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Blackrock Credit Allocation Income Trust v. Saba Capital Master Fund, Ltd.

Supreme Court of Delaware

January 13, 2020

BLACKROCK CREDIT ALLOCATION INCOME TRUST, BLACKROCK NEW YORK MUNICIPAL BOND TRUST, BLACKROCK ADVISORS, LLC, RICHARD E. CAVANAGH, KAREN P. ROBARDS, MICHAEL J. CASTELLANO, CYNTHIA L. EGAN, FRANK J. FABOZZI, HENRY GABBAY, R. GLENN HUBBARD, W. CARL KESTER, CATHERINE A. LYNCH, ROBERT FAIRBAIRN, and JOHN M. PERLOWSKI, Defendants-Below, Appellants,
v.
SABA CAPITAL MASTER FUND, LTD., Plaintiff-Below, Appellee.

         Submitted December 4, 2019.

          Case Closed January 29, 2020.

Page 965

         Court Below: Court of Chancery of the State of Delaware. C.A. No. 2019-0416-MTZ.

         COUNSEL:

          William M. Lafferty, Esquire, D. McKinley Measley, Esquire, Thomas P. Will, Esquire, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware. Of Counsel: Tariq Mundiya, Esquire, (argued) Sameer Advani, Esquire, Alexander L. Cheney, Esquire, Brittany M. Wagonheim, Esquire, Willkie Farr & Gallagher LLP, New York, New York for Appellants BlackRock Credit Allocation Income Trust and BlackRock New York Municipal Bond Trust.

          Carmella P. Keener, Esquire, Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware. Of Counsel: Carol S. Shahmoon, Esquire, Gregory E. Keller, Esquire, (argued) Shahmoon Keller PLLC, New York, New York for Appellee.

         Before SEITZ, Chief Justice; VALIHURA and TRAYNOR, Justices.

         OPINION

Page 966

         VALIHURA, Justice:

          The issue we confront in this case is whether under their respective bylaws, two closed-end investment funds, BlackRock Credit Allocation Income Trust (" BTZ" ) and BlackRock New York Municipal Bond Trust (" BQH", and with BTZ, the " Trusts" ), properly excluded their shareholder, Saba Capital Master Fund, Ltd. (" Saba" ), from presenting its slate of dissident trustee nominees for election at the respective annual meetings. The Court of Chancery held that such exclusion was improper. It reasoned that the supplemental questionnaires that Saba's nominees

Page 967

were asked to complete (the " Questionnaire" and collectively, the " Questionnaires" ), exceeded the bylaws' scope and, thus, the Trusts were " not permitted to rely on the five-day deadline for Saba's compliance with that request." [1] It also held that laches did not bar Saba's claims for equitable relief.

          On appeal, the Appellants contend that the Court of Chancery erred by issuing an injunction requiring the Trusts to count the votes for Saba's nominees at the respective annual meetings, since they claim that Saba's nominees were ineligible for election because of their failure to timely provide supplemental information in accordance with the clear and unambiguous bylaws. Appellants also contend that the court erred in holding that Saba's claims for equitable relief were not barred by laches.

          On appeal, the parties continue to dispute whether the Questionnaire is the type of " necessary" and " reasonably requested" subsequent information that falls within the meaning of Article I, Section 7(e)(ii) of the Trusts' bylaws. But, importantly, the parties both agree that at least part of the Questionnaire is within the bounds of Section 7(e)(ii), and part is not. It is also undisputed that Saba, upon receipt of the request for supplementation, did not contact the Trusts or seek relief from the deadline. Instead, it let the deadline pass and then complained, raising a number of excuses for not complying with the deadline. We agree with the Vice Chancellor that Section 7(e)(ii) is clear and unambiguous. But we disagree that Saba should be excused from complying with the Bylaws' clear deadline. Further, we affirm the Vice Chancellor's holding as to laches. Accordingly, we AFFIRM in part, and REVERSE in part, and REMAND for further proceedings.

          I. BACKGROUND

          Defendant-Appellants BTZ and BQH are Delaware statutory trusts registered as closed-end investment funds under the federal Investment Company Act of 1940 . Defendant-Appellant BlackRock Advisors, LLC advises the Trusts. The individual Defendant-Appellants comprise the Trusts' boards of trustees (the " Boards" ). We refer to BTZ, BQH, BlackRock Advisors, LLC, and the individual Defendant-Appellants, collectively, as the " Appellants."

         Plaintiff-Appellee Saba, a Cayman Islands company, holds shares of both Trusts. Saba is managed by Saba Capital Management, L.P., whose managing member is Boaz Weinstein.

          A. The Bylaws

          Article I, Section 7 (" Section 7" ) and Article II, Section 1 (" Section 1" ) of the bylaws of BTZ and BQH (collectively, the " Bylaws" ) are relevant to this appeal. Both sets of Bylaws are identical with respect to those sections.

          Section 7, entitled " Nomination of Directors," sets forth the method by which shareholders can nominate trustees to the Board.[2] The section begins by stating that " [o]nly persons who are nominated in accordance with the following procedures

Page 968

shall be eligible for election as directors of the Fund." [3] Section 7(f) further states that " [n]o person shall be eligible for election as a director of the Fund unless nominated in accordance with the procedures set forth in this Section 7 of this Article I." [4]

          When nominating directors for election, under Sections 7(a)-(c), stockholders are required to give timely written notice of a nomination (a " Nomination Notice" ).[5] Section 7(d) enumerates what a Nomination Notice must contain, which includes " information to establish to the satisfaction of the Board of Directors that the Proposed Nominee satisfies the director qualifications as set out in Section 1 of Article II." [6] It must also contain information required by federal securities laws, including information relating to whether the nominee is an " interested person" under the Investment Company Act of 1940 (the " 1940 Act" ), and information " that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in an election contest pursuant to Section 14 of the [Securities Exchange Act of 1934]." [7]

          Section 7(e)(ii), the provision in the Bylaws at issue here, reads as follows:

A shareholder of record, or group of shareholders of record, providing notice of any nomination proposed to be made at an annual meeting or special meeting in lieu of an annual meeting shall further update and supplement such notice, if necessary, so that:
(i) the information provided or required to be provided in such notice pursuant to this Section 7 of this Article I shall be true and correct as of the record date for determining the shareholders entitled to receive notice of the annual meeting or special meeting in lieu of an annual meeting, and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Fund not later than five (5) business days after the record date for determining the shareholders entitled to receive notice of such annual meeting or special meeting in lieu of an annual meeting; and
(ii) any subsequent information reasonably requested by the Board of Directors to determine that the Proposed Nominee has met the director qualifications as set out in Section 1 of Article II is provided, and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Fund no later than five (5) business days after the request by the Board of Directors for subsequent information regarding director qualifications has been delivered to or mailed and received by such shareholder of record, or group of shareholders of record, providing notice of any nomination.[8]

Page 969

         Section 1 of Article II, entitled " Number and Qualifications," provides an expansive list of qualifications that prospective trustees must meet to serve on either of the Boards. This section lists trustee requirements and restrictions relating to limits on directorship positions, potential conflicts, criminal offenses, prohibited conduct, and various ineligibility provisions contained in certain federal securities laws.[9] The parties agreed in the proceedings below " that some of those qualifications relate to parallel requirements under the Investment Company Act of 1940." [10]

          B. The Nominations Dispute

          On or about March 30, 2019, Saba delivered a timely Nomination Notice to the Trusts pursuant to Section 7 to nominate four individuals for election to both of the Trusts' Boards. The Nomination Notice, according to the Court of Chancery, generally contained the information required under Section 7, " albeit at a high level and without much context or explanation." [11]

          Approximately three weeks later, on April 22, 2019, the Trusts' counsel, Willkie Farr & Gallagher LLP (" Willkie" ), emailed Saba in separate emails requesting additional information. Willkie's transmittal email request stated:

Pursuant to Article I, Section 7 of the bylaws of the Fund, I am writing on behalf of the Board of Trustees of the Fund (the " Board" ) to request additional information with respect to the nominees submitted by Saba Capital Master Fund, LTD (the " Shareholder" ) for election at the Fund's 2019 shareholder meeting. Please have each of the proposed nominees complete and sign the attached questionnaire and return it to my attention with a copy to Janey Ahn, Secretary of the Fund.
The Board and the Fund each reserves all rights and remedies with respect to the subject matter of this correspondence, including without limitation the right to request additional information from the Shareholder or from the Shareholder's proposed nominees.[12]

          Although it referred to Section 7 generally, the email did not specifically reference Section 7(e)(ii) or the five-business-day response deadline. As explained below, the attached Questionnaire contained a mix of questions, with a significant number of them directly relating to the Section 1 qualifications. Under Section 7(e)(ii), the responses were due on April 29, 2019.

          Saba did not respond to the information request before the due date. On the morning of May 1, 2019, seven business days after making the information request, Willkie emailed Saba on behalf of BTZ declaring that because the Questionnaires have not been completed and returned, " the ...


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