Sidley secured a trial win in a highly watched, expedited shareholder activism case in the Delaware Court of Chancery on behalf of CytoDyn, Inc., a Vancouver, WA-based biotech company.
Sidley has represented CytoDyn and its board of directors since July 2021, when a group of dissident shareholders announced their intention to launch a proxy contest seeking to replace CytoDyn’s board of directors at the company’s upcoming 2021 annual meeting. CytoDyn’s bylaws, like those of most public companies, require that a shareholder who desires to nominate directors must comply with an “Advance Notice Bylaw” and submit information regarding the nominees and their proponents by a particular deadline. In late July, the CytoDyn board rejected the dissident shareholders’ nomination notice, concluding that although it was received the day before the deadline, it nevertheless failed to satisfy CytoDyn’s bylaws in numerous ways.
The case is believed to be the first time that a board’s rejection of a nomination notice for failure to disclose mandated information has been tested in a trial on the merits, and provides certainty to the many other public companies with similar requirements.
The case began when, after the company rejected the nomination notice, the dissidents nonetheless proceeded to file a preliminary proxy statement and solicit votes from CytoDyn shareholders. Litigation ensued on two fronts. First, Sidley filed suit in the U.S. District Court for the District of Delaware, alleging multiple violations of the federal securities laws. Judge Maryellen Norieka granted Sidley’s motion to expedite, and the dissidents ultimately agreed to make a series of supplemental and corrective disclosures to resolve the federal claims.
In the meantime, the dissident group filed suit in the Delaware Court of Chancery, seeking a declaratory judgment that the CytoDyn board’s rejection of the nomination notice was wrongful and an injunction ordering the company to count votes cast for the dissident slate. The parties conducted expedited discovery and the Court held a trial on the submitted record on October 6th. In entering judgment for Defendants, the Court found that the company and its board proved that the dissidents’ nomination notice suffered from various “materially deficient disclosures.” For example, although the bylaw required disclosure of those “supporting” the proxy contest, the dissidents had not disclosed anyone and discovery proved this support to be false. The nomination notice also failed to disclose a significant conflict of interest on the part of one of the plaintiffs and one of their nominees.
Sidley’s litigation team was led by the co-chair of the firm’s securities and shareholder litigation team Andrew Stern and partners Isaac Greaney and Alex Kaplan, as well as senior associate Charlotte Newell, and associates Cassandra Liu, Deborah Sands, and Jordan Duval. The activism team was led by the co-chairs of the shareholder activism & corporate defense practice Kai Haakon Liekefett and Derek Zaba as well as associates Loren Braswell, Parker Kolodka, Saba Yasmin, and Johnathan Sargent. Moreover, Holly Gregory (corporate governance) and David Mollo-Christensen (executive compensation) assisted.