Oral Argument Slated in Nutrisystem Board Removal Bylaw Suit

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By Michael Greene

Sept. 6 — The Delaware Chancery Court said it will hear oral argument Sept. 26 in a shareholder challenge of a Nutrisystem Inc. bylaw that requires a supermajority of stockholder votes to remove directors ( Frechter v. Zier, Del. Ch., No. 12038-VCG, letter to counsel confirming oral argument filed 8/31/16 ).

Earlier this year, shareholder Harold Frechter filed a lawsuit alleging that the company's bylaw—which requires a two-thirds stockholders' vote to remove board members—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.”

The litigation serves as a test case for whether supermajority director removal bylaws are valid.

Allowed Under State Law?

Nutrisystem has defended the bylaw, arguing that Delaware law expressly authorizes companies to adopt provisions that specify the percentage of votes necessary to remove directors (125 CARE, 6/29/16).

The company also argued that Section 141(k) is only intended to establish the circumstance under which stockholders can remove directors without cause.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

For More Information

The court's letter to counsel is available at http://src.bna.com/ikQ.

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