Isaac Soleimani v. Andre Hakkak

• Court: Court of Chancery of Delaware
• Decided: May 15, 2024
• Docket: C.A. No. 2023-0948-LWW
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE LORI W. WILL LEONARD L. WILLIAMS JUSTICE CENTER VICE CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

May 15, 2024

Brian C. Ralston, Esquire Blake Rohrbacher, Esquire T. Brad Davey, Esquire Mari Boyle, Esquire Charles P. Wood, Esquire Morgan R. Harrison, Esquire Potter Anderson & Corroon LLP Richards, Layton & Finger, P.A. 1313 North Market Street One Rodney Square Wilmington, Delaware 19801 920 North King Street Wilmington, Delaware 19801

RE: Soleimani et al. v. Hakkak et al., C.A. No. 2023-0948-LWW Dear Counsel,

I write regarding the defendants’ Motion to Maintain the Status Quo Order

Pending Appeal or, in the Alternative, for a Stay of Any Judgment Pending Appeal

(the “Motion”). For the reasons described below, the Motion is granted in part and

denied in part.

I. BACKGROUND

The background of this 6 Del. C. §§ 17-110 and 18-110 action is described in

my April 12, 2024 memorandum opinion (the “Summary Judgment Opinion”), in

which I granted plaintiff Isaac Soleimani’s motion for summary judgment and C.A. No. 2023-0948-LWW May 15, 2024 Page 2 of 9

denied the defendants’ cross-motion for summary judgment.1 I held that Soleimani

remains the Manager of the White Oak LLCs because defendants’ attempt to

terminate him was ineffective under the operative LLC Agreements.2

On April 15, the defendants filed the present Motion.3 They ask that I

maintain the status quo order entered on December 4, 2023 pending their to-be-filed

expedited appeal.4 In doing so, they request that defendant Halle Benett be permitted

to remain the status quo manager of the White Oak LLCs. In the alternative, they

ask that I stay the effect of any judgment pending an appeal.

Soleimani opposes the motion on two main grounds.5 He asserts that

maintaining the Status Quo Order and Benett’s role as Manager would re-remove

1 Mem. Op. Regarding Cross-Mots. for Summ. J. (Dkt. 70) (“Summ. J. Op.”). Capitalized terms used in this letter opinion that are not otherwise defined have the meanings given in the Summary Judgment Opinion. 2 Id. at 25. 3 Defs.’ Mot. to Maintain the Status Quo Order Pending Appeal or in the Alternative for a Stay of any J. Pending Appeal (Dkt. 71) (“Defs.’ Mot.”); see also Defs.’ Reply in Further Supp. of Defs.’ Mot. to Maintain the Status Quo Order Pending Appeal or in the Alternative for a Stay of any J. Pending Appeal (Dkt. 75). 4 See Am. Status Quo Order (Dkt. 50) (“Status Quo Order”). 5 Pl.’s Opp’n to Defs.’ Mot. to Maintain the Status Quo Order Pending Appeal or in the Alternative for a Stay of any J. Pending Appeal (Dkt. 73) (“Pl.’s Opp’n”). C.A. No. 2023-0948-LWW May 15, 2024 Page 3 of 9

him in contravention of the Summary Judgment Opinion. He further asserts that a

stay pending appeal is unwarranted.6

II. ANALYSIS

I first consider whether a stay pending the resolution of an appeal is

appropriate. Because I decline to grant a stay, I go on to assess whether the Status

Quo Order should be maintained. I conclude that a revised form of the order will

remain in place until any appeal is resolved.

A. Stay Pending Appeal

Delaware Supreme Court Rule 32(a) provides that “a motion for stay must be

filed in the trial court in the first instance.”7 When considering a request for a stay

pending appeal, this court considers the four Kirpat factors: (1) “a preliminary

assessment of likelihood of success on the merits of the appeal”; (2) “whether the

petitioner will suffer irreparable injury if the stay is not granted”; (3) “whether any

6 The parties’ submissions are also rife with accusations and rhetoric. I have attempted to cut through them to resolve the limited issues before me. None bear on my assessment of the Motion. 7 Supr. Ct. R. 32(a); see Ct. Ch. R. 62(d) (“Stays pending appeal and stay and cost bonds shall be governed by article IV, § 24 of the Constitution of the State of Delaware and by the Rules of the Supreme Court.”). C.A. No. 2023-0948-LWW May 15, 2024 Page 4 of 9

other interested party will suffer substantial harm if the stay is granted”; and (4)

“whether the public interest will be harmed if the stay is granted.”8

Because the first Kirpat factor “directs the trial court to assess the strength of

its own reasoning and judgment, ‘the “likelihood of success on appeal” prong cannot

be interpreted literally or in a vacuum.’”9 Thus, the court typically considers the

other three factors before “assessing whether the movant has presented a question

that raises a fair ground for review by our Supreme Court.”10 “A motion for a stay

pending appeal is addressed to the discretion of the trial court.”11

Regarding the second factor, the defendants argue that a stay will prevent

irreparable harm to the White Oak Entities because Soleimani will only be Manager

until the value of his revenue-sharing interests is calculated and paid.12 Without a

stay, they insist that the White Oak Entities will face instability caused by switching

Managers. I do not take lightly the challenges faced by the White Oak Entities in

8 See Kirpat, Inc. v. Delaware Alcoholic Beverage Control Comm’n, 741 A.2d 356, 357 (Del. 1998). 9 Zhou v. Deng, 2022 WL 1617218, at *2 (Del. Ch. May 23, 2022) (citing Kirpat, 741 A.2d at 358). 10 Rosenbaum v. CytoDyn Inc., 2021 WL 4890876, at *1 (Del. Ch. Oct. 20, 2021). Wynnefield P’rs Small Cap Value L.P. v. Niagara Corp., 2006 WL 2521434, at *1 (Del. 11

Ch. Aug. 9, 2006). 12 Defs.’ Mot. ¶ 12. The defendants also argue that Soleimani engaged in misconduct. Such issues were not considered on summary judgment, and I lack the factual record needed to assess whether the purported misconduct occurred. C.A. No. 2023-0948-LWW May 15, 2024 Page 5 of 9

navigating a seesaw of Managers.13 But staying a judgment pending appeal would

require me to set aside the unambiguous terms of the White Oak LLC Agreements

and deprive Soleimani of his contractual rights. Further, the loss of control “alone

cannot constitute irreparable harm for purposes of Kirpat, as the party seeking a stay

‘must point to some injury other than compliance with [th]e Court’s Order’ to carry

its burden.”14 This factor weighs against a stay.15

Regarding the third factor, the defendants argue that Soleimani would be

unharmed by the granting of a stay.16 I disagree. The Summary Judgment Opinion

held that Soleimani was entitled to remain Manager of the White Oak LLCs under

the terms of the LLC Agreements. A stay would substantially harm him by further

depriving him of his bargained-for rights.17

13 Summ. J. Op. 24 n.98 (noting that I do not “relish” the outcome of the Summary Judgment Opinion because it “may create some level of instability for the nominal defendants”). 14 Zhou, 2022 WL 1617218, at *2 (quoting Lynch v. Gonzalez, 2020 WL 5648567, at *4 (Del. Ch. Sept. 22, 2020)); see also Frankino v. Gleason, 1999 WL 1063071, at *1 (Del. Ch. Nov. 12, 1999). According to a recent letter from Soleimani’s counsel, Benett has not served as Manager since April 12. Dkt. 78. 15 There is the risk of irreparable harm to the nominal parties if Soleimani were found not to be the proper Manager after taking actions outside the ordinary course. Any such harm is minimized by the relief discussed below with regard to the Status Quo Order. See infra at 9. 16 Defs.’ Mot. ¶¶ 20-22. 17 See e.g., Zhou, 2022 WL 1617218, at *3 (rejecting defendants’ assertion that a stay would not cause harm to others because “[a]ny further delay,” even if “relatively brief,” “is unnecessary and deprives Plaintiff of the legal effect of the Consent [appointing him as a C.A. No. 2023-0948-LWW May 15, 2024 Page 6 of 9

As to the to the public interest under the fourth factor, the defendants say that

a stay is needed to “safeguard the interests of investors.”18 I have no reason to

believe that Soleimani serving as Manager will somehow harm investors. In any

event, the Court of Chancery has recognized that the protection of investors in

private companies through the resolution of a control dispute implicates private—

not public—interests.19 In cases like this Section 18-110 action, public policy

generally favors the prompt entry of judgment.20 At best for the defendants, this

factor is neutral.21

Finally, the first factor cuts against a stay. “When considering the appeal’s

likelihood of success on the merits, this Court ‘is called upon not to second guess its

decision, but to assess, as objectively as possible, whether the case presents a fair

director] that the Court has now adjudicated to have been valid from the time of its delivery”); Frankino, 1999 WL 1063071, at *2 (finding that defendants’ assertion that plaintiff would not be irreparably harmed by a stay “faile[d] to consider that this Court has ruled that [plaintiff] and his designees were rightfully elected to [the] board of directors several months ago and that there is no way to adequately compensate them for the further delay of their rights”). 18 Defs.’ Mot. ¶ 6. 19 See Rosenbaum, 2021 WL 4890876, at *3 (“Who controls the board of directors, although ‘critically important to the litigants’ and other stakeholders, implicates the ‘private interests of particular corporate constituencies,’ not the public interest.”) (citation omitted). 20 Frankino, 1999 WL 1063071, at *2. 21 Zhou, 2022 WL 1617218, at *3. C.A. No. 2023-0948-LWW May 15, 2024 Page 7 of 9

ground for litigation and more deliberative investigation.’”22 This typically involves

addressing whether the matter implicates a “novel issue”23 or unsettled areas24 of

Delaware law. The Summary Judgment Opinion did neither. It applied settled

principles of contract interpretation to unambiguous provisions of the LLC

Agreements.25

An order of judgment in Soleimani’s favor is entered simultaneously with this

letter decision.26 The defendants may pursue an appeal of that order. Any further

request to stay the order’s effects, however, is denied.

B. Status Quo Order Pending Appeal

Next, the defendants ask that I maintain the Status Quo Order through the

conclusion of their anticipated appeal. To obtain a status quo order, a movant must

demonstrate that: (1) “the order will avoid imminent irreparable harm”; (2) the

movant has “a reasonable likelihood of success on the merits” of his claim; and

22 Wynnefield P’rs, 2006 WL 2521434, at *1 (citation omitted). 23 Id. 24 Zhou, 2022 WL 1617218, at *4. 25 See Pl.’s Opp. ¶ 15. 26 Yesterday, Soleimani filed a letter maintaining that the Motion is moot because the defendants failed to timely take an appeal. Dkt. 78. But my Summary Judgment Opinion was not a final order. In fact, no stipulated final order implementing my ruling was submitted by the parties (though I did not affirmatively request one). To prevent any further delay and ensure the effectiveness of the Summary Judgment Opinion, I have prepared and filed an appropriate order. C.A. No. 2023-0948-LWW May 15, 2024 Page 8 of 9

(3) the harm to the movant absent an order outweighs any harm from granting the

order.27

The Status Quo Order treats Benett as Manager and implements certain

ordinary course restrictions. By its terms, it remains in effect only through the

resolution of this trial court action. The Court of Chancery has entertained requests

to extend aspects of similar status quo orders pending the resolution of an appeal of

a control dispute.28 That is because of the persistent risk of irreparable harm from

unauthorized actions that are not easily unwound.29

Benett should not continue to serve as the status quo Manager since (as

discussed above) the Summary Judgment Opinion held that Soleimani is legally

entitled to that role. Yet I am not blind to the reality that Soleimani may not be in it

for the long haul. And the defendants may, of course, prevail on their appeal.

27 Raptor Sys., Inc. v. Shepard, 1994 WL 512526, at *2 (Del. Ch. Sept. 12, 1994). 28 See Klaassen v. Allegro Dev. Corp., 2013 WL 5967028, at *3 (Del. Ch. Nov. 7, 2013); see also Palisades Growth v. Bäcker, C.A. No. 2019-0931-JRS, at 54 (Del. Ch. May 8, 2020) (TRANSCRIPT) (“It’s not uncommon in Section 225 cases for the trial court to extend, at least to some degree, the status quo order that was entered at the outset of the case.”). 29 Klaassen, 2013 WL 5967028, at *3 (“The same risk of unauthorized Board action that undergirded the entry of the Status Quo Order supports finding a threat of irreparable harm . . . . If the unauthorized actions could not be unwound or remedied, then irreparable injury would result.”). C.A. No. 2023-0948-LWW May 15, 2024 Page 9 of 9

Weighing these interests, I conclude that a modified form of the Status Quo

Order should be maintained. The prior Status Quo Order is revised to provide that

Soleimani is the Manager of the White Oak LLCs pending further order of the

court.30 The ordinary course limitations in the Status Quo Order otherwise remain

in effect.

III. CONCLUSION

The Motion is granted in part and denied in part. The request to maintain the

Status Quo Order is granted with the modification that Soleimani is the current

Manager of the White Oak LLCs. The defendants’ request for a stay pending appeal

is denied. IT IS SO ORDERED.

Sincerely yours,

/s/ Lori W. Will

Lori W. Will Vice Chancellor

30 In other words, paragraph 2 of the Status Quo Order is revised to replace Benett’s name with Soleimani’s. See Status Quo Order ¶ 2. If there are other particular provisions that either party feels need modification, they are encouraged to submit a motion to modify the revised Status Quo Order. See id. ¶ 7.