CertiSign Holding, Inc. v. Kulikovsky

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CERTISIGN HOLDING, INC., :
a Delaware corporation, :
:
Plaintiff, :
:
v. : C.A. No. 12055-VCS
:
SERGIO KULIKOVSKY, :
:
Defendant. :
---------------------------------------------------- :
SERGIO KULIKOVSKY and :
SK INERNATIONAL HOLDINGS, LLC, :
:
Counterclaim Plaintiffs, :
:
v. :
:
CERTISIGN HOLDING, INC., :
a Delaware corporation, :
:
Counterclaim Defendant. :

MEMORANDUM OPINION

Date Submitted: March 12, 2018
Date Decided: June 7, 2018

Michael A. Pittenger, Esquire, Jaclyn C. Levy, Esquire, Jay G. Stirling, Esquire and
Tyson J. Prisbrey, Esquire of Potter Anderson & Corroon LLP, Wilmington,
Delaware, Attorneys for Plaintiff and Counterclaim Defendant CertiSign Holding,
Inc.
David J. Margules, Esquire, Elizabeth A. Sloan, Esquire and Suzanne O. Lufadeju,
Esquire of Ballard Spahr LLP, Wilmington, Delaware, and William B. Igoe, Esquire
of Ballard Spahr LLP, Philadelphia, Pennsylvania, Attorneys for Defendant and
Counterclaim Plaintiffs Sergio Kulikovsky and SK International Holdings, LLC.

SLIGHTS, Vice Chancellor
 John D. Rockefeller is quoted as saying, “a friendship founded on business is

a good deal better than a business founded on friendship.”1 And so it was for three

friends who formed a network of entities to do business in the internet protocol and

security space. After a period of some success, the business began to falter and,

ultimately, the business partners fell out. Verbal and physical skirmishes ensued.

Whatever business sense the friends brought with them into the venture was replaced

by shortsighted bitterness and vindictiveness. The partners behaved badly.

Litigation inevitably followed. As it turns out, some of the bad behavior amounted

to actionable wrongdoing. Because one of the entities at the center of the business

relationship, CertiSign Holding, Inc. (“CertiSign” or the “Company”), is a Delaware

corporation, the litigation landed in this Court.

The parties are CertiSign as plaintiff and counterclaim defendant on one side,

and a former director of CertiSign, Sergio Kulikovsky (“Kulikovsky”), and his

wholly-owned entity, SK International Holdings, LLC (“SK Holdings”) as

defendant (Kulikovsky) and counterclaim plaintiffs (Kulikovsky and SK Holdings)

on the other.2 The events leading to this litigation began in 2005, when CertiSign

underwent a reorganization. In connection with the 2005 reorganization, CertiSign

1
John D. Rockefeller, Random Reminiscences of Men and Events (Doubleday 1909)
(actually attributing the quote to his business partner Henry Flagler).
2
Although SK Holdings is not a defendant, for simplicity’s sake, I refer to Kulikovsky and
SK Holdings collectively as “Defendants.”

1
issued a substantial amount of stock. Approximately three years later, in 2008,

Kulikovsky, who had been serving as CEO of the operating company, resigned from

that position after his business partners expressed a preference for a professional

manager to serve as CEO. By then, the disintegration of the trio’s friendship and

business relationship was brewing. Four years later, in 2012, as the parties began to

explore a potential sale of CertiSign, it was discovered that the stock issued in

connection with the 2005 reorganization had been issued before CertiSign’s

amended and restated certificate of incorporation was filed with the appropriate

authorities. Consequently, CertiSign’s outside legal advisors opined that because

the vast majority of CertiSign’s outstanding stock (as issued in the reorganization)

was defective, the subsequent vote to elect its board of directors had also been

defective and all actions taken thereafter by the pseudo board were invalid.

CertiSign sought to remedy these structural defects with certain self-help steps

devised by its counsel. At the time the defects were discovered, Kulikovsky was

one of two CertiSign directors in office who had been a director both before and

after the reorganization. Accordingly, CertiSign needed Kulikovsky to sign certain

consents to remedy the capital structure defects. But, by then, Kulikovsky’s

relationship with his former friends and current business partners had soured.

In response to the request for his assistance in restoring CertiSign’s capital structure,

Kulikovsky declared that he would not sign the consents unless CertiSign and certain

2
of its stockholders acceded to several demands. These demands included

(1) dissolving CertiSign’s controlling stockholder, in which SK Holdings holds

stock, so that Kulikovsky could vote the CertiSign shares he contributed to CKS

directly, and (2) requiring another CertiSign director to repay Kulikovsky a personal

loan owed to Kulikovsky. CertiSign did not give in to Kulikovsky’s demands and

Kulikovsky never signed the consents. This, in turn, entirely shut down CertiSign’s

self-help efforts.

In a separate action, the Court granted relief to CertiSign under 8 Del. C.

§ 205, over Kulikovsky’s opposition, by entering an order validating the stock issued

in the reorganization.3 Having prevailed in the Section 205 action, CertiSign then

initiated this action in which it alleges Kulikovsky breached his fiduciary duty of

loyalty to CertiSign by refusing to sign the self-help documents unless CertiSign

gave into his self-interested demands. CertiSign seeks damages, attorneys’ fees and

expenses. In riposte, Kulikovsky and SK Holdings have pressed counterclaims

against CertiSign in which Kulikovsky seeks to compel CertiSign to grant stock

options to him that allegedly were promised but never delivered, and SK Holdings

seeks to compel CertiSign to repay a loan that CertiSign allegedly assumed on behalf

3
In re CertiSign Hldg., Inc., 2015 WL 5136226 (Del. Ch. Aug. 31, 2015); In re CertiSign
Hldg., Inc., 2015 WL 5786138, at *1 (Del. Ch. Oct. 2, 2015) (ORDER).

3
of its indirectly-held, wholly-owned subsidiary (related to, but separate from, the

personal loan owed to Kulikovsky).

In this post-trial Memorandum Opinion, I conclude that (1) Kulikovsky

breached his fiduciary duty of loyalty to CertiSign by refusing to cooperate with the

self-help for solely personal reasons; (2) Defendants did not prove that CertiSign

granted Kulikovsky options; and (3) Defendants did not prove that CertiSign

assumed the debt owed to SK Holdings by CertiSign’s indirectly-held, wholly-

owned subsidiary. I also award CertiSign some attorneys’ fees and expenses as

damages. My reasoning follows.

I. FACTUAL BACKGROUND

The facts are drawn from the parties’ pre-trial stipulation, evidence admitted

at trial and those matters of which the Court may take judicial notice. 4 The trial

record consists of 431 joint trial exhibits, 990 pages of trial testimony and eight

lodged depositions. The following facts were proven by a preponderance of the

competent evidence.

4
I cite to the Joint Pre-Trial Stipulation and Order as “PTO ¶”; to the joint trial exhibits as
“JX #”; to the trial transcript as “Tr. # (witness name)”; and to the transcript of the Oral
Argument on Defendants’ and Counterclaim Plaintiffs’ Motion to Strike and Post-trial Oral
Argument as “OA Tr. #.”

4
 A. Parties and Relevant Non-Parties

Plaintiff/Counterclaim Defendant, CertiSign, is a Delaware corporation

formed in December 2004 by non-party Certipar, S.A. (“Certipar”), a Brazilian

corporation, to act as a holding company for Certipar. 5 CertiSign has four

stockholders: (1) CKS Holding, Inc. (“CKS”); (2) Darby Technology Ventures

(“Darby”), a mutual fund; (3) Intel Capital Corporation (“Intel”); and (4) GeoTrust

Inc.6

Non-party, Certipar, functions solely as the parent of its indirect, wholly-

owned subsidiary, CertiSign Certificadora Digital S.A. (“CertiSign Brazil”).7 Non-

party, CertiSign Brazil, is a Brazilian corporation based in São Paulo, Brazil.8 It is

an operating company that provides public key infrastructure-based solutions to

financial institutions, governments and enterprises that utilize unsecured internet

protocol networks to link business processes, exchange information and conduct

banking and commerce transactions.9 CertiSign Brazil also provides a variety of

5
PTO ¶ 4.
6
JX 500; PTO ¶ 9.
7
PTO ¶ 4. In December 2014, Fundo de Investimento em Participações Bordeaux (“FIP”),
a Brazilian private equity fund, acquired 100% of the shares of CertiSign Brazil. Id. At the
same time, Certipar acquired 100% of the shares of FIP. Id.
8
PTO ¶ 5.
9
Id.

5
security and consulting services ranging from digital certificates, authentication and

managed digital identity.10

Defendant/Counterclaimant, Kulikovsky, served as a director and president of

CertiSign from the Company’s inception until 2013. 11 He also served as Chief

Executive Officer (“CEO”) of CertiSign Brazil from 2002 until his forced

resignation in 2008.12 He is an officer, director and the 100% owner of SK Holdings,

a Delaware limited liability company.13 Kulikovsky is a resident of Brazil.14

Non-party, Nicola Cosentino (“Cosentino”), is the vice president, secretary
15
and treasurer of CertiSign. He, along with Kulikovsky and non-party,

Edgar Safdie, served as directors of CertiSign at the time of its formation. 16

Cosentino is also a business development consultant at CertiSign Brazil, and his

10
Id.
11
PTO ¶ 6.
12
Id.
13
PTO ¶¶ 6–7.
14
PTO ¶ 6.
15
Tr. 691–92 (Cosentino).
16
Tr. 697 (Cosentino). Kulikovsky, Cosentino and Edgar Safdie, each representing a
family enterprise, began the CertiSign venture as friends. As discussed below, the
friendship gave way under the weight of a struggling business and the self-interested
decision-making that followed in the wake of those difficulties.

6
brother, Julio Cosentino, helped found CertiSign.17 Non-party, Maybach Holdings

(“Maybach”), is Cosentino’s British Virgin Islands entity.18

Non-party, CKS, is a British Virgin Islands corporation. 19 As owner of

67.86% of CertiSign’s equity, CKS is CertiSign’s controlling stockholder.20 CKS,

in turn, is owned equally by three entities: Maybach, Prime Ventures Limited

(“Prime Ventures”)21 and SK Holdings (collectively, the “CKS Partners”).22 CKS

has three directors, one from each of its stockholder families.23 At the time of trial,

those three directors were Cosentino, Kulikovsky and Isaac Khafif. 24

17
Tr. 692 (Cosentino).
18
JX 500; Tr. 9 (Kulikovsky).
19
PTO ¶ 8.
20
Id.
21
Prime Ventures is a holding company owned by the Safdie family, of which Edgar Safdie
is a member. Id.
22
Id.; Tr. 389 (Khafif).
23
JX 226 at 1; Tr. 389 (Khafif).
24
Tr. 389 (Khafif).

7
 Non-party, Isaac Khafif, is an officer and director of CertiSign.25 He is also

an officer of Certipar and CertiSign Brazil. 26 Khafif ultimately replaced Edgar

Safdie as the Safdie family’s appointee on the CKS board.27

Non-party, Paulo Kulikovsky, is Kulikovsky’s brother. 28 He worked at

CertiSign Brazil from 2002 to 2013, and was also an officer of Certipar during that

time.29 From 2005 to 2013, he was an officer of CertiSign.30

[Remainder of page intentionally left blank]

25
Tr. 388 (Khafif).
26
Id.
27
Tr. 113 (Kulikovsky).
28
Tr. 574 (P. Kulikovsky).
29
Id.
30
Id.

8
 The following chart illustrates the current ownership structure of CertiSign
and its various affiliates:31

Maybach Prime Ventures
SK Holdings Holdings (BVI) (BVI)
(US)

33.3% 33.3% 33.3%

GeoTrust Inc. Intel Capital Corp. CKS (BVI)
(US) (Cayman) Darby Tech. Ventures
Fund I (US)

6.75% 8.78% 16.61% 67.86%

CertiSign Holding
(US)

100%

Certipar (Brazil)

100%

FIP (Brazil)

100%

CertiSign Brazil
(Brazil)

31
JX 500; PTO ¶ 9. GeoTrust was initially owned by VeriSign Capital Management
(“VeriSign”) until Symantec Corporation purchased GeoTrust from VeriSign in August
2010. JX 500; Tr. 9 (Kulikovsky).
9
 B. SK Holdings Pays CertiSign Brazil’s Debt

In 2002 and 2003, CertiSign Brazil owed debts to VeriSign and Darby but

was unable to pay those debts.32 When VeriSign and Darby demanded payment,

Kulikovsky caused SK Holdings to make payments on the debts directly to VeriSign

and Darby on behalf of CertiSign Brazil. 33 SK Holdings ultimately paid

$2,026,493.80 to VeriSign and $110,426.00 to Darby, totaling $2,136,919.80. 34

In its financial statements, CertiSign Brazil recorded a debt to “the affiliate company

SK International Holdings” which “originated via payment made [on] behalf of

[CertiSign Brazil] to its suppliers” (the “Debt”).35

SK Holdings sent CertiSign Brazil seven letters reflecting the amounts paid

to VeriSign and Darby on behalf of CertiSign Brazil.36 The letters do not specify

32
PTO ¶ 10.
33
Id. The parties dispute whether, or in what amounts, the other CKS Partners either
advanced a portion of the funds to SK Holdings from which it made the payments on behalf
of CertiSign Brazil or reimbursed SK Holdings after the payments were made. Id. n.1.
34
PTO ¶ 10.
35
Id. To be precise, the defined term “Debt” refers to the payment obligation owed by
CertiSign Brazil to SK Holdings that arose in connection with SK Holdings’ satisfaction
of CertiSign Brazil’s payment obligations to VeriSign and Darby, respectively.
36
PTO ¶ 11; JX 2. I note that the PTO states SK Holdings sent CertiSign Brazil six, not
seven, letters reflecting the payments to VeriSign and Darby. According to JX 2, however,
seven letters were sent in total: six regarding payment to VeriSign and one regarding
payment to Darby.

10
the interest rate, maturity date or payment terms of the Debt.37 The payments by

SK Holdings, a Delaware entity, on behalf of CertiSign Brazil, represented an inflow

of foreign capital into Brazil. 38 The Debt was not registered with the Brazilian

Central Bank, which regulates foreign exchange and capital transactions. 39

The parties’ foreign law experts agreed that Brazilian law required that CertiSign

Brazil register the Debt by June 3, 2007, at the latest.40

C. The 2005 Restructuring and Related Agreements

In March 2005, CertiSign entered into several agreements in an effort to

reorganize (the “2005 Reorganization”).41 CertiSign’s board of directors at the time,

comprised of Cosentino, Kulikovsky and Edgar Safdie, approved the 2005

Reorganization by unanimous written consent dated March 16, 2015 (the

“Unanimous Written Consent”).42 As part of the 2005 Reorganization, CertiSign

37
JX 2.
38
Tr. 834 (Junqueira).
39
PTO ¶ 11. Foreign exchange and capital transactions are transactions between a
Brazilian financial institution and a counterparty to purchase or sell Brazilian currency,
Brazilian reais. Tr. 833 (Junqueira).
40
Tr. 872–73 (Junqueira); 934–35 (Fernandes).
41
JX 15; PTO ¶ 12.
42
JX 15 at 6.

11
acquired the stock of Certipar and became the indirect parent of CertiSign Brazil.43

Through a Stock Contribution Agreement (the “2005 Stock Contribution

Agreement”), Certipar’s stockholders contributed all of their issued and outstanding

shares of Certipar stock to CertiSign in exchange for shares of CertiSign stock.44

At the time of the 2005 Reorganization, Certipar’s stockholders were CKS, a Darby-

affiliated investment fund and a VeriSign-affiliated investment fund.45 The 2005

Stock Contribution Agreement also granted CKS a warrant to purchase additional

shares of CertiSign capital stock.46

In addition to the 2005 Stock Contribution Agreement, CertiSign executed a

Debt Contribution Agreement whereby CKS contributed approximately $3,800,000

of Certipar’s indebtedness in exchange for 3,900,000 shares of CertiSign’s Series A

preferred stock.47 The parties also amended and restated CertiSign’s certificate of

43
PTO ¶ 12.
44
PTO ¶ 13.
45
Id. CKS became a Certipar stockholder shortly before the 2005 Reorganization by
acquiring Certipar shares that had been held by Shemtov S.A. Id. Prior to forming CKS,
Kulikovsky and SK Holdings together held approximately 45% of Shemtov, Prime
Ventures and a Safdie family member held approximately 33%, and Maybach held
approximately 21%. Id. In connection with the 2005 Reorganization, Kulikovsky,
Cosentino and the Safdie family elected to hold their shares of CertiSign stock through an
entity of which each would own a third and created CKS for that purpose. Id.
46
Id.
47
JX 15 at 3; PTO ¶ 13.

12
incorporation (the “A&R COI”). 48 The A&R COI created an expanded board

comprising six directors, and pursuant to a voting agreement, CKS had a say in the

selection of three of the six directors.49 Specifically, the voting agreement provided

that CertiSign’s Class A and Class B common stockholders and Series A preferred

stockholders, voting together as a single class, shall be entitled to elect three

members of the board. 50 It also provided that the Class A and Class B common

stockholders and Series A preferred stockholders would vote all their shares in favor

of the three directors nominated by majority vote of these stockholders.51 As owner

of 67.86% of CertiSign’s equity, CKS effectively controlled these three board

seats.52 Darby and Intel controlled two seats.53 The final director would be selected

by a nominating committee comprised of the other directors (excluding Intel’s

appointee), and this director could not be affiliated with CertiSign or any of

CertiSign’s stockholders, unless the nominating committee unanimously waived this

48
JX 15 at 4.
49
JX 22 at 16; JX 18 at 1–2, 13–15.
50
JX 18 at 1–2. Class A and Class B common stockholders are CKS, Darby and VeriSign.
Id. at 13. The voting agreement contemplates that CKS would be the sole Series A
preferred stockholder. Id. at 14.
51
Id. at 1–2.
52
PTO ¶ 8.
53
JX 18 at 2–3.

13
requirement.54 The voting agreement designated Kulikovsky, Cosentino and Edgar

Safdie as three of the six CertiSign directors.55

Also as part of the 2005 Reorganization, CertiSign entered into an agreement

concerning the Debt. In or about December 2004, in anticipation of the 2005

Reorganization, $70,000 of the Debt was excused, reducing the principal amount to

$2,066,919.80.56 Then, in connection with the 2005 Reorganization, the Debt was

to be divided into two parts.57 CertiSign Brazil, CertiSign and CKS contemplated

that one portion—$1,115,782.02 in principal amount—would be capitalized in a

transaction involving the issuance of shares of CertiSign Series A preferred stock to

CKS (the “Debt Capitalization Transaction”).58 It was intended that this portion of

54
JX 18 at 1–3.
55
Id. at 2. As noted, Edgar Safdie left CertiSign’s board in 2006. Tr. 112–13 (Kulikovsky).
56
PTO ¶ 11.
57
PTO ¶ 15.
58
The Unanimous Written Consent executed in connection with the 2005 Reorganization
states: “WHEREAS, in connection with the Stock Contribution Agreement and the Debt
Contribution Agreement, the Board believes it is in the best interest of the Company to
enter into a Series A Stock Purchase Agreement . . . with CKS whereby the Company
would issue to CKS 1,100,000 shares of its Series A Preferred Stock in exchange for
$1,115,782.08.” JX 15 at 3. I note that there is inconsistency regarding whether the
principal amount is $1,115,782.02 or $1,115,782.08. The PTO, a draft Consent of
Directors of CertiSign Holdings, Inc. and a draft stock purchase agreement all refer to the
former amount, while the Unanimous Written Consent refers to the latter. Compare PTO
¶ 15; JX 196 at 16; JX 196 at 34, with JX 15 at 3.

14
the Debt would no longer accrue interest.59 To implement the Debt Capitalization

Transaction, the Company and CKS executed a Stock Purchase Agreement (the

“2005 SPA”) on March 29, 2005.60 The recitals in the 2005 SPA state that CertiSign

desired to raise capital to repay a “certain debt” and that CKS desired to purchase

shares of CertiSign Series A preferred stock. 61 Although the 2005 SPA was

executed, shares of CertiSign Series A preferred stock were never issued to CKS.62

The second portion of the Debt—the remaining principal balance of

$951,137.78—remained due in cash, and that portion would continue to accrue

interest (the “Interest Bearing Debt Portion”).63 CertiSign Brazil never made any

payment of principal or interest on account of the Debt.64

D. The Three Alleged Options Issuances

Following these transactions in March 2005, whereby CertiSign purportedly

became the parent company of Certipar and indirect parent company of CertiSign

Brazil, members of CertiSign’s board of directors periodically discussed issuing

59
PTO ¶ 15.
60
Id.
61
Id.
62
Id.
63
PTO ¶ 16.
64
Id.

15
stock options to employees and management, including during an April 2, 2008

board meeting. 65
Kulikovsky’s Amended Verified Counterclaims (the

“Counterclaims”) identify three alleged options issuances totaling 1,150,000

options: (1) an April 2, 2008 issuance of 100,000 options to Kulikovsky at a $1.00

per share exercise price (the “First Alleged Issuance”); (2) an issuance between April

200866 and September 2010 of 100,000 options to Kulikovsky at a $1.00 per share

exercise price (the “Second Alleged Issuance”); and (3) an issuance in or around

September 2010 of options in the following amounts (all at an exercise price of $0.50

per share): (a) 475,000 to Cosentino; (b) 275,000 to Kulikovsky; (c) 100,000 to Julio

Cosentino; and (d) 100,000 to Paulo Kulikovsky, for a total of 950,000 options (the

“Third Alleged Issuance”).67

Kulikovsky relies on the minutes of the April 2, 2008 CertiSign board meeting

as evidence of the First Alleged Issuance. Those minutes, in relevant part, state:

Sergio will be elected Chairman of the Board of Directors in order to
lead the process of selling the company. Sergio will receive 100,000

65
PTO ¶ 20.
66
Defendants’ interrogatory responses state the Second Alleged Issuance occurred “[a]t
various times between August 2007 and September 2010.” JX 256 at 9.
67
JX 258 ¶¶ 12–14. In the PTO, the parties stipulated that in 2010, the Board discussed
issuing options (to Kulikovsky, Cosentino, Julio Cosentino and Paulo Kulikovsky) in
connection with a potential sale of CertiSign. PTO ¶ 21.

16
 stock options at the strike price of $1.00, according to the company
stock options plan.68

Kulikovsky testified that he was never elected Chairman of the board and that no

stock option instruments were ever issued for the 100,000 options.69 As for the

Second Alleged Issuance, Kulikovsky testified that it occurred “during the year 2008

somewhere,” and the exercise price was “probably $1 per share.”70

The details surrounding the Third Alleged Issuance are hazier still.

Defendants’ interrogatory responses aver that the Third Alleged Issuance granted

Kulikovsky 475,000 options, not 275,000 as identified in his Counterclaims, which

brings the total options allegedly granted from 1,150,000 up to 1,350,000.71 At trial,

Kulikovsky testified that the Third Alleged Issuance granted him 275,000 options.72

Moreover, Defendants’ interrogatory responses and Counterclaims state the Third

Alleged Issuance occurred “in or around September 2010,” but at trial Kulikovsky

testified it occurred “[i]n the beginning of January 2011.” 73 Kulikovsky further

68
JX 49 at 2 (emphasis added).
69
Tr. 228–29 (Kulikovsky).
70
Tr. 206 (Kulikovsky) (emphasis added).
71
JX 256 at 10. Notably, Kulikovsky testified that CertiSign’s board is authorized to issue
one million options, at most. Tr. 204–05 (Kulikovsky).
72
Tr. 136 (Kulikovsky).
73
JX 256 at 10; JX 258 ¶¶ 14–15; Tr. 136 (Kulikovsky).

17
elaborated that the options “were granted by the board, but we still had to approve

them by all the board—by the whole board, because we needed to approve the

expansion of the option pool. And it took until January of 2011 to get the full

approval of everyone.”74

The total number of options granted between the three alleged issuances is a

mystery. An exhibit to the Counterclaims, which Kulikovsky represented is a

capitalization table that was distributed to stockholders in connection with the

potential acquisition of the Company in 2010, assumed management had granted

1,000,000 options. 75 This figure is lower than both the grant of 1,150,000 options

described in the Counterclaims and the grant of 1,350,000 options described in

Defendants’ interrogatory responses. When asked about this discrepancy at trial,

Kulikovsky dismissed the exhibit to the Counterclaims as having been mistakenly

attached to the pleading.76

The exercise price of the options is also impossible to pin down in the

evidence. Defendants’ interrogatory responses and Counterclaims state the exercise

74
Tr. 223–24 (Kulikovsky); see also Tr. 224 (Kulikovsky) (“Q: But you’re absolutely
certain that by no later than January 2011, that option—that it had been decided—that
options had already been issued to those four individuals in the amounts you contend they
were issued; correct? That’s your testimony? A: That’s my testimony.”).
75
JX 258, Ex. C.
76
Tr. 220–23 (Kulikovsky). Kulikovsky testified that the correct exhibit should have
shown 1,150,000 options. Id.

18
price was set at $0.50 per share. 77 In the PTO, however, Kulikovsky seeks a

declaration from this Court that he “holds 475,000 options to purchase shares of

Class A common stock of the Company at an exercise price of $0.10 (US) per

share.” 78 At trial, Kulikovsky maintained that the strike price for the 275,000

options granted in the Third Alleged Issuance was $0.10.79 And, as noted, he also

testified at trial that the strike price for the options granted in the Second Alleged

Issuance was “probably $1 per share.”80

Contemporaneous documents reveal that the options were neither granted nor

approved by CertiSign’s board and that critical terms of the alleged option grants

remained in flux as late as February 2011, despite Kulikovsky having testified the

Third (and final) Alleged Issuance occurred no later than January 2011. Specifically,

in a January 24, 2011 email to Company counsel regarding “document[ing] the

option grants” “for an eventual sale of CertiSign,” Kulikovsky wrote:

There is still an issue as to the dates and quantities, but we’ll probably
issue around 1,200,000 options, which is above the current option pool
of 1,000,000 options. I’ll get the ok from all parties, so will probably
need some kind of board/shareholder resolution authorizing the
issuance of the additional 200,000 options. Also advise if we need the

77
JX 256 at 10; JX 258 at ¶¶14–15.
78
PTO ¶ 111 (emphasis added).
79
Tr. 143 (Kulikovsky).
80
Tr. 206 (Kulikovsky).

19
 board to approve the grants individually. Options will fully vest upon
sale of the company . . .81

At trial, Kulikovsky testified that the statements in his January 24, 2011 email were

accurate, that necessary parties had not yet authorized the issuance of the options

when he wrote the email and that the parties ultimately did not authorize the issuance

of the options.82

In email correspondence on January 31, 2011, Kulikovsky and Khafif

discussed the size of the option grants, again indicating that the size of the option

grants had not yet been fixed, much less approved.83 Then, on February 11, 2011,

Kulikovsky again wrote to Company counsel, stating:

We want to:
1. Increase option pool from 1,000,000 to 1,250,000 options of
Common A . . .
2. Confirm the option grant (board) as follows: . . .
b. CKS: 1,150,000 @ $0.01 per share (we will think during this
weekend whether it would be better to give to CKS or to the actual
individuals), grant on 29/3/05
3. Draft option grant agreements for the above quantities and price.
Options subject to 4 yr vesting, 1 yr cliff, quarterly therefore [sic].84

81
JX 95 at 2; JX 98 at 3; Tr. 240–41 (Kulikovsky).
82
Tr. 240–41 (Kulikovsky).
83
JX 92 at 5; Tr. 237–40 (Kulikovsky).
84
JX 98 at 1.

20
On May 8, 2011, Kulikovsky advised CertiSign’s financial consultant that “there are

options still to be issued (all in accordance [with] the previously delivered data).”85

Kulikovsky testified at trial that in October 2012, after CertiSign’s counsel advised

him that the document trail for the options issuances was fragmented at best, he

created a capitalization table which contemplated several scenarios including

“a scenario in which we do not issue the options.”86

The record is replete with other documents discussing various options

proposals with differing terms indicating that option grants had been discussed, but

not actually granted.87 I decline to rehash each document and instead have only

focused on the facts relevant to my analysis.

E. Debt Assumption

In 2010, the parties returned their focus to the Debt and how to repay it.88

“There were many discussions from 2005 [] about how to pay. There was regulatory

concern about how to pay and also there was a tax issue because taxes in Brazil

85
JX 114 at 1; Tr. 144, 252–53 (Kulikovsky).
86
JX 420 at 2, 4; Tr. 271–75 (Kulikovsky).
87
See, e.g., JX 96; JX 97; JX 104 at 35; JX 143 at 3.
88
Recall that the original debt totaled $2,136,919.80. As part of the 2005 Reorganization,
$70,000 of the Debt was forgiven, leaving a balance of $2,066,919.80. Of this balance,
$1,115,782.02 was to be capitalized in the Debt Capitalization Transaction as contemplated
in the 2005 SPA pursuant to which CertiSign would issue Series A preferred stock to CKS,
leaving $951,137.78 of the Debt to be repaid. As stated, CertiSign did not issue Series A
preferred stock to CKS nor did CertiSign Brazil make payment on the $951,137.78 balance.

21
should have been paid in relation to [the Debt]. And taxes were not paid.” 89

The parties also were concerned that the Debt was not registered with the Brazilian

Central Bank.90 Thus, Khafif testified at trial that “[i]n princip[le], everybody agreed

that the debt should be paid; it was just a question of how to pay it.”91

These concerns led to suggestions in 2010 that CertiSign assume the Debt

from CertiSign Brazil. There are no documents in this time frame that evidence or

even suggest that CertiSign, CertiSign Brazil or SK Holdings reached any

agreements in this regard.92 But there are several contemporaneous documents that

reflect the parties were taking steps to facilitate CertiSign’s assumption of the Debt

from CertiSign Brazil.

First, from December 6 through December 8, 2010, Kulikovsky, Cosentino,

Khafif and others were engaged in discussions regarding calculating the exact

amount of the Debt still owed to SK Holdings and the applicable interest.93 To that

end, they circulated among themselves three spreadsheet calculations representing

three different interest scenarios: (1) basic interest; (2) “[c]ompound [i]nterest since

89
Tr. 142 (Kulikovsky).
90
Tr. 397 (Khafif).
91
Tr. 398 (Khafif).
92
PTO ¶ 19.
93
JX 83 at 5–7.

22
the entry [sic] of Darby and Intel”; and (3) “[c]ompound [i]nterest since the start of

the loan operations,” which would result in Debt sizes of $2,950,608.40,
94
$3,098,043.82, and $3,425,489.73, respectively. As between these three

approaches, the Interest Bearing Debt Portion had values of (1) $1,834,826.38;

(2) $1,982,261.80; and (3) $2,309,707.71, respectively.95

Khafif favored the third approach—the computation that applied “compound

interest since the start of the loan operations,” resulting in $3,425,489.73 in Debt,

with the Interest Bearing Debt Portion comprising $2,309,707.71 (the “Third Interest

Calculation Approach”). 96 Cosentino did not object to the idea of remitting

approved sums to CertiSign, and in fact, he furthered the plan by suggesting the

remitted sums should not include attorneys’ fees associated with drawing up

contracts necessary for the assumption of the Debt at the CertiSign level.97

94
JX 83 at 6–7. These debt size projections include both the sum that was intended for the
Debt Capitalization Transaction per the 2005 SPA and the Debt balance that continued to
accrue interest.
95
Id.
96
Id. at 5. Interestingly, although Khafif recommended the Third Interest Calculation
Approach, in the same email thread, he wrote that the “CertiSign debt to SK Holdings in
accordance with our suggestion should total USD 2,309,707.” This calculation reflects
only the Interest Bearing Debt Portion, not the $3,425,489.73 total debt value of the Third
Interest Calculation Approach. Id.
97
Id. at 6.

23
 Second, certain financial documents recorded transactions related to the Debt.

In December 2010, entries regarding the Debt were made in the CertiSign and

CertiSign Brazil general ledgers.98 On December 29, 2010, CertiSign recorded two

debits totaling $3,434,602.00 described as “debt to be capitalized” and “investment

in Certipar S.A.”99 That same day, CertiSign also recorded a $1,115,782.00 credit

characterized as “debt to be capitalized”100 and a $2,318,820.00 credit characterized

as “debt with related entities – SK.”101 Also on December 29, 2010, CertiSign Brazil

upstreamed a $2,350,000.00 distribution to Certipar, which then upstreamed the

$2,350,000.00 distribution to CertiSign for the purpose of paying part of the Interest

98
PTO ¶ 17.
99
Id.
100
As noted above, the Debt Capitalization Transaction contemplated in the 2005 SPA
involved $1,115,782.02 of the Debt.
101
PTO ¶ 17. The sum of these two credits, $2,318,820.00 and $1,115,782.00, equals
CertiSign’s debit that same day in the amount of $3,434,602.00. I note that the credit of
$2,318,820.00 is close in value to the size of the Interest Bearing Debt Portion when interest
is “compounded [] since the start of the loan operations,” $2,309,707.71, as contemplated
in the Third Interest Calculation Approach.

24
Bearing Debt Portion. 102 On December 31, 2010, CertiSign Brazil recorded a

R$4,922,556.04 credit described as “forgiveness of SK Holding debt.”103

CertiSign and CertiSign Brazil’s financial statements tracked transactions

related to the Debt. The upstreaming was reflected in the notes to CertiSign’s

consolidated financial statements for December 31, 2009, 2010 and 2011, which

stated:

The accounts payable for related company [sic] refers to the debt with
SK International Holding, stemming from payments made in the name
of the affiliate, CertiSign Certificadora Digital S.A., to its suppliers in
previous years, with an undetermined period agreed interest rate of 9%
per year, on a given amount.

On December 30, 2010, the affiliate in question wrote off the debt in
question to the result [sic] as a debt forgiveness operation, resulting in
non-operating revenue of approximately US$ 3,035[,000]. That same
fiscal year, the Company recognized this in its financial statements as
an operating expense, of the amount payable stemming from the
transaction in question, of US$ 3,434[,000]. On December 31, 2011,
the sum outstanding relative to this operation had reached
US$ 3,652[,000].104

102
PTO ¶ 18. The money that CertiSign Brazil upstreamed to CertiSign has not been used
to repay any portion of the Debt. Id. I note that the upstreamed $2,350,000.00 is close in
value to CertiSign’s recorded credit of $2,318,820.00 and the $2,309,707.71 of the Interest
Bearing Debt Portion in the Third Interest Calculation Approach.
103
PTO ¶ 17; See Pl.’s Opening Post-Trial Br. (“Pl.’s Opening Br.”) 60 (citing JX 88 at 1).
104
JX 417 at 46. I note the discrepancy regarding the upstreamed amount: the consolidated
financial statements state $3,035,000.00 was upstreamed while the PTO states
$2,350,000.00 was upstreamed. Compare JX 417 at 46, with PTO ¶ 18.

25
CertiSign’s balance sheet ending December 31, 2010 reflected “total debt with

SK Holding” in the amount of $2,318,820.105 Moreover, CertiSign’s United States

tax returns for 2010 and 2012 record a debt in the amount of $2,318,820 “due to SK

Holdings” as one of CertiSign’s “Current Liabilities.”106 CertiSign Brazil’s financial

statements ending December 31, 2010 and 2011 note operating revenue that

CertiSign Brazil deemed “misc. revenue – debt forgiveness,” and the footnote

accompanying that entry states:

The Company opted to account for the sum of BRL 5,057[,000] on
December 30, 2010, as other operating revenue – debt forgiveness
referring to the existing debt up to the referred date at the affiliate
company SK International Holding, originated via payment made in
[sic] behalf of the Company to its suppliers.107

105
JX 105 at 4.
106
JX 132 at 41; JX 231 at 44.
107
JX 167 at 48. The footnote further qualified that, as a result of this accounting treatment,
“net equity on December 31, 2011 and 2010, and the income statement for the fiscal year
ending on December 31, 2010, [were] overvalued by the referred amount.” Id. at 30.
Similarly, CertiSign Brazil’s audited financial statements for fiscal year ending
December 31, 2012, stated:

At the closing of the financial statements on December 31, 2010, the
Company opted to recognize, by means of forgiveness of debt, the amount
owed to the company linked to SK International Holding, of approximately
BRL 3.3 million, net of taxes, without the required supporting
documentation. There is no evidence that the company is relieved of this
obligation, consequently, the current liabilities and the net equity may be
undervalued and overvalued in the referred to sum.

JX 237 at 59.

26
 Khafif’s trial testimony further confirms that CertiSign and CertiSign Brazil

recorded a transaction related to the Debt. He explained:

Then [in] 2010, the company registered in its books a forgiveness of the
debt and there was income generated in the company. The company
paid Brazilian taxes for this forgiveness of the loan and the debt
appeared in the books of CertiSign []. But that was a problem, too,
because there was no proper explanation of what has been done in
December 2010, what was the transaction that was done. So the
auditors in Brazil, they did not approve the statements of the company
and they put a qualified note in the statements stating that the debt has
not been forgiven. They did not have records of the forgiveness of the
debt.108

Khafif testified that he signed CertiSign’s 2012 tax returns, with the Debt reflected,

and that he did so to “the best of [his] knowledge at the time.”109

Finally, there are emails and draft transactional documents in the record from

2011 and 2012 wherein Kulikovsky and Paulo Kulikovsky discussed various Debt

restructuring proposals with Company counsel.110 None of these proposals were

implemented.111

108
Tr. 399 (Khafif).
109
Tr. 483–84 (Khafif). CertiSign points out that, notwithstanding Kulikovsky’s
contention that CertiSign assumed the Debt in December 2010 and corresponding financial
statement entries to that effect, the record contains several proposals for Debt restructuring
subsequent to December 2010. See Pl.’s Opening Br. 26–30 (citing JX 86 at 6–7, JX 89,
JX 94, JX 109, JX 124 and JX 421).
110
See, e.g., JX 94; JX 109; JX 124; JX 421.
111
See Tr. 587, 656, 664–67 (P. Kulikovsky).

27
 Both parties’ experts on Brazilian law agreed that if the Debt had been

registered with the Brazilian Central Bank, the assumption of the Debt would also

need to be registered.112 Neither the Debt nor an assumption has been registered

with the Brazilian Central Bank.113

F. CertiSign Discovers the 2005 Reorganization-Related Defects and
Commences Self-Help

In 2012, CertiSign was exploring a sale of the Company or its Brazilian

subsidiaries to a third-party investor. 114 During the course of due diligence, the

Company was advised of a technical flaw in the issuance of most (or possibly all) of

its capital stock which, in turn, raised the possibility that some of the Company’s

then-current directors had not been validly elected or appointed to the board. 115

Specifically, CertiSign discovered that the outstanding stock issued in connection

112
Tr. 874 (Junqueira), 935 (Fernandes). Defendants’ expert, Lavinia Junqueira,
maintained that even if a debt is not registered, an assumption of the debt could be
undertaken. Tr. 874 (Junqueira). In her opinion, the Brazilian debtor would be subject to
a fine, but failure to register does not invalidate an agreement because “the Brazilian
Central Bank registration requirements do not govern the existence or not of the debt
assumption.” Tr. 874, 882 (Junqueira). Plaintiff’s expert, Edison Fernandes, disagrees.
He opined that the consequences for failure to register a debt include both a fine and a
prohibition on the “transfer of money or, in other words, to make [] payment.” Tr. 936
(Fernandes); see also Tr. 947 (Fernandes) (“Q: It is your opinion that CertiSign Brazil
could not or cannot legally repay this debt unless it was registered with the Brazilian
Central Bank; is that correct? A: Yes, it’s my opinion.”).
113
Tr. 874 (Junqueira).
114
PTO ¶ 22.
115
Id.

28
with the 2005 Reorganization had been issued several days before the A&R COI

authorizing those shares was filed.116 CertiSign, its stockholders, and its board of

directors, including Kulikovsky, concurred that the technical flaw was the result of

a ministerial error and that it was appropriate to cure this defect.117 In November

2012, the Company’s counsel, Chadbourne & Parke LLP (“Chadbourne”), proposed

a series of steps to remedy the Company’s capitalization defect without judicial

intervention (the “Self-Help”).118

The Self-Help contemplated that the Company’s directors and stockholders

would take actions to correct the potential defect with respect to the outstanding

shares of stock by, among other things, implementing an exchange agreement

whereby stockholders would exchange all of their defective shares for valid

shares.119 The Self-Help also included documentation to authorize an Amended and

Restated Stock Purchase Agreement between the Company and CKS, which amends

and restates the 2005 SPA (the “A&R SPA”).120 Whereas CertiSign and CKS were

116
In re CertiSign Hldg., Inc., 2015 WL 5136226, at *2.
117
PTO ¶ 22; JX 252 ¶ 1.
118
PTO ¶ 23; JX 196.
119
PTO ¶ 23; JX 196 at 5–6, 10–15.
120
PTO ¶ 23; JX 196 at 5–6, 16–17, 34–46.

29
the only signatories to the 2005 SPA, these two entities, as well as SK Holdings,

were to be parties to the A&R SPA.121 The recitals of the A&R SPA state:

WHEREAS, [CertiSign] desires to satisfy the principal outstanding of
certain debt (the “Debt”) in the aggregate amount of US$1,115,782.02
that was originally owed by [CertiSign Brazil], to [SK Holdings], which
is a shareholder of CKS, but which Debt has been assumed by
[CertiSign]; . . .

WHEREAS, CKS still desires to obtain from [CertiSign], and
[CertiSign] still desires to issue to CKS, 1,115,782 of the shares . . . of
Series A Preferred Stock of [CertiSign] in consideration for CKS
causing the Debt to be discharged; . . .122

The Self-Help steps also included resolutions of the CertiSign board of

directors regarding the issuance of options to Kulikovsky, Paulo Kulikovsky,

Cosentino and Julio Cosentino “to compensate [them] for their services to the

Company’s subsidiaries” and the “[r]atification of [p]rior [a]ctions [r]elating to

Debt.”123 The resolutions stated that Cosentino and Kulikovsky would each receive

475,000 options at an exercise price of $0.10 per share, while Julio Cosentino and

Paulo Kulikovsky would each receive 100,000 options at the same exercise price.124

121
PTO ¶ 15; JX 196 at 6.
122
JX 196 at 34.
123
Id. at 47–48.
124
Id. The execution version of the Self-Help resolutions respecting option grants does not
acknowledge any previous grant(s) of options; rather, it states that “the Company hereby
grants options” to the Kulikovsky and Cosentino brothers in the specified
amounts. Id. at 47 (emphasis added).

30
As to the Debt, the resolutions contemplated “Ratification of Prior Actions Relating

to Debt,” and addressed the Interest Bearing Debt Portion, $1,191,402.07, which had

not been wrapped up in the 2005 SPA.125 The option grants and Debt assumption,

however, were not initially included in the Self-Help documents.

As best as I can discern, on August 9, 2012, Company counsel circulated draft

Self-Help documents that did not include the option grants or Debt assumption.126

Counsel noted that the grant of options and “conversion of the debt”127 could be

“worked” into the draft documents or, alternatively, the parties could “get everything

corrected and then deal with the debt and options separately.”128 Moreover, when

asked about “the other note” (apparently referring to the Interest Bearing Debt

Portion), Paulo Kulikovsky responded that “[t]he other note is to be paid back in

125
PTO ¶ 23; JX 196 at 5–6, 47–57. Here, I pause to note a discrepancy as to the Interest
Bearing Debt Portion. The Debt totaled $2,136,919.80. PTO ¶ 10. In connection with the
2005 Reorganization, $70,000 was forgiven, leaving a balance of $2,066,919.80. Id. at
¶ 11. Also in connection with the 2005 Reorganization, $1,115,782.02 was capitalized in
the 2005 SPA and became non-interest bearing. PTO ¶ 15; JX 15 at 3; JX 196 at 34. The
remaining balance of the Debt on which interest accrues, therefore, would be $951,137.78,
not the $1,191,402.07 identified in the Self-Help documents. JX 196 at 48. Without more
details as to whether the $1,191,402.07 figure accounts for interest accrued on the principal
amount of $951,137.78, I cannot make sense of this discrepancy.
126
JX 176 at 5.
127
“Conversion of the debt” appears to concern converting the $1,115,782.08 portion of
the Debt to CertiSign Class A preferred shares. Id. at 2. Thus, at this stage, the relevant
actors did not even contemplate including assumption of the Debt in the existing drafts of
the Self-Help documents.
128
Id. at 5.

31
cash (it should remain outstanding until there is enough cash at the holding [sic] to

pay it back).”129 On August 16, 2012, Company counsel again circulated drafts of

the Self-Help documents and, again, the documents did not cover option grants or

assumption of the Debt.130 Then, on August 30, 2012, Paulo Kulikovsky wrote to

Company counsel and others, that:

I took a look at the documentation, and I missed two issues that still
have to be handled:

- The transfer of the debt (that, for now, is to remain outstanding); and
- Distribution of options (including an increase in the pre-approved
option pool)

I thought these issues would be included in this set of documents.
If not, what is the strategy to be followed for this?131

Thereafter, at Paulo Kulikovsky’s urging, language respecting the option grants and

Debt assumption found its way into the Self-Help documents.132

When the Debt assumption was incorporated in the Self-Help efforts, the

initial understanding was that the Debt would be assumed, not that it had been

129
Id. at 2.
130
JX 177 at 3.
131
Id. at 1.
132
JX 178; JX 196 at 5–6, 47–48.

32
assumed.133 For reasons unspecified in the record, on September 18, 2012, in email

correspondence discussing the Self-Help documents, Company counsel represented

to Paulo Kulikovsky and others that they would begin to “prepare the resolutions to

reflect the assumption of the debt by Certisign Delaware.”134 On September 19,

2012, Company counsel circulated draft resolutions, and Paulo Kulikovsky

responded that same day, stating:

My comment here is that I would like to add, on the resolution of the
debt assumption, the amount of debt (in US$) that was assumed by the
Holding company in 2010 []more precisely, the assumption was dated
December 15, 2010 and the amount outstanding at that time
(principal +[] interest) [was] US$2,309,707.71. 135 Additionally, the
debt was incurred on or prior to December 31, 2002 ([there] were a
series of payments in the second half of 2002), the reason that I think it
would be helpful to put such amount as of 12/15/2010.136

Company counsel incorporated Paulo Kulikovsky’s revisions. 137 Therefore, per

Paulo Kulikovsky’s request that the Self-Help documents state that the Debt had

been assumed, the execution version of the Self-Help documents characterized the

133
JX 178 at 1 (“With respect [t]o other remaining debt, this will [b]e simpler as it is not
being converted to equity at this point but rather will be assumed by CertiSign Holding
Inc.”).
134
JX 179 at 1.
135
Note that $2,309,707.71 is the Interest Bearing Debt Portion of the Third Interest
Calculation Approach discussed in December 2010. JX 83 at 6–7.
136
JX 180 at 1.
137
Id.; JX 187 at 3; JX 196.

33
Debt assumption as a “Ratification of Prior Actions Relating to Debt.” 138

Specifically, the execution version of the Self-Help resolution concerning the Debt

stated,

WHEREAS, that [sic] the Company’s subsidiary, CertiSign
Certificadora Digital S.A. (“CertiSign Brazil”), incurred debt on or
prior to December 31, 2002 in the aggregate principal amount of
$1,191,402.07, which bears interest at 9% (the “Debt”);

WHEREAS, the Debt is now held by SK International Holdings, LLC;
and . . .

RESOLVED, that the previous assumption of the Debt by the Company
from CertiSign Brazil be, and it is hereby approved, ratified and
confirmed in all respects.139

Thus, the execution version of the Self-Help documents provided for the grant of

475,000 options to Kulikovsky and designated for ratification that CertiSign had

assumed the Interest Bearing Debt Portion.140

138
PTO ¶ 23; JX 196 at 5–6, 47–57.
139
JX 196 at 48.
140
JX 187; JX 196 at 47–48. While the execution version of the Self-Help documents
refers to “ratification” of CertiSign’s “previous assumption of the Debt” from CertiSign
Brazil, as stated, when Company counsel circulated draft Self-Help documents in
September 2012, Paulo Kulikovsky urged counsel to add the purported Debt assumption.
See JX 180 at 1. As discussed below, the record does not establish that any of the affected
parties in fact reached an agreement in December 2010 (or otherwise) under which
CertiSign would assume the Debt.

34
 Counsel advised the parties that they needed to execute the Self-Help

documents in a specific order to ensure their validity.141 As contemplated, the first

step would be the execution of a written consent of the CertiSign board to confirm

the proper election of the board members.142 This consent was to be signed by two

of the initial three directors of the Company, Kulikovsky and Cosentino. 143

As discussed below, Kulikovsky refused to sign this first written consent (or any

other consents), thus bringing the entire Self-Help process to a screeching halt before

it even left the gate.144 Kulikovsky stood alone in his recalcitrance; all of the other

directors and stockholders who were to participate in the Self-Help had executed

their respective consents and delivered them to CertiSign, or had placed executed

consents in escrow pending Kulikovsky’s execution of the Self-Help documents.145

141
JX 196 at 3 (“For example, the document will be electing a new board of directors and
that Board will be approving certain documents to be signed by the Company, thus it is
necessary that the new Board be elected before the other documents are signed.”).
142
PTO ¶ 24; JX 196 at 5, 7–8.
143
PTO ¶ 24; JX 196 at 5. Edgar Safdie, the third initial CertiSign director, had previously
resigned. PTO ¶ 24 n.2.
144
PTO ¶ 25.
145
Id.

35
 G. Kulikovsky Imposes Conditions on His Participation in the Self-Help

On December 12, 2012, Khafif circulated the Self-Help documents for

signatures.146 By January 9, 2013, only Kulikovsky and Darby had not executed the

step-one and step-two documents which would duly elect the board and officers and

then authorize a certificate of correction for CertiSign’s certificate of incorporation,

the exchange agreement to correct defective stock and the new warrant and stock

purchase agreement.147 Darby executed the necessary documents on February 6,

2013.148 On February 27, 2013, Khafif emailed Kulikovsky to “insist[] [that he] sign

the documents,” and to “invit[e] him to come to [Khafif’s] office to sign them on the

same copy that [Cosentino and Khafif] signed.”149 Kulikovsky did not respond.150

Undeterred, on March 5, 2013, Khafif emailed Kulikovsky again to reiterate that

Kulikovsky needed to sign the documents, to remind him “that [] only his signature

[is] missing” and to “invite him to come again . . . to [Khafif’s] office to sign.”151

146
JX 203 at 1–2.
147
Id. at 1.
148
Id.
149
JX 206 at 1; Tr. 417–18 (Khafif).
150
Tr. 417–18 (Khafif).
151
JX 206 at 1; Tr. 418–19 (Khafif).

36
Kulikovsky did not respond to this email either.152 By March 13, 2013, Kulikovsky

still had not signed the documents and would “not confirm if he [was] willing to sign

them or not.”153

On March 18, 2013, during a CertiSign stockholders meeting, Kulikovsky was

asked again (this time in person) to sign the Self-Help documents. Kulikovsky

testified that he responded to these requests by advising his fellow stockholders:

“We need to fix CKS,” because my issue was—2010-2011, we almost
sold CertiSign. 2012, we almost sold CertiSign. 2013, we had no
perspective [sic] of selling the company. So I was, like, “Okay, now
I’m locked here in this company for another few years,” as I am now.
So I told them, “We need to address CKS. We need to fix CKS.
We need to address [Cosentino’s] debt to me. I’m very uncomfortable
being the guy that’s financing the person that’s personally attacking me.
I’m very uncomfortable being the minority shareholder for a group that
all they think about is how to gain power in CertiSign, the group that
thinks that I’m always to be mistrusted, that is really making a mess in
the company.”154

With these concerns in mind, Kulikovsky conditioned his cooperation with respect

to the Self-Help on CKS liquidating or otherwise distributing its stock holdings in

CertiSign to the three stockholders of CKS directly, so that Kulikovsky could

152
Tr. 419 (Khafif).
153
JX 207 at 1; Tr. 417–21 (Khafif).
154
Tr. 164–65 (Kulikovsky). The debt to which Kulikovsky referred was not the Debt, but
rather was a debt owed by Cosentino to Kulikovsky directly dating back to when
Kulikovsky loaned money to Cosentino in connection with restructuring Shemtov into
CKS. Tr. 45, 49–51 (Kulikovsky).

37
directly own and vote his CertiSign shares.155 At trial, Kulikovsky admitted that by

refusing to sign the Self-Help documents, he sought to advance his bid to guarantee

a CertiSign board seat by obtaining direct ownership of his portion of CKS’

CertiSign stock holdings.156

CKS convened a stockholders meeting on May 21, 2013, to follow up on the

previous CertiSign stockholders meeting where Kulikovsky refused to sign the Self-

Help documents. 157 Kulikovsky arrived at the meeting with Edgar Safdie and
158
requested a private audience with Cosentino. According to Cosentino,

Kulikovsky and Edgar Safdie tried to convince him to dissolve CKS following a

buy-out (the proposal would allow any CKS stockholder to buy out the others).159

Cosentino rejected the proposal. 160 In the midst of this exchange, a physical

155
Tr. 322 (Kulikovsky).

Tr. 376 (Kulikovsky) (“what I really wanted was to make sure that my seat on the board
156

was my seat and not the seat of CKS”).
157
JX 226.
158
Id. at 2–3.
159
Tr. 719–20 (Cosentino).
160
Id.

38
confrontation erupted between Edgar Safdie, Khafif and Cosentino.161 When the

dust settled, Kulikovsky again refused to sign the Self-Help documents.162

H. CKS Removes Kulikovsky as a CertiSign Director and Officer

Two weeks later, on June 3, 2013, Cosentino and Khafif, acting on behalf of

CKS as CertiSign’s majority stockholder, executed a written consent removing

Kulikovsky as a director of CertiSign.163 On June 4, 2013, the reconstituted board

of directors of CertiSign resolved to remove Kulikovsky from any officer position

he might have held at the Company (including president).164

I. Kulikovsky’s June 2014 Surrender

In June 2014, before commencing litigation, CertiSign asked Kulikovsky to

sign an acknowledgment that he did not object to judicial validation of CertiSign’s

defective stock. 165 By letter dated June 6, 2014, Kulikovsky communicated his

willingness to consent to the entry of a court order validating CertiSign’s issuance

of Series A and Series B common stock and Series A and B preferred stock, provided

161
JX 266 at 2 (referring to “the aggression during the board meeting of CKS” and
describing “punches” and “blows”); Tr. 432–34 (Khafif).
162
Tr. 718 (Cosentino).
163
PTO ¶ 26; JX 228.
164
PTO ¶ 26; JX 229.
165
See JX 233.

39
the court order resolved all issues relating to CertiSign’s capital structure. 166

Specifically, Kulikovsky requested that the court order resolve “the issues relating

to all Common and Preferred Stock, all options and warrants and all significant

debt.” 167 Of course, the Self-Help documents that Kulikovsky had previously

refused to sign already addressed all of these issues.168 Thus, in his June 6, 2014

letter, Kulikovsky finally agreed to the Self-Help without the self-interested

conditions he had previously imposed. 169 CertiSign, however, did not accept

Kulikovsky’s surrender. Instead, CertiSign chose to litigate the Self-Help issues in

this Court.

J. Procedural Posture

In August 2014, CertiSign and Cosentino (the “Petitioners”) filed an action

under 8 Del. C. § 205, seeking the Court’s validation of CertiSign’s capital structure

(the “Section 205 Action”).170 Kulikovsky intervened and filed a counter-petition

seeking validation of (i) CertiSign’s issuance of options to purchase 1,150,000

166
JX 233.
167
Id.
168
See JX 196 at 5–6, 16–17, 47–49.
169
By this time, however, CKS, acting as majority stockholder of CertiSign, had already
removed Kulikovsky as a CertiSign director. Therefore, Kulikovsky’s belated agreement
to the Self-Help was too little too late as he was no longer in a position to execute the Self-
Help documents.
170
PTO ¶ 27.

40
shares of CertiSign Class A common stock and (ii) CertiSign’s assumption of a debt

comprising $4,337,693.58 in principal and interest (as of August 1, 2014) owed to

SK Holdings (i.e., the Debt).171 Petitioners filed a motion for partial judgment on

the pleadings with respect to validating CertiSign’s capital structure.172 Kulikovsky

responded to that motion on April 3, 2015.173 In his response, Kulikovsky did not

object to validating CertiSign’s defective capital stock, but asked that the remedy be

delayed until the Court could act on all of the issues relating to CertiSign’s capital

structure. 174 The Court granted Petitioners’ motion for partial judgment on the

pleadings and thereafter entered an order validating the Company’s outstanding

stock and approving a proffered stock ledger.175

In February 2016, CertiSign initiated this action in which it alleges that

Kulikovsky breached his fiduciary duty of loyalty to the Company by refusing to

sign the Self-Help documents. 176 CertiSign seeks an award of damages against

Kulikovsky as the remedy for the breach.

171
PTO ¶ 27; JX 240 at 40.
172
PTO ¶ 27.
173
Id.; Section 205 Action, Dkt. 22.
174
PTO ¶ 27.
175
In re CertiSign Hldg., Inc., 2015 WL 5136226, at *7; In re CertiSign Hldg., Inc.,
2015 WL 5786138, at *1; JX 248.
176
PTO ¶ 28.

41
 The parties agreed and stipulated that the same counterclaims Kulikovsky

filed in the Section 205 Action could be asserted and adjudicated in this action, and

that the Section 205 Action would remain pending (but would be stayed) to permit

timely appeals after the conclusion of this action. 177
Kulikovsky’s two

counterclaims are: Count I, asserting breach of contract related to the Debt; and

Count II, seeking judicial validation that CertiSign granted certain board members

and managers 1,150,000 options to purchase shares of Class A common stock of the

Company and that CertiSign assumed the Debt.178

The parties tried the following issues: (1) whether Kulikovsky breached his

fiduciary duty of loyalty as a CertiSign director by refusing to sign the Self-Help

documents179; (2) whether CertiSign granted 1,150,000 options to purchase shares

of Class A common stock of the Company at an exercise price of $0.10 per share

and whether Kulikovsky holds 475,000 such options 180 ; (3) whether CertiSign

assumed the Debt in the principal amount of $2,066,919.80, plus nine percent

interest compounded monthly since the time SK Holdings made payment to

VeriSign and Darby on behalf of CertiSign Brazil, which payment is due

177
Id.; JX 258.
178
JX 258 at ¶¶ 41–56.
179
PTO ¶ 31.
180
PTO ¶¶ 110–11.

42
immediately 181 ; and (4) whether CertiSign should be awarded damages for

Kulikovsky’s breach of the fiduciary duty of loyalty.182

A four-day trial was held in October 2017. The parties presented post-trial

oral argument on March 12, 2018. To follow is my post-trial decision.

II. ANALYSIS

I take up the issues in the following order: (1) did Kulikovsky breach the

fiduciary duty of loyalty; (2) did CertiSign grant options; (3) did CertiSign assume

the Debt; and (4) is CertiSign entitled to damages?

A. Kulikovsky Breached His Fiduciary Duty of Loyalty

“A public policy, existing through the years . . . demands of a corporate officer

or director, peremptorily and inexorably, the most scrupulous observance of his duty,

not only affirmatively to protect the interests of the corporation committed to his

charge, but also to refrain from doing anything that would work injury to the

corporation.”183 Kulikovsky breached his duty of loyalty to CertiSign by refusing to

181
PTO ¶¶ 112–14.
182
PTO ¶¶ 107, 116.
183
Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939). See also id. (“Corporate officers and
directors are not permitted to use their position of trust and confidence to further their
private interests.”); In re Walt Disney Co., 2004 WL 2050138, at *5 n.49 (Del. Ch. Sept. 10,
2004) (“[T]he duty of loyalty . . . imposes an affirmative obligation to protect and advance
the interests of the corporation and mandates that [a director] absolutely refrain from any
conduct that would harm the corporation. This duty has been consistently defined as broad
and encompassing, demanding of a director the most scrupulous observance. To that end,
43
sign the director consents unless and until CKS agreed to give him (through

dissolution or otherwise) SK Holdings’ one-third share of CKS’ CertiSign share

holdings and Cosentino agreed to repay to Kulikovsky a personal debt.184

The Court need not draw a circumstantial line between Kulikovsky’s refusal

to repair CertiSign’s defective capital structure and a purely self-interested motive.

Kulikovsky admitted that his obstruction was motivated by a desire to secure for

himself a permanent CertiSign board seat. It is indisputable that Kulikovsky was the

sole impediment to CertiSign’s efforts to correct the potentially devastating effects

of its invalid issuance of millions of shares of stock for which CertiSign’s

stockholders paid valuable consideration. Moreover, Kulikovsky was well aware

that his refusal to sign the Self-Help documents perpetuated the defective

constitution of the CertiSign board which, in turn, rendered every single board act

over a period of several years invalid. By his defiance, Kulikovsky single-handedly

and knowingly jeopardized CertiSign’s existence and operations in order to obtain

a director may not allow his self-interest to jeopardize his unyielding obligations to the
corporation and its shareholders.”) (emphasis in original).
184
See eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 46 (Del. Ch. 2010) (finding
directors “breached their fiduciary duty of loyalty by using their power as directors and
controlling stockholders to implement an interested transaction” that did not “bear[] some
reasonably necessary relation to the corporation’s best interest” but rather was undertaken
“to protect [the directors’] personal, sentimental interests . . . .”).

44
leverage to advance his personal interests. This is the quintessential breach of the

duty of loyalty. Kulikovsky’s arguments to the contrary are meritless.

First, Kulikovsky argues that he resisted signing the Self-Help documents

because “Delaware directors have an affirmative duty to oppose threats to the

corporation and its [stockholders] from perceived harm whether a threat originates

from third parties or other shareholders.”185 In the case of CertiSign, Defendants

argue the threat was the “exploitation of CKS by Cosentino and Khafif to deprive

the majority shareholders of the meaningful exercise of the corporate franchise.”186

Their logic courses through a tree of sagging branches: (1) CKS controls CertiSign;

(2) while Cosentino and Khafif control only two-thirds of CKS, they used this

control of CertiSign’s majority stockholder to “drag along” the other CertiSign

stockholders187; (3) this dynamic was contrary to the intent of CKS’ founders; and

yet (4) “Cosentino and Khafif refused to address their control of CertiSign on the

many occasions Kulikovsky sought to discuss it”188; and so (5) Kulikovsky had no

Opening Post-Trial Br. of Def./Counterclaim Pls. Sergio Kulikovsky & SK Int’l Hldgs.,
185

LLC (“Defs.’ Opening Br.”) 49 (citing Unocal Corp. v. Mesa Petroleum Co., 493 A.2d
946, 952 (Del. 1985)) (internal quotations omitted).
186
Id. at 51.
187
Id. at 51–52. As stated, CKS has three board members, each representing one of the
three families that own a one-third interest in CKS.
188
Id. at 52.

45
choice but to force Cosentino and Khafif’s hand regarding CKS’ control of CertiSign

by refusing to sign the Self-Help documents.189

Defendants’ logic tree withers under even casual scrutiny. Even following

Defendants’ own logic, Kulikovsky exploited his CertiSign directorship to further

his personal interests respecting CKS. A control dispute among CKS’ owners,

however, cannot justify Kulikovsky’s decision, as a CertiSign fiduciary, to hold

hostage the entire capital and board structure of CertiSign at the expense of that

company’s stockholders.190 Because Defendants’ position on this point utterly fails

on the facts, I need not, and decline to, undertake a full-blown Unocal analysis as

Defendants would have me do.191

Second, in a superficial variation of his first argument, Kulikovsky contends

that he did not breach his fiduciary duty of loyalty because to have breached his duty,

his actions must have been for his own benefit “at the expense of stockholders

189
Id. (“Having been effectively disenfranchised by Khafif and Cosentino, Kulikovsky
used the only measure of leverage available to him—his signature on documents needed to
fix the capitalization defect—to attempt to foster a discussion with Khafif and
Cosentino.”).
190
It is worth noting that Kulikovsky was quite content with CKS’ capital structure, which
he helped to design, when his interests aligned with Cosentino and Khafif’s predecessor on
CKS’ board of directors, Edgar Safdie. JX 10 at 4–5, 9; JX 226 at 2; Tr. 110–14, 188–190
(Kulikovsky). That these friends fell out and took sides does not justify Kulikovsky’s
turning CertiSign upside down until he got his way.
191
Unocal, 493 A.2d 946.

46
generally.”192 Kulikovsky reasons that if he had received his share of CertiSign

stock from CKS, and had thereby regained the power to vote his shares, then other

stockholders would have been released from the shackles that prevented their

meaningful exercise of the corporate franchise because the reign of Cosentino and

Khafif’s control over CertiSign through CKS would have ended. 193 Moreover,

according to Kulikovsky, “any personal benefit to Kulikovsky from a restoration of

corporate democracy would be de minimis” because, with CKS dismantled, he

would only own 23% of CertiSign and thus would not have control of CertiSign.194

Here again, Kulikovsky’s professed altruism is not credible. As stated,

Kulikovsky’s conditions for executing the Self-Help documents furthered his

personal interest (obtaining CertiSign stock directly, receiving repayment of a

personal loan and securing for himself a CertiSign board seat) at the expense of

fixing CertiSign’s illegitimate board and defective capital structure. Every

stockholder holding defective stock had an interest in remedying the situation

immediately. Kulikovsky single-handedly derailed the Self-Help in pursuit of his

personal interests. No amount of spin control can alter that reality.

192
Defs.’ Opening Br. at 53 (citing OptimisCorp v. Waite, 2015 WL 5147038, at *59
(Del. Ch. Aug. 26, 2015)).
193
Id. at 54.
194
Id.

47
 Third, Defendants argue that in June 2014, Kulikovsky consented to the Self-

Help documents that he had previously refused to sign, thus curing any supposed

breach of his duty of loyalty.195 Setting aside that his past breaches of fiduciary duty

were not excused when Kulikovsky finally decided to come to his fiduciary senses,

Kulikovsky’s pre-litigation change of heart was too little too late because, by then,

he had already been removed from the CertiSign board and was, therefore, no longer

authorized to execute the Self-Help documents.

Fourth, Kulikovsky argues that he “did not refuse to sign the Self-Help

documents, [but rather] only declin[ed] to do so at that moment” in order “merely to

prompt a discussion about CKS, which Khafif and Cosentino were unwilling to

abide.”196 Perhaps a “momentary” refusal to act might be excusable. Perhaps. But

Kulikovsky was first asked to sign the Self-Help documents in December 2012.197

He refused and maintained that position until June 2014, when he finally made the

futile offer to consent to the Self-Help. By then, CertiSign was poised to seek relief

from the Court under Section 205.

195
Post-trial Answering Br. of Def./Counterclaim Pls. Sergio Kulikovsky & SK Int’l
Hldgs., LLC (“Defs.’ Answering Br.”) 18.
196
Id. at 17.
197
JX 203 at 1–2.

48
 The evidence reveals that Kulikovsky was displeased that his former friends

had joined forces against him. He was displeased that they were critical of his

leadership of CertiSign. And he was displeased that they had, effectively, removed

him from that position and then boxed him into his minority position. His frustration

and anger is a product of basic human nature. It is not, however, a justification for

petty tactics that jeopardized the well-being of CertiSign and its stockholders for the

sake of personal advantage and satisfaction. That conduct was a breach of the duty

of loyalty.

B. The Option Grants

Defendants seek a declaration that Kulikovsky currently holds 475,000

options to purchase shares of Class A common stock of CertiSign at an exercise price

of $0.10 per share.198 According to Defendants, CertiSign clearly intended to grant

these options. 199 Thus, Defendants argue, if the grants were for some reason

defective, then this Court should validate the grants under Section 205.200

CertiSign acknowledges its principals frequently discussed the grant of stock

options and may have even agreed in broad terms that granting stock options was a

good idea. But CertiSign is adamant that the parties never reached agreement on the

198
PTO ¶ 111; Defs.’ Opening Br. 17, 44.
199
Defs.’ Opening Br. 46–47.
200
Id. at 47–48.

49
essential terms of a stock option plan. There is, therefore, no corporate act for the

Court to validate under Section 205. Here again, the preponderance of the evidence

supports CertiSign’s position.

Under 8 Del C. § 157(a), “[s]ubject to any provisions in the certificate of

incorporation, every corporation may create and issue . . . rights or options entitling

the holders thereof to acquire from the corporation any shares of its capital stock of

any class or classes, such rights or options to be evidenced by or in such instrument

or instruments as shall be approved by the board of directors.” While this statutory

grant of authority to create an option plan is quite broad, as reflected in the enabling

provisions of Section 157(a), the plan must be formally adopted by the corporation

and its terms must be set forth specifically in an “instrument,” as required by 8 Del.

C. § 157(b):

The terms upon which, including the time or times which may be
limited or unlimited in duration, at or within which, and the
consideration (including a formula by which such consideration may be
determined) for which any such shares may be acquired from the
corporation upon the exercise of any such right or option, shall be such
as shall be stated in the certificate of incorporation, or in a resolution
adopted by the board of directors providing for the creation and issue
of such rights or options, and, in every case, shall be set forth or
incorporated by reference in the instrument or instruments evidencing
such rights or options. A formula by which such consideration may be
determined may include or be made dependent upon facts ascertainable
outside the formula, provided the manner in which such facts shall
operate upon the formula is clearly and expressly set forth in the
formula or in the resolution approving the formula. . . .

50
 The basic requirements prescribed by Sections 157(a) and (b) are not onerous.

To evidence an intent to create and issue stock options, the corporation must

manifest that intent with requisite specificity either in its “certificate of

incorporation, or in a resolution adopted by the board of directors.”201 Defendants

have proffered neither in the trial record. For this reason alone, Kulikovsky’s claim

that he holds CertiSign stock options must be rejected.

Even if the Court were to look past the absence of any formal recognition of

the stock options, the evidence still falls short of revealing that the CertiSign board

reached a meeting of the minds on key terms of any option grants such that a

Section 205 validation could even be attempted. To be sure, the necessary parties

discussed stock options frequently, and all involved in those discussions appeared to

agree that option grants were appropriate. But the discussions were fluid and even

Kulikovsky remained unclear as to key aspects of the option grants both before and

after this litigation was initiated. Simply stated, the evidence falls short of the mark

required to justify specific performance or validation of an intended, but defective,

corporate act.

201
8 Del. C. § 157(b).

51
 1. The Alleged Option Grants Were Not Approved in the Certificate of
Incorporation or by Board Resolution

According to Defendants, CertiSign’s intent to execute the First Alleged

Issuance is evidenced not in the CertiSign certificate of incorporation or in any

formal board resolution (as required by Section 157(b)), but rather in the minutes of

the CertiSign board’s April 2, 2018 meeting.202 As for the Second Alleged Issuance

and the Third Alleged Issuance, Defendants rely on emails and correspondence as

evidence of the board’s intent to create and issue the options.203 And, as for the

actual execution of the stock option grants, Defendants acknowledge that there is no

“instrument” that reflects the specific “rights” attached to the grants or the “formula”

by which the specific grants were “determined.”204 The total failure to comply with

202
Tr. 134, 211–212 (Kulikovsky); Defs.’ Opening Br. 17 (“CertiSign’s April 2, 2008
minutes confirm the Board awarded Kulikovsky ‘100,000 stock options at the strike price
of $1.00, according to the company stock options plan.’”) (quoting JX 49 (minutes of
April 2, 2008 CertiSign board meeting)).
203
Defs.’ Opening Br. 18, 46 (citing JX 81, JX 92, JX 96, JX 115, JX 135, JX 143, JX 414).
204
Tr. 212:19–23 (Kulikovsky) (“Q: CertiSign Holding never issued any option certificates
or option instruments representing the options that you claim along the lines of a stock
certificate, did they? A: That’s correct.”). See also Niehenke v. Right O Way Transp., Inc.,
1995 WL 767348, at *3 (Del. Ch. Dec. 28, 1995) (“In purporting to issue an option to his
wife, Hayes failed to adhere to provisions in section 157 which require that the terms of
the options be separately stated in either the certificate of incorporation or in a resolution
adopted by the board of directors. There is no persuasive evidence of such board
resolution. Consistent with the interest in protecting against fraudulent, secretive or
otherwise improper issuance of stock option rights and with other evidence questioning the
timing and valid issuance of the Hayes Option, the failure here to adhere to statutory
formality renders the Hayes Option void and unenforceable.”) (internal citations omitted).

52
any aspect of Sections 157(a) and (b) is alone a basis to reject Defendants’ claim for

stock options and is, at the least, powerful evidence that the CertiSign board did not

intend to authorize the options.

Defendants urge the Court to proceed beyond the CertiSign board’s failure to

meet the statutory requisites of Section 157 and to employ Section 205 as a means

to remedy that failure. According to Defendants, the evidence reveals that the

CertiSign board did everything but comply with Section 157(b) with respect to the

grant of stock options. Thus, all that is left to do is bless the option grants by court

order as if the board had properly completed the process. I disagree.

2. The Alleged Option Grants Lacked Specificity as to Material Terms

Section 157(b) requires option grants to be specific as to material terms of the

grant, including maturity, exercise price and vesting.205 In Grimes v. Alteon, our

Supreme Court reiterated prior rulings in which the court emphasized that

Section 157 reflects a statutory mandate for “strict adherence to [] formality in

matters relating to the issuance of capital stock.” 206 Grimes emphasized, “the

issuance of corporate stock is an act of fundamental legal significance having a direct

205
8 Del. C. § 157(b) (“The terms upon which, including the time or times which may be
limited or unlimited in duration, at or within which, and the consideration (including a
formula by which such consideration may be determined) for which any such shares may
be acquired from the corporation upon the exercise of any such right or option, shall be
such as shall be stated . . .”).
206
804 A.2d 256, 260 (Del. 2002).

53
bearing upon questions of corporate governance, control and the capital structure of

the enterprise. The law properly requires certainty in such matters.”207

The evidence presented by Defendants in support of their options

counterclaim was striking in its lack of certainty with respect to material terms of

the purported option grants, and fell well short of demonstrating that the CertiSign

board had authorized a grant to Kulikovsky of 475,000 options at an exercise price

of $0.10.208 Indeed, Defendants have struggled to maintain any consistent narrative

with respect to even the most basic elements of the option grants, including the

quantity of options that were issued, the exercise price, when the options were issued

and even the recipients of the options. These basic elements must be fixed before

any valid claim to the options may be pressed so that “everyone know[s] what [the]

claims on the capital will be, who has rights to invest capital, and what rights the

corporation has with respect to actual or potential investors.”209

207
Id.
208
PTO ¶ 111.
209
Grimes, 804 A.2d at 259. Other material terms include duration and vesting. 8 Del. C.
§ 157(b). See also Sai Man Jai, Ltd. v. Personal Computer Card Corp., 1991 WL 110458,
at *2 (Del. Ch. June 18, 1991) (finding “whether the option was exercisable only upon
payment of cash, or whether the option could be exercised in exchange for a promissory
note,” to be a material term).

54
 (a) Uncertainty as to Exercise Price and Quantity Issued

As stated, Defendants claim CertiSign issued 475,000 options to Kulikovsky

via three alleged options issuances: the First Alleged Issuance of 100,000 options

as authorized during an April 2, 2008 CertiSign board meeting, the Second Alleged

Issuance of 100,000 options as authorized at some point between April 2008 and

September 2010 and the Third Alleged Issuance of 275,000 options as authorized in

or around September 2010. While the evidence relating to each of the option grants

is as clear as dishwater, the evidence surrounding the Third Alleged Issuance is the

most puzzling and best illustrates the fallacy of Defendants’ claim. According to the

verified Counterclaims, the Third Alleged Issuance granted Kulikovsky 275,000

options out of a total 950,000 options granted.210 Defendants provided a different

number in their sworn interrogatory responses where they stated that Kulikovsky

had been granted 475,000 options.211 The fact that Defendants’ sworn statements of

fact differ so substantially on a point where “certainty” is required is bad enough.

That the revised version of history fails as a matter of mathematics makes the claim

even less credible. Defendants’ claim for options in the Third Alleged Issuance,

whether based on 275,000 or 475,000 options, assumes that CertiSign granted either

1,150,000 or 1,350,000 total options. The math does not work given that, under

210
JX 258 ¶ 14.
211
JX 256 at 10.

55
either scenario, Kulikovsky would have CertiSign granting either 150,000 or

350,000 options in excess of the 1,000,000 options pool “limit” as reflected in the

A&R COI.212

As for the exercise price, Kulikovsky testified he was uncertain about the

exercise price of the Second Alleged Issuance, stating it was “probably $1 per

share.”213 Kulikovsky’s testimony that the exercise price was “probably $1” is, on

its face, lacking in requisite “certainty.”214 Moreover, it bears no resemblance to the

$0.10 per share exercise price that Defendants advanced at trial. 215 Given

Kulikovsky’s own lack of clarity or consistency regarding the exercise price, it is

212
JX 22, art. IV § B(4)(d)(ii)(C); JX 256 at 10. The total number of options authorized in
the pool was itself a moving target in the evidence. The verified Counterclaims put the
total number at 1,150,000; Defendants’ interrogatory responses put the number at
1,350,000; a capitalization table distributed to stockholders in connection with a possible
sale of the Company (attached as Exhibit A to the Counterclaims), in my view the most
credible evidence, put the number at 1,000,000; an email that Kulikovsky wrote in January
2011 put the number at 1,200,000; and an email that Kulikovsky wrote in February 2011
put the number at 1,250,000. JX 258 ¶ 14; JX 256 at 10; JX 258, Ex. C; JX 95 at 2; JX 98
at 1.
213
Tr. 206 (Kulikovsky).
214
Grimes, 804 A.2d at 260.
215
Tr. 206 (Kulikovsky). Here again, Defendants’ position on exercise price is remarkable
in its utter lack of consistency. The Counterclaims said $1.00 for the First and Second
Alleged Issuance and $0.50 for the Third Alleged Issuance; emails from Kulikovsky
suggested an exercise price of $0.01 per share; and then Kulikovsky testified at trial that
the exercise price for the Third Alleged Issuance was $0.10 per share. Tr. 143
(Kulikovsky). Kulikovsky’s change in tune going into trial came as a surprise to CertiSign
as well. See Pl.’s Opening Br. 13–14 (“For the first time, in the pre-trial order, Kulikovsky
contends CertiSign issued all the alleged options at an exercise price of $0.10 per share.”).

56
not surprising that Defendants do not even mention, much less highlight, any

evidence that the CertiSign board ever set a $0.10 per share exercise price.216

(b) Uncertainty as to Timing and Recipients

The timing of the option grants is also murky. Though the Third (and final)

Alleged Issuance supposedly occurred in or around September 2010, on January 24,

2011, Kulikovsky wrote, “[t]here is still an issue as to the dates and quantities, but

we’ll probably issue around 1,200,000 options, which is above the current option

pool of 1,000,000 options.”217 Moreover, Kulikovsky’s February 11, 2011 email to

Company counsel indicated that the identit(ies) of the option grantee(s) remained to

be determined.218

Kulikovsky’s emails to Company counsel in January and February 2011

perhaps best illustrate the uncertainty regarding the alleged option issuances. Those

emails, together with related documents and trial testimony, make clear that the

following questions remained undecided: (1) whether 1,000,000 options, 1,150,000

216
Defendants’ Opening Brief mentions $0.10 exactly once, in connection with discussing
a May 11, 2012 email where Cosentino suggested telling Chadbourne the exercise price of
options is $0.10. Defs.’ Opening Br. 20 (citing JX 142) (“Let’s send to [Chadbourne] the
quantity of arranged options. I suggest putting US$ 0.10 as the cost.”). Cosentino’s
suggestion is not the equivalent of a board decision setting the exercise price at $0.10. See
Grimes, 804 A.2d at 266 (holding that “to the extent such transactions obligate the board
concerning stock issuance, the board must approve them in writing”) (emphasis added).
217
JX 95 at 2 (emphasis added).
218
JX 92 at 5.

57
options, 1,200,000 options, 1,250,000 options or 1,350,000 options had been issued;

(2) whether the exercise price was $1.00, $0.50, $0.10 or $0.01 per share;

(3) whether CKS or unidentified individuals received the option grants; and (4) as

of when the options were granted.219 On a claim where evidentiary precision is

necessary, Defendants’ evidence is a study in obscurity.

3. Validation under Section 205 is Not Available

“The Court cannot determine the validity of a defective corporate act without

an underlying corporate act to analyze.”220 As this Court has explained:

There must be a difference between corporate acts and informal
intentions or discussions. Our law would fall into disarray if it
recognized, for example, every conversational agreement of two of
three directors as a corporate act. Corporate acts are driven by board
meetings, at which directors make formal decisions. The Court looks
to organizational documents, official minutes, duly adopted resolutions,
and a stock ledger, for example, for evidence of corporate acts.221

Here, although there were extensive board discussions in principle agreeing to issue

options, no options were actually issued as evidenced by the lack of board documents

or instruments authorizing or granting such options. Even if there existed board

219
JX 49; JX 95 at 2; JX 98 at 1–2; JX 142; JX 256 at 10; JX 258 ¶¶ 12–14; JX 258, Ex. C;
Tr. 143, 206 (Kulikovsky).
220
In re Numoda Corp. S’holders Litig., 2015 WL 402265, at *9, 11 (Del. Ch. Jan. 30,
2015) (finding no corporate act to validate where the party seeking validation had “not
been able to establish when any board approved an issuance of 400,000 shares to her”),
aff’d sub nom. In re Numoda Corp., 128 A.3d 991 (Del. 2015).
221
Numoda, 2015 WL 402265, at *9 (internal citation omitted).

58
documents purporting to grant options (including defective documents), the alleged

option grants lack definite, material terms such as the quantity, exercise price, timing

of grants and recipients. Consequently, they are not legally cognizable. A defective

corporate act is a prerequisite to validation of the defective act. On this record,

Defendants have not proven there was a defective corporate act (and not merely

discussions among board members) for this Court to validate. For that reason,

Section 205 does not work here.222

C. The Debt

Defendants seek a declaration that, in or before December 2010, CertiSign

assumed the Debt in the principal amount of $2,066,919.80, plus nine percent

interest compounded monthly since the time that SK Holdings made payments to

VeriSign and Darby on behalf of CertiSign Brazil. They also seek a declaration that

the Debt is due and payable immediately to SK Holdings.223 At a basic level, the

222
Even if Defendants were to argue (which they do not) that the inclusion of the option
grants (or the assumption of the Debt) in the Self-Help documents evidences a prior
agreement to grant the options (or assume the Debt), Section 205 still would not work. The
credible evidence reveals that the options and Debt were included in the Self-Help
documents not because the CertiSign board had reached an agreement to grant options or
assume Debt, but rather because Kulikovsky and his brother pushed to resolve the lingering
questions regarding the options and the Debt at the same time the Board sought to ratify
the 2005 stock issuances. See JX 176–180. That counsel acquiesced and included the
extraneous matters in the Self-Help documents does not mean there was a deliberate
corporate act that can now be validated.
223
PTO ¶¶ 112–14.

59
parties agree a debt is owed to SK Holdings and must be repaid. 224 They disagree,

however, as to who owes the Debt. CertiSign maintains the Debt is owed by

CertiSign Brazil. Defendants, on the other hand, contend that CertiSign has assumed

the Debt from CertiSign Brazil and should be ordered to pay it immediately.

During trial, Kulikovsky agreed on behalf of SK Holdings to accept

repayment from either CertiSign or CertiSign Brazil. And both parties’ Brazilian

law experts agreed that there are straightforward, lawful methods by which the Debt

can be repaid. Nevertheless, consistent with their demonstrated pattern of leaving

all business sense at the courtroom door, the parties have declined to reach a business

solution to this problem in favor of litigation.

Because the parties do not dispute that the Debt exists and should be repaid,

I accept that reality as a matter of fact and turn to the questions of who owes the

Debt, has it been assumed and can it be repaid in compliance with Brazilian law even

though it was never registered with the Brazilian Central Bank.225 I address each

question in turn below.226

224
Tr. 398 (Khafif) (“In princip[le], everybody agreed that the debt should be paid; it was
just a question of how to pay it”); Pl.’s Opening Br. 62 (“All parties agree the Debt should
be repaid.”).
225
Tr. 398 (Khafif); Pl.’s Opening Br. 62.
226
During post-trial oral argument, I reserved decision on Defendants’ motion to strike
CertiSign’s statute of limitations argument, raised by CertiSign for the first time in post-
trial briefing in response to an incredibly confusing characterization of the Debt assumption
claim advanced by Defendants during and after trial. OA Tr. 11, 15. Given my findings
60
 1. Choice of Law

Before addressing the questions relating to debt assumption, I must first

answer the threshold question of whether Brazilian or Delaware law governs this

issue. Not surprisingly, the parties’ Brazilian law experts disagreed on choice of

law. 227 On behalf of Defendants, Junqueira opined that Delaware law governed the

debt assumption issues under Brazilian choice of law doctrine.228 She testified that

Brazilian law dictates that a transaction, such as a debt obligation, “is governed by

the law of the country where it [was] created. So it doesn’t matter where the

debtor is. It matters where the obligation has been created.”229 In the case of a debt

obligation, Brazilian law deems “the place where the creditor is and where the

creditor is disbursing the funds” as the place where debt obligation was created for

here, I decline to reach the statute of limitations issue and, therefore, deny the motion to
strike as moot. CertiSign’s request for fees in connection with Defendants’ motion to strike
is denied. Fee-shifting under the “bad faith” exception to the American Rule is warranted
only where the party seeking fee-shifting has shown by clear evidence that “the party
against whom the fee award is sought . . . acted in subjective bad faith.” Arbitrium (Cayman
Islands) Handels AG v. Johnston, 705 A.2d 225, 232 (Del. Ch. 1997) (emphasis in
original), aff’d, 720 A.2d 542 (Del. 1998). Here, CertiSign has not adduced “clear
evidence” that Defendants’ motion to strike is (or was) the product of Defendants’
“subjective bad faith.”
227
Ct. Ch. R. 44.1 (“The Court, in determining foreign law, may consider any relevant
material or source, including testimony, whether or not submitted by a party or admissible
under Rule 43. The Court’s determination shall be treated as a ruling on a question of
law.”).
228
Tr. 851–57 (Junqueira).
229
Tr. 853 (Junqueira).

61
purposes of choice of law.230 According to Junqueira, in this case, “the creditor

disbursing the fund[s was] SK Holdings, a Delaware entity, and the funds [were]

disbursed in the U.S.”231 Thus, Brazilian law must give way to Delaware law with

respect to issues relating to the Debt obligation.232

230
Tr. 854 (Junqueira).
231
Id.
232
CertiSign brought a motion in limine to exclude Junqueira’s rebuttal report and
testimony to the extent it opined that Delaware law applies to the Debt and the subsequent
assumption of the Debt by CertiSign. According to CertiSign, Junqueira was attempting
not only to supplant the Court’s adjudicative role, she also sought to opine on Delaware
law, a subject about which she is unqualified to testify. Junqueira clarified at trial that her
opinion was based solely on Brazilian law:

[T]he Brazilian Civil Code does not apply to determine whether CertiSign
Holding made the sufficient expression of will and to the formalities for the
obligation because the law of the place where the obligation is created
appl[ies]. . . . [T]he Brazilian Civil Code rules do not apply initially to [the
Debt] obligation because it was not created in Brazil. And then since this
discussion is handled in the Delaware court, it is up to the Delaware court,
then, to decide which law should apply to the obligation. But my intention
was to say that – to rebut [] what Mr. Edison Fernandes was stating in his
report, that the Brazilian Civil Code would apply, because my understanding
was that it was not applicable. So when I say Delaware law [applies], my
intention was actually to say Delaware jurisdiction. So this Court should
decide which law applies.

Tr. 884–85 (Junqueira). Indeed, Junqueira’s rebuttal report clarified that her opinion was
simply that “[t]he formalities established in the Brazilian Civil Code regarding debt
assumption are not applicable in this case.” JX 170 at 3. Based on Junqueira’s
clarifications regarding the scope of her opinion in her rebuttal report and at trial, I am
satisfied she was not purporting to address Delaware choice of law principles or to tell this
Court how to apply them. I view her opinions as addressing Brazilian law only and have
considered them solely in that context. I note that CertiSign’s counsel also appeared to
accept Junqueira’s clarification following her trial testimony. See Tr. 886 (Junqueira)
(CertiSign’s counsel: “Your Honor, I guess with that, I’m wondering if I need to ask further
questions on this topic because we had understood . . . that her report was saying that
62
 On behalf of CertiSign, Fernandes did not opine explicitly on choice of law.

Rather, his opinions assumed that Brazilian law applies.233 Because Fernandes did

not address Brazilian choice of law doctrine, I accept Junqueira’s unrebutted opinion

that, at least under Brazilian choice of law doctrine, Brazilian law does not govern

the Debt obligation or the purported assumption of the Debt by CertiSign.

Even if the Court were to engage more thoroughly on the choice of law

question, the result would not change for the simple reason that there is no conflict

between Brazilian and Delaware law with respect to the relevant Debt related

issues.234 While the pathways may vary some, the application of either Brazilian or

Delaware law leads to the same final destination.

Delaware law applies and now I understand her to be agreeing with us that you decide the
choice of law under Delaware choice-of-law principles.”).
233
Tr. 938 (Fernandes) (“Q: . . . Based on your analysis, what is your opinion of whether
CertiSign Holding assumed the debt from CertiSign Brazil? A: Okay. First of all, I -- I[’d]
like to be clear that I assumed that I have [] analyzed this situation under Brazilian law.
I’m not saying that Brazilian law [] appl[ies] or not, but I am assuming this situation under
[] Brazilian law.”); Tr. 959 (Fernandes) (“Q: And it is your opinion . . . that Brazilian law
applies to the question of whether CertiSign Holding made a sufficient expression of will
to assume the debt. A: I don’t have an opinion about Delaware law or Delaware court[s].
What [I can say] is under [] Brazilian law, we have [a] debtor that is [a] Brazilian company.
So we have some connection with [] Brazilian law. Q: And so it’s your opinion that
Brazilian law applies to this question; correct? A: No. My assumption is that Brazilian
law appl[ies].”).
234
Deuley v. DynCorp Int’l, Inc., 8 A.3d 1156, 1161 (Del. 2010) (explaining that, in the
case of a “false conflict, [] the court should avoid the choice-of-law analysis altogether”).

63
 2. No Assumption under Brazilian Law

If Brazilian law applies, Fernandes opined that the consent of the party

assuming the debt and the creditor is required in order for an assumption of debt to

take place.235 According to Fernandes, the so-called “expression of will doctrine”

governs that consent under Brazilian law.236 Under this doctrine, an expression of

will occurs “when the part[ies] show the intention or said intention” or “when the

part[ies] confirm this expression of will [] in a contract or with any document or with

some behavior that confirm[s] the expression of will.” 237 Applying the doctrine,

Fernandes concluded that CertiSign did not assume the Debt because an expression

of will to assume a debt must be achieved through a resolution of a board of directors.

Recognition of the Debt in CertiSign’s audited financial statements, even though

approved by CertiSign’s board or officers, is not a sufficient expression of will

because the board did not expressly resolve to assume the Debt. Moreover, because

235
Tr. 958 (Fernandes).
236
Id. Because she concluded that Delaware law applied, Junqueira did not opine on
whether the Debt was assumed under Brazilian law. Tr. 860 (Junqueira) (The Court: “As
regards to debt assumption, my understanding is under Brazilian law, she has offered no
opinion beyond saying she agrees with Mr. Fernandes.”).
237
Tr. 938–39 (Fernandes). At his deposition, Fernandes testified that under Brazilian law,
“[t]here is not any specific form required [for an expression of will], but there needs to be
a decision of the people in charge.” See also Tr. 861 (Junqueira).

64
the audited financials are subject to qualifiers from the auditors, they also cannot

evidence the Board’s unfiltered expression of will.238

Fernandes’ testimony was credible. While there certainly is some

circumstantial evidence in the trial record that might suggest CertiSign had

“expressed its will” to assume the Debt, the absence of any board resolution, contract

or even unequivocal correspondence to that effect, in my view, is telling. In the

absence of such evidence, I do not find an adequate “expression of will” by the

parties to consummate an assumption by CertiSign of CertiSign Brazil’s debt to SK

Holdings under Brazilian law.

3. No Assumption under Delaware Law

Under Delaware law, “[a] contract for the assumption of the liabilities of

another is a third party beneficiary contract in which the debtor is the promisee, the

assuming party the promisor, and the original creditor the beneficiary.”239 A “valid

contract exists when (1) the parties intended that the contract would bind them,

(2) the terms of the contract are sufficiently definite, and (3) the parties exchange

legal consideration.”240 “Whether both of the parties manifested an intent to be

238
Tr. 964–972 (Fernandes).
239
John Julian Const. Co. v. Monarch Builders, Inc., 306 A.2d 29, 33 (Del. Super. Ct.
1973), aff’d, 324 A.2d 208 (Del. 1974).
240
Black Horse Capital, LP v. Xstelos Hldgs., Inc., 2014 WL 5025926, at *12 (Del. Ch.
Sept. 30, 2014) (citing Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010)).

65
bound is to be determined objectively based upon their expressed words and deeds

as manifested at the time rather than by their after-the-fact professed subjective

intent.”241 “To determine whether a binding contract exists, therefore, courts in

Delaware look for objective, contemporaneous evidence indicat[ing] that the parties

have reached an agreement, whether that be in the parties’ spoken words or

writings.” 242 Based on the record, I find that, although CertiSign and CertiSign

Brazil contemplated that CertiSign would assume the Debt in December 2010, they

stopped short of entering into an enforceable contract.

(a) Circumstantial Expressions of Intent to Assume the Debt

There is no dispute that SK Holdings clearly intended that CertiSign would

assume the Debt. The dispute is whether CertiSign and CertiSign Brazil ever

reached that same state of clarity. In my view, they did not.

To be sure, there is evidence indicating that a debt assumption was

contemplated. For instance, CertiSign Brazil approved upstreaming $2,350,000 to

CertiSign to repay a portion of the Debt and both CertiSign and CertiSign Brazil

evidenced the assumption in their financial statements and general ledgers. 243 The

amount of the upstreamed funds, $2,350,000, approximates the Interest Bearing

241
Id.
242
Id.
243
PTO ¶ 18; JX 417 at 46.

66
Debt Portion of the Third Interest Calculation Approach ($2,309,707.71) which

Kulikovsky, Cosentino, Khafif and others discussed in December 2010 as part of an

effort to calculate the amount of the Debt owed to SK Holdings and the applicable

interest. 244
Moreover, CertiSign Brazil’s general ledgers contained entries

indicating “forgiveness of SK Holding debt”245 and it paid Brazilian taxes for the

loan forgiveness. 246
Indeed, CertiSign Brazil’s financial statements ending

December 31, 2010 and 2011 note operating revenue that was deemed “misc.

revenue – debt forgiveness.”247

For its part, CertiSign’s balance sheet ending December 31, 2010, shows an

entry “total debt with SK Holding” in the amount of $2,318,820,248 and its United

States tax returns for 2010 and 2012 list debt due to SK Holdings as a current

liability, also in the amount of $2,318,820.249 In December 2010, CertiSign recorded

244
JX 83 at 5–7.
245
Pl.’s Opening Br. 60 (citing JX 88 at 1).
246
Tr. 399 (Khafif).
247
JX 167 at 48.
248
JX 105 at 4.
249
JX 132 at 41; JX 231 at 44. Khafif signed CertiSign’s 2012 tax returns, which reflected
the Debt, and he testified that the document reflected “the best of [his] knowledge at the
time.” Tr. 483–84 (Khafif). Entries on filed tax documents can be deemed admissions of
contested facts. See Numoda, 2015 WL 402265, at *11 (“Given the lack of formality, the
evidence that these contested acts occurred largely exists in the form of testimony,
67
two debits, totaling $3,434,602, that it described as “debt to be capitalized” and

“investment in Certipar S.A.,” as well as two credits, also totaling $3,434,602

(a $1,115,782 credit and a $2,318,820 credit), characterized as “debt to be

capitalized” and “debt with related entities – SK.”250 The $1,115,782 credit matches

the $1,115,782.02 non-interest bearing portion of the Debt that was to be capitalized

pursuant to the 2005 SPA, 251 while the $2,318,820 credit is close to the amount

upstreamed and the Interest Bearing Debt Portion.

(b) Specificity of the Terms of the Assumption

Despite the evidence of an intent to assume the Debt in CertiSign and

CertiSign Brazil’s general ledgers, financial statements and tax returns, the terms of

the assumption as reflected in those documents lack the specificity required to

evidence a binding agreement that can be specifically enforced by the Court or

validated under Section 205.252 The numbers appearing on the various financial

documents discussed above are close in value to the Debt, but they do not replicate

documents prepared by independent contractor John Dill (‘Dill’), and representations by
agents of the corporations (such as tax filings) not formally adopted by the board.”).
250
PTO ¶ 17.
251
JX 196 at 48.
252
See Szambelak v. Tsipouras, 2007 WL 4179315, at *4 (Del. Ch. Nov. 19, 2007)
(to obtain specific performance the plaintiff must demonstrate, by clear and convincing
evidence, the terms of “a valid and specifically enforceable contract”).

68
the Debt in a manner that would support a finding that the terms of the Debt

assumption are stated there. In particular, the amount upstreamed, the Interest

Bearing Debt Portion and the amount CertiSign credited differ by as much as

$40,292.29. Furthermore, it is unclear whether the plan was for CertiSign to assume

the entire Debt or just the Interest Bearing Debt Portion. CertiSign’s financial

statements show credits and debits that appear to account for the non-interest bearing

portion of the Debt, but CertiSign Brazil appears to have only upstreamed enough to

cover the Interest Bearing Debt Portion. Therefore, the circumstantial evidence

within the financial statements raises unanswered questions that preclude a finding

that the parties entered into a “specifically enforceable contract.” 253

(c) Legal Consideration

Even assuming I could find that the terms of the assumption were sufficiently

definite to allow for specific enforcement, it is difficult to discern how the parties

exchanged legal consideration. “It is well settled that consideration for a contract

can consist of either a benefit to the promisor or a detriment to the promisee.”254

253
Id.
254
First Mortg. Co. of Pa. v. Fed. Leasing Corp., 456 A.2d 794, 795–96 (Del. 1982).
See also 3 Williston on Contracts § 7:19 (4th ed.) (“so long as the promisee incurs a
bargained-for detriment, in exchange for the promisor’s undertaking, the promisor’s
promise is supported by consideration and may be enforced”). I note that, in this case, the
lack of specificity with regard to the terms of the purported Debt assumption makes
designating who is “promisor” and who is “promisee” for purposes of determining the
69
Viewing this transaction most favorably to Defendants, CertiSign Brazil upstreamed

cash to CertiSign so that CertiSign could pay CertiSign Brazil’s debt. With that

transactional structure in mind, it is difficult to see any benefit or detriment to either

party. CertiSign Brazil was to pay off a debt that it already owed, albeit through

CertiSign as middleman; for its part, CertiSign was to receive money from CertiSign

Brazil so that it could pay off CertiSign Brazil’s debt. Without a formal debt

assumption in hand that might provide some nuanced twist to the consideration

analysis, I cannot detect any cognizable benefit or detriment as between the parties

to the purported agreement that could support a finding of legal consideration.

(d) Statute of Frauds

Even if Defendants could clear the legal consideration hurdle, they still run

smack into the impassable wall that is the statute of frauds. Under 6 Del. C.

§ 2714(a), Delaware’s statute of frauds, agreements to answer for the debt of

another—assumption of debt—must be reduced to a writing.255 “The contract to

adequacy of legal consideration more complicated than usual. That fact, alone, suggests
that consideration is lacking here.
255
6 Del. C. § 2714(a) (“No action shall be brought to charge any person upon any
agreement made upon consideration of marriage, or upon any contract or sale of lands,
tenements, or hereditaments, or any interest in or concerning them, or upon any agreement
that is not to be performed within the space of 1 year from the making thereof, or to charge
any person to answer for the debt, default, or miscarriage, of another, in any sum of the
value of $25 and upwards, unless the contract is reduced to writing, or some memorandum,
or notes thereof, are signed by the party to be charged therewith, or some other person
thereunto by the party lawfully authorized in writing . . .”) (emphasis added); Borish v.
Graham, 655 A.2d 831, 834 (Del. Super. Ct. 1994) (“Section 2714(a) of Title 6 of the
70
assume the debt of another must not only be in writing but the writing must contain

on its face enough to show that the person signing it was assuming liability.”256 And

the fact the Debt could have been repaid within one year does not remove the

purported assumption agreement from the strictures of the statute of frauds.257

Defendants argue that the existence of multiple writings evidencing the Debt

assumption satisfies the statute of frauds. 258 Indeed, our law recognizes that

“[m]ultiple writings will satisfy the statute of frauds if they (a) reasonably identify

the subject matter of the contract, (b) indicate that a contract has been made between

the parties or an offer extended by the signing party and (c) state with reasonable

certainty the essential terms of the unperformed promises in the contract.”259 While

Defendants do not specify the multiple writings they would have the Court rely upon

Delaware Code, provides essentially four situations in which an agreement must be in
writing and signed by the party to be charged in order to be enforceable: agreements for
marriage; agreements that cannot be performed within one year; agreements for the sale of
land; and agreements to answer for the debt of another.”) (emphasis in original).

Trader v. Wilson, 2002 WL 499888, at *5 (Del. Super. Ct. Feb. 1, 2002), aff’d, 804 A.2d
256

1067 (Del. 2002) (internal quotations omitted).
257
Borish, 655 A.2d at 834 (“All four types of agreements specified in [S]ection 2714(a)
must therefore be in writing and signed by the party to be charged to be enforceable,
regardless of whether they can be performed within one year. The legislature specified
that each of these agreements must meet certain requirements to be enforceable. To hold
otherwise would be contrary to the expressed legislative intent.”).
258
Defs.’ Answering Br. 7 (citing Olson v. Halvorsen, 982 A.2d 286, 293 (Del. Ch. 2008),
aff’d, 986 A.2d 1150 (Del. 2009)).
259
Olson, 982 A.2d at 293.

71
to invoke this exception, I presume they rest their argument, again, on the CertiSign

and CertiSign Brazil financial statements and general ledgers and CertiSign’s tax

returns.260 These writings, if one can characterize them as such, are not what our

law requires to satisfy the statute of frauds by presenting “multiple writings.”

In Olson v. Halvorsen, the case upon which Defendants principally rely to

defeat CertiSign’s statute of frauds defense, the “writings” at issue were a signed

and an unsigned agreement. 261 There, the Court’s multiple writings analysis

centered on whether the signed agreement sufficiently referenced the unsigned

agreement such that the unsigned agreement could be excepted from the statute of

frauds.262 Here, however, there are no agreements—no signed agreement, no draft

agreement, no unsigned agreement. That is precisely the problem.263

260
See Defs.’ Opening Br. 33 (“the assumption was evidenced by both companies’
financial statements and general ledgers . . . CertiSign also certified in its U.S. tax returns
that the assumption occurred”).
261
Olson, 982 A.2d at 289.
262
Id. at 293.
263
Id. at 294 (declining to find that an unsigned operating agreement met the multiple
writings exception because there was no “clear and specific reference in a signed writing
to the unsigned [] operating agreement,” and further declining to find that tax returns and
annual statements were sufficiently clear reflections of an agreement to constitute a
“writing” as contemplated by the statute of frauds).

72
 Before leaving the statute of frauds, I pause to consider whether any other

exception might apply here. In my view, the only potentially applicable exception

is detrimental reliance.264 As explained in Professor Williston’s treatise:

When the plaintiff has acted to its detriment solely in reliance on an oral
agreement, the defendant may be estopped to assert the defense of the
Statute of Frauds. This is based on the principle established in equity,
and applying to every transaction in which the Statute is invoked, that
the Statute of Frauds, having been enacted for the purpose of preventing
fraud, may not be made an instrument for shielding, protecting, or
aiding the party who relies on it in the perpetration of a fraud or in the
consummation of a fraudulent scheme. It is called into operation to
defeat what would be an unconscionable use of the Statute and guards
against the utilization of the Statute as a means for defrauding innocent
persons who have been induced or permitted to change their position in
reliance on oral agreements within its operation.265

264
Defendants erroneously proffer part performance and performance within a year as
applicable exceptions to the statute of frauds. Defs.’ Answering Br. 8–9. As to the part
performance doctrine, “[i]t has generally been said that the Doctrine of Part Performance
is not applicable to provisions of the Statute other than the one relating to real estate.”
10 Williston on Contracts § 28:8 (4th ed.). See also CSH Theatres, LLC v. Nederlander of
San Francisco Assocs., 2015 WL 1839684, at *17 (Del. Ch. Apr. 21, 2015)
(“Part performance is a well-recognized exception to the Statute of Frauds for contracts
involving interests in land.”); CSH Theatres, 2015 WL 1839684, at *17 n.84 (“Indeed, the
part performance exception applies only to oral contracts involving interests in land.”);
Hionis v. Shipp, 2005 WL 1490455, at *5 (Del. Ch. June 16, 2005) (same), aff’d, 903 A.2d
323 (Del. 2006). The “performance within a year” doctrine fails per 6 Del. C. § 2714(a).
Borish, 655 A.2d at 834 (“All four types of agreements specified in section 2714(a) must
therefore be in writing and signed by the party to be charged to be enforceable, regardless
of whether they can be performed within one year.”).
265
10 Williston on Contracts § 27:16 (4th ed.). See also Walton v. Beale, 2006
WL 4763946, at *4 (Del. Ch. Jan. 30, 2006) (finding detrimental reliance on an oral
contract to buy land where plaintiff “paid $20,000 in earnest money . . . and has paid what
he believes were property taxes on [the] lots” for several years).

73
Here, Defendants do not attempt to explain how SK Holdings was “induced . . . to

change [its] position in reliance on [the] oral agreement [for CertiSign to assume the

Debt].” 266 Rather, Defendants’ argument with regard to detrimental reliance

comprises exactly one sentence and lacks any reference to facts in the record.267 This

is not surprising, however, given that the record reveals that SK Holdings was

content to refrain from seeking repayment of the Debt starting from when the loan

was made in 2002 up until 2012.268 By then, Kulikovsky’s relationship with his

CKS partners had soured and he raised repayment of the Debt as a condition to

offering his cooperation to effect the Self-Help.269 There was no detrimental reliance

here.

Nor does the record support the conclusion that SK Holdings’ forbearance

was fraudulently induced. Rather, the evidence reveals that the parties considered

and then pursued an effort to have CertiSign assume CertiSign Brazil’s debt. That

effort, by all accounts, was well intentioned. It simply fell short of producing an

266
10 Williston on Contracts § 27:16 (4th ed.).
267
Defs.’ Answering Br. 8 (“SK Holdings detrimentally relied on the assumption by
foregoing collection of the Debt from CertiSign Brazil, a forbearance reflected on
CertiSign Brazil’s financial statements.”).
268
See Tr. 69–70, 84–86, 98, 152–53 (Kulikovsky).
269
Tr. 69–70; JX 252 at 21 (“[Kulikovsky] admits that he was unwilling to support the
‘self-help’ process unless the Board ratified . . . the warrant issued to CKS, options issued
to certain senior executives and [the] [D]ebt owed to SK Holdings.”).

74
enforceable agreement. Accordingly, I am satisfied that the detrimental reliance

exception to the statute of frauds does not apply because the record is devoid of any

suggestion that SK Holdings relied on an oral agreement that CertiSign would

assume the Debt or that CertiSign or CertiSign Brazil engaged in any sort of

fraudulent inducement.

Having found that Defendants have failed to prove that an enforceable

contract exists pursuant to which CertiSign assumed the Debt, I reject the request

for specific performance or damages on the Debt.270 Nor will the Court employ

270
JX 258 ¶ 51; PTO ¶¶ 70, 113–14; Pretrial Br. of Def./Counterclaim Pls. Sergio
Kulikovsky & SK Int’l Hldgs, LLC 3. Although not ultimately relevant to my decision,
I cannot help but observe that CertiSign’s protestation that it cannot, as a matter of
Brazilian law, assume and repay the Debt is not convincing. As I understand the Brazilian
law experts’ testimony at trial, both ultimately acknowledged that the failure to register the
Debt with the Brazilian Central Bank does not prevent repayment. Tr. 838 (Junqueira),
943–44 (Fernandes). According to Junqueira, the assumption of a Brazilian company’s
debt by a foreign company is not a foreign exchange contract governed by the Brazilian
Central Bank that would require registration with that bank. Tr. 833 (Junqueira). While
Fernandes disagreed, he conceded that the failure to register the Debt does not prevent the
debt from being repaid if the proper regulatory procedures are followed. Tr. 944
(Fernandes). Specifically, both experts agreed that the party responsible for registering the
Debt, CertiSign Brazil, could pay a fine, which would then allow CertiSign to assume and
repay the Debt. Tr. 847, 911, 916–17 (Junqueira); 976–77 (Fernandes). According to
Junqueira, CertiSign Brazil’s fine burden if it registered the Debt at the time of trial would
have been approximately R$125,000, or $40,000 USD. Tr. 848–49 (Junqueira). Moreover,
the Brazilian Central Bank has five years to charge a fine, so it may well be that the statute
of limitations on any fine has already expired. Tr. 844 (Junqueira), 937 (Fernandes). Under
these circumstances, it is clear to me that CertiSign Brazil and CertiSign could figure out
a way to get the Debt repaid if they were inclined to do so. That they are not is, no doubt,
frustrating to Kulikovsky and highly disappointing to the Court. Unfortunately, for the
reasons stated, I cannot find that a valid debt assumption occurred here and I have no
jurisdiction over CertiSign Brazil to compel it to pay what it owes to SK Holdings.

75
Section 205 to force a debt assumption upon CertiSign to which the necessary parties

never agreed. This is not a case for validation, again, because there was no defective

corporate act to validate.271

D. Damages and Interest

As a remedy for Kulikovsky’s breach of fiduciary duty, CertiSign seeks to

recover the legal fees and expenses it incurred while attempting to implement the

Self-Help, while prosecuting the Section 205 Action and while defending the

Counterclaims in the present action. 272 It also seeks “pre-judgment and post-

judgment interest on a compounded basis.”273

“[T]he scope of recovery for a breach of the duty of loyalty is not to be

determined narrowly.”274 “The strict imposition of penalties under Delaware law

are designed to discourage disloyalty.”275 In general, “damages must be logically

and reasonably related to the harm or injury for which compensation is being

271
Numoda, 2015 WL 402265, at *7 (citing 8 Del. C. § 205(b)(8), (b)(10)).
272
Pl.’s Pre-Trial Br. 16; Pl.’s Opening Br. 39–40; Pl.’s Answering Br. 18.
273
PTO ¶ 108.
274
Thorpe v. CERBCO, Inc., 676 A.2d 436, 445 (Del. 1996). See also id. at 444 (finding
breach of “fiduciary duties and that damages flowing from that breach are to be liberally
calculated”).
275
Thorpe, 676 A.2d at 445.

76
awarded.” 276
With that said, “[c]oncerns of equity and deterrence justify

‘loosen[ing] normally stringent requirements of causation and damages’ when a

breach of the duty of loyalty is shown.”277

CertiSign asserts that if Kulikovsky had simply signed the director consents,

then litigation would have been avoided because the Self-Help would have corrected

the Company’s defective capitalization and board issues, CertiSign ultimately would

have agreed to issue to Kulikovsky the options he seeks and CertiSign also would

have agreed to assume the Debt.278 According to CertiSign, Kulikovsky should not

receive any credit for his June 2014 “surrender,” given that CertiSign’s only viable

remedial option at that point was to file and prosecute the Section 205 Action.279

Thus, CertiSign seeks all fees and expenses it incurred related to the Self-Help and

related litigation, as well as “two-thirds of the total fees and expenses [it incurred in

this action], which represents the fees and expenses incurred” in defense of the

Counterclaims.280

276
In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 773 (Del. 2006).
277
In re Primedia Inc. Deriv. Litig., 910 A.2d 248, 262 (Del. Ch. 2006) (citing Thorpe,
676 A.2d at 445).
278
Pl.’s Opening Br. 39–40.
279
Pl.’s Answering Br. 15–16.
280
Pl.’s Opening Br. 40–41 n.25; Pl.’s Answering Br. 19–20.

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 Defendants, by contrast, argue that CertiSign may “recover only a fraction”

of the fees and expenses it incurred related to the Section 205 Action, and may not

recover any fees and expenses incurred in the present action. 281 In this regard,

Defendants contend that (1) Kulikovsky should receive some credit for his June 2014

surrender, whereby he expressed his willingness to consent to CertiSign’s proposed

Self-Help measures without the conditions he had previously imposed; (2) since

CertiSign rejected Kulikovsky’s surrender, it should “recover nothing more than the

cost of preparing and filing the [Section] 205 Petition”; and (3) there is no basis on

which CertiSign may recover any fees or expenses it incurred in defending the

Counterclaims in this action.282

Between March 2013 and December 2015, CertiSign incurred $390,455.20 in

legal fees and expenses in connection with remedying its defective capitalization and

board issues—including its prosecution of the Section 205 Action.283 Thereafter,

CertiSign incurred $1,249,223.81 in fees and expenses between November 2015 and

September 2017 in connection with the prosecution of its breach of fiduciary duty

claim and its defense of the Counterclaims in this action.284

281
Defs.’ Opening Br. 55.
282
Id. at 55, 59.
283
JX 429.
284
Id. at 2–3.

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 After carefully reviewing the evidence, I award CertiSign damages in the

amount of $390,455.20, reflecting all legal fees and expenses incurred by CertiSign

in connection with its efforts to remedy its defective capitalization and board issues

after March 18, 2013, the date on which Kulikovsky first imposed self-interested

conditions on his cooperation in effecting the Self-Help.285 Such fees and expenses

are “logically and reasonably related to the harm or injury” for which CertiSign seeks

compensation; namely, Kulikovsky’s self-interested sabotage of CertiSign’s Self-

Help process to remedy its capitalization defect and board issues.286

Kulikovsky’s refusal to sign the Self-Help documents made it impossible for

CertiSign to remedy its defective capitalization and board issues without judicial

intervention. By the time of his “surrender” in June 2014, Kulikovsky was no longer

on the CertiSign board and, therefore, no longer in a position to facilitate CertiSign’s

Self-Help process. At that point, with the need for judicial intervention obvious to

all, Kulikovsky could have chosen to consent to the relief sought in the Section 205

Action, as requested by CertiSign prior to initiating the action, or he could choose to

fight. Consistent with his pattern of self-interested recalcitrance, he chose to fight.

In doing so, he passed on the opportunity to contain the Section 205 litigation

expenses caused by his breach. CertiSign was required to respond to Kulikovsky’s

285
Id. at 1.
286
J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d at 773.

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counterclaims—which dragged the distinct issues of option grants and Debt

assumption into the Section 205 Action—and then to litigate a contested motion for

judgment on the pleadings. Not surprisingly, Vice Chancellor Noble granted

CertiSign’s motion, validated the capital structure and directed that the

Counterclaims should be litigated separately. This was an entirely predictable result

given the urgency of the issues presented in CertiSign’s petition and the peripheral

nature of the issues relating to the option grants and Debt assumption. Under these

circumstances, it is entirely reasonable, indeed necessary, to compensate CertiSign

for all fees incurred leading up to and in connection with the Section 205 Action.287

Compensation to CertiSign for its need to defend claims that Kulikovsky

would have brought in any event, however, is not warranted. Those fees and

expenses are not “logically and reasonably related to the harm or injury” that

CertiSign suffered as a result of Kulikovsky’s breach of fiduciary duty.288 Indeed,

Defendants have presented legitimate disputes relating to the alleged option grants

and the Debt assumption. That Defendants ultimately did not prevail is no basis to

award attorneys’ fees incurred by CertiSign in defense of those claims. There is no

287
I am satisfied that the amount of the fees incurred by CertiSign leading up to and during
the Section 205 Action is reasonable. In this regard, I note that Defendants have raised no
meaningful challenge to the amount of the fees billed by any of CertiSign’s legal counsel.
Thus, as stated, CertiSign is awarded $390,455.20 in damages from Kulikovsky on account
of his breach of fiduciary duty.
288
J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d at 773.

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contractual or statutory basis for fee-shifting.289 Nor have Defendants engaged in

bad faith by presenting a legitimate dispute for adjudication.290 Thus, CertiSign’s

request for fees with respect to its defense of the Counterclaims must be denied.

As for the interest calculation, “prejudgment interest in Delaware cases is

awarded as a matter of right, [and] the general rule is that interest accumulates from

the date payment was due the plaintiff.”291 The “legal rate of interest has historically

been the benchmark for pre-judgment interest.”292 “Subject to the court’s discretion,

a party is also entitled to post-judgment interest until the date of payment on an

amount that includes both the amount of the judgment and the amount of

prejudgment interest.”293 “Unless the parties have specified another rate by contract

or the court determines that a different rate is warranted by the equities, the statutory

289
Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68
A.3d 665, 686 (Del. 2013) (“It is beyond dispute that litigants in Delaware are generally
responsible for paying their own counsel fees, absent special circumstances or a contractual
or statutory right to receive fees.”) (internal quotations omitted).
290
Shawe v. Elting, 157 A.3d 142, 149 (Del. 2017) (“Although there is no single definition
of bad faith conduct, courts have found bad faith where parties have unnecessarily
prolonged or delayed litigation, falsified records[,] or knowingly asserted frivolous
claims.”) (internal quotations omitted) (alternation in original).
291
Brandywine Smyrna, Inc. v. Millennium Builders, LLC, 34 A.3d 482, 486 (Del. 2011)
(internal quotations omitted).
292
Summa Corp. v. Trans World Airlines, Inc., 540 A.2d 403, 409 (Del. 1988).
293
BTG Int’l, Inc. v. Wellstat Therapeutics Corp., 2017 WL 4151172, at *21 (Del. Ch.
Sept. 19, 2017). See also Summa, 540 A.2d at 409 (stating the Court “has broad discretion,
subject to principles of fairness, in fixing the [interest] rate to be applied.”).

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rate of interest governs.”294 The Court’s broad discretion in fixing the interest rate

includes the authority to award compound interest,295 and “compound interest is a

more accurate means of measuring the time value of money.”296

Given the nature of Kulikovsky’s fiduciary breach, I award CertiSign pre-

judgment and post-judgment interest at the statutory rate, compounded quarterly.297

Pre-judgment interest shall accrue beginning March 18, 2013, the date of the

CertiSign stockholder meeting where Kulikovsky first declined to cooperate with

regard to the Self-Help unless his fellow CKS stockholders acceded to his self-

interested demands.298 Post-judgment interest shall be calculated “on an amount that

includes both the amount of the judgment and the amount of prejudgment

interest.”299

294
BTG Int’l, 2017 WL 4151172, at *21.
295
Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 173 (Del. 2002) (“[W]e
agree with the Court of Chancery that its uncontested ‘discretion to select a rate of interest
higher than the statutory rate . . . include[es] the lesser authority to award compounding.’”).
296
ReCor Med., Inc. v. Warnking, 2015 WL 535626, at *1 (Del. Ch. Jan. 30, 2015)
(awarding “interest on the fee and expense award[,] compounded quarterly”).
297
See id.
298
Tr. 322 (Kulikovsky); see Brandywine Smyrna, 34 A.3d at 486 (“Prejudgment interest
in Delaware cases is awarded as a matter of right, [and] the general rule is that interest
accumulates from the date payment was due the plaintiff” or the date of the harm).
299
BTG Int’l, 2017 WL 4151172, at *21.

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 III. CONCLUSION

For the foregoing reasons, judgment is entered in favor of CertiSign on its

breach of fiduciary duty claim and on the two Counterclaims. CertiSign is awarded

damages in the amount of $390,455.20, with pre-judgment and post-judgment

interest at the statutory rate, compounded quarterly. Given that Kulikovsky

presented a serious dispute, particularly with respect to the Debt, I am satisfied, in

this instance, that both parties should bear their own costs notwithstanding Court of

Chancery Rule 54(d).300

IT IS SO ORDERED.

300
Cf. Consol. Fisheries Co. v. Consol. Solubles Co., 112 A.2d 30, 40 (Del. 1955)
(confirming that taxation of prevailing party costs under statute analogous to Chancery
Rule 54(d) is left to the sound discretion of the trial judge), modified on other grounds, 113
A.2d 576 (Del. 1955).

83