Today marks three months since Sotheby’s CFO Patrick McClymont announced a new capital allocation plan. Since that time, the stock has deflated by more than 16% even as the May 6th shareholders’ meeting approaches and proxy fight over three board seats.

Also today a judge hears arguments around Sotheby’s use of a poison pill to limit activist but not passive investors. The issue is likely to generate interest far beyond the parochial fight for control of the auction house.

Delaware Chancery Court Vice Chancellor Donald Parsons will hear arguments from both sides on whether Sotheby’s shareholder rights plan, which allows passive investors to buy as much as 20 percent in the company but caps active investors at 10 percent, is legal. A ruling is expected later in the week, ahead of Sotheby’s annual meeting scheduled for May 6.

The case could have wide implications for activist investing and corporate governance because it marks the first time that a judge will rule after an activist investor who has faced a poison pill has aired his grievances in court.

“The reason this is so important is that the idea that a pill can be used to stop an activist investor has never been approved,” said Robert Jackson, a law professor at Columbia University. “Whichever way the court rules will have lasting implications for the corporate landscape.”

Loeb to argue against Sotheby’s poison pill on Tuesday (Reuters)