CelestialRX Investments, LLC v. Joseph J. Krivulka
This text of CelestialRX Investments, LLC v. Joseph J. Krivulka (CelestialRX Investments, LLC v. Joseph J. Krivulka) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CELESTIALRX INVESTMENTS, ) LLC and KRITTIKA LIFE ) SCIENCES, LLC, ) ) Plaintiffs, ) ) v. ) C.A. No. 11733-VCG ) JOSEPH J. KRIVULKA; THE ESTATE OF ) JOSEPH J. KRIVULKA; MICHAEL J. ) LERNER, IN HIS CAPACITY AS PERSONAL ) REPRESENTATIVE FOR THE ESTATE OF ) JOSEPH J. KRIVULKA; ANGELA L. ) KRIVULKA, IN HER CAPACITY AS ) PERSONAL REPRESENTATIVE FOR THE ) ESTATE OF JOSEPH J. KRIVULKA; ) LEONARD MAZUR; DONALD OLSEN; JJK ) PARTNERS, LLC; MIST ACQUISITION, ) LLC; MIST PHARMACEUTICALS, LLC; ) MIST PARTNERS, LLC; JAK INVESTMENT ) PARTNERS, LLC; CRANFORD ) PHARMACEUTICALS, LLC; CRANFORD ) THERAPEUTICS, LLC; HOLMDEL ) PHARMACEUTICALS, LP; HOLMDEL ) THERAPEUTICS, LLC; LMAZUR ) ASSOCIATES, JV; AKRIMAX ) PHARMACEUTICALS, LLC; JOHN DOES 1- ) 10; and ABC ENTITIES 1-10, ) ) Defendants, ) ) and ) ) AKRIMAX PHARMACEUTICALS, LLC, ) ) Nominal Defendant. ) MEMORANDUM OPINION
Date Submitted: December 5, 2018 Date Decided: March 27, 2019
Michael W. McDermott and David B. Anthony, of BERGER HARRIS LLP, Wilmington, Delaware; OF COUNSEL: Benjamin C. Curcio, Paul F. Campano, Jessica A. Tracy, Michael D. Zahler, and Jason S. Haller, of CURCIO MIRZAIAN SIROT LLC, Roseland, New Jersey, Attorneys for Plaintiffs CelestialRX Investments, LLC and Krittika Life Sciences, LLC.
Garrett B. Moritz and Benjamin Z. Grossberg, of ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; OF COUNSEL: Andrew E. Anselmi and Zachary D. Wellbrock, of MCCUSKER, ANSELMI, ROSEN & CARVELLI, P.C., Florham Park, New Jersey, Attorneys for Defendants Joseph J. Krivulka, JJK Partners, LLC, JAK Investment Partners, LLC, Mist Acquisition, LLC, Mist Pharmaceuticals, LLC, Mist Partners, LLC, Cranford Therapeutics, LLC, and Holmdel Therapeutics, LLC.
Samuel T. Hirzel, II and Aaron M. Nelson, of HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware, Attorneys for Defendants Leonard Mazur and LMazur Associates, JV.
Andrew D. Cordo and F. Troupe Mickler IV, of ASHBY & GEDDES, Wilmington, Delaware, Attorneys for Defendant Donald Olsen.
Jody C. Barillare, of MORGAN, LEWIS & BOCKIUS LLP, Wilmington, Delaware; OF COUNSEL: Brian A. Herman, of MORGAN, LEWIS & BOCKIUS LLP, New York, New York, Attorneys for Defendant Cranford Pharmaceuticals, LLC.
Ryan P. Newell and Lauren P. DeLuca, of CONNOLLY GALLAGHER LLP, Wilmington, Delaware, Attorneys for Defendant Holmdel Pharmaceuticals, LP.
Phillip A. Rovner and Jonathan A. Choa, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware, Attorneys for Defendant Akrimax Pharmaceuticals LLC.
GLASSCOCK, Vice Chancellor This Memorandum Opinion represents incremental progress towards
resolution of a series of long-ago-filed, potentially case-dispositive motions. This
action involves the manner in which the primary Defendant, Joseph Krivulka, is
alleged to have used his control over nominal party Akrimax Pharmaceuticals, LLC
to benefit other entities (many also parties defendant) in which he was interested, at
the expense of Akrimax and its members. In 2016, the Defendants moved to dismiss,
and some moved for partial summary judgment as well. I addressed the Motions for
Partial Summary Judgment first, in the hope that resolution of issues involving the
scope of a release of claims, as well as Krivulka’s duties under the LLC agreement,
would narrow the issues and promote settlement. That decision (“Celestial I”) was
issued on January 31, 2017. Since that time, the pace of litigation has been
testudinal.
The parties pursued mediation and settlement, unsuccessfully. Unfortunately,
Krivulka has died, which led to motion practice regarding what entity or individuals
should represent his estate going forward. Eventually, counsel resubmitted the
Motions to Dismiss for consideration, bolstered by the parties’ years-old briefing.
As the caption demonstrates, the case involves a blizzard of Defendant entities, each
associated with Krivulka.1 All have moved to dismiss for failure to state a claim,
1 For cinephiles and those of a certain age, the description of these entities below may invoke the “Hotel Central, Milwaukee” scene from Key Largo; nearly all are residents together at “the same address” as Akrimax, in Cranford, New Jersey. failure of process, failure of service of process, lack of subject matter jurisdiction,
or lack of personal jurisdiction. This Memorandum Opinion resolves the latter
issues. However, I had asked counsel to address what claims remained in the case
in light of my decision in Celestial I.2 That they have yet, effectively, to do.
Accordingly, rather than wade through the morass of 12(b)(6) motions for various
entities, some of which may be moot in light of my finding as to the applicable
contractual fiduciary duties explained in Celestial I, I find it appropriate to ask the
parties, again, to review that decision in light of the claims and inform me which
Motions to Dismiss remain. At that point, I will address the remaining Motions
under Rule 12(b)(6). 3
My rationale for those decisions I can economically make follows a
statement of the facts, below.
I. BACKGROUND
The Defendants moved to dismiss all claims brought against them, in part
pursuant to Court of Chancery Rule 12(b)(6), failure to state a claim. In a Rule
12(b)(6) motion to dismiss, the Court does not consider documents extrinsic to the
complaint, except for documents that are integral to a plaintiff’s claim and are
2 See Jan. 31, 2018 Status Teleconference Tr., at 18:24–19:22. 3 As Richard Dreyfuss might say to Bill Murray, “Baby steps, Bob. Baby steps.” See What About Bob? (Touchstone Pictures 1991).
2 incorporated into the complaint. 4 The Court assumes as true all well-pleaded
allegations of fact in the complaint, and also draws all reasonable inferences from
those well-pleaded allegations in favor of the plaintiff.5 In this case, certain
Defendants, concurrent with their Motions to Dismiss, brought and argued Motions
for Partial Summary Judgment. I have already issued a Memorandum Opinion 6 that
addresses the Motions for Partial Summary Judgment, and I made findings of law
regarding certain contractual language that are incorporated below.
4 Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). Here, the parties conducted preliminary discovery in preparation for a preliminary injunction hearing. The Plaintiffs amended their Complaint following that hearing, and explicitly noted that their Amended Complaint “adds facts revealed during preliminary discovery conducted in advance of the February 8, 2016 preliminary injunction hearing.” Am. Compl. ¶ 1. However, not all the preliminary discovery conducted is considered in evaluating the Defendants’ Rule 12(b)(6) Motions to Dismiss. There is no change to the standard that governs the record on which to consider those Rule 12(b)(6) motions; documents integral to a plaintiff’s claim and incorporated into the complaint can be considered, even if extrinsic to the complaint. See In re Morton’s Rest. Grp., Inc. S’holders Litig., 74 A.3d 656, 658 n.3 (Del. Ch. July 23, 2013) (explaining why depositions taken as part of discovery were considered fully incorporated into the complaint).
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CELESTIALRX INVESTMENTS, ) LLC and KRITTIKA LIFE ) SCIENCES, LLC, ) ) Plaintiffs, ) ) v. ) C.A. No. 11733-VCG ) JOSEPH J. KRIVULKA; THE ESTATE OF ) JOSEPH J. KRIVULKA; MICHAEL J. ) LERNER, IN HIS CAPACITY AS PERSONAL ) REPRESENTATIVE FOR THE ESTATE OF ) JOSEPH J. KRIVULKA; ANGELA L. ) KRIVULKA, IN HER CAPACITY AS ) PERSONAL REPRESENTATIVE FOR THE ) ESTATE OF JOSEPH J. KRIVULKA; ) LEONARD MAZUR; DONALD OLSEN; JJK ) PARTNERS, LLC; MIST ACQUISITION, ) LLC; MIST PHARMACEUTICALS, LLC; ) MIST PARTNERS, LLC; JAK INVESTMENT ) PARTNERS, LLC; CRANFORD ) PHARMACEUTICALS, LLC; CRANFORD ) THERAPEUTICS, LLC; HOLMDEL ) PHARMACEUTICALS, LP; HOLMDEL ) THERAPEUTICS, LLC; LMAZUR ) ASSOCIATES, JV; AKRIMAX ) PHARMACEUTICALS, LLC; JOHN DOES 1- ) 10; and ABC ENTITIES 1-10, ) ) Defendants, ) ) and ) ) AKRIMAX PHARMACEUTICALS, LLC, ) ) Nominal Defendant. ) MEMORANDUM OPINION
Date Submitted: December 5, 2018 Date Decided: March 27, 2019
Michael W. McDermott and David B. Anthony, of BERGER HARRIS LLP, Wilmington, Delaware; OF COUNSEL: Benjamin C. Curcio, Paul F. Campano, Jessica A. Tracy, Michael D. Zahler, and Jason S. Haller, of CURCIO MIRZAIAN SIROT LLC, Roseland, New Jersey, Attorneys for Plaintiffs CelestialRX Investments, LLC and Krittika Life Sciences, LLC.
Garrett B. Moritz and Benjamin Z. Grossberg, of ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; OF COUNSEL: Andrew E. Anselmi and Zachary D. Wellbrock, of MCCUSKER, ANSELMI, ROSEN & CARVELLI, P.C., Florham Park, New Jersey, Attorneys for Defendants Joseph J. Krivulka, JJK Partners, LLC, JAK Investment Partners, LLC, Mist Acquisition, LLC, Mist Pharmaceuticals, LLC, Mist Partners, LLC, Cranford Therapeutics, LLC, and Holmdel Therapeutics, LLC.
Samuel T. Hirzel, II and Aaron M. Nelson, of HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware, Attorneys for Defendants Leonard Mazur and LMazur Associates, JV.
Andrew D. Cordo and F. Troupe Mickler IV, of ASHBY & GEDDES, Wilmington, Delaware, Attorneys for Defendant Donald Olsen.
Jody C. Barillare, of MORGAN, LEWIS & BOCKIUS LLP, Wilmington, Delaware; OF COUNSEL: Brian A. Herman, of MORGAN, LEWIS & BOCKIUS LLP, New York, New York, Attorneys for Defendant Cranford Pharmaceuticals, LLC.
Ryan P. Newell and Lauren P. DeLuca, of CONNOLLY GALLAGHER LLP, Wilmington, Delaware, Attorneys for Defendant Holmdel Pharmaceuticals, LP.
Phillip A. Rovner and Jonathan A. Choa, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware, Attorneys for Defendant Akrimax Pharmaceuticals LLC.
GLASSCOCK, Vice Chancellor This Memorandum Opinion represents incremental progress towards
resolution of a series of long-ago-filed, potentially case-dispositive motions. This
action involves the manner in which the primary Defendant, Joseph Krivulka, is
alleged to have used his control over nominal party Akrimax Pharmaceuticals, LLC
to benefit other entities (many also parties defendant) in which he was interested, at
the expense of Akrimax and its members. In 2016, the Defendants moved to dismiss,
and some moved for partial summary judgment as well. I addressed the Motions for
Partial Summary Judgment first, in the hope that resolution of issues involving the
scope of a release of claims, as well as Krivulka’s duties under the LLC agreement,
would narrow the issues and promote settlement. That decision (“Celestial I”) was
issued on January 31, 2017. Since that time, the pace of litigation has been
testudinal.
The parties pursued mediation and settlement, unsuccessfully. Unfortunately,
Krivulka has died, which led to motion practice regarding what entity or individuals
should represent his estate going forward. Eventually, counsel resubmitted the
Motions to Dismiss for consideration, bolstered by the parties’ years-old briefing.
As the caption demonstrates, the case involves a blizzard of Defendant entities, each
associated with Krivulka.1 All have moved to dismiss for failure to state a claim,
1 For cinephiles and those of a certain age, the description of these entities below may invoke the “Hotel Central, Milwaukee” scene from Key Largo; nearly all are residents together at “the same address” as Akrimax, in Cranford, New Jersey. failure of process, failure of service of process, lack of subject matter jurisdiction,
or lack of personal jurisdiction. This Memorandum Opinion resolves the latter
issues. However, I had asked counsel to address what claims remained in the case
in light of my decision in Celestial I.2 That they have yet, effectively, to do.
Accordingly, rather than wade through the morass of 12(b)(6) motions for various
entities, some of which may be moot in light of my finding as to the applicable
contractual fiduciary duties explained in Celestial I, I find it appropriate to ask the
parties, again, to review that decision in light of the claims and inform me which
Motions to Dismiss remain. At that point, I will address the remaining Motions
under Rule 12(b)(6). 3
My rationale for those decisions I can economically make follows a
statement of the facts, below.
I. BACKGROUND
The Defendants moved to dismiss all claims brought against them, in part
pursuant to Court of Chancery Rule 12(b)(6), failure to state a claim. In a Rule
12(b)(6) motion to dismiss, the Court does not consider documents extrinsic to the
complaint, except for documents that are integral to a plaintiff’s claim and are
2 See Jan. 31, 2018 Status Teleconference Tr., at 18:24–19:22. 3 As Richard Dreyfuss might say to Bill Murray, “Baby steps, Bob. Baby steps.” See What About Bob? (Touchstone Pictures 1991).
2 incorporated into the complaint. 4 The Court assumes as true all well-pleaded
allegations of fact in the complaint, and also draws all reasonable inferences from
those well-pleaded allegations in favor of the plaintiff.5 In this case, certain
Defendants, concurrent with their Motions to Dismiss, brought and argued Motions
for Partial Summary Judgment. I have already issued a Memorandum Opinion 6 that
addresses the Motions for Partial Summary Judgment, and I made findings of law
regarding certain contractual language that are incorporated below.
4 Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). Here, the parties conducted preliminary discovery in preparation for a preliminary injunction hearing. The Plaintiffs amended their Complaint following that hearing, and explicitly noted that their Amended Complaint “adds facts revealed during preliminary discovery conducted in advance of the February 8, 2016 preliminary injunction hearing.” Am. Compl. ¶ 1. However, not all the preliminary discovery conducted is considered in evaluating the Defendants’ Rule 12(b)(6) Motions to Dismiss. There is no change to the standard that governs the record on which to consider those Rule 12(b)(6) motions; documents integral to a plaintiff’s claim and incorporated into the complaint can be considered, even if extrinsic to the complaint. See In re Morton’s Rest. Grp., Inc. S’holders Litig., 74 A.3d 656, 658 n.3 (Del. Ch. July 23, 2013) (explaining why depositions taken as part of discovery were considered fully incorporated into the complaint). Here, that means that certain agreements, which were produced in preliminary discovery and/or submitted by affidavit accompanying the Defendants’ Motions to Dismiss and Motions for Partial Summary Judgment as well as affidavits accompanying the Plaintiffs’ responsive briefing to those Motions, have been considered. These agreements, or the relationships they govern, are referenced in the Amended Complaint. Information gleaned from these agreements has served to describe certain relationships with greater specificity, but has otherwise had a nominal bearing on the outcome. 5 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted). 6 See CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990 (Del. Ch. Jan. 31, 2017).
3 A. The Parties
As this action involves a multitude of parties, it is beneficial (consistent with
my practice in Celestial I)7 to first delineate the various parties, especially because
many are interrelated.
1. The Plaintiffs
Plaintiff CelestialRX Investments, LLC (“CelestialRX”) is a Delaware limited
liability company with a principal place of business in Old Greenwich, Connecticut.8
CelestialRX is a member of Defendant Akrimax Pharmaceuticals, LLC
(“Akrimax”). 9 CelestialRX’s sole member and manager is Sandeep “Steve” Laumas
(“Laumas”). 10 From January 11, 2008 to July 1, 2013, Laumas served on Akrimax’s
Board of Directors.11
Plaintiff Krittika Life Sciences, LLC (“Krittika”) is also a Delaware limited
liability company and shares its principal place of business with CelestialRX in Old
Greenwich, Connecticut.12 As with CelestialRX, Krittika’s sole member and
7 Diligent readers may notice that I, at times, borrow the phrasing from my previous Memorandum Opinion when describing the parties. 8 Am. Compl. ¶ 4. 9 Id. 10 Id. 11 Id. ¶¶ 32, 33, 77. 12 Id. ¶ 5.
4 manager is Laumas. 13 Krittika entered into a consulting agreement with Defendant
Akrimax dated February 1, 2008. 14
2. The Defendants
a. Nominal Defendant/Defendant
Defendant Akrimax is a Delaware limited liability company with a principal
place of business in Cranford, New Jersey. 15 Akrimax acquires, develops, sells, and
markets “pharmaceutical products in the areas of cardiovascular medicine,
endocrinology[,] and pain management.” 16 Akrimax was formed on October 24,
2007, and Defendants Joseph Krivulka and Leonard Mazur were its initial
members. 17 Plaintiff CelestialRX subsequently joined as the third member.18
Akrimax is a nominal defendant for the purposes of CelestialRX’s derivative claims,
but a defendant in Krittika’s claim for breach of contract. 19
b. Individual Defendants
Joseph J. Krivulka (“Krivulka”) was 20 a resident of New Jersey and an
investor in numerous pharmaceutical businesses, which are defendants in this
13 Id. 14 Id. ¶ 45. 15 Id. ¶ 6. 16 Id. ¶ 28. 17 Id. 18 Id. 19 Id. ¶ 6. 20 Krivulka is now deceased. See Docket Item [hereinafter, “D.I.”] 278, Suggestion of Death Upon the Record of Joseph J. Krivulka. Krivulka has been substituted in this action by the Estate of Joseph J. Krivulka, and Michael J. Lerner and Angela L. Krivulka in their capacity as the personal
5 action. 21 Krivulka was an original member of Defendant Akrimax. Prior to July 1,
2013, Krivulka served as one of three directors on Akrimax’s Board of Directors,
which acting collectively managed Akrimax. 22 Following a July 1, 2013 amendment
to Akrimax’s operating agreement, Krivulka, individually, became the sole manager
of Akrimax. 23 Pursuant to the same amendment, Krivulka became the beneficial
owner of all of Akrimax’s Common Voting Units and fifty-one percent of Akrimax’s
total units (or “Krivulka Units”). 24 Apart from Akrimax, Krivulka also held, directly
or beneficially, majority ownership interests in Defendants Mist Acquisition, LLC,
Mist Pharmaceuticals, LLC, Mist Partners, LLC, JJK Partners, LLC, JAK
Investment Partners, LLC, Holmdel Therapeutics, LLC, and Cranford Therapeutics,
LLC. 25 Krivulka passed away during the pendency of this litigation, and his Estate
and two individuals in their capacity as personal representatives of his Estate were
named Defendants in his stead, 26 references in this Memorandum Opinion to
“Krivulka” refer to Mr. Krivulka, or to his successors, as context dictates.
representatives of the Estate of Joseph J. Krivulka. See D.I. 304, Order Granting Plaintiffs’ Motion to Substitute Pursuant to Court of Chancery Rule 25. 21 Am. Compl. ¶ 7. 22 Id. ¶¶ 33, 77. 23 Id. ¶ 77. 24 Id. 25 Id. ¶¶ 7, 11–18. Through his ownership interest in Cranford Therapeutics, LLC, Krivulka is a minority equity holder in Cranford Pharmaceuticals, LLC. See Am. Compl. ¶ 96; CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *2 n.16 (Del. Ch. Jan. 31, 2017). Similarly, through his equity interest in Holmdel Therapeutics, LLC, Krivulka is a minority equity holder in Holmdel Pharmaceuticals, LP. See Am. Compl. ¶ 98; CelestialRX, 2017 WL 416990, at *2 n.16. 26 D.I. 304.
6 Defendant Leonard Mazur (“Mazur”) is a resident of New Jersey and an initial
member of Akrimax. 27 Between January 11, 2008 and July 1, 2013, Mazur served
on Akrimax’s Board of Directors, along with Krivulka and Laumas. 28 Mazur, like
Krivulka, has various investments outside his interest in Akrimax. 29 Mazur’s
interests, direct and beneficial, include minority ownership interests in Defendants
Mist Acquisition, LLC, Mist Partners, LLC, Holmdel Therapeutics, LLC and
Cranford Therapeutics, LLC; 30 all entities in which Krivulka also has a majority
ownership interest. Mazur also holds ownership interests in Prenzamax, LLC, Citius
Pharmaceuticals, LLC, and Valencia Investment Partners, LLC. 31 Finally, Mazur
manages Defendant LMazur Associates JV (“LMazur Associates”).32
Defendant Donald Olsen (“Olsen”) is a resident of California.33 Olsen is the
former President and CEO of Akrimax. 34 Olsen holds a minority ownership interest
in Defendants Cranford Therapeutics, LLC and Holmdel Therapeutics, LLC. 35
27 Am. Compl. ¶¶ 8, 28. 28 Id. ¶¶ 33, 77. 29 Id. ¶ 8. 30 Id. ¶¶ 8, 14–18. As with Krivulka, Mazur has an ownership interest in Cranford Pharmaceuticals and Holmdel Pharmaceuticals through his interests in Cranford Therapeutics and Holmdel Therapeutics, respectively. 31 Id. ¶ 8. These entities have contractual relationships with Akrimax but are not defendants in this action, and the Plaintiffs make no allegations linking these entities to the claims in the Amended Complaint. See id. ¶ 59. 32 Id. ¶ 21. 33 Id. ¶ 9. 34 Id. 35 Id. As with Krivulka and Mazur, Olsen also has an ownership interest in Cranford Pharmaceuticals and Holmdel Pharmaceuticals through his interests in Cranford Therapeutics and Holmdel Therapeutics, respectively. Id. ¶¶ 17–20.
7 c. The Entity Defendants
Defendant JJK Partners, LLC (“JJK Partners”) is a Delaware limited liability
company, with the same principal place of business as Akrimax in Cranford, New
Jersey. 36 JJK Partners was formed on March 3, 2008, Krivulka is its sole member. 37
JJK Partners entered into a consulting agreement with Akrimax dated February 1,
2008. 38 Following a July 1, 2013 amendment to Akrimax’s operating agreement,
JJK Partners holds all the voting rights in Akrimax and all the “Krivulka Units” in
Akrimax;39 prior to the amendment, Krivulka held his interests in Akrimax in his
own name. 40 Apart from Akrimax, JJK Partners holds majority ownership interests
in Defendants Cranford Therapeutics, LLC and Holmdel Therapeutics, LLC. 41
Defendant JAK Investment Partners, LLC (“JAK Investment Partners”) is a
Delaware limited liability company, with the same principal place of business as
Akrimax in Cranford, New Jersey. 42 JAK Investment Partners was formed in
36 Id. ¶ 11. 37 Id. 38 Id. ¶ 45. The inconsistency between formation date, March 1, 2008, and the date of the consulting agreement, February 1, 2008, is reflective of the Amended Complaint and is not an error of the Court. 39 Id. ¶¶ 8, 77. 40 See Transmittal Aff. of Michael D. Zahler In Support of Pls.’ Opp’n to the Krivulka and Mazur Defs.’ Mots. for Partial Summ. J. and to All Defs.’ Mots. to Dismiss [hereinafter, “Zahler Aff.”] Ex. 2 (Amended and Restated Limited Liability Company Agreement of Akrimax Pharmaceuticals, LLC), at Subex. A; Ex. 3 (Second Amended and Restated Limited Liability Company Agreement of Akrimax Pharmaceuticals, LLC), at Subex. A. 41 Am. Compl. ¶ 46 n.1.; Zahler Aff. Ex. 19, at Subex. B; Transmittal Aff. of John A. Eakins, Esq., in Support of Krivulka Defs.’ Mots. for Summ. J. and to Dismiss [hereinafter, “Eakins Aff.”] Ex. 24, at Subex. B. 42 Am. Compl. ¶ 12.
8 September 2008, and Krivulka is its sole member. 43 JAK Investment Partners holds
a majority ownership interest in Defendant Mist Partners, LLC. 44
Defendant Mist Partners, LLC (“Mist Partners”) is a Delaware limited liability
company, with the same principal place of business as Akrimax in Cranford, New
Jersey. 45 Mist Partners was formed in October 2009.46 As previously mentioned,
JAK Investment Partners holds a majority ownership interest in Mist Partners; prior
to July 30, 2015, JJK Partners held the same majority ownership interest in Mist
Partners. 47 Defendant LMazur Associates holds a minority ownership interest in
Mist Partners.48 Mist Partners is the sole owner and member of Defendant Mist
Acquisition, LLC. 49
Defendant Mist Acquisition, LLC (“Mist Acquisition”) is a Delaware limited
liability company, with the same principal place of business as Akrimax in Cranford,
New Jersey. 50 Mist Acquisition was formed in October 2009. 51 As stated above,
Mist Acquisition is wholly owned by Mist Partners.
43 Id. 44 Id. ¶ 14. 45 Id. 46 Id. 47 Id. ¶¶ 14, 46 n.1. 48 Id. ¶ 14. 49 Id. 50 Id. ¶ 15. 51 Id.
9 Defendant Mist Pharmaceuticals, LLC (“Mist Pharmaceuticals”) is a
Delaware limited liability company, with the same principal place of business as
Akrimax in Cranford, New Jersey. 52 Mist Pharmaceuticals was formed in October
2009. 53 Krivulka has an over ninety percent interest in Mist Pharmaceuticals and
was Chairman of its Board of Directors.54
Defendant Cranford Therapeutics, LLC (“Cranford Therapeutics”) is a
Delaware limited liability company, with the same principal place of business as
Akrimax in Cranford, New Jersey. 55 Cranford Therapeutics was formed in October
2013. 56 JJK Partners holds a majority ownership interest in Cranford Therapeutics,
and Krivulka serves as Cranford Therapeutics’ Chairman of the Board of Directors.57
Defendants LMazur Associates and Olsen also hold minority ownership interests in
Cranford Therapeutics. 58 Cranford Therapeutics is a member of Defendant Cranford
Pharmaceuticals, LLC, in which it owns a minority interest of approximately twelve
percent. 59
Defendant Cranford Pharmaceuticals, LLC (“Cranford Pharmaceuticals”) is a
Delaware limited liability company, with the same principal place of business as
52 Id. ¶ 16. 53 Id. 54 Id. 55 Id. ¶ 17. 56 Id. 57 Id. ¶¶ 17, 46 n.1. 58 Id. ¶¶ 17, 46 n.2. 59 Id. ¶ 17; see also Eakins Aff. Ex. 58, at Subex. A.
10 Akrimax in Cranford, New Jersey. 60 Cranford Pharmaceuticals was formed in
October 2013, and Krivulka was its CEO. 61 As stated above, Cranford Therapeutics
holds a minority interest in Cranford Pharmaceuticals, majority ownership is held
by third-party investor JCP II CI AIV, L.P. (“JCP”). 62
Defendant Holmdel Therapeutics, LLC (“Holmdel Therapeutics”) is a
Delaware limited liability company, with the same principal place of business as
Akrimax in Cranford, New Jersey. 63 Holmdel Therapeutics was formed in
December 2012, and Krivulka is the Chairman of its Board of Directors.64
Defendant JJK Partners holds a majority interest, approximately sixty-two percent,
in Holmdel Therapeutics; Defendant LMazur Associates holds a twenty-five percent
interest, and Defendant Olsen holds a one-half percent interest.65 Holmdel
Therapeutics is a limited partner in Defendant Holmdel Pharmaceuticals, LP, and
holds an approximately thirteen percent interest in that entity. 66
Defendant Holmdel Pharmaceuticals, LP (“Holmdel Pharmaceuticals”) is a
Delaware domestic limited partnership, with the same principal place of business as
60 Id. ¶ 18. 61 Id. 62 See CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *4 (Del. Ch. Jan. 31, 2017); see also Eakins Aff. Ex. 58. 63 Am. Compl. ¶ 19. 64 Id. 65 Id. ¶¶ 19, 46 n.1, 46 n.2. 66 Id. ¶ 19.
11 Akrimax in Cranford, New Jersey. 67 Holmdel Pharmaceuticals was formed in
December 2012.68 As stated above, Holmdel Therapeutics is a limited partner and
minority owner of Holmdel Pharmaceuticals. The majority owner and holder of the
remaining interest is third-party SWK. 69
Defendant LMazur Associates JV (“LMazur Associates”) is an
unincorporated joint venture with a principal place of business in Mountain Lakes,
New Jersey. 70 LMazur Associates is managed by Defendant Mazur.71 LMazur
Associates entered into a consulting agreement with Akrimax on February 1, 2008.72
As stated above, LMazur Associates holds minority ownership interests in
Defendants Mist Partners, Cranford Therapeutics, and Holmdel Therapeutics.
d. Defendant Groups
The Defendants in this action have helpfully formed six groups. The first
group is the “Krivulka Defendants,” which consists of the following Defendants:
Krivulka, JJK Partners, JAK Investment Partners, Mist Partners, Mist Acquisition,
Mist Pharmaceuticals, Cranford Therapeutics, and Holmdel Therapeutics.73 The
67 Id. ¶ 20. 68 See CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *4 (Del. Ch. Jan. 31, 2017); see also Eakins Aff. Ex. 25 at Recitals. 69 See CelestialRX, 2017 WL 416990, at *4; see also Eakins Aff. Ex. 25 at Partner Schedule. 70 Am. Compl. ¶ 21. 71 Id. 72 Id. ¶ 45. 73 The Krivulka Defendants therefore consist of Krivulka (and, currently, his estate), entities that Krivulka wholly and directly owned, and entities in which Krivulka held beneficial majority ownership.
12 second group is the “Mazur Defendants,” which consists of Mazur and LMazur
Associates. The other Defendants are grouped individually: Olsen, Cranford
Pharmaceuticals, Holmdel Pharmaceuticals, and Akrimax.
B. Akrimax from Founding to July 1, 2013
1. Akrimax is Founded
a. Akrimax’s Ownership Structure
Akrimax was formed as a Delaware limited liability company by Defendants
Krivulka and Mazur on October 24, 2007.74 Neither individual made an initial
capital contribution. 75 Plaintiff CelestialRX became a member of Akrimax on
approximately December 1, 2007. 76 Laumas facilitated an investment of $35 million
into Akrimax, and in return CelestialRX (which Laumas controlled) was made a
member of Akrimax and given voting units.77 On January 11, 2008, Akrimax
amended its governing documents (the “Second Amended LLC Agreement”).78
According to the Second Amended LLC Agreement, CelestialRX owned 49.9% of
Common Voting Units; and Krivulka and Mazur each owned 25.5% of Common
Voting Units. 79
74 Am. Compl. ¶ 28. 75 Id. ¶¶ 28, 32. 76 Id. ¶ 31. 77 Id. ¶¶ 31, 32; see also CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *5 (Del. Ch. Jan. 31, 2017) (describing in more detail that Laumas facilitated an investment from a previous employer, an investment fund, which received non-voting preferred units). 78 Am. Compl. ¶ 32; id. Ex. A. 79 Id. ¶ 32; id. Ex. A, at Subex. A.
13 b. Akrimax’s Initial Board of Directors
According to the Second Amended LLC Agreement, “the business affairs of
[Akrimax] shall be managed by or under the direction of the Manager.” 80 The
“Manager” of Akrimax was further defined as the “Board of Directors acting
collectively.” 81 The Agreement specifically named Krivulka, Mazur, and Laumas
as the initial directors of Akrimax. 82 According to the Agreement, each director had
one vote, 83 and all actions taken by the Board of Directors required approval of a
majority of directors.84 Furthermore, a director acting individually did not have the
authority to act for Akrimax. 85
In terms of fiduciary duties, the Second Amended LLC Agreement provided
in Section 4.01(h) that:
The members of the Board of Directors shall have no fiduciary duties to the Company or the Members and shall not be personally liable to the Company or to its Members for breach of any duty that does not involve (i) an act or omission not in good faith or which involves intentional misconduct or a knowing violation of law; or (ii) a transaction from which such member of the Board of Directors derived an improper personal benefit.86
80 Id. Ex. A § 4.01(a). 81 Id. ¶ 33; id. Ex. A § 4.01(b). 82 Id. ¶ 33; id. Ex. A § 4.01(b). 83 Id. ¶ 33; id. Ex. A § 4.01(c). 84 Id. ¶ 42; id. Ex. A § 4.01(c). 85 Id. ¶ 42; id. Ex. A § 4.01(c). 86 Id. ¶ 43; id. Ex. A § 4.01(h).
14 Sections 8.01 and 8.02 of the Second Amended LLC Agreement further provided
provisions which governed transactions with interested parties, conflicts of interest,
and the ability of members and directors of Akrimax to engage in business
opportunities in competition with Akrimax. 87
The Second Amended LLC Agreement also named Krivulka and Mazur as
officers of Akrimax. 88 Specifically, Krivulka was Chairman and Mazur was Vice
Chairman. 89 According to the Agreement, officers “are not ‘managers’ (within the
meaning of the Act) of [Akrimax], but the Manager may delegate to such Officers
such power and authority as the Manager deems advisable.” 90
c. Akrimax Enters into Consulting Agreements with Krittika, LMazur Associates, and JJK Partners
In the spring of 2008, Akrimax entered into consulting agreements with JJK
Partners, LMazur Associates and Krittika.91 These agreements were dated February
1, 2008.92 The agreements provided that Akrimax would pay each entity two percent
of Akrimax’s gross revenues.93 The agreements also included covenants not to
87 Id. Ex. A §§ 8.01, 8.02. 88 Id. ¶ 44. 89 Id. Ex. A § 4.03(a). 90 Id. The “Act” is defined as the Delaware Limited Liability Company Act. See id. Ex. A, at Recitals. 91 Id. ¶ 45. 92 Id. The inconsistency between the time of contracting and the dates of the consulting agreements is not an error of the Court. 93 See Eakins Aff. Ex. 6 (Consulting agreement with JJK Partners); Zahler Aff. Exs. 23 (Consulting Agreement with Krittika), 24 (Consulting Agreement with LMazur Associates).
15 compete. As a result, JJK Partners and LMazur Associates were prohibited from
competing with Akrimax and from directly or indirectly owning an interest in any
entity that competes with Akrimax. 94
2. Rouses Point Manufacturing Facility and the Inderal License95
On January 11, 2008, Akrimax purchased a manufacturing facility in Rouses
Point, New York from Wyeth Pharmaceuticals (“Wyeth”) for $20 million.96 In
another agreement executed on the same day, Akrimax purchased the rights to the
pharmaceutical Inderal, and certain other drugs, from Wyeth for $12 million. 97
3. The Tirosint Sublicense
On January 27, 2010, Akrimax and Alpharma Pharmaceuticals, LLC
(“Alpharma”) entered into an exclusive sublicense agreement (the “Alpharma
Agreement”) for Akrimax to acquire the sublicense to the pharmaceutical Tirosint.98
Alpharma had previously acquired the exclusive license to distribute and sell
Tirosint from Institut Biochimique SA (“IBSA”), the Swiss patent holder of
Tirosint. 99 Under the Alpharma Agreement, Alpharma assigned all of its rights
94 Am. Compl. ¶ 47; see also Zahler Aff. Exs. 23, 24. 95 This subsection does not appear in the Amended Complaint but provides helpful background for the reader and was included in my Memorandum Opinion of January 31, 2017 [hereinafter, “Celestial I”]. 96 CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *5 (Del. Ch. Jan. 31, 2017). 97 Id. 98 Am. Compl. ¶ 35. 99 Id.
16 under its exclusive license from IBSA to Akrimax. 100 In return, Akrimax agreed to
expend certain efforts to distribute Tirosint in the United States; including a
minimum amount of expenditures, the purchase of a minimum quantity of Tirosint
from IBSA, and the maintenance of a certain level of sales force. 101
On the same day the Alpharma Agreement was executed, Krivulka,
individually and without board approval, caused Akrimax to enter into the
“Assignment and Assumption Agreement” with Mist Acquisition. 102 Under the
Assignment and Assumption Agreement, Akrimax assigned its Tirosint sublicense
to Mist Acquisition.103
Almost two years later, on December 1, 2011, Krivulka, individually and
again without board approval, caused Akrimax to enter into the “Promotion,
Distribution and Support Services Agreement” with Mist Acquisition. 104 The
Agreement was purported to be retroactive to January 27, 2010, the original date of
the Alpharma Agreement and the subsequent assignment of the Tirosint sublicense
from Akrimax to Mist Acquisition. 105 Under the Promotion, Distribution and
Support Services Agreement, Mist Acquisition transferred the Tirosint sublicense
back to Akrimax; in return, Akrimax assumed all the obligations of the sublicense
100 Id. 101 Id. 102 Id. ¶ 54. 103 Id. 104 Id. ¶ 55. 105 Id.
17 and agreed to pay a “distribution fee” of ten percent of gross sales of Tirosint to Mist
Acquisition and Mazur. 106 Furthermore, under the Promotion, Distribution and
Support Services Agreement, Mist Acquisition could take back the sublicense to
Tirosint “for convenience” after thirty days’ notice.107
Mist Acquisition and Mazur (but not Laumas or CelestialRX) separately
entered into a side agreement to split the proceeds of any sale by Mist Acquisition
of the Tirosint sublicense. 108
4. The Rights to NitroMist, Suprenza, and Primlev
Prior to 2013, Krivulka also caused Akrimax to enter into contractual
relationships with Mist Acquisition and Mist Pharmaceuticals after those two entities
obtained the distribution rights to the pharmaceuticals NitroMist, Suprenza,109 and
Primlev. 110 As with Tirosint, Krivulka purported to enter Akrimax into distribution
agreements with Mist Acquisition or Mist Pharmaceuticals for NitroMist and
Primlev without the knowledge or approval of the Akrimax Board of Directors.111
Under the distribution agreements for NitroMist and Primlev, Akrimax agreed to
make royalty payments to Mist Acquisition and Mist Pharmaceuticals, in addition to
106 Id. 107 Id. 108 Id. ¶ 57. 109 Suprenza is briefly mentioned in the Amended Complaint, but no actions or agreements related to Suprenza appear to be at issue in this litigation. 110 Id. ¶ 59. 111 Id.
18 taking on the obligations that Mist Acquisition and Mist Pharmaceuticals had agreed
to when they first obtained the distribution rights from third parties. 112 Furthermore,
Akrimax’s agreements for the distribution rights to NitroMist and Primlev included
provisions for termination at will by Mist Acquisitions and Mist Pharmaceuticals.113
5. The Pfizer Settlement 114
After Akrimax purchased the Rouses Point manufacturing facility and
distribution rights to Inderal from Wyeth, Pfizer acquired Wyeth. 115 Pfizer alleged
that Akrimax had failed to comply with its obligations under the original agreements
with Wyeth. 116 Akrimax entered into a settlement with Pfizer to resolve this dispute
in 2011. 117 Under the settlement, Akrimax returned the manufacturing facility, and
also the rights to Inderal and certain other drugs.118 However, on the same day,
Pfizer and Akrimax entered into a “License and Option Agreement,” under which
Akrimax could continue selling Inderal into 2013, and would thereafter have the
option to extend the license in exchange for a lump sum payment. 119
112 Id.; see also CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *6–7 (Del. Ch. Jan. 31, 2017). 113 Am. Compl. ¶ 59, 60; see also CelestialRX, 2017 WL 416990, at *7–8. 114 This subsection also does not appear in the Amended Complaint but provides helpful background for the reader and was included in Celestial I. 115 CelestialRX, 2017 WL 416990, at *7. 116 Id. 117 Id. 118 Id. In return, Akrimax was released from certain obligations to Pfizer. Id. 119 Id.
19 6. Termination of the Distribution Rights to Tirosint, NitroMist and Primlev
On April 12, 2013, Mist Acquisition sent a letter to Akrimax purporting to
terminate the sublicense agreement for Tirosint; this letter was signed by
Krivulka.120 Mist Acquisition and Mist Pharmaceuticals also purported to terminate
their agreements with Akrimax for the distribution rights to NitroMist and Primlev
on the same day. 121
Laumas received a copy of the Mist Acquisition letter regarding Tirosint, and
learned for the first time of the assignment of the Tirosint sublicense from Akrimax
to Mist Acquisition, and the subsequent re-assignment of the same sublicense back
to Akrimax. 122 Krivulka represented to Laumas that Akrimax’s financial condition
was tenuous, 123 the implication being that Akrimax could not have first acquired the
distribution rights to Tirosint and the other drugs on its own, thereby justifying the
inclusion of the intermediary entities. As a result, Laumas was shown financial and
other information from Akrimax. 124 The financial information provided to Laumas
(and CelestialRX) was false and incomplete. 125 Olsen, who was Akrimax’s CEO at
the time, participated in withholding and concealing correct financial information.126
120 Am. Compl. ¶ 60. 121 Id. 122 Id. ¶ 61. 123 Id. ¶ 65. 124 Id. 125 Id. ¶¶ 65, 66. 126 Id. ¶ 65.
20 Akrimax threatened suit against Mist Pharmaceuticals and Mist
Acquisitions.127 Krivulka requested a standstill, and the parties negotiated a
settlement for the return of the rights to Tirosint, NitroMist, and Primlev to
Akrimax. 128
C. The 2013“Settlement” and Related Agreements
In broad strokes, under the settlement between the parties, Krivulka agreed to
return—or rather have Mist Acquisition and Mist Pharmaceuticals return—the
licensing rights to Tirosint and the other drugs to Akrimax. 129 Krivulka further gave
assurances that he would make “good faith efforts for Akrimax to sell Tirosint and
other product rights at the best possible price,” 130 and that in the meantime, he would
maximize the drug assets and avoid default on Akrimax’s licensing agreements.131
In return, Krivulka asked that the royalty rate paid by Akrimax to Mist Acquisition
and Mist Pharmaceuticals for Tirosint and the other pharmaceuticals be increased,
and that, in the event of a default on the royalty payments, the rights to those
pharmaceuticals be returned to Mist Acquisition and Mist Pharmaceuticals.132
127 Id. ¶ 62. 128 Id. ¶ 63. 129 Id. ¶ 67. 130 Id. ¶ 68. 131 Id. 132 Id. ¶ 67.
21 Krivulka also wanted Laumas, Mazur, and himself to execute a release of
claims. 133 Furthermore, Krivulka wanted changes to Akrimax’s ownership and
management structure. 134 Laumas assented to these terms, and on July 1, 2013, the
settlement was finalized through at least fourteen different agreements. 135
1. The Return of the Rights to Tirosint and the Other Drugs
One of the agreements executed on July 1, 2013 was the Tirosint Termination
and Royalty Agreement. 136 Under this Agreement, Akrimax regained the
distribution rights to Tirosint and, in return, Akrimax agreed to pay to Mist
Acquisition a royalty of thirty-five percent of gross sales of Tirosint;137 this was an
increase from their previous agreement. Additionally, according to the Tirosint
Termination and Royalty Agreement, if Akrimax defaulted on the royalty payments
and failed to cure the default within forty-five days of notice of default, Mist
Acquisition could retake the Tirosint sublicense.138 Akrimax entered into similar
agreements for the return of the rights to NitroMist and Primlev; that is, Akrimax’s
133 Id. 134 Id. ¶ 72. 135 Id. ¶ 73. 136 Id. ¶ 75. 137 Id. The return of the Tirosint rights was accomplished by the termination of the initial January 27, 2010 assignment of the rights to Tirosint from Akrimax to Mist Acquisition. See CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *10 (Del. Ch. Jan. 31, 2017). 138 Am. Compl. ¶ 75.
22 rights to both drugs were restored, but at increased royalty rates and with royalty
default and right reversion provisions.139
2. The Release Agreement140
On July 1, 2013, Krivulka, Mazur, and Laumas also entered into a release
agreement (the “Release Agreement”),141 under which the “Releasing Parties”
agreed to release the “Released Parties” from “any and all claims relating to, arising
from, or in any way connected to any actions taken by the parties in connection with
the company.” 142 The Release Agreement is governed by New York law.143
CelestialRX was not included as a “Party” to the Release Agreement; 144 instead,
“Parties” is a defined contractual term that encompasses only Mazur, Laumas, and
Krivulka.145 The Release Agreement defined “Releasing Parties” and “Released
Parties” differently; in particular, affiliates of Mazur, Laumas, and Krivulka were
defined to be Released Parties but were not Releasing Parties. 146 As a result,
CelestialRX, an affiliate of Laumas, is a Released Party but not a Releasing Party,
139 Id. ¶ 76. 140 This was a subject of Celestial I; accordingly, I cite to that Opinion below. 141 CelestialRX, 2017 WL 416990, at *14. 142 Id. (internal quotations omitted). 143 Id. at *13. 144 Id. at *14. 145 Id. at *15. 146 Id.
23 and therefore, under the Release Agreement as written, CelestialRX did not release
its claims existing as of July 1, 2013.147
3. Amendment No. 7 to the Second Amended LLC Agreement
a. Ownership and Control
On July 1, 2013, Akrimax amended its operating agreement through
Amendment No. 7 to the Second Amended LLC Agreement (“Amendment No. 7”),
under this Amendment JJK Partners was given one hundred percent of the voting
rights in Akrimax, and Krivulka, indirectly, became the owner of fifty-one percent
of total units,148 also known as “Krivulka Units.” Amendment No. 7 stated that these
“Krivulka Units” would never decrease below fifty-one percent of total units.149
Under Amendment No. 7, Mazur lost his voting units; however, his ownership
interest increased from 25.5% of common voting units to approximately thirty
percent of common non-voting units.150 On the other hand, according to
Amendment No. 7, CelestialRX’s ownership interest decreased from forty-nine
percent of common voting units to nineteen percent of common non-voting units.151
147 Id. To be precise, I denied the Defendants’ Motions for Partial Summary Judgment that CelestialRX had released claims existing as of July 1, 2013. Id. I note that the Defendants argued mutual mistake, an element of an (unpled) reformation claim. 148 Am. Compl. ¶¶ 73, 77. 149 Id. ¶ 77. 150 Id. ¶ 78. 151 Id. ¶ 79.
24 Amendment No. 7 also changed the management structure of Akrimax. The
Amendment now defined “Manager” as Krivulka alone; 152 previously, “Manager”
had been defined as the Board, acting collectively. Furthermore, Krivulka was
named in Amendment No. 7 as the sole director of Akrimax. 153 The Amendment
did require Krivulka to submit Akrimax’s budget to Mazur and Laumas for
approval. 154
b. Fiduciary Duties 155
As described above, Amendment No. 7 changed the ownership and
management structure in the Second Amended LLC Agreement. Amendment No. 7
also amended Section 4.01(h) of the Second Amended LLC Agreement. That
provision now provides that:
Notwithstanding anything to the contrary in this Agreement, neither the Manager nor any of the members of the Board of Directors nor any Member shall have any fiduciary duties to the Company or the Members or shall be personally liable to the Company or its Members for a breach of any duty that does not involve (i) an act or omission not in good faith or which involves intentional misconduct or a knowing violation of law; or (ii) a transaction from which such Manager, a member of the Board of Directors, or Member derived an improper personal benefit. 156
152 Id. ¶ 77. 153 Id. 154 Id. ¶ 80; id. Ex. B § 7. 155 This was also the subject of Celestial I; accordingly, I cite to that Opinion below. 156 Id. Ex. B § 6.
25 This language in Amendment No. 7 “generally eliminates common-law fiduciary
duties except that it retains liability for intentional or illegal misconduct and other
bad faith actions, as well as for improper self-dealing.”157 “[T]hose duties are
contractual in nature,” although “common law fiduciary duties are instructive in
supplying the definition” to undefined terms such as “bad faith.” 158
In turn, Sections 8.01 and 8.02 of the Second Amended LLC Agreement,
which were unchanged by Amendment No. 7, 159 “provide specific contractual
standards which govern conflict transactions and corporate opportunities.”160
Section 8.02 “eschews the corporate opportunity doctrine, and permits conflicted
interests to be held by Directors and Members.”161 Section 8.01 contains two
provisions, which provide alternative safe harbors for conflicted transactions.162
Under Section 8.01(a) a conflicted party bears no liability where a conflicted
transaction was entered in the absence of bad faith and the “Manager” determines in
good faith that the transaction is fair and reasonable to the Company.163
Alternatively, under Section 8.01(b), the conflicted party can avoid liability by
acting in good faith and resolving its conflict by a good-faith balancing of the relative
157 CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *16 (Del. Ch. Jan. 31, 2017). 158 Id. at *16. 159 See Am. Compl. Ex. B. 160 CelestialRX, 2017 WL 416990, at *17. 161 Id. at *18. 162 Id. 163 Id. (internal quotations omitted).
26 interests of each party (including its own interest) and the benefits and burdens
relating to such interests.164 Conflicted transactions that do not achieve either safe
harbor are therefore transactions from which the conflicted “party may be shown to
have derived an improper personal benefit under Section 4.01(h)(ii), in breach of his
[contractual] duty under that section.”165
4. Other Relevant Agreements on July 1, 2013
The consulting agreement between Akrimax and Krittika was also amended
on July 1, 2013. 166 According to the amendment, Krittika would still be paid a
consulting fee equal to two percent of Akrimax’s gross sales, but this fee would now
be payable quarterly instead of monthly. 167 Relatedly, Amendment No. 7 provided
that Krittika’s fees would be the first paid from Akrimax’s funds available for
distribution.168 Furthermore, Akrimax agreed to pay Krittika arrears on consulting
fees that had accrued to approximately $4.7 million. 169 Krittika and Mazur also
entered into a related agreement, pursuant to which Mazur agreed to pay Krittika the
difference between the actual amount Akrimax paid to Krittika on a quarterly basis
and the amount payable to Krittika by Akrimax. 170 Akrimax’s consulting
164 Id. (internal quotations omitted). 165 Id. 166 Am. Compl. ¶ 144. 167 Id. ¶¶ 143, 144. 168 Id. Ex. B § 10(i). 169 Id. ¶ 144. 170 Id. ¶ 145.
27 agreements with JJK Partners and LMazur Associates were also amended on July 1,
2013, 171 but these amendments did not change the prohibition on competing with
Akrimax and diverting opportunities from Akrimax. 172
On July 1, 2013, Krivulka and Mazur also entered into a new side letter
agreement.173 Pursuant to the side letter, Mist Acquisition agreed to pay Mazur
twenty-five percent of the Tirosint royalties it received from Akrimax.174
Additionally, under the side letter, if Mist Acquisition reacquired the Tirosint asset
from Akrimax and then sold it, Krivulka and Mazur agreed to split Krivulka’s share
of the proceeds. 175 On June 28, 2013, prior to the side letter agreement between
Krivulka and Mazur, Mazur had agreed to pay Krittika 14.3% of the Tirosint
royalties that Mazur received from Mist Acquisition. 176
D. Akrimax After the 2013 “Settlement”
1. Cranford Pharmaceuticals Acquires the Rights to Inderal
In late 2013, Akrimax’s license with Pfizer to sell Inderal expired, and
Akrimax chose not to exercise its option to repurchase the licensing rights.177
171 The amendments to the consulting agreements with JJK Partners and LMazur Associates, similar to the changes to the Krittika consulting agreement, changed the consulting fee payment period from monthly to quarterly and set an amount for arrears on consulting fees owed by Akrimax to JJK Partners and LMazur. See Zahler Aff. Exs. 25, 26. 172 Am. Compl. ¶ 85; see also Zahler Aff. Exs. 25, 26. 173 Am. Compl. ¶ 74. 174 Id. ¶¶ 74 n.3, 150. 175 Id. ¶ 74. 176 Id. ¶ 151. 177 Id. ¶ 95.
28 Cranford Pharmaceuticals, which was formed in October 2013, then acquired the
rights to Inderal from Pfizer. 178 Cranford Pharmaceuticals planned to derive a
royalty stream from owning the licensing rights to Inderal and to leverage the
extended release technology used by Holmdel Pharmaceuticals to create a new
Inderal product.179
On February 4, 2014, Akrimax entered into agreements with Cranford
Pharmaceuticals and Holmdel Pharmaceuticals in furtherance of the plan to create
an extended release product based on Inderal. 180 Cranford Therapeutics and JCP had
together contributed $25 million in capital to Cranford Pharmaceuticals to fund the
purchase of the Inderal rights from Pfizer. 181 Akrimax guaranteed Cranford
Therapeutics and JCP’s capital contributions to Cranford Pharmaceuticals.182
Akrimax also assigned to Cranford Pharmaceuticals more than $5.5 million in cash
and other assets and agreed to assume Cranford Pharmaceuticals’ royalty payments
to non-party AstraZeneca.183 Furthermore, Akrimax agreed to distribute Inderal for
Cranford Pharmaceuticals.184 In return, Cranford Pharmaceuticals agreed to pay
Akrimax an “administrative fee” of ten percent of the net sales of Inderal. 185 Under
178 Id. 179 Id. ¶¶ 97, 99. 180 Id. ¶¶ 100–105. 181 Id. ¶ 100. 182 Id. 183 Id. 184 Id. 185 Id. ¶ 102.
29 the agreement between Cranford Pharmaceuticals and Akrimax, Cranford
Pharmaceuticals can terminate the agreement for any reason after the first year and
after 180 days’ notice. 186
Holmdel Pharmaceuticals licensed its extended release technology to
Cranford Pharmaceuticals.187 As part of the license agreement, Akrimax guaranteed
$28.2 million in royalty payments from Cranford Pharmaceuticals to Holmdel
Pharmaceuticals.188
To date, the “administrative fee” paid to Akrimax based on net sales of Inderal
has not exceeded the $5.5 million of assignments to Cranford Pharmaceuticals.189
Furthermore, since February 4, 2014, Akrimax has paid over $14 million to Holmdel
Pharmaceuticals to fulfill its obligation to guarantee royalties owed by Cranford
Pharmaceuticals.190
2. Akrimax Defaults on the Tirosint Royalties to Mist Acquisition
As previously mentioned, under one of the July 1, 2013 agreements, Akrimax
regained the sublicense to Tirosint. Akrimax had agreed to pay a higher royalty rate
to Mist Acquisition and to return the Tirosint sublicense to Mist Acquisition if it
defaulted on those royalty payments. Notwithstanding its contractual obligation to
186 Id. ¶ 104. 187 Id. ¶ 100. 188 Id. 189 Id. ¶ 103. 190 Id.
30 do so, Akrimax did not make a royalty payment for Tirosint to Mist Acquisition after
October 1, 2013. 191 However, around the same time, Akrimax did decide to assign
millions of dollars in assets to Cranford Pharmaceuticals and to guarantee tens of
millions of dollars in capital contributions and royalty payments to Cranford
Pharmaceuticals and Holmdel Pharmaceuticals.
On February 21, 2014, Mist Acquisition notified Akrimax by letter that
Akrimax had breached the July 1, 2013 agreement by defaulting on royalty payments
that were due on February 15, 2014. 192 According to the letter, Akrimax had until
April 7, 2014 to cure the default or the agreement would be terminated and the rights
to Tirosint transferred to Mist Acquisition.193 Laumas was not aware of this letter at
the time it was received by Akrimax. 194 Additionally, despite the requirement in
Amendment No. 7 that Laumas receive and approve Akrimax’s budget, Laumas was
not provided with a copy of Akrimax’s 2014 budget. 195
On November 1, 2014, Akrimax and Mist Acquisition entered into a
Termination and Assignment Agreement, under which, based on Akrimax’s default,
the sublicense to Tirosint and the license to NitroMist reverted back to Mist
191 Id. ¶ 87. 192 Id. ¶ 90. 193 Id. 194 Id. ¶ 91. 195 Id. ¶ 89.
31 Acquisition. 196 Despite the termination of the agreement and loss of distribution
rights, Akrimax continued to market and distribute Tirosint and NitroMist. 197
As previously mentioned, the sublicense for Tirosint came from Alpharma,
which in turn held an exclusive license from IBSA. On January 14, 2015,
Alpharma’s exclusive license from IBSA was terminated.198 On the same day, Mist
Acquisition and Akrimax entered into an Exclusive License, Supply and Distribution
Agreement with IBSA. 199 Under the Agreement, Mist Acquisition was granted the
exclusive license to distribute Tirosint in the United States.200 Akrimax guaranteed
Mist Acquisition’s financial and performance obligations to IBSA under this
Agreement. 201 Akrimax continued to market and distribute Tirosint without an
agreement with Mist Acquisition. 202
On July 31, 2015, Akrimax entered into the Promotion, Distribution and
Support Agreement with Mist Acquisition, under which Mist Acquisition granted
Akrimax a sublicense to Tirosint.203 According to this agreement, Akrimax agreed
to make all royalty and other payments that Mist Acquisition was obligated to make
196 Id. ¶ 93. 197 Id. ¶ 94. 198 Id. ¶ 111. 199 Id. ¶ 114. 200 Id. 201 Id. ¶ 115. 202 Id. ¶ 117. 203 Id. ¶ 118.
32 to IBSA. 204 Additionally, Akrimax agreed to pay Mist Acquisition a “distribution
fee” equal to ten percent of the gross sales of Tirosint.205 Mist Acquisition can
terminate the Agreement “for convenience” after thirty days’ notice. 206 The
Agreement was purported to be retroactive to November 1, 2014, the date that
Akrimax’s previous sublicense for Tirosint was terminated.207
Additionally, under the July 31, 2015 agreement for the Tirosint sublicense,
Akrimax was obligated to issue over $11 million in promissory notes, the majority
of which were payable to JAK Investments and LMazur Associates.208 These notes
supposedly represented the unpaid “distribution fees” from the agreement with Mist
Acquisition that Akrimax had defaulted on, and which had thereby been terminated
in November 2014.209 The Agreement also imposed on Akrimax the obligation to
pay for and provide operating services for Mist Acquisition.210
On September 2, 2015, Laumas met with Krivulka and several Akrimax
officers to discuss the status of efforts to sell Akrimax’s rights to Tirosint.211 While
Krivulka and Akrimax officers told Laumas that Akrimax would be accepting bids
from prospective purchasers, they did not tell Laumas that Mist Acquisition had
204 Id. ¶ 119. 205 Id. 206 Id. 207 Id. ¶ 118. 208 Id. ¶ 120. 209 Id. 210 Id. ¶ 121. 211 Id. ¶ 124.
33 obtained the exclusive license to Tirosint. 212 Krivulka did, however, reveal to
Laumas that Akrimax had defaulted on its royalty obligation to Mist Acquisition and
that the Tirosint sublicense had reverted to Mist Acquisition. 213 As a result, per
Krivulka, Mist Acquisition (and not Akrimax) would therefore be selling the rights
to Tirosint.214 Laumas asked why Akrimax had defaulted on royalty payments to
Mist Acquisition and lost the sublicense. 215 In response Krivulka cited excess
overhead; in particular, Krivulka cited a Tirosint price increase by IBSA and
Akrimax’s debt.216 However, in truth both the price increase and the majority of
Akrimax’s debt—that is, the promissory notes—occurred after Akrimax defaulted
on the Tirosint royalty payments.217
During this meeting, Laumas also asked why he had not been provided with
Akrimax’s budget for 2014, and why Akrimax’s default and loss of the Tirosint
sublicense were not reflected in the financials that were provided to him. 218 Laumas
was not given a response to the former; and regarding the latter, he was told that the
sublicense was not considered an asset. 219 Plaintiff CelestialRX filed a Complaint
shortly thereafter on November 20, 2015, and also filed a Motion for a Temporary
212 Id. 213 Id. ¶ 125. 214 Id. 215 Id. ¶ 126. 216 Id. ¶¶ 126, 127. 217 Id. ¶¶ 126, 127. 218 Id. ¶¶ 129, 130. 219 Id. ¶¶ 129, 130.
34 Restraining Order (“TRO”) in an attempt to prevent the sale of assets, including
Tirosint. 220
3. Krittika Is Not Paid Its Consulting Fees
Despite the July 1, 2013 amendment to the consulting agreement between
Akrimax and Krittika, Akrimax has withheld over $6 million due to Krittika.221
During the time Akrimax has withheld payment to Krittika, Akrimax has continued
to make payments to JJK Partners and LMazur Associates, pursuant to Akrimax’s
consulting agreements with those entities. 222 Additionally, despite the side letter
agreement between Krittika and Mazur, Mazur has not paid to Krittika the difference
between the quarterly amounts actually paid to Krittika by Akrimax, and the
amounts payable. 223 Furthermore, despite the June 28, 2013 agreement between
Mazur and Krittika, Mazur has never paid Krittika any portion of the Tirosint
royalties that Mazur has received from Mist Acquisition. 224
E. Procedural History
Plaintiff CelestialRX filed its verified Complaint on November 20, 2015. I
held a hearing on Celestial RX’s petition for a Temporary Restraining Order
(“TRO”) on November 24, 2015, and I subsequently granted the TRO request on
220 See D.I. 1. 221 Am. Compl. ¶ 146. 222 Id. ¶ 148. 223 Id. ¶ 147. 224 Id. ¶ 151.
35 December 3, 2015. The parties then engaged in expedited discovery, followed by
Oral Argument on CelestialRX’s request for a preliminary injunction on February 8,
2016. I denied CelestialRX’s request for a preliminary injunction from the Bench,
and CelestialRX filed an Amended Complaint on March 8, 2016. The Amended
Complaint added Krittika as a plaintiff, additional Defendants, and additional
counts.
At the February 8, 2016 argument for a preliminary injunction, I indicated
that, moving forward, two legal issues needed to be decided: first, the effect, if any
of the July 1, 2013 Release Agreement, and second, the nature of the duties owed
under Akrimax’s LLC Agreement. Pursuant to an April 14, 2016 Scheduling Order,
the parties were permitted discovery on these two preliminary issues. The Mazur
Defendants filed a Motion to Dismiss the Amended Complaint on March 22,
2016. 225 On July 19, 2016, the Krivulka Defendants and Mazur Defendants
separately filed Motions for Partial Summary Judgment, and the Krivulka
Defendants filed a Motion to Dismiss the Amended Complaint.226 The Motions for
Partial Summary Judgment were based on the two preliminary issues I had
identified. On July 5, 2016, Defendant Cranford Pharmaceuticals and Defendant
Holmdel Pharmaceuticals also separately filed Motions to Dismiss the Amended
225 Mazur had also filed a Motion to Dismiss the original Complaint on November 24, 2015. 226 The Krivulka Defendants had also filed a Motion to Dismiss the original Complaint on January 6, 2016.
36 Complaint. Finally, on July 7, 2016, Defendant Olsen filed a Motion to Dismiss the
Amended Complaint.
I heard Oral Argument on all the Defendants’ Motions for Partial Summary
Judgment and Motions to Dismiss on October 17, 2016, which focused on the two
preliminary issues identified. On January 31, 2017, I issued a Memorandum
Opinion that addressed only the Defendants’ Motions for Partial Summary
Judgement, which I granted in part and denied in part. I directed the parties to
“confer regarding the most efficient way to move forward in light of [the]
Memorandum Opinion.”227 The parties then indicated that they would pursue
mediation; however, toward the end of 2017, they reported that the mediation had
failed. A scheduling conference was held on January 31, 2018, following which the
parties submitted letters on February 7, February 14, and February 22, 2018,
indicating that they considered the previously filed Motions to Dismiss to remain
pending. 228
Defendant Krivulka died on February 17, 2018. On April 4, 2018, in light of
his passing and given indication from the parties that they were engaging in
settlement discussions, I suspended consideration of the then-pending Motions to
Dismiss. I later learned that the settlement discussions were not successful. Given
227 CelestialRX Investments, LLC v. Krivulka, 2017 WL 416990, at *19 (Del. Ch. Jan. 31, 2017). 228 The Parties also submitted supplemental letter briefs on the Motions to Dismiss on October 20, 2016.
37 the death of Krivulka, On May 29, 2018, the Plaintiffs filed a Motion to Substitute,
which was promptly opposed. On October 23, 2018, the Plaintiffs represented that
the Motions to Dismiss and the Motion to Substitute were once again ripe for
adjudication. On November 5, 2018, the parties indicated via letter that no party to
the action, despite the more than two years since Oral Argument, sought to file
further supplemental briefing on the Motions to Dismiss. I heard Oral Argument on
the Motion to Substitute on December 5, 2018, and granted the Motion to Substitute
on the same day. 229 Having resolved the Motion to Substitute, I considered the
Motions to Dismiss again submitted for decision on December 5, 2018.
II. ANALYSIS
The Plaintiffs bring sixteen counts against fifteen Defendants (not including
ten John Does and ten ABC entities) in their Amended Complaint. In the Amended
Complaint, CelestialRX brings against all the Defendants: a direct and derivative
claim for Accounting;230 a direct and derivative claim for Bad Faith Breach of
Fiduciary Duty; 231 a derivative claim for Waste;232 a derivative claim for
Conversion; 233 a direct claim for Civil Conspiracy; 234 and a direct and derivative
229 The Motion to Substitute is reflected in the caption of this Opinion and was granted following a short telephonic Oral Argument on the same date, December 5, 2018. 230 Count I of the Amended Complaint. See Am. Compl. ¶¶ 155–160. 231 Count II of the Amended Complaint. See id. ¶¶ 161–171. 232 Count V of the Amended Complaint. See id. ¶¶ 188–192. 233 Count VII of the Amended Complaint. See id. ¶¶ 198–201. 234 Count IX of the Amended Complaint. See id. ¶¶ 214–218.
38 claim for Unjust Enrichment. 235 CelestialRX also brings counts against only certain
of the Defendants: a direct and derivative claim for Akrimax Officers Breach of
Fiduciary Duties against Krivulka, Mazur, and Olsen; 236 a derivative claim for
Breach of Restrictive Covenants against Krivulka, JJK Partners, and LMazur
Associates; 237 a direct and derivative claim for Aiding and Abetting Breach of
Fiduciary Duty against all Defendants, except Krivulka; 238 a direct claim for
Fraud/Fraudulent Inducement against Krivulka; 239 a direct claim for Breach of
Operating Agreement against Krivulka and Mazur; 240 a direct claim for Breach of
Implied Covenant of Good Faith and Fair Dealing against Krivulka and Mazur;241
seeking Declaratory Judgment against Krivulka, Mazur, and JJK Partners; 242 and a
direct claim for “Majority Oppression” against Krivulka, Mazur, and JJK
Partners. 243 Krittika brings a direct claim for Breach of Contract against Akrimax
and Mazur 244 and a direct claim for Tortious Interference with Contract against
Krivulka.245
235 Count XIII of the Amended Complaint. See id. ¶¶ 234–237. 236 Count III of the Amended Complaint. See id. ¶¶ 172–176. 237 Count IV of the Amended Complaint. See id. ¶¶ 177–187. 238 Count VI of the Amended Complaint. See id. ¶¶ 193–197. 239 Count VII of the Amended Complaint. See id. ¶¶ 202–213. 240 Count X of the Amended Complaint. See id. ¶¶ 219–222. 241 Count XI of the Amended Complaint. See id. ¶¶ 223–228. 242 Count XII of the Amended Complaint. See id. ¶¶ 229–233. 243 Count XIV of the Amended Complaint. See id. ¶¶ 238–242. 244 Count XV of the Amended Complaint. See id. ¶¶ 243–246. 245 Count XVI of the Amended Complaint. See id. ¶¶ 247–253.
39 The Krivulka Defendants moved to dismiss all counts brought against them
under Rule 12(b)(6), failure to state a claim, except for the breach of restrictive
covenant claim, which they moved to dismiss under Rule 12(b)(1), lack of
jurisdiction over subject matter.246 The Mazur Defendants moved to dismiss all
counts brought against them under Rule 12(b)(2), lack of jurisdiction over the
person, Rule 12(b)(4), insufficiency of process, Rule 12(b)(5), insufficiency of
service of process, and Rule 12(b)(6), failure to state a claim. 247 Cranford
Pharmaceuticals moved to dismiss all claims brought against it under Rule 12(b)(6),
failure to state a claim. 248 Holmdel Pharmaceuticals also moved to dismiss all claims
brought against it under Rule 12(b)(6), failure to state a claim. 249 Finally, Olsen
moved to dismiss all claims brought against him under Rule 12(b)(2), lack of
jurisdiction over the person, Rule 12(b)(5), insufficiency of service of process, and
Rule 12(b)(6), failure to state a claim. 250
I will first address the subject matter jurisdiction defense to the claim for
breach of restrictive covenants. I then turn to the Mazur Defendants’ and Defendant
Olsen’s Motions to Dismiss on personal jurisdiction, process, and service of process
grounds. In light of my decision here and my previous Memorandum Opinion of
246 D.I. 135, 208. 247 D.I. 137. 248 D.I. 192. 249 D.I. 193. 250 D.I. 195.
40 January 31, 2017, the remaining parties shall confer on which Motions to Dismiss
still need to be addressed.
A. Subject Matter Jurisdiction Over the Consulting Agreements
Defendants JJK Partners and LMazur Associates251 argue that Count IV of the
Amended Complaint, breach of restrictive covenants, brought derivatively by
CelestialRX against them, should be dismissed under Rule 12(b)(1) for lack of
subject matter jurisdiction because the claim is subject to arbitration. On a motion
to dismiss under Rule 12(b)(1), the plaintiff “bear[s] the burden of establishing
subject matter jurisdiction,” and “a court may consider documents outside the
complaint.”252 Furthermore, “Delaware courts lack subject matter jurisdiction to
resolve disputes that litigants have contractually agreed to arbitrate.”253 This Court
respects, and will enforce, parties’ contractual arbitration commitments.
The restrictive covenants—non-compete clauses—at issue here are contained
in consulting agreements that JJK Partners and LMazur Associates entered into
separately with Akrimax on February 1, 2008; each consulting agreement was
subsequently amended on July 1, 2013. JJK Partners and LMazur Associates argue
that the February 1, 2008 consulting agreements contain governing arbitration
251 LMazur Associates joined JJK Partners’ argument. See Opening Br. in Support of the Mazur Defs.’ Mot. to Dismiss Pls.’ First Am. Verified Compl. and Mot. for Partial Summ. J., at 14. 252 HBMA Hldgs., LLC v. LSF9 Stardust Hldgs. LLC, 2017 WL 6209594, at *3 (Del. Ch. Dec. 8, 2017). 253 NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 (Del. Ch. 2007).
41 clauses. CelestialRX, in turn, contends that the arbitration clauses are superseded
by the July 1, 2013 amendments to the consulting agreements. 254 That is to say,
CelestialRX does not contest that the parties agreed to binding arbitration clauses in
the February 1, 2008 agreements. The Plaintiff’s only contention is that the
arbitration obligations were terminated via the July 1, 2013 amendments.
In the alternative, CelestialRX proposes that the Court decline to enforce the
arbitration clauses here as a matter of judicial policy against dividing disputes.255 To
the extent that CelestialRX argues that judicial efficiency would be better served by
declining to honor the arbitration clauses, such an argument is misplaced; again, this
Court will respect these parties’ contractual obligations. 256 I turn to the language of
the consulting agreements and the July 1, 2013 amendments.
JJK Partners’ and LMazur Associates’ consulting agreements with Akrimax
contain identical provisions on governing law and arbitration. According to the
initial February 1, 2008 consulting agreements, each agreement “shall be governed
by and construed in accordance with the laws of the State of New Jersey . . . except
254 Pls.’ Br. in Opp’n to the Krivulka Defs.’ Mot. for Partial Summ. J. and Mot. to Dismiss, at 12– 13. 255 Id. at 142. While the Plaintiffs address arbitration as it pertains to Plaintiff Krittika’s direct claim against Akrimax for breach of the Krittika consulting agreement (Count XV), the Defendants have not moved to dismiss that count on the basis of subject matter jurisdiction, and the Plaintiffs’ argument is therefore misplaced. 256 See, e.g., Parfi Hldgs. AB v. Mirror Image Internet, Inc., 817 A.2d 149, 156 (Del. 2002) (“When parties to an agreement decide that they will submit their claims to arbitration, Delaware courts strive to honor the reasonable expectations of the parties . . . .”).
42 with respect to matters of law concerning the internal corporate affairs . . . .”257
Additionally:
Notwithstanding anything herein to the contrary, in the event that there shall be a dispute among the parties arising out of or relating to this Agreement, or the breach thereof, the parties agree that such dispute shall be resolved by final and binding arbitration in the State of New York, Borough of Manhattan administered by the American Arbitration Association (the “AAA”), in accordance with AAA’s Commercial Arbitration Rules . . . . 258
The consulting agreements were amended on July 1, 2013; the amendments
provided that:
The Agreement, amended hereby, shall be construed, governed, interpreted and applied in accordance with the laws in effect in the State of Delaware exclusive of its conflict of laws provisions. Any claim or controversy arising out of or related to this Amendment shall be submitted to a court of applicable jurisdiction in the State of Delaware, and each Party hereby consents to the jurisdiction and venues of such court.259
The July 1, 2013 amendments did not alter or amend the non-compete provisions
found in the initial February 1, 2008 consulting agreements. Thus, facially at least,
it preserved the provision that “[n]otwithstanding anything herein to the contrary,”
disputes are subject to arbitration.260 Nonetheless, the Plaintiffs argue that the
amendments abrogated the arbitration obligations.
257 Zahler Aff. Ex. 24 ¶ 10(c); Eakins Aff. Ex. 6 ¶ 10(c). 258 Zahler Aff. Ex. 24 ¶ 10(j); Eakins Aff. Ex. 6 ¶ 10(j). 259 Zahler Aff. Exs. 25, 26. 260 Zahler Aff. Ex. 24 ¶ 10(j); Eakins Aff. Ex. 6 ¶ 10(j).
43 JJK Partners and LMazur Associates argue that the parties consented to the
jurisdiction of Delaware only for claims and controversies “arising out of or related
to” the July 1, 2013 amendments. Per the Defendants, CelestialRX’s derivative
claim is for breach of restrictive covenants that were not changed by the
amendments, and are therefore subject to arbitration and not to the jurisdiction of
Delaware. In the Defendants’ view, claims arising from “[t]he Agreement, amended
hereby”—that is, claims arising from the amendments—are subject to the
jurisdiction of Delaware. 261 The restrictive covenants at issue were unchanged by—
and in fact, are not referred to in—the amendments, and therefore a claim based on
those restrictive covenants arises from the original consulting agreements and not
the amendments. As a result, per the Defendants, a claim for breach of those
restrictive covenants is subject to the arbitration clause in the original consulting
agreements. I find the Defendants’ argument colorable in this regard.
As the Plaintiffs point out, judges normally decide questions of
arbitrability. 262 Indeed, Delaware law “follows the general rule that ‘courts should
decide questions of substantive arbitrability.’” 263 An exception exists, however,
261 Zahler Aff. Exs. 25, 26. 262 Pls.’ Br. in Opp’n to the Krivulka Defs.’ Mot. for Partial Summ. J. and Mot. to Dismiss, at 142 (“The question of arbitrability is one for a Judge to decide.”). 263 UPM-Kymmene Corp. v. Renmatix, Inc., 2017 WL 4461130, at *4 (Del. Ch. Oct. 6, 2017) (quoting James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006)).
44 where “the parties clearly and unmistakably provide otherwise.” 264 As here, clear
and unmistakable evidence is present when an arbitration clause “generally provides
for arbitration of all disputes and also incorporates a set of arbitration rules that
empower arbitrators to decide arbitrability.” 265 The arbitration clauses in the original
consulting agreements, quoted above, generally provide for arbitration of all disputes
and incorporate AAA rules.266 As a result, questions of substantive arbitrability here
should be decided by the arbitrator. Count IV, the claim for breach of restrictive
covenants, is therefore stayed pending the decision of the arbitrator as to
arbitrability.
B. Personal Jurisdiction Over Mazur and LMazur Associates
Defendants Mazur and LMazur Associates moved to dismiss the claims
brought against them under Rule 12(b)(2), lack of personal jurisdiction. In a Rule
12(b)(2) motion to dismiss, “the plaintiff bears the burden of showing a basis for the
court’s exercise of jurisdiction over the defendant.”267 This Court uses a two-step
analysis when considering the exercise of personal jurisdiction over a nonresident
defendant: first, the Court must determine if a statutory basis for personal
264 Willie Gary, 906 A.2d at 79 (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)). 265 Id. at 80 (internal citations omitted). 266 I need not consider the “additional step” in the Willie Gary analysis, as the arbitration clause in question contains no carve-outs or ambiguity as to the disputes covered. See UPM-Kymmene Corp., 2017 WL 4461130, at *4 (discussing McLaughlin v. McCann, 942 A.2d 616 (Del. Ch. 2008)). 267 Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007).
45 jurisdiction exists, and second, it must determine whether application of jurisdiction
over the nonresident would violate “traditional due process notions of fair play and
substantial justice.”268 Where, as here, there has been no evidentiary hearing, the
plaintiff need only make a prima facie showing.269 The Court “can consider
affidavits, briefs of the parties, and the available results of discovery. Still,
allegations regarding personal jurisdiction in a complaint are presumed true, unless
contradicted by affidavit, and, as with a motion to dismiss under Rule 12(b)(6), the
court must construe the record in the light most favorable to the plaintiff.” 270
The Plaintiffs argue that Mazur was a “manager” of Akrimax from January
11, 2008 to July 1, 2013, such that he is subject to the personal jurisdiction of this
Court under 6 Del. C. § 18-109(a)(i).271 The Plaintiffs further argue that after July
1, 2013, he participated materially in the management of Akrimax, such that he is
subject to the personal jurisdiction of this Court under 6 Del. C. § 18-109(a)(ii).272
The Plaintiffs argue that Mazur does business as LMazur Associates, and that
jurisdiction over Mazur should extend to LMazur Associates, an unincorporated
joint venture. 273 Additionally, the Plaintiffs contend that LMazur Associates
268 Id.; see also Hartsel v. Vanguard Grp., Inc., 2011 WL 2421003, at *6 (Del. Ch. June 15, 2011). 269 Hartsel, 2011 WL 2421003, at *7. 270 Id. 271 Pls.’ Br. in Opp’n to Defs. Olsen’s, Mazur’s, and LMazur’s Mots. to Dismiss and in Opp’n to the Mazur Defs.’ Mot. for Partial Summ. J., at 25. 272 Id. at 26. 273 Id. at 27.
46 consented to the jurisdiction of Delaware Courts in the July 1, 2013 amendment to
its consulting agreement with Akrimax. 274 Finally, the Plaintiffs propose that both
Mazur and LMazur Associates have waived the defense of lack of personal
jurisdiction because they have not shown continuous intent to object to such
jurisdiction. 275 I turn first to the issue of waiver, before addressing the personal
jurisdiction defenses of Mazur and LMazur Associates.
1. Waiver
The Plaintiffs argue that Defendants Mazur and LMazur Associates have
waived their right to raise a personal jurisdiction defense. According to Court of
Chancery Rule 12(h), a defense of lack of personal jurisdiction is waived if not made
in a timely Rule 12 motion or in the first responsive pleading. 276 “The purpose for
this rule is to expedite litigation and encourage disputes to be resolved on their
merits.”277 Accordingly, a defendant’s challenge to personal jurisdiction should be
brought at the time he makes his first defensive move. 278 A defendant may waive or
abandon its defense of personal jurisdiction when the defendant becomes an “active
274 Id. 275 Id. at 28. 276 See Ct. of Ch. R. § 12(h). 277 Tuckman v. Aerosonic Corp., 394 A.2d 226, 232 (Del. Ch. Sept. 11, 1978) (citations omitted). 278 Ross Hldg. & Mgmt. Co. v. Advance Realty Grp., LLC, 2010 WL 1838608, at *11 (Del. Ch. Apr. 28, 2010) (citing Hornberger Mgmt. Co. v. Haws & Tingle Gen. Contractors, Inc., 768 A.2d 983, 987–88 (Del. Super. 2000)).
47 actor” in the case. 279 In other words, the inquiry of waiver is “whether the defendant
has abandoned a solely defensive posture and become an actor in the cause.”280
However, “[t]he entry of a limited appearance by a defendant does not constitute a
waiver . . . .” 281 For example, seeking advancement before raising a defense of
personal jurisdiction in a timely motion to dismiss is not a waiver of the defense. 282
The original Complaint named Mazur as a defendant—but not LMazur
Associates—and was filed on November 20, 2015. Mazur first filed a Motion to
Dismiss, in part under Rule 12(b)(2), four days later, on November 24, 2015.283
Mazur subsequently participated in the proceedings on the Plaintiffs’ Motion for a
Temporary Restraining Order and the Plaintiff’s Application for Preliminary
Injunctive Relief. Mazur submitted himself to a deposition and responded to
preliminary discovery. The Plaintiffs contend that Mazur’s deposition and
participation in discovery constitute a waiver of his personal jurisdiction defense.
LMazur Associates was not added as a party until the Plaintiffs filed their Amended
Complaint on March 8, 2016. While the Plaintiffs do not directly assert as much,
they appear to suggest that LMazur Associates is effectively the same as Mazur and
279 Id.; see also Conn. Gen. Life Ins. Co. v. Pinkas, 2011 WL 5222796, at *3 (Del. Ch. Oct. 28, 2011). 280 Bigelow/Diversified Secondary P'ship Fund 1990 v. Damson/Birtcher Partners, 2001 WL 1641239, at *6 (Del. Ch. Dec. 4, 2001) (internal citations omitted). 281 Gans v. MDR Liquidating Corp., 1990 WL 2851, at *4 (Del. Ch. Jan. 10, 1990). 282 See Conn. Gen. Life Ins. Co., 2011 WL 5222796, at *3. 283 D.I. 18.
48 has therefore also waived its personal jurisdiction defense prior to being added as a
party. 284
Mazur and LMazur Associates have not waived their right to raise a personal
jurisdiction defense. Mazur asserted such a defense in his first Motion to Dismiss
the original complaint, only days after the Complaint was filed. This Court has
found that participation in preliminary discovery does not by itself constitute
waiver—or, here, abandonment—of a defense of personal jurisdiction.285 To find
otherwise in this case would controvert the purpose of the doctrine recognizing
waiver by active participants, and in fact would serve to slow litigation. LMazur
Associates was not added as party until the Amended Complaint was filed on March
8, 2016. The Plaintiffs do not argue that LMazur was involved in this litigation
previously. Mazur and LMazur Associates promptly asserted a personal jurisdiction
defense in their Motion to Dismiss the Amended Complaint on March 22, 2016.286
Nothing in the behavior of either Defendant comes close, in my mind, to a waiver of
the defense of lack of personal jurisdiction.
284 In its waiver section, the Plaintiffs’ Opposition Brief only mentions Mazur and does not mention LMazur, although the title to the section refers to “Mazur/LMazur.” See Pls.’ Br. in Opp’n to Defs. Olsen’s, Mazur’s, and LMazur’s Mots. to Dismiss and in Opp’n to the Mazur Defs.’ Mot. for Partial Summ. J., at 28. 285 See Ross Hldg. & Mgmt. Co. v. Advance Realty Grp., LLC, 2010 WL 1838608, at *11 (Del. Ch. Apr. 28, 2010) 286 D.I. 137.
49 2. Personal Jurisdiction over Defendant Mazur Under 6 Del. C. § 18- 109
Under 6 Del. C. § 18-109, Delaware Limited Liability Company Act’s implied
consent statute:
A manager . . . of a limited liability company may be served with process . . . in all civil actions or proceedings brought in the State of Delaware involving or relating to the business of the limited liability company . . . , whether or not a manager . . . is a manager . . . at the time suit is commenced. A manager’s . . . serving as such constitutes such person’s consent to the appointment of the registered agent of the limited liability company . . . as such person’s agent upon whom service of process may be made . . . . Such service as a manager . . . shall signify the consent of such manager . . . that any process when so served shall be of the same legal force and validity as if served upon such manager . . . within the State of Delaware and such appointment of the registered agent . . . shall be irrevocable.287
A “manager” refers “(i) to a person who is a manager as defined in § 18-
101(10) of this title and (ii) to a person, whether or not a member of a limited liability
company, who, although not a manager as defined in § 18-101(10) of this title,
participates materially in the management of the limited liability company . . . .”288
A “manager,” as defined by § 18-101(10), is “a person who is named as a manager
of a limited liability company in . . . a limited liability company agreement . . . .”289
Therefore, if Mazur was included in the definition of “manager” in Akrimax’s
operating agreement or if he participated materially in the management of Akrimax,
287 6 Del. C. § 18-109(a). 288 Id. § 18-109(a)(i), (ii). 289 Id. § 18-101(10).
50 then a statutory basis for jurisdiction over Mazur would exist, satisfying the first
prong of the two-step analysis.
In terms of the second prong of the analysis, this Court has previously dealt
with personal jurisdiction under 6 Del. C. § 18-109, and found that:
Due process would not be offended if Plaintiffs can show that (1) the allegations against the defendant-manager focus centrally on his rights, duties and obligations as a manager of a Delaware LLC; (2) the resolution of the matter is inextricably bound up in Delaware law; and (3) Delaware has a strong interest in providing a forum for the resolution of the dispute relating to the manager's ability to discharge his managerial functions. 290
I now apply this two-prong test to Mazur.
a. Mazur Was A “Manager” of Akrimax Before July 1, 2013, But Not After
According to Akrimax’s Second Amended Operating Agreement, Akrimax’s
“manager” was the “board of directors acting collectively.” Mazur was specifically
named as an initial member of the Board in the Second Operating Agreement and
served as a director until July 1, 2013. As a result, from January 11, 2008 to July 1,
2013, Mazur was a “manager,” as defined by 6 Del. C. § 18-101(10), and thereby
impliedly consented to Delaware jurisdiction under § 18-109(a)(i) for actions
“involving or relating to the business” of Akrimax. 291
290 Hartsel v. Vanguard Grp., Inc., 2011 WL 2421003, at *9 (Del. Ch. June 15, 2011). 291 Cf. Fla. R & D Fund Inv’rs, LLC v. Fla. BOCA/Deerfield R & D Inv’rs, LLC, 2013 WL 4734834, at *7 (Del. Ch. Aug. 30, 2013) (“Therefore, under Section 18–109(a)(i), the [LLC]’s manager is the Board of Directors. Because [the defendant] is not listed in the LLC Agreement as
51 Following Amendment No. 7 to the Second Amended Operating Agreement
on July 1, 2013, Mazur was removed from Akrimax’s Board of Directors. The
Plaintiffs allege that Mazur retained the title of Vice Chairman, spoke often with
Krivulka about Akrimax, and engaged Jeffries to advise regarding sale of Akrimax’s
assets in 2015. 292 Mazur challenges that this level of involvement rises to the
material participation in management required to exert jurisdiction in § 18-
109(a)(ii).
Mazur’s communication with Krivulka does not by itself rise to material
participation. For example, “[t]here is a difference between material participation in
managing a company and offering comments via email to one’s appointed Board
representatives.”293 However, performing actions within the exclusive purview of a
manager, such as making an application for dissolution, which by statute “must be
made by or for a member or manager,” can qualify as material participation.294 In
Phillips v. Hove, the defendant, by his own admission, took over day-to-day
operations of the LLC, “effectively ran the business [,] . . . [and] later filed a
a member of the [LLC]’s Board of Directors, [the defendant] may not be considered a manager of the [LLC] for the purposes of either Section 18–109(a)(i) or Section 18–101(10).”). 292 Pls.’ Br. in Opp’n to Defs. Olsen’s, Mazur’s, and LMazur’s Mots. to Dismiss and in Opp’n to the Mazur Defs.’ Mot. for Partial Summ. J., at 26. 293 Fisk Ventures, LLC v. Segal, 2008 WL 1961156, at *7 (Del. Ch. May 7, 2008). 294 In re Mobilactive Media, LLC, 2013 WL 297950, at *30 (Del. Ch. Jan. 25, 2013).
52 bankruptcy petition on [the LLC’s] behalf.” 295 The Court found that “through these
acts, [the defendant] participated materially in the management of [the LLC].” 296
Performing the tasks of a manager, however, does not equate with “material
participation” if that work is done “simply at the direction of and as a representative”
of another.297 Material participation in the management of an LLC requires “control
or [a] decision-making role.” 298 For example, the fact that a defendant negotiates
agreements on behalf of an LLC and arranges financing for the LLC is not sufficient
to show material participation, when the defendant’s power is subject to the control
of another.299 Here, Amendment No. 7, in explicit terms, put Krivulka solely at the
helm of Akrimax on July 1, 2013. As Mazur points out, the Plaintiffs themselves
make the same argument in briefing, where they write that Amendment No. 7
“install[ed] Krivulka as emperor, supreme leader, and dictator for life” and that
Krivulka “has absolute control and discretion without expressed limits.” 300 The
295 2011 WL 4404034, at *22 (Del. Ch. Sept. 22, 2011). 296 Id. 297 Vichi v. Koninklijke Philips Elecs. N.V., 2009 WL 4345724, at *7 (Del. Ch. Dec. 1, 2009) (finding assertions that an individual defendant helped form the LLC and issue notes on its behalf did not qualify as material participation because those actions were taken as an employee of a defendant entity, which was the sole member and manager of the LLC). 298 In Matter of Dissolution of Arctic Ease, LLC, 2016 WL 7174668, at *4 (Del. Ch. Dec. 9, 2016) (quoting Wakely Ltd. v. Ensotran, LLC, 2014 WL 1116968, at *5 (D. Del. Mar. 18, 2014)); see also Fla. R & D Fund Inv’rs, LLC v. Fla. BOCA/Deerfield R & D Inv’rs, LLC, 2013 WL 4734834, at *8 (Del. Ch. Aug. 30, 2013). 299 In Matter of Dissolution of Arctic Ease, LLC, 2016 WL 7174668, at *5. 300 Reply Br. in Support of the Mazur Defs.’ Mot. to Dismiss Pls.’ First Am. Verified Compl. and Mot. for Partial Summ. J., at 6 (quoting Pls.’ Br. in Opp’n to the Krivulka Defs.’ Mot. for Partial Summ. J. and Mot. to Dismiss, at 27, 123).
53 Plaintiffs’ allegations that Mazur retained his title as vice chairman and engaged a
banker on behalf of Akrimax are not sufficient to suggest that Mazur materially
participated in the management of Akrimax, when Krivulka alone had the authority
to manage Akrimax and the Plaintiffs allege that Krivulka asserted this authority.301
Nothing in those allegations suggests that Mazur acted outside of or usurped
Krivulka’s control. As a result, Mazur was not a “manager,” as defined by 6 Del. C.
§ 18-109(a)(ii), after July 1, 2013, and statutory implied consent is absent following
that date.
b. Due Process
Mazur agreed to act as a manager of Akrimax from January 11, 2008 to July
1, 2013, with at least constructive notice of Section 18-109(a). The Plaintiffs’ claims
against Mazur during that time period deal with his duties and obligations as a
director and manager of Akrimax. Accordingly, Mazur’s due process rights are not
offended by this Court’s assertion of jurisdiction over him; 302 Mazur does not argue
otherwise.
301 Here, I paraphrase Vice Chancellor Montgomery-Reeves in In Matter of Dissolution of Arctic Ease, LLC. 2016 WL 7174668, at *5 (“Even taking all reasonable inferences in the Heck Parties’ favor, these allegations are not sufficient to suggest that Cohen materially participated in management when Forden alone had the authority to manage Summetria.”). 302 The Plaintiffs’ claims against Mazur, at least in part, relate to the internal business of Akrimax, such as whether Mazur violated his fiduciary or contractual duties as a manager or otherwise breached the operating agreement.
54 3. Personal Jurisdiction over LMazur Associates
Defendant LMazur Associates also moved to dismiss all claims against it for
lack of personal jurisdiction under Rule 12(b)(2). The Plaintiffs, in response, argue
that personal jurisdiction exists over LMazur Associates as an extension of Mazur,
and through LMazur Associates’ consulting agreement with Akrimax. I have
discussed the applicable legal standard for Rule 12(b)(2) above, and I therefore
proceed directly to its application.
The Plaintiffs contend that personal jurisdiction exists over LMazur
Associates as a result of its consulting agreement with Akrimax. I have discussed
that agreement above and determined that the parties consented to jurisdiction in
Delaware for claims arising from the amendment. However, other claims, such as
breach of the non-compete covenants, are potentially subject to arbitration in New
York. The Plaintiffs’ claims against LMazur Associates, as they relate to the
consulting agreement, arise from breaches of the restrictive covenants; these claims
have been stayed pending a determination of arbitrability (and, indirectly, my
jurisdiction) by the arbitrator. Therefore, the question of whether LMazur
Associates consented to personal jurisdiction in Delaware through the consulting
agreement with Akrimax must likewise be stayed.
The Plaintiffs, however, seek to impose jurisdiction on an alternative ground.
Defendant LMazur Associates is an unincorporated joint venture, managed by
55 Mazur, who is a resident of New Jersey. 303 The Plaintiffs (citing, I note, no
authority) contend that if the Court has jurisdiction over Mazur, it has jurisdiction
over LMazur Associates. The Plaintiffs have not plead sufficient facts to
demonstrate that LMazur Associates is the alter ego of Mazur. Simply pleading that
an entity has an association with an individual (Mazur) who is subject to jurisdiction
is insufficient to show that the entity is also subject to jurisdiction. Therefore, I find
that this Court lacks personal jurisdiction over LMazur Associates on the grounds of
association with Mazur. As such, I need not reach LMazur Associate’s arguments
on service of process.
4. Process and Service of Process
Mazur also moved to dismiss the claims brought against him under Rule
12(b)(4), insufficiency of process, and Rule 12(b)(5), insufficiency of service of
process. These motions rest on the premise that Mazur was not a manager of
Akrimax; as I have found that the Plaintiffs adequately pled that he was a manager
until July 1, 2013, these motions are denied.
C. Personal Jurisdiction over Olsen and Related Service of Process
Defendant Olsen moved to dismiss the claims brought against him under Rule
12(b)(2), lack of personal jurisdiction, and Rule 12(b)(5), insufficiency of service of
303 I note that it is not clear who owns LMazur Associates, or where it is resident. At Oral Argument, LMazur’s own counsel could only say “I don't believe it was formed under any state’s law officially.” Tr. of Oral Argument at 62:1–2.
56 process. As with Defendant Mazur, the Plaintiffs allege that Olsen meets the
definition of “manager” in 6 Del. C. § 18-109, the implied consent statute of the
Delaware Limited Liability Company Act, and is therefore subject to this Court’s
personal jurisdiction. As with the Mazur Defendants, the Plaintiffs argue that, in
any case, a personal jurisdiction defense has been waived. I turn first to the issue of
waiver.
Olsen was added as a defendant in this action when the Plaintiffs filed their
Amended Complaint on March 8, 2016. Olsen filed a Motion to Dismiss on July 7,
2016, where he asserted a personal jurisdiction defense. Prior to being added as a
party on March 8, 2016, Olsen was deposed by the Plaintiffs in this action. The
Plaintiffs contend that Olsen has therefore “been an interested party for quite some
time,” and that by not opposing his deposition, Olsen has waived his right to assert
a personal jurisdiction defense.304 This contention is contrary to our case law,305 and
inimical to its rationale; accordingly, I reject the Plaintiffs’ argument that Olsen has
waived his personal jurisdiction defense.
304 Pls.’ Br. in Opp’n to Defs. Olsen’s, Mazur’s, and LMazur’s Mots. to Dismiss and in Opp’n to the Mazur Defs.’ Mot. for Partial Summ. J., at 23–24. 305 See, e.g., Ross Hldg. & Mgmt. Co. v. Advance Realty Grp., LLC, 2010 WL 1838608, at *11 (Del. Ch. Apr. 28, 2010) (finding that participating in motion practice to disqualify plaintiff’s counsel and engaging in discovery are not enough to constitute active involvement such that a personal jurisdiction defense is waived).
57 2. Personal Jurisdiction Over Olsen Under 6 Del. C. §18-109
Having found that Olsen did not waive his personal jurisdiction defense, I turn
to his Motion to Dismiss pursuant to Rule 12(b)(2). As I have covered the legal
standard for Rule 12(b)(2) and its interaction with 6 Del. C. § 18-109 above, I will
not repeat it and will instead proceed to apply the legal analysis to Olsen.
Olsen served as President and CEO of Akrimax from July 2011 until October
2015. 306 According to the Plaintiffs, Olsen was hired to manage Akrimax’s sales
and marketing, and as President and CEO of Akrimax, Olsen was further involved
in product acquisition and the development of an annual business plan, and he “had
the authority to write checks, approve wire transfers, execute promissory notes, and
bind Akrimax to contracts.”307 The Plaintiffs also claim that Olsen was responsible
for “repairing” Akrimax’s relationship with Pfizer. 308 As such, per the Plaintiffs,
Olsen had a role in day-to-day operations.309 Olsen contends that, even if true, all
the cited activity does not support “material participation in the management” of
Akrimax, such that Olsen would be a “manager” under 6 Del. C. § 18-109. In
addition, the Plaintiffs allege that in 2013 Olsen was involved first in denying
306 Am. Compl. ¶ 9; Opening Br. in Support of Def. Olsen’s Mot. to Dismiss the First Am. Verified Compl., at 2. 307 Pls.’ Br. in Opp’n to Defs. Olsen’s, Mazur’s, and LMazur’s Mots. to Dismiss and in Opp’n to the Mazur Defs.’ Mot. for Partial Summ. J., at 19. 308 Id. As previously described, Akrimax’s Second Amended LLC Agreement specifically stated that officers of Akrimax are not managers. 309 Id. at 21.
58 Laumas any financial information and then providing Laumas with misleading
information,310 and that Olsen later executed the agreements between Cranford
Pharmaceutical, Holmdel Pharmaceuticals, and Akrimax. 311 Nonetheless (setting
aside the waiver theory) the Plaintiffs assert no grounds for this Court’s jurisdiction
over Olsen, except for Section 18-109, accordingly, I limit my analysis to that
statute.
The Plaintiffs’ argument that Olsen materially participated in managing
Akrimax suffers from the same fatal flaw as the Plaintiffs’ argument that Mazur
materially participated in managing Akrimax after July 1, 2013. In short, the
Plaintiffs fail to allege that Olsen had control of, or had a decision making role, in
Akrimax. Viewing the record in the light most favorable to the Plaintiff, as I must,
I assume Olsen helped to run day-to-day operations, including managing the sales
force, responding to information requests from directors, and executing agreements
that Akrimax had entered into with other entities. Olsen was an employee.
However, the Plaintiffs do not allege that Olsen performed his duties as President
and CEO independently of the manager of Akrimax; 312 instead, the facts pled
310 Id. at 6. 311 Id. at 7–8. The Amended Complaint barely mentions Olsen’s role at Akrimax, aside from providing misleading financial information to Laumas. However, the Plaintiffs have supplemented this account with information from preliminary discovery and affidavits. 312 Akrimax’s manager was the entire board before July 1, 2013, and solely Krivulka after that date.
59 indicate that Olsen performed his duties subject to the control of the “emperor,”
Akrimax’s manager, Krivulka.
As previously mentioned in relation to Mazur’s Motion to Dismiss under Rule
12(b)(2), the Plaintiffs have repeatedly emphasized the complete control of Krivulka
over Akrimax. The Plaintiffs allege that Olsen implemented the terms of agreements
that Krivulka caused Akrimax to enter into, such as Akrimax’s agreements with
Cranford Pharmaceuticals and Holmdel Pharmaceuticals. The fact that Olsen, the
president and CEO of Akrimax, implemented agreements that Akrimax had entered
into is not remarkable, nor is it a sign of control over those agreements. The
Plaintiffs also allege that Olsen at first refused to provide any financial information
to Laumas and then gave him information that the Plaintiffs contend was misleading.
However, the Plaintiffs themselves acknowledge that Olsen asked Krivulka how
Krivulka wanted Olsen to respond to Laumas’s requests,313 and then acted
accordingly.
Olsen was certainly an officer of Akrimax, and as an officer his
responsibilities were broad and included day-to-day operations. Such participation
can be material; for example, in Phillips v. Hove, this Court found that a defendant
who took over all day-to-day operations and effectively ran the LLC at issue,
313 Pls.’ Br. in Opp’n to Defs. Olsen’s, Mazur’s, and LMazur’s Mots. to Dismiss and in Opp’n to the Mazur Defs.’ Mot. for Partial Summ. J., at 5-6.
60 including filing legal petitions on its behalf, had materially participated in the LLC’s
management. 314 Contrary to Phillips, however, here the Plaintiffs have specifically
pled the complete control of Akrimax by Krivulka. In Phillips, by contrast, there
was no manager in place when the defendant took and exercised control, and
effectively became the manager.315 The Plaintiffs have failed to plead facts that, if
true, show that Olsen had the requisite control or a decision making role required to
show material participation, or that Olsen ever attempted to take any action outside
of the control of the manager. As a result, Olsen is not a manager as defined in 6
Del. C. § 18-109. The Plaintiffs have cited no other basis for exercising personal
jurisdiction over Olsen. Olsen’s Motion to Dismiss pursuant to Rule 12(b)(2) is
granted.316
D. The Remaining Rule 12(b)(6) Motions
As described above, LMazur Associates and Olsen are dismissed from this
action for lack of personal jurisdiction. I have also stayed the claim for breach of
restrictive covenants pending the decision of the arbitrator. The remaining parties
also seek dismissal of all claims brought against them under Rule 12(b)(6). I issued
Celestial I on January 31, 2017, in which I interpreted Akrimax’s LLC operating
agreement as of July 1, 2013; I note that the language eliminating fiduciary duties as
314 2011 WL 4404034 (Del. Ch. Sept. 22, 2011). 315 Id. at *22. 316 Accordingly, I need not reach Olsen’s argument on insufficiency of service of process.
61 of July 1, 2013 appears materially unchanged from the Second Amended LLC
Agreement the parties entered into on January 11, 2008. The parties subsequently
entered into mediation; after mediation failed, in a January 31, 2018 scheduling
conference I asked the parties to submit letters detailing what Motions to Dismiss
remained pending and how Celestial I bears on the Motions to Dismiss. The
responses I received lacked the specificity to be useful to me. Following these
efforts, Krivulka passed away, and the parties tried, but again failed, to resolve this
action outside of litigation. The remaining parties shall, again in light of Celestial I
and in light of this Memorandum Opinion, inform me what remains of the Motions
to Dismiss, specifically as to counts and parties.317
317 For instance, and as just noted, I found in Celestial I that, at least as of July 1, 2013, Akrimax’s LLC operating agreement “generally eliminates common-law fiduciary duties except that it retains liability for intentional or illegal misconduct and other bad faith actions, as well as for improper self-dealing. Those duties are contractual in nature . . . .” CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *16 (Del. Ch. Jan. 31, 2017). The Plaintiffs allege in the Amended Complaint that Cranford Pharmaceuticals and Holmdel Pharmaceuticals aided and abetted a breach of fiduciary duty. Am. Compl. ¶ 193. The Amended Complaint also contained a claim for bad faith breach of fiduciary duty brought “against Krivulka and All Defendants;” however, the Plaintiffs now contend that they “do not assert a direct breach of fiduciary claim against Cranford Pharmaceuticals, LLC and Holmdel Pharmaceuticals, LP . . . .” See Am. Compl., at 54 (emphasis added); Pls.’ Br. in Opp’n to Cranford and Holmdel’s Mots. to Dismiss, at 11. Akrimax’s operating agreement, at least as of July 1, 2013, eliminated common law fiduciary duties and left only contractual fiduciary duties. And “Delaware law . . . ‘does not recognize a claim for aiding and abetting a breach of contract.’” Wenske v. Blue Bell Creameries, Inc., 2018 WL 3337531, at *17 (Del. Ch. July 6, 2018) (quoting Gerber v. EPE Holdings, LLC, 2013 WL 209658, at *11 (Del. Ch. Jan. 18, 2013)). In Wenske, for example, this Court, in the LPA context, found that the plaintiff failed to state a claim for aiding and abetting a breach of “contractual fiduciary duties” because the claim advanced “is, in substance, a claim for aiding and abetting a breach of contract,” which is not recognized by Delaware law. 2013 WL 209658, at *2, 17. It would be helpful to know if, and on what grounds, the Plaintiffs maintain that the aiding and abetting claims survive. Ditto, with respect to the other equitable claims asserted against entities other than Krivulka or his estate.
62 III. CONCLUSION
The Plaintiffs’ claims for breach of restrictive covenants are stayed pending
the arbitrator’s decision on arbitrability. Furthermore, this Court lacks personal
jurisdiction over LMazur Associates (pending the arbitrator’s decision) and Olsen.
I reserve judgment on the balance of the Motions to Dismiss, as explained above.
Related
Cite This Page — Counsel Stack
CelestialRX Investments, LLC v. Joseph J. Krivulka, Counsel Stack Legal Research, https://law.counselstack.com/opinion/celestialrx-investments-llc-v-joseph-j-krivulka-delch-2019.