1 allison huynh, : defendants,...on mr. hassan's counsel, brandon blevans, as well as mr. reed,...
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ALLISON HUYNH, : :
Plaintiff, : : v : C. A. No. : 2019-0893-JTLSCOTT HASSAN, BLUE OCEAN ROBOTICS :HOLDINGS APS, BEAM ROBOTS APS, BEAM :ROBOTS US INCORPORATED, :
:Defendants, :
: and :
:SUITABLE TECHNOLOGIES, INC., :
: Nominal Defendant. :
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Chancery Court Chambers Leonard L. Williams Justice Center 500 North King Street Wilmington, Delaware Thursday, November 7, 2019 9:15 a.m.
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BEFORE: HON. J. TRAVIS LASTER, Vice Chancellor
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ORAL ARGUMENT AND RULINGS OF THE COURT ON PLAINTIFF'S MOTION FOR EXPEDITED PROCEEDINGS
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Leonard L. Williams Justice Center 500 North King Street - Suite 11400
Wilmington, Delaware 19801 (302) 255-0522
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APPEARANCES: (Via teleconference)
SRINIVAS M. RAJU, ESQ.TRAVIS S. HUNTER, ESQ.
TYLER E. CRAGG, ESQ. Richards, Layton & Finger, P.A. for Plaintiff
JOHN L. REED, ESQ. DLA Piper LLP (US) for Defendants Blue Ocean Robotics Holdings
APS, Beam Robots APS, Beam Robots US Incorporated
NICHOLAS J. ROHRER, ESQ.MAE OBERSTE, ESQ.
Young, Conaway, Stargatt & Taylor LLP for Nominal Defendant
Also Present: Brandon R. Blevans, Esq. of the California Bar Blevans & Blevans on behalf of Defendant Scott Hassan
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THE COURT: Good morning. This is
Travis Laster speaking.
MR. HUNTER: Good morning, Your Honor.
This is Travis Hunter from Richards, Layton & Finger.
I have with me my colleagues Srinivas Raju and Tyler
Cragg, and we represent the plaintiff.
THE COURT: Great. Welcome.
MR. ROHRER: Good morning, Your Honor.
Nicholas Rohrer from Young Conaway. I believe I'm
also joined on the line by Mae Oberste, my associate.
We represent the nominal defendant.
THE COURT: All right. Welcome.
MR. REED: Your Honor, John Reed from
DLA Piper on behalf of Blue Ocean and the Beam
Robotics entities.
THE COURT: All right. Great.
MR. BLEVANS: And, finally, Your
Honor, good morning. This is Brandon Blevans. I
represent Scott Hassan in his family law proceeding in
California.
THE COURT: Okay. It's good to have
you all here. Thank you, everyone. I appreciate you
getting on the line.
Mr. Hunter, why don't you go ahead.
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MR. HUNTER: Good morning, Your Honor.
Travis Hunter again. Thanks for hearing us on such an
expedited basis.
As you know, we are here this morning
on a motion to expedite. And all we are seeking
through our motion is the scheduling of a preliminary
injunction hearing on or before December 11th, and
expedited discovery, so that we can raise our
arguments seeking to enjoin the sale of Suitable
Technologies to Blue Ocean in advance of the date that
sale is scheduled to close.
As explained in our papers, based on
the information we currently have, there appear to be
serious violations of fiduciary duty in connection
with the process used to conduct the sale. For
example, as alleged in our complaint, the sale price
to Suitable appears to be substantially less than the
price the company could fetch if sold in the proper
manner. In fact, it does not even appear that
Mr. Hassan procured any valuation of any kind before
agreeing to the sale.
The sale is also tainted by
self-dealing. Specifically, an attempt by Mr. Hassan
to secure substantial tax benefits for himself, as
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opposed to the company. Better offers were simply
refused because Mr. Hassan claims not to have liked
how the company would be run after it was sold.
And, finally, the asset purchase
agreement contains unjustifiable deal protections that
basically ensure Mr. Hassan cannot meet his fiduciary
obligation to maximize value for Suitable
stockholders. In essence, Section 6.3 precludes
Mr. Hassan and Suitable from entering into discussions
with anyone concerning an acquisition proposal and
prohibits the company from accepting better offers.
Additionally, Section 3.3 essentially allows Suitable
to transfer valuable patent assets to Blue Ocean
following closing for free. And even if those patents
are not transferred, Blue Ocean is granted a royalty
free license to practice the patents. We believe that
license alone would be very valuable and is not
accounted for in the purchase price.
In light of these issues, which are
more fully described in our complaint, we believe the
transaction should be enjoined. That's why we've
requested expedited proceedings.
As we all know, the standards for
expedition are well known. A party is entitled to
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expedited proceedings if there is a colorable claim
and there is sufficient possibility of imminent
irreparable harm.
With respect to the colorable claim
standard, it's one of the most lenient standards in
our law, and we submit that it's easily met here. As
explained in our complaint, Mr. Hassan, as the sole
director of Suitable, owed, and continues to owe,
fiduciary duties to Suitable stockholders. Mr. Hassan
has breached those duties in a number of ways, as
alleged in our complaint. And as we have alleged,
such conduct is not appropriate for a fiduciary, whose
role at the corporation should be to maximize value to
all stockholders. Accordingly, we submit that our
claim is colorable.
With respect to irreparable harm,
there is sufficient threat of such harm here.
Essentially, Mr. Hassan is giving away valuable,
unique patent assets that will not be able to be
recovered if the sale is permitted to close.
Additionally, as courts have recognized, there is
irreparable harm when it would be impossible to
unscramble the eggs by attempting to unwind a sale
that has been completed. Indeed, this Court has acted
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to enjoin transactions found to embody breaches of
fiduciary duty. Moreover, in cases of self-dealing,
such as here, expedited proceedings are even more
appropriate.
For all these reasons, we respectfully
request that the Court grant our motion for expedited
proceedings, schedule a hearing for a preliminary
injunction on or before December 11, 2019, and
thereafter the parties can work out an appropriate
schedule for discovery, which, in our view, should be
quite narrow in this case.
Unless Your Honor has any questions,
that is my argument on why this case should be
expedited.
THE COURT: All right. Thank you.
Who wants to speak for the defendants?
On the one hand, I'm largely limited to the
allegations of the complaint in terms of deciding this
today. But, on the other hand, I would like to hear
what the other side of the story is. At least as
pitched, this seems like an odd transaction. So who
is best suited to give me the other side of the story?
MR. ROHRER: Good morning, Your Honor.
Nicholas Rohrer for the nominal defendant. I'm happy
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to speak first. I may lean and defer, to some extent,
on Mr. Hassan's counsel, Brandon Blevans, as well as
Mr. Reed, to provide additional details on the pending
transaction. Specifically, there's also a parallel
court proceeding in a California court that's relevant
to the instant motion to expedite that I think should
also be considered, and I might seek some of their
assistance in providing additional background details
on those aspects.
Nominal defendant's -- probably not
unexpectedly -- strong position is that the instant
motion to expedite should be denied.
As the proponent of the motion,
plaintiff carries the burden of establishing the need
for expedition and its incumbent substantial cost for
all the parties involved. We submit that plaintiff
fails, most principally by failing to demonstrate a
sufficient possibility of threatened irreparable harm.
I believe that's a very strong argument, with two
factors in support of it.
But separate from that, as to the
issue of colorable claim, submit that there's adequate
basis to challenge a colorable claim here because of
the uniqueness of the situation. And specifically, I
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note that, at the outset, there's an important
backdrop to this case, and that's that there's a
parallel divorce proceeding that's currently
proceeding in California Superior Court involving both
plaintiff and defendant Hassan. It's relevant to this
motion that against the backdrop of this divorce
proceeding, we submit the instant motion is largely an
effort to gain leverage in that pending divorce
proceeding.
THE COURT: By the same token, the
instant transaction may be an effort to gain leverage
in that divorce proceeding. So clearly there's other
stuff going on, and I really need you to focus on
that, rather than the highfalutin legal concepts that
you seem more interested in. Because, I will tell
you, based on the allegations of the complaint, this
is clearly a colorable claim.
Can you come in and say that this
could be remedied by damages because they are alleging
that he's a controller? Yes, you can say that. But
this is also a company that's going to be tough to
value, and the valuation swing here, based on what the
allegation is and what the sale price is, is massive.
So we're essentially talking, if you can think back to
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Gimble v. Signal, we're thinking about that type of
scenario.
So I will reiterate, it's not really
helpful -- I guess I wasn't clear enough on this, so
I'm not really reiterating. It's not really helpful
for you to engage with me on the colorable claim
standard or, wow, you can remedy this with money
damages or things like that.
I want somebody to tell me what's
going on. I want somebody to tell me what's going on
in California. I want to understand whether Blue
Ocean and these other folks are subject to
jurisdiction in California. Because if they're not,
it's an obvious reason why California can't handle
this. And I would like to get to the actual gist of
what's going on, rather than hear legal niceties about
colorable claim or why money damages is really the
right answer, where I don't think, based on the
complaint, it is. And maybe you can explain that to
me at the preliminary injunction stage, but that's not
an argument that's going to carry the day today.
So who can engage on the substance of
what is going on here with this transaction?
MR. ROHRER: Your Honor, I can speak a
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bit further to that point.
Setting aside the money damages point,
the secondary point is the fact of this California
proceeding. And what's relevant here is that there is
this parallel proceeding. And specifically before the
California Court is the issue of a determination of
the fairness of this pending transaction. Indeed, the
transaction itself, the asset purchase agreement, is
conditioned as a closing condition of either an
agreement to the closing of the transaction by the
plaintiff or a determination by the California Court
as to the fairness of the transaction.
And to that point, a hearing is
scheduled in the California Court on December 19th to
assess the transaction. The parties have already
submitted before the Court, I understand, declarations
of expert witnesses, including declarations of
valuation experts. And those documents and those
submissions are before the Court, and the Court is to
consider those at this pending hearing on the 19th,
which notably is before the transaction is to close.
Important, and further relevant to
that --
THE COURT: To interrupt you on that
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point again, I understood from the plaintiff that the
transaction was closing as early as December 15th. So
explain to me the divergence between that
representation and your understanding that the
December 19th hearing is pre-closing.
MR. BLEVANS: Your Honor, this is
Brandon Blevans, who represents Scott Hassan in the
divorce proceeding.
The asset purchase agreement has the
ability of the buyer and seller to extend the closing
date from the 15th. Upon the petition of Ms. Huynh,
the plaintiff's counsel, the hearing on the approval
for this transaction in the California Court was moved
from December 13th to December 19th. My client,
Mr. Hassan, has obviously agreed to extend that
closing date. And while I have not confirmed with
Blue Ocean's counsel, my understanding is that the
four-day delay to allow for the court hearing to occur
was not objectionable.
THE COURT: All right. That's
helpful.
What section of the asset purchase
agreement is the condition that Mr. Rohrer referenced?
MR. BLEVANS: Are you speaking, Your
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Honor, with respect to the condition of court approval
or consent?
THE COURT: Yes.
MR. BLEVANS: That is in 7.2(f) and
7.3(g). It is bilateral, meaning both parties have
the obligation to obtain court approval or consent, as
necessary, to effectuate the close.
MR. ROHRER: Your Honor, Nicholas
Rohrer again. My understanding further on that --
THE COURT: Hold on. I'm looking at
(f) right now. "Seller shall have obtained court
approval, which may include a decision by the court
...." Is it defined somewhere? These are lower case
terms. How do I know what court approval is?
MR. ROHRER: Your Honor, to the best
of my understanding -- I looked for the same defined
term in the asset purchase agreement, and I did not
see it defined. My understanding is it is a clear
understanding that the reference to "the court" is the
California Court, and the asset purchase agreement
makes explicit reference to plaintiff as a defined
term as the affiliated selling party, or something to
that effect. There's no other court proceeding
pending in California beyond that California court
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proceeding.
THE COURT: All right. So that's
helpful.
Mr. Hunter, let me circle back to you
now, because this may cut through this.
If I require the defendants to enter
into some type of stipulation with you confirming
their representations that these provisions operate as
they have said, that the deal is conditioned on court
approval from the California Court, including a
fairness proceeding, and won't go forward in the
absence of that, tell me why that doesn't address what
you and your client need and solve the problem.
MR. HUNTER: Sure. Let me start with
saying you raised the personal jurisdiction issue with
respect to Blue Ocean. I did want to answer your
question on that. And that also goes to this
particular issue as well. So I don't think the
California Court would have jurisdiction over Blue
Ocean. Specifically, one Blue Ocean is a Delaware
entity, and the basis for jurisdiction over the Blue
Ocean entities that we have here is the aiding and
abetting and conspiracy claims. I don't think the
California Court would have jurisdiction over those
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entities. So for that reason, we have different
parties that are at issue in both cases. Only this
Court can adjudicate the full rights of all parties
with respect to the transaction.
Now, circling back to your specific
question, Your Honor, on the difference between the
California and the Delaware proceeding, it's our
understanding that the standards that will be applied
are slightly different. Specifically, the California
proceeding is a divorce proceeding, whereby the Court
is determining whether the amount of the sale is
equitable to Mrs. Huynh and Mr. Hassan.
The standards this Court are going to
apply are much different. The fiduciary duty claims
that are at issue before Your Honor are not at issue
in California. The Court in California is merely
being asked to evaluate, in the context of a family
law proceeding, whether the sale is appropriate for
both husband and wife. That's not the case here.
And another difference here is that
this is a derivative claim, where we are seeking to
evaluate the transaction on behalf of all stockholders
of Suitable and the company itself. And that's also
not an issue that will be adjudicated in California
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but will be adjudicated here.
And with respect to the provision that
Your Honor noted, the one that I was focused on when I
was reviewing this last night was actually 7.3(g),
which is the conditions to obligations of the seller.
And that provision states that "Seller shall have
obtained court approval," but then it goes on to state
"which may include a decision by the court that no
decision is necessary ...."
So I'm not sure that the Court in
California, it may reach a decision that it doesn't
need to make a decision on the appropriateness of the
transaction, which that issue is squarely before this
Court here. So I don't think a stipulation quite gets
us there, Your Honor, and I don't think there is
enough of an overlap between the proceedings that this
action should not proceed based on the claims at issue
and the different parties in this case.
THE COURT: Tell me what you
understand about the stockholder profile. Who else is
there out there?
MR. HUNTER: Sure. My understanding
currently, Your Honor, is that Mr. Hassan and entities
controlled by him own substantially all of the stock.
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But I do believe there are other stockholders. I
don't have in front of me an exact number, but I
believe it is somewhere in the neighborhood of 30 to
40 other kind of individual stockholders that own
outstanding stock.
THE COURT: Okay. That's helpful.
Mr. Rohrer, what else do you want to
tell me?
MR. ROHRER: Yes, Your Honor. With
respect to the jurisdictional issue over Blue Ocean in
the California proceeding, I would only note that even
though -- whether or not the Court has jurisdiction
over Blue Ocean, it doesn't seem necessary or
determinative to me relative to its fairness analysis
of the transaction of actually assessing the
transaction.
With respect to the question of the
stipulation, my further understanding beyond this
representation in the contract, the asset purchase
agreement, is that there is an affirmative
indemnification representation by Mr. Hassan in the
context of the California action, where Mr. Hassan has
represented that he will indemnify plaintiff for any
unfairness or any detriment to her community property
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interest as a result of the pending asset sale. So
that indemnification representation would, by my view,
essentially provide the assurance that the plaintiff
would need that she would be made whole in the event
there was a shortfall in the asset sale valuation.
Separate and apart from that, I just,
very briefly, I just want to touch on the colorable
claim, not with respect to the allegations that have
been made, but just to a unique point relevant to this
case. And that is the fact that what we have here is
plaintiff as a spouse that holds a, quote,
co-beneficial interest in the stock.
And it's noteworthy, we were able to
locate a Court of Chancery case that I will just
direct Your Honor to. That's Capital Group v. Armour,
2004 Westlaw 2521295. That case is a Noble case. And
I understand that it found that a spouse's community
property interest in stock held by another spouse does
not itself create a beneficial interest for the other
spouse.
So the issue here that I see is until
the California Court has resolved the divorce
proceeding and made an actual determination and a
division, a true ownership division of the shares, the
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plaintiff lacks standing to assert a claim, to assert
a claim as a derivative stockholder for the reason she
is neither a stockholder of record or a stockholder of
benefit until that California proceeding is concluded.
THE COURT: I'm happy to look at that
case. That sounds wholly counterintuitive to me. But
I am happy to look at what Vice Chancellor Noble
wrote. He's a smart guy and a good jurist. But the
idea that equity would ignore a spouse's co-tenancy
interest in property that's established under a
community property state, again, it sounds
counterintuitive. But I'm happy to look at it.
Who else wants to talk to me about
this or add anything nonduplicative to what Mr. Rohrer
has told me?
MR. BLEVANS: Your Honor, this is
Brandon Blevans. I represent Scott Hassan in
California.
I would like to speak to the
representations by Mr. Hunter about what is actually
happening in the divorce action and why I believe he's
mistaken about the difference in the nature of the
claims.
The approval hearing that is set for
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this transaction in California is based on a portion
of the California family code that is entitled
"Fiduciary Duties." It is designed to ensure that my
client has satisfied his fiduciary obligations in
managing and disposing of his assets. So to say
that --
THE COURT: Let me interrupt you,
Mr. Blevans. Fiduciary in what capacity?
MR. BLEVANS: Well, in our California
family code, we have ingrafted our corporations code
fiduciary duties. So the obligations of spouses to
one another, in many respects, mirror those of
nonmarital business partners.
THE COURT: To put a fine point on it,
we're talking about his fiduciary obligation as spouse
to other spouse in terms of that analysis. True?
MR. BLEVANS: Yes, that is true.
THE COURT: You are then going to make
the further argument that that relationship should,
for all intents and purposes, parallel what his
fiduciary responsibilities would be to the company and
its stockholders as a director?
MR. BLEVANS: That's correct. And
then exactly why Ms. Huynh, in the California
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proceeding, is citing to our judge all of the Delaware
corporate fiduciary obligation jurisprudence. But I
think there's an important point --
THE COURT: Why is that? Why wouldn't
spousal obligation be California law?
MR. BLEVANS: Because of the view that
it parallels the corporations -- the same fiduciary
obligations that we have in our corporations code, and
because our corporations code also draws from Delaware
jurisprudence.
THE COURT: That's adding an
additional step. I mean, do you hear the additional
step you added? Really what you are saying is it's
fiduciary duties under the California corporation code
first; and then when California doesn't have an
answer, California looks to Delaware law. Is that
fair?
MR. BLEVANS: That's -- or in some
respects they are saying that because the language of
the two codes is so similar, that they draw on
Delaware because of its robustness of the law that it
developed in this area.
THE COURT: If there's one thing I
know, actually, California's one of the states that
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doesn't track the DGCL, and its code isn't similar.
MR. BLEVANS: Okay. That I can't
speak to, as I am not one of the corporation folks.
THE COURT: It's a bold representation
to make, then, if you can't speak to it.
MR. BLEVANS: The additional issue I
think important is the indemnification issue. Because
when Scott Hassan sought approval of this transaction
in the family law action, he informed the Court in his
filings that he wanted the transaction approved, with
the additional order that should the California Court
determine that the fair and reasonable value of these
assets is something different than the sales price,
that he will make plaintiff whole.
And while I recognize that the Court
views the delta at issue here is large, in terms of
the assets available to these parties, it is not a
significant sum. So the indemnification that Scott
has agreed to isn't illusory. He's able to make that
indemnification should the Court determine that this
transaction isn't the fair and reasonable value of
these assets.
THE COURT: What's your understanding
of the stockholder profile in terms of other folks
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being out there? And I understand that your client
has the overwhelming majority of the shares. But are
there other holders in addition to the plaintiff?
MR. BLEVANS: There are. I think my
client's total holdings, direct and indirect, are
about 58 percent. In addition to that, I think
Mr. Hunter was correct in the representation that
there are a few dozen other stockholders, maybe more
than that, because it's all through employment,
essentially. And I think the largest
non-Mr. Hassan-related ownership is 11 percent, if my
memory serves me correct.
THE COURT: All right. And what
percentage does the 600,000 shares -- I understand
there's this issue about community property ownership.
But what percentage does the plaintiff -- it's not the
plaintiff's. I get it. But what percentage does the
600,000 common shares represent?
MR. BLEVANS: It's either 6 or
7 percent, right around there.
THE COURT: All right. Anything else
you want to tell me?
MR. BLEVANS: Not from my end, Your
Honor. Thank you for your time.
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THE COURT: Great. Thank you.
Anybody else? I think I heard
somebody starting to speak up when Mr. Blevans jumped
in. Who else wants to say something?
MR. REED: Yes, Your Honor. That was
Mr. Reed. I will try to be very brief.
I just want to make some comments for
my own protection on this with regard to Blue Ocean.
Blue Ocean is a Danish company, so I don't want to
waive any personal jurisdiction with regard to I don't
believe there are minimum contacts for Blue Ocean,
certainly in Delaware.
It shouldn't matter much for Your
Honor's analysis today, because Beam USA is a party to
the APA, and Section 10.11(b) selects Delaware as a
consent to jurisdiction. So there's not a problem
with regard to that Delaware entity for purposes of
this dispute.
And service has also not been made.
So I don't want to waive anything with regard to
jurisdiction or service.
Let me just focus for a second on
irreparable harm and get back to this Section 7.2(f)
and 7.3(g). It's my understanding that, absent court
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approval, the condition also would then require the
consent of the Seller Stockholder Related Party, which
is the plaintiff here. And I don't believe -- and
that's in both -- that's a condition for both the
seller and the buyer. And I don't believe the seller
is waiving it. So absent consent by the plaintiff,
this transaction is not closing.
I know Your Honor didn't want to hear
too much about damages being an adequate remedy here.
But if you look at the complaint, we're talking about
them complaining about rejection of a million-dollar
offer in exchange for a $400,000 offer. And even
under their calculation that we're really paying
70,000 instead of 400,000, it's a $930,000 damages
claim.
There's some talk in the complaint,
without a lot of specifics, about the company having
assets valued at tens of millions of dollars. But
there is certainly no offer. The only offer out there
was for a million.
And the other issue is that there was
never any offer for this company that would have
eclipsed the $93 million in debt that the company
holds, which transitions into a second question here.
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You know, under Your Honor's ruling in Quadrant, there
is clearly dual standing here. And somebody who has a
potential community property interest of about
3 percent of the company, if a court were to
ultimately award her the 3 percent, is eclipsed by the
$93 million held by the debt holders, who ought to be
able to speak on behalf of the company in the
derivative context.
The other thing is, I do think there's
a substantial issue with regard to standing. By the
way, that was not a Vice Chancellor Noble case, at
least not the case I'm looking at. It was a Vice
Chancellor Lamb case, the Armour case. And I think
what the Court was saying there is that, you know,
while you may have a community property interest in
the stock, which would mean at some point a court
could divide it up and give it to you, that doesn't
make you a direct owner or even a beneficial owner
under Delaware law.
The problem I think we have here is
that this plaintiff is not a record holder and is not
a beneficial holder under our law because the record
holder still speaks for the stock. Until a California
court says that she owns it, I don't know how she can
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simultaneously speak for the stock while the record
holder speaks for the stock. And so we do have a dual
standing problem with regard to creditors, and we also
have this issue of whether or not she actually has any
legal standing to, you know, put the company -- put us
as the buyer through this expense when we don't know
what the California Court is going to do.
I could speak to aiding and abetting,
but I don't believe that Mr. Hunter is really
interested in his schedule in doing a lot of heavy
discovery with regard to anything like aiding and
abetting or conspiracy. I think that all goes away if
there's a resolution of the underlying breach and
whether or not the transaction should go forward. So
I will spare the Court with a presentation on that,
only to note that there's really only two paragraphs,
93 and 94, that I don't believe satisfy the knowing
participation requirement to state an aiding and
abetting claim.
And with that, Your Honor, unless Your
Honor has questions, I'm finished.
THE COURT: All right. Thank you. I
appreciate it.
Mr. Hunter, any reply?
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MR. HUNTER: Your Honor, I just want
to make one point on the standing issue that I've
heard this morning.
As Your Honor probably saw in our
complaint, specifically at Footnote 1, prior to filing
this action, we did serve a books and records demand
under 8 Delaware Code 220. In connection with that
books and records demand, we provided counsel for
Suitable evidence of Ms. Huynh's beneficial interest.
Specifically, we provided, one, a stock certificate
reflecting Mr. Hassan as the record owner of the
600,000 shares; and, two, a declaration of Mr. Hassan
in which he listed the 600,000 shares of Suitable as
communally owned by Mr. Hassan and Ms. Huynh. And in
response to that, there was no objection to
Ms. Huynh's status as a beneficial owner. In fact,
they acknowledged that she was an owner of community
property and Suitable shares owned by Mr. Hassan, and
then proceeded to give us documents.
So I'm not really sure where this
argument is coming from. I did just want to point out
those facts to the Court, though.
THE COURT: Anything else from you, or
is that it?
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MR. HUNTER: No, sir. Thank you.
THE COURT: All right. You-all have
raised a lot of interesting issues this morning.
Based on the presentation that's laid out in the
plaintiff's papers, this is something that is subject
to expedition, and it's something that warrants a fast
schedule.
That said, I am mindful of the
California proceeding. Certainly, I think that to the
extent people can avoid duplicative proceedings, or if
there can be some type of determination that everyone
can have confidence in, that's ideal.
I, however, am dealing with a
different situation than California. I'm dealing with
a Delaware entity. This is being litigated as a
derivative action. It's, therefore, being asserted in
a manner where a remedy would inure to the benefit of
all corporate constituencies. As Mr. Reed points out,
initially it may inure to the benefit of the debt
holders, but then it's going to inure to the benefit
of not just Ms. Huynh, but also to the other
stockholders.
Now, people may be cynical about
whether Ms. Huynh is doing this to serve her own
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interests and because of its implications for the
divorce action, and that's certainly something that at
some point needs to be taken into account. But for
purposes of today, the different legal posture means
that we're in a different context where there are
other interests in play.
This is also a transaction that, at
least as portrayed, is effectively a washout. And
it's a counterintuitive transaction. It's depicted as
one that is being structured to capture tax benefits
unique to the seller, the controlling stockholder, in
which really nothing inures to the benefit of the
other stockholders. If the seller didn't have that,
or the controlling stockholder didn't have that unique
interest, then there would be an incentive for him to
obtain significantly more value that would inure to
the benefit of everyone.
I'm more than happy to look at the
standing issue and think about it, but this is the
type of case where it seems to me that Ms. Huynh does
have, at least at first blush, some type of equitable
interest that it's important to protect, not only for
her benefit, but for the benefit of other folks.
My initial reaction to the $93 million
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in debt is that's an interesting point too. But at
least based on the complaint -- and people can show
otherwise -- but at least as in the complaint, the
$93 million creditor is the alleged breacher. So what
we really have here is one person -- namely,
Mr. Hassan -- who has differential interests relative
to the corporation that cause this transaction to make
sense for him and not make sense for anyone else. And
that's the basic problem we're dealing with.
The California divorce case, just to
circle back, potentially could make Ms. Huynh whole,
but what it doesn't do is solve the basic derivative
action problem, and essentially it would leave other
holders and the entity and any other creditors,
whoever they might be, out in the cold.
I don't take much solace in the
provisions of the asset purchase agreement because, at
least in the abstract, they seem to me to be
amendable. Now, you-all may be able to explain to me
or show me that, no, that is not the case. But the
people who drafted that contract and entered into that
contract are the buyer and the seller, not Ms. Huynh.
So if the buyer and seller want to amend to take these
provisions out, or do something else, they have the
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power to do that.
As a result, while these provisions
may seem like protections, and they are nice things to
cite, they are amendable. If the plaintiff was one of
the holders of the conditions, then I would be much
more receptive to the idea that those solve the
problem in terms of closing. That's why I focused on
some type of stipulation and order, because from my
standpoint, there needs to be some meaningful comfort,
not only for the plaintiff, but also for the Court,
that this isn't a situation where changes will be made
to the transaction to make it happen without there
being an opportunity for the Court to examine it.
I do take seriously -- and this will
be the third time I've touched on the California
divorce action -- I do take seriously the idea that
another court could look at this and give some
fairness indication.
Frankly, I am not, at least at first
blush, of the view that the family law fairness
evaluation is going to be comparable to what this
Court would be doing on a preliminary injunction
motion. The argument that the California family law
principles will parallel the Delaware corporate law
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analysis just doesn't sound right to me. I have great
respect for the courts of California. They do a lot
of things very well. But their statutory code is
quite different than ours. They've reached different
outcomes on some key doctrinal points. That's not to
say they are wrong and we are right. These are things
where reasonable minds can disagree.
So it's not at all clear to me that
the one maps on fully to the other. And I say that
reiterating my respect for the jurist that is
presiding over the family law case out there.
Certainly that jurist is infinitely -- and I mean
literally infinitely -- more knowledgeable than I am
about California family law and its principles,
because I know zero, and I'm sure that judge knows an
awful lot, and that ratio is infinite.
What I'm going to do as a result of
this is I am going to schedule this proceeding for a
hearing at 9:15 on the 4th of December. Actually, as
I look at it now, we can probably do it on the 4th,
5th, or 6th of December. So why don't we tentatively
say 9:15 on the 6th, and if you-all want to pick one
of the earlier days, that's fine. But that will give
you two additional days in the schedule.
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I'm not trying to get ahead of the
California Court on this. I'm doing this because of
the timeline that I've been presented with in terms of
the potential early closing date. If you-all can do
something in the form of an order to document for me
an approach that lets the California Court go first
and make whatever rulings it wants to make, I will
certainly take into account whatever factual findings
and determinations are made out there in terms of
making the rulings in front of me.
I think there's something to be said
for doing that. In other words, if this started as a
family law dispute, and there is at least some
argument that this is some type of related case,
setting aside what I've said about the other
stockholders for the moment, then I do think there's
some sense in allowing the Family Court to go first.
But what I can't do today, and what I won't do today,
is make what essentially would be a case-dispositive
ruling in the context of scheduling by saying we're
not going to go forward at all.
That's where I am in terms of this.
The technical ruling for purposes of today is the
motion to expedite is granted. The hearing date,
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subject to you-all agreeing otherwise, will be the 6th
of December at 9:15. I would hope that you-all can
come up with some type of agreement that stages things
so that you don't have to be litigating on two coasts.
But if you can't, then that's when we'll all get
together again, and I will entertain the preliminary
injunction application. At that point, I will also be
more than happy to take into account the types of
issues that the defendants have raised as to these
other matters.
Mr. Hunter, any questions from you?
MR. HUNTER: No, Your Honor. Thank
you.
THE COURT: All right. Mr. Rohrer,
any questions from you?
MR. ROHRER: Nothing further here,
Your Honor. Thank you.
THE COURT: Mr. Reed?
MR. REED: Nothing.
THE COURT: Mr. Blevans?
MR. BLEVANS: Nothing, Your Honor.
Thank you for your time.
THE COURT: All right. I'm grateful
for everyone getting on the phone today. I do hope
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you can work something out that will result in a more
measured approach to this. But if you can't, I will
look forward to seeing you-all on the 6th at 9:15.
Have a good day.
(Teleconference concluded at
9:58 a.m.)
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CERTIFICATE
I, DEBRA A. DONNELLY, Official Court
Reporter for the Court of Chancery of the State of
Delaware, Registered Merit Reporter, Certified
Realtime Reporter, and Delaware Notary Public, do
hereby certify that the foregoing pages numbered 3
through 36 contain a true and correct transcription of
the proceedings as stenographically reported by me at
the hearing in the above cause before the Vice
Chancellor of the State of Delaware, on the date
therein indicated, except for the rulings at pages 29
through 36, which were revised by the Vice Chancellor.
IN WITNESS WHEREOF I have hereunto set
my hand at Wilmington, this 7th day of November, 2019.
/s/ Debra A. Donnelly----------------------------
Debra A. Donnelly Official Court Reporter
Registered Merit Reporter Certified Realtime Reporter Delaware Notary Public
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