Washington Court Affirms Board’s Right to Reject Nominations and Shareholder Proposals that Violate Advance Notice Bylaws

On April 3, 2018, in Blue Lion Opportunity Master Fund, L.P. v. HomeStreet, Inc., the Superior Court of Washington for King County denied an activist investor’s motion for injunctive relief and affirmed the ability of the HomeStreet board to reject the activist’s notice for failure to meet the requirements of the company’s advance notice bylaw. Although Blue Lion complied with the bylaw deadlines to nominate directors and submit shareholder proposals at the annual meeting, its notice of intent lacked some required information such as the share ownership of Blue Lion affiliates, certain shareholder representations, and reference to requirements of federal proxy rules. The Court affirmed the validity of the advance notice bylaws and the decision to reject Blue Lion’s notice as an exercise of the board’s business judgment. The Court also rejected the proposition that “enhanced scrutiny” applied since HomeStreet had not taken any defensive measures. Since the decision, the Washington Department of Financial Institutions Division of Banks determined that the accumulation of proxies in this contest amounted to Blue Lion seeking to exercise a controlling influence over the bank, and that Blue Lion failed to apply for, or obtain, regulatory approval as required under state law for launching such a proxy contest. By May 23, 2018, HomeStreet announced that all three of the board’s nominees had been preliminarily elected at the annual meeting even while taking into account Blue Lion’s faulty proxies opposing HomeStreet’s slate.