JANA Master Fund, Ltd. v. CNET Networks, Inc.
954 A.2d 335, 2008 WL 660556, 2008 Del. Ch. LEXIS 35 (2008)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When a corporate bylaw affecting shareholder voting rights is ambiguous, any doubt is resolved in favor of the stockholders’ electoral rights. A bylaw that mirrors the language, timing, and requirements of SEC Rule 14a-8 will be construed to apply only to shareholder proposals seeking inclusion in the company's proxy materials, not to independent proxy solicitations.
Facts:
- JANA Master Fund, Ltd. ('JANA'), an investment fund, owned approximately eleven percent of the common stock of CNET Networks, Inc. ('CNET').
- JANA was dissatisfied with CNET's financial performance and sought to replace two directors, expand the board from eight to thirteen members, and nominate five new individuals to gain a majority.
- JANA made its initial investment in CNET in October 2007.
- CNET's annual meeting was expected in June 2008, at which time JANA would have held its shares for only eight months.
- CNET's bylaws (Article II, Section 3) required a stockholder to be a beneficial owner of at least $1,000 of stock for at least one year to 'seek to transact other corporate business at the annual meeting.'
- JANA intended to conduct its own independent proxy solicitation, financed by itself, rather than seeking to have its proposals included in CNET's official proxy materials.
- On December 26, 2007, JANA notified CNET of its intent to solicit proxies and requested a shareholder list.
- On January 3, 2008, CNET refused to provide the list, asserting that JANA's planned solicitation violated the bylaw's one-year holding requirement.
Procedural Posture:
- JANA Master Fund, Ltd. filed a complaint in the Delaware Court of Chancery seeking a declaratory judgment that CNET's bylaw was either inapplicable to its proposed proxy solicitation or legally invalid.
- JANA also filed a motion to expedite the proceedings.
- The parties agreed to have the court resolve the dispute via a motion for judgment on the pleadings, submitting written briefs on an abbreviated schedule.
- The Court of Chancery heard oral arguments on the motion.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a corporate bylaw requiring a shareholder to own stock for one year before seeking to 'transact other corporate business' apply to a shareholder conducting an independent proxy solicitation at its own expense, when the bylaw's language and deadlines track federal securities rules for including proposals in company proxy materials?
Opinions:
Majority - Chancellor Chandler
No. The bylaw applies only to proposals shareholders seek to have included in the company's own proxy materials pursuant to SEC Rule 14a-8 and does not apply to a shareholder's independent proxy solicitation. The court reasoned that the bylaw's language is unambiguous when read in the context of federal securities law. First, the phrase 'may seek to transact' business implies asking for permission, which is characteristic of the Rule 14a-8 process where management can reject proposals, whereas a shareholder conducting an independent solicitation simply acts. Second, the bylaw's notice deadline is tied to the date of the corporation's proxy statement release, which logically serves to give management time to include approved proposals in its materials. Third, and most decisively, the bylaw's final sentence explicitly requires compliance with federal securities laws governing when a corporation must 'include the proposal in its proxy statement,' which is a direct reference to Rule 14a-8. Finally, the court invoked the 'rule of construction in favor of franchise rights,' stating that any ambiguity in bylaws that could restrict shareholder voting must be interpreted to favor the free exercise of those rights.
Analysis:
This decision provides significant protection for shareholder activists seeking to challenge corporate management through independent proxy contests. It clarifies that corporate bylaws that track the specific language and procedural framework of SEC Rule 14a-8 cannot be used as a general barrier to all shareholder proposals. The ruling prevents corporations from imposing the restrictive requirements of Rule 14a-8 (like holding periods) on shareholders who are willing to bear the expense of their own solicitation efforts, unless the bylaw is written with unmistakable clarity to apply universally. This reinforces the principle that restrictions on the fundamental shareholder franchise must be clear and will be narrowly construed, thereby preserving a key avenue for corporate accountability.
