In Sternlicht, et al. v. Hernandez, et al., C.A. No. 2023-0477-PAF (Del. Ch. June 14, 2023), Plaintiff stockholders and former directors of Cano Health, Inc. (“Cano”) sought to enjoin Cano’s annual stockholder meeting and the enforcement of an advance notice bylaw.  Plaintiffs had resigned six weeks after the deadline to submit director nominations and argued that enforcing the advance notice bylaw would be inequitable in the face of an alleged “radical change in circumstances” at Cano.  Looking to the doctrine detailed in Schnell v. Chris-Craft Industries, Inc. (Del. 1971), as applied to advance notice bylaws by Hubbard v. Hollywood Park Realty Enters., Inc. (Del. Ch. July 31, 1997) and its progeny, the Court of Chancery rejected Plaintiffs’ claims, finding that the alleged changes in circumstances were not sufficiently radical or material to merit waiver of the advance notice bylaw.  In addition, the Court looked to Plaintiffs’ own conduct and intentional delays, determining that any harm suffered by Plaintiffs was of their own making, and the balance of equities did not support granting the relief Plaintiffs sought.
 
Background
 
Cano is a Delaware health company that owns and operates medical centers and delivers healthcare services through affiliate relationships with other providers.  Dr. Marlow Hernandez has been CEO since Cano’s inception.  In June of 2021, Cano went public through a de-SPAC with a company for which Barry Sternlicht was the chairman.  At the time of the merger, Sternlicht also personally invested $50 million in Cano and joined the Board.  Plaintiffs collectively controlled stock representing 35.7% of Cano’s voting power.  Following the merger, the Board consisted of Plaintiffs Sternlicht, Dr. Lewis Gold, and Elliot Cooperstone, and Defendants Hernandez, Solomon Trujillo, Angel Morales, Kim Rivera, Alan Muney, and Jacqueline Guichelaar.
 
In the year and a half following the merger, the price of Cano’s stock declined precipitously, from approximately $15 per share immediately following the merger to under $2 per share by the end of November 2022.  During this time, disputes began to arise among Board members and Cano executives relating to loans taken out by Hernandez.  In August 2021, Hernandez pledged approximately 22 million shares of Cano stock to secure a loan used to purchase Cano stock on margin.  When the margin calls came, Hernandez ultimately borrowed $46 million from four individuals connected with companies either acquired by or otherwise in business with Cano.
 
Sternlicht was the most vocal critic of Hernandez throughout this time period, and pushed for investigation of Hernandez’s conduct, particularly related to the various loans.  At the same time, Plaintiffs expressed a strong desire to see Cano sold.  When potential acquisition talks with CVS failed in October 2022 – causing the stock price to plummet even further – Sternlicht accused Hernandez of scuttling them by telling CVS (as well as another potential purchaser) that Cano was not for sale.
 
As the fracturing of the Board continued, Sternlicht threatened to resign if Hernandez was not fired and Cano did not seek to sell itself.  In making his threat, Sternlicht made clear that he would disclose the reasons for his resignation, including those relating to Hernandez’s conduct.  In response to Sternlicht’s threats, the Board formed a special committee comprised of the directors except for Plaintiffs and Hernandez.  After several meetings, the special committee recommended that Hernandez be removed as chairman, but retain his position as CEO, subject to a probationary period.  The full Board adopted the recommendations over Plaintiffs’ objection, and Plaintiffs resigned from the Board.
 
At the time of their resignation, Plaintiffs had already begun strategizing how to convince Cano’s Board to either buy out their equity or to sell Cano.  During these discussions, Plaintiffs considered threats of nois