In re Straight Path Communications Inc. Consol. Stockholder Litigation ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE STRAIGHT PATH )
COMMUNICATIONS INC. ) C.A. No. 2017-0486-SG
CONSOLIDATED STOCKHOLDER )
LITIGATION )
MEMORANDUM OPINION
Date Submitted: November 9, 2021
Date Decided: February 17, 2022
Ned Weinberger and Mark Richardson, of LABATON SUCHAROW LLP,
Wilmington, Delaware; OF COUNSEL: Jeroen van Kwawegen, Edward G. Timlin,
and Alla Zayenchik, of BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP,
New York, New York; Vincent R. Cappucci and Joshua K. Porter, of ENTWISTLE
& CAPPUCCI LLP, New York, New York, Attorneys for Plaintiffs JDS1, LLC and
The Arbitrage Fund.
Rudolf Koch, Kevin M. Gallagher, and Daniel E. Kaprow, of RICHARDS, LAYTON
& FINGER, P.A., Wilmington, Delaware; Thomas Uebler, of MCCOLLOM
D’EMILIO SMITH UEBLER LLC, Wilmington, Delaware; OF COUNSEL: Jason
Cyrulnik, Paul Fattaruso, and Evelyn Fruchter, of CYRULNIK FATTARUSO LLP,
New York, New York, Attorneys for Defendants IDT Corporation, Howard Jonas,
and The Patrick Henry Trust.
Kevin R. Shannon, Berton W. Ashman, Jr., Jacqueline A. Rogers, and David A. Seal,
of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware, Attorneys for
Davidi Jonas.
GLASSCOCK, Vice Chancellor
This action involves what at first blush appear to be derivative claims.
Howard Jonas, the controller of Straight Path Communications Inc. (“Straight
Path”), caused Straight Path to sell assets to a company, IDT Corporation (“IDT”),
for an allegedly inadequate price. IDT was also controlled by the Jonas family. This
sale gave rise to a chose-in-action for breach of fiduciary duty, a claim held by
Straight Path. Shortly thereafter, Straight Path was sold to Verizon
Communications, Inc. (“Verizon”), depriving the Plaintiffs here, former
stockholders of Straight Path, of the opportunity to pursue the claim derivatively.
In fact, the matter is more complicated. One of the assets—an indemnification
claim against IDT—was explicitly withheld by the Straight Path board of directors
(the “Board”) from the auction process ongoing at the time the claim was sold to
IDT. In fact, the Board considered placing the claim asset, allegedly worth almost
$1.2 billion,1 in trust for the Straight Path stockholders, for them to enjoy as part of
the results of the merger they anticipated. According to the Plaintiffs, Howard Jonas
used his control to wrest the indemnification claim from Straight Path on IDT’s
behalf, seizing thereby what should have been part of the merger proceeds flowing
to the Straight Path stockholders. In this, he was allegedly assisted by his son, Davidi
Jonas, a Straight Path fiduciary. Accordingly, the Plaintiffs have filed direct claims
1
Pls.’ Omnibus Answering Br. Opp’n to Defs.’ Mots. Summ. J. 3, Dkt. No. 478 [hereinafter “Pls.
MSJ AB”].
1
against both Jonases and IDT, as well as Howard Jonas’s trust, which held his
Straight Path stock (together, the “Defendants”).
I denied motions to dismiss on this theory, and our Supreme Court affirmed
on interlocutory appeal. The parties engaged in discovery thereafter, and the
Defendants have moved for summary judgment via two separate motions. Because,
based on the record as it now exists, I cannot find as a matter of law that judgment
for the Defendants must be entered, those motions are denied. My reasoning
follows.
Also argued with the motions for summary judgment was the Plaintiffs’
motion for class certification, which the Defendants stoutly oppose. Obviously, the
pertinence of that issue was dependent on the resolution of the instant motions for
summary judgment. In light of my decision here, I now consider the motion for class
certification submitted, and will address it promptly by a separate opinion without
further argument or submission.
My reasons for denying the Defendants’ motions for summary judgment are
set out in full below.
2
I. BACKGROUND
Before me at this time are two motions for summary judgment based on claims
arising from the sale of Straight Path to Verizon in 2018. 2 The remaining claims in
this action are direct claims alleging that merger consideration paid in connection
with the 2018 acquisition of Straight Path was diverted from Straight Path
stockholders.3 The diversion claims do not arise directly from the Verizon
acquisition (the “Merger”), but from the related sale of an indemnification claim (the
“Indemnification Claim”) and certain intellectual property assets (the “IP Assets”)
to IDT shortly before Straight Path’s entry into a definitive merger agreement with
Verizon. In short, Howard Jonas, the controlling stockholder of both Straight Path
and IDT, refused to consent to the Merger before the sale of the Indemnification
Claim and IP Assets. A special committee of Straight Path’s Board thus consented
to the sale of the Indemnification Claim and the IP Assets for what the Plaintiffs
claim was unfair consideration. The Plaintiffs contend that this transaction, without
which the Merger could not have occurred, diverted value from the stockholders to
Howard Jonas, his trust vehicle, and IDT (together, the “IDT Defendants”). I
considered the claims for breach of fiduciary duty 4 against the IDT Defendants and
2
Also before me is the Plaintiffs’ motion for class certification, which I will address in a separate
memorandum opinion.
3
See generally In re Straight Path Commc’ns Inc. Consol. S’holder Litig., 2018 WL 3120804, at
*20 (Del. Ch. June 25, 2018), aff’d, 206 A.3d 260 (Del. 2019) [hereinafter “Straight Path I”].
4
The claim with respect to IDT is an aiding and abetting claim for breach of fiduciary duty. See
id. at *20.
3
the conflicted Chief Executive Officer, President and Chairman of Straight Path to
be reasonably conceivable upon a motion to dismiss and now address the various
defendants’ motions for summary judgment.
A. Factual Overview5
1. Parties, Relevant Non-Parties, and the Industry
The defendants in this action can be broadly grouped into two groups of
movants: the IDT Defendants (composed of the separate defendants IDT, Howard
Jonas, and The Patrick Henry Trust) 6 and Davidi Jonas.
IDT is a telecommunications company and the prior parent of non-party
Straight Path. 7 IDT spun off Straight Path on July 31, 2013 (the “Spin-Off”), at
which time Straight Path became a publicly traded company.8
5
The facts included in this section are strictly those necessary to resolution of the motions before
me. A more detailed recitation may be found in my prior opinion Straight Path I. See id. Where
additional facts are necessary, I draw them either from the evidence submitted under affidavit with
the parties’ papers, or from the prior decision in this case, affirmed by the Delaware Supreme
Court. See Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1174 (Del. 1995) (holding that
factual findings uncontested in appeal become law of the case). Citations in the form of
“Richardson Decl. —” refer to the Unsworn Decl. of Mark Richardson Supp. Pls. Omnibus
Answering Br. Opp’n to Defs.’ Mots. Summ. J., Dkt. No. 478. Citations in the form of
“Richardson Decl., Ex. —” refer to the exhibits attached to the Richardson Declaration, Dkt. Nos.
478–96. Citations in the form of “Gallagher Decl. —” refer to the Transmittal Decl. of Kevin M.
Gallagher, Esquire Pursuant to 10 Del. C. § 3927 Supp. Opening Br. Supp. IDT Defs.’ Mot. Summ.
J., Dkt. No. 442. Citations in the form of “Gallagher Decl., Ex. —” refer to the exhibits attached
to the Gallagher Declaration, Dkt. Nos. 442–46.
6
See IDT Defs.’ Mot. Summ. J., Dkt. No. 440 (specifying that the motion is brought by each of
defendants IDT Corporation, The Patrick Henry Trust and Howard Jonas, while stylizing the
motion as the “IDT Defendants’ Motion”).
7
See Straight Path I, 2018 WL 3120804, at *2. Straight Path was formerly a nominal defendant
and is now a non-party following the mooting of Count IV in Straight Path I. See id. at *20.
8
See id.
4
Davidi Jonas has been the Chief Executive Officer (“CEO”) and President of
Straight Path since April 2013, and he became the Chairman in August 2013 as well.9
As of 2013, Straight Path’s business involved spectrum licenses (the “Spectrum
Assets” or “spectrum licenses”) in addition to certain other IP Assets. 10 The
Spectrum Assets are regulated by the Federal Communications Commission (the
“FCC”).11
Howard Jonas is the founder and Chairman of IDT, and previously served as
its CEO. 12 IDT’s current CEO is Shmuel Jonas. 13 Shmuel and Davidi are Howard’s
sons. 14 At all relevant times, Howard was the controlling stockholder of both
Straight Path and IDT, with control of over 70% of each company’s voting stock.15
Howard’s Straight Path stock is owned via his trust, The Patrick Henry Trust, of
which he is the beneficiary.16 Despite this, Howard personally maintained certain
consent rights with respect to Straight Path, such that his consent was necessary to
any merger or sale of all assets by Straight Path. 17
9
Id.
10
Id.
11
See id. at *3.
12
Id. at *2.
13
Id.
14
Id. This Memorandum Opinion refers to first names for the sake of clarity; no disrespect is
intended.
15
Id.
16
Id.
17
Id.
5
Howard and Davidi maintain a familial relationship, including facilitating
trips for Davidi’s children to visit Howard (their grandfather), living within walking
distance of one another prior to 2015, and Howard calling Davidi (in addition to
Davidi’s siblings) to pray a religious blessing once weekly. 18 Howard has also
supported Davidi financially upon occasion, helping to pay his son’s down payment
for a home in 2015.19
Relatedly, Davidi and his siblings beneficially own over 10% of IDT’s equity
via a trust set up “for the benefit of the children of Howard S. Jonas.” 20
Non-party Jason Cyrulnik is an attorney who represented IDT for several
years. 21 During the time period that gave rise to the instant litigation, the question
of whom (or which entity) Cyrulnik represented is occasionally subject to debate.22
Cyrulnik considers himself to be friends with both Howard and Davidi Jonas.23
Non-party Verizon acquired Straight Path via the Merger in 2018. 24
18
Richardson Decl., Ex. 50, at 471–73.
19
Id. at Ex. 66; see also id. at Ex. 67 (email gifting Davidi $700,000 “from [Howard’s] accounts”).
20
Straight Path I, 2018 WL 3120804, at *2; see also Richardson Decl., Ex. 1, at 17.
21
Compendium Dep. Trs. to Opening Br. Supp. Def. Davidi Jonas’s Mot. Summ. J., Ex. 12, 20–
23, Dkt. No. 452 [hereinafter “Dep. Comp.”].
22
See Reply Br. Further Supp. IDT Defs.’ Mot. Summ. J. 21, Dkt. No. 509 (IDT Defendants
arguing that Cyrulnik was acting as Straight Path counsel at specific meetings) [hereinafter “IDT
MSJ RB”]; Pls. MSJ AB 48 (the Plaintiffs arguing that Cyrulnik was acting as IDT outside counsel
at same meetings).
23
Dep. Comp., Ex. 12, at 28–29 (with respect to Davidi); id. at 38 (with respect to Howard).
24
Straight Path I, 2018 WL 3120804, at *8.
6
The Plaintiffs in this action, JDS1, LLC and The Arbitrage Fund, each held
Straight Path Class B Common Stock as of the closing of the Merger.25
2. The IDT/Straight Path Spin-Off
IDT spun off Straight Path on July 31, 2013; prior to the Spin-Off, Straight
Path had been IDT’s subsidiary.26 To effectuate the Spin-Off, IDT stockholders
received Straight Path stock.27 Part of the transaction documentation for the Spin-
Off was the Separation and Distribution Agreement (the “S&DA”) between IDT and
Straight Path.28
a. The Separation & Distribution Agreement
Among other things, the S&DA included indemnification provisions between
the two parties. 29 At issue are the provisions requiring IDT to indemnify Straight
Path. Per the S&DA, IDT is responsible for indemnifying Straight Path for “the
failure of IDT or [its affiliates] to pay, perform or otherwise discharge, any of the
IDT Liabilities.”30 The definition of “IDT Liabilities” expressly excludes liabilities
25
Verified Consolidated Am. Class Action and Derivative Compl., ¶¶ 14–15, Dkt. No. 62
[hereinafter “Compl.”]; see also IDT Defs. Opp’n Pls.’ Mot. Class Certification 35, Dkt. No. 433.
26
Straight Path I, 2018 WL 3120804, at *2.
27
Id. at *3.
28
See generally Gallagher Decl., Ex. 1 [such exhibit hereinafter “S&DA”].
29
Id. §§ 6.01–.07.
30
Id. § 6.02.
7
assigned to Straight Path under the agreement (“SPCI Liabilities”). 31 These non-
indemnified SPCI Liabilities include:
(ii) except as otherwise expressly provided in this Agreement or any
Ancillary Agreement, any and all Liabilities of IDT, SPCI, or any of
their respective Affiliates, primarily relating to, arising out of or
resulting from the operation or conduct of the SPCI Business or any
other business, or the ownership or use of the Assets of SPCI, as
conducted at any time on or after the Effective Time (including any
Liability relating to, arising out of or resulting from any act or failure
to act by any director, officer, employee, agent or representative of
IDT, SPCI, or any of their respective Affiliates (whether or not such
act or failure to act is or was within such Person’s authority), in each
case arising before the Effective Date;
...
(iv) any and all Liabilities to the extent relating to, arising out of or
resulting from any termination, sale, discontinuance or divesture of
any entity, business, real property, or Asset formerly and primarily
owned or managed by, or associated with SPCI or the SPCI
Business, or arising out of such entity, business, real property, or
Asset. 32
For clarity, if a liability under the S&DA fits into the above-quoted subsections (ii)
or (iv), it is a defined SPCI Liability, and IDT is not required to indemnify Straight
Path for that liability under the express terms of the agreement. 33
The term “SPCI Business” is defined to include “the ownership of the
spectrum licenses and the leasing and marketing of fixed wireless spectrum,” and
31
Id. § 1.01. The S&DA’s definition of “Liabilities” also extends to the settlement with the FCC,
as it expressly contemplates “ . . . any law, rule, regulation, action, order or consent decree of any
Governmental Entity . . . .” See id. (emphasis added).
32
Id.
33
See id. § 6.02.
8
the definition of “Assets” lists among other things “properties, rights, [and]
contracts.”34
Also at issue here is a consent right in respect of third-party claims, which
indicates that the indemnifying party will not “be liable for any settlement effected
without its consent, which consent shall not be unreasonably withheld or delayed.”35
The pertinent indemnification provisions additionally lay out a detailed process for
obtaining indemnification, including the indemnified party providing written notice
to the indemnifying party of a third-party claim, express written acknowledgement
of or objection to the claim by the indemnifying party, and specifics with regard to
defense of any such third-party claim.36
Finally, the S&DA includes an anti-assignment provision preventing both of
the parties from assigning their rights or delegating their duties under the S&DA
without the other party’s prior written consent.37
3. The Consent Decree and the Indemnification Claim
In 2016, the FCC investigated Straight Path and IDT for fraud associated with
the renewal of spectrum licenses prior to the Spin-Off.38 According to the Plaintiffs,
Straight Path and IDT approached the investigation in a “coordinated” fashion.39
34
Id. § 1.01.
35
Id. § 6.07.
36
Id.
37
Id. § 11.05(b).
38
Straight Path I, 2018 WL 3120804, at *3–4.
39
See Pls. MSJ AB 48.
9
For his part, Davidi identified early on that the investigation might give rise to an
indemnification obligation under the S&DA, and sent IDT an email asking to discuss
the matter in February 2016.40 Per the Plaintiffs, Straight Path and IDT worked
together to respond to the FCC: certain individuals, including Cyrulnik (ostensibly
IDT’s outside counsel), were present at Straight Path Board meetings where
settlement with the FCC was discussed, and Cyrulnik edited drafts of the “Consent
Decree” memorializing the settlement with the FCC.41 The IDT Defendants
characterize the investigation differently, perceiving Cyrulnik to be acting in a
capacity as Straight Path’s counsel at those specified meetings and in editing the
Consent Decree.42
Straight Path and the FCC entered into the Consent Decree in January 2017.43
The Consent Decree was multi-pronged. First, Straight Path forfeited approximately
20% of its Spectrum Assets.44 Second, Straight Path was required to sell its
remaining Spectrum Assets within one year and to pay 20% of the sales proceeds to
the FCC. 45 Finally, Straight Path consented to a $100 million fine. 46 The first
40
Richardson Decl., Ex. 12.
41
See Pls. MSJ AB 48. The Plaintiffs also argue that Howard was “personally involved” in
discussions between Straight Path and IDT with respect to whether IDT would pay or guarantee
any portion of a potential fine imposed by the FCC. Id.42
See IDT MSJ RB 21–22.
43
Straight Path I, 2018 WL 3120804, at *4.
44
Id.45
Id.46
Id.10
$15 million was due over a nine-month period; the remaining $85 million would not
become due in the event Straight Path sold the remainder of its Spectrum Assets to
a third party and paid the agreed 20% penalty. 47 The Consent Decree had the
practical impact of forcing Straight Path to seek a sale of the company (the value of
which was largely in the Spectrum Assets) or otherwise risk forfeiting all of its
spectrum licenses due to its inability to pay the monetary fine. 48
Notably, the Consent Decree sought to impose a 20% fine on the sale of
Straight Path’s Spectrum Assets—not upon the sale of Straight Path in total.49 To
account for Straight Path’s non-Spectrum Assets, the Consent Decree specified a
dollar figure of $50 million in non-Spectrum Assets to be backed out of the proceeds
from any sale of the company.50 The exact nature of the non-Spectrum Assets is not
defined in the Consent Decree, 51 and the parties have introduced competing theories
that the non-Spectrum Assets included either the IP Assets or certain tax benefits
belonging to Straight Path. 52
IDT was aware, and made statements in its public filings acknowledging, that
it might face liability for the penalties under the Consent Decree due to the S&DA’s
47
Id.48
Id.49
Richardson Decl., Ex. 27, at D_00042028.
50
Id. at Ex. 27, at D_00042031 (defining “Non-License Portfolio Assets” within the broader
definition of “Proceeds”).
51
See id.52
See infra Section II.A.4.
11
indemnification provisions.53 As noted in the prior opinion in this case, the basis for
this acknowledgment was likely that the fraud took place in 2011 and 2012, before
the Spin-Off.54
Following entry into the Consent Decree, the Straight Path Board formed a
special committee (the “Special Committee”) to evaluate options for the company
going forward.55 The Special Committee was composed of all Straight Path
directors other than Davidi.56 Although the Special Committee was formed for the
purpose of divesting the company of its IP Assets, it eventually pivoted to discussing
whether Straight Path might pursue the Indemnification Claim against IDT under
the S&DA “in relation to the FCC consent decree and Straight Path’s related
liabilities.”57 At a February 14, 2017 meeting, the Special Committee resolved to
preserve and pursue the Indemnification Claim for the benefit of Straight Path
stockholders, notwithstanding any necessary sale of the company. 58 Thereafter they
explored how the Indemnification Claim might affect the ongoing sale process and
resolved to exclude the Indemnification Claim from any such sale.59 The Special
53
Straight Path I, 2018 WL 3120804, at *3–4.
54
Id. at *4.
55
See id.
56
Id.
57
Id. (internal quotations omitted).
58
Id.
59
Id. at *4–5.
12
Committee planned to establish a litigation trust to hold the Indemnification Claim
apart from any sale of Straight Path. 60
a. Viability of the Indemnification Claim
As above, for IDT to be responsible for indemnifying Straight Path under the
S&DA, the liability in question needs to be an “IDT Liabilit[y].”61 The parties
disagree as to whether the conduct that gave rise to the Consent Decree and the
Indemnification Claim was in fact an IDT Liability. The IDT Defendants contend
that the contract itself is unambiguous and should lead me to find that the fraudulent
license renewal was, textually, an SPCI Liability. 62 If so, the Indemnification Claim
was not viable. 63 Thus, no claim of breach of fiduciary duty against any of the IDT
Defendants with respect to the Indemnification Claim could succeed.
b. Implied Consent to Settlement
The S&DA also requires that any settlement of a third-party claim by the
indemnified party, here ostensibly Straight Path, be approved via the consent of the
indemnifying party (theoretically IDT).64 The IDT Defendants contend that no such
consent was granted. 65 However, the Plaintiffs suggest that a pattern of facts
60
Id. at *5.
61
See supra notes 30–33 and accompanying text.
62
See Opening Br. Supp. IDT Defs.’ Mot. Summ. J. 23–26, Dkt. No. 441 [hereinafter “IDT MSJ
OB”].
63
Id. at 30 (citing In re Primedia, Inc. S’holders Litig., 67 A.3d 455, 477 (Del. Ch. 2013)).
64
See supra note 35 and accompanying text.
65
IDT MSJ OB 20–23.
13
regarding the Consent Decree gave rise to implied consent from IDT. 66 Most of
these facts refer to the role Cyrulnik played in negotiating and discussing the
Consent Decree, and whether he did so in his capacity as an attorney for IDT or for
Straight Path.67 Another fact that the Plaintiffs assert implies consent is Howard
Jonas’s discussion of the Consent Decree with Straight Path and Special Committee
director William Weld. 68 Weld has testified in depositions that he and Howard met
in January 2017 and, in the context of the Consent Decree negotiations, discussed
the upcoming change from the Obama administration to the Trump administration.69
Weld testified both that Howard was supportive of the consent decree, 70 but also that
Howard “[m]aybe” thought that Straight Path should not enter into the Consent
Decree. 71
The Plaintiffs also claim that because other formalities required by the S&DA
with regard to third-party claims were not followed, the “opportunity to consent” to
the Consent Decree may not have been afforded to IDT.72
66
Pls. MSJ AB 47–49.
67
See id.; see also supra notes 41–42 and accompanying text.
68
See Pls. MSJ AB 49.
69
Gallagher Decl., Ex. 2, 184:2–20.
70
Id. at Ex. 24, at 552:3–11 (testifying that Howard was supportive because the discussion centered
on which administration might be preferable, rather than whether or not to enter into the Consent
Decree).
71
Id. at Ex. 2, at 180:20–181:24 (identifying Howard as the only person who “maybe” thought
Straight Path should not enter the Consent Decree, but qualifying that Howard wasn’t sure which
administration to “make the deal” with).
72
See Pls. MSJ AB 47.
14
c. The Jonas-Jonas Tipping Allegations
The Plaintiffs’ claim against Davidi is that he “tipped off” his father Howard
as to the Special Committee’s plan to (1) preserve the Indemnification Claim and (2)
place the Indemnification Claim into the litigation trust.73
Again, the Special Committee was composed of all Straight Path directors
other than Davidi.74 When the Special Committee determined to preserve and later
pursue the Indemnification Claim on February 14, 2017, Davidi was not in
attendance.75 On February 28, 2017, the Special Committee’s attorneys at Shearman
& Sterling LLP (“Shearman”) communicated to Straight Path’s counsel at Weil,
Gotshal & Manges LLP (“Weil”) that the Special Committee would seek to preserve
the Indemnification Claim. 76 The Plaintiffs’ theory is that Davidi became aware of
this intention on February 28, as Weil represented Straight Path, and Davidi was the
Straight Path CEO.77
At any rate, Straight Path sent out a second-round bid letter to buyers
interested in purchasing the company on March 14, 2017, which indicated that the
Indemnification Claim would not be sold as part of any sale of Straight Path.78
73
See Compl. ¶¶ 7–9.
74
Straight Path I, 2018 WL 3120804, at *4.
75
Id. at *5 (“Davidi Jonas did not attend these Special Committee meetings . . . .”).
76
Id.
77
Compl. ¶ 76.
78
Straight Path I, 2018 WL 3120804, at *5.
15
Transmission of the bid letter was authorized by the full Board, meaning that Davidi
certainly knew of the plan to preserve the Indemnification Claim by March 14. 79
On March 14 and 15, nearly immediately after the transmission of the bid
letter, Howard personally contacted each of the directors on the Special Committee
and “threatened to blow up the sales process” if the Indemnification Claim was
preserved. 80 As Howard (via his trust) was the controlling Straight Path stockholder,
this threat had some potency. 81
The Plaintiffs’ allegations are that Davidi tipped off Howard as to the plan
with respect to the Indemnification Claim, in part due to the speed with which
Howard reacted after the bid letter was circulated. 82 The Plaintiffs’ answering brief
clarifies that they believe Davidi “encouraged and facilitated” his father, brother
Shmuel, and Cyrulnik (in his capacity as IDT’s counsel) in pressuring the Straight
Path Special Committee to release the Indemnification Claim. 83 They also suggest
that Davidi was not independent of Howard or IDT. 84
79
Id.80
Id. at *6.
81
See id.
82
See, e.g., Compl. ¶ 79.
83
Pls.’ MSJ AB 67.
84
Id. at 70–73.
16
In support of this theory is the fact that Davidi and his siblings own 10% of
IDT. 85 Moreover, Davidi’s brother Shmuel is the CEO of IDT, and his father
Howard was the Chairman and controlling stockholder. 86 In sum, Straight Path’s
pursuit of the Indemnification Claim could have harmed Davidi personally, as well
as his family, and Davidi was aware of this fact. 87
While not part of the Special Committee, Davidi undertook certain actions
while the Indemnification Claim negotiations were occurring, including: purportedly
sending a memorandum to the Special Committee regarding their fiduciary duties;88
speaking with his brother Shmuel about settling; 89 and texting with Cyrulnik on
multiple occasions, including before and after the settlement occurred.90 The texts
with Cyrulnik also suggest a number of phone calls occurred between the two,
though not necessarily during pertinent timeframes. 91
85
See supra note 20 and accompanying text. Davidi also owns shares in Straight Path. This fact
is uncontested. See, e.g., Opening Br. Supp. Def. Davidi Jonas’s Mot. Summ. J. 25, Dkt. No. 439
[hereinafter “Jonas MSJ OB”]; see also Pls. MSJ AB 69.
86
Straight Path I, 2018 WL 3120804, at *5.
87
Id.88
Richardson Decl., Ex. 2, at 447:20–448:5.
89
Id. at Ex. 51, at 202:6–203:21.
90
See, e.g., id. at Ex. 53, at STRP-DJONAS0000981 (before); id. at STRP-DJONAS0000995
(after).
91
See, e.g., id. at Ex. 53, at STRP-DJONAS0000977 (“Sorry I missed ur call”); id. at Ex. 53, at
STRP-DJONAS0000975 (“Ya. I’ll call you in a couple – getting off phone with Dave.”); id. at Ex.
53, at STRP-DJONAS0000964 (“If not a good time, you can call me tomorrow.”); id. at Ex. 53,
at STRP-DJONAS0000963 (“Will call in 5 after maariv”); id. at Ex. 53, at STRP-
DJONAS0000960 (“Hi Davidi – if you’re up pls give me a call on my cel”).
17
At the same time, discussions with various potential buyers regarding a sale
of Straight Path were ongoing. 92 Of note, the value of the Indemnification Claim
was variable based on the sales negotiations. The Consent Decree entitled the FCC
to 20% of the sales proceeds of the remaining spectrum licenses.93 Thus, as the
merger negotiations and price improved for Straight Path, the indemnification
situation worsened for IDT. 94
4. The Indemnification Claim Settlement and the Verizon-Straight
Path Merger
On March 29, Howard and the Straight Path Special Committee met to discuss
the Indemnification Claim and a sale of the IP Assets.95 At this meeting, certain
defenses to the Indemnification Claim were posited, including failure by Straight
Path to provide notice to IDT of the third-party claim and failure by Straight Path to
obtain IDT’s consent to settlement of the third-party claim.96
On April 6, Straight Path and IDT executed an initial term sheet (1) selling
the IP Assets for $6 million and (2) settling the Indemnification Claim for
$10 million plus a portion of the proceeds from certain uses of the IP Assets.97 The
92
Straight Path I, 2018 WL 3120804, at *7 (“[T]he bidding war for Straight Path was continuing
unabated at this time.”).
93
Id. at *4.
94
Id. at *7.
95
Id. at *6.
96
See Richardson Decl., Ex. 41, at 525:10–16 (Straight Path Special Committee counsel recalling
factual assertions made by Cyrulnik at the March 29 meeting).
97
Compl. ¶¶ 87–88.
18
term sheet was amended to become binding on April 9 98 and was disclosed to the
public via a Form 8-K filed on April 10. 99
Following the settlement of the Indemnification Claim, and following a
bidding war between AT&T and Verizon, Verizon ultimately agreed to the Merger
with Straight Path for $3.1 billion. 100 In purchasing Straight Path, Verizon also by
extension purchased all of Straight Path’s assets, including the remaining spectrum
licenses subject to the Consent Decree. As such, $614 million of the Merger
consideration was paid to the FCC in accordance with the Consent Decree. 101
B. Procedural History
The Plaintiffs served the operative amended complaint (the “Complaint”)
containing four counts on August 29, 2017.102 One of these counts, Count IV, has
been mooted following the closing of the Merger. 103 Remaining are the following
direct claims: Count I, for breach of fiduciary duty against defendants Howard Jonas
and The Patrick Henry Trust in their capacities as controlling stockholder; Count II,
for breach of fiduciary duty against defendant Davidi Jonas in his capacity as a
98
Id. ¶ 87.
99
See Transmittal Decl. of Daniel E. Kaprow, Esquire Pursuant to 10 Del. C. § 3927 Supp. IDT
Defs.’ Opp’n to Pls.’ Mot. Class Certification, Ex. 2, Dkt. No. 434.
100
Straight Path I, 2018 WL 3120804, at *7.
101
Id. at *8.
102
See Compl.
103
See Straight Path I, 2018 WL 3120804, at *8.
19
director and executive officer; and Count III against IDT for aiding and abetting the
breaches of fiduciary duty pled in Counts I and II. 104
The Defendants moved to dismiss, and I denied the motions to dismiss with
respect to Counts I through III in my prior opinion on June 25, 2018. 105 The IDT
Defendants sought an interlocutory appeal, which I certified on July 26, 2018.106
The Delaware Supreme Court affirmed on February 22, 2019.107 Discovery
followed.108
Each of the IDT Defendants and Davidi Jonas moved for summary judgment
on July 6, 2021. 109 Following briefing, I held oral argument with respect to the IDT
Defendants’ motion for summary judgment (the “IDT Summary Judgment
Motion”), Davidi Jonas’s motion for summary judgment (the “Jonas Summary
Judgment Motion”), and the motion for class certification on November 9, 2021. 110
104
Compl. ¶¶ 120–33.
105
Straight Path I, 2018 WL 3120804. I granted the motion to dismiss with respect to Count IV.
See id. at *20.
106
See Letter Op. and Order, Dkt. No. 124.
107
See IDT Corp. v. JDS1, LLC, 206 A.3d 260 (Del. 2019).
108
Certain motion practice, including motions to compel, occurred as part of the discovery process.
I issued a Letter Opinion addressing a motion to compel on June 15, 2020. See Letter Op., Dkt.
No. 284. I appointed a Special Discovery Master in April 2020. See Granted ([Proposed] Order
Appointing Special Master), Dkt. No. 276.
109
See Def. Davidi Jonas’s Mot. Summ. J., Dkt. No. 439; IDT Defs.’ Mot. Summ. J., Dkt. No.
440.
110
See Tr. of 11.9.21 Oral Arg. re Mot. for Class Certification, Class Representatives, and Mots.
Summ. J., Dkt. No. 531 [hereinafter “Oral Arg.”].
20
II. ANALYSIS
A movant may obtain summary judgment if there are no genuine issues of
material fact, and if the movant is therefore entitled to judgment as a matter of law.111
In considering a motion for summary judgment, the court must view the facts in the
light most favorable to the non-moving party (in both instances here, the
Plaintiffs).112 “There is no ‘right’ to summary judgment.” 113 When a court finds it
appropriate to consider the matter on a trial record, summary judgment may be
denied.114
A plaintiff must present “some evidence, either direct or circumstantial,” to
support all the elements of its claim in order for said claim to survive a defendant’s
motion for summary judgment.115 Summary judgment is appropriately entered
against a plaintiff who fails to make a sufficient showing establishing the existence
of an element essential to its case. 116 However, the court appropriately denies
summary judgment where “the record indicates a material fact is in dispute or if it
111
See Mason v. Network of Wilmington, Inc., 2005 WL 1653954, at *2 (Del. Ch. July 1, 2005).
112
Id.113
In re Tesla Motors, Inc. S’holder Litig., 2020 WL 553902, at *3 (Del. Ch. Feb. 4, 2020) (citation
omitted).
114
See Ebersole v. Lowengrub, 180 A.2d 467, 468–69 (Del. 1962) (citing Knapp v. Kinsey, 249
F.2d 797 (6th Cir. 1957)).
115
Mason, 2005 WL 1653954, at *2 (internal quotations omitted) (citation omitted).
116
Id.21
seems desirable to inquire more thoroughly into the facts in order to clarify the
application of law to the circumstances.”117
These standards guide my consideration of each of the IDT Summary
Judgment Motion and the Jonas Summary Judgment Motion.
A. The IDT Summary Judgment Motion
The IDT Summary Judgment Motion is largely predicated on the assertion
that there was no viable right to indemnification held by Straight Path in the wake
of the FCC settlement. If the Indemnification Claim was illusory, according to this
theory, there can have been no diversion of consideration. This assertion is
purportedly borne out of the text of the S&DA. In construing contractual language,
Delaware courts look to effectuate the parties’ intent “based on the parties’ words
and the plain meaning of those words.”118 Summary judgment is an appropriate
stage for the enforcement of unambiguous contracts because there is no material
dispute of fact for the courts to resolve.119 Whether or not a contract is ambiguous
is a question of law for the court.120 A contract is not rendered ambiguous on the
sole basis that the parties to a litigation disagree regarding the meaning of a
contractual term.121 A finding of ambiguity is appropriate when the provision at
117
See Tesla Motors, 2020 WL 553902, at *3 (quoting Guy v. Judicial Nominating Comm’n, 659
A.2d 777, 780 (Del. Super. Ct. 1995)).
118
See Zimmerman v. Crothall, 62 A.3d 676, 690 (Del. Ch. 2013) (citation omitted).
119
See Comet Sys., Inc. S’holders’ Agent v. MIVA, Inc., 980 A.2d 1024, 1030 (Del. Ch. 2008).
120
Id.121
Id.22
issue is “reasonable or fairly susceptible of different interpretations or may have two
or more different meanings.”122 For the IDT Defendants to prevail on their theory,
the S&DA must be unambiguous such that I can determine the parties’ intent based
on the language of the contract alone.123
The IDT Defendants propose three separate contractual bases for the
invalidity of the Indemnification Claim, each of which is addressed in turn below.
Again, if the Indemnification Claim was not viable, then its sale for $10 million to
IDT would not constitute an improper diversion of Merger consideration, and the
Plaintiffs’ direct claims with respect to the Indemnification Claim must fail.
This section also addresses the valuation of the IP Assets, which is contested
among the parties.
1. SPCI Liabilities Under the S&DA
To assess the IDT Summary Judgment Motion here requires an explication of
Straight Path’s indemnification right under the S&DA. That right is laid out at
Section 6.02, under which IDT is required to indemnify Straight Path for “the failure
of IDT [or its affiliates] to . . . discharge [] any of the IDT Liabilities.”124 Those
liabilities, in turn, are defined in part as “(ii) any Liabilities of [Straight Path] . . .
122
Id. (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196
(Del. 1992)).
123
See id. (“Therefore, the court’s analysis is initially focused ‘solely on the language of the
contract itself.’”).
124
S&DA § 6.02.
23
arising, or related to the period, prior to the Effective Time.” 125 This would include
the pre-Spin-Off fraud in way of the renewal of the spectrum licenses at issue here.
The IDT Liabilities, and IDT’s indemnification obligation therefor, are subject to a
carve-out, however: excluded are those liabilities “designated as SPCI Liabilities”
under the S&DA.126 In other words, IDT is liable 127 for indemnification for liability
arising from the license-renewal fraud unless the parties designated that liability as
an “SPCI Liabilit[y]” exempt from the indemnification right running to Straight
Path. 128
The IDT Defendants, accordingly, seek to cast the problematic conduct—the
fraudulent renewal of spectrum licenses—as an SPCI Liability by definition. 129 In
doing so, they point to subsections (ii) and (iv) in the multi-part SPCI Liabilities
definitional language. 130
I consider first subsection (iv), which provides that SPCI Liabilities include,
among others:
(iv) any and all Liabilities to the extent relating to, arising out of or
resulting from any termination, sale, discontinuance or divesture of
any entity, business, real property, or Asset formerly and primarily
owned or managed by, or associated with SPCI or the SPCI
Business, or arising out of such entity, business, real property, or
Asset. 131
125
Id. § 1.01.
126
Id.
127
Absent applicable defenses addressed below.
128
See supra note 33 and accompanying text.
129
See generally IDT MSJ OB; IDT MSJ RB.
130
Id.
131
S&DA § 1.01.
24
The subsection refers to those liabilities relating to, arising out of or resulting from,
pertinently, a sale. As outlined in the facts above, the spectrum licenses properly
fall under the definition of an Asset associated with the SPCI Business. 132 The IDT
Defendants’ position is that the Indemnification Claim unambiguously “aris[es] out
of” these spectrum licenses, and their sale to Verizon in the Merger.133
I agree that the quoted language is unambiguous, but it is apparent that the
liability in question—the fine and 20% penalty owed to the FCC as a result of the
Consent Decree, which stemmed from the improper obtaining of spectrum license
renewals—does not arise out of, result from, or relate to the sale or termination of
those licenses, although the amount of the liability is derivative of the sales price, in
part. Instead, the liability arises from the fraud that occurred when the spectrum
licenses were renewed. This subsection thus does not preclude the Indemnification
Claim’s viability, as a matter of law.
I next turn to section (ii), which uses time-based limitations to determine
whether certain liabilities constitute SPCI Liabilities (and are therefore exempt from
IDT’s general indemnification obligation). Section (ii) defines non-indemnified
SPCI Liabilities as follows:
except as otherwise expressly provided in this Agreement or any
Ancillary Agreement, any and all Liabilities of IDT, SPCI, or any of
their respective Affiliates, primarily relating to, arising out of or
132
See supra note 34 and accompanying text.
133
See supra notes 61–63 and accompanying text.
25
resulting from the operation or conduct of the SPCI Business or any
other business, or the ownership or use of the Assets of SPCI, as
conducted at any time on or after the Effective Time (including any
Liability relating to, arising out of or resulting from any act or failure
to act by any director, officer, employee, agent or representative of
IDT, SPCI, or any of their respective Affiliates (whether or not such
act or failure to act is or was within such Person’s authority), in each
case arising before the Effective Date; 134
It is such drafting as this that keeps lawyers fully employed, and jurists off the
streets. Unsurprisingly, the parties construe the above text differently. The IDT
Defendants believe it is clear that the language excludes from indemnification
liabilities that arose from the operation or conduct of the SPCI Business before the
Effective Date.135 They point to the ultimate clause of subsection (ii). (I note the
term “Effective Date” is not defined as part of the S&DA 136 and assume without
deciding that “before the Effective Date” is equivalent to “pre-Spin-Off”.)
Accordingly, they read the definition of non-indemnified SPCI Liabilities to include
any act by an IDT officer primarily relating to, arising out of or resulting from the
SPCI Business (including the ownership of the spectrum licenses) before the Spin-
Off. Thus, any improper action taken in renewing the spectrum licenses would be
an SPCI Liability, and IDT would have no indemnification obligation to Straight
Path. 137
134
S&DA § 1.01.
135
See IDT MSJ OB 23–24.
136
See S&DA § 1.01.
137
If IDT meant through this language to disclaim liability for its own pre-Spin-Off behavior, it is
difficult to perceive what it was agreeing to indemnify, I note.
26
For their part, the Plaintiffs believe it is clear that the language excludes from
indemnification liabilities that arose from the operation or conduct of the SPCI
Business at a time on or after the Effective Time. 138 In other words, acts by an IDT
officer primarily relating to, arising out of or resulting from the SPCI Business as
conducted at any time on or after the Effective Time (i.e., on or after the time of the
Spin-Off) would be an SPCI Liability, and IDT would have no indemnification
obligation. Conversely, actions taken by IDT employees prior to the Spin-Off to
improperly renew the spectrum licenses would fall outside the definition of an SPCI
Liability, and therefore IDT would be prima facie responsible for paying the
Indemnification Claim.
The language at issue is ambiguous, indeed obscure. It contains an obvious
blunder, as a parenthetical fails to close. Moreover, as noted, it uses a capitalized
term, Effective Date, that is not defined in the agreement. Assuming the missing
parenthesis is interior, and removing the parenthetical language for clarity, the
provision defines exempt SPCI Liabilities in pertinent part as “Liabilities of IDT [or
Straight Path] . . . resulting from the . . . [Straight Path] business . . . as
conducted . . . on or after the Effective Time . . ., in each case arising before the
Effective Date.”139 Given the turbidity of this prose, I cannot find that either party’s
138
See Pls. MSJ AB 52–53.
139
S&DA § 1.01.
27
interpretation is unsupportable as a matter of law, and I cannot determine the parties’
intent from the words of the contract alone.
Because the S&DA is ambiguous, there is a genuine issue of material fact as
to the parties’ intentions in drafting this subsection of the SPCI Liabilities definition,
and as to whether they meant to exclude the liability at issue from the
indemnification obligation. Summary judgment is, accordingly, unavailable on this
ground.
2. Lack of Consent to Settlement
The IDT Defendants also seek summary judgment on the basis that IDT
cannot be responsible for indemnifying a claim in the event of a “settlement effected
without its consent.” 140
Section 6.07 of the S&DA discusses the procedures for notice and defense of
third-party claims, such as the FCC’s Consent Decree. 141 It lays out a process
whereby the indemnified party (here purportedly Straight Path) was required to give
the indemnifying party (allegedly IDT) written notice “[p]romptly” following the
“receipt of notice of the commencement by a third party of any Action” or the
“receipt of information from a third party alleging the existence of a claim” against
140
Id. § 6.07.
141
Id.
28
the indemnified party. 142 Upon receipt of the notice, the indemnifying party was to
either acknowledge or object to the indemnification obligation via written notice.143
In certain instances, the indemnifying party could enter into a settlement or
compromise of the third-party claim without the indemnified party’s “prior written
consent.” 144 However, the provision specifically states that the indemnifying party
“shall not be liable for any settlement effected without its consent, which consent
shall not be unreasonably withheld or delayed.” 145
The parties dispute whether consent was given by IDT before Straight Path’s
entry into the Consent Decree. The IDT Defendants state that Straight Path “never
sought, let alone secured, IDT’s consent” to the Consent Decree. 146 The Plaintiffs
do not suggest that IDT provided prior written consent, but suggest that IDT gave
its consent by implication, listing a number of facts regarding the negotiations
between Straight Path and the FCC and the ways that various IDT personnel were
involved. 147
142
See id. Whether or not notice was in fact given is a disputed issue but is not dispositive to my
treatment of § 6.07, which includes a curative provision in the event the failure to give notice was
not materially prejudicial. Id. I do not make any finding with respect to that question here.
143
Id.
144
Id.
145
Id.
146
IDT MSJ OB 20.
147
Pls. MSJ AB 47–49. The Plaintiffs also argue that the consent right may not have been available
to IDT, as IDT never formally acknowledged or objected to the third-party claim under S&DA
§ 6.07. See id. at 47. I do not consider this argument further here as it is not dispositive to my
treatment of the consent right.
29
The question of whether implied consent was given is necessarily an issue of
material fact best considered upon live testimony. The Plaintiffs’ theory may prove
difficult to vindicate on the facts alleged. However, I cannot find as a matter of law
that consent was not given under the S&DA—particularly in light of the fact that
this particular language of Section 6.07 calls for mere consent, rather than prior
written consent, as in the remainder of the section. 148
3. The Question of Assignability
Finally, the IDT Defendants point to Section 11.05(b) of the S&DA, which
contains a non-assignability clause preventing either party from assigning its rights
under the agreement without the prior written consent of the other party. 149 They
posit that this provision entirely precludes the viability of the Indemnification Claim,
because any attempted assignment of the claim by Straight Path would have failed
under the express terms of the agreement.150 Given that Straight Path was
simultaneously exploring a sale, the assignability of the claim was particularly
important.
The Special Committee had seemingly identified this as an issue, however,
and was planning to address the question by placing the Indemnification Claim in a
148
See S&DA § 6.07.
149
Id. § 11.05(b).
150
See IDT MSJ OB 32–33.
30
litigation trust.151 The IDT Defendants maintain that no such structure was possible,
because the Indemnification Claim could not be assigned.152 However, the Plaintiffs
point me to the deposition of the Special Committee’s counsel at Shearman, Jerome
Fortinsky, who testified that he believed a trust structure that had been drawn up
would have avoided the assignment issue.153
Again, there is a genuine issue of material fact in dispute: whether a litigation
trust structure could have been devised to preserve the Indemnification Claim
without running afoul of the non-assignability provision. This is mixed question of
fact and law best answered on a full record. In any event, even if no such structure
could have been designed, other avenues may have existed to maintain the viability
of the claim: for example, obtaining consent to assignment or consent to a merger.
Construing the facts in the light most favorable to the non-moving party, the
existence of this contractual language, without more, does not render recovery under
the Indemnification Claim impossible as a matter of law. Thus, summary judgment
fails with respect to the non-assignability claim as well.
4. The IP Assets
Separately from the viability of the Indemnification Claim, the IDT
Defendants move for summary judgment with respect to the value of the IP Assets,
151
Pls. MSJ AB 22.
152
See IDT MSJ OB 32–33.
153
See Pls. MSJ AB 61 n.168; see also Richardson Decl., Ex. 40 (one such draft structure).
31
which were sold to IDT for $6 million at the same time as the Indemnification
Claim. 154 The Plaintiffs’ Complaint asserts that the IP Assets were in fact worth
$50 million, and their sale for $6 million constituted a sale for “no more than 12%
of their value.”155
The Plaintiffs’ theory is that the IP Assets constitute “the vast majority” of
Straight Path’s “Non-License Portfolio Assets,” as described in the Consent
Decree. 156 The Non-License Portfolio Assets were carved out from the greater
Straight Path entity so that the FCC’s 20% penalty would only be imposed on the
sale of Spectrum Assets, rather than the sale of the entire company.157 As such, the
Consent Decree defines Non-License Portfolio Assets as “assets of Straight Path
other than the License Portfolio 158 that are [to] be included in the [sale]
transaction . . . provided that, notwithstanding the actual value of such Non-License
Portfolio Assets, the value attributed to the Non-License Portfolio Assets for the
purpose of this provision shall be $50,000,000.”159 Accordingly, the Plaintiffs
theorize that the value of the IP Assets is, essentially, $50 million.
154
See supra note 97 and accompanying text.
155
See Compl. ¶ 90.
156
Id.; see also Richardson Decl., Ex. 27, at D_00042031.
157
See supra note 49 and accompanying text.
158
Defined as the “radio licenses” specified in an appendix to the Consent Decree. Richardson
Decl., Ex. 27, at D_00042030.
159
Id. at Ex. 27, at D_00042031 (emphasis in original).
32
The IDT Defendants have provided evidence rebutting this theory. In
particular, they have provided an email from Morgan Lewis & Bockius LLP, which
represented Straight Path in connection with the Consent Decree negotiation.160
That email suggests a definition for the term “Proceeds” as the “entire monetary
value received from one or more transactions that [sells or assigns the License
Portfolio],” excluding “$50 million attributable to Straight Path’s tax loss assets in
the event that those assets are included in the transaction pursuant to which the
transfer of control or assignment of the License Portfolio is implemented.”161 The
IDT Defendants also proffer a “Special Board Meeting” presentation from Evercore
dated February 6, 2017, which indicates that the “[v]aluation of patent portfolio was
$6.4M[illion]” as of October 2016. 162
The IP Assets issue is problematic. The Indemnification Claim, in my view,
was sufficiently intertwined with the Merger and its attendant consideration, and
sufficiently material to that transaction, so as to constitute a direct claim, rather than
simply a separate transaction for inadequate consideration (which would have been
a classic derivative claim extinguished by the Merger).163 How the IP Assets,
purchased by Howard at the same time, fit into this paradigm is unclear. Since the
160
See Gallagher Decl., Ex. 10, at MLB_0000358; see also Straight Path I, 2018 WL 3120804, at
*3.
161
Gallagher Decl., Ex. 10, at MLB_0000358 (emphasis added).
162
See id. at Ex. 12, at EVERCORE_00007863.
163
See generally Straight Path I, 2018 WL 3120804.
33
direct claim survives, however, there is little utility addressing the IP Assets claim
separately without a full record, and I decline to enter summary judgment here.
***
B. The Jonas Summary Judgment Motion
In short, the claims against Davidi Jonas are for breach of fiduciary duty164
based on his competing personal financial and familial interests in both IDT and
Straight Path. The evidence of Davidi’s fiduciary breach appears to be weak stuff.
Despite a thin record, however, most of these arguments are based upon ambiguous
facts that require a credibility assessment at trial. I find, based upon the record and
the Plaintiff-friendly inferences therefrom, that material issues of fact remain as to
whether Davidi was an independent fiduciary, and, if not, whether he acted based on
that lack of independence.
The Plaintiffs originally claimed that Davidi “tipped off” Howard, his father,
with respect to the Special Committee’s determination to place the Indemnification
Claim into a litigation trust.165 This claim is styled as a breach of fiduciary duty
164
The Plaintiffs’ answering brief specifies that they bring both a duty of loyalty claim in Davidi’s
capacity as a director under Cornerstone as well as a nonexculpated duty of care claim in Davidi’s
capacity as an officer. See Pls. MSJ AB at 73 n.198. Davidi’s reply brief responds that the
Plaintiffs have failed to allege the nonexculpated duty of care claim, and have not provided any
factual or legal support for the same. See Reply Br. Supp. Def. Davidi Jonas’s Mot. Summ. J. 27,
28, Dkt. No. 508 [hereinafter “Jonas MSJ RB”]. The Plaintiffs also failed to argue any facts with
respect to the duty of care claim at oral argument. See generally Oral Arg. This claim is therefore
waived. See Emerald Partners v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed
are deemed waived.”).
165
See Compl. ¶ 79.
34
wherein Davidi acted “to advance his and his family’s interests above those of”
Straight Path and its stockholders. 166 It survived the motion to dismiss stage because
I found it reasonable to infer that Davidi could have made such a tip based on his
competing family interests.167
Following discovery, the Plaintiffs appear to have pivoted to three new factual
grounds for finding that Davidi breached his fiduciary duties: (1) that Davidi failed
to disclose certain information to the Special Committee regarding notice of the
Indemnification Claim;168 (2) that Davidi “enlisted” Cyrulnik to pressure the Straight
Path Special Committee into accepting the $10 million settlement offered by IDT;169
and (3) that Davidi worked with Howard and Shmuel to undermine the negotiations
regarding the Indemnification Claim. 170
Davidi is quite correct to point out that more than mere allegations or denials
are required in order to create a genuine issue of material fact.171 To survive on a
motion for summary judgment, a plaintiff must provide the Court with “solid
evidence” of such genuine issue. 172 However, the evidence is still viewed in the light
166
Id. ¶ 127.
167
See Straight Path I, 2018 WL 3120804, at *18.
168
See Jonas MSJ OB 33.
169
See id. at 40.
170
See id. at 38.
171
See, e.g., Winshall v. Viacom Int’l Inc., 2012 WL 6200271, at *4 (Del. Ch. Dec. 12, 2012),
aff’d, 76 A.3d 808 (Del. 2013).
172
In re Transkaryotic Therapies, Inc., 954 A.2d 346, 349 (Del. Ch. 2008).
35
most favorable to the non-movant.173 If conflicting evidence is put forth such that a
genuine issue of material fact remains, summary judgment should be denied and the
issue should be considered at trial.174
Cornerstone specifies three ways in which a non-exculpated claim for breach
of fiduciary duty may be stated against a fiduciary: (1) the fiduciary may harbor a
self-interest adverse to the stockholders’ interests; (2) the fiduciary may act “to
advance the self-interest of an interested party from whom they could not be
presumed to act independently”; or (3) the fiduciary may act in bad faith.175 The
Plaintiffs’ theory of their claim falls under prongs (1) and (2)—that is, they do not
allege bad faith, but they allege Davidi was self-interested, lacked independence,
and acted to advance the self-interest of an interested party—his family members.176
There is only a weak case for Davidi’s self-interest. Caselaw addressing this
Cornerstone prong most commonly limits itself to discussing financial self-
interest. 177 By virtue of his financial holdings in IDT, there is evidence supporting
173
Id. at 356.
174
See id.; see also In re BGC Partners, Inc. Derivative Litig., 2021 WL 4271788, at *11 (Del.
Ch. Sept. 20, 2021) (“If there is evidence from which a rational fact finder could conclude that a
[defendant] breached their duty of loyalty, the matter must be resolved at trial.”).
175
In re Cornerstone Therapeutics Inc., S’holder Litig., 115 A.3d 1173, 1180–81; see, e.g., BGC
Partners, 2021 WL 4271788, at *9 (discussing the three Cornerstone methods of establishing a
non-exculpated fiduciary duty claim in the context of a summary judgment motion).
176
See Pls. MSJ AB 68.
177
See, e.g., In re Pattern Energy Grp. Inc. S’holders Litig., 2021 WL 1812674, at *66 (Del. Ch.
May 6, 2021) (citing The Frederick Hsu Living Trust v. ODN Holding Corp., 2017 WL 1437308,
at *26 (Del. Ch. Apr. 14, 2017)) (“To plead interestedness, a plaintiff can plead the fiduciary
received ‘a personal financial benefit from a transaction that is not equally shared by the
stockholders,’ or ‘was a dual fiduciary and owed a competing duty of loyalty to [another entity] . . .
36
the claim that Davidi had a self-interest that could be found adverse to the Straight
Path stockholders’ interests, and the claim transcends mere speculation or
allegations. 178 I do acknowledge that caselaw exists suggesting that Davidi’s
financial interest in IDT is too minor to be deemed a material, disabling conflict.179
Given the nature of Davidi’s IDT holdings in a trust vehicle, and the fact that the
trust is not solely for Davidi’s benefit but also benefits other family members, I
would likely need further evidence before addressing whether solely pecuniary self-
interest could give rise to a breach of the fiduciary duty of loyalty.
But there is another avenue for establishing a breach of the fiduciary duty of
loyalty under Cornerstone which lends itself more closely to the instant facts: the
or received a unique benefit not shared with the stockholders.’”); but see In re AmTrust Fin. Servs.
S’holder Litig., 2020 WL 914563, at *13 (Del. Ch. Feb. 26, 2020) (self-interest in eliminating
claims against a director); In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *8 (Del. Ch.
July 24, 2009) (directors self-interested in a transaction that benefitted preferred stockholders
where each director had an employment or ownership relationship with an entity that owned said
preferred stock). An argument could perhaps be made that Davidi had a self-interest in preserving
his relationship with his family. Cf., e.g., ATR-Kim Eng Fin. Corp. v. Araneta, 2006 WL 3783520,
at *16 (Del. Ch. Dec. 21, 2006) (suggesting that transferring an operating company to family
members for no value constituted a self-interested transaction). That theory seems to necessarily
imply questions of independence, and at any rate has not been aggressively briefed in this precise
context. To the extent there is overlap between the Cornerstone category of self-interest and the
broader concept of independence, I have endeavored to avoid that overlap by addressing Davidi’s
financial interests alone here and considering the independence analysis separately under
prong (2).
178
See, e.g., Richardson Decl., Ex. 1, at 16, 17 (identifying Davidi Jonas among the beneficiaries
of “[c]ertain trusts for the benefit of the children of Howard S. Jonas,” a Jonas family party
“[i]nvested in IDT”).
179
See Jonas MSJ RB 6; see also, e.g., In re OPENLANE, Inc. S’holders Litig., 2011 WL 4599662,
at *5 (Del. Ch. Sept. 30, 2011).
37
argument that Davidi “acted to advance the self-interest of an interested party from
whom [he] could not be presumed to act independently.”180
This Court has previously acknowledged that this prong of the Cornerstone
test reviews both independence and process. 181 “[I]f the director is either (1) shown
to be independent or (2) shown not to have actively furthered the conflicted party’s
interests,” this theory of liability will fail.182
The independence analysis is straightforward. “[O]ur law is not blind to the
practical realities of serving as a director of a corporation with a controlling
stockholder.” 183 “To plead a lack of independence, a plaintiff can plead the fiduciary
is ‘sufficiently loyal to, beholden to, or otherwise influenced by an interested party’
to undermine the fiduciary’s ability to judge the matter on its merits.” 184
Howard and Davidi enjoy the relationship between a father and a son, and
formerly the relationship between a controlling stockholder (via a blind trust and
certain consent rights) 185 and a Chairman/CEO. 186 Davidi testified at his deposition
to a handful of facts describing their father/son relationship, including: weekly phone
calls from Howard to his children, including Davidi, to deliver a religious blessing
180
Cornerstone, 115 A.3d at 1180.
181
BGC Partners, 2021 WL 4271788, at *10 (emphasis in original).
182
Id.183
Id. at *6 (citing In re BGC Partners, Inc., 2019 WL 4745121, at *7 (Del. Ch. Sept. 30, 2019)).
184
In re Pattern Energy, 2021 WL 1812674, at *68 (citations omitted).
185
See Richardson Decl., Ex. 50, at 617:21–23 (Davidi testifying that Howard placed his shares in
a blind trust to preserve Davidi’s independence).
186
See supra note 9 and accompanying text.
38
(although characterized as a one-way conversation); weekly visits from Davidi’s
children to their grandparents for a number of years; and the fact that Davidi and
Howard used to live within walking distance of each other. 187 Howard has also
financially assisted Davidi and his wife as recently as 2015, including by paying the
“balance” of their down payment on a house. 188 At the minimum, these facts
establish that Howard and Davidi were actively involved in each other’s lives and
maintained a familial relationship as of 2015. Sufficient evidence has been produced
to create a genuine issue of material fact as to whether Davidi was acting
independently under Cornerstone.
Next, I consider whether Davidi actively furthered the interests of Howard,
the interested party. Here, the Plaintiffs’ new theories of fact regarding Davidi’s
breach of fiduciary duty become relevant. I find the evidence supporting such a
breach relatively weak, but sufficient under the Plaintiff-friendly standard to
withstand the Jonas Summary Judgment Motion.
The first allegation is that Davidi “tipped” Howard as to the Special
Committee’s plan to place the Indemnification Claim into a litigation trust. The
evidence supporting this claim is so thin as to be sheer. It is undisputed that Howard
learned of the Special Committee’s plan to preserve the Indemnification Claim on
187
Richardson Decl., Ex. 50, at 471–73.
188
Id. at Ex. 66; see also id. at Ex. 67 (email gifting Davidi $700,000 “from [Howard’s] accounts”).
39
March 14, the same day a bid letter was sent to prospective buyers indicating the
claim would not be sold. 189 The evidence put forth in support of Plaintiffs’ claim is
this: the timing of Howard’s reaction to the Indemnification Claim, and the fact that
the Special Committee’s counsel at Shearman testified “someone” must have
informed Howard of the Special Committee’s plan.190 Davidi, along with
representatives from external advisors, testified that he did not warn Howard of the
Special Committee’s plan.191 But the evidence shows that the plan to retain the
Indemnification Claim had been circulated to multiple third parties. The universe of
“someones” who could have shared the plan with Howard expanded dramatically as
of March 14. Without evidence specifically linked to Davidi, the Plaintiffs’ claim
does not rise above the level of mere allegations or speculation and is an insufficient
factual basis, standing alone, to allow a breach of fiduciary duty claim to survive.
Similarly, the contention that Davidi caused Cyrulnik to intervene on
Howard’s behalf, standing alone, is unconvincing. There is evidence supporting the
Plaintiffs’ claim, as shown in the text messages produced between Davidi and
Cyrulnik late in the evening on March 28. The texts, which simply ask “[Cyrulnik:]
Hey – up? [Davidi:] Yes,” 192 are certainly circumstantial, but in the context of the
189
See supra note 78 and accompanying text.
190
Pls. MSJ AB 83–84.
191
See id. at 84.
192
Richardson Decl., Ex. 53, at STRP-DJONAS0000981.
40
greater text message production, give rise to a possibility that Cyrulnik and Davidi
spoke later that evening.193 Cyrulnik and Davidi had, if not a history of telephone
calls, at least a history of text messages strongly suggesting the occurrence of
telephone calls.194 The communication was pertinent given Cyrulnik’s allegedly
conflicted role in the transaction. 195 Further, the timing is paramount, as the meeting
with the Special Committee was scheduled for about ten hours later. 196 This
evidence is, at best, corroborative of allegations that Davidi acted disloyally.
However, these arguments form only part of the Plaintiffs’ theory supporting the
claim of breach of fiduciary duty.
The Plaintiffs allege that Davidi provided notice to IDT of a potential third-
party indemnification obligation for the pre-Spin-Off spectrum issues, and yet
intentionally failed to inform the Special Committee or its counsel of this notice.197
The alleged notice took the form of an email sent from Davidi to IDT on February
26, 2016, which reads in part: “According to a clause in the separation agreement . . .
193
These messages were produced following the depositions of both Davidi and Cyrulnik, so
neither has testified as to whether a call took place. See Jonas MSJ RB 24 n.23; see also Pls. MSJ
AB 77. The Plaintiffs suggest this in their answering brief, and Davidi’s reply brief does not
outright deny that a call took place. See Pls. MSJ AB 78; Jonas MSJ RB 26 n.25 (“Plaintiffs point
also to texts suggesting Davidi and Cyrulnik spoke by phone the evening of March 28 . . . . But
there is zero evidence that anything material or harmful to the negotiations, or otherwise improper,
was discussed on any call—only Plaintiffs’ speculation.”).
194
See supra note 91 and accompanying text.
195
See, e.g., supra notes 41–42 and accompanying text.
196
Pls. MSJ AB 78, 78 n.213 (identifying the pertinent time zone for the produced texts and the
time change between the time zone and Eastern Daylight Time).
197
Id. at 74.
41
IDT indemnifies [Straight Path] for activities prior to separation. Given the posture
of the claims against [Straight Path] to date that clause may be implicated. We hope
such indemnification won’t be necessary.” 198 At the March 29, 2017 meeting
between Howard and the Special Committee, Cyrulnik (ostensibly acting as IDT’s
counsel) indicated that notice under the S&DA had not been given with respect to
the Consent Decree, and therefore the Indemnification Claim might not be viable.199
The theory suggests that, as the Special Committee was not aware of Davidi’s
February 2016 email (of which he had intentionally not informed them), they may
have believed that notice had not been provided and thus considered the claim
somewhat less valuable than it in fact was. In this way, Davidi’s failure to inform
the Special Committee of the email furthered his father’s interests.
I state the above to outline the theory, which was not entirely clear from the
papers. In so doing, I do not presuppose that the theory is correct. Evidence has
been aggregated that could support the breach of fiduciary duty claim. This theory
revolves around Davidi’s credibility, which is appropriately assessed at trial.
The same is true of the Plaintiffs’ final remaining argument. Davidi was not
a member of the Special Committee, but the parties generally agree that he
encouraged the parties to reach a settlement. They disagree upon the
198
Richardson Decl., Ex. 12.
199
Id. at Ex. 41, at 525:10–16.
42
characterization. Particularly, the Plaintiffs claim that Davidi “undermine[d]” the
negotiations about the Indemnification Claim and “cooperated” with Howard,
Shmuel, and Cyrulnik to pressure the Special Committee into accepting Howard’s
settlement.200 In favor of the undermining argument, they point to deposition
testimony by one of the directors on the Special Committee, who indicated that
Davidi was “kind of leaning on the three of us independent directors, even wrote us
a memo saying, how can you be taking this position, this is against your duty as
directors of Straight Path.” 201 Further evidence, at least in the Plaintiffs’ view,
includes deposition testimony from Shmuel Jonas, Davidi’s brother and the CEO of
IDT at the pertinent time, indicating that he and Davidi spoke “[a] couple days
before” the March 29 meeting, and that Davidi “just kept pressuring me over and
over to settle the claim, settle the claim.”202 In response, Davidi indicates that he
“acted properly to facilitate a sale of [Straight Path], which all parties concede was
in the best interests of” Straight Path and its stockholders.203 Straight Path’s outside
advisors at Evercore even encouraged Davidi to reach out to Howard to ask him to
attend a settlement meeting. 204
200
Pls. MSJ AB 74, 82.
201
Richardson Decl., Ex. 2, at 447:20–448:5.
202
Id. at Ex. 51, at 202:6–203:21.
203
Jonas MSJ OB 22.
204
Dep. Comp., Ex. 9, 256:8–17.
43
The Plaintiffs’ theory here is that Davidi was breaching his fiduciary duties
by participating in unsanctioned negotiations in a disloyal attempt to encourage an
inadequate settlement of the Indemnification Claim. An opposite interpretation is
also reasonable and cannot be precluded as a matter of law. This is again an issue
of credibility best suited to resolution after trial. Accordingly, summary judgment
is denied.
Finally, Davidi seeks summary judgment on the issue of joint and several
liability.205 It would be premature to address this question at this time, so I do not
consider it here.
***
In total, the Davidi Jonas Summary Judgment Motion is denied. Although
the evidence on some of the Plaintiffs’ contentions is only marginal, it is sufficient
to survive the current motion, as credibility questions remain regarding Davidi’s
actions in connection with the Indemnification Claim that must be resolved upon a
fuller record.
205
Jonas MSJ RB 30–32.
44
III. CONCLUSION
The IDT Defendants’ motion for summary judgment is DENIED. Davidi
Jonas’s motion for summary judgment is DENIED. The parties should submit an
appropriate form of order.
45