Ted D. Kellner v. AIM Immunotech Inc.

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
LORI W. WILL LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: January 4, 2024
Date Decided: January 5, 2024
John M. Seaman, Esquire Michael A. Pittenger, Esquire
Eliezer Y. Feinstein, Esquire William R. Denny, Esquire
Abrams & Bayliss LLP Matthew F. Davis, Esquire
20 Montchanin Road, Suite 200 Nicholas D. Mozal, Esquire
Wilmington, DE 19807 Potter Anderson & Corroon LLP
1313 North Market Street
Wilmington, DE 198091
RE: Ted D. Kellner v. AIM Immunotech Inc. et al.,
C.A. No. 2023-0879-LWW
Dear Counsel:
I write regarding plaintiff Ted D. Kellner’s Motion for an Injunction
Pending Appeal (the “Motion”).1 For the reasons discussed below, the Motion is
denied.
The Motion concerns my December 28, 2023 post-trial opinion in this
matter (the “Opinion”).2 In the Opinion, I held that certain of AIM Immunotech
Inc.’s advance notice bylaws were invalid. I also held that the plaintiff failed to
comply with valid advance notice bylaws and that the members of AIM’s board of
1
Pl.’s Mot. for Inj. Pending Appeal (Dkt. 275) (“Mot.”).
2
Post-Trial Op. (Dkt. 273) (“Op.”). Capitalized terms not defined herein have the
meanings given in the Opinion.
C.A. No. 2023-0879-LWW
January 5, 2024
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directors did not breach their fiduciary duties by rejecting Kellner’s attempt to
nominate three director candidates.
The Motion was filed on January 3, 2024 just before 5:00 p.m.—six days
after the Opinion was issued.3 In the Motion, Kellner asks that I enjoin AIM from
going forward with its annual meeting scheduled for today, January 5, pending his
appeal of the Opinion. Yesterday afternoon, AIM filed an opposition to the
Motion, arguing that Kellner’s request for an injunction is procedurally improper,
legally deficient, and barred by laches.4 Last night, Kellner filed a reply in further
support of the Motion.5
Under Court of Chancery Rule 62(c) and Supreme Court Rule 32, this Court
has discretion to grant an injunction pending appeal. In exercising that discretion,
the court considers the so-called Kirpat factors: (1) “a preliminary assessment of
likelihood of success on the merits of the appeal”; (2) “whether the petitioner will
suffer irreparable injury if the stay is not granted”; (3) “whether any other
interested party will suffer substantial harm if the stay is granted”; and (4)
“whether the public interest will be harmed if the stay is granted.”6 Because the
3
See generally Mot.
4
Defs.’ Opp. to Pl.’s Mot. for Inj. Pending Appeal (Dkt. 279) (“Defs.’ Opp.”).
5
Pl.’s Reply in Supp. of Mot. for Inj. Pending Appeal (Dkt. 280).
6
Kirpat, Inc. v. Delaware Alcoholic Beverage Control Comm’n, 741 A.2d 356, 357 (Del.
1998) (citation omitted).
C.A. No. 2023-0879-LWW
January 5, 2024
Page 3 of 6
first factor “directs the trial court to assess the strength of its own reasoning and
judgment, ‘the “likelihood of success on appeal” prong cannot be interpreted
literally or in a vacuum.’”7 Instead, the court considers the remaining factors
before “assessing whether the movant has presented a question that raises a fair
ground for review by our Supreme Court.”8 I proceed accordingly.
Regarding the second factor, Kellner argues that he will suffer irreparable
harm absent an injunction since AIM’s annual meeting will occur before his appeal
is resolved.9 But if Kellner prevails on appeal, he can pursue appropriate relief,
such as a new vote on his nominees.10 Additionally, any harm Kellner may face is
partly “self-inflicted” since he “chose to submit [his] nomination notice on the eve
of the deadline set by the advance notice bylaw.”11 Thus, this factor
7
Zhou v. Deng, 2022 WL 1617218, at *2 (Del. Ch. May 23, 2022) (citing Kirpat, 741
A.2d at 358).
8
Rosenbaum v. CytoDyn Inc., 2021 WL 4890876, at *1 (Del. Ch. Oct. 20, 2021).
9
Mot. ¶ 6.
10
See Defs.’ Opp. ¶ 19 (citing Hammann v. Adamis Pharms. Corp., C.A. No. 2021-0506-
PAF, at 16-18 (Del. Ch. July 1, 2021) (TRANSCRIPT) (declining to enjoin an annual
meeting pending resolution of the case where the “Court could order a new meeting for
the election of directors or could order the Company to allow plaintiff to run an opposing
slate at next year’s annual meeting”)). Kellner’s press release about the Motion
acknowledges this realty. See id. Ex. 5.
11
CytoDyn, 2021 WL 4890876, at *2; see Op. 84.
C.A. No. 2023-0879-LWW
January 5, 2024
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overwhelmingly disfavors an injunction—a conclusion compounded by Kellner’s
delay in filing the Motion.12
The third factor is a wash. On one hand, Kellner argues that the stockholder
franchise will be harmed if his slate of nominees is not voted upon.13 On the other
hand, further delaying the annual meeting pending an uncertain appeal also impairs
the franchise. And an injunction would deny AIM the benefit of its advance notice
bylaws, which are intended to “permit orderly . . . election contests.”14
The fourth factor is likewise in equipoise. Advance notice bylaws implicate
the “‘private interests of particular corporate constituencies,’ not the public
interest.”15 Any public interest in defending stockholder rights is counterbalanced
by the corporate interest served by safeguarding advance notice bylaws.
Returning to the first factor, I agree that Kellner’s appeal presents matters
warranting thorough consideration. As the Opinion pointed out, the evolution of
advance notice bylaws requires the court to “carefully balance the competing
12
See supra note 3 and accompanying text.
13
Mot. ¶ 6.
14
BlackRock Credit Allocation Income Tr. v. Saba Cap. Master Fund, Ltd., 224 A.3d
964, 980 (Del. 2020).
15
CytoDyn, 2021 WL 4890876, at *3 (citing Klassen v. Allegro Dev. Corp., 2013 WL
5967028, at *3 (Del. Ch. Nov. 17, 2013)).
C.A. No. 2023-0879-LWW
January 5, 2024
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interests at play.”16 I endeavored to do just that in resolving Kellner’s facial
challenge by applying settled law to novel bylaw provisions adopted amid a
looming proxy contest.
Yet Kellner’s “as applied” challenge—the one serving as a gating matter for
whether his nominees should be placed on the ballot—covers well-trodden ground.
The resolution of that claim turned on factual findings that arrangements or
understandings animating Kellner’s nomination were obfuscated from AIM’s
board and stockholders. Kellner was required to disclose these arrangements or
understandings.17 He did not. Moreover, given Kellner’s concealment of
meaningful information, I concluded that the Board acted reasonably in rejecting
the notice to protect important corporate objectives that AIM’s advance notice
bylaws promote. Kellner needed only to be forthcoming. He was not. As such,
the first factor weighs in favor of denying the Motion.
16
Op. 42.
17
The AAU Provision of the Amended Bylaws was invalid insofar as it required
disclosures about Stockholder Associated Persons. Rather than reform the provision, I
assessed whether Kellner disclosed information consistent with 2016 Bylaws, which were
validly enacted on a clear day. Op. 70-76. I did not, as Kellner suggests, engage in
“judicial reformation” of the bylaw. Mot. ¶ 10(b). Nor did I attempt to blue pencil it. I
considered whether Kellner withheld information about arrangements or
understandings—disclosures required not only by legitimate aspects of the AAU
Provision in the Amended Bylaws, but also expressly called for in the 2016 Bylaws. The
2016 Bylaws did not present any additional disclosure requirements. Irrespective of
which set of bylaws applied, there is no doubt that Kellner and his counsel knew he
needed to disclose the sort of arrangements or understandings that he obscured.
C.A. No. 2023-0879-LWW
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On balance, the Kirpat factors indicate that an injunction pending appeal is
unwarranted. Nothing prevents Kellner from pursuing his appeal and seeking
appropriate relief if he prevails. To enjoin the annual meeting, however, risks
further inequity.
Sincerely yours,
/s/ Lori W. Will
Lori W. Will
Vice Chancellor