Supermajority Bylaw Allowed under Delaware Law?

Nutrisystem Inc. defended its bylaw requiring a supermajority of stockholder votes to remove directors, saying that the provision is “expressly authorized” under Delaware law ( Frechter v. Zier, Del. Ch., No. 12038-VCG brief filed 6/27/16 ). Earlier this year, an investor filed a lawsuit in the Delaware Chancery Court claiming that the bylaw—which requires a two-thirds stockholders’ vote to remove directors—unlawfully entrenches board members and violates Delaware General Corporation Law. The section states that any “directors or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.” According to a review by Bloomberg BNA, the lawsuit may be a test case for whether supermajority bylaws are valid under Section 141(k). In a June 27 brief, the company responded that the case should be dismissed, saying that the board’s refusal to repeal the bylaw was protected under the deferential business judgment rule.

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