Year-End 2023 Delaware Corporate And M&A Law Update

• Published date: 12 January 2024
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, M&A/Private Equity, Venture Capital, Corporate and Company Law, Directors and Officers, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Greenberg Traurig, LLP
• Author: Nathan P. Emeritz, Justin E. Mann, Samuel L. Moultrie, Bryan T. Reed, Kyle R. Freeny, Marina Olman-Pal, Joel M. Eads, Fred E. Karlinsky, Hans Biebl, Jeremy D. Zangara, Christopher T. Turek, Emily Ladd-Kravitz and John D. Owens, III

The Delaware courts have closed out a hectic year during which a wide range of important corporate and M&A issues were addressed. These reflect practice-changing updates and refinements to the law, and the developments arising in the final portion of 2023 are summarized briefly in this GT Update.

**Our previous 2023 Delaware Corporate and M&A Law Updates can be found at the following links: Early 2023 and Mid 2023.**

CORPORATE

Challenges to Enforceability of Restrictive Covenants. Restrictive covenants purporting to prevent employees, independent contractors, and/or equityholders from working for competitors, soliciting employees and customers, and/or using business and confidential information, have become a frequent issue in Delaware litigation involving companies with headquarters and operations outside of Delaware. The Delaware Court of Chancery has repeatedly noted that it will not "blue-pencil" overbroad covenants and instead will refuse to enforce them. The Delaware Court of Chancery has also increasingly engaged in conflict of laws analyses between Delaware law and the law of other relevant jurisdictions notwithstanding express governing law provisions in favor of Delaware law and/or the application of Delaware's internal affairs doctrine where the covenants are embedded in the governing documents of the Delaware entity. In one case, a Delaware court strongly urged that such disputes be channeled to other venues (e.g., principal place of business or jurisdiction of employment activities/residence) as a policy matter and recommended that the Delaware Supreme Court accept an interlocutory appeal to rule on the foregoing legal and policy issues.¹

Officer Oversight Claims Held to Same Standard as Directors. The Delaware Court of Chancery expressly held for the first time in January 2023 that corporate officers have oversight obligations as part of their fiduciary duties that are equivalent to those of corporate directors. The court recently rejected an oversight claim against an officer on the grounds that the allegations failed to demonstrate a breach of the duty of loyalty because sufficient facts were not alleged to support a reasonable inference that the fiduciary acted in bad faith. The court specified that it was analyzing the oversight claim under the same high standard applicable to oversight claims against directors, which arise from the duty of good faith, which is a subsidiary element of the duty of loyalty.²

Board's Rejection of Dissident Nomination Upheld While Striking Down Preclusive and Ambiguous Advance Notice Bylaws. Advance notice bylaws for stockholder nominations of director candidates are common for public companies but remain subject to Delaware legal standards, including that they provide stockholders with a fair opportunity to nominate director candidates. In a recent case, the Delaware Court of Chancery, while determining that a stockholder had failed to comply with advance notice bylaws and that the board had rightly rejected the stockholder's notice, found that four provisions were designed to thwart a proxy contest, entrench incumbents, and remove any possibility of a contested election and were therefore unenforceable (though the court rejected a request to void the bylaws in total). The unenforceable provisions pertained to disclosure of (1) agreements, arrangements, or understandings (AAU) between the stockholder and a universe of loosely associated persons that the court viewed as overbroad and unworkable (the court noted that a reasonably tailored AAU provision generally promotes a proper corporate objective and could be enforceable); (2) similar AAUs involving a nominee that were viewed as similarly flawed and also ambiguous and potentially draconian as to the applicable term; (3) support of any type (not only financial support, which may have been permissible) for the stockholder and nominees that the court viewed as ambiguous and unreasonably impeding the stockholder franchise; and (4) ownership of company stock including synthetic, derivative, short, and hedging positions that the court found indecipherable as drafted (though potentially legitimate in concept) and overly broad as applicable to persons associated with the stockholder.³

Forum Selection of Delaware Court of Chancery and Superior Court. Forum selection provisions allow parties to ensure appropriate resolution of governance and contractual disputes, and it has become common for parties with a nexus to Delaware to select the Court of Chancery. An exclusive selection of the Court of Chancery, however, may exclude the Delaware Superior Court and its Complex Commercial Litigation Division (CCLD), which may be the preferable or necessary court for legal and contract claims. In a recent dispute over noncompete provisions in equity compensation agreements, the Superior Court determined that a Chancery exclusive-forum provision did not reflect consent to the Superior Court's...