Background
In an expedited challenge concerning Empery Digital, Inc.’s annual meeting, ATG Capital Opportunities Fund LP contested the board’s rejection of its director-nomination notice. Vice Chancellor Will had already issued a post-trial merits decision holding that ATG’s notice complied with the bylaw provisions invoked by the board and that the rejection breached the board’s fiduciary duties.
This supplemental letter opinion addressed two defenses not resolved in the earlier decision. Defendants argued that ATG’s coordination with Tice Brown barred equitable relief under unclean hands. They also sought spoliation remedies based on ATG principal Gabriel Gliksberg’s use of auto-deleting Signal and WhatsApp messages while communicating with Brown and proposed director nominees.
The Court’s Holding
The court rejected the unclean-hands defense. Although ATG had acted furtively in coordinating with Brown, its conduct did not meet the demanding standard for denying equitable relief. The court explained that unclean hands protects the integrity of equity, not fiduciaries seeking to excuse their own inequitable conduct; denying relief would further impair stockholders’ right to elect directors.
The court granted the spoliation motion in part. ATG reasonably anticipated litigation by February 12, 2026, after Empery rejected ATG’s demand for board refreshment and ATG began working with litigation counsel on a dissident slate. Gliksberg nevertheless left auto-delete enabled through April 14, including after receiving a litigation hold, and affirmatively enabled WhatsApp auto-delete on February 16. Requested adverse inferences and a heightened burden of proof were moot because even proof of coordination would not alter the bylaws’ disclosure requirements. But ATG’s preservation breach caused defendants expense and incomplete substitute discovery, warranting reasonable attorneys’ fees and expenses for the spoliation motion and related supplemental discovery.
Key Takeaways
- Suspicious or furtive conduct does not establish unclean hands unless it is sufficiently offensive to warrant denial of otherwise meritorious equitable relief.
- A preservation duty can arise before suit when circumstances make litigation reasonably anticipated.
- Auto-deleting communications after that duty arises, particularly after a litigation hold, can support monetary spoliation sanctions even when merits-related adverse inferences would not affect the outcome.
Why It Matters
The decision separates the relevance of lost evidence to the merits from the costs imposed by its loss. Even where spoliation cannot change a bylaw-based outcome, the Court of Chancery may award fees to compensate the opposing side for the burden of investigating and seeking replacement discovery.
For activists and companies preparing for a proxy contest, the opinion underscores that preservation obligations may attach during contentious pre-litigation dealings—not only upon formal rejection of a nomination or the filing of a complaint.