Court Opinion

ID: 2761445
Source: CourtListenerOpinion
Date Created: 2014-12-16 22:02:15.385877+00
Date Added: 2024-06-11T11:27:08.128988
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

AB VALUE PARTNERS, LP,                 )
                                       )
                        Plaintiff,     )
                                       )
      v.                               )       C. A. No. 10434-VCP
                                       )
KREISLER MANUFACTURING                 )
CORPORATION, a Delaware                )
corporation, EDWARD A. STERN,          )
JOHN W. POLING, SR., and MICHAEL       )
D. STERN,                              )
                                       )
                        Defendants.    )

                         MEMORANDUM OPINION

                       Date Submitted: December 12, 2014
                        Date Decided: December 16, 2014

Marcus E. Montego, Esq., John G. Day, Esq., PRICKETT, JONES & ELLIOTT, P.A.,
Wilmington, Delaware; Attorneys for Plaintiff.

Larry R. Wood, Jr., Esq., Elizabeth A. Sloan, Esq., BLANK ROME LLP, Wilmington,
Delaware; Attorneys for Defendants.

PARSONS, Vice Chancellor.
      Plaintiff, AB Value Partners LP (“AB Value”), requests that this Court issue a

temporary restraining order (“TRO”) enjoining the advance notice bylaw of Defendant

Kreisler Manufacturing Corporation (“Kreisler” or the “Company”) so that AB Value can

run a competing slate of directors at Kreisler‟s annual stockholder meeting on December

18, 2014. For the reasons that follow, I deny Plaintiff‟s motion for a TRO.

                               I.      BACKGROUND

                   A.       The Parties and Other Relevant Actors

      AB Value is an activist hedge fund that, together with its affiliates, owns a roughly

11.1% stake in Kreisler.1    AB Value seeks to run a dissident slate of directors at

Kreisler‟s 2014 annual meeting.

      Defendant Kreisler is a Delaware corporation whose shares trade on OTC Pink

Sheets. It is a relatively small manufacturing company in the aeronautics industry. The

Company‟s board of directors (the “Board”) consists of four members, two of whom are

independent directors. Three members of the Board are named as defendants.

      Defendants Michael D. Stern and Edward A. Stern are brothers and run the

Company together. They each hold the role of Co-President. Edward Stern is also the

Chief Corporate Officer and the Corporate Secretary.        Michael Stern is the Chief

1
      Percentages of share ownership are derived from Kreisler‟s Notice of Annual
      Meeting of Stockholders, which was attached as Exhibit A to Plaintiff‟s Complaint
      (hereinafter “2014 Meeting Notice”). The chart of major stockholders in that
      document lists AB Value Management LLC as owning 11.1% of Kreisler‟s shares
      and affiliate AB Opportunity Fund LLC as holding 8.5%. As clarified in a
      footnote, the latter‟s shares are included in the 11.1% total of the former‟s
      holdings.

                                          1
Executive Officer and the Treasurer. Both are directors of the Company. Each owns

12.2% of the Company‟s stock.2 For convenience, I will refer to them in their collective

corporate roles as the “Stern Management.” Part of this dispute revolves around a

proposal by the Stern Management to substantially increase their pay.

        Defendant John W. Poling is an independent director on the Kreisler Board. He

owns less than one percent of Kreisler‟s stock.3

        Joseph P. Daly also is an independent director on the Kreisler Board. At 19.3%,

he is Kreisler‟s largest stockholder.4 Daly is the only director not named as a defendant.

                     B.    Factual Overview and Procedural History

        AB Value seeks to nominate its own slate of directors for election at Kreisler‟s

annual stockholder meeting, scheduled to be held on December 18, two days from now.

Kreisler‟s bylaws contain an advance notice bylaw (the “ANB”) that reads, in relevant

part:

               No business may be transacted at an annual meeting of
               stockholders other than business that is . . . otherwise properly
               brought before the annual meeting by any stockholder of the
               corporation (i) who is a stockholder of record on the date of
               the giving of the notice provided for in this Section 12 and on
               the record date for the determination of stockholders entitled
               to vote at such annual meeting and (ii) who complies with the
               notice procedures set forth in this Section 12.

2
        Id. at 9, 14.
3
        Id. at 14.
4
        Id.

                                             2
             In addition to any other applicable requirements . . . such
             stockholder must have given timely notice [of an intent to run
             a slate of candidates for directors] in proper written form to
             the Secretary of the corporation.          To be timely, a
             stockholder‟s notice to the Secretary must be delivered to or
             mailed and received at the principal executive offices of the
             corporation not less than sixty (60) days nor more than ninety
             (90) days prior to the anniversary date of the immediately
             preceding annual meeting of stockholder.5

The anniversary date of the 2013 annual meeting is December 17, 2014.6 Thus, pursuant

to the terms of the ANB, Plaintiff needed to submit its nominees no earlier than

September 18, 2014, and no later than October 18. It is undisputed that AB Value did not

submit its nominees in accordance with the ANB.

      If the ANB is not enjoined, Plaintiff will not be able to attempt to elect its

nominees at this year‟s stockholder meeting. Accordingly, AB Value asks this Court to

expedite this matter and grant a TRO enjoining Kreisler from enforcing the advance

notice requirement at the upcoming annual stockholder meeting.

      AB Value filed its Complaint and accompanying motions for expedited

consideration and a TRO on December 5, 2014. Plaintiff primarily contends that material

events that occurred after the October 18, 2014 advance notice compliance deadline

render enforcement of the ANB inequitable. Primarily, AB Value points to: (1) the

distribution of a 37.2% voting bloc, previously held in trust, to the four trust

5
      Compl. Ex. C (Kreisler‟s Amended and Restated Bylaws) Art. I [sic: II], § 12.
6
      Compl. Ex. B (Kreisler‟s Notice of Annual Meeting of Stockholders to Be Held on
      December 17, 2013) [hereinafter “2013 Meeting Notice”].

                                         3
beneficiaries; (2) recently approved salary increases for the Stern Management; and (3)

errors in the Company‟s 2014 Meeting Notice. These issues are discussed further in

Section IV infra. Defendants filed responsive documents on December 9. They argue

that Plaintiff‟s contentions are without merit and fall short of meeting the standard

required for this Court to enjoin Kreisler‟s bylaw. AB Value submitted a reply on

December 11 and the parties presented oral argument on the motion for a TRO on

December 12 (the “Argument”). This Memorandum Opinion constitutes my ruling on

Plaintiff‟s motion for a TRO. Based on the rapid briefing and my disposition of the

request for a TRO, AB Value‟s motion to expedite is moot.

                            II.     STANDARD OF REVIEW

       A TRO is a special remedy of short duration designed primarily to prevent

imminent irreparable injury pending a preliminary injunction or final resolution of a

matter.7   “To obtain such an order, a party must demonstrate three things: „(i) the

existence of a colorable claim, (ii) the [existence of] irreparable harm . . . if relief is not

granted, and (iii) a balancing of hardships favoring the moving party.‟”8 Where the TRO

“grants the plaintiff all relief to which it might be entitled after a full trial on the merits,”9

7
       Arkema Inc. v. Dow Chem. Co., 2010 WL 2334386, at *3 (Del. Ch. May 25, 2010)
       (quoting CBOT Hldgs., Inc. v. Chicago Bd. Options Exch., Inc., 2007 WL
       2296356, at *3 (Del. Ch. Aug. 3, 2007)).
8
       Id. (quoting CBOT Hldgs., Inc., 2007 WL 2296356, at *3); see also Newman v.
       Warren, 684 A.2d 1239, 1244 (Del. Ch. 1996).
9
       Arkema Inc., 2010 WL 2334386, at *3.

                                              4
the plaintiff must clearly establish the legal right she seeks to protect or enforce and show

that the material facts are not in substantial dispute.10

       The essential facts of this case are not in dispute and any facts that may be

disputed are immaterial to resolution of this motion.         Procedurally, however, it is

important that, were I to issue a TRO, AB Value probably would be able to run its

dissident slate of directors and thereby receive virtually all the relief it seeks. Thus,

Plaintiff effectively seeks a mandatory injunction requiring the Board to waive Kreisler‟s

ANB. In addition, due to the tight timeframe involved and the fact that the Court was

able to hear arguments and consider limited evidence from both sides to this dispute, the

TRO motion before me is more in the nature of a preliminary injunction, albeit on a

highly truncated record. In these circumstances, AB Value must do more than show the

existence of a colorable claim, which is the element substantially disputed by the parties

and the focus of this Memorandum Opinion. That is, the showing AB Value must make

on the merits of its motion arguably could be either a reasonable probability of success on

the merits, based on its being tantamount to a preliminary injunction,11 or an entitlement

to judgment as a matter of law on the merits in view of the mandatory nature of the relief

10
       Id. (citing Stahl v. Apple Bancorp, Inc., 579 A.2d 1115, 1120 (Del. Ch. May 17,
       1990)).
11
       Concord Steel, Inc. v. Wilmington Steel Processing Co., 2008 WL 902406, at *3
       (Del. Ch. Apr. 3, 2008); Nutzz.com, LLC v. Vertrue Inc., 2005 WL 1653974, at *6
       (Del. Ch. July 6, 2005).

                                             5
it seeks.12 But, I need not decide precisely what standard applies here, because, as

explained below, AB Value has failed to satisfy even the most lenient standard—i.e., the

existence of a colorable claim.

     III.      DELAWARE JURISPRUDENCE ON ADVANCE NOTICE BYLAWS

            This Court previously has noted that: “Advance notice requirements are

„commonplace‟ and „are often construed and frequently upheld by Delaware courts.‟”13

Such bylaws are said to be “useful in permitting orderly shareholder meetings, but if

notice requirements „unduly restrict the stockholder franchise or are applied inequitably,

they will be struck down.‟”14

            At their core, those cases enjoining advance notice bylaws are context-specific

applications of the Delaware Supreme Court‟s opinion in Schnell v. Chris-Craft

Industries, Inc. and its oft-quoted statement that “inequitable action does not become

permissible simply because it is legally possible.”15 The clearest set of cases providing

support for enjoining an advance notice bylaw involves a scenario where a board, aware

12
            Alpha Builders, Inc. v. Sullivan, 2004 WL 2694917, at *3 (Del. Ch. Nov. 5, 2004)
            (“This Court has utilized the higher mandatory injunction standard where, instead
            of seeking „to preserve the status quo as interim relief, Petitioners, as a practical
            matter, seek the very relief that they would hope to receive in a final decision on
            the merits.‟”) (quoting Joyland Daycare Ctr. v. Dep’t of Servs. for Children,
            Youth, & Their Families, 1996 WL 74713, at *2 (Del. Ch. Jan. 22, 1996)).
13
            Goggin v. Vermillion, Inc., 2011 WL 2347704, at *4 (Del. Ch. June 3, 2011)
            (quoting Openwave Sys. Inc. v. Harbinger Capital P’rs Master Fund I, Ltd., 924
            A.2d 228, 238-39 (Del. Ch. 2007)).
14
            Id. (quoting Openwave Sys., 924 A.2d at 239).
15
            285 A.2d 437, 439 (Del. 1971).

                                                6
of an imminent proxy contest, imposes or applies an advance notice bylaw so as to make

compliance impossible or extremely difficult, thereby thwarting the challenger entirely.16

That is not the situation here. The record indicates that Kreisler adopted the ANB on a

“clear day” long before the present proxy challenge was contemplated by AB Value.17

There also is no challenge to the validity of the ANB on its face; rather, AB Value attacks

its validity as applied in the circumstances of this case.

       Another set of cases concerns advance notice bylaws that are ambiguous.18 This

case also does not involve that issue. None of the parties contend that the ANB is

16
       See Mesa Petroleum Co. v. Unocal Corp., 1985 WL 44692, at *5 (Del. Ch. Apr.
       22, 1985) (finding inequitable 30-days‟ notice bylaw interpreted by corporation
       effectively to require 90-days‟ notice under the circumstances in question, a
       requirement with which dissident stockholder could not possibly comply); Lerman
       v. Diagnostic Data, Inc., 421 A.2d 906, 911 (Del. Ch. 1980) (holding that a 70-
       days‟ notice bylaw was inequitable in a situation where the board announced the
       annual meeting only 63 days before it was to occur, rendering compliance
       impossible); see also Linton v. Everett, 1997 WL 441189, at *9-10 (Del. Ch. July
       31, 1997) (citing Lerman and setting aside an election of directors in situation
       where annual meeting had not been called for several years and the board
       announced a meeting on 30-days‟ notice, thus triggering a ten-day window in
       which plaintiffs could propose alternative directors).
17
       According to an affidavit of Edward Stern (the “Stern Aff.”), the ANB was
       adopted December 11, 2007 and filed as part of the Company‟s December 17,
       2007 Form 8-K. Stern Aff. ¶ 2.
18
       See Levitt Corp. v. Office Depot, Inc., 2008 WL 1724244, at *6-7 (Del. Ch. Apr.
       14, 2008) (determining that a bylaw requiring advance notice of the “business” to
       be addressed at the annual meeting did not preclude a proxy contest because the
       company‟s proxy statement satisfied the bylaw‟s requirement); JANA Master
       Fund, Ltd. v. CNET Networks, Inc., 954 A.2d 335, 342-46 (Del. Ch. 2008)
       (concluding that bylaw establishing stockholder minimum holding requirements
       for nominating directors was not an advance notice bylaw but instead concerned

                                             7
unclear, that it does not apply to Plaintiff, or that AB Value complied with the ANB.

Instead, this case involves a situation in which Plaintiff was aware of the ANB and

admittedly has not complied with it, but nevertheless seeks to have this Court enjoin

enforcement of the ANB days before the annual meeting.

      AB Value relies heavily on Hubbard v. Hollywood Park Realty Enterprises, Inc.19

In that case, Hubbard, an insurgent stockholder, filed suit to enjoin an advance notice

bylaw, but ended up complying with the bylaw‟s requirements anyway. The board and

Hubbard reached a settlement agreement whereby the board added a directorship spot and

filled it with Hubbard. In an unexpected turn of events, once Hubbard joined the board,

he apparently won the others over and the new “management” director slate included

both Hubbard and a majority of directors allied with him and supportive of his plan to

alter substantially the direction of the company‟s business. The other board members—

all of whom were the original targets of, and defendants in, Hubbard‟s lawsuit—now

sought to run their own competing slate of directors. After the board declined to waive

the advance notice bylaw, the now-minority directors brought cross-claims to enjoin its

enforcement.   On this unusual set of facts, the Court examined whether continued

enforcement of the advance notice bylaw was equitable.

      stockholder access to management‟s proxy under Rule 14a-8 promulgated under
      Section 14 of the 1934 Exchange Act).
19
      1991 WL 3151 (Del. Ch. Jan. 14, 1991).

                                         8
       Looking to cases such as Schnell and Blasius,20 the Court in Hubbard stated the

question as follows: “[A]lthough the by-law notice requirement is facially valid and was

equitable at the time it originally became applicable, was the [company‟s] directors‟

subsequent refusal to waive the by-law requirement inequitable?”21 Answering in the

affirmative, the Court observed that:

              This is not a case where the shareholders, unprovoked by any
              board action, unilaterally and belatedly changed their minds
              and decided to nominate a slate of candidates for director. In
              such a situation, relief should clearly be denied. Rather this is
              a case where the [company] board itself took certain action,
              after the by-law nomination deadline had passed, that
              involved an unanticipated change of allegiance of a majority
              of its members . . . . Such material, post-deadline changes
              would also foreseeably generate controversy and shareholder
              opposition. Under those circumstances, consideration of
              fairness and the fundamental importance of the shareholder
              franchise dictated that the shareholders be afforded a fair
              opportunity to nominate an opposing slate, thus imposing
              upon the board the duty to waive the advance notice
              requirement of the by-law.22

The Court in Hubbard, therefore, focused its analysis on three elements. First, did the

change in circumstances occur after the advance notice deadline? Second, was the

change “unanticipated” and “material”? Third, was the change caused by the board of

directors?

20
       Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651 (1988).
21
       Hubbard, 1991 WL 3151, at *10.
22
       Id. at *12 (emphasis added).

                                            9
      AB Value, as shown below, attempts to read Hubbard too broadly without

focusing on these questions and without considering subsequent Delaware jurisprudence

that makes clear that compelling circumstances must exist before the equitable powers

invoked in Hubbard (based on Schnell) will be applied.23 I read Hubbard as requiring a

material change in circumstances, which the case alternatively describes as a “radical

shift in position,”24 caused by the directors,25 that occurs after the advance notice

deadline. In that regard, I note that Plaintiff also relies on Icahn Partners LP v. Amylin

Pharmaceuticals, Inc.26 There, the Court granted a motion to expedite in a case in which

the plaintiffs sought to enjoin an advance notice bylaw on grounds that the board

inexplicably refused to engage with a potential acquirer offering a substantial premium.

23
      Not long after the Hubbard decision, for example, the Delaware Supreme Court
      commented in passing that although Schnell “is an important part of our
      jurisprudence, its application, or that of similar concepts, should be reserved for
      those instances that threaten the fabric of the law, or which by an improper
      manipulation of the law, would deprive a person of a clear right.” Alabama By-
      Products Corp. v. Neal, 588 A.2d 255, 258 n.1 (Del. 1991). In a case canvassing
      the existing law on advance notice bylaws, this Court stated that “[the Court of
      Chancery‟s] equitable powers can only be roused under Schnell where compelling
      circumstances suggest that the company unfairly manipulated the voting process in
      such a serious way as to constitute an evident or grave incursion into the fabric of
      the corporate law.” Accipiter Life Scis. Fund, L.P. v. Helfer, 905 A.2d 115, 127
      (Del. Ch. 2006).
24
      Hubbard, 1991 WL 3151, at *10.
25
      Plaintiff seems to suggest that some set of circumstances could arise in which a
      dramatic change occurs without any action (or accompanying inaction) by the
      directors that would make it inequitable, under the circumstances, to enforce an
      advance notice bylaw. Even assuming that may be true, such a set of
      circumstances is not present in this case.
26
      2012 WL 1526814 (Del. Ch. Apr. 20, 2012).

                                          10
Citing Hubbard, the Court found that the plaintiffs had articulated a sufficiently colorable

claim in part because they adequately alleged that “the Board radically changed its

outlook for the Company.”27       Based on that premise and the sacrosanct nature of

stockholder voting rights, the Court also found a sufficient possibility of threatened

irreparable harm because, if the plaintiffs were right, the company‟s stockholders could

“be denied the opportunity to exercise their voting rights at an arguably critical time.”28

               IV.    APPLICATION OF THE LAW TO THE FACTS

       The foregoing review of the case law convinces me of the following. First,

Hubbard is a context-specific application of Schnell—a doctrine not lightly invoked—

and Plaintiff must provide compelling facts indicating that enforcement of the ANB is

inequitable.   And second, to make that showing, AB Value must proffer evidence

demonstrating that, because of action or inaction by Kreisler‟s Board that occurred after

the ANB‟s October 18, 2014 deadline, circumstances at the Company had materially or

radically changed such that equitable relief would be needed to afford the stockholders a

fair opportunity to nominate an opposing slate.29 The standard is high and AB Value has

not made the required showing.

27
       Id. at * 3.
28
       Id.
29
       Hubbard, 1991 WL 3151, at *12.

                                           11
                    A.     The Allegedly Material New Information

       The relevant period of inquiry is from October 18, 2014, until Plaintiff filed its

Complaint on December 5. AB Value argues that at least three relevant material events

have occurred. I note as well two other items of potential interest.

                      1.    The distribution of shares from a trust

       Until recently, 37.2% of Kreisler‟s shares were voted as a bloc while held in a

trust. The beneficiaries of that trust were the Stern Management and two other Stern

siblings. Plaintiff alleges that it became aware of this information on either November 24

or 26, when the 2014 Meeting Notice was posted.30 Evidence in the record suggests that

the shares were distributed from the trust on November 6, 2014, which is still after the

October 18 advance notice deadline.31 According to Plaintiff, this information is material

because it “alters the prospect of success for a competing slate of directors

substantially.”32   Defendants disagree, alleging that historically the trust voted in

accordance with the unanimous wishes of the four beneficiaries.33 Indeed, the Stern

Management received half of the shares held in the trust. Plaintiff, however, filed a

30
       In the Complaint, Plaintiff uses the date of November 24. The 2014 Meeting
       Notice, however, bears the date of November 26. I find this discrepancy
       immaterial.
31
       Stern Aff. ¶ 7.
32
       Compl. ¶ 20.
33
       Stern Aff. ¶ 8.

                                           12
recently returned proxy card of Jeffrey R. Stern, another of the trust beneficiaries,

indicating that he intends to vote with AB Value.

       Nevertheless, even assuming that Plaintiff is correct, I am not convinced that a

development such as this, which may alter the likelihood of success of a proxy campaign,

is a relevant consideration. The Kreisler Board had nothing to do with the effective

dissolution of the trust.   Stockholder composition changes frequently in companies.

Here, at most, 18.6% (the trust-related holdings of two of the four beneficiaries) is now in

play, when previously it was not. While AB Value may view this turn of events as a

radical shift in terms of its own prospects in a proxy contest, the Court‟s focus is on the

board and material actions taken by the board that substantially alter the direction of the

company. I fail to see how the change in stockholder composition at issue here, with

which the Board had no involvement, gives rise to a duty by the Board to waive an

advance notice bylaw.

                 2.      The dispute over management compensation

       Plaintiff also recently discovered that the Stern Management intended to give

themselves substantial pay raises. The exact date AB Value acquired this information is

unknown, but it is alleged to have been after October 18. Michael and Edward Stern each

were being compensated at the rate of $175,000 per year. On December 5, 2014, the

Kreisler Board approved a pay raise to $275,000 for each of them. Plaintiff characterizes

this increase as part of the Stern Management‟s “self-interested design to grossly

                                          13
overcompensate themselves.”34 For added support, AB Value points to a December 5

public letter by independent director Daly calling for a compensation committee

consisting entirely of independent directors.35     Defendants defend the pay raise as

warranted by significant improvements in the Company‟s finances.

       These facts and allegations indicate that some dissension existed on the Board

regarding executive compensation issues.       The 2014 Meeting Notice distributed to

stockholders also now appears to be inaccurate, because it lists the Stern Management‟s

compensation at $175,000 each.36 This case, however, is not about misleading proxy

disclosures. The Complaint does not allege any disclosure violations. Instead, AB Value

seeks declaratory and injunctive relief to enable it to run a dissident slate of directors.

The problem for Plaintiff is that the pay bump they criticize does not appear to constitute

a radical shift in corporate direction. Indeed, despite Plaintiff‟s heavy emphasis on

Daly‟s public letter, Daly actually voted for the pay increase, as did Poling, the other

independent director.37 Thus, the Board unanimously approved the resolution increasing

the annual compensation of Stern Management. Furthermore, neither the operations of

the Company nor its business direction have changed.

34
       Compl. ¶ 22.
35
       A copy of this letter was attached as Exhibit D to the Complaint.
36
       2014 Meeting Notice 9.
37
       Pl.‟s Reply Ex. B [hereinafter “Daly Aff.”] ¶ 8; Stern Aff. ¶ 10.

                                          14
       In comparison to the recent pay increase, AB Value appears more concerned about

another topic the Kreisler Board recently discussed. That is the possibility, or even

probability, that the Stern Management will request, sometime in the future, a further

payout based on a theory that Michael and Edward Stern were underpaid in the past and

that those underpayments constituted loans by them to the Company that Kreisler now

should repay.38 According to the evidence submitted by Plaintiff, however, the request

for such loan repayment compensation appears to have been tabled.39 What may happen

after Kreisler‟s annual meeting and the election of the Board is merely speculation at this

point. This Court cannot grant the extraordinary relief of enjoining a Company‟s facially

valid advance notice bylaw on the basis of hypothetical future events.40 If this issue of

compensation for past contributions does resurface and AB Value feels aggrieved, it can

pursue its available remedies at that time.

                        3.      The error in Poling’s biography

       In the 2014 Meeting Notice, Kreisler incorrectly stated that Poling also is a

director of US Ecology, Inc., which Plaintiff describes as a successful waste management

company twenty times larger than Kreisler. In fact, Poling had left that board over a year

38
       Daly Aff. ¶¶ 3-7; Arg. Tr. 20-21.
39
       Daly Aff. ¶¶ 8-9.
40
       Openwave Sys., 924 A.2d at 240 (“Because Delaware law does not permit
       challenges to bylaws based on hypothetical abuses, the court will not consider
       those scenarios.”).

                                              15
before Kreisler issued the 2014 Meeting Notice.41 In addition, AB Value emphasizes that

Poling was involved with a company called The TUBE Media Corporation, whose CEO

was sentenced this year to nine years in prison. While Plaintiff insinuates that Poling was

involved with those crimes, there is no evidence to that effect in the record.42

Furthermore, even under AB Value‟s broad reading of Hubbard, the relevance of this

information is questionable because it came to light before October 18, 2014, and it falls

well short of Hubbard‟s material or radical change standard.

                     4.    The purportedly suspicious press release

       AB Value further accuses Kreisler of selectively releasing information based on a

December 3, 2014 press release. This press release “touts the potential of a long-term

agreement with a major customer,”43 and it is apparently the first press release by

Kreisler of the whole year. AB Value derides this positive press release as nothing but

cover to hide Defendants‟ entrenchment efforts. In support of its position, Plaintiff notes

that the last similar promotional press release occurred in September 30, 2010, when the

Company touted a long-term agreement relating to a factory in Poland. That Polish

venture resulted in a huge loss for Kreisler. AB Value wisely seems to have abandoned

this highly speculative argument. In any event, it provides no basis on its own or in

combination with Plaintiff‟s other complaints for enjoining the ANB.

41
       Compl. ¶ 24.
42
       See Stern Aff. ¶ 9 (stating that Poling was never charged by any governmental
       entity in connection with his relationship with The TUBE Media Corporation).
43
       Compl. ¶ 7.

                                          16
                          5.      Kreisler’s amended bylaws

      Despite the potential importance of this litigation in a possible battle for control of

the Company, Kreisler‟s Board recently fanned the flames of AB Value‟s suspicions of

an entrenchment motive by amending the Company‟s bylaws to add two new defensive

provisions. On December 8, Kreisler added: (1) a new director-qualification requirement

that effectively gives agencies of the federal government and significant customers of the

Company the ability to block a nominee; and (2) a new bylaw that “protects”

stockholders from “coercive, discriminatory and other unfair tender offers.”44 I note,

however, that the director qualification bylaw does not apply to this election and that

there is no evidence in the record of any current or contemplated tender offer. Thus,

while Kreisler‟s timing may raise questions, these new bylaws do not cure the flaws in

Plaintiff‟s motion. Any challenge to these bylaws would not be ripe and they also do not

represent a material change in the Company of the kind required to obtain relief under

Hubbard.

               B.      Plaintiff’s Showing on the Merits is Insufficient

      Hubbard involved a situation in which an insurgent joined the board, convinced a

majority of his fellow directors to go along with his plan to change dramatically the

direction of the company and the way it did business, and then joined that new board

majority in presenting themselves to the stockholders as the management slate. Thus, the

insurgent arguably acquired board control without ever having received stockholder

44
      Pl.‟s Reply Ex. C (Amended and Restated Bylaws) Art. III, § 1; Art. VI, § 8.

                                          17
approval of his agenda. Another case relied on by AB Value is Icahn Partners, although

that decision only involved a motion to expedite. There, the Court found it relevant that

the board of directors refused to sell the company when, according to the complaint, such

a sale was a “key element of the investment thesis in [the Company].” 45 Here, by

contrast, there is no evidence that the Board took any action that resulted in a radical

change in the Company‟s direction.

       The most compelling aspect of Plaintiff‟s theory is the controversy on the Board

over the Stern Management‟s compensation, especially as it related to previous years.

Under Hubbard, the question is whether the board has shifted direction so markedly in

the narrow period of time after the advance notice deadline and before the annual meeting

that the stockholders should have the ability to put forward a competing slate of directors

and, presumably, propose a different business direction for the corporation. The present

dispute over the Stern Management‟s compensation and the potential for even greater

disputes in the near future are not sufficiently compelling issues to warrant the unusual

remedy of enjoining a company‟s bylaw so that a last-minute proxy contest can occur.

Thus, I conclude that AB Value has not asserted even a colorable claim to invalidate the

ANB, as applied. It follows, therefore, that Plaintiff also has failed to make a sufficient

showing on the merits to support the preliminary mandatory injunctive relief it seeks.

45
       Icahn P’rs, 2012 WL 1526814, at *3 n.16.

                                          18
               C.      Irreparable Harm and Balance of the Hardships

       Because Plaintiff has not met the colorable claim element of the TRO standard, I

address only briefly the irreparable harm and balance of the harms elements. The parties

devoted scant attention to these issues.

       Plaintiff, relying on Icahn Partners, argues that it will be irreparably harmed

because it will be “denied the opportunity to exercise [its] voting rights at an arguably

critical time.”46 This argument is unpersuasive, because, unlike in Icahn Partners, AB

Value did not make an adequate showing that the December 18 meeting of Kreisler is “an

arguably critical time” for the Company. As to the balance of the hardships, AB Value

emphasizes that it will incur significant expense in nominating a slate of directors without

any certainty as to whether Kreisler‟s stockholders will vote on its slate, whereas

Defendants will continue preparing for the meeting as they were.

       Defendants claim that AB Value was not a stockholder of record when Kreisler

issued the 2014 Meeting Notice, and therefore Plaintiff failed to comply with the ANB in

a second way. This argument is somewhat technical in nature in that there is no dispute

that AB Value was a beneficial owner of Kreisler stock at all times relevant to this action.

Regardless, Defendants contend that, because AB Value was not a stockholder of record,

it was not capable of making the nomination at all when Kreisler issued the 2014 Meeting

Notice, so Plaintiff did not suffer irreparable harm. With respect to the balance of harms,

46
       Id. at *3.

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Defendants emphasize that Kreisler is a small business and that the diversion of

management time and corporate resources to Plaintiff‟s challenge is substantial.

       Given my determination that AB Value has failed to show a colorable claim, much

less a clear legal entitlement to the relief it seeks, there is no need to resolve these issues.

                                  V.       CONCLUSION

       For the foregoing reasons, Plaintiff‟s motion for a temporary restraining order is

denied. Because I deny the motion for a TRO, I also deny the related motion to expedite

as moot.

       IT IS SO ORDERED.

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