Delaware Court of Chancery Invalidates Board’s Rejection of Activist Nomination Notice in ATG Capital v. Lane

On August 28, 2026, Vice Chancellor Lori W. Will of the Delaware Court of Chancery issued a post-trial opinion holding that the Board of Directors of Empery Digital, Inc. improperly rejected a nomination notice submitted by hedge fund ATG Capital Opportunities Fund LP. The Court found that ATG’s nomination notice complied with Empery’s advance notice bylaws and that the Board’s decision to reject the notice constituted a disproportionate and preclusive response that breached the directors’ fiduciary duties. The decision is an important development for stockholder franchise rights and the permissible uses of advance notice bylaws in contested director elections.

Background

Empery Digital is a Nasdaq-listed Delaware corporation that adopted a digital asset treasury strategy in July 2025, raising $500 million through a private placement to acquire and hold Bitcoin. By early 2026, Empery’s shares were trading at approximately 73% of the company’s net asset value due to declines in cryptocurrency prices, drawing the attention of investors.

ATG Capital accumulated a position exceeding 10% of Empery’s outstanding shares and hedged its exposure by shorting Bitcoin ETFs. On February 26, 2026, ATG submitted an advance notice of its intent to nominate a full slate of nine director candidates at Empery’s annual meeting. That same day, a separate large stockholder submitted a separate nomination notice.

The Board responded by adopting a stockholder rights plan, or poison pill, with a 12.5% ownership trigger. On March 26, 2026, the Board unanimously rejected ATG’s nomination notice. The Board cited three purported deficiencies: (1) failure to disclose Tice Brown (“Brown”) as a “participant” in ATG’s proxy solicitation; (2) failure to disclose ATG’s Bitcoin ETF short positions; and (3) alleged biographical omissions in nominee questionnaires. ATG filed suit on April 2, 2026.

The Court’s Decision

Bylaw Compliance—Contractual Review

The Court held that ATG’s nomination notice satisfied each of the bylaws’ requirements. On the “participant” issue, the Court found that the bylaws incorporated Schedule 14A’s definition of “participant,” which focuses on persons who finance or directly participate in a proxy solicitation—not those who merely coordinate or communicate with a nominating stockholder. Brown did not finance ATG’s proxy efforts or furnish credit for that purpose. On the Bitcoin hedge issue, the Court found that the bylaws required disclosure of derivatives and short positions in Empery’s own stock, not hedging positions involving Bitcoin or cryptocurrency-related ETFs. The Court noted that the Board could have adopted a broader disclosure bylaw or simply asked ATG about its hedging activity.

Fiduciary Duties—Equitable Review

Applying enhanced scrutiny under the Coster/Unocal framework, the Court held that even if the Board had a legitimate concern about ATG’s plans for Empery’s Bitcoin holdings, the Board’s response—outright rejection of the nomination—was disproportionate and preclusive. The rejection removed ATG’s nominees entirely from the ballot, effectively assuring the incumbents an uncontested election. The Court emphasized that the Board could have communicated its concerns to stockholders through the proxy contest rather than preventing stockholders from making the choice themselves.

Nomination Reopening

ATG sought to reopen the nomination window based on Empery’s strategic pivot toward artificial intelligence (AI) data center investments and significant Bitcoin liquidations that occurred after the nomination deadline. The Court declined, reasoning that because ATG’s original nomination notice was valid, ATG’s slate would stand for election at the annual meeting. Stockholders therefore would have the opportunity to choose between competing slates, and the concerns that had justified reopening nomination windows in prior cases were not present.

Key Takeaways

Advance notice bylaws are gatekeeping mechanisms—not defensive weapons. Boards should interpret advance notice bylaws strictly according to their terms and should not use them as pretextual tools to disqualify disfavored nominees. Courts will closely scrutinize whether a board’s stated reasons for rejection are grounded in the actual language of the bylaws.

Disclosure obligations are limited to what the bylaws actually require. If a board wants nominating stockholders to disclose commodity hedges, cryptocurrency positions, or other non-equity financial arrangements, those requirements must be expressly stated in the bylaws. Boards cannot retroactively expand disclosure requirements beyond the text of the bylaws.

Preclusive responses to activist nominations face a heavy burden. Rejecting a nomination notice entirely—rather than raising concerns through the proxy contest—is likely to be viewed as a disproportionate and preclusive defensive measure under enhanced scrutiny. Boards should consider less restrictive alternatives that preserve stockholder choice.

The proxy contest is the appropriate forum for debating nominee suitability. The Court made clear that boards should present their arguments about an activist’s nominees and strategy directly to stockholders, and allow the electorate to decide, rather than use bylaw technicalities to eliminate that choice.

Companies should review and update their advance notice bylaws proactively. This decision highlights the importance of drafting advance notice bylaws that clearly and precisely state all required disclosures. Boards that rely on ambiguous or gap-filled bylaw provisions risk having their decisions to reject nomination notices invalidated.