By: Dana Lutz
I. Introduction
In a recent Delaware Court of Chancery decision, the Court emphasized that current boards cannot reject nominations based on their personal assessments of prospective nominees’ unsuitability. Instead, any basis for rejection must rest on a failure to satisfy unambiguous advance notice bylaw provisions. In ATG Capital Opportunity Funds LP v. Lane, the board of Empery Digital (“Empery”) rejected nominations for a full slate of directors submitted by an activist investor. Empery cited several reasons for the rejection, including suspected coordination with another investor. ATG sued Empery’s board to invalidate the rejection of its nomination notice. Applying Delaware’s “twice-tested framework”, Vice Chancellor Will found that the board lacked a contractual and equitable basis to reject the nominations.
II. Factual Background
Empery is a Delaware corporation.[1] In July of 2025, Empery’s predecessor adopted a digital asset treasury (“DAT”) strategy to acquire and hold Bitcoin.[2] In the fall of 2025, cryptocurrency prices began to sharply decline, and many DATs began trading at a discount.[3] By January 2026, Empery was trading at 73% of the value of its Bitcoin. [4] Thus, a stockholder could acquire control of Empery for 73% of the value of its Bitcoin and force a sale of that Bitcoin at market price.[5]
Two investors, Tice Brown and Gabi Gliksberg, founder of ATG Capital Opportunities Fund LP, noticed this significant discount and began purchasing shares to capitalize on the gap between the DATs and their underlying assets.[6] After a mutual connection put them in contact, Brown and Gliksberg had several phone calls, and each continued purchasing Empery stock.[7] Brown then filed a Schedule 13G disclosing his 9.7% ownership of Empery. ATG filed a Schedule 13D disclosing a 5.6% ownership stake in Empery, which was later amended to disclose that it had nearly doubled its ownership to 10.4%.[8]
ATG nominated a full slate of directors to the board of Empery, and the board unanimously rejected the nominations. [9] At trial, Defendants offered two main justifications for their decision:
- ATG did not disclose Brown as a “participant” in its proxy solicitation, and
- ATG did not disclose its short position in a Bitcoin ETFs.[10]
III. Court’s Analysis
The Court evaluated whether the board’s rejection of ATG’s nomination was contractually and equitably permissible.[11] The Defendants’ overarching theory was that Gliksberg and ATG formed a group with Brown and failed to disclose it, analogizing the case to precedent where the Court held that undisclosed agreements, arrangements, or understandings (AAUs) provided contractual or equitable grounds to reject a nomination.[12] While there was ample evidence to support the board’s suspicion, the bylaws at issue did not explicitly require a nominating stockholder to disclose AAUs. The Defendants point to the bylaw requiring nominating stockholders to disclose any participant (the “Participant Bylaw”), and the bylaws that require disclosure of information under Section 14(a) of the Securities Exchange Act of 1934 (the “Section 14(a) Bylaws”), to support their belief that ATG was required to disclose its relationship with Brown.[13]
a. Justification that ATG Failed to Disclose Brown as a Participant
First, the Participation Bylaw was analyzed, considering whether Brown fell under the definition of “participant.”[14] Defendants relied on the language “enters into any … understanding with a participant, for the purpose of … purchas[ing] … or voting’ securities ‘in support of’ a participant” in the Participation Bylaw to support their argument. [15] The Court concluded that although there was suspected coordination between Brown and Gliksberg, the definition focused on persons who provide financing, credit, or comparable economic inducements for the solicitation, and the rejection letter did not suggest that Brown met this standard.[16]
Next, the Court considered the Section 14(a) Bylaws, which defendants interpret as “catch-alls” that permitted the board to request any information it believed to be material under Section 14(a).[17] Defendants argue that because the Section 14(a) requirement to disclose “arrangements or understandings with any person with respect to any securities of the registrant. . .” is incorporated into the Bylaws, ATG was required to disclose any AAUs between Gliksberg and Brown.[18] They further argued that ATG was required to disclose AAUs with Brown because it was information material to voting stockholders under Rule 14a-9, which is implicated through the incorporation of Section 14(a).[19] The Court concluded that a decision did not need to be rendered regarding to what extent additional disclosure obligations arose through the incorporation of Section 14(a) because the board’s rejection letter did not mention the Section 14(a) Bylaws as requiring disclosure of the AAU with Brown, or reference Rule 14a-9 as a basis for rejection.[20]
b. Justifications that ATG Did Not Disclose Its Short Position
The Court then analyzed the board’s second reason for rejection, the failure to disclose a Bitcoin hedge.[21] Because neither Empery’s Bylaws nor its questionnaire for director candidates require the disclosure of commodity hedges, cryptocurrency hedges, or positions in unrelated ETFs, Defendants relied on Schedule 14A, an SEC-required disclosure form, which lists twelve categories of required disclosures.[22] None of the twelve categories expressly require the disclosure of investments in unrelated assets or a stockholders’ misalignment with other stockholders.[23] The Court again disregarded another 14a-9 argument for failure to assert it as a basis for rejection and concluded that because the Bylaws did not require the disclosure of commodity hedges, ATG could not have breached the Bylaws through its failure to disclose its Bitcoin hedge.[24]
c. Equitable review
The Court then analyzed whether the board inequitably impaired ATG’s nomination right.[25] To overcome the intermediate standard of review imposed, the board must establish that 1) the board had a reasonable and good-faith basis to conclude it faced a threat to an important corporate interest and 2) the response was reasonable in relation to the threat posed. [26] The Court assumed the first prong could be met due to a reasonably perceived legitimate threat.[27] Nevertheless, the board failed under the second prong as there were no valid contractual grounds to reject the nomination notice, and they had available means to communicate their concerns to stockholders.[28]
IV. Conclusion
This case highlights the importance of explicitly stating the requirements of advance notice bylaws, as Delaware courts won’t read in obligations that are not included in the language. Even where there is a reasonable basis to suspect suspicious activity, that alone does not constitute a valid basis for a board rejection. Additionally, companies should be mindful when providing reasons in their rejection notices, as failing to rely on certain rationales for the decision could waive the ability to use those rationales in later litigation. Ultimately, selecting a board is a fundamental right of the stockholders, not the directors, and this right can only be constrained through proper authorization in advance-notice bylaws that a nominating stockholder failed to satisfy.
[1] ATG Capital Opportunity Funds LP v. Lane, No. 2026-0447-LWW, 2026 WL 2566357, at *2 (Del. Ch. Aug. 28, 2026).
[2] Id.
[3] Id.
[4] Id.
[5] ATG Capital Opportunity Funds LP v. Lane, 2026 WL 2566357, at *2.
[6] Id.
[7] Id. at *3.
[8] ATG Capital Opportunity Funds LP v. Lane, 2026 WL 2566357, at *4–5.
[9] Id. at *5–6.
[10] Id. at *7.
[11] Id.
[12] ATG Capital Opportunity Funds LP v. Lane, 2026 WL 2566357, at *8.
[13] Id. at *9.
[14] Id.
[15] ATG Capital Opportunity Funds LP v. Lane, 2026 WL 2566357, at *10.
[16] Id. at *11.
[17] Id. at *12.
[18] Id. at *12.
[19] ATG Capital Opportunity Funds LP v. Lane, 2026 WL 2566357, at *12.
[20] Id. at *12.
[21] Id. at *14.
[22] ATG Capital Opportunity Funds LP v. Lane, 2026 WL 2566357, at *15.
[23] Id.
[24] Id. at *15–16.
[25] Id.
[26] ATG Capital Opportunity Funds LP v. Lane, 2026 WL 2566357, at *16.
[27] Id. at *17.
[28] Id. at *18.
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