The Delaware Court of Chancery recently ruled on a significant proxy dispute involving ATG Capital Opportunities Fund LP and Empery Digital, Inc. The court's decision, issued on September 2, 2026, addressed claims related to unclean hands and spoliation of evidence. This ruling will affect the upcoming annual meeting of Empery Digital, where shareholders will have the opportunity to elect directors.
The case, ATG Capital Opportunities Fund LP v. Ryan Lane, et al. (C.A. No. 2026-0447-LWW), involves ATG Capital, a private investment fund, and the board of Empery Digital, a publicly traded company. The dispute arose when ATG sought to nominate directors for Empery's board, but the company rejected their nomination notice, prompting ATG to seek court intervention. The court's ruling is crucial as it determines whether ATG can proceed with its nominations and how the allegations of misconduct by both parties will be handled.
In the lead-up to the court's decision, ATG Capital accused Empery Digital's board of breaching its fiduciary duties by rejecting their nomination notice. The board's defense included claims of unclean hands, arguing that ATG's actions disqualified them from receiving equitable relief. Additionally, the defendants alleged that ATG's principal, Gabriel Gliksberg, had spoliated evidence by failing to preserve relevant communications, which they claimed warranted sanctions.
In her opinion, Vice Chancellor Lori W. Will addressed both defenses raised by the defendants. Regarding the unclean hands defense, the court ruled that it did not apply to ATG's request for equitable relief. The court stated, "Denying ATG relief due to its suspicious behavior would deprive Empery stockholders of their right to elect directors, creating further inequity." This ruling means that ATG's nomination notice will stand, and the shareholders will have the chance to vote on the proposed directors.
On the issue of spoliation, the court acknowledged that Gliksberg had failed to preserve relevant data on his mobile device. However, the court found that the loss of evidence would not affect the outcome of the case. The court noted, "Even assuming the lost messages showed coordination, no bylaw required ATG to disclose it." While the defendants' request for adverse inferences was denied, the court recognized that Gliksberg's actions were negligent and warranted some form of sanction.
In the end, the court ruled in favor of the defendants' request for a remedy related to the spoliation of evidence. The court ordered ATG to pay the defendants' reasonable attorneys' fees and expenses incurred in connection with their motion for spoliation sanctions and the pursuit of supplemental discovery. This decision emphasizes the importance of preserving evidence in legal disputes and the potential consequences for parties that fail to do so.
The ruling has significant implications for both ATG Capital and Empery Digital. It allows ATG to proceed with its director nominations, ensuring that shareholders have a say in the governance of the company. Furthermore, the court's decision on spoliation serves as a reminder for all parties involved in litigation to take their preservation obligations seriously.
Looking ahead, it remains to be seen whether the defendants will appeal the court's decision regarding the unclean hands defense. The case highlights the complexities of proxy contests and the legal challenges that can arise when shareholders seek to influence corporate governance. As the annual meeting approaches, both ATG and Empery Digital will need to prepare for the upcoming vote and potential further legal developments.