Lerman v. Diagnostic Data, Inc.

Delaware Court of Chancery · 1980 · Corporations

421 A.2d 906 (1980)

Updated August 22, 2026

Corporationsproxy contestsbylawsannual meeting datecorporate democracySchnell doctrineinequitable conductproxy contest

Facts

DDI amended its bylaws after learning that Lerman and others intended to wage a proxy contest. The amendments eliminated the fixed annual meeting date, gave the board discretion to set the meeting date, and added a requirement that non-management nominees submit specified information at least 70 days before the meeting. On August 1, 1980, the board set the annual meeting for October 3, only 63 days later, which made compliance with the 70-day requirement impossible from that point forward. Lerman had been seeking a stocklist for a proxy fight, and DDI knew of his intention to contest management.

Issue

May a board, after adopting a bylaw requiring dissident nominees to submit nomination information at least 70 days before the annual meeting, validly set the meeting only 63 days away when that action makes compliance impossible and thereby prevents dissident nominations? Does Schnell invalidate that action even if the court does not decide whether the 70-day requirement is facially unreasonable?

Rule

Even if legally authorized, board action implementing bylaw changes affecting annual meeting timing and nominations is invalid when, under the circumstances, it inequitably and unnecessarily thwarts shareholder opposition and has the effect of perpetuating management in office. A board may not use discretion over the annual meeting date in combination with nomination requirements so as to require dissidents to remain in constant 'shelf-readiness' or, worse, to eliminate them from the contest altogether.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Harbor Signal Biotech, a Delaware corporation based in San Diego, had long held its annual meeting on the first Monday in May. After learning that shareholder Nora Patel planned to run an opposition slate, the board amended the bylaws to let directors choose any annual-meeting date and required non-management nominees to submit specified information at least 75 days before the meeting. Two months later, the board set the meeting for 60 days away, making literal compliance impossible from that day forward.

If Nora sues to have her slate considered at the annual meeting, how should the court most likely rule?

Explanation. The majority opinion held that the court need not decide whether the advance-notice bylaw was facially invalid. The key point is that management may not combine discretion over the meeting date with an advance-notice requirement in a way that makes compliance impossible and thereby removes dissidents from the contest. Legally authorized action still fails under Schnell principles when it unnecessarily thwarts opposition and perpetuates incumbents in office.