please the court ashford hospitality prime is a publicly traded corporation not some sort of voluntary membership association and one of the principal tenants of corporate law is that it  the stockholders who own the corporation who get to elect the corporation's directors and as part of that right they have the ability and the power to nominate directors to step candidates to stand for election these rights are not but the stockholders always remain the ultimate power to throw out the bottoms to nominate candidates of their own choosing and to elect those candidates if the incumbent board does not does not act in accordance with the wishes of the stock holders and in view of that fundamental right that critically important right codified in maryland statutes the maryland delaware and courts throughout the land have consistently held that when a board of directors goes beyond the management of the corporation and takes actions that interfere with the stockholders rights to elect the board those decisions are not protected by the business judgment rule the problem here is that the district court's decision throws that balance completely out of order it completely upsets the ordinary process by which the corporation is to be governed effectively gives the incumbent board the power to determine who may run against them and to take any actions that it wants to take to defeat the stockholders when the stockholders want to throw them out and elect new directors and to be able to hide behind the business judgment rule in all of those decisions the conduct issue in this case is as extreme as profound as disturbing as any i have seen in any case ever from any jurisdiction the action here did not relate to an acquisition of stock did not relate to a hostile takeover this was surely a stockholder with the support of the lie of the vast majority of stockholders trying to nominate candidates for election to the board the decision at issue was to disqualify all of them because they suspected there were plans that weren't disposed supply didn't they fill out the questionnaire we did complete the questionnaires every dissing the question the district court statement to that effect that we didn't is incorrect and i not supported by the record if you look at the questionnaires all four hundred thirty pages are in the appendix every single question was answered now they say the answers were not complete they say that they asked they did ask for all discussions between the candidates they want to produce all e mails all communications anything reflecting our discussions rule fourteen day of the exchange act is adopted by reference in the bylaws the bi lo say we have to produce we have to provide in our responses all the information required by fourteen may forty may does not require disclosure of plans or proposals fourteen a does not require disclosure of the communications between candidates fourteen eight does not require the slaughter of any of the information that they say we did not produce the book we did not violate the bylaws because the bylaws did not require the production of any of the information they say we did not produce and the district court committed a clear error of law in its decision the district  page nine of its decision sat that the exchange act the securities exchange act requires the disclosure of plans and proposals and he cited a provision of the c f r he cited section thirteen  thirteen d is is not part of the proxy rules it is not incorporated by reference into the company's bylaws that questionnaire we're not required we are with respect to the f c c required to comply with thirteen because we have more than five percent of the company's stock but that's a separate acquirement that is not incorporated in the bylaws the law is clear that advance notice provisions are to be narrowly construed so as not to interfere with the stockholders right to elect directors if the cases hold that if they completely blow off a deadline sure they can be disqualified but never before has any court in this country ever condone what these directors have done which is to look at the question that when it comes to thirteen b the only plans or proposals that need to be disclosed are those that are concrete if you're having tentative discussions in kohut plans ideas are kicking around thoughts that does not require disclosure and this court has held that such disclosure can be misleading if you look at the evidence relied upon by the district court and even look at the district court's own characterizations of that evidence which are incorrect even under the discords own characterizations there was no definitive plan what do they look at there was never a plan produced there was never anything know no hiring of the best of bankers no communications with pearl with purchasers what we have were questions from candidates that we solicited to it to even if you're right about everything you've said why isn't the issue moot because another panel of record denied your stay request of the injunction the elections were held it's over and so now you're basically asking us to cancel that election but you know this is an appeal of the granting of a preliminary  asking now is for this court in equity to require the district court to undo the damage that it has done can i cut a copper was exactly the same says scenario it was a proxy contest the  asserted securities claims against us we have a sort of securities claims against them by capital and the the state claims are supplemental and those claims all are based on an alleged fourteen a violation but furthermore this court has period you have equity power and in any case i look forward to just to make an equitable ruling in the first instance we took a district court would decide whether to exercise its equitable powers we would review that it's just very very rare for us in the first instance to decide to exercise some equitable power in the second circuit case and calico the second circuit which deals with a lot of proxy contests required a new election and sent it back to the district court to figure out the details in the ninth circuit case in a western district council of lumber vs louisiana pacific the ninth circuit did the exact same thing in that case the roles were switched the movant the party moving for preliminary injunction was defendant said whoa whoa they've waived their argument it's too late they didn't ask the district court to undo the results of the election and the ninth circuit rejected the argument the ninth circuit said no we have the power to undo the election if it was if it was tainted by a violation of fourteen day we have the power to do so and and the fact that the election was held is of no consequence because the election wasn't held till this case was on appeal of course the  couldn't have asked the district judge to set aside the election when the election had not occurred that's the same situation we have we moved in late we filed a notice of appeal in late may the case was up here when they decided to proceed with the election the company could have rescheduled litter mo they proceeded with the election with the appeal pending on june tenth once we're already on appeal so could we have dismissed the appeal and gone back sure but we'd be tied up for years waiting around to get to you to this court that's what they want would be and it would be tied up  we're going to send it back and it depends on the facts without a determination of that issue of law by this court we are wasting our time and our money and the court's time below so on your merits legal issue as you describe it of the business judgment we want merely a case that actually involved  election says the business judge did not apply the business judgment well the shaker b v fox b case involving election and it involved the the use of advance notice provisions against the against the stockholder nominees exactly the situation we have in this case now that was a trial court decision by a well regarded judge who has since become a member of the special court of appeals and it is reported under maryland law in an online database where cases are selected for publication from the trial courts but shaker v fox b is directly on point it was followed by the district court in maryland the federal district court in the new daniel's case i think this is all about whether a claim was derivative or direct that's your thinking of the schenker case which is the maryland court of appeals decision that the district judge relied upon and that case is critically important because the questions are related in that case the question was about direct versus derivative claims what the court and the court had a very long and elaborate and very careful explanation of the law and what the court said was this when the claim relates to a business decision that hurts the company they do a bad deal or something like that the claim is derivative you must you must go through the formalities of a derivative claim making notice and demand on the corporation and their decision is shouldered by the business judgment rule absent evidence of bad fa self interest and so on or lack of and for the station making then the court went on to say when the rights of the stockholders are affected directly and it specifically mentioned interference with their right to vote or to seek an accounting when there is something that goes directly to the rights of the stockholders there's no need to go through the derivative process you may bring the claim directly after the decision is not protected by the business judgment rule that may be dicta it may be dicta but it is dicta from the jurisdiction ever publisher of unpublished high court or low court not even a single trial court decision from any jurisdiction that has ever held that when the directors of a company interfere with the right of the stockholders to vote that they are shielded by the business judgment role if you look at their briefs that isn't a single case what they ask this court to do is extraordinary what they got the district judge to do was extraordinary was an election issue and they rejected the delaware standard or it wasn't a corporation there were no stockholders it was the alumni association of the naval academy it didn't have stockholders there are no owners but they rejected  did not if you look at the decision they said there was no in the fences with with members voting how can a case that doesn't involve stockholders where the organization has no owners how can that involve the same issues as a case with stockholders where we own the corporation we're supposed to own the corporation anyway that there were lines on that case speaks volumes the only case they can come up with is they is an association a non stock association alumni association we often have the experience of sitting on a corporate nonprofit boards where the directors elect themselves that is not the way it is in a public corporation or decision time for battle during which i would like you got address my question as to you climbed equitable relief under the marilyn law i don't see anything where you're relying on a violation of federal securities surf you would look at the pleadings and let me know where that allegation was made where that claim  good morning may please the court martin said elfin cadwalader wickersham and taft on behalf of the ashford hospitality prime defendants with me here today as my about half of all of the appellate is today your honour's appellants ask this court to accord no deference to the court below the legislature in courts of maryland or the decisions of the board of directors of ashford prime in in support of their request that they be granted relief that they not only never sought but chose to reject and refuse below any abuse of discretion in the grant of a preliminary injunction which is left to the sound discretion of the district court they do not as they must show a clear error in any of judge god these factual findings is clear error and they try to attempt to recast the factual findings as errors of the law but that doesn't change the fact that the only factor the only legal issue they raise on appeal is whether or not it was appropriate to apply the business judgment rule to the decision of the court of the board of ashford problem to reject the advance notice such submission by the sesa defendants now i'd like to a case involving violations of federal antitrust laws and federal proxy laws with the court's indulgence i'd like to explain some of some of the background of that case that is left out of cessna's briefs and was left out of mr summers presentation in that case curtis wright sought to sit solicit proxies for the shareholder annual meeting for the kennicott copper corporation as is often the case both sides in this hostile hostile takeover by proxy fight filed suit against one another under the federal securities laws and under the antitrust laws after on the eve of the may second one nine hundred seventy eight board meeting on may first the district court entered an injunction and joining curtis right from voting any of its proxies at the annual meeting that night curtis wright filed a motion for a stay pending appeal having failed to obtain one from the district court as recorded by rule eight they then went to the second circuit and asked for a stay pending appeal the entire stay motion was fully briefed and decided on the morning of may second before the annual meeting started that stay was granted but the stay only applied to the voting appeal proceeded if you look at the court's decision in kind of cut the reason that it reversed and the reason that in order to retrospective rescission of the electoral results was because having committed have the circuit court having permitted the meeting to go forward caused harm to curtis right because the may one decision and this is in the court's opinion savage curtis who wrote it was very critical of curtis wright and the circuit court found in that circumstance that it that the district court's decision coupled with its own stead of the decision below harmed curtis wrote and that having now found the curtis wright had not in fact violated the federal securities laws equity demanded that the circuit court undue undue buy were sending the election the damage the circuit court had caused to curtis right none of those facts are present here on may twentieth two thousand and sixteen judge god the issued a well reasoned decision after argument in joining meeting from this court instead it did what it had been doing all along that it shows and from the beginning of the case to proceed only to fight off ashford's a motion for an injunction under the bylaws and to seek its own injunction under the third amended and restated advisory agreement ordering the the ashford board mandatorily to approve cess as candidates for purposes of that agreement to waive the termination be in its agreement with ashford when asked by the district court and argued whether or not the court that court should move the meeting mr summers replied and this is at page sixteen dash one of six seven one point forty two and really the record can you yes should be you know and he then explained all of the reasons why assessor believe that the june tenth meeting should be held to go forward he then continued i don't think i don't think it is either but i think unfortunately you know there's sort of this is the world the big boys and we would prefer to have an order from the court moving forward with the june tenth meeting when we the ashford parties offer to adjourn the meeting after the he entirely not by a not the second sort of its decision in canada which is unique to that case not by the ninth circuit's decision in louisiana pacific but by the fifth circuits decision by this panel's decision and harris be houston there the court made clear that when a party picks a strategy below when it is the architect of its own misfortune this court is not going to exercise equity to give it relief that net not only never saw but positively reject chosen not to see on the merits of the issue we reached that how do you respond to the other side's argument that you're relying on the business judgment rules application in maryland in this context on i think the naval academy case the n w c p case neither of which have shareholders he points out how do you respond to that your honor i would direct your attention first to the actual statute to the text of the statute itself i think we should start there you know analysis of what rule seeks to apply to board decisions and if you look at two o five to dash four or five point one that lays out the traditional standard of the business judgment neither party disagrees with that if you look most of the fight has been over whether or not the carve out the unocal carve out an f which is what the subject of shanker the shanker decision in the recent amendment says would apply to this case and whether it does or doesn't you need look at section c of the statute and the plain language of that section which says an act of a director of a corporation is presume to satisfy the standards of subsection a  shareholder voting an act of a director is presumed to satisfy the standards of subsection a of the section meaning the codified business judgment rule standard taken together a and c are the business judgment will presumptions of the maryland legislature is clearly spoken want to direct or acts the course of its act the course of their action is to be judged by the court in accordance with the presumptions of the business judgment will period full stop shanker and shakeri fox being the as you pointed out judge pasta are both cases involving standing not standards while shank talks about the revlon duties and talks about generalized duties and common law duties in different places both cases are purely cases about direct worse as derivative standing the same is true for for shanker in fact if you look at the end of shaker at the very end of the case the court says very clearly we don't decide what standard what standard was or wasn't met here this is just about who can sue is well established you want to give that deference when you talk about elections or such yourself interested in this among the board that they're going to protect themselves given that conflict why does it make sense to defer to the board on election well for first of all because that's what maryland has told us to do but second because the alternative to doing that the alternative that's been understood in a group and created in maryland i mean in delaware is the unocal test and the unocal test is a two prong test it's a shifting it's it both creates a test and shifts the burden rather than placing on the plaintiff the burden of a stablish sharing that they've sufficient evidence to overcome the business judgment rule unocal shifts the burden to the directors to establish that they feel that the corporation faced a threat with respect to a defensive measure and that the response of the board was is that the board reasonably could believe that no party would engage expose highly sophisticated counsel and spend millions if not tens of millions of dollars to wage a proxy fight if they did not have plans for the company at what were they going to do on june eleventh once it was reasonable for the board to believe that the answers to the questionnaires were at best invasive if not outright false it was reasonable now judge gabi uses the word rational but what he meant what he could disease aliyev said is it was reasonable at that stage for the board to respond by invalidating susses refusing to permit them to stand for election and this is not a case about a board choosing its opponents it's about a board in forcing rules that it put in place years before this case came up which is why it's different than the new germany case that the cessna cites new germany is the more typical case you see in the proxy contest world and that's where there are no provisions there are no rules and suddenly a slate you find out someone is going to bring a proxy fight against you and all the sudden the board a that make it impossible frankly that's what shaker was as well shaker was the use of a by the state structuring of vacancies on a board in a way to make it impossible for somebody to bring a proxy fight the way in which the advance notice by law was coupled with the timing of the creation of board seats was designed to thwart a proxy challenge and it happened only after the company and shaker recognize that it was under threat and in those circumstances entrenchment does appear to be a motive but here what you have isn't a long standing by law it was we sent them a questionnaire we ask them to comply with the bylaws and contrary to what mr summers has said the in federal securities laws are incorporated in the fall into the advance notice bylaws compliance with all aspects of the federal securities laws or requirement of the advance notice provisions so a violation of the plot of the disclosure provisions with respect to plans is equally a part of the advance notice bylaws in any case the the distinction between voting in a voluntary association and voting in a corporation is a distinction here without a difference courts routinely apply the corporate governance standards applicable to boards of public companies to boards of private companies and to boards of nonprofit companies so tacony the n supply with equal force here now mr mr summers has said that no board as ever applied the substantive provisions of advance notice bylaws  decided the case to invalidate a slate and he's right but that's because no board has ever been faced to our knowledge or at least in any reported decision we're aware of with a candidate a proxy candidate who having refused to answer questions under the byelaws and having been given a chance having been sent a letter offering a second chance to follow up instead answers with what amount to the objections and responses you would typically see from an overzealous a lawyer in response to documents in iraq request and civil discovery having having received that letter and having been invited by the nomination and governance committee of this board to sit for interviews not only did sesar the use the interviews but as discovery bore out didn't even bother to tell its own candidates that they'd been invited in for interviews this is a clear case in which sestak chose to flout the byelaws it was their strategy from the beginning for whatever reason they judge god we ask them why don't the same question us judge clement why don't you just answer the questions on the questionnaire and gobby went further and said you're handing them this issue on a silver platter even then they wouldn't supplement they wouldn't find a way to provide the answers while those would have been out of time they wouldn't deal with that they repeatedly they never sought to enjoin the meeting when offered delays of the meeting they refused them when they lost at the district court only that on their appeal and never to the district court did they seek a stay pending appeal when that another panel of this court denied it for the first time they started asking for retrospective relief retrospect of an election and another thing that you can see in kennicott is kennicott makes clear that retrospective relief of that sort is rare in fact on precedent had and that's because the supreme court in mills be electric auto made it clear that retrospective leon doing an election of directors unscrambling the exits the supreme court put it in that case a phrase we've all heard many many times since then something courts can only do in extraordinary additional points there is a pending motion for contempt against us they say we vote we have we have violated the preliminary injunction by issuing press releases after the date of the annual meeting because the third prong of the district court does not refer to the annual meeting it's for bids us from soliciting proxies or any materials about our candidates and it is not limited by time or to the annual meeting according and they have filed a content motion it's pending now on the basis of that is also there's also this is a classic case where the capable of repetition that evading review exception which was not it which was clearly an applicable in all of the cases they cited including harris here we have an election issue which the court has held is a classic case of this this is going to come up again this is not the first act of entrenchment they adopted the proxy penalty in last summer they adopted the proxy put they tried to issue themselves preferred stock for a penny a share in just this disqualification the disqualification was the final last step when they saw that all of their other acts of entrenchment were failing they have proxy solicitors they knew that the stockholders were going to throw them out of office look at the the results of the election two thirds of the stockholders deprived of any choice of candidates exercised their only remaining option what was that to vote to withhold support to withhold their proxies from the incumbent port it has never happened before to our knowledge in the history of publicly traded corporations two thirds of the stockholders that are screaming for help this goes right to the equities goes right to the question whether an election should be held again this there's nothing to unscramble here for an election to be we held under maryland law and i can cite it to the court and under the ashford prime byelaws the incoming directors remain in office as holdovers until the new election is held none of their decisions will be challenged it's very simple for the district court to require a new election now turning to the question of what i said in the district court when we had an argument from the district home we never the judge never said that he was going to allow the election to go forward without us participate and under the threat of the proxy penalty the judge was saying two different things first he said should we reset the election and you guys can start all over and have new proxies solicitations and i said no why because we fully disclosed everything the stockholders are fully aware of what everybody wants here that they want to remain in power and we want to look at everything we want good corporate governance we want to consider sales of this consider a sale of the company but he model we  nomination materials it was january election was going to help june how can we have a definitive plan to do something with the company six months in advance when we don't have the information the board has we were urging them all along we had meetings with them we sent them letters we filed the letters with the f c c in the letters we filed with the f c c in the thirty we said that we believed that the preferred alternative would be a sale of the company we said in our fourteen a submissions we would consider all options including sales of the company or its assets renegotiating to all of these things were fully disclosed we told them they rely on our statements to them this is a trivial technical thing about it not being in the questionnaire we have meetings with them right before we submitted the question or they were out of their briefs why didn't your put it in the questionnaire the individuals were given five days to submit their questionnaires because they sat around scariest to say if that r t c you know and we did we incorporated all over s and c filings by reference the law is clear in delaware and maryland advance notice provisions are not supposed to be used in equitably or in a discriminatory way to frustrate the right of the stockholders to elect candidates of their own choosing and that's exactly what they did here their proxy fighting specialist their investment banker met with us and said that they had a strategy to declare us invalid that was on march twenty fourth before they ever supposedly made the decision there's no strategy here to flout the bylaws we were forthcoming about our views they weren't definitive plans that require disclosure either under the bylaws or under the federal securities laws and by the way mr sydell said to this court that the that the bylaws required for everything required by the exchange acquiesce look at the record everything he said about the record was false and that should be the test of his credibility they repeatedly mischaracterized the facts and the law to the district court and they succeeded and they're trying to do it again and i pray and ask this court to look at the bylaws which are it contained at tab eight of our record of appeal and it refers to section fourteen and nothing else all right thank