Shocking Technologies, Inc. v. Michael

EFiled: May 29 2015 03:50PM EDT
Transaction ID 57311446
Case No. 7164-VCN
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET
VICE CHANCELLOR DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
May 29, 2015
Bruce L. Silverstein, Esquire
Young Conaway Stargatt & Taylor, LLP
1000 North King Street
Wilmington, DE 19801
Re: Shocking Technologies, Inc. v. Michael
C.A. No. 7164-VCN
Date Submitted: February 17, 2015
Dear Mr. Silverstein:
I write to address Defendant Simon J. Michael’s (“Michael”) Motion for
Vacatur, filed under Court of Chancery Rule 60(b).1 Michael, in essence, seeks the
cancellation of the Court’s Memorandum Opinion of September 28, 2012, revised
October 1, 2012 (the “Memorandum Opinion”), which concluded that he had
breached his fiduciary duties as a director of Plaintiff Shocking Technologies, Inc.
1
Rule 60(b) provides, in pertinent part:
On motion and upon such terms as are just, the Court may relieve a
party . . . from a final judgment, order, or proceeding for the following
reasons: . . . (5) . . . it is no longer equitable that the judgment should
have prospective application; or (6) any other reasons justifying relief
from the operation of the judgment.
Shocking Technologies, Inc. v. Michael
C.A. No. 7164-VCN
May 29, 2015
Page 2
(“Shocking”).2 Despite Michael’s conduct, no liability, other than for routine court
costs, was assessed because Shocking did not establish that his behavior had
materially impacted a potential investor. Shocking has since been liquidated in
bankruptcy. That bankruptcy effectively thwarted Michael’s desire to appeal. His
application is essentially about a matter of reputation.
In the Memorandum Opinion, the Court asked counsel to submit a form of
implementing order. That did not occur. Thus, there was nothing for Michael to
appeal, and Shocking’s fiscal problems would have denied him the opportunity to
appeal any judgment, even if one had been entered.3 The fact that judgment was
not entered, as it would have been in the ordinary course, cannot be blamed on
Michael. If judgment had been entered, he would have been able to appeal the
imposition of costs.4
2
Shocking Techs., Inc. v. Michael, 2012 WL 4482838 (Del. Ch. Oct. 1, 2012).
There is no opposition to the motion. See Letter of Bruce L. Silverstein, Esq.,
Feb. 17, 2015, Ex. B. Dismissal of the remaining claims against Michael is clearly
appropriate. He has committed to dismiss his claims against former fellow
Shocking directors.
3
Of course, Rule 60(b) is not limited to correcting judgments; the Court is
authorized to relieve a party from “a final judgment, order, or proceeding.”
4
Whether that would have been an economically prudent decision is not for the
Court to resolve.
Shocking Technologies, Inc. v. Michael
C.A. No. 7164-VCN
May 29, 2015
Page 3
However, the relief that Michael seeks is troubling. The Memorandum
Opinion demonstrated how badly behaving directors can still be sanctioned in a
public forum, even if the removal process contemplated by 8 Del. C. § 225(c) is
not a readily viable option. Michael’s conduct understandably motivated three
other Shocking directors to seek to have him removed from the board. Yet a
court’s involvement in such efforts should be rare. Not only is board membership
generally a matter for the stockholders, but the removal process set forth
legislatively counsels caution and close adherence to proper procedures. That is an
important lesson from this case, and one that might be lost if vacatur is granted.
Nonetheless, the appellate process exists for many purposes, and, one must
assume, Michael’s reputation is one of them, especially where he would have had
the right to appeal if judgment had been entered as one would have anticipated.5
Thus, this is a case where a party who has lost the opportunity to appeal,
through no fault of his own, may properly seek vacatur. Michael operates an
investment fund. Although he does not claim to have lost clients because of what
happened in this action, he understandably is concerned about the potential
5
Although Michael’s conduct may have interfered with Shocking’s efforts to raise
needed financing, the Court has no factual basis for concluding that Michael’s
post-opinion conduct had any effect on Shocking’s survival.
Shocking Technologies, Inc. v. Michael
C.A. No. 7164-VCN
May 29, 2015
Page 4
business risk of lingering reputational concerns, disclosure obligations, and
liability insurance issues. Collateral ramifications, even if the direct relief at issue
is not material, will support a motion under Rule 60(b)(5) & (6) in order to protect
a party whose expectation of appellate review has been frustrated because of
events not within his control.6
Accordingly, the Memorandum Opinion will be vacated. Michael’s
proposed implementing order will be entered.
Very truly yours,
/s/ John W. Noble
JWN/cap
cc: Kevin G. Abrams, Esquire
Daniel A. Dreisbach, Esquire
Paul D. Brown, Esquire
Register in Chancery-K
6
See, e.g., Stearn v. Koch, 628 A.2d 44, 46 (Del. 1993); see also Tyson Foods Inc.
v. Aetos Corp., 818 A.2d 145, 148 (Del. 2003) (“This so-called ‘interests of justice’
standard is no doubt met where the party seeking appellate review is thwarted by
some event beyond its control.”).