Sternlicht v. Hernandez ( 2023 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
BARRY STERNLICHT, DR. LEWIS GOLD, )
ELLIOT COOPERSTONE, )
)
Plaintiffs, )
)
v. ) C.A. No. 2023-0477-PAF
)
MARLOW HERNANDEZ, ANGEL )
MORALES, JACQUELINE GUICHELAAR, )
ALAN MUNEY, KIM RIVERA, SOLOMON )
TRUJILLO, )
)
Defendants, )
)
and )
)
CANO HEALTH, INC., )
)
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: June 9, 2023
Date Decided: June 14, 2023
John M. Seaman, April M. Ferraro, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; Adrienne Ward, Lori Marks-Esterman, OLSHAN FROME WOLOSKY
LLP, New York, New York; Attorneys for Plaintiffs Dr. Lewis Gold and Elliot
Cooperstone.
John M. Seaman, April M. Ferraro, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; Tariq Mundiya, Richard Li, WILLKIE FARR & GALLAGHER LLP,
New York, New York; Attorneys for Plaintiff Barry Sternlicht.
Blake Rohrbacher, Kevin M. Gallagher, Matthew W. Murphy, Nicole M. Henry,
Jordan L. Cramer, Sandy Xu, Mari Boyle, Edmond S. Kim, Morgan R. Harrison,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Attorneys for
Defendants Marlow Hernandez, Angel Morales, Jacqueline Guichelaar, Alan
Muney, Kim Rivera, Solomon Trujillo, and Nominal Defendant Cano Health, Inc.
FIORAVANTI, Vice Chancellor
Three former directors of Cano Health, Inc. (“Cano” or the “Company”) ask
the court to issue a preliminary injunction to prevent the Company from holding its
annual meeting of stockholders on June 15, 2023 and to enjoin enforcement of the
Company’s advance notice bylaw. The plaintiffs, who resigned en masse six weeks
after the deadline to submit director nominations and stockholder proposals, contend
that it would be inequitable to permit enforcement of the bylaw due to a radical
change in circumstances at the Company after the deadline. For the reasons that
follow, the motion is denied.
I. BACKGROUND
The facts are drawn from the record developed in connection with the
application for a preliminary injunction. The parties have submitted approximately
250 exhibits and deposition testimony from seven fact witnesses.1
After depositions were complete, the plaintiffs submitted an affidavit from
plaintiff Elliot Cooperstone in support of their motion for a preliminary injunction.
The affidavit was accompanied by two audio files, which were produced the evening
before Cooperstone’s deposition.2 Defendants have moved to strike it, arguing that
1
Exhibits are cited as “Ex. #.” Documents that do not already contain page numbers are
cited using the last three digits of their Bates number. After being identified initially,
individuals are referenced herein by their surnames without regard to formal titles such as
“Dr.” No disrespect is intended. Unless otherwise indicated, citations to the parties’ briefs
are to their preliminary injunction briefs.
2
Dkt. 70.
plaintiffs could have adduced the information in the affidavit by examining
Cooperstone at his deposition, which would have been subject to cross-examination.
See Meyers v. Quiz-DIA LLC, 2017 WL 76997, at *18 (Del. Ch. Jan. 9, 2017); Pell
v. Kill, 135 A.3d 764, 770 (Del. Ch. 2016). In the exercise of my discretion, I afford
“little if any weight” to the Cooperstone affidavit. In re W. Nat. Corp. S’holders
Litig., 2000 WL 710192, at *19 (Del. Ch. May 22, 2000).
What follows are the facts as they are likely to be found after trial, based on
the current record.3
A. The Parties
Cano is a primary care provider and population health company. The
Company owns and operates medical centers and delivers healthcare services
through affiliate relationships with other providers, focusing primarily on
coordinating care to members under Medicare Advantage health plans. The
Company is incorporated in Delaware and has its principal place of business in
Miami, Florida. Dr. Marlow Hernandez and Richard Aguilar co-founded the
Company in 2009.4 Since its inception, Hernandez has acted as the chief executive
officer of the Company. Hernandez controls 4.75% of Cano’s voting power.5 Cano
3
Of course, “the eventual findings of fact after trial could be different.” Pell, 135 A.3d at
770.
4
Ex. 10.
5
Ex. 185 at 58.
2
received early investments from Angel Morales and Solomon Trujillo. Trujillo
invested in Cano in 2014 and joined its board of directors shortly before the
Company went public in June 2021.6 Jason Conger and Rick Sanchez also became
involved with Cano early in its lifecycle. While Cano remained a private company,
Hernandez, Aguilar, Morales, Trujillo, Conger, Sanchez, and other early investors
held their shares in Cano through an entity called Cano America.7
In 2016, InTandem Capital Partners, LLC (“InTandem”), a private equity firm
specializing in healthcare, invested in Cano through its affiliate, ITC Rumba, LLC
(“ITC Rumba”).8 Following that investment, InTandem’s founder and managing
partner, Elliot Cooperstone, joined the Cano board. InTandem, through ITC Rumba,
currently holds approximately 30.3% of Cano’s total voting power.9
Dr. Lewis Gold, a prominent anesthesiologist and healthcare entrepreneur,
joined Cano’s board in 2018. Gold currently holds approximately 1% of Cano’s
voting power.10
On June 3, 2021, Cano went public through a de-SPAC transaction with
JAWS Acquisition Corp. (“JAWS”). Barry Sternlicht was the chairman of JAWS
6
Ex. 5 (“Trujillo Dep.”) at 24:2–25.
7
Ex. 6 (“Hernandez Dep.”) at 277:24–279:7.
8
Ex. 2 (“Cooperstone Dep.”) at 28:9–29:19.
9
Ex. 185 at 58.
10
Ex. 189 at 35.
3
prior to the merger.11 When Cano merged with JAWS, Sternlicht personally
invested $50 million in Cano and joined the Cano board of directors.12 Around this
time, Sternlicht also raised around $800 million through private placement in public
equity (“PIPE”) financing and introduced Cano to certain institutional investors.13
He currently holds approximately 4.8% of the voting power of Cano.14
After the merger was consummated, Hernandez ascended to the position of
chairman and remained as CEO. Trujillo, Cooperstone, and Gold also continued as
directors, with Trujillo being designated as the Company’s “Lead Independent
Director.”15 Morales, Kim Rivera, Dr. Alan Muney, and Jacqueline Guichelaar
joined the board after the merger. Immediately following the merger, Cano’s stock
was trading at around $15 per share.16
Following the merger, Hernandez, Trujillo, Morales, Rivera, Muney,
Guichelaar, Sternlicht, Gold, and Cooperstone constituted the Cano board of
directors. Gold, Guichelaar, Muney, Rivera, and Morales served on the Company’s
11
Ex. 200.
12
Ex. 1 (“Sternlicht Dep.”) at 193:8–12.
13
Id. at 26:23–29:3.
14
Ex. 189 at 28.
15
Ex. 27 at 10.
16
Cano Historical Data, Nasdaq, https://www.nasdaq.com/market-activity/stocks/cano/
historical (listing Cano’s closing stock price at $15.09 on June 4, 2021).
4
Audit Committee, which was chaired by Morales.17 Rivera, Guichelaar, Trujillo,
and Sternlicht served on the Company’s Nominating and Corporate Governance
Committee (the “Governance Committee”), which Rivera chaired.18
Sternlicht, Gold, and Cooperstone (the “Plaintiffs”) control 35.7% of the
voting power of Cano.19 They resigned from the board on or shortly after March 30,
2023.20 Hernandez, Trujillo, Morales, Rivera, Muney, and Guichelaar (the
“Defendants”) currently serve as Cano’s board of directors and are each named as
defendants in this case. Cano has a classified board.21 The terms of Rivera, Muney,
and Cooperstone were to expire at the 2023 annual meeting. 22 Following the
Plaintiffs’ resignations, the board reduced its size to six directors.23 Rivera and
Muney are on the board slate for the 2023 election of directors.24
17
Ex. 27 at 16.
18
Id.19
Ex. 185 at 28.
20
Ex. 156; Ex. 157; Ex. 160.
21
Ex. 202 at Art. VI § 4.
22
Ex. 85 at ‘263.
23
Cano Health, Inc., Annual Report Amendment No. 1 (Form 10-K/A) (Apr. 7, 2023).
24
Ex. 185 at 13.
5
B. Relevant Board Policies
Cano has a policy that no director may pledge Company securities as collateral
for a loan unless the Audit Committee first approves the pledge (the “Anti-Pledging
Policy”).25 The Company explained in its 2022 proxy statement that it viewed a
limited amount of pledging as necessary and appropriate, but as part of its risk
oversight function, required the Audit Committee to review any share pledges to
assess whether the pledging would pose an undue risk to the Company.26 According
to the Company’s 2023 proxy: “As of December 31, 2022, there were no
outstanding pledges for our NEOs and directors.”27
The Audit Committee is also responsible for reviewing all related person
transactions, which the Company defines as “any transaction in which the Company
is a participant and a Related Person[, including a director or executive officer of the
Company,] has a direct or indirect interest.”28
25
Ex. 13; Ex. 14.
26
Ex. 27 at 35.
27
Ex. 185 at 34.
28
Ex. 12 (the “Related Party Transaction Policy”) at App’x A. The Company also has a
conflict of interest policy that prevents directors, officers, and employees from engaging
in activities that could impair, influence, or interfere with the performance of their duties
to the Company or their ability to act in the Company’s best interest. See Ex. 13 at 3 (the
“Conflict of Interest Policy”).
6
C. Hernandez Leverages His Cano Stock
On August 25, 2021, shortly after the de-SPAC merger, Hernandez pledged
22,034,622 of his shares of Cano’s Class B common stock to secure a loan from
Citibank, which he used to purchase Cano stock on margin.29 On September 27,
2021, Hernandez publicly disclosed this loan in a Schedule 13D filed with the United
States Securities and Exchange Commission (“SEC”).30 Conger, Sanchez, Aguilar,
and Morales each opened a margin account with Citibank around the same period.31
At this time, Conger served as Cano’s senior vice president of business development,
Aguilar served as Cano’s chief clinical officer, and Morales sat on Cano’s board of
directors.
By late 2021, Cano’s stock traded around $9 per share, about 40% below its
post-merger trading price.32 Hernandez began to face margin calls and explored
possible sources of funding.33 Among those approached was Robert Camerlinck,
29
Ex. 17 at 6–7; id. at Ex. D. Hernandez pledged these shares through a holding company,
Hernandez Borrower Holdings, LLC.
30
Ex. 17.
31
Ex. 21 § 5.1(b).
32
Cano Historical Data, Nasdaq, https://www.nasdaq.com/market-activity/stocks/cano/
historical.
33
Hernandez Dep. 185:16–186:23.
7
the president of Cano’s wholly owned subsidiary Healthy Partners, Inc., which Cano
had acquired in July 2020.34
At a January 26, 2022 board meeting, the Audit Committee shared
information on an equity earnout payment to Camerlinck in lieu of a cash payment.35
At this meeting, Hernandez disclosed that he was considering a loan from
Camerlinck. According to the minutes of that meeting: “The Board had no
objections to the equity in lieu of cash payment, the disclosure of a potential loan, or
to the Audit Committee report addressing [pledging], lock up agreements, and
disclosures.”36
In January 2022, Hernandez and his wife, Stephanie Hernandez, borrowed
$10 million from Ventura De Paz (the “De Paz Loan”).37 The loan is memorialized
in a January 28, 2022 promissory note.38 The De Paz Loan provided for a one-year
term, maturing on January 28, 2023.39 Six months earlier, Cano had purchased De
Paz’s company, Doctor’s Medical Center, LLC, for $300 million. 40 Hernandez did
34
Id. at 211:13–212:7; see Cano Health, Inc., Annual Report (Form 10-K) (Mar. 14, 2022)
(“2021 10-K”) at 157 (disclosing the acquisition of all assets of Healthy Partners, Inc.).
35
Ex. 19 at 4.
36
Id.
37
Ex. 20.
38
Id.
39
Id. § 1.1.
40
Ex. 16 at 3.
8
not disclose the De Paz Loan at the January 26 board meeting or any other board
meeting in 2022.
On February 28, 2022, Hernandez executed a promissory note and loan
agreement providing for a $30 million loan from Camerlinck (the “Camerlinck
Loan”).41 Hernandez secured the loan with stock that his wife owned in Dental
Excellence Partners, LLP (“Dental Excellence Partners”).42 At that time, Dental
Excellence Partners was a contractor of Cano. Aguilar, Conger, and Sanchez
guaranteed the Camerlinck Loan.43 The terms of the Camerlinck Loan required
Hernandez to use the loan proceeds to repay part of his debt to Citibank and to make
subsequent loans to Aguilar, Conger, and Sanchez to repay their margin loans from
Citibank.44 The loan had a maturity date of February 27, 2023.45
In April 2022, Onsite Dental purchased Dental Excellence Partners.46 At the
same time, Cano entered into a strategic partnership with Onsite Dental.47 Stephanie
Hernandez received cash and stock in Onsite Dental in the sale.48
41
Ex. 21.
42
Hernandez Dep. 206:25–207:17.
43
Ex. 22; Ex. 23; Ex. 24.
44
Ex. 21 § 5.1(b).
45
Id. § 1.1.
46
Ex. 28.
47
Id.
48
Ex. 204.
9
At a July 21, 2022 board meeting, Hernandez announced that the Company
had created the positions of chief operating officer and chief administrative officer
and planned to seek the board’s approval to appoint Camerlinck and Amy Charley
to those positions, respectively.49 On July 30, 2022, the board approved those
appointments.50 On August 5, 2022, Cano filed a form 8-K, signed by Hernandez,
announcing the appointment of Camerlinck as chief operating officer.51 The
disclosure made no mention of the Camerlinck Loan.52 Cano’s securities counsel,
Goodwin Procter LLP (“Goodwin”), had not been made aware of the loan when
preparing the 8-K.53
On August 9, 2022, Cano’s general counsel, chief compliance officer, and
corporate secretary, David Armstrong, contacted Goodwin regarding the
Camerlinck Loan.54 Armstrong indicated that Hernandez was in default on the first
$10 million installment and would likely default on the impending second $10
million installment.55 Counsel at Goodwin later recalled these discussions, noting:
I mentioned to [Armstrong] that the Form 8-K requires companies to
disclose any arrangements or understandings between the individual
49
Ex. 32.
50
Ex. 33.
51
Ex. 34.
52
Id.
53
Ex. 77 at ‘460–61.
54
Id. at ‘460.
55
Id. at ‘461.
10
appointed (i.e., in this case, [Camerlinck]) or any other person pursuant
to which the individual was appointed as COO. I queried whether
[Camerlinck] was appointed as COO by [Hernandez] as a result of the
loan. A separate question came up as to whether the loan should be
disclosed in a stand-alone Form 8-K or the upcoming Form 10-Q. Per
Item 404 of Regulation S-K, we got comfortable that the loan did not
have to be disclosed because it was a private loan between two parties
—and the company was not a party to the loan.56
Goodwin “suggested follow up to ensure the Board was informed.”57 Armstrong
discussed the loan with Hernandez, who said that he had informed certain directors
of the loan, including Morales, chair of the Audit Committee.58 Armstrong notified
Morales and Rivera, chair of the Governance Committee, of the Camerlinck Loan.59
At Morales’s request, Armstrong posted a memorandum about the loan to the Audit
Committee on the Company’s online portal.60 Armstrong informed Weil, Gotshal
& Manges LLP (“Weil”), counsel to the board, about the Camerlinck Loan and
provided Weil with a memorandum discussing the loan.61
On August 27, 2022, Rivera convened a special confidential meeting of all
committee chairs to discuss the Camerlinck Loan.62 Michael Aiello of Weil joined
56
Id.
57
Ex. 79 at 1.
58
Ex. 36; Ex. 79 at 1.
59
Ex. 37; Ex. 62; Ex. 79 at 2.
60
Ex. 79 at 2.
61
Id. Armstrong also provided Weil with the loan documents and the memorandum
provided to the Audit Committee.
62
Ex. 79 at 2.
11
as board counsel, and Hernandez, Lopez, Conger, Armstrong, and other Cano legal
staff also attended.63 According to a March 11, 2023 timeline of events created by
Armstrong: “Following this special meeting the Directors decided to do nothing
about the Camerlinck loan.”64 Formal minutes were not taken at this meeting. Gold,
Sternlicht, and Cooperstone, were not informed of the issues discussed at that time.
Nevertheless, Cooperstone was generally aware that Hernandez had borrowed
money from Camerlinck in mid-summer 2022, although he did not then know the
details of that loan.65 Gold claims not to have been aware of the Camerlinck Loan
at that time, even though he was a member of the Audit Committee, to which
Armstrong posted a memo on the subject in August 2022.66
D. Plaintiffs Push for a Sale
As the Cano stock lost its post-merger value, Plaintiffs began pushing the
Company to sell. In November 2022, Sternlicht told the board that the Company
must announce that it is for sale and that any other course of action would be
63
Id.
64
Ex. 120 at ‘796.
65
Cooperstone Dep. 87:8–15.
66
Ex. 3 (“Gold Dep.”) at 96:4–11; Ex. 36.
12
negligent.67 He proclaimed that Cano was on the verge of insolvency and that the
current strategy of relying on revolving debt was infeasible.68
During this period, Cano was in exclusive talks with CVS to explore a
potential acquisition of the Company.69 When it was publicly disclosed that CVS
walked away from a deal in October 2022, Cano’s stock price fell dramatically. The
Company’s stock, which had begun October at around $9 per share, was trading for
less than $2 by the end of November.70 In a November 2022 email exchange,
Sternlicht repeated an allegation that Hernandez had told CVS and Humana that the
Company was not for sale.71 Around the same time, Morales complained that
Sternlicht had held an unauthorized meeting with Humana and his bankers to discuss
a sale and possible price, even though Cano had been in exclusive talks with CVS.72
Humana has a right of first refusal on any sale of the Company under an Amended
and Restated Right of First Refusal Agreement executed in connection with Cano’s
de-SPAC merger.73
67
Ex. 40 at 1.
68
Id.
69
Id. at 2. The CVS deal fell through at the end of October 2022. Cooperstone Dep. 274:8–
10.
70
Cano Historical Data, Nasdaq, https://www.nasdaq.com/market-activity/stocks/cano/
historical.
71
Ex. 40 at 3.
72
Id. at 2.
73
2021 10-K at 37.
13
E. Whistleblowers
Sternlicht had emerged as Hernandez’s most vocal critic.74 In December
2022, Cano’s senior vice president of corporate finance, Amy Wilson, complained
to Sternlicht regarding Hernandez’s activity, including his loans, tax payments, and
other transactions.75 The board’s counsel at Weil interviewed Wilson on December
22, 2022. Wilson expressed her concern that Hernandez had taken out loans that she
regarded as related party transactions and that no one other than Armstrong,
including Cano’s accounting team and Goodwin, had the opportunity to review.76
On December 30, 2022, the board commissioned a “360 Report,” requesting
feedback from the Company’s senior executives on Hernandez’s performance.77
Muney, chair of the Compensation Committee, sent the report to Trujillo and Rivera
on January 7, 2023.78 The report revealed that the majority of Cano’s executives
disagreed that Hernandez exemplified values of high ethical awareness, integrity,
and fairness.79 It also included complaints that Hernandez had dragged the Company
into distracting and conflicted transactions, lacked professionalism, and has an
74
See, e.g., Ex. 40 at 9–11.
75
Id. at 10.
76
Ex. 41.
77
Ex. 43.
78
Ex. 194.
79
Ex. 43 at 6.
14
inherent conflict of interest regarding his personal finances.80 The report was not
shared with the full board until March 21, 2023.81
On January 11, 2023, Wilson informed Sternlicht that Camerlinck had filed
UCC liens against Hernandez, Conger, Aguilar, and Sanchez.82 Sternlicht emailed
Aiello, Rivera, and Cooperstone regarding this allegation.83 Aiello inquired as to the
source of the allegation but acknowledged that he was “sure it’s accurate.”84 On
January 20, 2023, Sternlicht emailed Aiello, Muney, and Rivera about the UCC
filing, reporting that Hernandez, Aguilar, Conger, and Sanchez had granted a first
priority lien to Camerlinck in the “Pledged Shares.”85
Sternlicht also initiated an email chain with Aiello, Gold, Cooperstone, and
Muney, inquiring as to the next steps in investigating these loans.86 Sternlicht
expressed his frustration to Aiello, speculating that Hernandez and his fellow
indebted executives may be inflating projections and conducting transactions solely
to improve their debt position.87 Sternlicht said, “If that doesn’t border on
80
Id. at 7.
81
Ex. 148.
82
Ex. 46.
83
Ex. 49.
84
Id.
85
Ex. 51; Ex. 53.
86
Ex. 55.
87
Id.
15
dismissal... I mean what is so hard? Why aren’t you reading the riot act to these
directors and this Board? I don’t get it.”88 Gold tagged on, “I agree with your
assessment- our fiduciary duty is to find out exactly who has margin loans and how
much.”89
On January 21, 2023, Hernandez emailed Weil, revealing that in addition to
the Camerlinck Loan, he had received three other loans totaling $16 million from
individuals who had been bought out in Cano acquisitions.90 This included the $10
million De Paz Loan as well as a loan from Margarita Quevedo for $4 million and
from Joel Lago for $2 million.91 Cano had acquired Quevedo’s family business in
June 2021 for $609.7 million and had acquired Lago’s company in 2017.92
Brian Koppy, Cano’s chief financial officer, and Mark Novell, Cano’s chief
accounting officer, became concerned about the non-disclosure of Hernandez’s
loans. Koppy sent a four-page email to Sternlicht, Gold, and Cooperstone,
explaining that the finance team needed information and guidance as to whether the
loans needed to be disclosed in the 10-K.93 Gold responded to Koppy: “We are
88
Id. at ‘461 (cleaned up).
89
Id.
90
Ex. 57 at ‘188–90.
91
Id.
92
Ex. 8 at 2–3; 2021 10-K at Ex. 2.3.
93
Ex. 61.
16
aware of this and [are] discussing with outside counsel / obviously we will do the
right thing once counsel advises – I appreciate you sharing and bringing this to our
attention (we have been working on this).”94 Plaintiffs forwarded Koppy’s email to
Aiello and Rivera.95 Sternlicht had seen enough. In an email to Rivera and Aiello,
copying Cooperstone, Gold, and Muney, Sternlicht wrote, in pertinent part:
This is as bright a RED FLASHING LIGHT as you can have and the
Board should be shot for not doing something right now. I think we
need to have a Board meeting and get this information THIS WEEK.
No more… manana.96
Rivera responded to the group that “there is no reason the full board (other than
[Morales]) potentially shouldn’t have full visibility into [Koppy’s] note.”97 Rivera
then wrote separately to Aiello:
I think we may have hit a tipping point with [Koppy] (and other mgmt)
openly going to three board members only, multiple directors calling
for [Sternlicht] to be investigated/removed, and [Sternlicht] threatening
to sue us. Not to mention the implication that [Armstrong] is hiding the
ball. I am concerned that we cannot continue our current approach.98
Rivera also texted Trujillo: “[W]e have a new issue with [Koppy] now raising issues
formally with Lew, Barry and Elliott.”99 After a call with Cooperstone, Gold,
94
Ex. 59 at ‘648 (cleaned up).
95
Id.
96
Id. (cleaned up).
Ex. 61 at ‘913. Morales was identified in Koppy’s email as a recipient of funds from the
97
Camerlinck Loan. Id. at ‘917.
98
Id. at ‘913.
99
Ex. 58.
17
Sternlicht, and counsel from Weil, Rivera wrote separately to Weil, “It’s important
that we not fall into a pattern of updating subsets of the board. Please help me ensure
that, unless there is a specific reason, we provide updates to the full board.”100
Also in January 2023, Amy Charley, the chief administrative officer of Cano,
raised concerns to Weil regarding payments from Cano to Cano Builders USA Inc.
(“Cano Builders”), an entity owned by Hernandez’s father.101 Charley believed that
there was a lack of clarity surrounding the Company’s relationship with Cano
Builders.102
As Plaintiffs began receiving complaints about Hernandez from management,
the Company was also in discussions with Humana to acquire more financing. 103
Cano had signed a convertible note agreement and certain collaboration agreements
with Humana in 2020.104 The Plaintiffs hoped to finalize a transaction with Humana
before addressing the concerns about Hernandez.105
100
Ex. 65.
101
Ex. 70.
102
Id.
103
Ex. 213 (“[D]uring the last Board meeting we instructed management, the special Board
Committee (Angel & Lew), and our advisors to pursue the Humana transaction and any
viable alternative avenue.”).
104
Ex. 35.
105
Ex. 60 (replying to Koppy’s email detailing concerns about Hernandez with the
statement that “my hope is that we get Hum deal done next week and immediately address
this issue”); see also Ex. 63 (“Do you mean where do we stand on closing Humana? That
is all Barry, Elliott, Lew and Amy (newest board member) care about.” (cleaned up)).
18
F. Preparing the 2022 10-K
On February 2, 2023, Cano’s chief accounting officer prepared an Audit
Committee deck that contained a proposed draft of a related party disclosure for the
10-K relating to Hernandez’s loans.106 Meeting resistance from Morales, Novell
reached out to Goodwin, which advised him that “given the materiality of the loans
and the perceived conflict of interest,” there should be “some disclosure in the
upcoming 10-K – whether it be in the related party transaction and/or risk factors –
about these loans as the information could be arguably material to an investor.”107
Weil instructed Cano’s general counsel to pull the slide from the deck for now,
noting that it could be revisited once Weil had reported its findings to the board.108
Meanwhile, Sternlicht’s distrust of Weil and frustration with the pace of its
investigation was growing.109 On February 1, 2023, Sternlicht fumed to Weil,
Cooperstone, and Gold, “This company has $20m of unrestricted cash and $20m left
on its credit line. They are struggling to do a cash flow forecast. Rome isn’t just
burning… it’s in flames… and we wait and wait and wait. If this doesn’t warrant an
106
Ex. 77 at ‘462.
107
Id. at ‘461.
108
Id. at ‘459.
109
See Ex. 107 (noting Sternlicht’s “serious reservations about Weil Gotshal advice and
conflicts of interest which [he had] repeatedly raised”).
19
off cycle Board update... what does?”110 Sternlicht also disclosed that he had been
receiving reports from “two moles” in management.111
On February 4, 2023, Weil indicated that the board would meet in advance of
its regularly scheduled board meeting to discuss the loans and related matters and
would discuss the disclosure of the loans at that juncture.112 Cooperstone emailed
Aiello at Weil, indicating that he believed multiple members of management had
lost faith in Hernandez and that the board should decide after Weil’s report whether
to remove the CEO.113 The board convened a call on Sunday, February 5, 2023, to
discuss the four personal loans, as well as loans from InTandem’s affiliate to cover
the taxes of former Cano America members as a result of the de-SPAC transaction.114
Weil delivered its findings and preliminary recommendations, concluding that the
loans violated the Company’s Conflict of Interest Policy as they could raise a specter
of impropriety or favorable treatment given their size and the business relationship
between Hernandez and the lender.115 However, Weil determined that the loans did
not appear to violate the Company’s Related Party Transaction or Anti-Pledging
110
Ex. 73 at ‘312–13 (cleaned up).
111
Id. at ‘312.
112
Ex. 77 at ‘456.
113
Ex. 78.
114
Ex. 220.
115
Id.; Ex. 219.
20
Policy.116 Weil recommended that the board address the ramifications of
Hernandez’s failure to follow the conflicts policy and consider engaging an outside
consultant for training on procedures.117 It also advised that the Company should
consider strengthening its compliance policies, particularly surrounding potential
conflicts of interest, transparency, and personal loans.118
The board held its regularly scheduled board meeting on February 7 and
meetings of the standing committees on February 8, which included further
conversation about Weil’s investigation.119 In the Audit Committee presentation,
Weil advised that “this matter is not ripe for determination at this time,” referring to
whether the loans needed to be disclosed in the 10-K.120 Weil indicated that it would
issue its “findings and recommendations upon completion of their review.”121
The Governance Committee met on February 8 to set the date for the annual
meeting and determine the board slate.122 A slide deck prepared in advance of the
meeting, and apparently posted to the online board portal, indicated that the annual
meeting would be held on June 28 and contained a draft resolution nominating
116
Ex. 219 at 6.
117
Id. at 7.
118
Id.
119
Ex. 84; Ex. 85.
120
Ex. 7 (“Rivera Dep.”) at 163:10–21.
121
Ex. 84 at 8.
122
Ex. 89.
21
Cooperstone, Rivera, and Muney as the Class II directors.123 After reviewing those
materials, Morales texted Rivera, Hernandez, and Trujillo: “Let’s try to talk today
among the four of us. I just read the Nom & Gov recommendations related to the
Proxy. If we are proposing [Cooperstone] to the Board for another three years, I will
not serve.”124 On February 8, 2023, the Governance Committee resolved to set June
28, 2023 as the 2023 annual meeting date.125 The committee deferred consideration
of the nominees for the three seats left open by the expiry of Rivera, Muney, and
Cooperstone’s terms.126 Rivera indicated that the decision on board nominees was
deferred because Cooperstone had previously indicated a desire to be bought out,
and Rivera considered there to be a possibility of Cooperstone being bought out and
concurrently stepping down from the board.127
In a February 14, 2023 email from Rivera to Morales, Muney, and Trujillo,
Rivera said that they need to align on a slate of directors and approach to board
structure.128 Rivera suggested meeting that weekend.129 Morales responded that he
was “in favor of nominating [Rivera] and [Muney], but not [Cooperstone], for re-
123
Ex. 85 at ‘267.
124
Ex. 86.
125
Ex. 89 at ‘289.
126
Id.
127
Rivera Dep. at 66:6–24.
128
Ex. 94 at ‘081–82.
129
Id. at ‘082.
22
election. [Sternlicht] has also been clear about his desire to resign from the Board,
and we should accept his resignation.”130 Muney responded that he agreed with
Morales, but clarified that Sternlicht had indicated that he would resign only if
Hernandez was not removed.131 Muney added that he “assumed” that Rivera meant
that the Company would keep Hernandez on as CEO, but require more monitoring,
and potentially split his roles as CEO and chairman or require him to unwind his
current conflicts.132 Rivera did not indicate whether she favored renominating
Cooperstone.133 Trujillo replied that they should wait on making any
recommendations until they met together.134
As the March 1 filing date for the 10-K drew ever nearer, Novell and Koppy
continued to press for a legal opinion concerning the disclosure of Hernandez’s
transactions.135 Weil refused to deliver a written opinion.136 After repeated pushing
from Novell, on February 18, Weil sent a one-sentence email confirming its view,
based on its investigation, “that it is reasonable to conclude that no disclosure is
130
Id. at ‘081.
131
Id.
132
Id.
133
Id. at ‘080.
134
Id.
135
Ex. 95.
136
Ex. 96.
23
required regarding” the personal loans received by Hernandez.137 At an Audit
Committee meeting on February 23, Weil reported on its investigation, affirming
that disclosure was not required.138 Ernst and Young (“EY”), the Company’s
independent auditor, reached a similar conclusion.139
On March 2, 2023, Sternlicht emailed the board.140 Calling the previous day’s
earning call “a joke,” Sternlicht stated that he would “attend this one last Board
meeting, and then if we don’t make real and substantial changes, including removing
[Hernandez] as CEO . . . I will resign. I will also resign w[ith] a full public statement
of why I was resigning.”141
In reaction to Sternlicht’s email, Morales, Rivera, Muney, and Trujillo
discussed potentially retaining separate counsel from Vinson & Elkins LLP
(“V&E”).142 Morales said, “I’ve been arguing to deal with him for months so not a
moment too soon as far as I’m concerned.”143 At this stage, Rivera noted that
“[Sternlicht’s] threats started to escalate, his threats, the intensity, the frequency, the
nature, you know, in both board meetings, in email, in texts. And so there was a real
137
Ex. 97.
138
Ex. 103.
139
Id.
140
Ex. 107 at ‘656.
141
Id.
142
Ex. 106.
143
Id.
24
concern about whether or not we needed to take steps to make sure that the board
and the company were doing the right things to protect themselves.”144
In a March 7, 2023 board meeting, Weil provide a second oral report regarding
its investigation of the Hernandez loans.145 Aiello confirmed Weil’s initial finding
that the Company’s Conflict of Interest Policy was not followed on certain occasions
by certain board members and executives of the Company, but as previously
discussed with the board, there was no evidence to suggest that there was any
violation of the Company’s Related Party Transaction Policy or the Company’s
Anti-Pledging Policy.146 As Weil had previously reported, the violations of the
Conflict of Interest Policy included Hernandez’s loans and the loans that
Cooperstone’s ITC Rumba had made to certain directors in April 2022.147 Weil also
“advised the Board that in the course of our inquiry, we were made aware of certain
insider-related/affiliate transactions – separate from the loans – that should be
reviewed and that, given what we had heard, the Board should make confirm [sic]
that there are no other similar transactions and that, as part of the remediation, that
be appropriately addressed.”148
144
Rivera Dep. 195:20–196:4.
145
Ex. 114.
146
Id.
147
Id.; Ex. 82.
148
Ex. 135 at ‘150.
25
EY required the Audit Committee and Trujillo to sign a letter representing:
“Based on the findings of the Investigation by Legal Counsel, the Company’s Board
of Directors and management are considering, timely and appropriate remedial
action as considered necessary.”149 The board discussed potential remediation
measures, including changes to management, including the CEO, CFO, and general
counsel, the possibility of hiring an outside consultant, and changes to their standing
policies and governance structure.150 At that stage, the board ruled out termination
of the CFO and CEO, but continued to discuss taking other action, such as revising
their compliance policies and taking remedial action as to Hernandez, possibly by
separating his roles as chairman and CEO.151
G. Relations Break Down Between Board Factions
With Gold, Sternlicht, and Cooperstone constantly pressing for asset sales and
Hernandez’s removal, the board continued to fracture.152 On March 8, 2023,
149
Ex. 196.
150
Rivera Dep. 150:12–152:3.
151
Id.; Ex. 114.
152
See, e.g., Ex. 108 (“It goes without saying that I strongly favor selling ALL non florida
assets if we can get anywhere near the 100-150m the bankers have said they are worth.”);
Ex. 115 (listing a discussion or vote “on whether Cano can and should continue as an
independent public company and whether we should plan to sell Cano Holdco within X
days (once non-core assets have been sold) and should prepare for that process now and be
prepared to announce the process once ready.”); Ex. 107 (“I will attend this one last Board
meeting, and then if we don’t make real and substantial changes, including removing
Marlowe as CEO and Jason Conger as his attaché in crime, I will resign. I will also resign
w[ith] a full public statement of why I was resigning.”).
26
Sternlicht sent Cooperstone and Gold a startled message, alleging that he had learned
from his “mole” that the 10-K will not be filed on time and that management
intended to “dump tens of millions of stock the second the window opens.”153 Gold
replied with his plan, one that Plaintiffs had heard from Gold before: fire Hernandez,
Conger, Aguilar, and Pedro Cordero, form a new management team with those loyal
to Plaintiffs, including Charley, Wilson, and Koppy, and commence an “immediate
national search for [a] major healthcare CEO.”154 Cooperstone replied: “Whomever
we hire, it should be a short term gig to sell the company.”155
The following day, Sternlicht sent Hernandez a three-page email titled “The
future of Cano,” expressing his criticisms of Hernandez’s performance, the loss of
Cano’s stock value, Hernandez’s related party transactions, and his belief that
Hernandez was treating Cano “as your personal piggy bank, almost assuming no one
would notice.”156 Sternlicht reiterated his threat to resign as a director and to issue
a public statement explaining his reasons for doing so if Hernandez would not step
down as CEO.157 Trujillo, Cooperstone, and Rivera were copied on the message.158
153
Ex. 225.
154
Id.
155
Id.
156
Ex. 124.
157
Id.
158
Id.
27
On March 14, 2023, Sternlicht forwarded the message to Morales, Muney, Aiello,
Guichelaar, and Gold, referring to the Company as a “cesspool.”159 Sternlicht
informed the recipients that, with the help of counsel, he had prepared a public
announcement regarding his departure from the board. Later that day, V&E sent
drafts of board resolutions and a special committee charter to Rivera, Trujillo,
Muney, and Morales.160
The board met on March 17, 2023. At this meeting, the Defendants proposed
and resolved, over the objection of Sternlicht, Cooperstone, and Gold, that the board
create a special committee consisting of Rivera, Trujillo, Morales, Muney and
Guichelaar “in response to Barry Sternlicht’s plan to publicly disclose his critiques
of the Company” (the “Special Committee”).161 The Special Committee’s charter
authorized it to retain advisers, to respond on the Company’s behalf to any public
statements made by Sternlicht, to make decisions related to communications
between the Company and its stockholders, to negotiate and make recommendations
to the board regarding settlements with stockholders “notwithstanding any such
stockholder’s designation as a member of the Board,” and “all such other actions
159
Id.
160
Ex. 126 at 1–2.
161
Ex. 127 at 1.
28
that the Special Committee may determine are necessary or advisable in connection
with the Purpose of the Committee.”162
The full board met on March 20, 2023.163 Gold raised an issue with Cano’s
payments to Cano Builders, a company owned by Hernandez’s father, Jose
Hernandez.164 He also alleged that Jose Hernandez received compensation for
marketing services provided through entities named “Imago” and “Immersion,”
which Hernandez denied.165 The board also discussed the Company’s relationship
with Onsite Dental, a company owned in part by Hernandez’s wife.166 The board
moved on to discussing potential asset sales, including the possible divestiture of
Medicaid businesses and non-core assets.167 Sternlicht pointed out that the
Company’s stock was trading below a dollar per share, urging the Company to
announce a sale of assets.168 Hernandez explained that the Company planned to seek
approval of a reverse stock split to address the low stock price.169
162
Id.
163
Ex. 131. Guichelaar was not present at this meeting.
164
Id. at ‘040.
165
Id. at ‘041.
166
Id.
167
Id.
168
Id.
169
Id. at ‘042.
29
On March 21, Gold sent an email to the board relaying what he knew about
potential related party transactions involving Hernandez’s family members.170 Gold
alleged that Hernandez’s father, Jose Hernandez, owned Cano Builders, a company
that Cano paid over $7.8 million in fees the previous year.171 Gold asserted that the
Company had two companies in its system named “Immersion,” one owned by
Hernandez’ father and the other owned by Elizabeth Morales.172 Imago, another
marketing company associated with Hernandez’s father, was paid $1.35 million for
marketing.173 Gold alleged that Hernandez’s father also ran “Cano sports[,] Clav[e]
Guajira, and Viva la vida” and had requested fees from Cano through those
entities.174 Muney replied to Gold, saying that he had just reviewed those allegations
with Hernandez, and explained Hernandez’s view that the allegations were probably
from Charley and not based on fact.175 He also relayed that “[Hernandez] is unaware
of any company named Immersion.”176
In an email to the Special Committee and its advisers, Rivera wrote that she
wanted to “strongly discourage you from engaging in any further back and forth with
170
Ex. 135.
171
Id. at ‘152.
172
Id. Gold suggested that Elizabeth Morales may have some relation to Angel Morales.
173
Id. at ‘153.
174
Id.
175
Id. at ‘151–52.
176
Id.
30
Lew or any other board member. We don’t know all the facts. It’s dangerous to
make statements that aren’t underpinned by objective investigation and we should
not be parroting Marlow’s defenses.”177 Also on March 21, Muney finally circulated
the 360 Report to the full board.178
In the meantime, Weil formulated a plan to focus its investigation on three
areas: (1) transactions between Cano and Hernandez’s father relating to various
marketing vehicles; (2) transactions between Cano and Hernandez’s father relating
to his general contracting company, Cano Builders; and (3) other related party
transactions.179 Weil planned to provide an oral summary of its findings regarding
the first topic on or around March 29–30, with an interim status update on the two
other topics at the same juncture.180
The full board met on March 30, 2023.181 At the outset of the nearly two-hour
meeting, Trujillo announced there were two purposes for the meeting: for Weil to
present its findings regarding Hernandez’s family’s related party transactions and
for the Special Committee to present recommendations for remediation.182 Weil
177
Ex. 132.
178
Ex. 148.
179
Ex. 142.
180
Id.
181
Ex. 158.
182
Id. at 1.
31
informed the board that there is no evidence to support a conclusion that Jose
Hernandez had a stake in Imago, that it cannot say with certainty that Jose Hernandez
has a stake in Immersion and “remain seriously concerned” regarding that business,
and that it does not believe that Hernandez “made any representations regarding his
father in statements to the Board.”183 Weil also noted that “Jose’s involvement with
Imago and Immersion is troubling, creates appearance of conflict of interest or issues
with related party transactions, and should have been addressed earlier.”184
The board next turned to the Special Committee’s recommendations. After
questions were raised about the committee’s composition and mandate, Gold
questioned why the Special Committee prepared its recommendations before
receiving Weil’s report.185 Muney replied that “the recommendations would be the
same no matter what the outcome of the investigation is/was.”186 The Special
Committee then presented its four recommendations: (1) that Hernandez be
removed as chairman of the board, but remain a director; (2) that the Company hire
a new general counsel, chief financial officer, and add an investor relations role; (3)
that the Company create a probationary period for Hernandez to improve Company
183
Id. at 4.
184
Id. at 1.
185
Id. at 5.
186
Id.
32
performance; and (4) that Hernandez work with an executive coach.187 Weil
clarified that it had not reviewed the Special Committee’s recommendations in
advance, which was “highly unusual.”188 Aiello said that “Weil may need to
consider whether we can go forward with the representation and whether we can
effectively advise the Board given the circumstances.”189
During the meeting, Trujillo pushed the board to take a vote, and the Plaintiffs
asked Weil if the board could vote without the full scope of information.190
Ultimately, the board voted. Gold voted no and announced that he would formally
resign from the board. Sternlicht voted no and stated that he would consider
resigning from the board. Cooperstone abstained from the vote.191 Morales,
Trujillo, Guichelaar, Muney, and Rivera all voted in favor of the Special
Committee’s recommendations.192 In the days that followed, Sternlicht and
187
Id. at 6.
188
Id. at 7.
189
Id.
190
Plaintiffs contend that Weil’s investigation was terminated at the March 30, 2023
meeting. In late April, Weil finalized a new work plan with the Cano board that focused
on investigating the related party transactions between Cano and Hernandez’s family
members. Ex. 168; Ex. 242. Plaintiffs argue that the “re-start” of the investigation on
April 24, 2023 was due only to Plaintiffs’ noisy resignations. Pls.’ Reply Br. 17 n.8.
191
Ex. 158 at 7.
192
Id.
33
Cooperstone also resigned from the Cano board.193 The coordinated resignations
had been part of a plan that had been in the works for weeks.
H. Plaintiffs’ Scheme
As the foregoing events played out through March, the Plaintiffs were
strategizing to convince the board to sell the Company or to buy out their stock.
Sternlicht and Cooperstone in particular had been pushing for a sale since at least
November and were frustrated with the opposition that they received.194 They
viewed Hernandez as the biggest obstacle, believing he had told CVS and Humana
that the Company was not for sale.195
On March 11, 2023, Cooperstone emailed Sternlicht and Gold his
“suggestion for how to proceed with the threat of a noisy resignation to secure the
board votes we need.”196 First, they would demand that the board launch the
Company into an auction and remove Hernandez as CEO. If asking nicely failed
to convince the holdouts, Cooperstone would threaten to resign. Cooperstone
theorized that the threat of a noisy resignation coupled with the prospect of civil
liability and risks to their personal reputations would force the other directors to
193
Ex. 156; Ex. 157; Ex. 160.
194
Ex. 40 at 1; id. at 3; Ex. 115.
195
Ex. 40 at 3.
196
Ex. 227.
34
come around.197 If the board still opposed a short-term sale of the Company,
Plaintiffs would either launch a proxy contest, coupled with litigation or threat
thereof, or sell their shares to a third-party who could launch a future proxy
contest.198 By March 17, 2023, Plaintiffs had engaged counsel and were discussing
the logistics of a proxy contest.199 Despite their apparent motivation to nominate a
competing slate, however, they made a calculated decision not to act promptly.
Cooperstone told his compatriots: “No need to rush here – time is actually building
some leverage for us.”200 They did wait—resigning about 13 days later and waiting
28 days before finally demanding that the board allow them to nominate a
competing slate.
I. Post-Resignation Events
On April 4, 2023, Plaintiffs filed a group agreement under Section 13(d) of
the Securities Exchange Act of 1934.201 The filing disclosed that Cooperstone,
Sternlicht, and Gold had each resigned from the Cano board on March 30 and
attached Cooperstone’s resignation letter.202 On April 6, 2023, Hernandez filed a
197
Id. at ‘391.
198
Id. at ‘392.
199
Ex. 197.
200
Id. at ‘610.
201
Cano Health, Inc., Beneficial Ownership Report (Schedule 13D) (Apr. 4, 2023).
202
Id.
35
Schedule 13D/A with the SEC disclosing the Camerlinck Loan and that Hernandez
and his guarantors had agreed to transfer 20 million shares of Cano stock to
Camerlinck to repay the loan, subject to a buyback option.203 On April 7, 2023,
Cano filed an amended annual report disclosing the resignation of the Plaintiffs and
announcing that it had reduced the board’s size to six directors.204
On April 14, 2023, Plaintiffs sent a letter to Weil explaining that the recent
disclosures by Hernandez and the Company, together with the changes at the
Company that occurred after the February 15 nomination deadline, constituted
material changes that required the board to immediately reopen the nomination
window for thirty days.205 At that time, Plaintiffs did not submit a nomination
proposal or otherwise attempt to comply with any of the requirements of the advance
notice bylaw.206 The Company did not respond to Plaintiffs’ letter.
On April 17, 2023, the Company announced that Trujillo would replace
Hernandez as chairman of the board.207 On April 24, 2023, Weil provided
Defendants with an updated work plan, which states that Weil will investigate, and
203
Ex. 162.
204
Cano Health, Inc., Annual Report Amendment No. 1 (Form 10-K/A) (Apr. 7, 2023).
205
Ex. 165.
Cooperstone’s ITC Rumba submitted a formal nomination notice on May 18, 2023. See
206
Ex. 184.
207
Ex. 166.
36
will hire an adviser to perform background checks, regarding “Hernandez family
related party transaction concerns.”208
J. Procedural History
On April 28, 2023, the Plaintiffs filed their complaint in this action, seeking to
enjoin the Company from enforcing the deadline in the advance notice bylaw and
adjourning the 2023 annual meeting.209 The Plaintiffs moved to expedite the
proceedings, initially seeking a one-day trial on their application for a mandatory
injunction prior to June 16, 2023.210 That request was based on Plaintiffs’
understanding that the meeting would be held on June 28. But on April 27, before
Plaintiffs filed their complaint, Cano decided to set the annual meeting date on June
15 and to use a record date of May 8.211 On May 1, Plaintiffs learned that the
Company had scheduled the annual meeting for June 15. On May 3, Plaintiffs filed
a motion for a preliminary injunction seeking to enjoin the meeting until this case is
resolved.212 The court ruled that the case would proceed on an expedited preliminary
injunction motion to enjoin the annual meeting and to order waiver of the advance
208
Ex. 168.
209
Dkt. 1 (“Compl.”).
210
Id.
211
Ex. 169.
212
Dkt. 12.
37
notice bylaw.213 The parties conducted expedited discovery and the court held a
half-day preliminary injunction hearing on June 9, 2023.
II. ANALYSIS
Plaintiffs ask this court to issue an order (a) enjoining Cano from enforcing
the advance notice bylaw; (b) setting June 21, 2023 as the record date for Cano’s
2023 annual meeting; and (c) setting July 26, 2023 as Cano’s annual meeting date.214
“The Court of Chancery has broad discretion in granting or denying a
preliminary injunction.” Data Gen. Corp. v. Digit. Comput. Controls, Inc., 297 A.2d
437, 439 (Del. 1972). To obtain a preliminary injunction, Plaintiffs must establish
(1) a reasonable probability of success on the merits, (2) that they will suffer
irreparable harm if an injunction is not granted, and (3) that the harm to Plaintiffs if
the injunction does not issue will exceed the harm to the Defendants if the injunction
does issue. BlackRock Credit Allocation Income Tr. v. Saba Cap. Master Fund, Ltd.,
224 A.3d 964, 976 (Del. 2020).
A. Reasonable Probability of Success on the Merits
Plaintiffs must establish a reasonable probability that they will succeed on
their claim that the Cano directors have a fiduciary duty to waive the advance notice
bylaw in this circumstance. “This showing ‘falls well short of that which would be
213
Dkt. 47.
214
Pls.’ Opening Br. 46.
38
required to secure final relief following trial, since it explicitly requires only that the
record establish a reasonable probability that this greater showing will ultimately be
made.’” In re Del Monte Foods Co. S’holders Litig., 25 A.3d 813, 830 (Del. Ch.
2011) (quoting Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 579 (Del. Ch.
1998)).
It is well established that stockholders have a fundamental right to “vote for
the directors that the shareholder[s] want[] to oversee the firm.” EMAK Worldwide,
Inc. v. Kurz, 50 A.3d 429, 433 (Del. 2012). Subsumed within that fundamental right
to vote is the right to nominate a competing slate. Hubbard v. Hollywood Park
Realty Enters., Inc., 1991 WL 3151, at *5 (Del. Ch. Jan. 14, 1991); accord Strategic
Inv. Opportunities LLC v. Lee Enters., Inc., 2022 WL 453607, at *8 (Del. Ch. Feb.
14, 2022); Linton v. Everett, 1997 WL 441189, at *9 (Del. Ch. July 31, 1997).
Beyond the statutory requirement that corporations hold an annual meeting to elect
directors, the Delaware General Corporation Law enables corporations to set
standards and procedures that govern the director nomination process. See
8 Del. C. § 211(b); id. § 109(b). It is now common for corporate boards to establish
these procedures in “advance notice bylaws.” Openwave Sys. Inc. v. Harbinger Cap.
P’rs Master Fund I, Ltd., 924 A.2d 228, 239 (Del. Ch. 2007).
Advance notice bylaws require stockholders to provide the corporation with
prior notice of their intention to make stockholder proposals or to nominate directors
39
and to supply information about their proposals or nominees. Mentor Graphics
Corp. v. Quickturn Design Sys., Inc., 728 A.2d 25, 43 (Del. Ch. 1998), aff’d sub
nom. Quickturn Design Sys., Inc. v. Shapiro, 721 A.2d 1281 (Del. 1998). These
types of bylaws serve dual purposes: marshalling orderly meetings and election
contests where the nominees are fixed in advance of the annual meeting, and
providing fair warning to the corporation so that it can respond to stockholder
nominations. Openwave, 924 A.2d at 239; Lee Enters., 2022 WL 453607, at *9.
Cano’s advance notice bylaw states, in pertinent part:
To be timely, a stockholder’s written notice shall be received by the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor earlier than
the close of business on the one hundred twentieth (120th) day prior to
the one-year anniversary of the preceding year’s Annual Meeting.215
The 2022 annual meeting was held on May 16, 2022. Accordingly, under the bylaw,
written notice of nominations or business to be brought at the 2023 annual meeting
was due by February 15, 2023.
A stockholder challenge to the application of an advance notice bylaw
presents a series of questions. First, is the bylaw valid on its face? Second, did the
stockholder’s nomination comply with the terms of the bylaws? Third, if the first
two criteria are met, is there some basis in equity to excuse strict compliance with
215
Ex. 15 § 2(a)(2).
40
the bylaw? See Lee Enters., 2022 WL 453607, at *9. It is this third question that
animates this case.
1. The Schnell Doctrine
In Schnell v. Chris-Craft Industries, Inc., 285 A.2d 437 (Del. 1971), the
Delaware Supreme Court reaffirmed the long-standing principle that “inequitable
action does not become permissible simply because it is legally possible.” Id. at
439. In Schnell, the board, knowing of an impending proxy contest, advanced the
date of the annual stockholders’ meeting by approximately one month and moved
the location of the meeting to upstate New York. Id. The board’s conduct was held
to be inequitable because the dissidents had already geared their campaign to the
announced meeting date, and the board’s actions gave the dissidents little chance to
prepare a proxy contest. Id. The Delaware Supreme Court accepted this court’s
finding that management had attempted to militarize the corporate machinery and
Delaware law to entrench itself by “obstructing the legitimate efforts of dissident
stockholders in the exercise of their rights to undertake a proxy contest against
management.” Id.The Delaware Supreme Court has repeatedly upheld the principles of Schnell.
See, e.g., Coster v. UIP Cos., Inc., 255 A.3d 952, 960 (Del. 2021) (invoking Schnell
in the context of a dilutive stock issuance); MM Cos., Inc. v. Liquid Audio, Inc., 813
A.2d 1118, 1132 (Del. 2003) (describing the Schnell doctrine as “[o]ne of the most
41
venerable precepts of Delaware’s common law corporate jurisprudence”); Bäcker v.
Palisades Growth Cap. II, LP, 246 A.3d 81, 96 (Del. 2021) (applying Schnell to hold
that certain boardroom deceptions were inequitable, even though defendants may
have complied with the company’s governing documents). Schnell embodies the
fundamental power of equity. But that power should not be invoked lightly. The
flexibility of equity, as delineated in Schnell, “should be reserved for those instances
that threaten the fabric of the law, or which by an improper manipulation of the law,
would deprive a person of a clear right.” Alabama By-Products Corp. v. Neal, 588
A.2d 255, 256 n.1 (Del. 1991);216 see In re WeWork Litig., 250 A.3d 976, 996 (Del.
Ch. 2020) (“‘[C]ase law is indicative of a healthy inclination on the part of the
judiciary to employ the Schnell principle of ‘legal but inequitable’ only sparingly’”
(citation omitted)); Accipiter Life Scis. Fund, L.P. v. Helfer, 905 A.2d 115, 127 (Del.
Ch. 2006) (noting that “extraordinary facts” must underly a Schnell claim); Coster
v. UIP Cos., Inc., 2022 WL 1299127, at *7 (Del. Ch. May 2, 2022) (“The elusive
nature of Schnell as a standard and potentially harsh consequences of its application
216
This statement in Alabama By-Products was issued just a few weeks after the Hubbard
decision, which had been the subject of an appeal, but was settled after the filing of the
appellants’ opening brief. See 2 David A. Drexler et al., Delaware Corporate Law and
Practice § 25.10[1][a] (2023). The Drexler treatise suggests that the footnote in Alabama
By-Products was directed to the Hubbard decision and some of the points raised in the
appeal brief, leading the authors of the treatise to conclude that “the significance of the
Hubbard precedent is, perhaps, suspect.” Id. On a related note, the parties here did not
cite and the court did not identify any published decision of the Delaware Supreme Court
citing Hubbard.
42
provide good reasons to limit Schnell’s application.”); Leo E. Strine, Jr., If
Corporate Action Is Lawful, Presumably There Are Circumstances in Which It Is
Equitable to Take That Action: The Implicit Corollary to the Rule of Schnell v.
Chris–Craft, 60 Bus. Law. 877, 893 n.68 (2005) (“Schnell’s tradition cautions
against a literal reading of the quoted language, which is better read as manifesting
a recognition that equity should not lightly impede actions authorized by law.”).
Cases challenging the application of an otherwise valid advance notice bylaw
present a context-specific application of Schnell. AB Value P’rs, LP v. Kreisler Mfg.
Corp., 2014 WL 7150465, at *5 (Del. Ch. Dec. 16, 2014); Aprahamian v. HBO &
Co., 531 A.2d 1204, 1208 (Del. Ch. 1987) (enjoining further postponement of the
company’s annual meeting where the company learned that management’s slate was
likely to lose to the dissident slate); Lerman v. Diagnostic Data, Inc., 421 A.2d 906,
914 (Del. Ch. 1980) (holding that bylaw requiring 70-days’ notice for nominations
was inequitable because it was not announced until 63 days before the meeting was
to occur, making compliance impossible); Linton v. Everett, 1997 WL 441189, at
*9–10 (Del. Ch. July 31, 1997) (setting aside election of directors where an annual
meeting had not been held in three years and the board announced a meeting on 30-
days’ notice, triggering a ten-day window to propose nominees).
43
Plaintiffs have framed their claim within the context-specific application of
the Schnell doctrine recognized in Hubbard.217 In Hubbard, the court held that the
board had a duty to waive an advance notice bylaw provision under the principles of
Schnell where a “radical shift in position, or a material change in circumstances” had
occurred after the deadline for nominations had passed. Hubbard, 1991 WL 3151,
at *12. Neither the court nor the parties have been able to identify any decision of
this court in the ensuing 32 years enjoining the application of an advance notice
bylaw in reliance on Hubbard. Before applying its principles to the facts and
circumstances of this case, it is important to review Hubbard within the Schnell
framework.
In Hubbard, an insurgent stockholder brought suit to enjoin an advance notice
bylaw. Id. at *3. He then reached a settlement agreement with the company that
217
In Blasius Industries, Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988), Chancellor
Allen held that not all board action which impedes the effective exercise of a stockholder
vote is per se invalid. Rather, when a board acts “for the primary purpose of impeding the
exercise of stockholder voting power,” the board “bears the heavy burden of demonstrating
a compelling justification for such action.” Id. at 661. The Delaware Supreme Court
adopted Blasius in MM Cos., Inc. v. Liquid Audio, Inc., 813 A.2d 1118 (Del. 2003). “For
the Blasius standard to be invoked, the challenged action had to be taken for the sole or
primary purpose of thwarting a shareholder vote.” Kallick v. Sandridge Energy, Inc., 68
A.3d 242, 258 (Del. Ch. 2013) (citing Blasius, 564 A.2d at 662); accord Rosenbaum v.
CytoDyn Inc., 2021 WL 4775140, at *14 (Del. Ch. Oct. 13, 2021). Neither side has
presented this expedited injunction action through that lens. Indeed, Hubbard found that
Blasius was not the appropriate framework in that case. Hubbard, 1991 WL 3151, at *10
n.11; see also Rosenbaum, 2021 WL 4775140, at *14 (“[T]he Court will not draw upon
Blasius unless the evidence reveals the Board engaged in ‘manipulative conduct’ in
responding to the Nomination Notice.”). The court, therefore, addresses the claims here as
the parties have presented them.
44
added him to the board and prevented the board from amending or waiving its
advance notice requirement. Id. Hubbard quickly obtained the support of a majority
of the other directors to take the company in his proposed new direction. The other
board members, now the minority faction, sought to run their own slate of directors
and filed an action to enjoin the company from enforcing the agreement and the
advance notice bylaw. Id. at *4. The court noted that:
This is not a case where the shareholders, unprovoked by any board
action, unilaterally and belatedly changed their minds and decided to
nominate a slate of candidates for director. In such a situation, relief
should clearly be denied. Rather, this is a case where the . . . board
itself took certain action, after the by-law nomination deadline had
passed, that involved an unanticipated change of allegiance of a
majority of its members. It was foreseeable that that shift in allegiance
would result in potentially significant changes in the corporation’s
management personnel and operational changes in its business policy
and direction. Such material, post-deadline changes would also
foreseeably generate controversy and shareholder opposition. Under
those circumstances, considerations of fairness and the fundamental
importance of the shareholder franchise dictated that the shareholders
be afforded a fair opportunity to nominate an opposing slate, thus
imposing upon the board the duty to waive the advance notice
requirement of the by-law.
Id. at *12. Under Hubbard, where the key facts upon which a stockholder would
decide to nominate candidates or make proposals are “inherently unknowable until
after the nomination deadline had expired” and the board’s actions cause this
significant change in circumstances, it is inequitable for the board to continue to bar
stockholder nominations under the advance notice bylaw. Id. at *11–12.
45
Twenty-three years later, in AB Value, a stockholder sought a temporary
restraining order to enjoin an advance notice bylaw and run a competing slate. 2014
WL 7150465. Relying on Hubbard, the plaintiff argued that after the advance notice
deadline had passed, the company had distributed a 37.2% voting bloc previously
held in trust to four trust beneficiaries, had unanimously approved salary increases
for the co-presidents of the company, and had included errors in its meeting notice.
Id. at *2. The court noted that the standard for invoking Hubbard, a context-specific
application of Schnell, was high and required the plaintiff to provide compelling
facts indicating that enforcement of the bylaw was inequitable. Id. at *5. The court
distilled the Hubbard framework to three questions: “First, did the change in
circumstances occur after the advance notice deadline? Second, was the change
‘unanticipated’ and ‘material’? Third, was the change caused by the board of
directors?” Id. at *5.
Applying a preliminary injunction standard, the court denied the motion. The
court rejected plaintiff’s argument as to the trust distribution, noting that the board
had nothing to do with the dissolution of the trust. While such a change may, in fact,
radically alter the playing field for a proxy context, stockholder composition changes
frequently and “the Court’s focus is on the board and material actions taken by the
board that substantially alter the direction of the company.” Id. at *6. The court
found the pay increases for management insufficient to satisfy Hubbard because
46
they did not “constitute a radical shift in corporate direction” as they neither changed
the operations nor the business direction of the company. Id. at *7. The court
likewise rejected the plaintiff’s argument regarding inaccurate disclosures, noting
that the information came to light before the notice deadline and “[fell] short of
Hubbard’s material or radical change standard.” Id.
Plaintiffs rely on two other decisions where this court granted motions to
expedite claims to enjoin the enforcement of advance notice bylaws. In Healthcor
Management, L.P. v. Allscripts Healthcare Solutions, Inc., C.A. No. 7557-CS (Del.
Ch. May 25, 2012) (TRANSCRIPT), the CEO and four out of nine directors resigned
after the deadline for nominations had closed. The court noted that such a change
was extraordinary and was not a typical circumstance in the life of a company. Id.
at *4. The court found that the events, which the board itself acknowledged would
result in the board proposing to seat a very different board, “raise[d] a colorable
equitable question about whether the board can hide behind the advance notice by-
law and retain for itself the flexibility to change the shape of the board in a
fundamental way shortly before the meeting and deny the other stockholders the
ability to react to it.” Id.
In Icahn Partners LP v. Amylin Pharmaceuticals, Inc., 2012 WL 1526814(Del. Ch. Apr. 20, 2012), the board inexplicably refused to engage with a potential
acquirer that offered a substantial premium at a time when the board and
47
stockholders were contemplating a sale of the company. Id. at *3. The court granted
the motion to expedite, explaining that the plaintiffs had adequately alleged that the
rejection of the offer evinced the board’s radical change of plans for the
company. Id.
2. The Hubbard Standard
The parties disagree on what a plaintiff must prove to establish a claim under
Hubbard. Plaintiffs point to AB Value, which “read[s] Hubbard as requiring a
material change in circumstances, which the case alternatively describes as a ‘radical
shift in position,’ caused by the directors that occurs after the advance notice
deadline.” AB Value, 2014 WL 7150465, at *5. Plaintiffs equate the terms “radical”
and “material,” and conclude that materiality under Hubbard is the same as the
materiality standard governing proxy disclosures to stockholders.218 In the
disclosure context, “An omitted fact is material if there is a substantial likelihood
that a reasonable shareholder would consider it important in deciding how to vote.”
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc.
v. Northway, Inc., 426 U.S. 438, 499 (1976)). There must be a “substantial
likelihood that the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the total mix of information made
available.” Id. (internal quotations omitted). Thus, Plaintiffs seem to argue that they
218
Pls.’ Reply Br. 8.
48
can succeed on the motion if there is a substantial likelihood that a stockholder would
consider any of the board’s conduct after February 15 important to know in deciding
whether to run a proxy contest.
Plaintiffs’ attempt to import the disclosure standard of materiality into
Hubbard relies on Sherwood v. Ngon, 2011 WL 6355209 (Del. Ch. Dec. 20, 2011).
That reliance is misplaced. In Sherwood, plaintiff stockholders sought a temporary
restraining order to enjoin an annual meeting where three days before the then-
scheduled meeting, the board removed an agitating director from the company’s
previously disclosed slate of directors. Id. at *4. The company did not immediately
announce the director’s removal from the slate, but it did announce an approximately
two-week delay in the annual meeting. Id. The director’s removal from the slate
was not announced until nine days before the new meeting date. Id. The plaintiff
stockholders argued that the company’s disclosure regarding the removal of the
director from the slate was materially misleading and moved to enjoin the annual
meeting to provide stockholders with sufficient time to consider corrective
disclosures. Id. at *5.
Although the Sherwood court discussed certain factual similarities between
that case and Hubbard, the question in Sherwood was not whether the board had a
duty to waive enforcement of its advance notice bylaw. The plaintiffs argued, and
the court agreed, that defendants’ deferral of the meeting reopened a ten-day window
49
for nominations, with which the plaintiffs complied. Id. at *11. The question before
the court in Sherwood was whether the plaintiffs had adequately stated a colorable
disclosure claim. Id. at *15.
To the extent Plaintiffs argue that they need only establish that there has been
a post-deadline disclosure or discovery of an omission about the company or a
nominee that would satisfy a preliminary injunction, they are mistaken. Neither
Hubbard nor AB Value stands for that proposition.219 Rather, “the Court’s focus is
on the board and material actions taken by the board that substantially alter the
direction of the company.” AB Value, 2014 WL 7150465, at *6 (emphasis added);
see Icahn, 2012 WL 1526814, at *3 (indicating that plaintiffs might prevail if they
could show that the board “radically changed its plans for the Company” by refusing
to engage with a potential acquirer in light of the company’s previously stated
investment thesis).220
219
One of the grounds for the plaintiff’s claim in AB Value was an error in the meeting
notice. The court observed that the information came to light before the nomination
deadline “and falls well short of Hubbard’s material or radical change standard.” 2014
WL 7150465, at *7. The court did not indicate that it was applying a disclosure standard.
220
In Hubbard, the court was persuaded that the “material, post-deadline changes would
also foreseeably generate controversy and shareholder opposition.” 1991 WL 3151, at *12.
That quotation must be assessed within the overall context of the case, and understood
within the court’s finding that the allegiances of a board majority had shifted to take the
company in a different direction after the nomination deadline, coupled with the board’s
having contractually prohibited the company from waiving the bylaw.
50
As the court cautioned in AB Value, “Delaware jurisprudence that makes clear
that compelling circumstances must exist before the equitable powers invoked in
Hubbard (based on Schnell) will be applied.” 2014 WL 7150465, at *5. In Hubbard,
the compelling circumstances that justified waiving the advance notice bylaw
included a shift in board-level allegiance that “would result in potentially significant
changes in the corporation’s management personnel and operational changes in its
business policy and direction,” and a contractual agreement not to waive the bylaw.
1991 WL 3151, at *12. In Icahn, under the colorable claim standard of review, the
compelling circumstance that warranted expedition was the board’s unexpected
decision to reject, without consideration, a company-altering buyout offer. 2012 WL
1526814, at *2–3. In Healthcor Management, the resignation of four out of nine
directors after the deadline for nominations had closed warranted expedited
treatment of a claim to require waiver of the bylaw. C.A. No. 7557-CS, at *4. The
court in Healthcor stated:
When there’s an extraordinary change like this, and the board itself
feels a board majority is essentially going to propose to seat a very
different board, that, in my mind, raises a colorable equitable questions
about whether the board can hide behind the advance notice by-law and
retain for itself the flexibility to change the shape of the board in a
fundamental way shortly before the meeting and deny the other
stockholders the ability to react to it.
Id. (emphasis added).
51
Plaintiffs do not argue that the revelations regarding Hernandez and his
family’s related party transactions constitute fundamental changes to Cano so as to
trigger Hubbard. Indeed, they cannot, because they do not involve action of the
board. AB Value, 2014 WL 7150465, at *6. Instead, Plaintiffs frame their claim
around the board’s response to Hernandez’s conduct and the fissure between
Plaintiffs and the other outside directors.
3. The Alleged Radical Shift
Plaintiffs have asserted a moving target of post-deadline “material” changes
as supporting their claim. They first asserted in discovery that there are 17 different
bases for their claim.221 They next cited five distinct events in their opening brief
and then provided a list of seven “material facts” at oral argument.222 For the reasons
that follow, Plaintiffs fail to establish a reasonable probability of success on their
Hubbard claim.
a. The August 27, 2022 Meeting of Committee Chairs
Plaintiffs first point to the August 27, 2022 meeting of committee chairs over
the Camerlinck Loan. Plaintiffs insist that this meeting was concealed from them
until after February 15, 2023. Plaintiffs admit that they learned about the loans
221
Ex. 245 at 8–17.
222
Pls.’ Opening Br. 2; Tr. 12:16–14:10; id. at 16:7–18:24.
52
before the February 15 close of the nomination window and do not base their claims
on the loans’ existence.223
Plaintiffs also received information regarding the August 27 meeting of
committee chairs prior to the close of the nomination window. Minutes of the Audit
Committee’s February 8, 2023 meeting reflect a discussion of the Camerlinck Loan
and other Hernandez loans.224 Gold is listed as present at the meeting.225 At the
February 8, 2023 meeting, Armstrong recounted that the August meeting of board
chairs had occurred and described the meeting’s participants and its outcome: that
no further action was required.226 “There was no disagreement by the Committee
223
Tr. 12:11–20. Both Cooperstone and Gold had reason to know about the Camerlinck
Loan in August 2022. Cooperstone testified that he was generally aware of the loan.
Cooperstone Dep. at 87:8–15. Gold was a member of the Audit Committee and would
have access to Armstrong’s detailed memo regarding the Camerlinck Loan which was
shared with the Audit Committee on August 22, 2022. Ex. 36.
224
Ex. 223 at ‘112–13.
225
Id. at ‘111.
226
The meeting minutes describe this disclosure as follows:
David Armstrong reminded the Committee the record shows between August
17, 2022 and August 27, 2022 multiple Board disclosures were made
including reports to both the Chairs of the Audit Committee and the
Nominating and Corporate Governance Committee and a memorandum was
posted to Diligent for the entire Audit [C]ommittee on the issue. Following
these disclosures, the Chair of the Nominating and Governance Committee
convened a special meeting of all Committee Chairs to discuss the personal
loan from Bob Camerlinck. . . . During an hour-long meeting the personal
loan from Bob Camerlinck was discussed in detail, all Committee chairs
asked questions, Board counsel asked questions, Hernandez answered all
questions and the Board was informed that Audrey Leigh, Company
53
that these events as described did in fact transpire in August 2022.”227 Aiello advised
the Audit Committee on February 8 that “following Weil’s investigation they
determined that the personal loans did not constitute related party transactions, are
not disclosable, and” should not be disclosed in the upcoming 10-K.228
In an email to the Audit Committee on February 9, 2023, Armstrong discussed
the prior retention of Weil in August 2022 in connection with the Camerlinck Loan
and that Weil was handling the matter for the board “when we held a special Board
call (of Committee Chairs) to review this matter . . . on August 27, 2022.”229 Gold
was copied on this email.230 These documents refute Plaintiffs’ argument that they
did not know and could not have known about the August 27 meeting prior to the
February 15 nomination deadline. Gold’s failure to read or remember these
communications is no excuse. In any event, Plaintiffs fail to show that a meeting
among committee chairs in August 2022 constituted board action that radically
disclosure counsel (Goodwin Proctor) had advised no disclosure was
required including no 8-K. At the conclusion of the August 27, 2022 meeting
the Committee Chairs accepted management’s presentation, excused
management to conduct an executive session, and thereafter took no further
action.
Id. at ‘112–13.
227
Id. at ‘113.
228
Id.229
Ex. 224 at ‘038.
230
Id. at ‘037.
54
changed the direction of the Company. Indeed, as Cooperstone reminded Gold and
Sternlicht on February 6, 2023, even if the loans violated internal corporate policy,
three law firms advised that Hernandez’s loans did not need to be publicly
reported.231
b. The “Shadow Board”
Plaintiffs claim that Trujillo, Morales, Muney, and Rivera formed a “Shadow
Board” in January 2023 through which they decided not to renominate Cooperstone
and concealed the results of Hernandez’s 360 Report.232 As an initial matter, a
conversation that took place between individual directors is not board action as
required by Hubbard and AB Value. See Hubbard, 1991 WL 3151, at *12 (“[T]his
is a case where the . . . board itself took certain action, after the by-law nomination
deadline had passed, that involved an unanticipated change of allegiance of a
majority of its members.”); AB Value, 2014 WL 7150465, at *6 (“[T]he Court’s
focus is on the board and material actions taken by the board that substantially alter
the direction of the company.”). The Cano board took no action to conceal the results
of the 360 Report. Admittedly, it was not delivered to the full board until after
February 15, but that did not reflect a board decision that materially altered the
231
Ex. 83 (“I’ve heard directly from Goodwin that they agree with Weil that no disclosure
is required. That was the original advice from McDermott [Will & Emery]. So three law
firms agree on this.”).
232
Pls.’ Opening Br. 17–19, 50–51.
55
direction of the Company. In any event, Plaintiffs were aware well before February
15 that some members of management had concerns about Hernandez, having been
privately contacted by multiple members of management.233
Plaintiffs’ assertion that the board secretly agreed not to nominate
Cooperstone on management’s 2023 slate is also unfounded. Cooperstone resigned
before the board decided on the 2023 slate. Plaintiffs point to private email and text
conversations among certain directors showing that Morales, Muney, and Rivera
decided not to support Cooperstone’s nomination.234 Yet Plaintiffs concede that
there was no board-level, or even committee-level, action resolving not to include
Cooperstone on the slate.235 What might have happened had Cooperstone not
resigned is conjecture. See AB Value, 2014 WL 7150465, at *7 & n.40 (“This Court
cannot grant the extraordinary relief of enjoining a Company’s facially valid
advance notice bylaw on the basis of hypothetical future events.” (citing Openwave,
924 A.2d at 240 (“Because Delaware law does not permit challenges to bylaws based
on hypothetical abuses, the court will not consider those scenarios.”)).236 Plaintiffs’
233
Ex. 78 (Cooperstone email on February 4, 2023 noting “the fact that the faith of multiple
members of [Hernandez’s] management team is I think irretrievably lost.”); Ex. 73
(Sternlicht February 1, 2023 email: “Our two moles are reaching out every day.”); Ex. 40
at 9; Ex. 55; Ex. 149.
234
Ex. 86; Ex. 94.
235
Tr. at 15:1–6.
236
Plaintiffs have cited no evidence that the Governance Committee or any subset of the
board had suggested an alternative nominee to Cooperstone.
56
allegations are speculative and do not concern board action and therefore cannot
support a Hubbard claim.237
c. Creation of a Special Committee
Plaintiffs next contend that the board’s creation of the Special Committee on
March 17 “fundamentally changed the composition of the Board.”238 Defendants
concede that the board created the Special Committee after the notice deadline, but
they argue that its formation does not constitute the type of change sufficient to
require a waiver of the advance notice bylaw. Defendants point to the fact that the
Special Committee took no action binding the Company, but rather only made
recommendations to the board, which it could then vote to approve or reject.
Plaintiffs, and particularly Sternlicht, were the impetus for creation of the
Special Committee. Sternlicht had become increasingly aggressive in his pursuit of
a sale of the Company, and on March 2, sent an email to the board threatening to
resign and issue a public statement if Hernandez were not removed as CEO.239
237
This case is readily distinguishable from Sherwood, which, while not a Hubbard case,
involved a circumstance in which a board removed a nominee from its slate and advanced
the meeting date just before the annual meeting was meant to take place. Sherwood, 2011
WL 6355209, at *5 (focusing on the misleading nature of a disclosure describing why a
director was removed from the slate). Had Cooperstone remained on the board and not
been renominated after the deadline, his claim might be much stronger. See Hubbard, 1991
WL 3151, at *11 (indicating that minority directors should not be compelled to nominate
a dissident slate to protect against a potential “electoral coup” by the majority after the
nomination deadline).
238
Pls.’ Reply Br. 17.
239
Ex. 107 at ‘656.
57
Defendants viewed Sternlicht’s potential public statement as a threat to the
Company, and they sought counsel familiar with activist investors and formed a
Special Committee to address it.240 Between the Special Committee’s formation on
March 17 and March 25, the Special Committee held four meetings to discuss how
to address the public relations risk posed by Sternlicht’s threats and paths forward
as to Hernandez’s conduct.241 While Plaintiffs label the Special Committee as a
strategic ploy to silence them, placing Sternlicht or his cohort on a special committee
designed to address the negative effects of Sternlicht’s public condemnation of the
Company would be like “putting a fox on the special committee for henhouse
security.”242
In arguing that the formation and function of the Special Committee
constitutes a radical change in the direction of the Company, Plaintiffs focus on
240
Ex. 106; Rivera Dep. 195:20–196:4 (“[T]here was a real concern about whether or not
we needed to take steps to make sure that the board and the company were doing the right
things to protect themselves.”); Ex. 4 (“Muney Dep.”) at 113:14–114:2 (“[W]e acted as a
Special Committee on behalf of the shareholders to lay out all the options on a number of
issues to bring to the full board for discussion, as I stated earlier, because of Barry’s letter
and because the prior attempts at board meetings to have discussions on issues such as
assets, we couldn’t have a discussion because the three board members were adamant and
not willing to discuss other options with facts.”).
241
Ex. 232 at ‘709 (“[T]he Committee’s main concern is not about Mr. Sternlicht’s
message, but rather his behavior and the manner in which he is choosing to convey his
message.”); Ex. 233 (discussing the potential retention of a public relations firm); Ex. 234
(deliberating about which public relations firm to hire and reporting on discussions with
Sternlicht’s counsel); Ex. 236 (discussing public relations concerns and formulating
recommendations for the full board regarding Hernandez’s infractions).
242
Tr. 97:15–16.
58
language in the Special Committee’s charter which they claim gave the committee
“unfettered plenary power” and eliminated any “dissenting voices.”243 The Special
Committee’s charter is admittedly broad, giving the committee full authority to take
actions that it “may determine are necessary or advisable in connection with the
Purpose of the Committee.”244 The committee’s authority is not plenary, but cabined
by the scope of its purpose. The “Purpose” of the committee was multifold,
including to evaluate how to strategically position the Company and to investigate
relationships between directors and management and potential conflicts of interest
by the board, all of which were “in response to . . . Sternlicht’s plan to publicly
disclose his critiques of the Company.”245 And in actual function, the Special
Committee did not independently act to bind the Company. Rather, it made
recommendations to the board, which it then discussed and voted upon.246
The creation of the Special Committee did not constitute a “significant change
in corporate direction or policy.” Hubbard, 1991 WL 3151, at *12. Unlike in
Hubbard, where a subset of the board, constituting a majority, switched from
opposing a dissident stockholder’s proposals to supporting them, the creation of the
243
Pls.’ Opening Br. 32.
244
Ex. 127 at ‘830.
245
Id. at ‘829.
246
See, e.g., Ex. 158 at 5 (“[Rivera] informed the Board that the Special Committee has a
broad charter and that the Committee is simply making recommendations to the Board at
this time to discuss together”).
59
Special Committee did not represent a radical shift in position or material change in
the direction of the Company. Plaintiffs were a three-member minority of the board.
They took a strong view that the Company should be sold promptly and that
Hernandez should be terminated. They never had a majority of the board in their
camp who suddenly switched allegiances and radically changed the direction of the
Company. In that regard, the formation of the Special Committee did not even
change the status quo, let alone radically shift board allegiances like in Hubbard.
d. The March 30 Decision
Plaintiffs next argue that the Special Committee’s recommendations and the
board’s adoption of those recommendations proves that the board was unwilling to
remediate Hernandez’s misconduct. The evidence does not reflect board inaction.
See Hubbard, 1991 WL 3151, at *10 (observing that from a legal viewpoint
“‘inaction’ and ‘action’ may be substantive equivalents, different only in form”).
Rather, the board members were attuned to the issues raised about the CEO and
acted.247 The board, upon recommendation of the Special Committee, held a one-
247
See Ex. 132 (“I believe we need to ask Weil to investigate immediately and thoroughly
today’s list. Whatever the inquiry shows we will have to deal with it.”); Ex. 234
(“Committee members noted that the undisclosed margin loan and related party
transactions have been thoroughly investigated and resolved at significant cost to the
Company. It was agreed that the Board should confirm that the proper controls are in place
and vote on a resolution to close out this investigation.”); Ex. 236 (discussing, at length,
the pros and cons of retaining Hernandez as CEO, including Hernandez’s key relationships
with providers and patients, stockholder perception of Hernandez, the lack of suitable
public company CEO replacements, and Hernandez’s suitability in the short-term).
60
hour and forty-five-minute board meeting on March 30, with Plaintiffs present. The
board majority did not radically change the direction of the Company, but rather
favored a less radical approach than what Plaintiffs had been advocating. The
majority did so after concluding that Hernandez’s removal as CEO at that time, with
no successor in place, would not be in the Company’s best interest.248 This court
expresses no view as to whether the board’s decision was “good” or “bad” in a
business sense. See Hubbard, 1991 WL 3151, at *12. What matters is that the
Special Committee made recommendations, the full board was presented with those
recommendations, and the board voted. Plaintiffs’ dismay at having been outvoted
in these circumstances does not create a radical shift in the fundamental operation of
the Company as contemplated in Hubbard.
Notably, what Plaintiffs frame as an abdication actually reflects the adoption
of many of Weil’s suggestions from February 5.249 The idea of separating
248
See Ex. 247 at ‘501 (“[T]he Special Committee noted that the believe it is in the
Company’s best interest to allow Dr. Hernandez additional time to make adjustments in
response to the action items presented in connection with the recommendations during the
next few quarters, in particular given the critical role he plays with the physicians and the
human capital-centric business model of the Company’s business.”); Ex. 158 at ‘356 (“The
Committee members feel that they can give [Hernandez] more time to make adjustments
and, in the meantime, the Board can consider alternatives in the even the is unable to make
those adjustments.”); id. at ‘358 (“There is also a consensus that the [Special Committee’s]
recommendations are not permanent and can always be changed in new
circumstances/findings arise.”).
249
See Ex. 218 (recommending that the board address Hernandez’s failure to abide by the
Conflict of Interest Policy, consider strengthening compliance procedures, engage an
61
Hernandez’s roles as CEO and chairman had long been on the table. Sternlicht had
expressed his distaste for this approach in a February 27 email to his fellow
directors.250 The directors included a potential separation of these roles as among
potential remedial actions discussed in a meeting on March 7.251 Ultimately, the
Special Committee, after discussion, decided to recommend that Hernandez be
removed as board chair and presented that proposal to the full board.252
The Special Committee’s professed predetermination of its recommendations
regardless of the outcome of Weil’s investigation at the March 30 meeting is
troubling. When asked why the Special Committee made recommendations without
hearing the entirety of Weil’s report, Muney responded that “the recommendations
would have been the same no matter what the outcome of the investigation
is/was.”253 On the other hand, Trujillo had informed the board on March 27, 2023
that, although they needed to take action urgently, “[i]f Weil’s report ultimately
includes information that sheds new light on the topic of the CEO or anyone else,
outside consultant for training on board and corporate communications, consider enacting
policies related to personal loans to executive officers).
250
Ex. 107 at ‘657 (“Bringing in a Chairman will not have the same impact on the stock
and if the stock were to rise $1 because Marlowe is not CEO, he will benefit immensely
by being able to hold on to some of his shares. Id like to vote on the issue shortly. I have
stated my position clearly and I will reserve all my rights as a substantial stockholder and
in the street’s eye, the sponsor of this debacle.”).
251
Ex. 114 at 2.
252
Ex. 234 at ‘715.
253
Ex. 158 at 5.
62
we can consider it then, but I don’t believe that would change any of our minds with
respect to decisions in other critical areas.”254 He confirmed this in the board
meeting, explaining that the Special Committee was not dismissing the findings of
any report, but was of the view that “they are not willing to terminate the CEO
without a plan to keep the Company going.”255 In another meeting of the Special
Committee on March 30, 2023, the committee noted that it “would likely have later
changed its recommendation if evidence of wrongdoing was found.”256 While
Muney appeared to be defensive of Hernandez, other directors, such as Trujillo and
Rivera, were much more open minded.257
Plaintiffs’ disagreement with the Defendants’ chosen remediation plan does
not make that moderate course of action a radical shift in the business or
management of the Company. As a result, it does not support a Hubbard claim.
254
Ex. 238.
255
Ex. 158 at 7.
256
Ex. 239 at ‘722.
257
See Rivera Dep. 217:19–218:16 (“[W]e knew the recommendation, but we were waiting
to hear what people had to say and whether or not there was any other reasonable alternative
for a thoughtful solution that was going to be proposed. The point was to anchor the
discussion on the problem, what needed to be resolved, what we thought was the most
viable path. But anyone in that meeting was welcome to put forward alternate proposals,
talk about, you know, why certain things made sense or didn’t make sense and it was
always supposed to be a full board vote. If there is one thing that I do know about this
board, there are several members of this board who you cannot predict what their vote is
going to be until they’ve heard all the discussion and debate. So it was not a foregone
conclusion.”).
63
e. Appointment of Trujillo as Chairman
Plaintiffs next allege that the board’s appointment of Trujillo as chairman
constituted a material change the operation and management of Cano. Plaintiffs do
not attempt to explain how the appointment of Trujillo as chairman requires waiver
of the advance notice bylaw under Hubbard. Rather, they focus on attacking
Trujillo’s alleged lack of independence from Hernandez. The logical flaw in
Plaintiffs’ argument is that if, under their theory, Trujillo is in Hernandez’s pocket,
his appointment would not substantially change the allegiances of the board or the
Company’s trajectory. Rather, a loyal Trujillo would continue to steer the company
in the same direction advanced by Hernandez. Further, the Plaintiffs’ newly minted
challenge to Trujillo’s independence is undermined by the fact that they signed off
on Cano’s SEC disclosures representing that Trujillo is independent258 and that they
voted in favor of his appointment as Lead Independent Director.259 In any event,
Sternlicht admitted that there was no fundamental change as a result of Trujillo’s
installation as chairman: “He acted as the chairman of the board when he was lead
258
Ex. 27 at 1.
259
Trujillo Dep. 24:25–25:5 (noting that the board unanimously voted to appoint Trujillo
as Lead Independent Director).
64
director. Nothing changed.”260 Trujillo’s appointment as chairman does not support
Plaintiffs’ claim.261
f. The Abandoned Onsite Dental Stock Sale
Plaintiffs argue that the circumstances surrounding Hernandez’s wife’s
possible sale of Onsite Dental support their theory of a radical change in allegiances.
They do not. Stephanie Hernandez acquired her stake in Onsite Dental after Onsite
Dental acquired her business, Dental Excellence Partners, in April 2022.262 In
connection with that transaction, Cano entered into a dental services administration
agreement with Onsite Dental.263 At a March 20 board meeting, Gold raised an issue
as to the transaction, alleging that the board had not been informed of Hernandez’s
wife’s involvement in the transaction or the terms of the resulting agreement.264 As
Gold was later reminded, the acquisition of Dental Excellence Partners, the
subsequent agreement with Onsite Dental, and the involvement of Hernandez’s wife
260
Sternlicht Dep. 203:20–22.
261
Plaintiffs’ counsel conceded at argument that removal of Hernandez as CEO would not
constitute a fundamental change in the operation and management of Cano warranting
waiver of the bylaw under Hubbard. Tr. 60:10–61:11. If his removal as CEO would not
constitute a Hubbard change, the court is hard pressed to see how his removal as chairman
and replacement with the Lead Independent Director would satisfy Plaintiffs’ burden.
262
Ex. 28; Ex. 35.
263
Ex. 35.
264
Ex. 131 at ‘041.
65
were disclosed to the board and were approved two separate times.265 They were
also publicly disclosed.266
Plaintiffs argue that in April 2023, Kiran Patel, an individual who wanted to
become involved with Cano, sought to purchase Stephanie Hernandez’s interest in
Onsite Dental for $20 million.267 This transaction did not receive all necessary
approvals from Onsite Dental, and accordingly, was not consummated.268 The
transaction did not involve Cano and the board was not asked to approve it. This
unexecuted transaction could not have caused a material or radical change in Cano’s
circumstances.
4. The Plaintiffs’ Conduct
Plaintiffs accept that the court must evaluate their claims in light of the
circumstances of these particular plaintiffs.269 The record here demonstrates that the
Plaintiffs sought to nominate a competing slate before the occurrence of the changes
they allege here. In pursuit of that aim, they schemed to delay pressing their proxy
265
Ex. 199 at ‘486 (“The Onsite Dental/Stephanie Hernandez/Pedro Cordero issues were
all raised to this Board and approved at least twice – first November 29, 2021 and second
on March 15, 2022. During this time the full proposed terms of the agreement were
provided, and the related party transaction was approved with full understanding of the
exclusive terms of the agreement, Stephanie Hernandez’s ownership and Pedro Cordero’s
Board seat were all approved.”).
266
Ex. 35.
267
Pls.’ Opening Br. 44.
268
Hernandez Dep. 153:18–154:2.
269
Tr. 110:9–13.
66
contest in the hopes that the board would unwittingly reopen the nomination
window.
On March 11, Cooperstone sent Sternlicht and Gold an email mapping out a
plan.270 Their goal? Force the Company to either buy them out or to sell the
Company entirely. Cooperstone wrote, “This is my suggestion for how to proceed
with the threat of a noisy resignation to secure the board votes we need.”271 They
would demand that the board authorize a banker to immediately conduct an auction
for Company and to remove Hernandez as CEO, replaced by Gold as interim
CEO.272 If this did not occur, Cooperstone would threaten to resign.273 Cooperstone
wrote:
The threat of this noisy resignation may move the Board to act. We
should use that threat as other board members then have a risk of
damage to their reputations (Kim, Alan) as well as increased potential
for additional class actions. My goal would be to a negotiated outcome
that enables the company to be sold.
However, if we were to proceed [in] this manner it would further
devalue company stock causing injury to all remaining shareholders
including our investors and friends/family supporters. If the board [sic]
vote does not go our way, as a fallback, I suggest we pursue the sale of
our collective position. . . . The new investors’ plan would be to take
our board seats and then they would acquire their way to 50% and take
270
Ex. 227.
271
Id. at ‘390.
272
Id. at ‘391.
273
Id. at ‘392.
67
the company private or use the 2024 proxy season . . . to take full
control.274
The next day, Sternlicht forwarded a letter designed “to scare the holdouts” to
Cooperstone and Gold.275 The Plaintiffs planned to deliver their “scathing
condemnation[s]” to the board and to make clear that they will “consider resignation
if the vote goes the wrong way.”276 “If the board does not go our way, we can
regroup and consider next steps.”277 Sternlicht, Cooperstone, and Gold discussed
running a proxy contest to fill Muney and Rivera’s seats with candidates of their
choice.278 Each of the Plaintiffs were aware that the period for stockholder proposals
had closed on February 15, 2023. Yet the Plaintiffs did not then demand that the
board reopen the nomination period. Rather, they intentionally remained silent,
hoping that the board would overlook the terms of the advance notice bylaw and set
the annual meeting date after July 16, which would reopen the nomination period by
default.279 That bet did not pan out.
274
Id. (cleaned up).
275
Ex. 228 at ‘361.
276
Id. at ‘360.
277
Id.278
Ex. 230 (inclosing an email from Sternlicht in which he states, “we could launch a proxy
fight to oust Kim and Alan. That would give us me, you [(Cooperstone)], lew and our two
people.”).
279
Ex. 231 (noting that the nomination period would reopen if the annual meeting is held
after July 16 and stating: “What is critical now is that we not ask the Cano people or other
board members any questions around the proxy or the annual meeting. I think they are
oblivious to the implications of the timing.”).
68
Plaintiffs saw the writing on the wall. Cooperstone’s company retained
counsel on March 17, 2023 “in connection with [its] investment in Cano Health” and
Sternlicht followed along four days later.280 But the Plaintiffs were in no hurry to
take action. In a WhatsApp message on March 17, 2023, Cooperstone told Gold and
Sternlicht that there is “No need to rush here - time is actually building some leverage
for us.”281 On March 21, Plaintiffs hatched their current strategy to resign and run a
slate against the 2023 nominees.282
Plaintiffs exploited their leverage-building lethargy. Following the board
meeting on March 30, 2023, Plaintiffs continued to delay. By April 5, 2023, the
Plaintiffs had a proxy adviser and had received notice that the Company intended to
hold its annual meeting on June 28, 2023.283 But despite having just under 84 days
until the annual meeting, Plaintiffs waited nine days to send a letter demanding that
the Company reopen the nomination period.284 Even then, they did not deliver a
nomination proposal. Plaintiffs then waited an additional fourteen days before filing
280
Ex. 181 at 22.
281
Ex. 197 at ‘610.
282
Ex. 134 at ‘655 (Sternlicht text exchange with Gold and Cooperstone: “And we have
one other strategy to deploy gents. Wilkie [sic] Farr said [redacted.] It’s a fascinating idea
but the three of us opposing these dumb dumbs might work!”).
283
Dkt. 12 at Ex. B.
284
Ex. 165.
69
a complaint in this court, dwindling an 84-day head start to around 60 days.285 They
did this based on the quickly approaching provisional annual meeting date of June
28, 2023, which was not yet publicly announced. That date could have been
changed, and it was here, cutting an additional 13 days off of Plaintiffs’ already tight
timeline. In light of these circumstances, the strategy of delay that Plaintiffs
undertook here was not a reasonable one.
When the board did not cave to their demands, Plaintiffs took their alternative
path—framing the board’s decisions and responses to Plaintiffs’ demands as
“material changes” worthy of reopening the nomination window. Plaintiffs’ actions
bring two venerable maxims of equity to mind. First, “equity aids the vigilant, not
those who slumber on their rights.” Adams v. Jankouskas, 452 A.2d 148, 157 (Del.
1982). Second, “[a]ll plaintiffs seeking the aid of equity’s extraordinary remedies
do so subject to the maxim that he who seeks equity must do equity.” Richard Paul,
Inc. v. Union Imp. Co., 91 A.2d 49, 54 (Del. 1952). Taking the Plaintiffs’ allegations
together, they do not constitute fundamental changes in the operation and
management of Cano to compel waiver of the advance notice bylaw under
285
Cf. Schnell, 285 A.2d at 439 (holding that plaintiffs did not unreasonably delay when
they filed suit five days after unofficially learning of management’s changes to the date
and location of the meeting).
70
Hubbard.286 The powerful tool of Schnell is “reserved for those instances that
threaten the fabric of the law, or which by an improper manipulation of the law,
would deprive a person of a clear right.” Alabama By-Products Corp. v. Neal, 588
A.2d 255, 256 n.1 (Del. 1991).
Plaintiffs decided to nominate a competing slate in early March, and in
furtherance of that goal, launched a ploy to strategically delay and ultimately, to
assert claims of material post-deadline change that are both pretextual and
insufficiently radical under in Hubbard and Schnell. In these circumstances, relief
must be denied. Plaintiffs cannot establish a reasonable probability of success on
their claim.
B. Irreparable Harm
An essential condition of preliminary injunctive relief is the threat that
irreparable harm will befall the plaintiffs between now and trial unless an injunction
issues. Kingsbridge Cap. Gp. v. Dunkin’ Donuts, Inc., 1989 WL 89449, at *4 (Del.
Ch. Aug. 7, 1989). “‘Courts have consistently found that corporate management
subjects shareholders to irreparable harm by denying them the right to vote their
286
Plaintiffs also suffer from credibility problems. For example, they alleged in their
verified complaint that they did not learn of the Camerlinck Loan until March 7. Compl.
¶ 52. While the other two plaintiffs were quicker to admit the statement’s falsity, Sternlicht
doubled down on the allegation, arguing that despite board minutes marking him present
for a discussion of the loan, he must have “left the room” or “wasn’t there.” Sternlicht
Dep. 61:19–62:14.
71
shares or unnecessarily frustrating them in their attempt to obtain representation on
the board of directors.’” Hubbard, 1991 WL 3151, at *5 (quoting Int’l Banknote
Co., Inc. v. Muller, 713 F. Supp. 612, 623 (S.D.N.Y. 1989)); see Icahn, 2012 WL
1526814, at *3. However, where a plaintiff’s imminent, irreparable injury is self-
inflicted, equity will not come to her rescue. See Rosenbaum v. CytoDyn Inc., 2021
WL 4890876, at *2 (Del. Ch. Oct. 20, 2021) (“While I recognize that prohibiting a
stockholder from exercising her franchise rights can amount to irreparable harm, in
this case, any such harm is, in large measure, self-inflicted.”).
Plaintiffs’ decision to resign from the board after they knew that the
nomination deadline had passed was part of a strategic plan to pressure the board to
agree to a buyout or to replace the CEO with someone aligned with Plaintiffs’
strategy. They intentionally delayed in seeking to waive the bylaw and to assert their
claims until their strategy played out and the board did not accede to their demands
on March 30. Any harm to these Plaintiffs, who chose to leave the board and to sit
on their claims, is self-inflicted.
C. Balance of the Equities
The final element of the preliminary injunction framework is the balance of
harms. Even assuming that Plaintiffs will suffer irreparable harm if they are unable
to run their slate, the balance of equities favors Defendants. Plaintiffs’ admitted
strategy of delay and orchestrated pressure campaign were designed to create a
72
burdensome exigency. Louisiana Mun. Police Emps.’ Ret. Sys. v. Crawford, 2007
WL 625006, at *1 (Del. Ch. Feb. 13, 2007) (considering the self-inflicted nature of
the harm in the court’s evaluation of the court’s balancing of the equities).
Plaintiffs strategically delayed in pursuing a proxy contest and bringing suit,
forcing Defendants to litigate this case on a burdensome, expedited basis and
increasing the costs to Cano in connection with its annual meeting.287 Plaintiffs here
failed to timely nominate directors to replace the directors up for election in 2023
despite their significant concerns about the management of the Company. Plaintiffs
were not strangers to this Company, but rather were directors with a long-established
familiarity with Cano’s structure and policies. As their concerns continued to build,
they chose to sit back in the hope that time would increase their leverage over the
board. Plaintiffs must be forced to live with the consequences of their actions. The
balance of equities tips in favor of the Defendants and counsels against the entry of
a preliminary injunction.
287
Defs.’ Answering Br. 56–57, 59. The policy behind enforcing unambiguous advance
notice bylaws is well established. See, e.g., Saba Cap., 224 A.3d at 980 (“A rule that would
permit election-contest participants to ignore a clear deadline and then, without having
raised any objection, proffer after-the-fact reasons for their non-compliance with it, would
create uncertainty in the electoral setting. Encouraging such after-the-fact factual inquiries
into missed deadlines could potentially frustrate the purpose of advance notice bylaws,
which ‘are designed and function to permit orderly meetings and election contests and to
provide fair warning to the corporation so that it may have sufficient time to respond to
shareholder nominations.’” (quoting Openwave, 924 A.2d at 239)).
73
III. CONCLUSION
For the foregoing reasons, the Plaintiffs’ motion for a preliminary injunction
is denied.
74