionnaires) if requested by the company within a short period of time after the request. Delaware courts have generally held that advance notice by-laws are valid absent a showing that they "unduly restrict the stockholder franchise or are applied inequitably" (see Goggin v. Vermillion, at *4 (Del. Ch. June 3, 2011)). However, the validity of these enhanced information requirements had previously been relatively untested in the Delaware courts until BlackRock.

The Supreme Court's decision in BlackRock indicates that at least as it relates to supplemental information requests for director nominee questionnaires and associated deadlines, the Delaware courts will enforce clear and unambiguous deadlines contained in advance notice by-laws. In fact, the Supreme Court chose to enforce the five-business day deadline to deliver the director nominee questionnaire in BlackRock even though the questionnaire included a substantial number of questions unrelated to whether the nominees met the director qualification requirements contained in the by-laws. However, the Supreme Court noted that "[i]f after reviewing the Questionnaire, Saba believed that the Questionnaire exceeded the limits of Section 7(e)(ii), it should have raised that concern with BlackRock before the expiration of the deadline. What it could not do, without risking disqualification of its nominees, was to stay silent, do nothing, and let the deadline pass." (BlackRock, at *11.)