Aiding and Abetting – Page 3

In Re: Crimson Exploration Inc. Stockholder Litigation, C.A. No. 8541-VCP (October 24, 2014) (Parsons, V.C.)

Oct 26 2014

In Re: Crimson Exploration Inc. Stockholder Litigation involved a consolidated class action claim made by certain minority stockholders (“Plaintiffs”) of Crimson Exploration, Inc. (“Crimson”) challenging the completed acquisition of Crimson by Contango Oil & Gas Co. (“Contango”). The transaction was structured as a stock-for-stock merger (the “Merger”), with the Crimson stockholders holding approximately 20.3 % of the combined entity following the merger and an exchange ratio representing a 7.7% premium based on the April 29, 2013 trading price of Contango common stock and Crimson common stock. Plaintiffs also alleged that the members of Crimson’s Board of Directors (the “Directors”) and various entities affiliated with the investment management firm Oaktree Capital Management, L.P. (“Oaktree”) breached their respective fiduciary duties by selling Crimson below market value for self-serving reasons. In total, Plaintiffs brought claims against Crimson, the Directors, Oaktree, Contango Acquisition, Inc. (the “Merger Sub”) and Contango (“Defendants”).

A major premise of Plaintiffs’ complaint is that Oaktree controlled Crimson and thereby had fiduciary duties to the minority stockholders of Crimson. Oaktree owned roughly 33.7% of Crimson’s pre-Merger outstanding shares and a significant portion of Crimson’s $175 million Second Lien Credit Agreement, which Contango agreed to payoff after the signing of the Merger, including a 1% prepayment fee (the “Prepayment”). Also, in connection with the Merger, Oaktree negotiated to receive a Registration Rights Agreement (the “RRA”) so that it had the option to sell its stock in the post-Merger combined entity through a private placement.

Lake Treasure Holdings, Ltd., et al v. Foundry Hill GP, LLC, et al and Foundry Hill Holdings, LP and CP-1 LLC, C.A. No. 6546-VCL (October 10, 2014) (Laster, V.C.)

Oct 15 2014

By Eric Feldman and Porter Sesnon

In Lake Treasure Holdings, Ltd., the plaintiffs, investors in a now-defunct start-up, Foundry Hill Holdings LP (the “Partnership”), sued the Partnership, one of its founders (Ulric Taylor (“Taylor”)), one of Taylor’s subsequent business partners (Christopher Klee (“Klee”)), and various other Partnership-related entities and operating subsidiaries for breach of fiduciary duty and aiding and abetting the breach of fiduciary duty, as well as under the Delaware Uniform Fraudulent Transfer Act (“DUFTA”) and Delaware Uniform Trade Secrets Act (“DUTSA”), in connection with a series of transactions whereby all of the assets of the Partnership were ultimately transferred to entities owned and/or controlled by Taylor and Klee.

Taylor controlled the Partnership through his control of the Partnership’s general partner. As a result, the Court initially found that Taylor owed fiduciary duties, including the duty of loyalty, to the Partnership and its limited partners. In analyzing the transactions at issue, the Court further found that Taylor stood on both sides of such transactions and that therefore the entire fairness standard applied in analyzing such transactions. In applying the entire fairness test, the Court held that Taylor had breached his duty of loyalty when he granted a security interest in all of the assets of the Partnership, including its primary asset, high frequency trading software, to Klee in exchange for a $28,000 loan from Klee to the Partnership. Prior to the $28,000 loan by Klee, Taylor and Klee had previously contemplated Klee purchasing the software for $500,000 with an enterprise valuation of $3 million. 3 months following the granting of the security interest, as foreseen by Taylor and Klee at the time the loan was made, the Partnership defaulted on the loan, Klee foreclosed on the security interest, and Taylor amicably surrendered all of the assets of the Partnership, including all interest in the software, to an entity controlled by Klee. The Court determined that Taylor and Klee “acted in concert to move the Partnership’s high frequency trading software out of the Partnership and into an entity where Taylor and Klee could enjoy its benefits.” Upon finding the fiduciary duty breach by Taylor, the Court then also found that Klee had aided and abetted such breach of fiduciary duty.

In re Nine Systems Corp. S’Holders Litig., Consol. C.A. No. 3940-VCN (September 4, 2014) (Noble, V.C.)

Sep 23 2014

By Marisa DiLemme

In re Nine Systems Corp. S’Holders Litig. involves the 2002 recapitalization of a two-year-old start-up company, Streaming Media Corporation, later known as Nine Systems Corporation (the “Corporation”). The Corporation was going to have to liquidate unless it could carry out two acquisitions, and the purpose of the 2002 recapitalization was to fund these acquisitions. The recapitalization was approved by four of the directors of the Board of the Corporation, one the CEO of the Corporation and the other three employees of three private equity funds, two of which provided the financing needed for the acquisitions through the recapitalization, and the third of which was given a 90-day option to participate in the recapitalization but did not do so. The fifth director, whose firm had brought in minority stockholders, was not kept informed regarding the recapitalization, which was highly dilutive to the minority stockholders, and never fully approved it. The terms of the recapitalization were proposed by the director whose firm was the largest participant in the recapitalization based on his estimate that the Corporation was worth $4 million, without any independent valuation of the Corporation. After the acquisitions, the Corporation became successful, and it was sold four years later for $175 million.

Capano v. Capano, C.A. No. 8721-VCN (June 30, 2014)

Jul 12 2014

By Eric Feldman and Sophia Lee Shin

Capano, et al. v. Capano, et al. is a consolidated case involving three brothers that came before the Delaware Court of Chancery, in which Joseph and Gerry Capano each filed a complaint against Louis Capano.

Facts

Louis, Joseph and their father, Louis Sr., were equal partners in a Delaware partnership, Capano Investments. Upon Louis Sr.’s death, the partnership structure changed such that Louis and his son controlled 48.5% of the partnership, Joseph and his son controlled 48.5%, and Gerry (as the beneficiary with voting control of CI Trust) controlled 3%. In 2000, the partnership was subsequently converted into a Delaware limited liability company, Capano Investments, LLC (“CI-LLC”), with the same membership and respective ownership interests as those of the partnership

In 2000, Louis and Gerry executed two documents that purportedly granted Louis an interest in CI Trust: (1) Gerry granted Louis the “Power to Direct”, an irrevocable proxy to direct CI Trust’s trustee (at the time, Daniel McCollom) to vote its interest in CI-LLC; and (2) Gerry granted Louis the “Option” to purchase Gerry’s interest in CI Trust, but only with the consent of CI Trust’s trustee, and at a purchase price of $100,000 and the forgiveness of a $100,000 advance. Both the Power to Direct and the Option were signed by Louis and Gerry and had “(SEAL)” printed next their signatures.

Catagory:Aiding and Abetting