IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
KELLY BARBEY and THE BERMUDA ) HESED FOUNDATION, a Bermuda Trust, ) ) Plaintiffs, ) ) v. ) C.A. No. 2022-0107-PAF ) CEREGO, INC., a Delaware corporation, ) ) Defendant, ) ) v. ) ) KENNETH YOUNG, ) ) Intervenor. )
MEMORANDUM OPINION
Date Submitted: June 14, 2023 Date Decided: September 29, 2023
Neil R. Lapinski, Phillip A. Giordano, Madeline R. Silverman, GORDON, FOURNARIS & MAMMARELLA, P.A., Wilmington, Delaware; Attorneys for Plaintiffs Kelly Barbey and The Bermuda Hesed Foundation.
Kenneth H. Young, Intervenor, pro se.
FIORAVANTI, Vice Chancellor Kellogg “Kelly” Barbey and The Bermuda Hesed Foundation (“BHF”)
(together, “Plaintiffs”) brought this 8 Del. C. § 225 action to determine the proper
constitution of the board of directors of Cerego, Inc. (“Cerego” or the “Company”),
a Delaware corporation.1 This action is one of two suits in this court effectively
seeking to nullify a corporate inversion, whereby Cerego became a subsidiary of its
wholly owned subsidiary, Cerego Japan, Inc. (“CJ”), a Japanese entity.2
The “Inversion” was effected through a tender offer to the Cerego
stockholders, whereby CJ offered to swap shares of CJ in exchange for the
outstanding shares of Cerego (the “Tender Offer”). The Inversion purportedly gave
CJ a supermajority of Cerego’s outstanding shares, with which CJ removed the
existing directors, including Barbey, and replacing them with Michiko Ando.
Plaintiffs challenge Barbey’s removal, contending that the inversion was
invalid. Specifically, Plaintiffs argue that Cerego purported to authorize CJ,
Cerego’s then wholly owned subsidiary, to commence the tender offer at a
1 Citations to the docket in this action will be in the form “Dkt. #.” Citations to trial exhibits will be in the form “JX #.” Citations to the trial transcript will be in the form “Tr. # (X),” with X representing the speaker. After being identified initially, individuals are referenced herein by their surnames without regard to formal titles such as “Dr.” No disrespect is intended. 2 “An ‘inversion transaction’ is an arrangement that wholly or partly inverts or reverses the positions of related corporations. In an inversion transaction, stock of a corporation (“P” [here, Cerego]) typically is transferred by one or more P shareholders to a wholly or partly owned subsidiary of P (“S” [here, CJ]) in exchange for newly issued S shares.” 2 Martin D. Ginsburg & Jack S. Levin, Mergers, Acquisitions, and Buyouts, ¶ 908 (2011). September 17, 2021 special meeting of the Cerego board (the “Meeting”), to which
Barbey was not provided adequate notice as required under the Cerego bylaws (the
“Bylaws”). Because Barbey was not provided adequate notice of that meeting,
Plaintiffs claim that all actions taken at the Meeting were void. Therefore, according
to the Plaintiffs, CJ’s purported removal of the Cerego board was invalid, because it
never became Cerego’s majority stockholder.
The intervenor in this action is Kenneth Young (“Intervenor”), one of the
other directors purportedly removed by CJ after the inversion. Young is defending
the validity of his and Barbey’s removal as directors.
Intervenor contends that the Meeting was a regular meeting for which notice
was not required, or alternatively, that notice did occur. Intervenor also argues that
Cerego’s authorization was not required for CJ to launch the Tender Offer, and that
Plaintiffs have not carried their burden of proof with respect to the legal results of
the conduct Plaintiffs allege.
As a factual matter, the court finds that the Meeting was a special meeting,
and that Barbey was not provided with notice of the Meeting as required under
Cerego’s Bylaws. Accordingly, the court finds that, for the purposes of determining
the proper constitution of the Cerego board (the “Board”) in this Section 225 action,
the Meeting and all actions taken at it are void. Despite that finding, however, the
court concludes that the Plaintiffs have not satisfied their burden to invalidate
2 Barbey’s removal as a director because they have not demonstrated that Cerego
board action was required to authorize CJ’s tender offer that resulted in its becoming
Cerego’s majority stockholder. Therefore, the court finds that CJ’s removal of the
board is effective, and that Ando is Cerego’s sole director.
I. BACKGROUND
What follows is the court’s findings of fact following trial.
The Parties
Plaintiff BHF, a Bermuda trust, is a charitable foundation which allocates its
funds according to various “statutes of the foundation.”3 BHF became a stockholder
of Cerego in June of 2016. 4
Plaintiff Barbey is a member of BHF’s advisory council and is an investment
advisor to BHF.5 Barbey joined the Board on or around May 30, 2019.6
Defendant Cerego is a Delaware corporation that develops education
software.7
3 Tr. 5:4–7 (Barbey). 4 Id. at 4:21–24 (Barbey). 5 Id. at 5:3–7 (Barbey). 6 Id. at 5:12 (Barbey). 7 JX 2; JX 21 at I0000335.
3 Non-party CJ is a Japanese Kabushiki Kaisha headquartered in Shibuya–ku,
Tokyo, Japan. 8 Prior to the Inversion, CJ was a wholly owned subsidiary of Cerego.
Intervenor Kenneth Young was a member of the Board at all relevant times.
Although initially represented by counsel, Intervenor has proceeded pro se since
September 26, 2022. 9
Non-party Eric Young was a member of the Board and the Company’s CEO
until his purported removal in December 2021. He is also the Representative
Director, the equivalent of the CEO, of CJ. 10 He is also the brother of Intervenor
Kenneth Young.11
Ando is the purported sole director and CEO of Cerego.12
Factual Background Since at least late 2019 until early September 2021, the Board consisted of
Barbey, Eric Young, Intervenor, Andrew Smith Lewis, Joseph Keating, George
Mimura, Emmanuel Kampouris, and Paul Mumma. 13 Until sometime in or around
June 2020, Cerego held roughly quarterly Board meetings, and Barbey made a
8 Though indicated in English as “Cerego Japan, Inc.,” CJ’s true name is Cerego Japan Kabushiki Kaisha. Dkt. 1 at Ex. G. 9 Dkt. 34. 10 JX 21 at I0000337. 11 Tr. 6:18–7:2 (Barbey). 12 JX 24. 13 JX 3 at I0000878.
4 regular practice of attending them.14 “Intense” “informal discussions” occurred
more frequently than regular meetings, and often covered and disposed of Board-
level decisions. 15 Formal meetings and some informal discussions were noticed via
email by the CEO and took place over Zoom. 16
Sometime in or around June 2020, Barbey raised “red flags from [his]
experience on the board” and, immediately afterwards, formal meetings faded
away. 17 Communications that surfaced over the course of this litigation indicate
intentional exclusion of Barbey from key decisions about Cerego. 18
The first time the Board appears to have discussed the Inversion was at a July
1, 2021 huddle.19 Emails between some of the Board members in August and
14 Tr. 5:13–15, 6:2–5 (Barbey). The record includes minutes from regular Board meetings on November 6, 2019, November 20, 2019, and May 11, 2020. JX 3; JX 28. 15 Tr. 5:16–21 (Barbey). The record reflects “huddles” through email and on Zoom on January 29, 2021, March 19, 2021, April 23, 2021, May 6, 2021, and July 1, 2021, and further indicates that Board-level decisions were being discussed over email throughout 2021. JX 4; JX 5; JX 6; JX 7; JX 9; JX 9; JX 10. 16 Tr. 5:22–7:7 (Barbey). 17 Id. at 7:8–17 (Barbey). 18 JX 9 at I0000849 (listing huddle agenda point: “Discuss when and how to inform KB, as it’s likely coming soon, and probably will be forced when we go through the bridge loan procedure” in a June 29, 2021 email); JX 10 at I0000319 (stating, in an August 15, 2021 email, “I’d like to have your thoughts, especially in light of KB likely making a fuss.”); Tr. 89:17–18 (Kenneth Young) (Q: “Who is KB?” A: “I think that would be Mr. Barbey.”). None of the huddle-related emails in late 2020 or throughout 2021 were directed to Barbey. See JX 4; JX 5; JX 6; JX 7; JX 9; JX 9; JX 10. 19 JX 9 (listing the Inversion as a discussion point for this huddle). Intervenor testified at trial that he could not recall if that was the first time the Board ever discussed the Inversion. Tr. 89:13–14 (Kenneth Young).
5 September of 2021 discussed the Inversion and a related true-up process whereby
some of the Board members would receive 6.25% of CJ. 20 Excel spreadsheets
attached to their emails outlined the terms, reasoning, and steps for both processes.21
Throughout the iterations of the spreadsheet, “Step #2” consistently identified the
need to bring the transactions to a “Full Board Meeting.”22 The last such spreadsheet
produced in this litigation omitted its predecessors’ explicit note that such a meeting
needed to include Barbey. 23
On September 15, 2021, Lewis resigned from the Board. 24
On September 16, 2021, at 8:24 PM, Eric Young circulated an invitation for
a September 17, 2021 Board meeting, which together with the accompanying Zoom
invitation at 8:50 PM, the parties have so hotly disputed in this case (collectively the
“Emails”). 25 The invitation states in whole:
Dear Board members, I would like to call our inaugural Board of Directors meeting for Cerego, Inc for Year 2021. Time is from this
20 JX 10. 21 Id. 22 Id. at I0000320:003, I0000871:003, I0000899:003, I0000919:003. 23 Compare id. at I0000320:003, I0000871:003, I0000899:003 (noting that the transactions would need to be approved at a meeting of the “Full Board (including KB/PM/ASL [Barbey, Mumma, and Lewis, the three directors excluded from the email discussion of the transactions])”); Tr. 97:11–14 (Kenneth Young) (Q: “Now, PM, is that Paul Mumma?” A: “Yes.” Q: “And ASL is Andrew Smith Lewis?” A: “Correct.”) with JX 10 at I0000919:003 (not noting specific Board members who needed to be present). 24 JX 19 at I0000002. 25 JX 13; JX 14.
6 Friday at 9pm, NYC time, Sept 17. The agenda items are: 1) ratification of the Compensation Committee’s recent analyses and decisions. 2) Authorization of Cerego Japan to take all necessary steps and undertakings to raise capital from internal and external sources towards pursuing the economic interests of Cerego Japan and Cerego, Inc. I look forward to our discussion. I will send meeting coordinates separately.26
Eric Young blind copied the recipients of the Emails. None of the versions of
the Emails produced in this litigation revealed the recipients. 27 Intervenor did,
however, produce screenshots from Eric Young’s mobile device that purport to be
digital images of the Emails (the “Screenshots”). 28 The Screenshots indicate that
Eric Young sent the Emails to the entire Board, including Barbey. 29 Intervenor did
not produce the Emails in native format. 30 At trial, Intervenor stated that Eric
Young, the Emails’ custodian, did not produce the Emails in native format because
“the Cerego Japan board of directors believed that he was conflicted in this case.”31
26 JX 13. 27 JX 11; JX 13; JX 14. 28 JX 12; JX 15. 29 Id. The Screenshots indicate that all recipients were bcc-ed. 30 Tr. 118:13–121:1 (Kenneth Young). 31 Id. at 119:19–20 (Kenneth Young).
7 Intervenor did not articulate a reason Eric Young could produce a screenshot but not
a native file. The Screenshots do not contain the Emails’ metadata. 32
Keating resigned from the Board several hours before the Meeting.33
On September 17, 2021, the Board held the Meeting.34 Eric Young,
Intervenor, Mimura, and Kampouris attended the Meeting; Barbey was not present.35
The Meeting began at 9:00 PM. 36 Eric Young requested “[a]uthorization to enable
Cerego Japan to take all necessary steps to raise capital from internal and external
sources towards pursuing the economic interests of Cerego Japan and Cerego Inc.”37
The Board members in attendance unanimously approved this item, and empowered
Cerego’s executives to take actions to affect the intended results. 38 The minutes
32 A file’s metadata provides information about the file itself. Individual pieces of metadata can be helpful by demonstrating who created a file, the last person to edit it, and when edits occurred, among other things. Altogether, metadata can be used to confirm the authenticity of a file. Screenshots of an email, however, do not preserve the email’s metadata. 33 JX 19. 34 JX 17 at I0000221. 35 Id. While it is uncontested that Mumma was not a member of the Board by this time, the record does not demonstrate precisely when Mumma resigned from the Board. The last reference to his Board membership in the record is a line in a spreadsheet attached to a September 1, 2021 email noting that Mumma would need to be included in a full Board meeting to vote on the Inversion. JX 10 at I0000893:003. Intervenor did not produce Mumma’s resignation in discovery but testified that Mumma resigned in September of 2021. See Tr. 74:6–76:23 (Kenneth Young). 36 JX 17 at I0000221. 37 Id. 38 Id.
8 document that the Meeting concluded at 9:15 PM. 39 Eric Young circulated the
minutes to all of the directors other than Barbey at 9:07 PM, all of whom returned a
signed version by 9:14 PM. 40
Mimura and Kampouris submitted their resignations from the Board shortly
after the meeting. 41 Following these resignations, the Board consisted only of Eric
Young, Intervenor, and Barbey.
On September 26, 2021, Eric Young blind copied Intervenor on an email to
himself that discussed edits to an attached information statement (the “Information
Statement”) intended to inform Cerego stockholders about the Inversion. 42
On October 8, 2021, Eric Young sent two emails to Cerego’s stockholders.43
The first email provided a high-level overview of the Inversion and extolled its legal
benefits, and was the latest of several emails on a chain of communications from
Eric Young to Cerego’s stockholders in his capacity as CEO.44 The email directly
indicated that “[Cerego] has authorized, and I … along with a number of [Cerego]’s
other large shareholders, believe it is now in our individual and collective interests
39 Id. 40 JX 17. 41 JX 19. 42 JX 20. 43 JX 21; JX 22. 44 JX 21.
9 to [tender].”45 Eric Young expressed that “we hope you will elect” to participate,
and said that he would exchange his own shares if a majority of Cerego’s
stockholders tendered. 46 The second email included the finalized Information
Statement.47
These and subsequent emails directed at stockholders were not sent directly
to Barbey. Instead, Barbey received them from Marco Bernasconi, a BHF trustee
who received the stockholder communications directed at BHF and forwarded them
to Barbey.48
On August 10, 2021, Barbey submitted a written demand letter seeking to
inspect certain books and records in his capacity as a director of Cerego.49 On
October 13, 2021, Barbey filed a verified complaint under 8 Del. C. § 220(d) to
compel inspection (the “220 Action”). 50
Five days after filing the 220 Action, Barbey and BHF filed a fiduciary duty
action against the Board, alleging, among other things, that the Board breached their
45 Id. at I0000336. 46 Id. at I0000337. 47 JX 22. 48 Tr. 29:14–33:12 (Barbey). 49 See Barbey v. Cerego, Inc., C.A. No. 2021-0884-PAF (Del. Ch.), Dkt. 1. 50 Id. On April 13, 2022, the court entered a default judgment in favor of Barbey in the 220 Action and ordered Cerego to pay Barbey’s reasonable attorneys’ fees and expenses. Id. at Dkt. 23.
10 fiduciary duties of loyalty by engaging in the Inversion (the “Plenary Action”).51
Plaintiffs sought expedited proceedings and a temporary restraining order enjoining
the transaction.52
On October 21, 2021, the court heard oral argument on Barbey’s motions in
the Plenary Action. The court denied both motions because the exchange offer had
been substantively completed, and there was nothing for the court to enjoin.53 In
denying Barbey’s motions, the court “certainly [was] not passing on the merits of
the claims.”54
On December 23, 2021, Eric Young sent another email to Cerego’s
stockholders.55 First, the email reported that, after the Inversion, CJ was a
supermajority stockholder of Cerego.56 Second, it indicated CJ had used its control
to remove Eric Young, Intervenor, and Barbey from the Board, replacing them with
Ando. 57 Third, it indicated that Ando had also replaced Eric Young as CEO. 58 Ando
51 Barbey v. Young, 2021-0900-PAF (Del. Ch.), Dkt. 1. 52 Id. 53 Id. at Dkt. 13; id. at Dkt. 17 at 29:14–30:16. 54 Id. at 33:10–14. There has been no docket activity in the Plenary Action since February 2022. 55 JX 24. 56 Id. 57 Id. 58 Id.
11 emailed Cerego’s stockholders on December 30, 2021, introducing herself and
indicating a potential for dissolution of the Company.59
After learning about the Meeting, Barbey engaged Kroll Associates, Inc.
(“Kroll”), an global advisory firm that provides forensic investigation services, to
determine if Barbey had, in fact, received Eric Young’s invitation to the Meeting.60
Barbey provided Kroll with the login credentials to his email address on January 18,
2022, to conduct a forensic search, and, on January 21, 2022, received a report
confirming that the Emails were not present in that account. 61 Barbey credibly
testified at trial that this was the account at which he would have been emailed if
such an email had been sent, and Kroll reported similar findings with respect to a
second account on August 2, 2022.62
At trial, Plaintiffs offered the testimony of Donald Justice Price, an associate
managing director at Kroll, to describe the substance and results of Kroll’s
investigation. Price was not directly involved in the initial review of Barbey’s email
accounts or preparing the Kroll reports.63 Nor was he tendered as an expert witness.
59 JX 25 at Plaintiff012241. 60 JX 16. 61 Id.; Tr. 38:1–7 (Barbey). 62 Tr. 6:9–11 (Barbey); JX 16. 63 Tr. 58:6–12 (Price). The person who conducted the initial review was no longer associated with Kroll as of the time of trial. Id. at 58:13–22 (Price).
12 Rather, Price became involved just ten days before trial and reviewed the reports and
performed his own forensic search of Kroll’s preserved data from the email accounts
to confirm the findings in the reports.64
The evidence from Kroll’s investigation does not conclusively establish that
Barbey did not receive the Emails.65 As Price acknowledged, Kroll did not review
Barbey’s email account until four and eleven months respectively after the date of
Eric Young’s email purporting to notice the Meeting. Price agreed that email
accounts keep automatically and manually deleted files for periods determined by
the account’s retention policy.66 The record is incomplete as to the retention policies
of either of Barbey’s email accounts. As Price conceded, it is possible that the
Emails were deleted and the retention period passed before Kroll’s forensic searches,
and therefore would have been undiscoverable. 67
On January 31, 2022, Plaintiffs brought this action to determine the proper
constitution of the Board.68 Plaintiffs filed a motion for a rule to show cause why a
default judgment should not be entered against Cerego for failing to file an answer
or any responsive pleading to the complaint within the time frame required by Court
64 Id. at 49:14–23 (Price). 65 See generally id. at 41:21–69:2 (Price). 66 Id. at 61:14–62:6 (Price). 67 Id. 68 Dkt. 1.
13 of Chancery Rules 6 and 12.69 On March 15, 2022, Kenneth Young moved to
intervene in this action on the basis that Cerego had defaulted and therefore, if
Intervenor were not allowed to intervene, he risked default judgment personally
affecting him by reinstating him on the Board against his wishes.70 The court
granted Intervenor’s motion and the case proceeded with discovery.71
On September 26, 2022, the court granted a motion permitting Intervenor’s
counsel to withdraw. 72 Intervenor has since proceeded pro se.
The court held a half-day trial in this action via Zoom on November 29,
2022. 73 There were 28 trial exhibits. There were three fact witnesses: Barbey,
Intervenor, and Price.
The parties subsequently filed proposed findings of fact and conclusions of
law and then responded to their opponents’ proposed findings and conclusions.74
Thereafter, the court held post-trial argument. 75 On June 22, 2023, Plaintiffs’
69 Dkt. 6. 70 Dkt. 7. 71 Dkt. 12 at 30:20–32:1. 72 Dkt. 35. 73 Dkt. 54. 74 Dkts. 60, 61, 63, 64. 75 Dkt. 71.
14 counsel submitted a post-argument letter, attaching two sections of the Japanese
Companies Act.76
II. ANALYSIS
Under Section 225 of the Delaware General Corporation Law (“DGCL”),
“[u]pon application of any stockholder or director . . . the Court of Chancery may
hear and determine the validity of any election, appointment, removal or resignation
of any director or officer of any corporation . . . .” 8 Del. C. § 225(a). Section 225
actions are “in the nature of an in rem proceeding,” only exert jurisdiction only over
the corporation, and may only provide relief concerning the corporate office.
Arbitrium (Cayman Islands) Handels AG v. Johnston, 1997 WL 589030, at *4 (Del.
Ch. Sept. 17, 1997); see Genger v. TR Invs., LLC, 26 A.3d 180, 199–200 (Del. 2011).
In a Section 225 proceeding, the court may adjudicate claims that are necessary to
determining the proper holder of a corporate office, but the court may only order
relief concerning the corporate office. Genger, 26 A.3d at 200. All other types of
ultimate relief may only be obtained through a plenary action through which the
court exercises jurisdiction over the affected parties. Id.
The party challenging a director’s removal bears the burden of proving by a
preponderance of the evidence that the director’s removal was invalid. See Unanue
v. Unanue, 2004 WL 2521292, at *10 (Del. Ch. Nov. 9, 2004) (holding that “the
76 Dkt. 70.
15 burden of proving that a director’s removal is invalid rests with the party challenging
its validity” and refusing to shift that burden when the party requesting the burden-
shift “failed to present any valid reason why the evidentiary burden should be
shifted”). “[T]he plaintiff in the 225 Action, bears the burden of proving by a
preponderance of the evidence that it is entitled to relief.” In re IAC/InterActive
Corp., 948 A.2d 471, 493 (Del. Ch. 2008)).
A. Plaintiffs Established that the Meeting was Special, Not Properly Noticed, and Therefore Invalid.
Plaintiffs challenge Barbey’s removal on the grounds that CJ never had
authority from Cerego to commence the Tender Offer that purported to make it
Cerego’s majority stockholder with the power to replace the Board. Plaintiffs’ sole
focus is on the validity of the September 17, 2021 Meeting, at which the Board
approved the Tender Offer. Plaintiffs argue that the Meeting was a special meeting
that required notice under the Bylaws, and that the Meeting was improperly noticed
because Barbey never received the Emails. As a result, Plaintiffs contend that the
Meeting and everything approved at that meeting is void. Intervenor, on the other
hand, insists that the Meeting was a regular meeting, not requiring notice. In the
event the court holds that the Meeting was a special meeting, Intervenor argues that
Eric Young did send advance notice of the Meeting to Barbey.
16 1. The Meeting was a special meeting.
The court construes a corporation’s certificate and bylaws using traditional
principles of contract construction. Matulich v. Aegis Commc'ns Grp., Inc., 942
A.2d 596, 600 (Del. 2008) (“The rules of construction which are used to interpret
contracts and other written instruments are applicable when construing corporate
charters and certificates of designation.”). “Contract interpretation starts with the
terms of the contract. If the terms are plain on their face, then the analysis stops
there.” Sanders v. Wang, 1999 WL 1044880, at *6 (Del. Ch. Nov. 8, 1999). The
court only inquires further if the contract’s terms are “reasonably subject to more
than one interpretation” and, therefore, ambiguous. Supermex Trading Co., Ltd. v.
Strategic Sols. Grp., Inc., 1998 WL 229530, at *2 (Del. Ch. May 1, 1998).
The Bylaws provide for two types of Board meetings. Section 3.6 pertains to
regular meetings and states, in its entirety: “Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall from
time to time be determined by the board.”77 Section 3.7 of the Bylaws provides for
special meetings “at any time” but requires notice. 78 By the construction of these
terms, if a meeting is not a regular meeting, it is a special meeting.
77 JX 1 at 6. 78 Id. at 7.
17 Here, the terms of the Bylaws are unambiguous, and as applied to the facts, it
is clear that the Meeting was special. Section 3.6 states that regular meetings may
be held “at such time and place . . . as shall be determined by the board.”79 This
language indicates that the Board must determine the time and place at which a
regular meeting is to be held. There is no evidence in the record that the Board acted
to set the time and place of the Meeting, or that the Board ever adopted a standing
rule or schedule setting a time and place at which regular meetings would be held.
Barbey credibly testified that the Board stopped holding periodic meetings
altogether in or around June 2020. 80 The Board’s general lack of scheduled
meetings, the absence of Board action setting meetings, and the fact that no meetings
had occurred for over a year indicate that the Meeting was not regular. That Eric
Young’s email dubs the Meeting the Board’s “inaugural Board of Directors meeting
. . . for Year 2021”81 does not transform it into a regular meeting. To the contrary,
Eric Young’s statement in the same sentence that “I would like to call [this] meeting”
indicates he called the Meeting on his own.82 The Meeting was not a regular
meeting. Therefore, the Meeting was the only other type of meeting provided for in
the Bylaws: a special meeting requiring notice.
79 Id. at 6 (emphasis added). 80 Tr. 7:8–17 (Barbey). 81 JX 13. 82 Id.
18 2. Barbey was not provided proper notice of the Meeting.
A corporation’s bylaws govern its notice requirements. See Bruch v. Nat’l
Guar. Credit Corp., 116 A. 738, 740 (Del. Ch. 1922). Section 3.7 of the Bylaws,
“Special Meetings; Notice,” states, in pertinent part:
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, facsimile, electronic transmission, or telegram . . . . If the notice is delivered personally or by facsimile, electronic transmission, telephone or telegram, it shall be delivered at least 24 hours before the time of the holding of the meeting. 83
As a member of the Board, Barbey was entitled to notice of the Meeting in
accordance with Section 3.7.
The parties hotly contest whether Barbey received the required notice.
Plaintiffs contend that Barbey never received the Emails and he testified as much at
trial.84 Plaintiffs also proffer the two reports by Kroll, which indicate that the Emails
were not in Barbey’s email accounts when Kroll conducted the searches.85 As noted
above, these reports are not conclusive evidence because emails deleted outside of
the accounts’ unknown retention periods would not have been discoverable, even in
such forensic searches. Intervenor contends that Barbey did receive notice and, to
83 JX 1 at 7 (emphasis added). 84 Tr. 11:9–15; 22:6–14 (Barbey). 85 JX 16.
19 support this contention, proffers the Screenshots, which purport to show that Barbey
was blind copied on the Emails. 86
Plaintiffs’ proffered evidence is compelling. Though the Kroll reports are not
conclusive, they are persuasive evidence for the proposition Plaintiffs seek to
establish. Furthermore, Barbey’s trial testimony is consistent with those reports.
Intervenor’s production hurts, rather than helps, his case. “[T]he production
of weak evidence when strong is, or should have been, available can lead only to the
conclusion that the strong would have been adverse.” Smith v. Van Gorkom, 488
A.2d 858, 878 (Del. 1985). The Screenshots do not include any metadata from the
Emails, and therefore are weak evidence. The Emails in their native format would
contain metadata verifying their authenticity, and therefore would be strong
evidence. Strong evidence, the Emails in their a native format from his brother,
should have been available to Intervenor. 87
Intervenor produced weak evidence – the Screenshots – when strong evidence
– the Emails in native format – was, or should have been, available. Had Intervenor
produced the Emails in native format, Plaintiffs’ forensic analysts could have easily
determined when Eric Young sent the email, to whom it was sent, and if the file had
86 JX 12; JX 15. 87 The court is not convinced that Eric Young’s unarticulated “conflict” was what prevented the production of the Emails in native format.
20 been modified at any point. Production of an email giving notice to Barbey in its
native format likely would have resolved this case, yet Intervenor produced no such
email. Therefore, failure to produce the Emails in their native format “can only lead
to the conclusion” that they would have been adverse to Intervenor’s case. Van
Gorkom, 488 A.2d at 878. Based on the Kroll reports, Barbey’s consistent trial
testimony, and the adverse inference resulting from Intervenor’s weak evidentiary
production, the court finds that Barbey did not receive notice of the Meeting as
required by the Bylaws.
3. The Meeting is void.
“It is, of course, fundamental that a special meeting held without due notice
to all the directors is not lawful, and all acts done at such meeting are void.” Lippman
v. Kehoe Stenograph Co., 95 A. 895 (Del. Ch. 1915); see also Moore Bus. Forms,
Inc. v. Cordant Hldgs. Corp., 1998 WL 71836, at *7 (Del. Ch. Feb. 4, 1998)
(“Delaware law is well settled that board action taken in the absence of a director . .
. where notice of a special meeting was not given to a director [] is void.”). The
court finds that the legal result of the Board’s failure to provide Barbey with notice
is that the Meeting and all acts done at it are void. The court does so, however,
solely for the purpose of determining the composition of the Cerego Board. See
Genger, 26 A.3d at 200 (“The Court of Chancery may adjudicate [a plenary] claim
in a Section 225 proceeding, but only for the limited purpose of determining the
21 corporation’s de jure directors and officers.”); Marks v. Menoutis, 1992 WL 22248,
at *5 (Del. Ch. Feb. 3, 1992) (“This Court cannot directly order a transaction to be
rescinded in a § 225 proceeding.”).
B. Plaintiffs Did Not Provide Legal Arguments Connecting the Invalidity of the Meeting to Barbey’s Removal. To prevail in this Section 225 action, however, the Plaintiffs must do more
than merely show that the actions taken at the Meeting were invalid. Plaintiffs must
connect the Board’s decisions at the Meeting to CJ’s ultimate removal of Barbey
from the Board. In other words, Plaintiffs bear the burden of proving that the
decisions taken by the Board at the Meeting were necessary to CJ’s becoming
Cerego’s majority stockholder. Plaintiffs argue that the direct effect of voiding the
Meeting is the failure of the Tender Offer, collapse of the Inversion, and resulting
invalidation of CJ’s vote removing Barbey (the “Vote”).88 Intervenor contends that
the Meeting was not necessary for the Tender Offer or Inversion, and that
88 Plaintiffs’ challenge to Barbey’s removal is based solely upon the validity of the actions taken at the September 17, 2021 Cerego Board Meeting. The only issue of fact that Plaintiffs listed in the pre-trial stipulation was “[w]hether Eric Young ever emailed or otherwise sent Kelly Barbey notice of the September 17, 2021 board meeting.” Dkt. 52 at 3. The only issues of law that Plaintiffs listed were “[w]hether the September 17, 2021 Cerego board meeting was properly noticed and convened pursuant to Cerego’s bylaws and the DGCL” and “[w]hether the Boards [sic] authorization of Eric Young and the actions taken thereafter by the Cerego Japan are void.” Id. at 4. Plaintiffs thus concede that if the Tender Offer was not invalid, CJ had the authority, as Cerego’s controlling stockholder, to remove Barbey as a director. “Issues not briefed are deemed waived.” Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999).
22 invalidating the Meeting has no legal effect on the Vote. As explained below,
Plaintiffs focused their case entirely on proving the invalidity of the Meeting and did
not establish that CJ lacked authority to commence the Tender Offer which gave it
majority control of Cerego.
CJ is a separate legal entity from Cerego and is governed by Japanese law.
Delaware law respects corporate separateness. “[O]ur corporation law is largely
built on the idea that the separate legal existence of corporate entities should be
respected . . . .” Allied Cap. Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1038
(Del. Ch. 2006). “Control through the ownership of shares does not fuse the
corporations, even when the directors are common to each.” Kingston Dry Dock Co.
v. Lake Champlain Transp. Co., 31 F.2d 265, 267 (2nd Cir. 1929). “Mere control
and even total ownership of one corporation by another is not sufficient to warrant
the disregard of a separate corporate entity. Absent a showing of a fraud or that a
subsidiary is in fact the mere alter ego of the parent, a common central management
alone is not a proper basis for disregarding separate corporate existence.” Skouras
v. Admiralty Enters., Inc., 386 A.2d 674, 681 (Del. Ch. 1978) (citations omitted).
“[A wholly owned subsidiary] is an entity distinct from its stockholders even if its
stock is wholly owned by one corporation.” Pauley Petroleum, Inc. v. Cont’l Oil
Co., 231 A.2d 450, 454 (Del. Ch. 1967) (holding that a Delaware corporation’s
23 wholly owned Mexican subsidiary was a separate entity), aff’d, 239 A.2d 629 (Del.
1968).
Under the internal affairs doctrine, issues relating to CJ’s authority to act on
its own behalf are to be determined under the laws of its jurisdiction of incorporation.
See McDermott Inc. v. Lewis, 531 A.2d 206, 216–18 (Del. 1987) (holding that
“application of [Delaware law] to [a foreign-incorporated entity] [in matters of
internal affairs] would unfairly and, in our opinion, unconstitutionally, subject those
intimately involved with the management of the corporation to the laws of
Delaware”).
Plaintiffs concede that if Cerego board action was not required for CJ to
commence the Tender Offer, the “tender offer might stand up.” 89 Plaintiffs argue,
however, that the burden was on the Intervenor to prove that Cerego board action
was not required.90 I disagree. The burden is not on CJ, a non-party, or on even
Intervenor, to establish CJ’s independent authority to commence the Tender Offer.
Plaintiffs “have failed to present any valid reason why the evidentiary burden should
be shifted to [Intervenor] . . . . [Therefore,] the burden of proving that [Barbey]’s
89 Dkt. 71 at 18:13. 90 Dkt. 71 at 18:17–20 (Plaintiffs’ Counsel: “[I]nterestingly, there probably is a permutation in which Cerego Japan puts on evidence that, somehow, it is independent. And if so, its status as a wholly owned subsidiary matters not.”); id. at 19:20–20:1 (“With the caveat, of course, that there’s nothing in the record to demonstrate that Eric Young, whatever position he was in, authorized representative at the time of Cerego Japan, could unilaterally, on behalf of the company, decide to make a tender offer.”).
24 removal was invalid rests with [Plaintiffs], the parties challenging its validity.”
Unanue, 2004 WL 2521292, at *10.
Plaintiffs focused their case on proving that Barbey did not receive the
required notice of the Meeting and that all actions taken at the meeting are void.91
Plaintiffs proceeded as though the inevitable result of that conclusion would be the
invalidity of CJ’s Tender Offer, which gave CJ majority ownership of Cerego and
the ability to replace the Board.92 The parties did not explore the application of
Japanese law in this case, and the factual record on CJ’s authority and decision-
making process is thin. Plaintiffs did not seek discovery from CJ. The limited
factual record shows that CJ was formed in 2000 and has existed continuously since
that time. It has separate Articles of Incorporation,93 and the record shows that CJ
was an operating business as recently as 2015 and still owns related intellectual
property. 94
91 See Dkt. 1 at ¶ 48 (“As a result, disguised from the Court and Barbey by Young’s falsified E-mail Notice, Cerego Japan’s tender offer was never authorized by the Board. Thus, the Inversion was not valid.”); see also Dkt. 39 at 16 (“As a result, disguised from the Court and Mr. Barbey by Eric Young’s falsified E-mail Notice, Cerego Japan’s tender offer was never authorized by the Board. Thus, the Inversion was invalid.”). Most of the three hours of trial were devoted to whether Eric Young sent Barbey a couple of emails. 92 Dkt. 60 at ¶ 61 (“As a result [of the invalid Meeting], Eric Young was never authorized to issue a tender offer on the part of Cerego Japan—an act that, in [Eric] Young’s view, required authorization from the Cerego Board. As a consequence, the purported Inversion that resulted from that tender offer was a void act.”) (citation to the record omitted). 93 See Dkt. 1 at Ex. G. 94 JX 21 at I000036.
25 After post-trial argument, Plaintiffs filed a letter with the court attaching a
document with two translated sections of the Japanese Companies Code.95 In calling
the Court’s attention to these provisions, Plaintiffs contend that under Japanese law,
Cerego’s vote, as the sole stockholder of CJ, was required to issue shares to
commence the Tender Offer.96
“A party who intends to raise an issue concerning the law of a foreign
country shall give notice in his pleadings or other reasonable written notice.” Ct.
Ch. R. 44.1. “Delaware courts have frequently relied on experts to ascertain the
substance of foreign law.” Germaninvestments AG v. Allomet Corp., 225 A.3d 316,
335 (Del. 2020). “At a minimum, the cases suggest that the movant’s initial
submission should be fulsome enough to address the foreign law in the context of
the specific circumstances at issue.” Id. at 337.
By raising the issue of Japanese law after their final submission instead of
with their first, and failing to otherwise give reasonable written notice, Plaintiffs
have not timely raised the issue. See Ct. Ch. R. 44.1; see also Emerald P’rs, 726
A.2d at 1224 (“Issues not briefed are deemed waived.”); Roca v. E.I. du Pont de
Nemours & Co., 842 A.2d 1238, 1242 n.12 (Del. 2004) (“[I]ssues adverted to in a
perfunctory manner, unaccompanied by some effort at developed argumentation, are
95 Dkt. 70. 96 Id.
26 deemed waived.”) (internal citations and quotations omitted). Plaintiffs’ post-
argument submission also does not attempt to explain the legal result of a failure to
obtain stockholder authorization under Japanese law. Therefore, it is not “fulsome
enough to address the foreign law in the context of the specific circumstances at
issue.” Germaninvestments, 225 A.3d at 337.97
Therefore, the court finds, as a factual matter, that CJ is a separate entity and
Plaintiffs have not met their burden to show that CJ lacked authority to commence
the Tender Offer that resulted in its becoming Cerego’s majority stockholder. 98
97 In their response to the Intervenor’s proposed findings of fact and conclusions of law, Plaintiffs point to evidence that the Board believed the CJ tender offer required Cerego Board approval. Dkt. 63 at 4–5 (citing JX 10 (repeatedly noting that the Inversion’s approval needed to occur “at a TBD future Full Board Meeting”)). See also JX 21 at I0000336 (“[Cerego] has authorized [the Tender Offer]”). Although it is apparent that Eric Young and other members of the Board believed that Cerego’s authorization was at least, in some way, relevant to CJ’s Tender Offer, their subjective belief does not determine what the law is. In Delaware, “only the Delaware judiciary has the power, province and duty . . . to say what the law is . . . .” Evans v. State, 872 A.2d 539, 549 (Del. 2005) (internal quotation marks omitted); see also Braga Inv. & Advisory, LLC v. Yenni, 2023 WL 3736879, at *18 (Del. Ch. May 31, 2023) (holding that the legal effect of a contract provision was an issue of law for the court to decide “irrespective of whatever subjective belief [the parties] may have had about its meaning”). 98 Plaintiffs assert that “the shares being tendered were the property of Cerego, not Cerego Japan.” Dkt. 63 at 6. This not only mischaracterizes the transaction, but also lacks any legal or factual support. “It is difficult to address th[is] theor[y] because [Plaintiff] only mentioned [it] briefly, did not develop the arguments, and did not provide any supporting [legal] authority . . . . A court need not address arguments that are presented in such a cursory and elliptical manner.” AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, *78 (Del. Ch. Nov. 30, 2020), aff’d, 268 A.3d 198 (Del. 2021).
27 III. CONCLUSION Plaintiffs have proved that Barbey was not provided the required notice for
the Special Meeting of the Cerego Board on September 17, 2021. Thus, all action
taken at that meeting was void. But Plaintiffs have not met their burden of proof to
show that CJ’s Tender Offer was void. Therefore, Plaintiffs have not established
that CJ, after becoming Cerego’s majority stockholder, lacked the authority to
remove Barbey, Intervenor, and Eric Young from the Cerego Board and to replace
them with Ando.
Accordingly, judgment is entered in favor of Intervenor and against Plaintiffs.