EFiled: Jun 23 2021 01:32PM EDT
Transaction ID 66709971
Case No. 2020-1058-JRS
THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MICHAEL M. GOLDBERG, M.D., )
)
Petitioner, )
)
v. ) C.A. No. 2020-1058-JRS
)
CLAUDINE BRUCK, MICHAEL RICE, )
and MACROPHAGE THERAPEUTICS, INC., )
)
Respondents. )
MEMORANDUM OPINION
Date Submitted: March 16, 2021
Date Decided: June 23, 2021
R. Karl Hill, Esquire of Seitz, Van Ogtrop & Green, P.A., Wilmington, Delaware
and Gregory Zimmer, Esquire of New York, New York, Attorneys for Petitioner.
Richard P. Rollo, Esquire, Sarah A. Clark, Esquire and Angela Lam, Esquire of
Richards, Layton & Finger, P.A., Wilmington, Delaware; Barry Kazan, Esquire of
Mintz & Gold LLP, New York, New York; and Faith Charles, Esquire of Thompson
Hine LLP, New York, New York, Attorneys for Respondents.
SLIGHTS, Vice Chancellor
Petitioner, Michael M. Goldberg, M.D., brings this action under Section 225
of the Delaware General Corporation Law against Respondents, Claudine
Bruck, M.D., Michael Rice and Macrophage Therapeutics, Inc., to obtain a
declaration that Bruck and Rice were not properly placed on the Macrophage board
of directors (the “Board”). According to Dr. Goldberg, the appointment of Bruck
and Rice to the Board via written consent by Macrophage’s sole shareholder,
Navidea Biopharmaceuticals, Inc., was not authorized by Macrophage’s Certificate
of Incorporation and Bylaws.
Respondents have moved to dismiss the action on the ground that, as a matter
of clear contract and, therefore, as a matter of law, Bruck and Rice’s appointments
were duly authorized. After carefully reviewing Macrophage’s governing
documents, it is clear Bruck and Rice were properly appointed to the Board and
Dr. Goldberg’s claim to the contrary must be dismissed.
I. BACKGROUND
I have drawn the facts from well-pled allegations in the Verified Petition (the
“Petition”) and documents incorporated by reference or integral to that pleading. 1
1
Verified Petition (“Pet.”) (D.I. 1); Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d
312, 320 (Del. 2004) (noting that on a motion to dismiss, the Court may consider
documents that are “incorporated by reference” or “integral” to the complaint).
1
For purposes of the motion, I accept as true the Petition’s well-pled factual
allegations and draw all reasonable inferences in Petitioner’s favor. 2
A. Parties
Petitioner, Dr. Goldberg, a resident of New Jersey, is a shareholder of
Macrophage. 3 At all relevant times, Dr. Goldberg has served as a director on the
Board. 4
Respondent, Macrophage (or the “Company”), a Delaware corporation, was
founded in 2015 to develop medical therapeutic products.5
Respondents, Dr. Claudine Bruck, a resident of Pennsylvania, and Michael
Rice, a resident of New Jersey, were purportedly appointed to the Board by written
consent on November 29, 2018.6 Those appointments are the subject of this dispute.
B. The Stock Purchase Agreement and Sub-license Agreement
At the time of Macrophage’s formation, Dr. Goldberg and Platinum-Montaur
Life Sciences, LLC (“Platinum”) entered into a stock purchase agreement
(the “SPA”) with Macrophage under which Dr. Goldberg and Platinum invested
2
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).
3
Pet. ¶ 1.
4
Pet. ¶¶ 13–14.
5
Pet. ¶¶ 4, 6.
6
Pet. ¶¶ 2–3, 14.
2
$500,000 in Macrophage in exchange for preferred stock. 7 Navidea was not a party
to this agreement. 8 The SPA, at Section 5.6, provided that Macrophage should be
managed by a board consisting of three directors—one to be appointed by
Dr. Goldberg and Platinum and two to be appointed by Navidea. 9 Relevant here,
Section 9.8 of the SPA eliminated third party beneficiaries: “[t]his Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.”10
To accomplish Macrophage’s purpose to develop immuno-oncology and
targeted anti-inflammatory therapies, shortly after its founding, Macrophage
received a sub-license from Navidea to utilize intellectual property owned,
controlled and licensed to Navidea by the University of California, San Diego
(the “Licensed IP”). 11 The transfer of rights in the Licensed IP was memorialized in
a sub-license agreement dated March 11, 2015.12
7
Pet. ¶ 7.
8
Id.
9
Resp’ts’ Opening Br. in Supp. of Mot. to Dismiss the Verified Pet. (“OB”) (D.I. 12),
Ex. C (“SPA”) § 5.6.
10
SPA § 9.8.
11
Pet. ¶ 6.
12
Id.
3
C. The Disputed Appointments
Prior to November 29, 2018, Dr. Goldberg and non-party, Mark Greene, were
the only two directors on the Board. 13 On November 29, 2018, Navidea issued a
notice of written consent purporting to remove all of Macrophage’s directors, except
for Dr. Goldberg, and appoint Bruck and Rice as new directors (“Navidea’s Written
Consent”). 14
D. Relevant Certificate of Incorporation and Bylaw Provisions
Not surprisingly, Macrophage’s Certificate of Incorporation (“COI”) and
Bylaws address the procedures by which a director may be appointed to or removed
from the Board.15 Both parties point to provisions within these governing documents
to support their competing positions regarding the validity of the Bruck and Rice
appointments.
Dr. Goldberg relies on the following provisions, as excerpted:
13
Pet. ¶ 13.
14
Pet. ¶ 14. Dr. Goldberg “does not challenge the removal of Mark I. Greene or any other
director from the Macrophage Board through [Navidea’s] Written Consent.” Answering
Br. in Opp’n to Resp’ts’ Mot. to Dismiss the Verified Pet. (“AB”) (D.I. 15) at 7.
15
OB, Ex. A (“Bylaws”), Ex. B (“COI”).
4
Article Six of the COI (regarding the form of votes):
Unless and except to the extent that the Bylaws of the Corporation []
shall so require, the election of directors of the Corporation need not be
by written ballot. 16
Article II, Section 12 of the Bylaws (regarding notice for Board
nominations):
Nominations for election to the Board of Directors must be made by the
Board of Directors or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of
directors. Nominations, other than those made by the Board of
Directors of the corporation, must be preceded by notification in writing
in fact received by the Secretary of the corporation not less than sixty
days before any meeting of stockholders at which the election of
directors is held. Such notification shall contain the written consent of
each proposed nominee to serve as a director if so elected.17
Article III, Section 2 of the Bylaws (regarding the election of directors at
the annual meeting of stockholders):
[T]he directors shall be elected at the annual meeting of the
stockholders by a plurality vote of the shares represented in person or
by proxy and each director elected shall hold office until his successor
is elected unless he shall resign, become disabled or otherwise be
removed. 18
16
COI Art. Six.
17
Bylaws Art. II, § 12.
18
Bylaws Art. III, § 2.
5
Article III, Section 3 of the Bylaws (regarding Board vacancies):
Unless otherwise provided in the Certificate of Incorporation,
vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, though less than a quorum, or by a sole
remaining director. The directors so chosen shall serve until the next
annual election and until their successors are duly elected, unless sooner
displaced.19
Article III, Section 16 of the Bylaws (regarding the removal of
directors):
Unless otherwise restricted by the Certificate of Incorporation, these
Bylaws or applicable law, any director or the entire Board of Directors
may be removed, without cause, by the holders of a majority of shares
entitled to vote at an election of directors.20
For their part, Respondents rely upon the following provisions in support of
their position that Bruck and Rice were duly appointed to the Board as a matter of
law:
Article Four, Section 4.2(a) of the COI (regarding the voting rights of
common stockholders):
Subject to such voting rights of any other class or series of securities as
may be granted from time to time pursuant to this certificate of
incorporation, any amendment thereto, or the provisions of the laws of
the State of Delaware governing corporations, voting rights shall be
vested exclusively in the holders of Common Stock. Each holder of
19
Bylaws Art. III, § 3.
20
Bylaws Art. III, § 16.
6
Common Stock shall have one vote in respect of each share of such
stock held. 21
Article II, Section 11 of the Bylaws (regarding actions by written consent
of the common stockholder(s)):
Unless otherwise provided for in the Certificate of Incorporation . . .
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be
necessary to take such action at a meeting . . . . 22
Dr. Goldberg interprets the COI and Bylaws as requiring that, until the
occurrence of an annual meeting, only current Board members may remove or
appoint directors to the Board. With this construction of the constitutive documents
in mind, Dr. Goldberg argues that since he was the only duly appointed director as
of November 29, 2018, only he had the power to fill vacancies on the Board until
the next properly noticed annual meeting of the Company. He also argues that
Navidea’s failure to give sixty-day notice prior to Bruck and Rice’s appointments to
the Board violated the Bylaw’s Article II, Section 12 notice requirement.
In response, Respondents cite Article Four, Section 4.2(a) of the COI and
Article II, Section 11 of the Bylaws, which, when read together, authorized Navidea,
21
COI Art. Four, § 4.2(a).
22
Bylaws Art. II, § 11.
7
as the sole common stockholder, to act by written consent to appoint two directors
to the Board at any time and without notice. 23 According to Respondents, this
construction is the only reasonable construction of Macrophage’s governing
documents and, therefore, the Court may reject Dr. Goldberg’s requested
Section 225 declaration as a matter of law.
E. Procedural History
On February 20, 2019, Macrophage filed a separate action against
Dr. Goldberg in this Court, alleging breach of fiduciary duty and conversion and
seeking a declaration that Dr. Goldberg’s decision to transfer substantially all of
Macrophage’s assets to a newly formed entity that he controlled,
M1M2 Therapeutics, Inc., without Board or stockholder authorization violated
Section 271 of the Delaware General Corporate Law (the “Plenary Action”).24
The Court held trial in the Plenary Action in December 2020, and issued its post-
trial decision finding in favor of Macrophage earlier today. Two weeks after the
conclusion of trial, Dr. Goldberg filed this action seeking a declaration that Bruck
and Rice were never duly appointed to the Board.25 Respondents promptly filed a
motion to dismiss on January 11, 2021, and this Court held a hearing on the motion
23
COI Art. Four, § 4.2(a); Bylaws Art. II, § 11.
24
Macrophage v. Goldberg, 2019 WL 1406147 (Del. Ch. Mar. 22, 2019) (COMPLAINT).
25
D.I. 1.
8
immediately following post-trial oral argument in the Plenary Action, on March 16,
2021. 26
II. ANALYSIS
The standard for deciding a motion to dismiss under Court of Chancery
Rule 12(b)(6) is well-settled:
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are “well-pleaded” if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and (iv) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof. 27
“The [charter and] Bylaws [of a corporation] constitute part of a binding
broader contract among the directors, officers and stockholders formed within the
statutory framework of the Delaware General Corporation Law.” 28 “Because
corporate charters and bylaws are contracts, our rules of contract interpretation
apply.”29 On a motion to dismiss a breach of contract claim, “a trial court cannot
choose between two differing reasonable interpretations of ambiguous
26
D.I. 7; D.I. 24.
27
Savor, 812 A.2d at 896–97 (citation omitted).
28
BlackRock Credit Allocation Income Tr. v. Saba Cap. Master Fund, Ltd., 224 A.3d 964,
977 (Del. 2020) (internal quotations omitted) (citation omitted).
29
Hill Int’l, Inc. v. Opportunity P’rs L.P., 119 A.3d 30, 38 (Del. 2015).
9
documents.” 30 Rather, “[d]ismissal [of a claim grounded in contract], pursuant to
Rule 12(b)(6), is proper only if the defendants’ interpretation is the only reasonable
construction as a matter of law.”31
As noted, Respondents argue that Navidea’s Written Consent was authorized
by Article II, Section 11 of the Bylaws (the “Written Consent Bylaw”), which grants
stockholders the right to take “any action which may be taken at any annual or
special meeting . . . without a meeting, without prior notice and without a vote” so
long as there exists a written consent “setting forth the actions so taken, . . . signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary . . . to take such action at a meeting.” 32 Dr. Goldberg
does not dispute that Navidea was authorized under the Bylaws to act by written
consent in certain circumstances, and for good reason. 33 At the time Navidea’s
Written Consent was delivered, Navidea was the sole common stockholder of
30
Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d
609, 613 (Del. 1996).
31
Coyne v. Fusion Healthworks, LLC, 2019 WL 1952990, at *5 (Del. Ch. Apr. 30, 2019)
(citation omitted); VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615
(Del. 2003) (same).
32
Bylaws Art. II, § 11.
33
AB at 20.
10
Macrophage. 34 Dr. Goldberg also does not dispute that the requirements of 8 Del. C.
§ 228 were followed, or that under Delaware law, “[s]tockholders may, unless the
certificate of incorporation otherwise provides, act by written consent to elect
directors.”35 And he does not argue that Navidea’s Written Consent was defective
as to form. 36
Dr. Goldberg’s only argument that the appointments of Bruck and Rice were
unauthorized rests on the fact that Navidea improperly initiated the written consent
process to fill vacancies on the Board prior to the annual meeting of stockholders.37
First, Dr. Goldberg notes that Article III, Section 3 of the Bylaws provides that
vacancies on the Board may be filled by a sole remaining director and argues this
means that only he, as the sole director, could fill Board vacancies prior to the annual
34
AB at 1 (“Macrophage’s motion to dismiss this proceeding is the latest installment in an
ongoing series of actions by Macrophage’s 100% common stockholder, non-party Navidea
Biopharmaceuticals, Inc. . . .”).
35
8 Del. C. § 211(b); AB at 21–24 (discussing only Respondents’ failure to follow the
letter of the Bylaws, without any mention of specific DGCL provisions); see also MM Cos.,
Inc. v. Liquid Audio, Inc., 813 A.2d 1118, 1126 (Del. 2003) (“The stockholders’ power is
the right to vote on specific matters, in particular, in an election of directors.”).
36
AB at 21–24 (failing to engage with or even mention the Written Consent Bylaw).
37
AB at 20 (“No amount of legalese in the Stockholder Written Consent can overcome the
fact that Navidea did not comply with the rules governing the appointment of interim
directors to replace retired or removed directors or the election of permanent directors
nominated by stockholders.”).
11
meeting.38 But, as Respondents correctly observe, the permissive language of
Article III, Section 3 provides that the sole remaining director may fill Board
vacancies; it does not prohibit the common stockholders from exercising their right
to fill vacancies as well, including by written consent.
Dr. Goldberg then moves to Article III, Section 2 of the Bylaws, which
provides that “directors shall be elected at the annual meeting of the stockholders by
a plurality vote of the shares represented.” 39 That provision, however, must be read
in context with others in the Bylaws governing Board appointments. For instance,
the Written Consent Bylaw itself perfectly tracks the language in 8 Del. C. § 228(a),
which permits stockholders to act by written consent on any issue that would
otherwise be taken up at an annual meeting or special meeting.40 As confirmed by
our law and the Bylaw provision upon which Dr. Goldberg relies, one such issue is
38
Bylaws Art. III, § 3.
39
Bylaws Art. III, § 2.
40
Compare Written Consent Bylaw (“Unless otherwise provided in the Certificate of
Incorporation, any action required [by this chapter] to be taken at any annual or special
meeting of stockholders of a corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents, setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and shall be delivered to the
corporation [in the manner required by this section].”), with 8 Del. C. § 228(a) (same).
12
the appointment of directors. 41 Section 228(a) has no timing constraints; it “permits
immediate action.”42
One potential statutory roadblock to the effectiveness of Navidea’s Written
Consent is 8 Del. C. § 211(b), which permits stockholders to act by majority written
consent only in certain circumstances. 43 But, notably absent in Section 211(b) is any
restriction on actions by written consent when stockholders act through unanimous
consent, as Navidea did here. Thus, under Delaware law and Macrophage’s
governing documents, since directors are to be elected at Macrophage’s annual
meeting, they may be appointed at any time by unanimous written consent in lieu of
that meeting.
41
Bylaws Art. III, § 2; Hoschett v. TSI Int’l Software, Ltd., 683 A.2d 43, 44 (Del. Ch. 1996)
(recognizing in principle Section 228’s application to the election of directors); Jimenez v.
Palacios, 2019 WL 3526479, at *20 (Del. Ch. Aug. 2, 2019), as revised (Aug. 12, 2019),
aff’d, 237 A.3d 68 (Del. 2020) (same).
42
Brown v. Kellar, 2018 WL 6721263, at *9 (Del. Ch. Dec. 21, 2018); see also Edward P.
Welch, et al., 2 Folk on the Delaware General Corporation Law § 228.03 (6th ed.)
(“Section 228 authorizes immediate stockholder action without a meeting[.]”); Cirillo
Fam. Tr. v. Moezinia, 2018 WL 3388398, at *7 (Del. Ch. July 11, 2018), aff’d, 220 A.3d
912 (Del. 2019) (“[Section 228] bestows stockholders with the power to take swift and
wide-ranging action.”).
43
8 Del. C. § 211(b) (“Stockholders may, unless the certificate of incorporation otherwise
provides, act by written consent to elect directors; provided, however, that, if such consent
is less than unanimous, such action by written consent may be in lieu of holding an annual
meeting only if all of the directorships to which directors could be elected at an annual
meeting held at the effective time of such action are vacant and are filled by such action.”).
13
Finally, Dr. Goldberg cites Article II, Section 12 of the Bylaws, which
provides that “[n]ominations, other than those made by the Board of Directors of the
corporation, must be preceded by” written notice within sixty days “before any
meeting of stockholders at which the election of directors is held.” 44 The plain
language of this provision makes clear, however, that the prescribed notice is only
required in instances where a meeting of stockholders occurs. This is entirely
consistent with the Written Consent Bylaw, which confirms that, when stockholder
written consents are utilized to carry out corporate actions, no prior notice is
required.45 Thus, in the context of Navidea’s Written Consent, Navidea was not
required to provide sixty days’ notice prior to the appointment of Bruck and Rice
because they were not appointed at a “meeting of stockholders.”
The only reasonable interpretation of Macrophage’s constitutive documents,
when read collectively, is that Bruck and Rice were properly appointed to the Board
by Navidea’s Written Consent, which was authorized by the Written Consent Bylaw
and not otherwise prohibited by any other provision of the COI, Bylaws or DGCL.46
44
Bylaws Art. II, § 12.
45
Bylaws Art. II, § 11.
46
The parties spilled much ink discussing the applicability of Section 5.6 of the SPA to
Navidea’s Written Consent. While this provision provides Dr. Goldberg and Platinum the
right to appoint one director to the Board, and Navidea the right to appoint two,
Dr. Goldberg argues that because Navidea was not a party to the SPA and because the SPA
prevented third-party beneficiaries, Section 5.6 gave Navidea no rights. This entire
discussion is moot given that the appointment of Navidea’s two directors was consistent
14
III. CONCLUSION
Based on the foregoing, the motion to dismiss must be GRANTED.
IT IS SO ORDERED.
with Macrophage’s governing documents. Whether Section 5.6 of the SPA granted
Navidea the right to appoint one, two or ten directors would not change the fact that
Navidea, as sole common stockholder, could appoint directors by written consent, and this
right is not limited in the COI or Bylaws, including by number of Board seats. That is
precisely what Navidea did here. In any event, to the extent the SPA restricted Navidea’s
rights as the 100% common stockholder of Macrophage by limiting its designated Board
seats to two, Navidea’s Written Consent was entirely consistent with that limitation.
15