Background
ATG Capital Opportunities Fund LP nominated a nine-person slate for election to the board of Empery Digital, Inc., a Bitcoin-focused digital asset treasury company whose shares were trading below the value of its Bitcoin holdings. Empery’s board rejected the nomination after concluding that ATG had failed to disclose suspected coordination with another activist stockholder, Tice Brown, and ATG’s substantial hedge created by shorting Bitcoin exchange-traded funds.
ATG sued to invalidate the rejection and allow its nominees to stand for election. While the expedited litigation was pending, Empery announced investments in AI data centers and sold approximately half of its remaining Bitcoin, prompting ATG to seek reopening of the nomination window as additional relief. Other claims concerning allegedly defensive measures and disclosures were bifurcated for later resolution.
The Court’s Holding
The Court of Chancery held that ATG’s nomination notice was valid because Empery’s bylaws did not require the disclosures on which the board relied. Brown was not a “participant” under the federal proxy-rule definition incorporated into the bylaws because the record did not show that he financed or participated in ATG’s proxy solicitation. The bylaws also required disclosure of hedges involving Empery securities, but not commodity hedges, cryptocurrency hedges, or positions in unrelated Bitcoin ETFs. The board could not rely after trial on materially different theories of noncompliance that it had not fairly identified when rejecting the notice.
The court also held that the rejection was inequitable and breached the directors’ fiduciary duties. Even assuming the board reasonably suspected that ATG and Brown sought to gain control and liquidate Empery’s Bitcoin, excluding ATG’s entire slate was a disproportionate and practically preclusive response. The board could present its concerns to stockholders during the proxy contest, but it could not remove compliant nominees from the ballot based on its assessment of their plans or suitability.
The court nevertheless entered judgment for the defendants on ATG’s claim to reopen the nomination window. Because ATG’s existing nominees would stand for election, stockholders retained a choice between competing slates, and Empery’s post-deadline strategic shift did not create the electoral unfairness that would justify reopening nominations.
Key Takeaways
- A board may enforce an unambiguous advance notice bylaw, but it cannot reject nominations for disclosures that the bylaw does not require.
- Concerns about an insurgent slate’s strategy, suitability, or economic incentives ordinarily belong in the board’s communications to voters, not in a decision to remove the slate from the ballot.
- A post-deadline change in corporate strategy does not necessarily require reopening nominations when stockholders already have a meaningful choice between competing slates.
Why It Matters
The decision reinforces that advance notice bylaws are contractual conditions, not open-ended authority for incumbent directors to demand whatever information they consider material. A rejection must rest on requirements actually contained in the bylaws and on grounds fairly communicated to the nominating stockholder.
It also underscores Delaware’s enhanced scrutiny of actions affecting the stockholder franchise. Boards may vigorously oppose dissident nominees and explain perceived risks, but they generally must leave the ultimate choice of corporate direction and board composition to stockholders when the nomination complies with the governing bylaws.