Topic: Unclean Hands

Chancery Court Looks Past “Sham” Paper Trail to Determine Ownership of Holding Company for Argentina Media Conglomerate

By: Scott E. Waxman and Michael C. Payant

In Carlos Eduardo Lorefice Lynch, et al. v. R Angel Gonzalez Gonzalez, et al., C.A. No. 2019-0356-MTZ (Del. Ch. July 31, 2020), the Delaware Court of Chancery (the “Court”) examined an extensive paper trail purportedly documenting the transfer of majority beneficial ownership in an Argentinian company from a media mogul to his attorney, before holding that the media mogul should nevertheless be deemed the owner of the interest in question, because the documents (i) did not constitute a binding contract for the purported transfer to the attorney, (ii) were fraudulently induced by the attorney, and (iii) were the product of unclean hands such that it would be unjust to grant ownership to the attorney. 

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COURT OF CHANCERY DECIDES MOTIONS TO DISMISS, MOTION FOR SUMMARY JUDGMENT, AND MOTION FOR JUDGMENT ON THE PLEADINGS WHEN PLAINTIFF SUES STOCKHOLDERS AND DIRECTORS OF THE COMPANY HE FOUNDED

By:  David L. Forney and Rachel Cheasty Sanders

In Craig T. Bouchard v. Braidy Industries, Inc., et al., Case No. 2020-0097-KSJM (Del. Ch. Apr. 28, 2020), the Delaware Court of Chancery addressed various motions filed by both Plaintiff and Defendants, including Defendants’ motions to dismiss for lack of personal jurisdiction and failure to state a claim, Plaintiff’s motion for judgment on the pleadings regarding an individual defendant’s defense, and Plaintiff’s motion for summary judgment.  Plaintiff Craig Bouchard filed suit against Defendants claiming breach of contract regarding a voting agreement to which Bouchard and each of Defendants are a party.  The Court granted the motions to dismiss for lack of personal jurisdiction over Defendants.  Further, the Court granted Plaintiff’s motion for judgment on the pleadings regarding the defense of unclean hands asserted by Defendant Braidy Industries, Inc.  Lastly, the Court denied Plaintiff’s motion for summary judgment on his breach of contract claim, finding that the factual records needed further development. 

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Chancery Orders Accounting for Payments to Former Director and CEO Affiliate; Rejects Most Breach of Fiduciary Duty Claims

By: Remsen Kinne and Pouya Ahmadi

In Avande, Inc. v. Shawn Evans, C.A. No. 2018-0203-AGB (Del. Ch. Aug. 13, 2019), the Court of Chancery rejected most of the claims brought by Avande, Inc. (“Avande”) against Avande’s former director and chief executive officer (“CEO”) Shawn Evans (“Evans”) other than a claim for breach of fiduciary duty for engaging in self-interested transactions, authorizing improper expenditures and failure to maintain appropriate documentation of expenditures. The Court awarded Avande only $21,817.70 of the more than $5.3 million in damages sought to recover from Evans. The Court held that DC Risk Solutions, Inc. (“DC Risk”), an affiliate of Evans that provided Avande insurance broker services and bookkeeping services, would be liable as an aider and abettor for any damages that are assessed as a result of the accounting ordered by the Court as to payments made to DC Risk.

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WHEN SOMEONE SHOWS YOU WHO THEY ARE, BELIEVE THEM THE FIRST TIME, OR RISK YOUR CLAIMS BEING TIME BARRED

By Scott Waxman and Adrienne Wimberly

In Winklevoss Capital Fund, LLC et al. v. Stephen Shaw, et al., C.A. No. 2018-0398-JRS, the Delaware Court of Chancery, in a Memorandum Opinion, granted a Motion to Dismiss counterclaims against individual Plaintiffs Tyler and Cameron Winklevoss and their investment firm (altogether “Plaintiffs”) because the claims were barred by laches. In an attempt to capitalize on the publicity from their depiction in the movie The Social Network, the Winklevoss twins, Tyler and Cameron, launched an investment firm, Winklevoss Capital Fund, LLC (WCF). The twins selected Treats! LLC, founded by Stephen Shaw, to be one of their first investments. Treats! LLC owns and operates Treats! magazine, a print and digital magazine depicting nude and semi-nude photographs of models and celebrities. In August 2012, WCF invested $1,310,000 in Treats! in exchange for 1,310,000 series A preferred units under a written Purchase Agreement and Amended LLC Agreement. WCF also loaned Treats! $20,000 as evidenced by a promissory note delivered in October 2012. However, the business relationship between the parties quickly soured as the twins refused to allow Shaw to publicly announce their investment in Treats! and the twins believed Shaw was mismanaging the company.

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Unclean Hands and Unreasonable Demands — Chancery Court Holds That Plaintiff’s Fiduciary Duty Claims Fail Due to Doctrine of Unclean Hands

By Scott Waxman and Jonathan Miner

In Thomas McKenna, et al., v. David Singer, et al., C.A. No. 11371-VCMR (Del. Ch. July 31, 2017), the Delaware Court of Chancery relied on the doctrine of unclean hands to rule against the McKennas, a father and son team of would-be energy conversion financiers, who brought a claim for breach of fiduciary duties against their business partners, Daniel and David Singer, for alleged misappropriation of a corporate opportunity. The Singers were brothers and co-owned of an energy distribution business conducted through their companies, Singer Energy Group, LLC (“SEG”) and Robison Energy, LLC (“Robison Energy”). The Singers and McKennas formed two entities together, Robison Energy Fund, LLC (“REF”) and Green Energy Companies, LLC (“GEC”), with the intent of using REF and GEC to create a new financing business that would assist in capitalizing the Singers’ existing businesses and would act as an underwriting arm for loans to customers that wanted to finance energy conversion projects performed by Robison Energy.  These business and financing plans failed and the Singers turned instead to Westport Capital Partners (“Westport”) for a financing deal in which the McKennas, REF and GEC were ultimately not involved. The McKennas then sued the Singers on the theory that the Singers misappropriated an opportunity that belonged to REF and GEC. The Court found that the McKennas had misrepresented their previous financing work, and such misrepresentations had been integral in inducing the Singers to enter into a business relationship with the McKennas. As such, the McKennas could not now “seek to enforce the fiduciary duties that attached in part because of their misrepresentations.” The Court also considered on the merits the McKennas’ misappropriation claim and determined that it also failed because the opportunity with Westport never belonged to REF and GEC and was an opportunity solely for Robison Energy.

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Chancery Court Reexamines the Limits of Indemnification of Corporate Directors, Officers, and Others

By: Susan Apel and Benjamin Kendall

In Dore v. Sweports, Ltd., C.A. No. 10513-VCL (Del. Ch. January 31, 2017), plaintiffs John A. Dore, Michael J. O’Rourke, and Michael C. Moody (together, “Plaintiffs”) sought indemnification under the Delaware General Corporation Law (“DGCL”) and corporate bylaws, for expenses incurred in connection with three legal proceedings that occurred in Illinois, as well as those incurred enforcing their indemnification rights in Delaware.

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Court of Chancery Applies New DGCL § 205 to Determine Validity of Defective Corporate Acts

By Eric Freedman and Sophia Lee Shin

In In Re Numoda Corporation Shareholders Litigation, the Court of Chancery exercised its new powers under Delaware General Corporation Law (“DGCL”) § 205, which became effective as of April 1, 2014, to resolve various disputes regarding the capital structures of two related corporations that consistently failed to follow corporate formalities.

In In Re Numoda Corporation Shareholders Litigation, C.A. No. 9163-VCN (Del. Ch. January 30, 2015) (Noble, V.C.) (the “Numoda Shareholders Litigation Decision”), the Delaware Court of Chancery addressed a dispute concerning the capital structures of two corporations, Numoda Corporation (“Numoda Corp.”) and Numoda Technologies, Inc. (“Numoda Tech.”).  The Numoda Shareholders Litigation Decision came on the heels of a decision of the Court of Chancery in a prior related action, Bons v. Schaheen, 2013 WL 6331287 (Del. Ch. Dec. 2, 2013) (the “225 Action”), in which the Court of Chancery refused to recognize several purported stock issuances due to a failure to comply with corporate formalities.  Because DGCL § 204 (Ratification of defective corporate acts and stock) and DGCL § 205 (Proceedings regarding validity of defective corporate acts and stock) became effective on April 1, 2014, after the decision in the 225 Action, the Court in the Numoda Shareholders Litigation Decision used its new statutory powers to untangle the capital structures that had been the subject of the 225 Action.

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