On July 2, 2015, in Hill International, Inc. v. Opportunity Partners L.P., No. 305, 2015, the Delaware Supreme Court affirmed a Court of Chancery decision that Opportunity Partnership L.P. (the “Fund”), a stockholder in Hill International, Inc. (“Hill” or the “Company”), had complied with the Company’s advance notice bylaws and thus timely submitted two business proposals for consideration and two nominees for election at Hill’s 2015 Annual Meeting (the “Notice”). Accordingly, the Supreme Court held that it was proper to enjoin the Company from conducting any business at the Annual Meeting other than convening the Meeting for the sole purpose of adjourning it for a minimum of 21 days, so that the Fund had a chance to present to the stockholders its business proposals and nominations in the Notice.
Background. On April 30, 2014, Hill announced that it anticipated holding its 2015 Annual Meeting “on or about June 10, 2015.” The announcement went on to indicate that in order for stockholder proposals to be submitted at the 2015 Annual Meeting, the proposal had to be submitted “no earlier than March 15, 2015 and no later than April 15. 2015.” One year later, on April 30, 2015, Hill filed its 2015 Definitive Proxy Statement, which for the first time disclosed the actual date of the 2015 Annual Meeting: June 9, 2015. The Fund did not submit its complete Notice until May 7, 2014—approximately 7 days after the Company disclosed the actual date of the meeting.
Advance Notice Bylaws. The Company’s advance notice bylaws applicable to business proposals and nominations provided for a 30-day window for the timely submission of proposals and nominations to be considered at annual meetings—not less than 60 days nor more than 90 days prior to the meeting. But those bylaws also contained a caveat: “in the event that less than seventy (70) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders,” referred to as the “70-day provision,” then stockholders have an additional ten days starting from the date of such notice or disclosure in which to provide notice to the Company.
Parties’ Arguments. Hill asserted that its April 2014 disclosure constituted “prior public notice” of the 2015 Annual Meeting that was given more than 70 days in advance of the date set for the meeting. Thus, according to Hill, the usual 30-day window applied, and the Fund failed to submit its notice in that window. The Fund countered that it did not receive notice “of the date of the meeting” (i.e., June 9, 2015) until April 2015, which triggered the 70-day provision. Therefore, the Fund argued its May 2015 Notice was timely as it was submitted within 10 days of the Company’s April 2015 announcement of the actual date of the meeting.
Judicial Resolution. The core issue before both the Court of Chancery and Supreme Court was whether “Hill’s public disclosure in its 2014 Proxy Statement that its 2015 Annual Meeting would be held ‘on or about June 10, 2015’ constituted ‘prior public disclosure of the date’ of the annual meeting within the meaning of the [70-day provision].”
The Court of Chancery reasoned that given the plain language of the Company’s advance notice bylaws, notice “of the date of the meeting”—not “a possible future date”—is required to avoid application of the 70-day provision. Since the 2014 Proxy Statement failed to set the actual, specific date, it did not count as a “prior public disclosure of the date” of the annual meeting under Hill’s bylaws.
The Supreme Court agreed, holding that the “Advance Notice Bylaws are clear and unambiguous.” Thus, the Supreme Court affirmed the lower court holding that the 70-day notice provision applied, meaning that the Company had improperly refused to accept the Fund’s Notice, in violation of the advance notice bylaw.
Takeaways. Hill has important implications for Delaware corporations:
- Corporations that have advance notice bylaw windows that are measured based off the date of public notice of the upcoming annual meeting should consider amending such provisions, to instead opt for a window that is measured based off the anniversary date of the prior year’s annual meeting—a common formulation in public company advance notice bylaws. Such approach minimizes the risk of ambiguity and potential foot faults that could be utilized by activist shareholders.
- Delaware courts will carefully parse advance notice bylaws and interpret them based on their plain language.
- Delaware courts, in parsing the language of advance notice bylaws, will often construe those bylaws against the drafter and in favor of the stockholder.
- Stockholders of Delaware corporations, including activists, pay close attention to advance notice bylaw provisions and are not afraid to utilize ambiguities or pursue litigation to their advantage.
- Accordingly, Delaware corporations should engage in an active and careful review and parsing of their advance notice bylaws to ensure those bylaws are free from interpretations that defeat the bylaw’s intent.
The opinion is available here.
The preceding post is based on a memorandum from Gibson Dunn & Crutcher LLP that was published on July 16, 2015 and is available here.