Albertsons Is Latest Company Targeted for Board Nomination Bylaw

A shareholder is suing Albertsons Cos. over its board nomination bylaw, adding to the wave of litigation challenging advance-notice provisions over claims they wrongfully kneecap activist investors.

The lawsuit, filed Monday, targets multiple bylaw sections covering dissident director candidates, focusing on two that take a broad view of when the shareholders behind the nominations must disclose that they’re “acting in concert” with others. The provisions “serve as an unlawful deterrent to those seeking to meaningfully participate in the nomination process,” according to the proposed class action.

The allegations echo a recurring theme in Delaware’s Chancery Court, where investor litigation is increasingly taking aim at the new generation of defensive measures adopted by corporate boards seeking to fend off stockholder influence campaigns. The rising tide of activists—emboldened by recent changes such as the universal proxy—is now colliding with “weaponized” nomination bylaws, repurposed poison pills, and shareholder agreements that favor insiders.

Read More: Activist Investors Confront ‘Weaponized’ Board Nomination Bylaws

Albertsons didn’t immediately respond to a request for comment Tuesday. The supermarket operator is based in Boise, Idaho.

On their face, the advance-notice bylaws serve legitimate purposes, such as ferreting out nominees with conflicts of interest or those who face regulatory barriers that shareholders have a right to know about. But the lawsuits—some brought by ordinary investors, others by activists embroiled in proxy fights—raise allegations that boards are brandishing the bylaws to dig for dirt or manipulating deadlines to keep their rivals off ballots.

Delaware’s courts have only recently begun to grapple with the questions raised by the tactic, and it remains to be seen whether they’ll land on an approach that involves cutting overzealous bylaws down to size or instead opt to invalidate them outright.

The lawsuit against Albertsons, which also names members of its board as defendants, zeroes in on two sections of its advance-notice bylaw: a “wolfpack” clause that declares stockholders with parallel goals to be “acting in concert,” and a “daisy-chain” provision that takes a hub-and-spoke view of investors “acting in parallel with the same third party,” even if they don’t know about each other.

In light of those provisions, the bylaw “cannot be complied with,” according to the complaint. Unless it’s invalidated, it “will continue to operate as a hindrance to the free and fair vote of the company’s stockholders,” the suit says.

The investor leading the case, Robert Garfield, is represented by Block & Leviton LLP and Abbott Cooper PLLC. Albertsons and its board haven’t yet made a court appearance.

The case is Garfield v. Allen, Del. Ch., No. 2024-0270, complaint filed 3/18/24.