Jurisdictional Discovery Denial Was Implicit in Jurisdictional Ruling

Neurvana Medical, LLC v. Balt USA, LLC, et al., C.A. No. 2019-0034-KSJM, letter op. (Del. Ch. Oct. 10, 2019)

Reargument; Legal Standard; Implicit Ruling; Personal Jurisdiction; Jurisdictional Discovery; Motion to Dismiss; Court Discretion; Abuse of Discretion

Meeting Date Uncertainty Supports Colorable Claim

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, transcript (Del. Ch. July 22, 2019; filed Aug. 12, 2019)

Motion to Expedite; Legal Standard; Colorability; Irreparable Harm; Director Nomination; Voting Rights; Colorable Claim; Nomination Deadline; Discovery

Refuted Basis for Non-Compliance with Bylaw Precludes Injunction

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, tr. ruling (Del. Ch. Aug. 14, 2019)

Preliminary Injunction; Legal Standard; Claim Element; Nominate Director; Probability of Success; Advance Notice Bylaw; Historical Practice; Bylaws; Contract Interpretation; Record Holder; Record Date; Stockholder Vote; Public Policy; Untimely Notice; Deposition; Evasive Response; Litigation Conduct; Fee Shifting; Expedite Proceedings

NEW BUSINESS

Barbara Kailas v. 3G Capital, Inc., et al. and Kraft Heinz Co., C.A. No. 2019-0808, compl. (Del. Ch. Oct. 9, 2019)

CASE ACTIVITY

Neurvana Medical, LLC v. Balt USA, LLC, et al., C.A. No. 2019-0034-KSJM, letter op. (Del. Ch. Oct. 10, 2019)

Plaintiff Neurvana Medical brought claims against Balt USA, Balt's French parent company (Balt International), and two Balt USA officers, alleging that Balt USA failed to use contractually required commercially reasonable efforts to trigger a milestone payment under the Asset Purchase Agreement by which Balt acquired one of plaintiff's assets.

International moved to dismiss for lack of personal jurisdiction. Plaintiff argued that International, though not a party to the Purchase Agreement, was bound by the Agreement's Delaware forum selection clause under a doctrine adopted in The Capital Group Companies, Inc. v. Timothy D. Armour, et al., C.A. No. 422-VCL, memo. op. (Del. Ch. Oct. 29, 2004; rev. Nov. 3, 2004), which recognizes that a non-signatory may be bound to a forum clause if the non-signatory is "closely related" to the agreement in that it either received a direct benefit from the agreement or it was foreseeable that it would be bound. Plaintiff argued in the alternative that jurisdiction was proper under an agency theory and that, should the Court find no jurisdiction on the face of the complaint, plaintiff should be allowed to take jurisdictional discovery.

The Court granted dismissal, finding that International did not receive a direct benefit from the Agreement and that it was not foreseeable that International would be bound, and rejecting the agency theory because plaintiff failed to sufficiently allege that International controlled and dominated Balt USA's activities. Neurvana Medical, LLC v. Balt USA, LLC, et al., C.A. No. 2019-0034-KSJM, memo. op. (Del. Ch. Sept. 18, 2019). Plaintiff moved for reargument, contending that the Court did not consider its request to take jurisdictional discovery and that it should be allowed to do so.

The Court denies reargument in this Opinion, explaining that it implicitly denied jurisdictional discovery because plaintiff failed to raise a non-frivolous basis for jurisdiction.

The Court set forth legal standards applicable when considering a motion for reargument.

"'The Court will deny a motion for reargument unless the Court has overlooked a decision or principle of law that would have a controlling effect or the Court has misapprehended the law or the facts so that the outcome of the decision would be affected.' '[Ct. Ch. R. 59] relief is available to prevent injustice and will be granted only when the moving party demonstrates that the court's decision 'rested on a misunderstanding of a material fact or a misapplication of law.' If a motion for reargument 'merely rehashes arguments already made by the parties and considered by the Court' in rendering the decision for which reargument is sought, the motion must be denied. It is appropriate to deny a motion for reargument where the explicit language in the Court's challenged decision implicitly rejects an argument offered or request made by the movant. On a motion for reargument, the movant bears a heavy burden."

Neurvana Medical, LLC v. Balt USA, LLC, et al., C.A. No. 2019-0034-KSJM, letter op. at 2 (Del. Ch. Oct. 10, 2019)

The Court denied plaintiff's motion for reargument of an Opinion that granted non-resident defendant's motion to dismiss for lack of personal jurisdiction, rejecting plaintiff's argument that the Court failed to consider plaintiff's request to take jurisdictional discovery, explaining that the Court implicitly rejected the request in finding that plaintiff alleged no non-frivolous basis for jurisdiction, and finding the motion an improper collateral attack on an exercise of the Court's discretion.

"Plaintiffs motion fails primarily because the Opinion did not overlook or misapprehend anything. Rather, the Opinion implicitly considered and denied Plaintiffs request for jurisdictional discovery. 'Before ordering personal jurisdiction discovery there must be at least some indication that this particular defendant is amenable to suit in this forum.' There is no such indication here. Plaintiff failed to allege a non-frivolous basis for jurisdiction . . . . Given the dearth of factual allegations, Plaintiff is not permitted to use jurisdictional discovery to 'fish for a possible basis for this court's jurisdiction.'

Further, the decision to grant jurisdictional discovery is discretionary. 'The trial court is vested with a certain discretion in shaping the procedure by which a motion under [Ct. Ch. R. 12(b)(2)] is resolved.' And, '[w]hen the decision that is the subject of reargument rests on the court's exercise of its discretion . . . no fact or legal precedent may compel a different result absent a showing of abuse of discretion.' Plaintiff's motion for reargument is effectively a collateral attack on the Court's exercise of that discretion, which is an inappropriate basis for reargument."

Neurvana Medical, LLC v. Balt USA, LLC, et al., C.A. No. 2019-0034-KSJM, letter op. at 3-5 (Del. Ch. Oct. 10, 2019)

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, transcript (Del. Ch. July 22, 2019; filed Aug. 12, 2019)

Plaintiff Bay Capital Finance, a stockholder of defendant Barnes and Noble Education, brought claims against the company and its directors for declaratory and injunctive relief to establish either that plaintiff timely submitted director nominations for the company's annual meeting or that defendants may not enforce an advance notice bylaw to reject plaintiff's nominations.

Barnes and Noble's bylaws state that notice of director nominees is required "not less than 90 days nor more than 120 days prior to the first anniversary date of the immediately preceding annual meeting." According to plaintiff, the company's annual proxy statements have described calculation of the deadline differently, stating that notice is required "not less than 90 days nor more than 120 days prior to the annual meeting." Plaintiff also alleges that the bylaws are internally inconsistent and ambiguous in that they first state that a nominating stockholder must be "a holder of record . . . at the time of the giving of notice," but state in the next sentence that "any stockholder of record entitled to vote for election of directors at a meeting may nominate persons for election as directors only if timely written notice of such stockholder's intent to make such nomination is given," which plaintiff interprets to mean that the nominating stockholder need not have been a stockholder of record on the date of nomination. Plaintiff also alleges that Barnes and Noble's chairman has discretion as to whether to enforce the bylaw, under a provision that states "[t]he chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with [the bylaw's] procedure," and he should not be entitled to do so because of his conflicted intertest in maintaining his board seat.

Plaintiff nominated its slate of directors on June 27, 2019. Barnes and Noble rejected the nominations on the ground that plaintiff did not hold its shares in its own name on June 27 and therefore did not meet the shareholder of record requirement. Plaintiff, which became a holder of record on June 28, alleges that defendants selectively enforced the notice bylaw in order to entrench themselves. Defendants challenge plaintiff's interpretation of the bylaws, arguing that they unambiguously require plaintiff to have been a stockholder of record on the date of nomination, and argue that, even if the proxy and bylaws were inconsistent, it would not matter because, based on the 2019 meeting date - September 25, proof of which defendants submitted as an exhibit in the form of a screen shot from a stock exchange "Proxy Ruling" website - the nomination deadline would have been June 27 regardless of which formula applied. Plaintiff argues that the meeting has not been publicly announced and that the Proxy Ruling, published on June 20, does not comply with the 10-60 day pre-meeting notice period required by 8 Del. C. § 222. Plaintiff filed its complaint on July 15 and moved to expedite to permit discovery and injunction proceedings prior to the annual meeting.

The Court grants the motion in this oral ruling, though finding it a "close call," ruling that plaintiff demonstrated a threat of irreparable harm because, without a pre-meeting resolution of its claims, it could not nominate its slate for another year, and preliminarily construing the bylaws to require plaintiff to have been a stockholder of record on the nomination date, but finding that plaintiff stated a colorable claim and is entitled to limited discovery.

Barnes & Noble Education's Bylaws are linked here.

Article III, Section 3 of Barnes & Noble Education's Bylaws states:

The Court set forth legal standards applicable when considering a motion to expedite.

"The standard applicable to plaintiff's motion to expedite is well-known. To be entitled to expedition, the movant must state a colorable claim and demonstrate the possibility of threatened irreparable harm. Expediting proceedings is within the discretion of the Court. And, for the purpose of assessing colorability, I must accept the facts as alleged in the complaint as true. I also note that the standard of colorability is exceptionally easy to meet."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, transcript at 29 (Del. Ch. July 22, 2019; filed Aug. 12, 2019)

The Court, considering stockholder plaintiff's motion to expedite in an action to establish that plaintiff timely submitted nominations for election of directors at defendant company's annual meeting, ruled that plaintiff faced a threat of irreparable harm because, without expedition, plaintiff would have to wait a year to nominate its slate.

"I'll start with the possibility of threatened irreparable harm. Shareholder voting rights are sacrosanct, and if I deny expedition here, it will result in plaintiff having to wait another year in order to run a slate. And that is, under Delaware law, irreparable harm. Defendants don't make any meaningful argument to the contrary."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, transcript at 29 (Del. Ch. July 22, 2019; filed Aug. 12, 2019)

The Court, considering stockholder plaintiff's motion to expedite in an action to establish that plaintiff timely submitted nominations for election of directors at defendant company's annual meeting, ruled plaintiff stated a colorable claim that, although it might not have been a stockholder of record on the deadline for nominations under the company's bylaws, the deadline should not be enforced because the company had disclosed a different formula for calculating the deadline in its proxy statements, rejecting defendants' argument that the date was the same under either formula and their reliance on a single exhibit to prove the meeting date had been set, and finding plaintiff entitled to limited discovery.

"I turn now to the colorability issue. And what I'm going to do is attempt to run through your competing positions, just to give you the benefit of knowing where I stand.

As I understand it, the parties' dispute hinges on whether plaintiff's notification of nomination was timely under . . . the company's bylaws. And the first sentence of that section imposes two requirements on a stockholder seeking to nominate a slate of directors: The stockholder must be a record holder at the time of giving notice and the stockholder must be entitled to vote for the election of directors, at least under my reading of the language. You all will have an opportunity to brief this again and can correct me if you believe that's wrong.

I think that the parties' dispute hinges on the first element, which is whether plaintiff was a stockholder at the time of giving notice of nomination. Everyone seems to think that by operation of the bylaws, the relevant deadline was June 27th. And no one disputes that the plaintiff was not a record holder as of that date.

Plaintiffs argue that the defendant should not be able to enforce that deadline because defendants disclosed, over the past couple of years, in their proxies a different way of computing the relevant deadline, and plaintiffs say they would have had no way of knowing what that deadline was under the method for calculating it as disclosed by defendants over the years.

I think that issue probably requires a little bit of discovery. Defendants say that it shouldn't matter because the method for computing the deadline as disclosed in prior years, and the deadline under the bylaws happens to be one and the same. And defendants point to [an exhibit in the form of a purported publicly available stock exchange web page demonstrating the date of the upcoming annual meeting].

I don't think that I can consider that exhibit standing alone in the context of this motion. I have to accept plaintiff's allegations as true, and at least give plaintiff an opportunity to seek discovery on that document, or perhaps a set of limited issues."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, transcript at 29-31 (Del. Ch. July 22, 2019; filed Aug. 12, 2019)

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, tr. ruling (Del. Ch. Aug. 14, 2019)

Plaintiff Bay Capital, a stockholder of defendant Barnes & Noble Education, brought claims against the company and its directors for declaratory and injunctive relief to establish either that plaintiff timely submitted director nominations for the company's annual meeting or that defendants may not enforce an advance notice bylaw to reject plaintiff's nominations.

Bay Capital's complaint alleges that Barnes & Noble's bylaws require notice of director nominations by a holder of record between 90 and 120 days prior to the first anniversary date of the immediately preceding annual meeting, but Barnes & Noble's annual proxy statements have stated that notice is required between 90 and 120 days prior to the annual meeting. Bay Capital submitted notice of nominations on June 27, 2019, and became a holder of record on June 28. Barnes & Noble rejected the nominations on the ground that Bay Capital did not meet the shareholder of record requirement.

Bay Capital alleged that it mistakenly relied on the proxy statement in submitting notice of its nominations and moved to expedite proceedings. Defendants argued that even if the proxy and bylaws were inconsistent, it would not matter because, based on the September 25, 2019 meeting date, the deadline would have been June 27 regardless of which formula applied. The Court granted Bay Capital's motion in Bay Capital Finance, LLC v. Barnes and Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, transcript (Del. Ch. July 22, 2019; filed Aug. 12, 2019), ruling that plaintiff stated a colorable claim and was entitled to limited discovery, though finding it a "close call."

Through discovery, defendants learned that Bay Capital's principal, non-party Suri, had been instructed by advisors that Barnes & Noble's bylaws required that nominations be submitted by a record holder and that he must register Bay Capital's shares in its own name well before the June 27 deadline, that Suri indicated he would do so but did not do so in time to timely comply with the record holder requirement, and that Bay Capital's advisor suggested only after concluding that Bay Capital could not timely comply with the record holder requirement that Bay Capital could argue that it relied on the description of the bylaws' requirement in Barnes & Noble's proxy as a basis for a litigation strategy to pressure Barnes & Noble to settle. Bay Capital then sent a purported "updated" notice of its nominations on July 1, 2019, and Bay Capital's counsel informed Barnes & Noble that Bay Capital relied on the proxy in submitting the nominations.

Bay Capital moved for entry of a preliminary injunction precluding Barnes & Noble from rejecting its nominations, and defendants opposed, arguing that Bay Capital knew of the bylaws' requirements and did not rely on the descriptions in the proxies.

The Court denies Bay Capital's preliminary injunction motion in this oral ruling, noting that Bay Capital was not aware of the proxy disclosure until it already knew its nominations were untimely, and inaccurately stated that it relied on the proxy disclosure when bringing suit; that Barnes & Noble set the date of its annual meeting consistent with historical practice; and Bay Capital failed to show a likelihood of success in persuading the Court to extend the nomination deadline. The Court separately criticized the litigation conduct of Bay Capital's principal -- Suri -- for providing evasive answers at a deposition, which he left while in progress, and unilaterally terminated.

Barnes & Noble Education's Bylaws are linked here.

Article III, Section 3 of Barnes & Noble Education's Bylaws states:




Barnes & Noble Education's 2018 Proxy states:

The Court discussed legal standards applicable when consider a motion for entry of preliminary injunction.

". . . As this Court explained in [ Cantor Fitzgerald, LP v. Iris Cantor, et al., C.A. No. *16297-VCS, opinion (Del. Ch. July 12, 1998)], a preliminary injunction is 'granted sparingly and only upon a persuasive showing that it is urgently necessary, that it will result in comparatively less harm to the adverse party, and that, in the end, it is unlikely to be shown to have been issue improvidently.'

To obtain a preliminary injunction, as this Court explained in [ Next Level Communications, Inc., et al. v. Motorola, Inc., C.A. No. *20144-VCL, opinion (Del. Ch. Feb. 25, 2003; rev. Feb. 26, 2003)], the moving party bears the burden of demonstrating three things: '(1) a reasonable probability of success on the merits at a final hearing; (2) that the failure to issue a preliminary injunction will result in immediate and irreparable harm; and (3) that the harm to the plaintiffs if relief is denied will outweigh the harm to the defendants if relief is granted.' These elements are conjunctive, such that any failure of proof on one of the elements will defeat the application."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, tr. ruling at 19-20 (Del. Ch. Aug. 14, 2019)

The Court denied stockholder plaintiff's motion for entry of a preliminary injunction precluding defendant company from disregarding plaintiff's nomination of a slate of directors where plaintiff failed to comply with an advance notice bylaw requiring that nominations be made by a record holder by a deadline preceding a scheduled annual meeting, finding that plaintiff failed to show a reasonable probability of success on its claim that it was entitled to rely on a description of the advance notice bylaw in the company's proxy, where evidence showed plaintiff knew that it was required to be a record holder under the bylaw, both the bylaw and the proxy required filing by the same date, and plaintiff did not asserts grounds for rescheduling the annual meeting.

". . . [Plaintiff] argues that it was entitled to rely on the proxy statement and that the correct deadline is 90 days before the actual meeting takes place.

. . . [T]here's no factual basis for the assertion of reliance. . . . [Plaintiff] has not demonstrated that it relied on the proxy language in planning or timing its nomination. The record reflects that the opposite is true and that [plaintiff] relied on the bylaws.

[Plaintiff] was fully aware of the advance notice bylaw, was advised timely and repeatedly that it must be a record holder to notice its nomination, and was even advised to become a record holder . . . two days before the actual deadline. [Plaintiff's] representative acknowledged receiving this advice. He either ignored it or simply didn't understand it, the record is unclear. Either way, the company cannot be faulted.

Moreover, the argument misses the point, because computing the deadline in accordance with the proxy statement, as [plaintiff] requests, results in the same deadline imposed by the bylaws . . . . To obtain a later deadline, [plaintiff] would have to persuade the Court to require the company to reschedule the annual meeting currently set . . . .

Toward this end, [plaintiff] argues . . . that the company set the annual meeting at an earlier date than ever in the company's history. But . . . the extensive factual record reflects that the meeting date was set in accordance with the company's historical practices and on a clear day before any dispute arose with [plaintiff]. So [plaintiff's] contention is simply unsupported."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, tr. ruling at 20-22 (Del. Ch. Aug. 14, 2019)

The Court denied stockholder plaintiff's motion for entry of a preliminary injunction precluding defendant company from disregarding plaintiff's nomination of a slate of directors where plaintiff failed to comply with an advance notice bylaw requiring that nominations be made by a record holder by a deadline preceding a scheduled annual meeting, rejecting plaintiff's assertion that the bylaw was ambiguous, finding the bylaw required that a stockholder be a record holder when providing notice of director nominees, and own shares on the record date to be entitled to vote.

". . . [Plaintiff] contends that the bylaws themselves are ambiguous and that the advance notice provision must be read to mean that [plaintiff] need only be a stockholder of record as of the record date for the annual meeting . . . . The relevant language states 'nominations for the election of directors may be made by the Board or by any stockholder who is a holder of record of shares of Common Stock . . . at the time of giving of the notice of nomination . . . and who is entitled to vote for the election of directors. Any stockholder of record entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if timely written notice of such stockholder's intent to make such a nomination is given.'

Effectively, as I read it, this language imposes three requirements: first, notice must be given timely; second, the stockholder must be a record holder at the time this notice is given; and, third, the stockholder must be entitled to vote for the election of directors at the annual meeting, which requires that the stockholder own shares as of the record date.

[Plaintiff's] feigned confusion focuses on the last two requirements. As I understand it, [plaintiff] argues that the fact that the stockholder must own shares as of the record date renders ambiguous the requirement that the stockholder be a record holder when giving notice, but I do not see any ambiguity in the two separate requirements.

Read properly, they are two separate requirements, one for when the nominating stockholder must be a record holder and one establishing voting status. The last requirement does not obviate the former."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, tr. ruling at 22-23 (Del. Ch. Aug. 14, 2019)

The Court denied stockholder plaintiff's motion for entry of a preliminary injunction precluding defendant company from disregarding plaintiff's nomination of a slate of directors where plaintiff failed to comply with an advance notice bylaw requiring that nominations be made by a record holder by a deadline preceding a scheduled annual meeting, rejecting plaintiff's argument that Delaware public policy supporting stockholder voting favored acceptance of the nomination, where plaintiff's notice of nomination did not comply with the bylaws and defendant was not at fault for plaintiff's mistake.

". . . [Plaintiff] contends that this Court should require the chair of the board of directors of the company to exercise his discretion to acknowledge and accept the nomination, even though the nomination was untimely. For this proposition, [plaintiff] relies heavily on Delaware's public policy favoring the stockholder franchise, liberally quoting cases articulating that policy. But [plaintiff] makes no effort to apply the facts or holdings of those cases to this dispute.

Needless to say, not even Delaware's strong public policy favoring the stockholder franchise will save [plaintiff] from its dilatory conduct. [Plaintiff] blew the deadline. It then made up excuses for doing so. No record evidence suggests that the company is in any way at fault for that mistake. If this Court required the company to accept the nomination in these circumstances, advance notice requirements would have little meaning under Delaware law."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, tr. ruling at 23-24 (Del. Ch. Aug. 14, 2019)

The Court, in an expedited action by stockholder plaintiff seeking injunctive relief precluding defendant company from disregarding plaintiff's nomination of a slate of directors where plaintiff failed to comply with an advance notice bylaw, criticized plaintiff's principal for providing evasive answers and unilaterally terminating a deposition, noting that the possibility of fee shifting based on plaintiff's conduct remained an open issue.

"There is one more order of business, and that concerns [plaintiff's] litigation conduct. I must say, a red flag was raised at the start when, after seeking expedition, [plaintiff] argued against the hearing date I ultimately set because it conflicted with [plaintiff's principal's] travel schedule.

Expedited proceedings are unique. They are only ordered upon a showing of good cause. They require this Court to push aside all other casework and devote substantial resources to the needs of the litigants that have demonstrated that good cause. A plaintiff requesting this reaction from the Court must be willing to undertake the same efforts. I explained this in so many words during the scheduling conference. The message was clear. [Plaintiff's principal] needed to make himself available for expedited discovery.

I don't think that [plaintiff or its principal] got the message. I reviewed [plaintiff's principal's] deposition transcript. . . . [T]he conduct was not optimal. After making defense counsel fly to London to depose him, [plaintiff's principal] showed up a half hour late, left in the middle of the deposition for over two and a half hours to attend personal appointments scheduled that same day, and then unilaterally terminated the deposition when it suited him. He was evasive and obstructive in his responses, ultimately going as far as to say that the deposition was an 'accommodation' to the defendants. This, of course, ignores the fact that it was [plaintiff] who instigated this lawsuit and requested expedition in the first place.

The defendants argue that [plaintiff's principal's] conduct supports a finding of unclean hands that independently requires this Court to reject the preliminary injunction motion. I do not decide that issue, and I also have not been asked to determine whether this litigation conduct warrants fee shifting.

That's still an open issue. Still I'd be remiss if I didn't state that the conduct concerned me and that I expect more of litigants in this Court."

Bay Capital Finance, LLC v. Barnes & Noble Education, Inc., et al., C.A. No. 2019-0539-KSJM, tr. ruling at 26-28 (Del. Ch. Aug. 14, 2019)

SUMMARIES OF NEW COMPLAINTS

Barbara Kailas v. 3G Capital, Inc., et al. and Kraft Heinz Co., C.A. No. 2019-0808, compl. (Del. Ch. Oct. 9, 2019)