In, In re: Geneius Biotechnology, Inc., C.A. No. 2017-0297-TMR (Del. Ch. Dec. 8, 2017), the Delaware Court of Chancery denied a minority stockholder’s petition for the appointment of a neutral third-party receiver under Section 291 of the Delaware General Corporation Law (“DGCL”) because the petitioner minority stockholder failed to prove, by clear and convincing evidence, that Geneius Biotechnology, Inc. (“Geneius”) was insolvent. The court held that Section 291 actions are not to be used as a method of resolving business strategy disputes between stockholders and management.
By Scott Waxman and Anthony L Yerry
In Jagodzinski v. Silicon Valley Innovation Company, LLC, Christian Jagodzinski, a unitholder in Silicon Valley Innovation Company, LLC (“SVIC”), fueled by personal disputes with Bram Portnoy, the receiver of SVIC, brought a motion to terminate the court-appointed receivership over SVIC or, alternatively, to reduce the receiver’s pay. Setting aside the personal disputes between Portnoy and Jagodzinski, the Delaware Court of Chancery ruled that Jagodzinski failed to make a sufficient showing to justify terminating the receivership but held that the 10% contingency portion of Portnoy’s fees are to be based off of the net, instead of the gross, recovery of the receivership.
In 2000, Jagodzinski invested $1 million in SVIC, which was an incubator for other startup technology companies. After about four years of allegedly successful investments, SVIC stopped sending reports to the equity holders. Jagodzinski unsuccessfully attempted to contact SVIC and investigate the state of the company’s affairs. Eventually on February 18, 2011, Jagodzinski initiated a books and records action against SVIC in the Delaware Court of Chancery. The then manager of SVIC refused to cooperate with the court, and the court appointed Portnoy as a limited receiver of SVIC with the specific task of collecting the books and records of the SVIC.