Nutrisystem Says Supermajority Bylaw Allowed under Del. Law

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By Michael Greene

June 28 — 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 Section 141(k) (37 CARE, 2/25/16).

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.

The company also said the bylaw isn't inconsistent with Delaware law because Section 141(k) only concerns whether stockholders can remove directors “with or without cause.” It added that the section isn't intended to specify the percentage of shares that must be voted to remove directors.

Carl L. Stine, a partner at Wolf Popper LLP who represents the plaintiff Harold Frechter, told Bloomberg BNA June 28 that the defendants' motion “has no merit whatsoever.” He added that it doesn't matter whether the board's decision is protected under the business judgment rule because the company’s bylaw clearly violates Section 141(k).

Open Question Left From `Vaalco.'

According to the company's filing, Nutrisystem amended its bylaw in January to eliminate a requirement that directors could only be removed for cause.

The amendment was made in response to the chancery court's Dec. 21 bench ruling in In re Vaalco Energy Shareholder Litigation, which found that companies with non-classified boards can't have charter or bylaw provisions that allow removal of directors “only for cause” under Section 141(k) (97 CARE, 12/30/15).

The court's ruling spurred a rush by some companies to amend their bylaw and charter provisions, according to a review of securities filings by Bloomberg BNA (36 CARE, 2/24/16).

In its 2016 amendment, Nutrisystem didn't alter a portion of its bylaw that required an affirmative vote of two-thirds of the stockholders to oust directors.

The company argued that another section of the DGCL—Section 216—allows corporations to enact bylaws that specify the percentage of vote required to take certain actions. It added that allowing a company to require a supermajority vote for director removal “makes for good policy.”

“It helps achieve director continuity and limits disruption between annual meetings, while still promoting director accountability by leaving open the possibility that a plurality of stockholders vote to replace such directors at the next annual meeting,” Nutrisystem said in its brief.

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To contact the editor responsible for this story: Yin Wilczek at

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Nutrisystem's brief is available at

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