Ling Chai v. Robert Maginn, Jr. ( 2024 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LING CHAI, )
)
Plaintiff, )
)
v. ) C.A. No. 2024-0393-LWW
)
ROBERT MAGINN, JR., D. QUINN )
MILLS, and TORRENCE C. )
HARDER IV )
)
Defendants, )
)
and )
)
JENZABAR, INC., a Delaware )
Corporation, )
)
Nominal Party. )
MEMORANDUM OPINION
Date Submitted: June 24, 2024
Date Decided: October 1, 2024
Neil R. Lapinski, Phillip A. Giordano & Madeline R. Silverman, GORDON,
FOURNARIS & MAMMARELLA, P.A., Wilmington, Delaware; Counsel for
Plaintiff Ling Chai
Thomas A. Uebler, Kathleen A. Murphy, Adam J. Waskie, Sarah P. Kaboly & Terisa
A. Shoremount, MCCOLLOM D’EMILIO SMITH UEBLER LLC, Wilmington,
Delaware; Counsel for Defendant Robert Maginn, Jr.
Thad J. Bracegirdle & Sarah T. Andrade, BAYARD, P.A., Wilmington, Delaware;
Counsel for Defendants D. Quinn Mills and Torrence C. Harder IV
Albert H. Manwaring, IV, Kirsten A. Zeberkiewicz & Aubrey J. Morin, MORRIS
JAMES LLP, Wilmington, Delaware; Counsel for Nominal Party Jenzabar, Inc.
WILL, Vice Chancellor
This is the third expedited action brought by the plaintiff in the past year about
the membership of Jenzabar Inc.’s board. At various stages in the divorce of
Jenzabar’s founders, the plaintiff has executed written consents purporting to
remove her ex-husband and other directors from the board. Before, she acted
prematurely since divorce proceedings were ongoing and—despite insisting
otherwise—she lacked majority control of Jenzabar. In her two prior suits, summary
judgment was granted in favor of the defendants on multiple grounds.
Now, the division of marital assets, including Jenzabar shares, is nearly
complete. The plaintiff has tried again to change the board’s composition. But she
makes contractual arguments that were or could have been raised in her earlier suits.
Res judicata exists to prevent this sort of piecemeal litigation. Summary judgment
is granted for the defendants once more.
I. FACTUAL BACKGROUND
Unless otherwise noted, the following background is drawn from undisputed
facts in the pleadings and documentary exhibits submitted by the parties. 1 Certain
1
See Verified Compl. for Declaratory and Injunctive Relief (Dkt. 1) (“Compl.”); Def.
Robert A. Maginn, Jr.’s Answer to Verified Compl. for Declaratory and Injunctive Relief
(Dkt. 50) (“Maginn Answer”); Defs.’ D. Quinn Mills and Torrence C. Harder’s Answer to
Pl.’s Verified Compl. for Declaratory and Injunctive Relief (Dkt. 49) (“Mills and Harder
Answer”).
Exhibits to the Transmittal Affidavit of Sarah P. Kaboly, Esq. in Support of
Defendant Robert Maginn, Jr.’s Opening Brief in Support of his Motion for Summary
Judgment (Dkt. 58) are cited as “Maginn Opening Br. Ex. __.” Exhibits to the Transmittal
Affidavit of Madeline R. Silverman, Esq. in Support of Plaintiff’s Answering Brief in
1
facts were set out in prior summary judgment decisions of this court addressing
related claims.2
A. Jenzabar’s Governance
In April 1998, plaintiff Ling Chai and defendant Robert A. Maginn, Jr. co-
founded Jenzabar Inc.3 Jenzabar is governed by Amended and Restated Bylaws (the
“Bylaws”).4 The Fourth Amended and Restated Stockholders Agreement dated
June 30, 2004 (the “Stockholders Agreement”) provides an additional governance
framework.5 Chai and Maginn are parties to the Stockholders Agreement.
Jenzabar is overseen by a Board of Directors. Section 4.2 of the Stockholder
Agreement addresses the election of Board members.6 As Jenzabar’s “Founders,”
Chai and Maginn can designate two “Founder Designated Directors.”7 They
selected themselves.8 The Stockholders Agreement granted “Senior Investor” MCG
Opposition to Defendants’ Motions for Summary Judgment (Dkt. 70) are cited as “Pl.’s
Answering Br. Ex. __.”
2
See Maginn v. Maginn, 2023 WL 6811011 (Del. Ch. Oct. 16, 2023) (“Maginn I”); Maginn
v. Maginn, C.A. No. 2023-1140-LWW (Del. Ch. Jan. 12, 2024) (TRANSCRIPT) (Dkt.
147) (“Maginn II”); Maginn v. Maginn, C.A. No. 2023-1140-LWW (Del. Ch. Mar. 11,
2024) (TRANSCRIPT) (Dkt. 165) (“Maginn III”).
3
Compl. ¶ 11; Maginn Answer ¶ 11; see also Mills and Harder Answer ¶ 11.
4
Maginn Opening Br. Ex. 1 (“Bylaws”).
5
Compl. Ex. A (“S’holders Agreement”).
6
S’holders Agreement § 4.2.
7
Id. § 4.2(a)(ii); see id. at Preamble (defining “Founders” as Chai and Maginn).
8
Maginn Answer ¶¶ 2, 3.
2
Capital Corporation the right to designate a “Senior Investor Designated Director.”9
Peter Malekian was chosen for that role.10
The Senior Investor Designated Director and Founder Designated Directors
have the right to “designate[] by mutual agreement” two “Independent Director[s],
provided that the Senior Investor Designated Directors’ approval of Independent
Director candidates recommended by the Founder Designated Directors [is] not []
unreasonably withheld or delayed.”11 Defendants D. Quinn Mills and non-party
Joseph San Miguel were originally the Independent Directors.12
Malekian left the Board in 2013, leaving the Senior Investor Designated
Director seat unfilled.13
The Stockholders Agreement and Bylaws also address the removal of Board
members. Section 5.2 of the Bylaws concerns the removal of a Founder Designated
Director:
Any director designated by the holders of the Senior Preferred
Stock or any Founder Designated Director (as defined in the
Stockholders Agreement) may be removed during his or her term
of office, either with or without cause, only by the affirmative
vote of the holders of a majority of the then outstanding shares of
9
S’holders Agreement § 4.2(a)(i); see id. at Preamble (defining “Senior Investor” as MCG
Capital Corporation).
10
Maginn Answer ¶ 13; Mills and Harder Answer ¶ 13.
11
S’holders Agreement § 4.2(a)(iii) (emphasis removed).
12
See Maginn I, 2023 WL 6811011, at *2; cf. MCG Cap. Corp. v. Maginn,
2010 WL 1782271, at *2 (Del. Ch. May 5, 2010) (addressing a related dispute).
13
Maginn Answer ¶ 13; Mills and Harder Answer ¶ 13.
3
Senior Preferred Stock or the voting securities held by the
Founders (as defined in the Stockholders Agreement), as the case
may be, either at a meeting of such holders duly called for that
purpose or pursuant to a written consent of such holders without
a meeting, and any vacancy created by such removal may be
filled only in the manner provided in Section 3.4.14
Section 4.2(b) of the Stockholders Agreement restricts the removal of directors, with
exceptions including bad faith and willful misconduct:
No Investor or Stockholder shall vote to remove any director
designated in accordance with the provisions of this Article IV,
except for bad faith or willful misconduct, or if the party that
designated such director no longer has the right to designate such
director, or as otherwise provided in this Agreement.15
B. The Divorce Proceeding and Jenzabar’s Stockholders
On January 23, 2019, Chai initiated a divorce proceeding in the Probate and
Family Court of the Commonwealth of Massachusetts.16 Jenzabar stock was one of
the primary marital assets in the divorce.17
Before their divorce, Chai and Maginn owned 62.27% of Jenzabar’s issued
and outstanding voting stock.18 This stock was held directly or indirectly through
14
Bylaws § 5.2 (emphasis added).
15
S’holders Agreement § 4.2(b) (emphasis added).
16
Maginn Answer ¶ 14; see also Maginn I, 2023 WL 6811011 at *3.
17
Compl ¶ 15; Maginn Answer ¶ 15.
18
There is some disagreement over whether Chai and Maginn own 62.39% or 62.27% of
Jenzabar’s stock. This decision will credit Chai’s approach, focusing on the parties’ jointly
held voting stock, which excludes the 0.06% of non-voting Jenzabar stock Chai and
Maginn each own. See Pl.’s Answering Br. in Opp’n to Defs.’ Opening Br. in Supp. of
Their Mots. for Summ. J. (Dkt. 70) (“Pl.’s Answering Br.”) 5 n.27 (explaining that another
4
several entities (the “Affiliates”): the Chai Maginn Family LP (the “Family LP,” a
Nevada limited partnership), the Chai-Maginn Family LLC (the “Family LLC,” a
Delaware limited liability company), and New Media Investors II-C, LLP (“New
Media II-C,” a Delaware limited liability company).19
The Family LP previously owned the largest share with 41.71% of Jenzabar’s
issued and outstanding voting stock.20 A limited partnership agreement stated that
the Family LP’s General Partners were Maginn and Chai.21
When Chai and Maginn’s divorce began, the Jenzabar Board consisted of
Chai, Maginn, Mills, and San Miguel.22 In 2019, the Board formed a Special
Committee of Mills and San Miguel to settle divorce-related matters that could affect
Jenzabar.23
By this time, Maginn was involved in a lawsuit captioned Deane v. Maginn
for breaching his fiduciary duties to New Media Investors II-B, LLC, a vehicle
formed to facilitate investments in Jenzabar.24 The alleged breach took place in
0.06% of non-voting Jenzabar shares are held by Chai and Maginn each, which are
irrelevant to the issues before this court). The difference has no bearing on the outcome of
this dispute.
19
Maginn Opening Br. Ex. 3 ¶¶ 75, 77; Maginn Opening Br. Ex. 4 ¶ 8(a).
20
Maginn Opening Br. Ex. 3 ¶ 77.
21
Pl.’s Answering Br. Ex. 12 at 1.
22
Maginn I, 2023 WL 6811011, at *2.
23
Maginn Answer ¶ 16; Harder and Mills Answer ¶ 16.
24
Maginn Answer ¶ 17; see Deane v. Maginn, 2022 WL 16557974 (Del. Ch. Nov. 1, 2022).
5
2012. On November 1, 2022, this court found that Maginn usurped a corporate
opportunity owed to that entity when he purchased and exercised warrants intended
for it.25
C. The Special Master and Ex Parte Order
The Massachusetts probate court presiding over Maginn and Chai’s divorce
referred the division of marital assets to a Special Master.26 In January 2023, the
Special Master issued a report concluding that the Jenzabar common stock owned
and controlled by Chai and Maginn should be evenly divided.27 To accomplish this,
the Special Master recommended awarding certain percentages of Jenzabar stock
owned by the Affiliates to Maginn and Chai.28
Maginn would control the shares held by New Media II-C as the sole member
of the entity, which amounted to 19.09% of Jenzabar’s common stock.29 Chai was
to transfer 12.045% of the total issued and outstanding shares of Jenzabar common
25
Maginn Answer ¶ 17; see Deane, 2022 WL 16557974, at *19.
26
See Maginn Opening Br. Ex 4 at 1.
27
Id. ¶ 8(a)(i)-(v).
28
Id.
29
Id. ¶ 8(d).
6
stock from the Family LP to Maginn personally and retain 29.67% as the sole interest
holder.30 She was also credited the Family LLC’s 1.47% Jenzabar stake.31
On August 3, 2023, Chai filed an emergency motion for an ex parte hearing
in the Massachusetts court.32 The same day, the Massachusetts court issued an ex
parte order preliminarily adopting the Special Master’s report.33
D. The First Written Consent and Section 225 Action
Upon receiving the ex parte order on August 3, Chai executed and delivered
to Jenzabar a written consent putatively on behalf of a “majority” of Jenzabar’s stock
(the “First Written Consent”).34 She purported to remove Mills from the Board.35
Maginn did not sign or approve the First Written Consent.36
30
Id. ¶ 8(a)(iii); Maginn Opening Br. Ex. 6 ¶ 8. The Massachusetts court later amended
the Special Master’s report to assign 0.1% of stock previously unaccounted for, and
directing the parties to transfer and assign 12.045% of the total Jenzabar shares from the
Family LP to Maginn after accounting for stock attributable to the parties’ children. See
Maginn Opening Br. Ex. 6 ¶ 8.
31
Maginn Opening Br. Ex 4 ¶ 8(a)(iv).
32
Maginn I, 2023 WL 6811011, at *3.
33
Id. (quoting ex parte order).
34
Id. (quoting written consent); Maginn Opening Br. Ex 8.
35
Maginn Opening Br. Ex 8.
36
Maginn I, 2023 WL 6811011, at *3.
7
On August 8, 2023, Chai filed an action in this court under 8 Del. C. § 225
(the “First 225 Action”).37 She sought, among other things, a declaration that the
First Written Consent was valid and that Mills was no longer on the Board.38
On October 16, 2023, this court issued an opinion holding that the First
Written Consent was invalid because Chai lacked the authority to execute it.39
“Maginn remain[ed] a General Partner of the Family LP,” and “[t]he Family LP
Agreement grant[ed] each General Partner one vote.”40 Without control of the
Family LP and a successful transfer of its Jenzabar shares, she could not direct a
majority of Jenzabar’s voting shares.41 Mills therefore “[remained] a member of
both the Jenzabar Board and Special Committee.”42 The First 225 Action is an open
matter; Chai filed a letter seeking relief in the matter earlier this year.43
37
Id. at *1.
38
Id.
39
Id. at *7.
40
Id. at *6.
41
Id. at *5.
42
Id. at *7.
43
Letter, Maginn, 2023 WL 6811011 (Dkt. 79).
8
E. The Second and Third Written Consents
On October 23, 2023, Maginn filed a complaint in the District Court of Clark
County Nevada (the “Nevada Action”) to prevent Chai from acting as the Family
LP’s sole General Partner.44
The next day, the Massachusetts court held that “[t]he parties shall cooperate
in taking all steps necessary to transfer the parties’ interest in [the Family LP] solely
to [Chai] and remove [Maginn] therefrom.”45 It ordered that the Special Master
would be “empowered to execute any and all documents necessary to effectuate the
terms of [the] Judgment on behalf [of Maginn].”46 Maginn did not complete the
transfer and, on October 26, the Special Master signed documents purporting to
transfer Maginn’s interests in the Family LP to Chai and remove Maginn as General
Partner.47
Chai executed a written consent the same day (the “Second Written
Consent”).48 Her signature page represented that she was acting as the Family LP’s
General Partner.49 The resolution purported to remove Mills as an Independent
44
Maginn II, No. 2023-1140-LWW, at 6; see also Maginn Opening Br. Ex. 16 ¶ 1.
45
Maginn II, C.A. No. 2023-1140-LWW, at 6.
46
Id.47
Id. at 6-7.
48
Id. at 7; Maginn Opening Br. Ex. 11.
49
Maginn II, C.A. No. 2023-1140-LWW, at 7; Maginn Opening Br. Ex. 11 at 3.
9
Director and appoint Michael Flaherty, Carmelina Procaccini, and Dr. Li Chai to the
Board.50
Around the same time, Mills and Maginn held a meeting of the Jenzabar
Board. Mills, acting pursuant to Section 3.4 of the Bylaws, appointed defendant
Torrence C. Harder IV to the Independent Director seat that became vacant when
San Miguel died in July 2023.51
On October 29, Chai delivered another written consent (the “Third Written
Consent”) to the Board.52 This version was largely duplicative of the Second Written
Consent.53 It adopted the same resolution but purported to unilaterally transfer the
Family LP’s Jenzabar shares to Chai.54 Chai’s signature page represented that she
was acting as the majority stockholder of Jenzabar.55
F. The Second Section 225 Action
On November 8, 2023, Chai initiated another lawsuit in this court (the
“Second 225 Action”) against Maginn, Mills, and Jenzabar.56 Her complaint
50
Maginn II, C.A. No. 2023-1140-LWW, at 7; Maginn Opening Br. Ex. 11.
51
Maginn II, C.A. No. 2023-1140-LWW, at 7-8; Maginn Answer ¶ 18; Mills and Harder
Answer ¶ 18; Bylaws § 3.4 (addressing Board vacancies).
52
Maginn II, C.A. No. 2023-1140-LWW, at 8; Maginn Opening Br. Ex. 12.
53
Compare Maginn Opening Br. Ex. 11, with Maginn Opening Br. Ex. 12.
54
Maginn Opening Br. Ex. 12.
55
Id. at 3.
56
Maginn Opening Br. Exs. 13-15.
10
included four counts: a claim for books and records under 8 Del. C. § 220; a claim
under 8 Del. C. § 225; a claim for breach of the Stockholders Agreement; and a claim
for a declaratory judgment regarding the rights and duties in the Stockholders
Agreement.57 The parties proceeded to file cross-motions for summary judgment,
which were argued on January 2, 2024.58
Six days later, a preliminary injunction was issued in the Nevada Action.59
The Nevada court confirmed that Maginn remained, at that time, a General Partner
of the Family LP and barred Chai from acting as sole General Partner.60
On January 12, I delivered a bench ruling in the Second 225 Action that
granted summary judgment on Count II (the Section 225 claim) in favor of Maginn
and Mills.61 I held that because Chai could not unilaterally direct the Family LP and
did not own or control a majority of Jenzabar’s voting stock, the Second and Third
Written Consents were unauthorized and invalid.62
On March 11, I issued a second bench ruling resolving the cross-motions for
summary judgment on Counts III (breach of the Stockholders Agreement) and IV
57
Maginn Opening Br. Ex. 15; Maginn II, C.A. No. 2023-1140-LWW, at 8.
58
Tr. of Oral Arg., Maginn, C.A. No. 2023-1140 (Dkt. 146).
59
Maginn Opening Br. Ex. 16; Maginn II, C.A. No. 2023-1140-LWW, at 11-12.
60
Maginn Opening Br. Ex. 16; Maginn II, C.A. No. 2023-1140-LWW at 11-12.
61
See Maginn Opening Br. Ex. 17.
62
Maginn II, C.A. No. 2023-1140-LWW, at 14-15.
11
(declaratory judgment).63 Chai had argued that because there was no Senior Investor
Designated Director on the Board after Malekian’s departure, she and Mills were
obligated to vote to remove Mills under Section 4.2(b) of the Stockholders
Agreement.64 I held that Chai’s attempt to remove Mills from his position on that
basis was equitably barred by laches and acquiescence since Malekian had left in
2013.
G. The Assignment and Additional Written Consents
Meanwhile, on March 8, the Massachusetts court issued its Third
Supplemental Judgment of Divorce.65 It stated that Maginn would cease to be a
General Partner of the Family LP by effect of the transfer of his partnership interest
to Chai.66 On March 12, Maginn’s general and limited partnership interests in the
Family LP were assigned to Chai.67 In response, the Nevada court dissolved its
preliminary injunction.68
On April 12, 2024, Chai, as sole General Partner of the Family LP, assigned
certain of the Family LP’s Jenzabar shares to Maginn and other shares to herself (the
63
Maginn III, C.A. No. 2023-1140-LWW.
64
Id. at 12; Pl.’s Suppl. Br. in Supp. of Mot. Summ. J., Maginn, C.A. No. 2023-1140-LWW
(Dkt. 137).
65
Maginn Opening Br. Ex. 7 at 2.
66
Id. at 2-3.
67
Pl.’s Answering Br. Ex. 9 at 8.
68
Id. at 10-11, 16.
12
“Assignment”).69 The Family LP retained some Jenzabar shares for the benefit of
Chai and Maginn’s children.
The same day as the Assignment, Chai executed three more written consents.
One written consent purports to remove Mills and Harder from the Board and
appoint Chai, Flaherty, and Procaccini (the “Fourth Written Consent”) under
Sections 3.4 and 5.2 of the Bylaws.70 It purports to once again remove Mills under
Section 4.2(b) of the Stockholders Agreement. It also states that since San Miguel’s
term expired upon his death, Harder’s appointment to fill San Miguel’s unexpired
term was invalid under Sections 3.2 and 3.4 of the Bylaws.71
Another written consent purports to remove Maginn from the Board under
Section 4.2(b) of the Stockholders Agreement and Section 5.2 of the Bylaws (the
“Fifth Written Consent”).72 It states that Maginn’s removal under Section 4.2(b)
was premised on this court’s finding in Deane that Maginn “breached his duty of
loyalty to the investors of a separate investment vehicle by obtaining [Jenzabar]
warrants that were intended for those investors and doing so by having the [Special
Committee] believe that those warrants were being issued to those same investors.”73
69
Pl.’s Answering Br. Exs. 10-11.
70
Pl.’s Answering Br. Ex. 15.
71
Id.
72
Pl.’s Answering Br. Ex. 14.
73
Id.
13
A third written consent executed by the “new” Board purports to remove
Maginn as CEO, President, and Chair of Jenzabar, and to install Chai into those
positions (the “Sixth Written Consent”).74
Both the Fourth and Fifth Written Consents invoke Section 5.2 of the Bylaws
and represent that Chai is acting as the Founder with a majority of Jenzabar’s issued
and outstanding voting stock. This alleged status as the majority-owning Founder
results from the following transfers of Jenzabar common stock purportedly effected
on April 12 from certain Affiliates to Chai:75
• 10,122,944 Jenzabar shares held by Chai after the Assignment of the
Family LP’s shares to her,76 and
• 500,000 Jenzabar shares previously held by the Family LLC that were
later assigned to Chai.77
Chai and trustees of the Chai-Maginn Family Trust allegedly own the Chai Family
LLC.78 On February 8, 2024, the Family LLC was purportedly merged into the Chai
Family LLC, with the latter surviving and assuming all assets and liabilities of the
74
Pl.’s Answering Br. Ex. 16.
75
Maginn is not contesting the Assignment from the Family LP to Chai but reserves the
right to dispute whether Chai has the authority to act exclusively on behalf of the Family
LLC’s succeeding entity, the Chai Family LLC. See Def. Robert Maginn, Jr.’s Opening
Br. in Supp. of His Mot. for Summ. J. (Dkt. 58) (“Maginn Opening Br.”) 13 n.1.
76
Compl. Ex. E; Pl.’s Answering Br. Ex. 11.
77
Compl. Ex. F.
78
Pl.’s Answering Br. Ex. 7.
14
former.79 According to Chai, these transfers brought the total shares of Jenzabar
voting stock in her name to 10,622,944.
Chai alleges that Maginn controls the following holdings:
• 4,077,730 shares due to the Assignment of the Family LP’s Jenzabar
shares to Maginn,80 and
• 6,500,000 Jenzabar shares held by New Media II-C.81
Based on these figures, Chai maintains that she holds 6,545,214 more shares
than Maginn individually, and 45,214 more shares if New Media II-C’s Jenzabar
shares are considered.82
H. The Third Section 225 Action
On April 12—the day the Fourth, Fifth, and Sixth Written Consents were
executed—Chai filed this lawsuit (the “Third 225 Action”) against Maginn, Mills,
and Harder.83 Jenzabar is named as a nominal party. Her complaint seeks a
declaration under 8 Del. C. § 225 that Mills, Harder, and Maginn were validly
79
Id.
80
Compl. Ex. D.
81
Maginn Opening Br. Ex 3 ¶ 77; Maginn Opening Br. Ex 4 ¶ 8(d). Maginn is the sole
member of New Media II-C. Maginn Opening Br. Ex 4 ¶ 8(d).
82
Pl.’s Answering Br. 15-16; Compl. ¶¶ 29-32. Taking these figures and purported
transfers as true, Chai personally controls 10,622,944 (10,622,944 + 500,000) shares.
Maginn personally controls 4,077,730 shares from the Assignment. He controls
10,577,730 (4,077,730 + 6,500,000) shares when counting those held in New Media II-C.
This would imply that Chai controls 6,545,214 more shares than Maginn, and 45,214 more
shares counting those of New Media II-C.
83
Compl. ¶¶ 33-35.
15
removed from the Board and that Flaherty, Procaccini, and Li Chai replaced them as
directors.84
Maginn, Mills, and Harder, filed opening briefs in support of their summary
judgment motions on May 24.85 Chai filed an answering brief in opposition to the
motions on June 12.86 Maginn, Mills, and Harder filed reply briefs in further support
of their motions on June 19.87 Oral argument was held on June 24.88
Separately, in the Second 225 Action, Chai’s claim for books and records
under Section 220 remains. Over her objection, on July 1, I granted a final order and
judgment in the Section 225 Action on the Section 225, breach of contract, and
declaratory judgment claims.89 Chai subsequently appealed the January 12 and
March 11 summary judgment rulings in the Second 225 Action. That appeal remains
pending.
II. ANALYSIS
Under Court of Chancery Rule 56, summary judgment is granted only if
“there is no genuine issue as to any material fact and . . . the moving party is entitled
84
Id. ¶¶ 40-41.
85
Dkts. 58, 60.
86
Dkt. 70.
87
Dkts. 72-73.
88
Dkt. 90.
89
Final Order and J. Counts II, III, and IV, Maginn, C.A. No. 2023-1140-LWW (Dkt. 179).
16
to a judgment as a matter of law.”90 The court must draw all reasonable inferences
in the light most favorable to the non-movant.91
Maginn, Harder, and Mills seek summary judgment on several grounds
including res judicata. Harder and Mills also argue that the Fourth Written Consent
is invalid because it violates the Stockholders Agreement. And Maginn argues that
the Fifth Written Consent is invalid because Chai is not a Founder with a majority
of Jenzabar’s voting stock and because it violates the Stockholders Agreement.
Because res judicata and other equitable defenses prove dispositive, I decline to
reach these other arguments.
A. Res Judicata
In the second summary judgment ruling of the Second 225 Action, I granted
summary judgment in favor of the defendants on Chai’s claims for breach of
Section 4.2(b) of the Stockholders Agreement and for a related declaratory
judgment.92
Summary judgment was granted in part because these claims were untimely.
Chai sought specific performance of an alleged obligation that arose in 2013 upon
90
Ct. Ch. R. 56(c).
91
See Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 241 (Del. 2009) (“The facts, and all
reasonable inferences, must be considered in the light most favorable to the non-moving
party.”).
92
Maginn III, C.A. No. 2023-1140-LWW, at 13.
17
Malekian’s departure from the Board, which was well outside the applicable statute
of limitations.93 Laches and acquiescence also barred her claim since she had signed
the Stockholders Agreement, knew the Senior Investor Designated Director seat was
vacated in 2013, and affirmatively behaved as though Mills was a director and
Special Committee member for years.94
Chai now seeks another bite at the apple. In the present Section 225 action—
her third in a year’s time—she relies on Section 4.2(b) of the Stockholders
Agreement, as in her prior suits. She now invokes a different clause of
Section 4.2(b) in addition to Section 5.2 of the Bylaws based on an assertion that she
controls a majority of the Founders’ Jenzabar voting stock.95 But Chai could have
raised these arguments in the Second 225 Action—if not the First 225 Action. Her
claim is therefore barred by res judicata.
Res judicata prevents a plaintiff from undertaking the sort of fragmented
litigation strategy Chai has employed.96 Interim developments in the divorce
proceeding prompted impulsive attempts to reconstitute the Board and file expedited
93
Id. at 16-18.
94
Id. at 18-21.
95
See supra notes 75-82 and accompanying text.
96
See LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 191 (Del. 2009) (“Res judicata
exists to provide a definite end to litigation, prevent vexatious litigation, and promote
judicial economy.”) (citation omitted); see also Hayford v. Citicorp Trust Bank, 2007 WL
2985049, at *2 (Del. Ch. Oct. 11, 2007) (“Res judicata . . . stands as a foundation of the
legal system, judicially created in order to ensure a definitive end to litigation.”).
18
litigation to confirm the validity of her acts. At each step, Chai told the court that
she controlled a majority of Jenzabar’s voting stock and that she was entitled to
remove directors under Section 4.2(b) of the Stockholders Agreement. After twice
losing on summary judgment, Chai returns to this court to try her hand at a modified
yet unoriginal contractual argument.
Res judicata “prevent[s] [such] multiplicity of needless litigation of issues by
limiting parties to one fair trial of an issue or cause of action which has been raised
or should have been raised in a court of competent jurisdiction.”97 Even if Chai did
not raise the precise theory she presently advances, “[t]he procedural bar of res
judicata extends [to] all issues that might have been raised and decided in the first
suit as well as to all issues that actually were decided.”98 She cannot “split[] [her]
claim and seek[] the same relief in subsequent litigation under a different substantive
theory.”99
Res judicata bars a claim when five factors are met:
(1) the original court had jurisdiction over the subject matter and
the parties; (2) the parties to the original action were the same as
those parties, or in privity, in the case at bar; (3) the original cause
of action or the issues decided was the same as the case at bar;
(4) the issues in the prior action must have been decided
97
LaPoint, 970 A.2d at 192.
98
Id. at 191-92.
99
Id. at 196.
19
adversely to the appellants in the case at bar; and (5) the decree
in the prior action was a final decree.100
Each is easily satisfied.
First Factor. This court had jurisdiction over the First and Second Section 225
Actions.101
Second Factor. Chai, Maginn, and Mills were parties to the First and Second
225 Actions.102 Harder is in privity with Mills, for whom summary judgment was
granted in the Second 225 Action. Harder and Mills’s interests in applying the prior
ruling are aligned.103 Chai does not argue otherwise.
Third Factor. All three of Chai’s actions concern her ability to remove other
Board members under Section 4.2(b) of the Stockholders Agreement.104 In the First
and Second 225 Actions, the central issue was whether Chai had the authority to
unilaterally remove and replace the Independent Directors. Chai also maintained
100
Id. at 192 (citations omitted).
101
See Maginn I, 2023 WL 6811011; Maginn II, C.A. No. 2023-1140-LWW; Maginn III,
C.A. No. 2023-1140-LWW.
102
Compl., Maginn, 2023 WL 6811011 (Dkt. 1); Compl., Maginn,
C.A. No. 2023-1140-LWW (Dkt. 1).
103
See Levinhar v. MDG Med., Inc., 2009 WL 4263211, at *8 (Del. Ch. Nov. 24, 2009)
(explaining that parties were in privity where their relationship “is such that a judgment
involving one of them may justly be conclusive on the others, although those others were
not party to the lawsuit”) (citing Higgins v. Walls, 901 A.2d 122, 138 (Del. Super. 2005)).
104
See Pl.’s Combined Opening Br. in Support of Mot. for Summ J. and Opp’n to Def.’s
Mot. for Summ. J, Maginn, 2023 WL 6811011 (Dkt. 35); Compl., Maginn,
C.A. No. 2023-1140-LWW (Dkt. 1).
20
that, once the Senior Investor no longer held Jenzabar stock, Section 4.2(b) of the
Stockholders Agreement provided an exception to Section 4.2(a) and compelled
stockholders to vote their shares to remove the Independent Directors. In the Second
225 Action, that argument was rejected as untimely under the statute of limitations
and on laches and acquiescence grounds.105
Chai insists that this case is different because she is—for the first time—
invoking removal authority under Section 5.2 of the Bylaws. 106 But as noted, res
judicata concerns not only whether an issue was raised in a prior proceeding, but
also whether it could have been raised.107 The court must pragmatically assess
whether the issues “are related in time, space, origin, or motivation, whether they
form a convenient trial unit, and whether their treatment as a unit conforms to the
parties’ expectations or business understanding or usage.”108
105
Maginn III, C.A. No. 2023-1140-LWW, at 16-21.
106
Pl.’s Answering Br. 39-40.
107
See LaPoint, 970 A.2d at 192; see also Julian v. E. States Const. Serv., Inc., 2009 WL
1211642, at *5 (Del. Ch. May 5, 2009) (“Res judicata constitutes an absolute bar to all
claims or defenses that were litigated or which could have been litigated in the earlier
proceeding.”); Trans World Airlines, Inc. v. Hughes, 317 A.2d 114, 118 (Del. Ch. 1974)
(explaining that res judicata “constitutes an absolute bar to a subsequent action on the same
claim as to the parties and their privies on all theories which were litigated or which could
have been litigated in the earlier proceeding”).
108
LaPoint, 970 A.2d at 193 (citing Restatement (Second) of Judgments § 24(2) (1982)).
21
Chai reframes the factual allegations in previous actions to suggest that she is
now invoking a separate contractual right.109 She asserts that she could not have
previously raised it because “[her] ability to exercise her rights as a Founder with
the most voting securities did not exist until April 12, 2024” when the Assignment
occurred.110
But according to Chai’s sworn representations to this court in the First and
Second 225 Actions, she was (or could have become) the Founder with the most
voting securities. In those actions, Chai allegedly controlled most of Jenzabar’s
voting stock through shares held personally and through Affiliates. For example,
she alleged the following in her prior complaints:
• Chai is the controlling interest holder in the Chai-Maginn
Family Limited Partnership (the ‘[Family] LP’). The
Chai-Maginn Family LLC (the ‘[Family] LLC’), which
together with the Jenzabar shares Chai owns personally
effectively make Chai Jenzabar’s majority shareholder.111
• As of October 26, 2023, Chai became the controlling
interest holder in the Chai-Maginn Family Limited
Partnership (the ‘Family LP’). The Chai-Maginn Family
LLC (the ‘Family LLC’), which together with the Jenzabar
109
DeRamus v. Redman, 1986 WL 13089, at *5 (Del. Super. Nov. 14, 1986) (“It is
generally held that res judicata bars relitigation of the same claim even where a new legal
theory is advanced as a basis for relief in a second suit.”).
110
Pl.’s Answering Br. 33-34.
111
Compl., Maginn, 2023 WL 6811011, at ¶ 2 (Dkt. 1).
22
shares Chai owns personally effectively make Chai
Jenzabar’s majority shareholder.112
Chai consistently represented that she could act as the sole General Partner of
the Family LP pursuant to the Massachusetts court’s judgment. 113 She also argued
in the Second 225 Action that the Third Written Consent had the effect of
transferring the Family LP’s Jenzabar shares to her individually, making her
Jenzabar’s majority stockholder.114 Chai further maintained that she held a
controlling interest in the Chai Family LLC with the cooperation of her sister Li
Chai, who is the Chai Family LLC’s co-manager.115 In a sworn affidavit filed in the
Second 225 Action, Chai affirmed that she was Jenzabar’s “majority shareholder”
after becoming a co-manager of the Family LLC and the Special Master’s October
26 purported transfer of the Family LP’s interests to her.116
Chai now cites to Section 5.2 of the Bylaws, which grants a removal right to
“the holders of a majority of . . . the voting securities held by the Founders.”117 She
112
Compl., Maginn, C.A. No. 2023-1140-LWW, ¶ 3 (Dkt. 1).
113
Pl. Mot. for Summ. J., Maginn, C.A. No. 2023-1140-LWW, at 13 (Dkt. 40); Pl. Mot.
for Summ. J., Maginn, 2023 WL 6811011, at 6 (Dkt. 35).
114
Maginn II, C.A. No. 2023-1140-LWW, at 8.
115
Pl.’s Mot. for Summ. J., Maginn, 2023 WL 6811011, at 11-12 (Dkt. 35); Pl.’s Mot. for
Summ. J., Maginn, C.A. No. 2023-1140-LWW, at 3 (Dkt. 40).
Aff. of Ling Chai Maginn in Supp. of Pl.’s Mot. for Summ. J., Maginn, C.A. No. 2023-
116
1140-LWW, ¶¶ 7, 17, 20, 53 (Dkt. 7).
117
Bylaws § 5.2.
23
believes that only shares held by a Founder individually, and not shares held by a
Founder’s Affiliates, should count.118 And she asserts that she did not personally
hold a majority of the “voting securities held by the Founders” until she received her
portion of the Family LP’s Jenzabar shares through the Assignment.119 As the
Founder with the most voting securities, Chai claims that she can remove the
defendants from the Board under Section 4.2(b) of the Stockholders Agreement—
Maginn for bad faith or willful misconduct, and Mills and Harder because the parties
that designated them allegedly lost the right to do so.120
Chai could have raised these very same arguments under Section 5.2 of the
Bylaws and Section 4.2(b) of the Stockholders Agreement before. She chose instead
to split her claim. While appealing the summary judgment decision in the Second
225 Action, she filed this action advancing a contract argument based on the same
facts and issues raised before.
The present action includes an additional assertion that Harder should be
removed from the Board because Mills lacked the authority to appoint Harder to San
Miguel’s vacant seat.121 But Harder’s appointment predated the Second 225 Action
118
Pl.’s Answering Br. 19.
119
Id. at. 33.
120
Compl. ¶¶ 33-34; Pl.’s Answering Br. 26-27, 40-44.
121
See Pl.’s Answering Br. Ex. 15; see also Compl. ¶ 33.
24
and could have been raised then. In fact, Chai acknowledged Harder’s appointment
in the Second 225 Action but chose not to contest it.122
Fourth Factor. Chai lost both the First and Second 225 Actions on summary
judgment.
Fifth Factor. The First and Second 225 Actions resulted in a final decree.
“[A] decision on a motion for summary judgment is a final decision on the merits,
which enables the defense of res judicata to be raised in subsequent actions between
the parties.”123 Despite Chai’s objection, a final judgment was entered on Counts II
through IV in the Second 225 Action.124
* * *
Chai’s claims are barred by res judicata. She needed to bring all related
theories of recovery in a single action.125 Her failure to do so undermined “the
conservation of scarce judicial resources, the stability and finality of judicial decrees
122
Maginn III, C.A. No. 2023-1140-LWW, at 22.
123
Allied Artists Pictures Corp. v. Baron, 413 A.2d 876, 878 (Del. 1980).
124
Final Order and J. Counts II, III, and IV, Maginn, C.A. No. 2023-1140-LWW
(Dkt. 179).
125
See Maldonado v. Flynn, 417 A.2d 378, 383 (Del. Ch. 1980); see also Glaser v. Norris,
1992 WL 14960, at *15 (Del. Ch. Jan. 6, 1992) (recognizing that res judicata permits a
litigant to have “one and only one day in court”).
25
and repose for the litigants from vexatious renewal of the same lawsuit.”126 This is
the sort of gamesmanship res judicata is designed to prevent.
My analysis can end here. For the sake of completeness, and to deter further
lawsuits based on circumstances that have existed for over a decade, I go on to
consider whether equitable defenses also support granting summary judgment.
B. Laches and Acquiescence
Chai asserts that she can remove Maginn under Section 4.2(b) of the
Stockholders Agreement for “bad faith and willful misconduct.” 127 The purported
misconduct she cites occurred in 2012. As to Mills and Harder, her removal
argument stems from the fact that the Senior Investor Designated Director seat is
vacant—which occurred in 2013. She has, for over a decade, served as a Board
member alongside Mills and Maginn without raising these theories. As a result, the
defendants argue that her claims are barred by laches and acquiescence.128 I agree.
1. Laches
“Laches bars an action in equity if ‘[t]he plaintiff waited an unreasonable
length of time before bringing the suit and . . . the delay unfairly prejudices the
126
Glaser, 1992 WL 14960, at *15 (quoting Sternberg v. O’Neill, 1989 WL 137932(Del. Ch. Nov. 9, 1989)).
127
S’holders Agreement § 4.2(b); Compl. ¶ 34; see Pl.’s Answering Br. 26-32.
128
Maginn makes these arguments explicitly. Harder and Mills raise Chai’s unreasonable
delay amid other arguments.
26
defendant.’”129 The defense applies to Section 225 claims.130 A successful showing
of laches involves three elements: (1) knowledge of the claim by the claimant,
(2) unreasonable delay in bringing the claim, and (3) prejudice to the defendant as a
result of the delay.131 Each element is satisfied here.
Regarding Maginn, the misconduct that Chai relies on to remove him from
the Board was addressed in the Deane litigation.132 This court’s post-trial decision
was issued in November 2022, but the underlying conduct occurred a decade earlier.
As explained in Deane, in June 2012, Maginn breached his duty of loyalty to the
members of New Media Investors II-B, LLC when warrants belonging to that entity
were issued to New Media II-C instead, which was “solely owned” by Maginn and
Chai.133 Even if Chai were ignorant of these events in 2012, she would have gained
knowledge by December 6, 2016 when Deane sued Maginn.134
129
Whittington v. Dragon Grp., L.L.C., 991 A.2d 1, 8 (Del. 2009) (citing Hudak v.
Procek, 806 A.2d 140, 153 (Del. 2002)).
130
See Klaassen v. Allegro Dev. Corp., 2013 WL 5739680 (Del. Ch. Oct. 11, 2013)
(applying laches and acquiescence to a claim under 8 Del. C. § 225), aff’d, 106 A.3d 1035(Del. 2014); Martin v. Med-Dev Corp., 2015 WL 6472597, at 14-15
(Del. Ch. Oct. 27, 2015) (applying laches and other equitable defenses to claims under
8 Del. C. § 225); Zohar III Ltd. v. Stila Styles, LLC, 2022 WL 1744003, at *9
(Del. Ch. May 31, 2022) (applying laches and acquiescence to a claim under
6 Del. C. § 18-110), aff’d sub nom. Tilton v. Zohar III Ltd., Inc., 285 A.3d 1204 (Del.
2022).
131
Whittington, 991 A.2d at 8.
132
See Deane, 2022 WL 16557974, at *19.
133
Id. at *5.
134
Id. at *7.
27
Chai alludes to the analogous statute of limitations to oppose Maginn’s laches
argument. She points out that Maginn was not found liable in Deane until November
2022—less than three years before she filed this action.135 Section 4.2(b) of the
Stockholders Agreement, however, concerns the removal of directors for bad faith
or willful misconduct. It does not require a predicate finding of a breach of fiduciary
duty. Accordingly, Chai unreasonably delayed in bringing her claim to remove
Maginn for the wrongdoing raised in Deane. That is particularly true since a Section
225 action is viewed as a summary proceeding.136
Regarding Mills and Harder, Chai argues that they should be removed under
Section 4.2(b) of the Stockholders Agreement because Malekian resigned from his
position as Senior Investor Designated Director in 2013 when MCG Capital divested
from Jenzabar.137 I addressed this contention in the Second 225 Action. Chai has
known of Malekian’s resignation since 2013.138 She also knew that the terms of the
135
Pl.’s Answering Br. 34 n.114.
136
See, e.g., Stengel v. Rotman, 2001 WL 221512, at *8 (Del. Ch. Feb. 26, 2001) (citation
omitted), aff’d sub nom. Stengel v. Sales Online Direct, Inc., 783 A.2d 124 (Del. 2001);
see also Klaassen, 2013 WL 5739680, at *20 (holding that a plaintiff’s seven-month delay
in challenging his removal was barred by laches).
137
Pl.’s Answering Br. 40-45. As noted above, Harder and Mills did not make a specific
laches argument in their summary judgment brief. They did, however, raise unreasonable
delay in the context of their res judicata arguments. To the extent their delay arguments
are properly raised, I address them here. See Harder and Mills Answer 20 (raising equitable
affirmative defenses). In any event, this exact argument was disposed of in the Second 225
Action.
138
Maginn II, C.A. No. 2023-1140-LWW, at 18-19.
28
Stockholder’s Agreement required prompt removal under these circumstances.139
But she waited ten years to act. This was an unreasonable delay.
Often, “[t]he reasons for the delay are more critical than the amount of time
that has elapsed.”140 Chai argues that she did not delay since she just recently
became the Founder with the most Jenzabar voting securities. Still, Chai could have
but failed to pursue the removal of Mills or Maginn “promptly,” as required by
Section 4.2(b).141 She chose not to raise her ability to remove Maginn in the First or
Second 225 Actions but waited until the Third 225 Action.
The defendants have been prejudiced by Chai’s delay.142 They have been
burdened with uncertainty and repeated expedited lawsuits. And Jenzabar has been
under the cloud of a status quo order and divorce-fueled control dispute for over a
year.
Laches therefore supports summary judgment in the defendants’ favor.
139
Id.140
Klaassen, 2013 WL 5739680, at *20; see also IAC/InterActiveCorp v. O'Brien, 26 A.3d
174, 177 (Del. 2011).
141
S’holders Agreement § 4.2(b) (“If a party shall cease to have the right to designate a
director or directors, all parties shall vote, and take all other actions necessary, to promptly
remove the director(s) that such party is no longer entitled to designate.”).
142
See Kraft v. WisdomTree Invs., Inc., 145 A.3d 969, 979 (Del. Ch. 2016) (“The Court
also may presume prejudice if the claim is brought after the analogous limitations period
has expired.”); see also Whittington, 991 A.2d at 9 (“[A] party’s failure to file within the
analogous period of limitations will be given great weight in deciding whether the claims
are barred by laches.”).
29
2. Acquiescence
Acquiescence applies when the party who could challenge a particular act,
having “full knowledge of its rights and the material facts,” engages in conduct that
leads the other party to believe reasonably that the act had been approved.143
Approval may be conveyed when the claimant “(1) remains inactive for a
considerable time; or (2) freely does what amounts to recognition of the complained
of act; or (3) acts in a manner inconsistent with the subsequent repudiation, which
leads the other party to believe the act has been approved.”144
Maginn argues that Chai acquiesced to his Board membership despite the
Deane litigation.145 As explained above, Chai has had knowledge of the conduct at
issue in Deane for years. It was not until the Fifth Written Consent on April 12,
2024 that she first sought to remove Maginn for this conduct. Until then, she
affirmatively treated Maginn as a director—including as reflected by the First,
143
Klaassen, 106 A.3d at 1047; see also Lehman Bros. Hldgs. Inc. v. Spanish Broad. Sys.,
Inc., 2014 WL 718430, at *9 (Del. Ch. Feb. 25, 2014) (“The doctrine of acquiescence
effectively works an estoppel: where a plaintiff has remained silent with knowledge of her
rights, and the defendant has knowledge of the plaintiff’s silence and relies on that silence
to the defendant’s detriment, the plaintiff will be estopped from seeking protection of those
rights.”), aff’d, 105 A.3d 989 (Del. 2014).
144
Klaassen, 106 A.3d at 1047.
145
Maginn Opening Br. 23-24.
30
Second, and Third Written Consents. Through these acts, Maginn had reason to
believe that Chai would not seek his removal.146
Acquiescence also supports summary judgment for the defendants.
C. Looking Ahead
Chai is not entitled to the declarations she seeks about the validity of the
Fourth, Fifth, and Sixth Written Consents; the composition of the Board; the identity
of Jenzabar’s CEO, President, and Chair; the actions taken by purported Board
members; and the existence of the Special Committee.147 This is primarily because
of her tactical litigation choices, which triggered the application of res judicata. To
hold otherwise would undermine the finality of judgments and policies against
piecemeal litigation.
What this means for the control of Jenzabar, however, is unideal. The
instability of Jenzabar’s governance persists. If Chai truly holds a majority of
Jenzabar’s voting securities, she may be entitled to exercise her rights as such under
the Stockholders Agreement and Bylaws.
This decision does not bar Chai from doing so in the future. It says nothing
about her ability to invoke Section 4.2(b) of the Stockholders Agreement or Section
146
In the second summary judgment decision in the Second 225 Action, I held that
acquiescence also barred Chai’s claim that Mills was to be removed under Section 4.2(b)
of the Stockholders Agreement since there is no longer a Senior Investor Designated
Director. See supra notes 93-94 and accompanying text.
147
Compl. ¶ 41.
31
5.2 of the Bylaws based on new facts. What she cannot do is sue again to press the
same arguments about misconduct from 2012 and vacancies in 2013 that she could
and should have raised before.
After hearing several lawsuits involving Chai and Maginn’s divorce, I have
little faith that they can amicably agree on the Board’s composition.148 It is my
sincere hope, however, that they can place their fiduciary duties to Jenzabar ahead
of personal squabbles. A Delaware corporation should not be a pawn in its founders’
divorce.
III. CONCLUSION
Maginn’s motion for summary judgment is granted. Mills and Harder’s
motion for summary judgment is also granted. The status quo order is hereby lifted.
148
Harder can be removed once Chai and Maginn, as the Founder Designated Directors,
mutually agree to appoint a successor under Sections 4.2(a)(iii) and 4.2(b) of the
Stockholders Agreement. Harder was designated under Section 3.4 of the Bylaws by Mills,
the sole remaining director designated by the Founder Designated Directors. Section 5.2
of the Bylaws governs the removal of “[a]ny director designated by the holders of the
Senior Preferred Stock or any Founder Designated Director.” Bylaws § 5.2. Harder is
neither.
32