At a hearing on December 12, 2024, Vice Chancellor Laster denied a motion seeking the dismissal of claims by PSD’s client, FESI Holdings, Inc. Instead, the Court granted FESI’s motion for a stay pending the resolution of a related New York action.
As reflected in the transcript, the Court considered claims by FESI alleging that, in or about July 2020, defendants concealed the acquisition of a lucrative government contract to provide lead Covid testing services statewide, while proceeding with an equity issuance. The Vice Chancellor consider how these events impacted the value expectable in connection with later foreclosure efforts, stating “I’d increase the value you get based on the value of the company as of the foreclosure date. … you would be getting an amount of money that would reflect both your dilution and whatever the value of the company is as of the foreclosure date. So why can’t the New York court do that?”). When delivering its rulings, the Delaware court found likely value in FESI’s claims in that court, which could be factored into damages in favor of FESI in the related New York action: “I do think there’s likely good information-based claims relating to the equity issuance. I do think there’s likely a disclosure claim that would be grounded in the implied covenant of good faith and fair dealing. That claim would run against the company for the alleged failure to identify a material contract at the time you are requesting stockholder action. For similar reasons, I think there’s likely a breach of fiduciary duty claim that runs against the controller relating to that transaction. …So it was a request for members to make an investment decision. And it seems to me that there would be some type of disclosure obligation that applies in that setting either under the implied covenant running to the company or under fiduciary duty principles running against the controller.”
The Delaware court sided with PSD’s suggestion that the New York court resolve the entire dispute among the parties, if possible, and the Vice Chancellor explained, in the following pertinent excerpts, how any remaining claims by FESI would revert back to the Delaware action:
But if all that was really being transferred was the economic right to proceeds from the company and not also the litigation right, then you wouldn’t fully value the plaintiff’s interests. You would only be partially valuing the plaintiff’s interests. So I think that’s a critical question that I at least would be thinking about. Again, the New York court may have its own approach, and I’m not trying to step on my judicial colleague’s toes.
Now, if it is true that in New York the court would value both the economic interest in the entity and the value associated with the dilution claim, either assuming a successful challenge or discounting it for risk, then I don’t think there’s anything left for me to do. I think at that point the plaintiff would have received full relief. And because the plaintiff can’t get a double recovery, we’d be done. And as far as I’m concerned, that would be great.
But now let’s think about a different world where New York only values the sale of the economic interests and says that whether this dilution claim was problematic under Delaware law is something that the Delaware court ought to deal with. At that point, I think it would be incumbent on me to try to value this claim or to let the claim be litigated so that the result could be incorporated in the damages remedy. And the value would be allocated based on the interest that the plaintiff would have owned but for the dilutive transaction.
As I suggested during colloquy, if I was going to just cut to the chase on this and if the sale was not good, I’d start by looking back in time and seeing if there was an actionable claim in terms of the dilution. I tend to think there is because of disclosure issues I’ve already told you about. As a remedy for that, I would likely reallocate the ownership so that the plaintiff owned more. Let’s just stop with the concept of “more.” I would then value the company, and I would give the plaintiff his proportionate share of the value of the company based on the “more.”
Barry Pollack and John Yokow lead the representation of FESI Holdings.
PSD represents the Nantucket Wine & Food Festival against Gordon Companies, Inc., and others related to their public claim of having acquired or taken over the festival. Pursuant to an Order dated December 12, 2024, a federal court in Boston directed certain defendants to make corrective disclosures over the same forms of press releases and emails by which they announced that they “acquired” Plaintiffs’ festival, that they “rebranded” it, that they would “continue” the “longrunning” event, or that their event was “previously known as” the Nantucket Wine & Food Festival. The Order required that they send the following corrective disclosure to each and every recipient to which they sent the Industry Email, the Customer Email, the Media Release, and the Industry Release, as those terms are defined in the Court’s Memorandum & Order, as well as to post this corrective disclosure on the allegedly offending website:
Pursuant to an Order of the U.S. District Court for the District of Massachusetts dated December 13, 2024, the Gordon Companies hereby discloses that, in June of 2024, the Gordon Companies sent out press releases and emails stating or suggesting that the Gordon Companies had acquired and rebranded the Nantucket Wine & Food Festival under new management. There was never any acquisition, rebranding, or new management of the Nantucket Wine & Food Festival. Any similar event previously announced by the Gordon Companies bears no relation to the Nantucket Wine & Food Festival. The long-running Nantucket Wine & Food Festival continues to operate. As previously announced by the Nantucket Wine & Food Festival, the annual tradition will continue May 14 – 18, 2025, under the leadership of its longtime Executive Director Nancy Bean. For more information, please visit www.nantucketwinefestival.com.
In a battle in Florida state court on behalf of several emergency medicine management groups in insurance coverage disputes based on an alleged pattern of underpayments, PSD prevailed in an e-discovery battle based on arguments over the significance of data in hit reports they demanded. Counsel for BCBS of FL argued that the hit reports showed 245,000 documents to review and continued, “I don’t know how many pages that is, but it’s obviously orders of magnitude beyond that, which would cost an arm and a leg to review,” raising objections based on proportionality, need, and purportedly “non-existent relevance.” The Court sided with PSD, ruling that its position “does not seem unreasonable” given the complexity of the case and the regular role that ESI plays.
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.
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.
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.
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