PSD Wins Dismissal of Delaware Chancery Action Against Former Segway President

December 15, 2023

Segway Inc., known for its personal transportation devices, brought a claim for breach of fiduciary duty against its former President. On December 14, 2023, the Delaware Chancery Court dismissed the action. According to the 12-page decision, Segway experienced declining sales of its personal transportation devices and an allegedly inordinate increase in accounts receivable. According to Segway, accounting irregularities were concealed.

In light of exculpation provisions in the corporate charter, Segway disavowed the duty of care as a basis for its claim, instead opting to rely on the duty of oversight, known as a Caremark claim. The decision labeled Segway’s position “distressing,” and explained the law on Caremark claims: “Liability can only attach in the rare case where fiduciaries knowingly disregard this oversight obligation and trauma ensues.” The court further stated, “Despite a proliferation of modern jurisprudence, bad faith remains a necessary predicate to any Caremark claim” and “Segway’s attempt to hold a corporate officer accountable for unexceptional financial struggles flouts these enduring principles.”

Barry Pollack, Peter Duffy, and Lauren Riddle represented the defendant.

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September 24, 2023

After a Massachusetts jury returned a verdict of $24.4 million against a former officer of Chime Media, the defendant turned to PSD for post-trial motions. PSD argued that Chime Media’s damages theories were speculative. On September 21, 2023, the court granted a remittitur motion, reducing the amount of the verdict to less than $1.3 million, about 5% of the original verdict. Chime Media rejected the remittitur, leading to the entire verdict being vacated and a new trial ordered.

Josh Solomon leads the representation of the former Chime Media officer.

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A PSD client, who is a member and manager of certain Massachusetts LLCs that invested in a cannabis company, prevailed on standing issues, allowing him to bring derivative claims on behalf of one of the LLC’s through which he invested in the business. The Court rejected various arguments by defendants, explaining that “[w]hile futility of a demand is not a viable theory with respect to a business corporation, it is with respect to a limited liability company.” The Court then reviewed whether certain managers were disqualified and found that demand was excused where sufficient other managers suffered from conflicts of interests. In addition, the Court found that all of the claims were adequately pleaded against a law firm that represented the LLC while it allegedly served instead the interests of one of the conflicted managers.

Barry Pollack and Phil Rakhunov represented the plaintiff on these derivative claims.

In an Order implementing rulings from the bench on April 6, 2022, the Delaware Chancery Court issued an Order dismissing derivative claims brought by a member of PSD’s client Teucrium Trading, LLC. The plaintiff brought claims alleging breaches of fiduciary duty and terms of an operating agreement. These claims included allegations that officers purportedly caused materially misleading and incomplete information to be disseminated to members and stockholders of funds. The Court found the allegations “purely conclusory.” The ruling explained that the claimants couched their allegations with qualifiers like “essentially” and compared projections given at the start of the month to figures known at the end of the month, which the Court found obviously not relevant. The Court also dismissed an effort at fraud claims by one of the co-claimants that had been based on a theory that she resigned form the cmopany and entered into a separation agreement in reliance on a representation that she would be kept employed. As the Court concluded: “It makes no logical sense.” The Court dismissed 10 of 12 claims, including all derivative claims. The rulings upheld, on the pleadings, only one part of an individual claim concerning the termination of a claimant as an officer and a claim that an agreement had been reached to buy out a claimant. The implementing Order thereby narrowed the case substantially, with the limited remaining claims subject to potential summary judgment motions.

Barry Pollack argued the motion, and Josh Solomon participated on the team.

Representing three professional medical entities against Anthem Health Plans of Virginia, d/b/a Anthem Blue Cross Blue Shield in Virginia, PSD won an Order rejecting defense efforts seeking dismissal of a quantum meruit claim. The case arises from allegations by emergency room provider groups of underpayments for services as out-of-network providers. The Complaint alleges more than approximately $35 million in underpayments. Phil Rakhunov argued the motion, with Barry Pollack and Josh Solomon also on the team. The Order can be reviewed here.

PSD represents a former insured against Metropolitan Property & Casualty Insurance Company and one of its outside law firms that allegedly retained at least two “independent” chiropractors who were not “independent” because they were paid excessive compensation to categorically deny insurance claims.

A fight at the motion to dismiss stage focused on whether plaintiff had sufficiently alleged injuries for Chapter 93A purposes. The Court stated that plaintiff “alleges that she was injured by the defendants’ conduct because she: (1) experienced delays in the payment of benefits; (2) incurred litigation costs in bringing this action; (3) provided access to her confidential medical records that she would not have provided if she had known of the defendants’ allged scheme; (4) paid premiums for PIP coverage that was, in fact, worthless; and (5) was forced to pay for her chiropractic treatment.” The plaintiff also alleges that the insurer identified claims from low-income and socioeconomically disadvantage communities to challenge. These areas consist of Medicall Underserved Areas in which, by definition, insureds would lack reasonable access to provider care, yet the insurer took steps to shut down provider clinics by using highly-compensated experts to categorically reject claims. The Court found these allegations sufficient to state Chapter 93A injury. Also, the Court found adequate allegations that the outside law firm crossed the line from traiditonal legal representation into active participation in the undelryiing scheme or otherwise enabled unfair and deceptive practices that harmed non-clients.

PSD founding partner Peter Duffy led the argument on the motion to dismiss, joined by fellow founding partner Barry Pollack.

A Federal Court in the District of New Hampshire granted a motion to dismiss brought by PSD on behalf of an author and former CEO of an international youth sports company. The plaintiff was the wife of a former CEO of the company. The wife claimed she had been defamed in a book authored by the successor CEO that referred to a character, whom she believed was based on her, as, among other things, “just retired” and “ignorant.” She also brought claims for alleged violations of the Stored Communications Act, identity theft, and an invasion of privacy. The Court held that the phrase “just retired” was not defamatory on its face and related comments appeared mere opinions, such as a sarcastic reference to the character as a “classy lady” and a statement that the character was “ignorant.” The Court rejected other claims finding that they could not by based on documents shared with a corporate Google account.

Barry Pollack and Phil Rakhunov led the PSD team winning the motion to dismiss.

PSD represents DGI-BNSF Corp., a real estate management company, against TRT Leaseco, LLC, in the Southern District of New York, in an action involving the terms that would govern the availability of approximately $180 million in net operating losses. After a multi-week bench trial, during closing arguments, PSD founding partner Barry Pollack argued, with respect to the CEO that controlled the defendant: “all I can say are inconsistencies and evasiveness. He just wasn’t there to answer your Honor.” The Court responded in agreement: “I did not find him to be particularly credible.” With respect to the CEO of PSD’s client, the Court commented that he “was an extremely credible witness” who “knew what he was doing, he knew what he was buying, there were other ways this deal could be structured, so that he could take care of the phantom income, and he was also prepared to pay the taxes, so that he had several — for at least some period of time, he was prepared to pay the taxes, so that it was not like he was in a fire sale circumstance.” The matter settled shortly thereafter.

Shortly before trial, PSD won a motion for leave to amend its client’s Complaint to add a fraudulent inducement claim. The amended claim attributed to the defendant alleged misrepresentations by the CEO of what subsequently became its majority stockholder. A 12-page memorandum opinion, dated November 6, 2019, addressed this somewhat novel issue.

PSD partners Barry Pollack and Phil Rakhunov served as trial counsel

On May 12, 2020, Chancellor Bouchard of the Delaware Chancery Court issued a 28-page post-trial ruling. In the decision, the Court directed judgment for PSD’s corporate client on a claim that it failed to deliver books and records pursuant to the company’s operating agreement. The decision followed a one-day trial. Aside from the production of portions of a couple of documents to which PSD’s client made no objection, PSD’s client prevailed in the entirety on every issue. Click here to view a copy of the decision.

The Plaintiff equityholder claimed the company’s Class A members improperly removed him as CEO. He also claimed that he was entitled to access numerous categories of books and record, including massive amounts of electronic files. In the written opinion, the Court acknowledged that Plaintiff’s burden to show a “credible basis” to suspect wrongdoing amounted to the lowest burden recognized under Delaware law. Nevertheless, the Court found that Plaintiff failed to meet his minimal burden at trial.

PSD lawyers Barry Pollack and Josh Solomon served as lead trial counsel.