Paul Rivera v. Angkor Capital Limited ( 2024 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
August 20, 2024
Thad J. Bracegirdle, Esquire Neil R. Lapinski, Esquire
Bayard, P.A. Gordon, Fournaris & Mammarella, P.A.
600 N. King Street, Suite 400 1925 Loverington Avenue
Wilmington, DE 19801 Wilmington, Delaware 19806
RE: Paul Rivera & Kalibrr, Inc. v. Angkor Capital Ltd., et al.,
Civil Action No. 2022-0671-MTZ
Dear Counsel:
The parties in this case surprised me after entry of final judgment with news
that a plaintiff had been void for nonpayment of franchise taxes since before the
litigation was filed. That news inspired a lot of questions. This letter begins with a
with a gating inquiry: can a corporation that is void for nonpayment of franchise
taxes participate in litigation? The answer, I think, is no. Plaintiff Kalibrr, Inc. is
void under 8 Del. C. § 510. All powers granted to it under the Delaware General
Corporation Law (the “DGCL”) are inoperative. These include the powers to sue,
be sued, to dissolve, and to wind up.
That answer begets another question, which the Delaware Supreme Court
asked me to answer: what, if anything, can be done about the final judgment in
this matter? I conclude that in the absence of a motion, my powers are limited.
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While I entered that judgment unknowingly after Kalibrr was declared void, I
cannot set it aside sua sponte.
I. BACKGROUND
In August 2022, Plaintiffs Paul Rivera and Kalibrr filed this action against
Defendants Keenan Kwok, his investment vehicle Angkor Capital Limited
(“Angkor”), Getlinks, Inc., and Ray Macrohon.1 Rivera and Kalibrr sought
rescission of a stock purchase agreement entered into by and between Rivera,
Kalibrr and Angkor (the “SPA”) by which Angkor purchased 98.5% of Kalibrr’s
stock. 2 Predicated upon rescission of Angkor’s purchase, Plaintiffs sought a
declaration under 8 Del C. § 225 that Angkor’s July 29, 2022 written consent
removing a director from Kalibrr’s board, and replacing him with Macrohon, was
invalid.3 In the alternative, Plaintiffs sought monetary damages for Angkor’s
breach of the SPA. 4 Defendants counterclaimed: Kwok asserted a books and
records claim under 8 Del. C. § 220(d), and Angkor asserted claims for various
1
Docket item (“D.I.”) 1 [hereinafter “Compl.”].
2
Compl. ¶ 11.
3
Id. ¶¶ 35–41.
4
Id. ¶ 45.
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breaches of the SPA and its implied covenant.5 As is customary in Section 225
actions, a status quo order was entered to limit Kalibrr’s decisionmakers to actions
in the ordinary course of Kalibrr’s business. 6
The matter went to trial, and on December 8, 2023, I issued my post-trial
decision concluding Angkor had breached the SPA, and awarded damages instead
of rescission. 7 I therefore found in Defendants’ favor on the Section 225 claim;
because the SPA was not rescinded, there was no basis to invalidate Angkor’s
written consent. I ordered Kalibrr to permit Kwok to inspect certain Kalibrr
documents under Section 220.8 On January 22, 2024, I entered the final order and
judgment (the “Final Judgment”). 9
On February 13, Rivera, but not Kalibrr, filed a notice of appeal on the
request for rescission and Section 225 claim. 10 Rivera also filed a motion to stay
5
D.I. 28 at Countercl. ¶¶ 20–35.
6
D.I. 29.
7
D.I. 79; D.I. 82 ¶¶ 1–2.
8
D.I. 82 ¶ 5.
9
D.I. 82. Plaintiffs also brought a claim for tortious interference with the SPA against
Kwok and Getlinks. Compl. ¶¶ 46–49. Judgment was entered in favor of Kwok and
Getlinks after trial. D.I. 82 ¶ 4. Getlinks is not party to the appeal. D.I. 83.
10
D.I. 83. That appeal is pending under the caption Paul Rivera v. Angkor Capital
Limited, et. al, No. 58, 2024 (Del.).
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entry of judgment and maintain the status quo pending appeal.11 Those motions
have been fully briefed. Defendants’ opposition to the motion to stay stated they
recently discovered Kalibrr was void under 8 Del. C. § 510 for failure to pay
franchise taxes.12 Kalibrr has not paid franchise taxes since 2020, and on June 15,
2022, just before Kalibrr and Rivera filed this action, the governor issued a
proclamation declaring Kalibrr void.13
That was news to me. On March 20, I requested affidavits disclosing when
the parties found out Kalibrr was void, and supplemental briefing on how Kalibrr’s
void status might affect this action, including the Final Judgment. 14 I asked the
parties to address (i) whether a void corporation is considered dissolved and if so,
if it enjoys a statutory wind up period;15 (ii) if being void affects the Court’s
ability to enter a Section 225 in rem judgment over board seats; and (iii) the
Court’s “jurisdiction, post-judgment and pending appeal, to consider the propriety
11
D.I. 85 at Mot.
12
D.I. 89 at Res. to Other Mot. ¶¶ 11, 26.
13
D.I. 94, Exs. A, B; 8 Del. C. § 511. As of July 17, 2024, Kalibrr’s franchise taxes have
still not been paid. D.I. 98.
14
D.I. 93.
15
See 8 Del. C. § 278.
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of judgments for, against, and regarding a corporation that turned out to have a
void charter.” 16
Rivera on the one hand, and Angkor and Kwok on the other, submitted letter
briefs on April 3, 2024; both sides posit Kalibrr is subject to a winding up period
and so this litigation is not affected. 17 On April 30, the Delaware Supreme Court
issued an order stating it “believe[d] that it would be in the interests of efficiency
and justice for the Court of Chancery to address, in the first instance, whether
Kalibrr’s void status affects the Final Judgment.” 18
II. ANALYSIS
I conclude a corporation voided under Section 510 is not considered
dissolved and does not have a winding up period affording it time to close out
affairs or litigate remaining claims. Without a winding up period, Kalibrr had no
power to pursue or defend this litigation.
16
D.I. 93 at 4–5.
17
D.I. 94 at Letter; D.I. 95 at Letter. Defendants argued Kalibrr does not have standing
“to request the relief Rivera is seeking because it doesn’t appear to fall under § 278.”
D.I. 95 at Letter 6.
18
D.I. 96. I read the Supreme Court’s letter to ask me to answer how Kalibrr’s void
status may affect the Final Judgment before I address the pending motion to stay and
maintain the status quo order.
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A. Kalibrr Has No Powers.
Kalibrr’s certificate states it “is no longer in existence and good standing . . .
having become inoperative and void . . . for non-payment of taxes.”19 Kalibrr
became void by function of 8 Del. C. § 510, which provides:
If any corporation, accepting the Constitution of this State and coming
under Chapter 1 of this title, or any corporation which has heretofore
filed or may hereafter file a certificate of incorporation under said
chapter, neglects or refuses for 1 year to pay the State any franchise
tax or taxes, which has or have been, or shall be assessed against it, or
which it is required to pay under this chapter, or shall neglect or refuse
to file a complete annual franchise tax report, the charter of the
corporation shall be void, and all powers conferred by law upon the
corporation are declared inoperative . . . . 20
Kalibrr’s corporate powers included the power to “[s]ue and be sued in all
courts and participate, as a party or otherwise, in any judicial, administrative,
arbitrative or other proceeding, in its corporate name.” 21 They also included the
ability to “[w]ind up and dissolve itself in the manner provided in” the DGCL.22
19
D.I. 94, Ex. A.
20
8 Del. C. § 510 (emphasis added). The legislature meant it: Section 513 “provides that
whoever exercises any corporate powers of a corporation whose charter has been
forfeited shall be guilty of a crime.” Frederic G. Krapf & Son, Inc. v. Gorson, 243 A.2d
713, 715 (Del. 1968); see 8 Del. C. § 513.
21
8 Del. C. § 122(2).
22
Id. § 122(7).
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Taking Kalibrr’s certificate and Section 510 at their plain meaning, all
Kalibrr’s powers, including the powers to sue, be sued, dissolve, or wind up, have
been “declared inoperative.” This is a harsh consequence, and would deprive void
corporations, and their creditors, of the benefits of the windup period 8 Del. C.
§ 278 affords dissolved corporations. Whether the legislature intended this
distinction warrants a focused inquiry. I begin with the statutes, then consider the
common law.
B. Statutory Interpretation
“Where the intent of the legislature is clearly reflected by unambiguous
language in the statute, the language itself controls.” 23 “If uncertainty exists,
however, rules of statutory construction are applied.”24 “‘The legislative body is
presumed to have inserted every provision for some useful purpose and
construction.’”25 “[W]ords in a statute should not be construed as surplusage if
23
Spielberg v. State, 558 A.2d 291, 293 (Del. 1989) (citing Evans v. State, 516 A.2d 477,
478 (Del. 1986)).
24
Spielberg, 558 A.2d at 293.
25
Giuricich v. Emtrol Corp., 449 A.2d 232, 238 (Del. 1982) (quoting C & T Assocs. v.
Gov’t of New Castle, 408 A.2d 27, 29 (Del. Ch. 1979)).
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there is a reasonable construction which will give them meaning” 26 and
“[u]ndefined words in a statute must be given their ordinary, common meaning.”27
I start my “analysis by deciding whether the statute[s] [are] ambiguous.” 28 I
find they are not. As already discussed, Section 510 renders a corporation that
failed to pay franchise taxes void, and all its powers granted to it under the DGCL
inoperative,29 including the power to dissolve, wind up, sue and be sued. 30 While
corporations become void under Section 510, dissolution procedures are set forth
in Section 275, and neither references the other.31 Section 275 prescribes various
26
Oceanport Indus., Inc. v. Wilm. Stevedores, Inc., 636 A.2d 892, 900 (Del. 1994) (citing
In re Estate of Smith, 467 A.2d 1274, 1280 (Del. Ch. 1983)); Doroshow, Pasquale,
Krawitz & Bhaya v. Nanticoke Mem’l Hosp., Inc., 36 A.3d 336, 344 (Del. 2012)
(“[E]very word chosen by the legislature (and often bargained for by interested
constituent groups) must have meaning.”)).
27
Oceanport Indus., 636 A.2d at 900.
28
Rubick v. Sec. Instrument Corp., 766 A.2d 15, 18 (Del. 2000).
29
8 Del. C. § 510. Black’s Law dictionary defines “void” as something that is “[o]f no
legal effect,” and “inoperative” is defined as “[h]aving no force or effect” and being “not
operative.” Void, Black’s Law Dictionary (12th ed. 2024); Inoperative, Black’s Law
Dictionary (12th ed. 2024).
30
8 Del. C. § 122.
31
Some states explicitly declare corporations “dissolved” for failure to pay taxes. See,
e.g., N.Y. Tax Law § 203-a(1)-(4) (McKinney 2024) (“[C]orporations . . . [that] have not
filed [tax] reports required under this article during the period of two consecutive years,”
after proclamation, “shall be deemed dissolved without further legal proceedings.”).
Others include void corporations in their winding up statutes. Kan. Stat. Ann. §§
17-7510, -6807 (West 2024) (including corporations that fail to pay taxes in continuation
of dissolved company statute); N.H. Rev. Stat. Ann. §§ 293-A:14.20-21 (2024).
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means of dissolution, e.g, through a board resolution approved by a majority of
stockholders,32 through unanimous stockholder written consent,33 and by limitation
in its own charter: 34 being proclaimed void is not listed as a path to dissolution.
Indeed, Section 277 provides that “[n]o corporation shall be dissolved . . . under
this chapter until . . . [a]ll franchise taxes due to or assessable by the State . . . have
been paid by the corporation.”35 The power to wind up is granted in Section 278,
which states:
All corporations, whether they expire by their own limitation 36 or are
otherwise dissolved, shall nevertheless be continued, for the term of 3
years from such expiration or dissolution or for such longer period as
the Court of Chancery shall in its discretion direct, bodies corporate
for the purpose of prosecuting and defending suits, whether civil,
criminal or administrative, by or against them, and of enabling them
gradually to settle and close their business . . . . With respect to any
action, suit or proceeding begun by or against the corporation either
32
8 Del. C. § 275(a)-(b).
33
Id. § 275(c).
34
Id. § 275(f).
35
Id. § 277.
36
This refers to corporations that have “limited life” provisions in their charters. See 8
Del. C. § 102(b)(5) (“A provision limiting the duration of the corporation’s existence to a
specified date; otherwise, the corporation shall have perpetual existence.”); Jeffrey R.
Wolters and James D. Honaker, Analysis of the 2010 Amendments to the Delaware
General Corporation Law, 4–5 (2010), https://www.law.upenn.edu/live/files/6789-
analysis-2010-amend-del-gen-corp-lawpdf (“Section 278 has been amended to clarify
that such limited life corporations shall, upon their expiration, be treated as dissolved
corporations subject to Section 278 and its automatic three year winding up period.”).
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prior to or within 3 years after the date of its expiration or
dissolution, the action shall not abate by reason of the dissolution of
the corporation; the corporation shall, solely for the purpose of such
action, suit or proceeding, be continued as a body corporate beyond
the 3-year period and until any judgments, orders or decrees therein
shall be fully executed, without the necessity for any special direction
to that effect by the Court of Chancery.37
By its plain language, Section 278 only applies to dissolved corporations.
The plain language of other statutes concerning dissolved and void
corporations reflects the distinction between the two. “[W]hen different terms are
used in various parts of a statute it is reasonable to assume that a distinction
between the terms was intended.’”38 “[W]here a provision is expressly included in
one section of a statute, but is omitted from another, it is reasonable to assume that
the Legislature was aware of the omission and intended it.”39 When it comes to
resuscitating corporations, Section 311 addresses dissolved corporations, while
Sections 312 and 313 address the void ones.40 Section 279 covers trustees or
37
8 Del. C. § 278 (emphasis added).
38
Giuricich, 449 A.2d at 238 (quoting C & T Assocs., 408 A.2d at 29)).
39
Giuricich, 449 A.2d at 238.
40
8 Del. C. § 311(a) (“At any time prior to the expiration of 3 years following the
dissolution of a corporation pursuant to § 275 . . . a corporation may revoke the
dissolution theretofore effected by it or restore its certificate of incorporation after it has
expired by its own limitation.”); id. § 312(d) (“Any corporation whose certificate of
incorporation has become forfeited or void pursuant to this title may at any time procure
a revival of its certificate of incorporation, together with all the rights, franchises,
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receivers for dissolved corporations, while Section 509 addresses how the state can
request receiverships for the void ones.41 The General Assembly persistently used
different words, and offered different mechanisms, for void corporations and
dissolved corporations.42 The language of Title 8 supports the conclusion that
Section 278 is confined to dissolved corporations, to the exclusion of void ones.
Normally, my inquiry would end here.43 But because the high court has
requested I explore this question, I will briefly review the relevant legislative
history, which confirms my findings. Dissolved corporations used to die a “civil
privileges and immunities . . . .”); id. § 313; see also id. 312(g) (“Any corporation that
revives its certificate of incorporation under this chapter shall pay to this State a sum
equal to all franchise taxes, penalties and interest thereon due at the time its certificate of
incorporation became forfeited or void pursuant to this title . . . .”).
41
Id. § 279; id. § 509.
42
While the statutory provisions concerning void and dissolved corporations are found in
different chapters of Title 8, I give this no significance. “The classification and
organization of the titles, parts, chapters . . . are made for the purpose of convenient
reference and orderly arrangement, and no implication, inference or presumption of a
legislative construction shall be drawn therefrom.” 1 Del. C. § 305; Salzberg v.
Sciabacucchi, 227 A.3d 102, 117 (Del. 2020) (“Each part or section of a statute should be
construed in connection with every other part or section to produce a harmonious
whole.”).
43
Ingram v. Thorpe, 747 A.2d 545, 547 (Del. 2000) (“Where the language of the statute
is unambiguous, no interpretation is required and the plain meaning of the words
controls.” (citing Spielberg, 558 A.2d at 291)).
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death” immediately upon dissolution.44 “At an early stage of our law, that law was
clear, if harsh. . . . [N]ot only could the corporation not thereafter be sued, but
pending suits against it abated.”45 “Thus, statutory authority [wa]s necessary to
prolong the life of a corporation past its date of dissolution.” 46 As early as 1853,
the General Assembly did just that: it provided dissolved corporations a three-year
windup period. 47
But void corporations were not provided that same right. “[I]n 1899, the
General Assembly enacted the first General Corporation Law . . . .” 48 At that time,
Section 510’s predecessor stated that “[i]f any corporation hereafter created shall
for two consecutive years neglect or refuse to pay the State any tax . . . the charter
of such corporation shall be void, and all powers conferred by law upon such
corporation are hereby declared inoperative and void[.]” 49 Under Section 122’s
44
In re RegO Co., 623 A.2d 92, 95 (Del. Ch. 1992); Territory of U.S. Virgin Islands v.
Goldman, Sachs & Co., 937 A.2d 760, 792 (Del. Ch. 2007), aff’d, 956 A.2d 32 (Del.
2008) (explaining statutes like Section 278 “mitigated that harshness by continuing the
legal existence of a dissolved corporation for a wind-up period during which claims can
be asserted”).
45
RegO, 623 A.2d at 95.
46
In re Citadel Indus., Inc., 423 A.2d 500, 503 (Del. Ch. 1980).
47
17 Del. Laws ch. 147, § 34 (1853).
48
Klein v. Sunbeam Corp., 95 A.2d 460, 461 (Del. 1953).
49
22 Del. Laws ch. 15, § 10 (1899).
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predecessor, those powers included the power to “sue and be sued” and “wind up
and dissolve itself.”50 Section 275’s and 278’s predecessors made no reference to
void corporations.51
Over six decades later, the “Delaware Corporation Law was extensively
revised.”52 The Review of the Delaware Corporation Law, a report written by
Professor Ernest Folk to assist the legislature in its revisions, 53 explained that
“[u]nder Delaware law, a corporation’s life may terminate or suspend for various
reasons and under varying titles.”54 Those included dissolution, which “results
from voluntary action of directors and shareholders,” as well as revocation and
50
22 Del. Laws ch. 166, § 2 (1901).
51
Id. § 39; id. § 40 (“All corporations, whether they expire by their own limitation, or are
otherwise dissolved, shall, nevertheless be continued for the term of three years . . . for
the purpose of prosecuting and defending suits by or against them, and of enabling them
gradually to settle and close their business . . . .”).
52
Giuricich, 449 A.2d at 237.
53
“The Folk Report is a contemporaneous analysis of proposed amendments to the
Delaware indemnification statute and is helpful legislative history.” MCI Telecomms.
Corp. v. Wanzer, 1990 WL 91100, at *10 (Del. Super. Ct. June 19, 1990); see also Zohar
II 2005-1, Ltd. v. FSAR Hldgs., Inc., 2017 WL 5956877, at *24 n.234 (Del. Ch. Nov. 30,
2017) (“Professor Folk’s recommendations were fundamental in constructing the final
version of the 1967 revisions . . . .”).
54
Ernest L. Folk, III, Review of the Delaware Corporation Law, at 211,
https://delawarelaw.widener.edu/files/resources/folkreport.pdf [hereinafter “Folk
Report”].
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“‘becoming[ing] inoperative’ for non-payment of taxes.” 55 Folk noted that “more
recent statutes have, as a rule, overhauled these procedures rather thoroughly,
treating all of them as varieties of ‘dissolution’ to be followed by ‘liquidation’
under uniform procedures.”56 But Folk recommended against “undertak[ing] a
thorough revision of its dissolution procedures.”57 Indeed, the procedures
surrounding dissolution and voidness did not significantly change at that time.58
The first edition of Folk on the Delaware General Corporation Law, written in
55
Folk Report at 211–12. Folk listed charters that “‘expire’ because of a fixed life” as
another way for a corporation’s life to terminate. Id. at 212. In 2022, Section 275 was
revised to “ma[k]e clear that the termination of a corporation’s existence in this way
constitutes ‘dissolution’ for statutory purposes.” John J. Paschetto, Lauren M. McCrery,
et. al, Delaware Corporations May Not Exculpate Officers, Appraisal Demands No
Longer Must Be Made Only by Registered Stockholders, and Boards May Delegate
Authority to Issue Shares and Options, Among Other Recent Changes to the DGCL, 5
(2022), https://www.law.upenn.edu/live/files/12312-young-conaway-amendments-
effective-august-1-2022; 88 Del. Laws ch. 377, § 275 (2022). No such amendment for
voidness has been made.
56
Folk Report at 212.
57
Id. (“This Report, does not recommend that Delaware undertake a thorough revision of
its dissolution procedures, but makes various suggestions for improving procedure within
the existing framework thereby preserving relevant case-law.”).
58
Minutes of the Twenty-Second Meeting of Delaware Corporation Law Study
Committee (1965); Minutes of the Twenty-Seventh Meeting of Delaware Corporation
Law Study Committee (1966).
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1972, stated that a corporation “whose charter has been proclaimed void ‘cannot
properly be considered dissolved and within the purview of section 278.’” 59
While additional changes to the DGCL’s dissolution statutes have occurred
over the last five decades, 60 Title 8 has continued to make separate provision for
void and dissolved corporations. The plain language of Title 8 supports the
conclusion that Section 278’s provision of a winding up period for dissolved
corporations does not extend to void corporations.
C. Split In Caselaw
Despite Title 8’s plain language, whether Section 278 applies to void
corporations has been described as an open question. 61 Indeed, precedent is split
on whether void corporations are tantamount to being dissolved and therefore
subject to a winding up period.62 My letter to the parties and their responses
59
3 Robert S. Saunders et al., Folk on the Delaware General Corporation Law, § 278.07
at 10-111 to -112 (7th ed. 2022) [hereinafter “Folk”].
60
Section 275 has been amended at least seven times since 1967. Folk, § 275.07 at 10-85
to -86. Section 278 has been amended at least twice since 1967. Id. § 278.08 at 10-112.
61
1 R. Franklin Balotti, et al., The Delaware Law of Corporations & Business
Organizations § 10.16, at 10-49 to -50 (4th ed. 2024).
62
V.E.C. Corp. of Del. v. Hilliard, 2011 WL 7101236, at *6 (S.D.N.Y. Dec. 13, 2011)
(“Courts interpreting Delaware law disagree as to whether a Delaware corporation whose
charter has been forfeited or declared void for failure to pay its franchise taxes is
dissolved.”) (citing cases).
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addressed this question and the split response, so I take the Supreme Court’s letter
to ask me to address both.
In Transpolymer Industries, Inc. v. Chapel Main Corp., the Delaware
Supreme Court sua sponte dismissed an appeal because the appellant corporation
suffered two flaws: (1) it was purportedly, and improperly, represented by a pro se
person, and (2) it had been proclaimed void the year before, and therefore had
“ceased to exist and . . . lost any standing to appeal and be heard, even if
represented by counsel.”63 The high court’s opinion did not mention any winding
up period.
Many federal courts interpreting Delaware law have held that void
corporations are not dissolved.64 In Indian Protective Ass’n v. Gordon, the Court
63
Transpolymer Indus., Inc. v. Chapel Main Corp., 582 A.2d 936, 1990 WL 168276, *1
(Del. 1990) (TABLE). In First State Staffing Plus, Inc., the Court of Chancery found
Transpolymer’s “brief reference” to the corporation’s voidness following its lack of
representation “could be considered dicta” and that the case did not require a departure
from the traditional rule that ‘a dissolved Delaware corporation has the power to close its
affairs but not to carry on the business for which it was established.’” First State Staffing
Plus, Inc. v. Montgomery Mut. Ins. Co., 2005 WL 2173993, at *7 (Del. Ch. Sept. 6, 2005)
(citing Gamble v. Penn Valley Crude Oil Corp., 104 A.2d 257, 260 (Del. 1954)). The
authority cited for support in First State is Gamble, which involved a voluntarily
dissolved corporation. 104 A.2d 257, 260 (Del. 1954). I read the two grounds for
dismissal in Transpolymer to stand on equal footing, and as explained, view the statutes
governing dissolved companies as inapplicable to void companies.
See, e.g., In re Apple iPod iTunes Antitrust Litig., 2014 WL 6783763, at *4 (N.D. Cal.
64
Nov. 25, 2014) (“While authority is split on whether voided corporations fall under
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of Appeals of the District of Columbia held, under Delaware law, that a void
corporation “was not entitled to maintain [the] suit” because “[i]t had not been
dissolved in any of the ways provided” by Delaware law. 65 The Court of Appeals
determined that “[b]y the proclamation of the governor, under the express
provision of the franchise tax act, its incorporation became inoperative and void”
not dissolved, and “that is to say, as if it had never existed.”66 Indian Protective
was affirmed by the United States Supreme Court.67
At the same time, many Delaware cases have held that “a corporation whose
charter is void and powers inoperative, under [Section 510’s predecessor], is
dissolved within the meaning of” Section 279’s predecessor.68 But upon
section 278, the Court finds more persuasive the approach followed by the Delaware
Supreme Court—that void corporations lose their standing to pursue legal actions until
the corporate status is restored.”); Bd. of Managers of Soho Int’l Arts Condo. v. City of
New York, 2005 WL 1153752, at *11 n.19 (S.D.N.Y. May 13, 2005) (“Nowhere in
Delaware’s General Corporation Law, or its Corporation Franchise Tax Law, is a
corporation whose charter has been forfeited for non-payment of taxes, referred to as
dissolved. It is consistently referred to as void.” (citing 8 Del. C. §§ 312–13, 510)); U.S.
v. Ne. Pharm. & Chem. Co.., 810 F.2d 726, 746 (8th Cir. 1986) (“[F]orfeiture of the
corporate charter and voluntary dissolution are not legally equivalent.”).
65
Indian Protective Ass’n v. Gordon, 34 App. D.C. 553, 557 (D.C. Cir. 1910), aff’d, 218
U.S. 667 (1910), and aff’d, 225 U.S. 698 (1912).
66
Id.67
Indian Protective Ass’n v. Gordon, 218 U.S. 667 (1910).
68
Wuerfel v. F.H. Smith Co., 13 A.2d 601, 602 (Del. 1940); see also IMO Est. of
Nastatos, 2023 WL 8269833, at *9 (Del. Ch. Nov. 30, 2023) (“Because the Company’s
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inspection, these cases are built on a shaky foundation. Key early cases begin with
the faulty assumption that the governor’s proclamation of voidness worked a
dissolution. In 1911 and 1912, in Harned v. Beacon Hill Real Estate, this Court
and the Delaware Supreme Court considered the charter of a corporation that was
void for failure to pay taxes as “repealed and the corporation dissolved by
proclamation of the Governor according to the act of assembly in that behalf.”69 In
1952, Addy v. Short noted there was no difference “between the status of a
corporation that has been dissolved by proclamation of the Governor for
nonpayment of tax and a corporation that has been dissolved by voluntary act of its
charter was properly marked void, it was, as of 1993, a dissolved corporation (citing
Wuerfel, 13 A.2d at 602)); James v. United Med. LLC, 2017 WL 1224513, at *4 (Del.
Super. Ct. Mar. 31, 2017) (dismissing claim involving long-voided entity because the
three year “statutory period allowing [plaintiff] to bring a suit has expired, and there is no
allegation that [plaintiff] received an extension of that period.”); Darley Liquor Mart, Inc.
v. Bechtel, 1982 WL 593130, at *1 (Del. Super. Ct. Mar. 19, 1982) (finding void
corporation had standing because “278 provides that the capacity of a dissolved
corporation to sue continues for at least three years from expiration or dissolution. It
follows that plaintiff corporation had the capacity to sue when it filed this action,
notwithstanding that its charter had previously been repealed for non-payment of the
corporate franchise tax.”).
69
Harned v. Beacon Hill Real Est. Co. (Harned II), 84 A. 229, 230, 233 (Del. 1912)
(emphasis added); Harned v. Beacon Hill Real Est. Co. (Harned I), 80 A. 805, 807–08
(Del. Ch. 1911), aff’d 84 A. 229 (Del. 1912) (describing “[a] corporation which has
defaulted in payment of its franchise tax and been proclaimed” as a “corporation
dissolved by proclamation.”).
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stockholders.”70 Building on the assumption that gubernatorial proclamations had
worked a dissolution, the Harned and Addy courts concluded the statutory
provision for receiverships of corporations “dissolve[d] in any manner” 71 included
dissolutions by proclamation.72
Neither the Harned cases nor Addy kicked the tires on the assumption that a
proclamation based on nonpayment of taxes worked a dissolution. But then, as
now, the statutes distinguished voidness and dissolution, as explained above. I
believe that foundational assumption that a proclamation of voidness worked a
dissolution is unsupported, based on the statutes’ plain language.
In another midcentury case, Wax v. Riverview Cemetery Co., the Superior
Court considered the marketability of title of a property previously owned by a
70
89 A.2d 136, 140 (Del. 1952) (emphasis added). The assumption that void
corporations are dissolved underpins modern decisions as well. E.g., City Investing Co.
Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1195 (Del. 1993) (“In tandem,
[Section 278 and Section 279] insure that whether a corporation is dissolved voluntarily
by its shareholders or for nonpayment of taxes, it remains a viable entity authorized to
possess property as well as sue and be sued incident to the winding up of its affairs.”
(citing Addy, 89 A.2d at 140)).
71
The operative version of Section 279 at the time read that “[w]hen any corporation
organized under this Act shall be dissolved in any manner whatever, the Court of
Chancery . . . may either continue such directors, trustees as aforesaid, or appoint one or
more persons to be receivers of and for such corporation. . . .” 22 Del. Laws ch. 166,
§ 43 (1901).
72
Addy, 89 A.2d at 140; Harned I, 80 A. at 808; Harned II, 84 A. at 233.
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void corporation, and whether the void corporation was a proper defendant in the
related foreclosure proceedings. 73 The Court considered Indian Protective but
determined Harned and its progeny “substantially destroy[ed] the construction of”
that case. 74 The Court reasoned the “Franchise Tax Act is purely a revenue
measure,” and, relying on authority from other jurisdictions, held that because void
corporations could be statutorily revived, a void corporation was merely “in a state
of coma from which it can be easily resuscitated.” 75 The Court noted it was
“[k]eeping in mind that [it was] dealing with a creditor having no interest in the
corporation, except as a creditor holding its bond and mortgage” and could not
“conclude that the legislature intended to penalize the creditor and destroy its
rights.”76 Wax’s holding was built on precarious authority. And four decades
73
24 A.2d 431, 427, 437 (Del. Super. Ct. 1942).
74
Id. at 434.
75
Id. at 434–36 (“The great weight of modern decisions construing tax Acts similar to
our own hold that so long as there is a statutory right to be reinstated, the proclamation of
forfeiture for non-payment of taxes does no more than forfeit the corporate right to do
business, but does not extinguish the corporation as a legal entity.”).
76
Id. at 436. Many cases following Harned, Addy, and Wax rely on these holdings in
treating void corporations as dissolved. See, e.g., City Investing Co., 624 A.2d at 1195
(“In tandem, [prior 278 and 279] insure that whether a corporation is dissolved
voluntarily by its shareholders or for nonpayment of taxes, it remains a viable entity
authorized to possess property as well as sue and be sued incident to the winding up of its
affairs.” (citing Addy, 89 A.2d at 140)); Gorson, 243 A.2d at 715 (“And in Delaware it
has long been the law that a Delaware corporation is not dead for all purposes following
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later, in Transpolymer, the Delaware Supreme Court gave Wax no mind in
dismissing an appeal because a corporation was void. 77
I conclude the supported law is best, and dispositively, stated in
Transpolymer: a corporation that is void for nonpayment of franchise taxes has no
standing to sue or to bring an appeal. 78
D. Kalibrr Has No Standing, Yet Final Judgment Cannot
Be Set Aside Sua Sponte.
In my view, Title 8 and Transpolymer are clear: void corporations are not
dissolved, and are not subject to Section 278’s winding up period. No other source
of any winding up period for a void corporation has been identified. A void
corporation has no power to sue, be sued, or wind up. 79 Kalibrr died a civil death
before it purported to file this action.
forfeiture of its charter.” (citing Wax, 24 A.2d 431; Addy, 89 A.2d 136; Harned II, 84 A.
229)); Pagliara v. Fed. Nat’l Mortg. Ass’n, 2017 WL 2352150, at *3 (Del. Ch. May 31,
2017) (“Delaware and federal courts have exercised personal jurisdiction over defendant
Delaware corporations that have not filed a certificate of dissolution but whose
certificates of incorporation were voided for failure to pay franchise taxes.” (citing Wax,
24 A.2d at 436; Ross v. Venezuelan-Am. Indep. Oil Producers Ass’n, 230 F. Supp. 701,
704 (D. Del. 1964); Sanders v. Vari, 143 A.2d 275, 277 (Del. Ch. 1958))); Townsend v.
Delaware Glue Co., 103 A. 576, 577 (Del. Ch. 1918) (citing Harned II, 84 A. 229).
77
Transpolymer, 1990 WL 168276, at *1.
78
Id.79
While being shut off from the courts is a harsh outcome, the legislature treats limited
liability companies in a similar manner if they fail to pay taxes. Those entities cannot
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Now the rubber hits the road. Kalibrr died before this action began, yet it
purported to litigate a case to the Final Judgment, which grants it damages and
enforces director inspection rights. But officers and directors of long-dissolved
companies “have no power to act because the corporation no longer has legal
existence.”80 The same is true for void corporations. 81 Nobody was authorized to
cause Kalibrr to bring or defend litigation. It also seems unlikely the Court could
enter judgment in Kalibrr’s favor: indeed, the Final Judgment is likely void. 82
“maintain any action, suit or proceeding” in the state until taxes have been paid and the
LLC is restored to good standing. 6 Del. C. § 18–1107(l); HWI P’rs, LLC v. Choate,
Hall & Stewart LLP, 2013 WL 6493118, at *3 (D. Del. Dec. 11, 2013) (recommending
dismissal of claim where “[a]t the time of removal, HWI Technologies was not a LLC in
good standing with the State of Delaware, and lacked the capacity to sue under Delaware
law . . . for failure to pay annual franchise taxes.” (citation omitted)).
80
Citadel, 423 A.2d at 504.
81
8 Del. C. §§ 510, 513 (“Whoever exercises or attempts to exercise any powers under
the certificate of incorporation of any corporation which has been proclaimed by the
Governor, after the issuance of the proclamation, shall be fined not more than $1,000 or
imprisoned not more than 1 year, or both.”). Likewise, Section 508 allows the Attorney
General to file an injunction with the Court to stop a void corporation “from the exercise
of any franchise or the transaction of any business within the State.” Id. § 508. Section
509 provides a method for the Attorney General to appoint a receiver for a void
corporation. Id. § 509.
82
See, e.g., State, ex rel. Price’s Ex’x v. Alexander, 49 A.2d 420, 425 (Del. Super. Ct.
1946) (noting “well recognized authorities to the effect that a judgment entered in favor
of a deceased person is void.”); In re Proton-Pump Inhibitor Prod. Liab. Litig., 2022 WL
17850260, at *2 (D.N.J. Dec. 22, 2022) (“‘[A] party must have a legal existence as a
prerequisite to having the capacity to sue or be sue’ and a ‘person who dies prior to filing
suit is not a legal entity . . . .’” (quoting Adelsberger v. U.S., 58 Fed. Cl. 616, 618 (Fed.
Cl. 2003))); In re Asbestos Prod. Liab. Litig. (No. VI), 311 F.R.D. 152, 156 (E.D. Pa.
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But I do not believe I can do anything about that now absent a motion. I am
unaware of any applicable mechanisms by which the Court of Chancery can set
aside the Final Judgment sua sponte. Even subject matter jurisdiction, an issue “so
crucial” the Court has a duty to raise it sua sponte, can only be raised at “any time
before final judgment.” 83 Court of Chancery Rule 60 identifies only two grounds
for the Court itself to set aside a final judgment: clerical error or “fraud upon the
Court.”84 I do not believe either is present here.
2015) (“The Court finds that since the deceased Plaintiffs had no legal existence when
their complaints were filed, their suits are nullities with no legal effect.”); Darmanchev v.
Roytshteyn, 234 F.R.D. 78, 79 (E.D. Pa. 2005) (“In Pennsylvania, it is well-settled that
‘[a] dead man cannot be a party to an action, and any such attempted proceeding is
completely void and of no effect. Moreover, because a dead person cannot be a party to
an action commenced after his death, substitution of a personal representative of the dead
person’s estate is improper.’” (quoting Montanya v. McGonegal, 757 A.2d 947, 950 (Pa.
Super. Ct. 2000))); Banakus v. United Aircraft Corp., 290 F. Supp. 259, 260 (S.D.N.Y.
1968) (“Since Holochuck was dead when the action for personal injuries was
commenced, that action must be treated as a nullity and it cannot be given life by
substituting parties and amending the complaint. An action cannot be brought by a
deceased. The action [was] void at its inception . . . .” (citations omitted)); see also
Citadel, 423 A.2d at 504 (vacating order granting continuation of winding up period after
the Court was informed company was long dissolved because “[a]fter that date, Citadel
no longer existed as a body corporate. It no longer had legal existence as a corporation . .
. at that point there was no longer a legal entity which could be continued through its
officers, directors and shareholders.”).
83
In re Coinmint, LLC, 261 A.3d 867, 904 (Del. Ch. 2021) (internal quotation marks
omitted) (quoting Envo, Inc. v. Walters, 2009 WL 5173807, at *4 n.10 (Del. Ch. Dec. 30,
2009)), aff’d, 2013 WL 1283533 (Del. Mar. 28, 2013) (TABLE)); Ct. Ch. R. 12(h).
84
Ct. Ch. R. 60.
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Fraud upon the Court is a “serious[] species, generally limited to fraudulent
conduct that seriously ‘affects the integrity of the normal process of
adjudication.’”85 “Clear examples of fraud on the court include bribery of a judge,
jury tampering, or hiring an attorney for the sole purpose of improperly influencing
the court.”86 No such fraud has occurred here. Both Rivera and Kwok affirmed
they did not learn Kalibrr was void until after the Final Judgment. 87 Kwok learned
Kalibrr was void in February after trying to obtain an apostille of the Final
Judgment from the Delaware Secretary of State. 88 Rivera became aware in March,
after reviewing Defendants’ opposition to the motion to stay. 89 And to my
knowledge, the Court has not made a clerical error. All of Rule 60’s other reasons
to set aside a judgment are left to the parties to assert by motion.90 In particular,
Rule 60(b)(4) allows this Court to vacate a void judgment upon motion.91
85
Johnson v. Preferred Pro. Ins. Co., 91 A.3d 994, 1005 (Del. Super. Ct. 2014).
86
Id.87
D.I. 94, Ex. B. at 1–2; D.I. 95, Aff. ¶¶ 6–7.
88
D.I. 95, Aff. ¶¶ 6–7.
89
D.I. 94, Ex. B. at 1–2.
90
Ct. Ch. R. 60. I intend no implication either way on whether a Rule 60 motion would
be successful. I also note that Kalibrr may be revived, which would retroactively validate
all actions that occurred since it became void. See 8 Del. C. § 312. Section 312(e)
provides that “[u]pon the filing of the certificate in accordance with § 103 of this title the
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The Final Judgment troubles me. But I am unaware of any rule, procedure,
or equitable power that allows me, sua sponte, to set it aside. I believe all I can do
without a motion is recognize that because and as long as Kalibrr is void, it cannot
legally act to implement the Final Judgment without its agents committing a crime,
and I have no expectation that they do so. 92
I wrote this letter in response to the Delaware Supreme Court’s request. I
will give the high court and the parties at least twenty days to respond before I rule
on the motions pending before me. I ask the parties to file this letter on the
Delaware Supreme Court’s docket.
corporation shall be revived with the same force and effect as if its certificate of
incorporation had not been forfeited or void pursuant to this title.” Id.
91
Ct. Ch. R. 60(b)(4); Organovo Hldgs., Inc. v. Dimitrov, 162 A.3d 102, 112–13 (Del.
Ch. 2017) (“Under Rule 60(b)(4), the court may vacate a judgment if ‘the judgment is
void.’ A judgment is void if the court . . . lacked subject matter jurisdiction or could not
exercise personal jurisdiction over the defendant.”); see also Citadel, 423 A.2d at 507(granting motion to vacate order that granted extension of winding up period after
learning company was long dissolved and thus the Court was only empowered to appoint
a receiver).
92
8 Del. C. § 513; see, e.g., Della Corp. v. Diamond, 210 A.2d 847, 849 (Del. 1965)
(“[I]t is against the public policy of this State to permit its courts to enforce an illegal
contract prohibited by law.”); Lighthouse Behav. Health Sols., LLC v. Milestone
Addiction Counseling, LLC, 2023 WL 3486671, at *10 (Del. Ch. May 17, 2023)
(“Delaware courts have refused to ‘use the power entrusted it by the people of Delaware
to compel specific performance of an aspect of an illegal contract.’” (quoting Lynch v.
Gonzalez, 2020 WL 4381604, at *44 (Del. Ch. July 31, 2020)).
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III. CONCLUSION
Kalibrr is a void corporation, not a dissolved corporation. All powers
granted upon it by the DGCL, including the power to sue and be sued, are
inoperative. Kalibrr has no winding up period. It is dead, and has been since
before it purported to initiate this action. But I see no way this Court could set
aside the Final Judgment on its own.
Sincerely,
/s/ Morgan T. Zurn
Vice Chancellor
MTZ/ms
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