Delaware Supreme Court Affirms Limits on Hypothetical Bylaw Challenges
On April 29, 2026, the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of consolidated challenges to advance notice bylaws adopted in 2023 by each of The AES Corporation and Owens Corning (In re The AES Corporation and Owens Corning; one of the underlying decisions was discussed in a prior post, available here). The decision reinforces a central theme in recent bylaw litigation: Courts will review advance notice bylaw challenges when there is a concrete dispute, not when the challenge depends on hypothetical future events that have not transpired.
The Court was asked whether stockholders who did not intend to nominate directors, and who could not identify any stockholder presently deterred from doing so, could obtain declaratory and injunctive relief against bylaws they nevertheless alleged to be entrenching. The Court answered “no.”
Following the Delaware Supreme Court’s decision in Kellner in 2024 (discussed here), a stockholder asserting a “facial” challenge (i.e., an attack on the plain language of the bylaw) generally must show that a bylaw cannot operate lawfully under any set of circumstances. This contrasts sharply with the standard for an “as-applied” challenge (i.e., an attack on the board’s deployment of the bylaw under some set of circumstances, such as in response to a director nomination). In an as-applied challenge, the bylaw is “twice-tested” (Kellner v. AIM Immunotech Inc.)—first for legal validity and then in equity. The Court emphasized that judicial review requires a ripe controversy before the Court may adjudicate the claim. In both AES and Owens, the plaintiffs attempted to avoid the demanding standard for facial invalidity and recast their claims as equitable challenges to how the bylaws would operate in practice.
The Delaware Supreme Court agreed with the Court of Chancery that this reframing did not cure the ripeness problem. An as-applied challenge depends on facts showing how a bylaw provision operates in a concrete setting. Here, no stockholder had submitted a nomination notice, threatened to nominate directors or alleged that they were personally chilled from doing so. Nor did the plaintiffs identify another stockholder presently deterred from making a nomination. Deciding whether the bylaws might be inequitable in a hypothetical future nomination dispute, the Court concluded, would amount to an advisory opinion.
The Court also rejected the argument that the claims were ripe merely because the bylaws were allegedly adopted on a “clear day” for defensive purposes and “designed to deter nominations before they begin.” The plaintiffs pointed to board materials discussing the advent of universal proxy cards and the risk of shareholder activism in connection with the adoption of the bylaws. But even if those materials were relevant to the merits of a future equitable challenge, they did not themselves create a present controversy. As the Court put it, the plaintiffs’ “central problem is the absence of a would-be nominator.” Without an actual controversy over a nomination (e.g., a stockholder has threatened to submit, or has submitted, a nomination notice), the Court could not assess who would be swept into the challenged provisions, what disclosures would be required, whether compliance would be feasible or whether the company would reject a nonexistent nomination.
The Court also distinguished advance notice bylaws from defensive devices that could create immediate deterrent effects because of their economic consequences. Poison pills, fee-shifting bylaws and proxy puts can impose automatic or economically coercive consequences, such as dilution, fee exposure or debt acceleration. Advance notice bylaws, by contrast, principally impose procedural and disclosure obligations on stockholders seeking to nominate directors. The practical impact of such provisions depends on how they are applied in a contested solicitation.
This distinction was key to the Court’s treatment of the plaintiffs’ deterrence theory. The Court acknowledged that deterrence can sometimes be a present harm, particularly where a defensive measure is so severe that no rational stockholder would trigger it simply to obtain review. But generalized allegations that advance notice bylaws might chill activism were not enough.
The Court was careful not to adopt an absolute rule. It did not hold that an equitable challenge to advance notice bylaws can never be ripe without a rejected nomination. A future plaintiff may plead concrete facts showing present burdens on stockholder conduct or real-world deterrence—these complaints, however, did not.
The practical takeaway is straightforward. Companies have stronger support for resisting speculative challenges to advance notice bylaws adopted outside an active or threatened proxy contest, while stockholders retain the ability to challenge bylaws in the context of a real-world dispute. This decision reflects a common-sense approach that should reduce wasteful litigation while keeping the focus on genuine controversies. In other words, Delaware courts remain ready and willing to scrutinize advance notice bylaws, just not in the abstract.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
