COURT OF CHANCERY
OF THE
STATE OF DELAWARE
KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
January 29, 2021
Richard P. Rollo, Esquire Brad D. Sorrels, Esquire
Travis S. Hunter, Esquire Andrew D. Cordo, Esquire
Sarah A. Clark, Esquire Daniyal M. Iqbal, Esquire
Robert B. Greco, Esquire Wilson Sonsini Goodrich & Rosati, P.C.
Angela Lam, Esquire 222 Delaware Avenue, Suite 800
Richards, Layton & Finger, P.A. Wilmington, DE 19801
920 N. King Street
Wilmington, DE 19801 David J. Teklits, Esquire
Alexandra M. Cumings, Esquire
A. Thompson Bayliss, Esquire Morris, Nichols, Arsht & Tunnell LLP
Adam K. Schulman, Esquire 1201 N. Market Street, 16th Floor
Abrams & Bayliss LLP Wilmington, DE 19801
20 Montchanin Road, Suite 200
Wilmington, DE 19807
Re: Riskin v. Burns et al., C.A. No. 2019-0570-KSJM
Dear Counsel:
The plaintiff has filed an application for certification of interlocutory appeal
on the following issue raised by my December 31, 2020 Memorandum Opinion:
Can a company’s issuance of convertible preferred stock to a controlling
stockholder, pre-conversion, constitute economic dilution sufficient to support a
C.A. No. 2019-0570-KSJM
January 29, 2021
Page 2 of 6
direct claim under Gentile v. Rossette, 906 A.2d 91 (Del. 2006). 1 For the reasons
discussed below, I am denying the application.
Delaware Supreme Court Rule 42 establishes the factors that this court must
consider when determining whether to certify an interlocutory appeal. Rule 42
permits certification when “the order of the trial court decides a substantial issue of
material importance that merits appellate review before a final judgment.” 2 If the
“substantial issue” requirement is met, this court will then analyze whether “there
are substantial benefits that will outweigh the certain costs that accompany an
interlocutory appeal.”3
“The ‘substantial issue’ requirement is met when an interlocutory order
decides a main question of law which relates to the merits of the case, and not to
collateral matters.” 4 A Rule 12(b)(6) motion to dismiss is a merits-based motion and
is substantial in that respect, thus warranting a review of the Rule 42(b)(iii) factors.
1
C.A. No. 2019-0570-KSJM, Docket (“Dkt.”) 94, Mem. Op. at 30–36. For convenience,
this letter opinion uses the defined terms provided in the Memorandum Opinion.
2
Supr. Ct. R. 42(b)(i).
3
Supr. Ct. R. 42(b)(ii).
4
Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2861717, at *1 (Del. Ch. July 22, 2008);
accord. Castaldo v. Pittsburgh-Des Moines Steel Co., 301 A.2d 87, 87 (Del. 1973);
TowerHill Wealth Mgmt., LLC v. Bander Fam. P’ship, L.P., 2008 WL 4615865, at *2 (Del.
Ch. Oct. 9, 2008).
C.A. No. 2019-0570-KSJM
January 29, 2021
Page 3 of 6
Of the Rule 42(b)(iii) factors, the plaintiff argues that two support his
application: factor “B” concerning whether the “decisions of the trial courts are
conflicting upon the question of law,”5 and factor “H” concerning whether the
“[r]eview of the interlocutory order may serve considerations of justice.” 6
Factor “B” supports the plaintiff’s application. In the Memorandum Opinion,
I relied on Reith and Klein for the proposition that the challenged preferred stock
issuance did not conform to the transactional paradigm necessary to support a claim
under Gentile. 7 The plaintiff contends that these cases and my ruling stand in
conflict with a number of authorities.8 I do not view the plaintiff’s authorities as
standing in direct conflict with my ruling.9 They were all decided before El Paso
Pipeline GP Co. v. Brinckerhoff, 10 which implicitly abrogated aspects of our law.11
5
Supr. Ct. R. 42(b)(iii)(B).
6
Supr. Ct. R. 42(b)(iii)(H).
7
Mem. Op. at 33–36.
8
See id. at 32–36; Dkt. 98, Pls.’ Appl. for Interlocutory Appeal ¶¶ 12–20.
9
See Dkt. 100, Defs.’ Opp’n to Pl.’s Appl. for Certification of an Interlocutory Appeal
(“Defs.’ Opp’n”) ¶¶ 9–14.
10
152 A.3d 1248, 1251 (Del. 2016).
11
See Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *10 (Del. Ch.
July 26, 2018) (observing that “El Paso . . . implicitly rejected the reasoning of decisions
such as . . . Nine Systems, which had extended Gentile to any dilutive issuance approved
by a conflicted board”); In re TerraForm Power, Inc. S’holders Litig., 2020 WL 6375859,
at *14 n.185 (Del. Ch. Oct. 30, 2020) (citing Sciabacucchi for the same proposition)
[hereinafter TerraForm I].
C.A. No. 2019-0570-KSJM
January 29, 2021
Page 4 of 6
I acknowledge, however, that the Gentile doctrine is in flux and that our law could
benefit from clarity concerning its continuing vitality.12 This factor, therefore, tips
in the plaintiff’s favor.
Factor “H” similarly supports the plaintiff’s application. On this point, I am
persuaded by Vice Chancellor Glasscock’s recent decision certifying interlocutory
appeal in TerraForm.13 Because I cannot improve upon his words, I direct readers
to that letter opinion. 14 To quote a portion:
[I]n light of case law questioning the continued vitality
of Gentile at the trial court level, and in light of criticism
at the Supreme Court level, I find it in the interest of justice
that the matter be available for review by the Supreme
Court at this Motion to Dismiss stage. 15
The Vice Chancellor further observed that even if the appeal was unsuccessful, the
appeal would still serve the interests of justice “by clarifying an area of law that
appears to be in a state of flux.”16
12
See TerraForm I, 2020 WL 6375859, at *13–14 (“Gentile has been much discussed, and
often distinguished, in the case law . . . . Post-Gentile, Delaware courts have struggled to
define the boundaries of dual-natured claims. . . . Gentile’s limited application to controller
transactions [is] not forgone or obvious.” (formatting altered)).
13
In re TerraForm Power, Inc. S’holders Litig., 2020 WL 6889189 (Del. Ch. Nov. 24,
2020) [hereinafter TerraForm II].
14
Id.; see also Terraform I, 2020 WL 6375859, at *15 (denying motion to dismiss and
discussing the “unsatisfying” aspects of this area of our law).
15
TerraForm II, 2020 WL 6889189, at *1.
16
Id.
C.A. No. 2019-0570-KSJM
January 29, 2021
Page 5 of 6
Although the plaintiff’s two factors weigh in favor of certification, the
defendants make persuasive arguments against this outcome. They observe, and
rightly so, that the procedural posture of this action does not support interlocutory
appeal. In TerraForm, the Gentile claim supplied the plaintiff’s only basis for
standing and thus the appeal had the potential to end the litigation. By contrast, in
this case, I have concluded that the plaintiff may pursue his derivative claims for
breach of fiduciary duty as to the challenged financing. At most, a successful
interlocutory appeal would add back overlapping direct claims for the same alleged
breaches of fiduciary duties.17 Further complicating matters, this case is already
proceeding piecemeal. The defendants’ dismissal motions are not fully resolved,
and I have granted the parties leave to submit supplemental briefs as to what issues
remain.18 Put simply, this a messy case on which it would be difficult to neatly tee
up resolution of an issue related to an evolving area of law.
For these reasons, I find that the benefits of an interlocutory appeal do not
outweigh the costs, and thus this is not the “rare exception” where interlocutory
17
See Supr. Ct. R. 42(b)(iii)(G) (“[I]n deciding whether to certify an interlocutory appeal,
the trial court should consider whether . . . [r]eview of the interlocutory order may terminate
the litigation . . . .”).
18
See Dkt. 97, Letter from the Honorable Kathaleen St. J. McCormick Requesting
Supplemental Briefing on Outstanding Issues Raised by Defs.’ Mot. to Dismiss.
C.A. No. 2019-0570-KSJM
January 29, 2021
Page 6 of 6
appeal is warranted.19 Despite the interesting issue it raised, the plaintiff’s
application is DENIED.
Sincerely,
/s/ Kathaleen St. Jude McCormick
Kathaleen St. Jude McCormick
Vice Chancellor
cc: All counsel of record (by File & ServeXpress)
19
See TerraForm II, 2020 WL 6889189, at *1.