IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TIMOTHY J. HARRIS, et al. ) ) Plaintiffs, ) ) v. ) C.A. No. 2019-0736-JTL ) MARY ELLEN HARRIS, et al., ) ) Defendants. )
MEMORANDUM OPINION
Date Submitted: November 9, 2022 Date Decided: January 23, 2023
Joel Friedlander, Christopher M. Foulds, David Hahn, FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware; Counsel for Petitioner/Plaintiff Timothy J. Harris.
S. Michael Sirkin, R. Garrett Rice, ROSS ARONSTAM & MORITZ LLP, Wilmington Delaware; Gregory Lomax, LAULETTA BIRNBAUM, Sewell, New Jersey; Jill Guldin, FISHER BROYLES, LLP, Princeton, New Jersey; Counsel for Kristen C. Harris and Megan Harris Loewenberg.
David A. Jenkins, Julie M. O’Dell, SMITH, KATZENSTEIN & JENKINS LLP; Wilmington, Delaware; Counsel for Mary Ellen Harris.
Steven L. Caponi, Matthew B. Goeller, Megan E. O’Connor, K&L GATES LLP, Wilmington, Delaware; Counsel for Mary Ellen Harris, Paul Petigrow, and Michael Schwager.
Kurt M. Heyman, Patricia L. Enerio, Gillian L. Andrews, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Counsel for Royce Management, Inc., Judith Lolli, and Charles Grinnell.
John L. Reed, Ronald N. Brown, III, Peter H. Kyle, Kelly L. Freund, DLA PIPER LLP (US), Wilmington, Delaware; Neal J. Levitsky, E. Chaney Hall, FOX ROTHSCHILD LLP, Wilmington, Delaware; Emily A. Kaller, GREENBAUM, ROWE, SMITH & DAVIS LLP, Woodbridge, New Jersey; Counsel for Harris FRC Corporation. William M. Kelleher, Phillip A. Giordano, Madeline Silverman, GORDON, FOURNARIS & MAMMARELLA, P.A., Wilmington, Delaware; Counsel for The Mary Ellen Harris 2011 Grantor Retained Annuity Trust.
LASTER, V.C. Five of the six defendants have asked the court to dismiss this action under the
doctrine of forum non conveniens. There is no earlier-filed action elsewhere involving
substantially the same parties, addressing substantially the same subject matter, and
pending in a court capable of providing substantial justice, so the defendants have the
burden of showing that they would face overwhelming hardship from litigating in
Delaware. The defendants have not met that standard. The motion is denied.
I. FACTUAL BACKGROUND
The facts are drawn from the plaintiffs’ Verified Supplemental and Third
Amended Complaint (the “Complaint”) and the documents that it incorporates by 1 reference. At this procedural stage, the plaintiffs are entitled to have the court credit
their allegations and draw all reasonable inferences in their favor.
A. The Company
Before May 2016, Harris FRC Corporation (the “Company”) was a New Jersey
corporation. From May 2016 until May 2019, the Company was a Delaware corporation.
Since May 2019, the Company has been a New Jersey corporation. It is and always has
been a family-held entity. Currently, its only stockholders are Mary Ellen Harris, her five
adult children (the “Siblings”), and various trusts created for their benefit.
1 Citations in the form “Ex. __” refer to documents attached to the Affidavit of Christopher M. Foulds, which collects certain documents that are incorporated by reference in the Complaint. Dkt. 467. The family patriarch, Dr. Robert M. Harris, Sr. founded the Company after
securing the patent rights for an epilepsy drug.2 He monetized the patent rights through a
license agreement with a global biopharmaceutical company and formed the Company to
hold the rights and receive the royalty payments. That revenue stream historically
amounted to approximately $100 million per year. The Company’s only significant
function was to collect and distribute the payments. In 2020, the Company sold its patent
rights for $342 million in cash.
The Company has issued 1,000 shares. Originally, Dr. Harris and Mary Ellen
owned all of the shares jointly as tenants by the entirety. In 2002, they transferred 38
shares to each of the Siblings, resulting in each owning a 3.8% interest. In 2011, Dr.
Harris and Mary Ellen each created a grantor retained annuity trust (a “GRAT”) and
funded it with 245 shares. The GRATs had terms of seven years and would expire on
December 31, 2018. At that point, the shares would be distributed to the Siblings.
Through the combination of the 190 shares they received directly and the 490 shares
distributed from the GRATs, the Siblings would receive a total of 680 shares,
representing a controlling 68% interest in the Company.
2 My standard practice is to identify individuals by their last name without honorifics. When individuals share the same last name, my standard practice is to shift to first names. Using first names is confusing because Dr. Robert M. Harris has a son with the same name. This decision therefore refers to the father as Dr. Harris. That reference is sadly also confusing, because one of the plaintiffs is Dr. Timothy J. Harris. This decision refers to him as Tim Harris.
2 B. Dr. Harris’s Illness
In October 2013, Dr. Harris was diagnosed with an aggressive form of aphasia
consistent with Alzheimer’s disease. As Dr. Harris’s health deteriorated, Judith Lolli
insinuated herself into Mary Ellen’s financial life.
Lolli brought Mary Ellen into contact with her own friends and advisors. Paul
Petigrow is a New Jersey lawyer who served as Lolli’s personal counsel. Charles Grinnell
is a New Jersey lawyer and career prosecutor who investigated and prosecuted the
gangland murder of Lolli’s brother, then became her close friend. Michael Schwager is
Lolli’s personal accountant and another close friend. Like the Complaint, this decision
refers to Lolli, Petigrow, Grinnell, and Schwager collectively as the “Advisors.”
C. The Takeover
With Dr. Harris’s health declining, questions arose as to who would lead the
Company. Mary Ellen had no experience or qualifications for the role. The eldest Sibling,
Robert M. Harris, Jr., had worked at the Company since 2000, held the office of Vice
President, and managed the relationship that generated the Company’s royalty stream.
A power struggle ensued with Mary Ellen and the Advisors on the one side and
Robert on the other. In April 2015, eighteen months after his Alzheimer’s diagnosis, Dr.
Harris purportedly acted by written consent to remove Robert from his position as an
officer.3 The written consent added Mary Ellen to the board of directors (the “Board”),
3 The Complaint alleges that Robert also signed a letter of resignation. In any event, he was out.
3 where Dr. Harris had been the sole director. The plaintiffs assert that Dr. Harris did not
have the capacity to execute the written consent and that Lolli pulled the strings so that
Mary Ellen gained control over the Company.
Immediately after the first consent, Dr. Harris and Mary Ellen executed a second
consent that caused the Company to enter into “an agreement with Lolli in substantially
the form submitted hereto.” Compl. ¶ 32. The consent did not attach an agreement. In
June 2015, Lolli and Mary Ellen executed an employment agreement which provided for
Lolli’s compensation to be determined at an unspecified future date. The Company began
providing Lolli with benefits and paying her $15,000 as an employee. The Company
retained Grinnell as a consultant at a rate of $110 per hour. Petigrow began doing legal
work for the Company. Schwager took over as the Company’s accountant. The Advisors
had gotten their noses inside the tent.
In late summer 2015, Lolli and Grinnell decided to form Royce Management, Inc.
(“Royce”) as a vehicle for providing management services to the Company. In October,
the Company began paying Royce $208,000 a month or $2,496,000 per year. The
Company and Royce subsequently entered into a management services agreement that
paid Royce $208,334 per month, or $2,500,128 per year. The agreement renewed
automatically every year and provided for an annual fee escalator of 3.5%. The Company
and Royce have amended the management services agreement twice, each time making it
more favorable to Royce. In addition to the monthly fee, Mary Ellen has approved large
end-of-year bonuses for Royce. In total, Royce received over $20 million from the
Company between October 2015 and December 2020.
4 Royce is a shell. It has no employees other than Lolli and Grinnell, and it has no
other clients. It has no assets other than its contract with the Company. It operates out of
the Company’s offices. It exists solely to channel money to Lolli and Grinnell. It has no
expenses other than their salaries, pension contributions, distributions, and two $1,000
per month luxury car leases.
D. Dr. Harris’s GRAT
To maintain control over the Company, Mary Ellen and the Advisors had to deal
with the GRATs. If the GRATs distributed their 490 shares as planned, then control over
the Company would pass to the Siblings.
Around the same time that the Company began paying Royce, Lolli served as a
witness when Dr. Harris purportedly amended his GRAT and executed a codicil to his
will. Petigrow oversaw the drafting of the documents. The principal consequence of the
amendments was to redirect the 245 shares in Dr. Harris’s GRAT from the Siblings to Dr.
Harris’s marital trust. That trust benefits Mary Ellen, and she has a power of appointment
over its corpus, enabling her to determine where the assets go when the GRAT
terminates. The transaction reduced the number of Shares that the Siblings would receive
from 680 to 435, below majority control. The amendments to Dr. Harris’s GRAT and the
codicil to his will are not at issue in this litigation, but they provide important context.
The Advisors wanted a cooperative trustee for Dr. Harris’s GRAT and the marital
trust, so they turned to Dan Selcow, a wealth manager at First Republic Bank. Lolli and
Grinnell had an existing relationship with Selcow, and he was a friend of Petigrow and
Schwager. Initially, they brought some of the Harris’ personal accounts to Selcow to
5 manage. Eager for more business, Selcow arranged for First Republic Trust Company of
Delaware LLC (“First Republic Delaware”) to take over as trustee.
E. The Idea For The Inbound Merger
It was readily apparent that Robert might bring litigation over his removal and the
events at the Company. New Jersey recognizes a claim for minority stockholder
oppression, and available remedies include orders dissolving the corporation or
appointing a custodian or provisional directors. A stockholder oppression lawsuit thus
threatened to deprive Mary Ellen and the Advisors of control.
Mary Ellen and the Advisors believed that Delaware law would be more protective
of their activities, so they started working on a merger that would move the Company to
Delaware (the “Inbound Merger”). As Mary Ellen colorfully put it, “I have to work out a
billion things at the office to get things ready for Delaware. They have better laws
regarding shit like bob is pulling and we have connections there.” Ex. 1.
In November 2015, Petigrow drafted Dr. Harris’s letter of resignation from the
Board, which he purportedly signed on November 16, two years after his Alzheimer’s
diagnosis. His resignation left Mary Ellen as the sole director. Petigrow drafted a power
of attorney in which Dr. Harris empowered Mary Ellen to act on his behalf. Dr. Harris
purportedly signed it, and Lolli witnessed it. Petigrow also drafted two proxies that Mary
Ellen could use to vote Dr. Harris’s shares, one for Dr. Harris to sign and one for Mary
Ellen to sign using her power of attorney.
In December 2015, Mary Ellen provided an initial set of approvals for the Inbound
Merger. She also appointed herself President and began paying herself $5 million per
6 year for serving in that role. She continued the payments until 2019, when she resigned
after the filing of this litigation. She appointed a lawyer to succeed her and paid him
11.5% of what she paid herself.
F. Value Extraction On A Larger Scale
In 2016, Mary Ellen and the Advisors stepped up their extraction of value from the
Company. In February, Mary Ellen signed a written consent approving an employment
agreement with Petigrow that paid him $600,000 per year to serve as Vice President and
General Counsel for the Company. Petigrow continued to run a solo law practice out of
the Company’s offices, using the Company’s personnel and resources, and without
paying rent.
In March 2016, Lolli had a physician friend declare Dr. Harris incapacitated. That
same month, Mary Ellen adopted a resolution in her capacity as sole director that paid Dr.
Harris a bonus in the amount of $15 million. In light of Dr. Harris’s incapacitation, the
$15 million bonus was a disguised distribution to Mary Ellen.
Schwager cashed in too. Given the Company’s minimal operations, the services
for its accounting and taxes should have cost $20,000 to $30,000 per year. The Company
entered into an arrangement with Schwager under which the Company paid him
simultaneously on two parallel schedules: (i) $12,500 a month for a total of $150,000 per
year, and (ii) $25,000 quarterly for another $100,000 per year. He also received annual
“Merry Christmas” bonuses of $35,000. Schwager thus raked in $285,000 per year, ten
times what the Company should have been paying.
7 On May 1, 2016, the Inbound Merger became effective, and the Company
emerged as a Delaware corporation. Robert exercised dissenters’ rights and pursued an
appraisal proceeding in New Jersey state court. He also filed plenary litigation.
Now firmly in control of the Company, and believing that they had protection
under Delaware law, Mary Ellen and the Advisors used Company funds to pay for an
array of personal expenses. On the Company’s taxes, Schwager deducted the expenses as
if they were business related.
In April 2017, Dr. Harris died. The shares in his GRAT that would have gone to
the Siblings passed to the marital trust.
G. The Transactions To Preserve Control
During the second half of 2018, Mary Ellen and the Advisors engaged in two
transactions to preserve their control over the Company. The first was a settlement with
Robert, who was continuing to pursue his lawsuits. Just before Mary Ellen’s deposition,
she settled with Robert by having the Company pay him more than $20 million.
The second transaction involved Mary Ellen’s GRAT. It was still scheduled to
expire on December 31, 2018, at which point 245 shares representing just under 25% of
the Company’s common stock would be distributed to the Siblings. Under the trust
agreement governing the GRAT, Mary Ellen could withdraw assets if she provided the
trust with “equivalent value.” Compl. ¶ 95. The Advisors decided that Mary Ellen would
withdraw the shares at a lowball price, thereby benefiting herself by preventing a block of
shares from falling into potentially adverse hands while expropriating the difference
between the lowball price and fair value (the “Share Withdrawal”).
8 To support a lowball price for the Share Withdrawal, Petigrow commissioned an
appraisal of the Company from EisnerAmper LLP, a valuation firm. Schwager helped
furnish the firm with information.
The appraisal valued the Company at $242,863,296. The plaintiffs have pointed to
substantial flaws in the appraisal, including a facially questionable 20% company-
specific risk premium that increased the discount rate from 13% to 33%. The 20%
company-specific risk premium was based in large part on a pending application by
generic pharmaceutical companies for certiorari to the Supreme Court of the United
States. As of November 19, 2018, weeks before what should have been a December
valuation date, the Supreme Court had denied certiorari. See Accord Healthcare, Inc. v.
UCB, Inc., 139 S. Ct. 574 (2018). After more questionable discounts, the report appraised
the 245 shares at $52,677,000, or 21.7% of the value of the Company. The shares
represented 24.5% of the Company’s capitalization, so on that basis alone, Mary Ellen
was paying 88.5% of their value (21.7% divided by 24.5%) for a built in 11.5% discount.
The underpricing was much greater because the Company itself was undervalued.
Backing out the 20% company-specific risk premium increases the value of the Company
to $325 million. A 24.5% share of that value is $79,625,000. Mary Ellen’s valuation was
66.1% of that figure, meaning that Mary Ellen was getting a 33.9% discount.
With a lowball valuation in hand, the next step was to find a trustee who would go
along with the Share Withdrawal. And with the expiration date of the GRAT rapidly
approaching, Mary Ellen and the Advisors needed a trustee who would sign off quickly,
before December 31, 2018.
9 The Advisors went back to First Republic Bank, where Selcow had benefitted
from managing more of Mary Ellen’s assets. Selcow readily agreed and secured the
greenlight to have First Republic Delaware become the trustee for Mary Ellen’s GRAT.
First Republic Delaware officially became trustee of Mary Ellen’s GRAT on
December 24, 2018. Within two days, First Republic Delaware had approved the Share
Withdrawal at the valuation set by Mary Ellen’s appraiser.
H. Tim Harris Hires Counsel And Asks Questions.
The Siblings had heard rumblings about the Share Withdrawal. On February 14,
2019, Megan Harris Loewenberg asked if anything was happening with Mary Ellen’s
GRAT. She received a misleading response. Over a month later, First Republic Delaware
told Tim Harris that “Mary Ellen exercised her power to substitute the Harris FRC stock
with cash.” Id. ¶ 110. That same week, First Republic Bank was in discussion with the
Advisors about moving the “Mary Ellen and the Harris FRC relationship from Schwab to
First Republic.” Id. ¶ 111.
On April 10, 2019, Tim Harris’s counsel in this action attended the Company’s
annual meeting as his proxy. Petigrow and Grinnell attended for the Company. Mary
Ellen did not attend. Petigrow chaired the meeting. Grinnell refused to identify himself.
Petigrow called for a vote for the election of Mary Ellen as the Company’s sole director
and exercised proxies from Mary Ellen and First Republic Delaware in favor of her
election. After tallying the vote, he called the meeting to a close.
Before the meeting was adjourned, Tim Harris’s counsel asked for a report on the
business of the Company, then followed up with a series of specific questions. Petigrow
10 and Grinnell failed to provide substantive answers on numerous topics. Grinnell
repeatedly asserted that all stockholder questions needed to be put in writing.
I. The Outbound Merger
With Tim Harris having retained a Delaware lawyer whose questions had not been
answered, the Advisors anticipated that a books-and-records demand would be coming.
Immediately after the annual meeting, they started working on a merger that would take
the Company out of Delaware and back to New Jersey (the “Outbound Merger”).
Grinnell circulated a New Jersey Supreme Court decision which indicated that inspection
rights could be limited to formal documents like financial statements, minutes, and a list
of stockholders. The Company did not keep minutes, and Schwager prepared the
Company’s financial statements so that they did not reveal the many self-interested
transactions or the payments to Royce. The Advisors thought by using the Outbound
Merger to take the Company back to New Jersey, they could prevent Tim Harris and the
other Siblings from obtaining information about the Company. They also thought that the
Outbound Merger would cut off the Siblings’ standing to assert derivative claims
regarding events predating the merger, as they have argued in this case.
On May 6, 2019, Tim Harris sent the Company a written demand for documents
under Section 220. On May 13, the Company refused to produce any documents,
claiming the demand constituted “harassment.” Id. ¶ 127.
The Outbound Merger became effective on May 17, 2019. Mary Ellen approved
the Outbound Merger as a director, and Mary Ellen and First Republic Delaware
executed written consents approving it as stockholders.
11 The notice provided scant information about the Outbound Merger. The notice did
not include any information about the large payments going to Royce and to Schwager,
the plentitude of personal expenses being paid for by the Company, or the numerous
entities being run out of the Company’s offices.
J. This Litigation
The Outbound Merger stymied Tim Harris’s attempt to use Section 220, but it
opened up another informational avenue. Tim Harris sought appraisal for one share of
Company common stock. In discovery, he requested the information that a books-and-
records inspection would have generated. Discovery did not go smoothly, and the court
has expended significant judicial resources addressing various discovery motions.
In September 2021, Tim Harris filed an amended petition and complaint that
added plenary claims for breach of fiduciary duty against Mary Ellen and claims for
breach of fiduciary duty and aiding and abetting against the Advisors. In October, Kristen
Harris and Loewenberg joined the case as additional plaintiffs.
K. The Currently Operative Complaint
In March 2022, the plaintiffs filed the Complaint. It asserts claims against Mary
Ellen, Petigrow, Lolli, Grinnell, Royce, and Schwager.
Count I of the Complaint asserts that Mary Ellen has breached her fiduciary duties
as President, sole director, and controlling stockholder of the Company. Although Count
I originally pled multiple theories, this court issued a decision holding that the only
theory currently at issue in Count I is a direct challenge to the Outbound Merger. Harris
v. Harris, 2023 WL 115541, *2 (Del. Ch. Dec. 6, 2023) (the “Standing Decision”). The
12 derivative theories originally included in Count I remain at issue, but as corporate assets
to be valued in connection with the challenge to the Outbound Merger.
Skipping for the moment over Count II, Count III asserts claims for breach of
fiduciary duty against the Advisors in their capacities as officers and agents. The
substance of the claims for breach of fiduciary duty against the Advisors generally tracks
the claims against Mary Ellen. The Standing Decision applies to this count, so the only
theory currently at issue is a direct challenge to the Outbound Merger.
Count IV alleges in the alternative that to the extent the Advisors are not
accountable for breaching their own duties as fiduciaries, both they and Royce have aided
and abetted breaches by Mary Ellen, Petigrow, and any other Advisor that is found to
have owed duties. The Standing Decision applies to this count as well, so the only theory
currently at issue is a direct challenge to the Outbound Merger.
Counts II and V challenge the Share Withdrawal. Count VI is the claim for an
appraisal.
Petigrow, Schwager, Lolli, Grinnell, and Royce have asked the court to rely on
forum non conveniens to dismiss this action in deference to actions pending in New
Jersey. This decision addresses that motion.
II. LEGAL ANALYSIS
A motion invoking the doctrine of forum non conveniens proceeds under Rule
12(b)(3) and seeks dismissal on grounds of improper venue. See Lefkowitz v. HWF
Hldgs., LLC, 2009 WL 3806299, at *3 (Del. Ch. Nov. 13, 2009). When considering such
a motion, the court is not “shackled to the plaintiff’s complaint” and “is permitted to
13 consider extrinsic evidence from the outset . . . .” Simon v. Navellier Series Fund, 2000
WL 1597890, at *5 (Del. Ch. Oct. 19, 2000); accord Troy Corp. v. Schoon, 2007 WL
949441, at *2 (Del. Ch. Mar. 26, 2007).
When evaluating a motion based on forum non conveniens, a Delaware court
considers the so-called “Cryo-Maid factors.” See Gen. Foods Corp. v. Cryo-Maid, Inc.,
198 A.2d 681, 684 (Del. 1964). In paraphrased form, they are:
(1) the existence of other litigation involving substantially similar parties or subject matter;
(2) whether the controversy depends upon a question of Delaware law which the courts of this State more properly should decide than those of another jurisdiction;
(3) the relative ease of access to proof;
(4) the availability of compulsory process for witnesses;
(5) any other matters that would affect the conduct of the litigation and the expeditious and economic administration of justice.4
The paraphrased list identifies the factors in their relative order of importance for
corporate and commercial disputes.5 “Together, these factors have come to form the core
of Delaware’s traditional forum non conveniens analysis.” Gramercy, 173 A.3d at 1037.
4 Id.; accord Martinez v. E.I. DuPont de Nemours & Co., Inc., 86 A.3d 1102, 1104 (Del. 2014). The Delaware Supreme Court’s recent discussions of forum non conveniens have addressed cases involving claims arising under the law of foreign countries and potential deference to courts in those countries. See, e.g., Aranda v. Philip Morris USA Inc., 183 A.3d 1245, 1253 (Del. 2018) (Argentina); Gramercy Emerging Mkts. Fund v. Allied Irish Banks, P.L.C., 173 A.3d 1033, 1043 (Del. 2017) (Bulgaria); Martinez, 86 A.3d at 1107 (Argentina). The distinction between intra-country deference to another state and international deference to another country is one of degree, rather than kind. The same concepts and principles apply.
14 A. The Pendency Or Non-Pendency Of A Similar Action Or Actions In Another Jurisdiction
The first Cryo-Maid factor asks whether there is (i) an earlier-filed action, (ii)
between the same or substantially similar parties, (iii) addressing the same or
substantially similar subject matter, (iv) pending in a court capable of addressing the
matter in a just way (a “Prior Action”). Whether this factor is satisfied affects the
approach the court takes to the balancing of the Cryo-Maid factors. See Gramercy, 173
A.3d at 1036–38.
If a Prior Action exists and remains pending, then a Delaware court approaches the
Cryo-Maid factors with the analysis tilted in favor of the defendant. Under an approach
known as the “McWane doctrine,” the court will dismiss or stay the Delaware action in
deference to the Prior Action unless the Cryo-Maid factors weigh heavily in favor of
allowing the Delaware action to proceed. Id. at 1037; see McWane Cast Iron Pipe Corp.
v. McDowell-Wellman Eng’g Co., 263 A.2d 281 (Del. 1970). Generally speaking, the
calculus only will favor denying the motion and permitting the Delaware action to move
forward if the Delaware plaintiff has invoked a specialized statutory proceeding designed
5 The list omits a sixth Cryo-Maid factor—“the possibility of the view of the premises”—because that factor is frequently irrelevant in corporate and commercial disputes. See, e.g., Hall v. Maritek Corp., 170 A.3d 149, 162 (Del. Super. Ct. 2017) (“[The] third Cryo–Maid factor holds little to no weight even in a case where there was a relevant premises that the fact-finder might want to view.”) (internal quotations omitted), aff’d, 182 A.3d 113 (Del. 2018); Hamilton P’rs, L.P. v. Englard, 11 A.3d 1180, 1212 (Del. Ch. 2010) (collecting authorities). A view of the premises is not relevant to this case, and this decision therefore does not discuss it.
15 to address a particular issue or if Delaware otherwise has a particularly strong interest in
the dispute. See Focus Fin. P’rs, LLC v. Holsopple, 250 A.3d 939, 953–54, 956 (Del. Ch.
2020).
If a Prior Action once existed but no longer is pending, then the Delaware court
conducts a straightforward assessment of the Cryo-Maid factors to determine where it
makes the most sense for the action to proceed. The resulting analysis “is not tilted in
favor of the plaintiff or the defendant.” Gramercy, 173 A.3d at 1044.
If the Delaware case is the first-filed action, then the court will approach the Cryo-
Maid factors with the analysis tilted in favor of the plaintiff. The court generally will
allow the Delaware action to proceed unless the defendant shows that it would face
overwhelming hardship or inconvenience from litigating in Delaware. Id. Although the
test sounds extreme, trial judges should not perceive that the standard “suggests an
insurmountable burden for defendants.” Martinez, 86 A.3d at 1105. The test “is not
intended to be preclusive.” Id.; accord Ison v. E.I. DuPont de Nemours & Co., Inc., 729
A.2d 832, 842 (Del. 1999). “[I]t is intended as a stringent standard that holds defendants
who seek to deprive a plaintiff of her chosen forum to an appropriately high burden.”
Martinez, 86 A.3d at 1105. What is required is that the Cryo-Maid factors weigh “heavily
and decisively” in favor of dismissal. IM2 Merch. & Mfg., Inc. v. Tirex Corp., 2000 WL
1664168, at *1 (Del. Ch. Nov. 2, 2000); see Martinez, 86 A.3d at 1105 (discussing IM2
with approval and agreeing that “a more restrained meaning is at the essence of the
overwhelming hardship standard” (cleaned up)).
16 When considering whether the Cryo-Maid factors weigh heavily and decisively in
favor of dismissal, the court should not treat them as a checklist or tally sheet.
“Application of these factors is not mechanical or mathematical . . . .” Pipal Tech
Ventures Priv. Ltd. v. MoEngage, Inc., 2015 WL 9257869, at *5 (Del. Ch. Dec. 17,
2015). The court must “look to the circumstances as a whole to determine whether an
overwhelming hardship is present.” Barrera v. Monsanto Co., 2016 WL 4938876, at *5
(Del. Super. Ct. Sept. 13, 2016). “The moving defendant need not show that it is factually
or financially impossible to mount a defense in this jurisdiction.” Pipal Tech, 2015 WL
9257869, at *5. When “properly applied,” the doctrine “involves a wholesome balancing
between the strong interest of a plaintiff in choosing the appropriate forum in which to
bring her action, and the interest of the other litigants and the court in an efficient and just
resolution of the issues, together with principals of comity.” Wilm. Sav. Fund Soc’y, FSB
v. Caesars Ent. Corp., 2015 WL 1306754, at *7 (Del. Ch. Mar. 18, 2015).
In this case, there is no Prior Action. This action is first-filed by a long shot. On
May 6, 2019, Tim Harris initiated the litigation process in Delaware by serving a Section
220 demand. See Lebanon Cnty. Empls.’ Ret. Fund v. Collis, 2022 WL 17687848, at *30
(Del. Ch. Dec. 15, 2022) (using date when plaintiff served demand that was diligently
pursued to determine when litigation was commenced); Wang v. Fulton, C.A. 3409-VCL,
at 47–48 (Del. Ch. Feb. 14, 2014) (TRANSCRIPT) (“[I]t is realistic, and in the tradition
of equity looking at the substance of things rather than simply at their form, to view the
Section 220 as an aspect of the overall proceeding.”). The defendants defeated the books-
and-records demand by effectuating the Outbound Merger, but that transaction gave rise
17 to another avenue for discovery, and on September 12, Tim Harris filed an appraisal
proceeding in which he conducted discovery designed to gather the information sought in
the Section 220 demand. See Wei v. Zoox, Inc., 268 A.3d 1207, 1223 (Del. Ch. 2022). In
his petition, Tim Harris expressly reserved the right to assert other claims. See Harris v.
Harris FRC Corp., 2021 WL 57021, at *1, *3 (Del. Ch. Jan. 7, 2021) (noting that Tim
Harris had “reserved his right to assert other claims when demanding appraisal” and
“moved to modify the confidentiality order entered in this action so that he can assert
plenary claims, including claims for breach of fiduciary duty”). After numerous
discovery delays, Tim Harris filed the an amended petition and complaint, which Kristen
Harris and Megan Harris Loewenberg later joined.
The defendants cite two actions currently pending in New Jersey plus a third that
has been dismissed. The courts of New Jersey are plainly capable of handling this dispute
and providing the parties with justice. But the New Jersey actions were not filed earlier
than this one, and they do not involve substantially the same parties or substantially the
same issues.
After this lawsuit was well underway, Tim Harris filed an action in New Jersey
state court that challenged the amendments to Dr. Harris’s estate plan that were
implemented on October 6, 2015 (the “New Jersey Estate Planning Action”). The
Company, Grinnell, and Royce are not parties to the New Jersey Estate Planning Action,
so that action does not involve substantially the same parties as this one. The New Jersey
Estate Planning Action also does not involve substantially the same issues as this action.
It does not involve any claims relating to the Outbound Merger or the Share Withdrawal,
18 nor does it address any of the events underlying the derivative claims that this court will
consider as assets of the Company in connection with the challenges to the Outbound
Merger. Conversely, this action does not challenge the modifications to Dr. Harris’s will
and GRAT that took place in October 2015. The Complaint and this decision reference
those events as background, but the plaintiffs do not assert any claims or seek any relief
about what took place.
Two other actions in New Jersey derived from discovery in this proceeding. After
Mary Ellen, Lolli, and Grinnell worked together to frustrate the plaintiffs’ efforts to
obtain meaningful information about Royce from the Company, Tim Harris’s counsel
issued subpoenas to Grinnell, Royce, and Bank of America N.A., where Royce had bank
accounts. Grinnell and Royce responded by filing a miscellaneous proceeding in New
Jersey state court to quash the subpoenas (the “New Jersey Miscellaneous Action”).
During a series of conferences with the New Jersey judge, Grinnell and Royce first
refused to produce anything, then agreed to produce W-2s and K-1s, then refused to
produce K-1s, and then reverted to refusing to produce anything. Their counsel could not
explain their about face. She has since withdrawn. The New Jersey Miscellaneous Action
has been dismissed. It was solely an action about enforcing a subpoena. It was ancillary
to this action. It was not a plenary action that involved substantially the same parties and
issues as this case.
In an effort to break through the problems that were plaguing the discovery
process, the court appointed a discovery facilitator. He recommended that Royce and
Bank of America produce documents in response to the subpoenas. Lolli, Grinnell, and
19 Royce lashed out by filing another action in the New Jersey state court, this time alleging
purported constitutional violations and seeking to enjoin Bank of America from
complying with this court’s subpoena (the “New Jersey Discovery Action”). The New
Jersey court subsequently denied the application, but Lolli, Grinnell, and Royce have
repackaged their theories as claims for malicious prosecution. The Company, Mary Ellen,
Lolli, Petigrow, Schwager, Kristen Harris, and Megan Harris Loewenberg are not parties
to the New Jersey Discovery Action, and that lawsuit does not involve any claims
relating to the Outbound Merger or the Share Withdrawal, nor does it address any of the
events underlying the derivative claims that this court will consider as assets of the
Company in connection with the challenges to the Outbound Merger. Conversely, this
action does not involve any of the strident assertions about the ordinary progression of
discovery that Lolli, Grinnell, and Royce have made the focus of the New Jersey
Discovery Action.
None of the New Jersey actions could be regarded as a Prior Action for purposes
of McWane. The defendants therefore bear the burden of proving that they would
experience overwhelming hardship or inconvenience from litigating in Delaware.
Gramercy, 173 A.3d at 1044.
B. The Extent To Which The Controversy Depends On Issues Of Delaware Law
The second Cryo-Maid factor examines “whether or not the controversy is
dependent upon the application of Delaware law which the courts of this State more
properly should decide than those of another jurisdiction.” Cryo-Maid, 198 A.2d at 684.
20 Choice of law under Cryo-Maid operates as a proxy for Delaware’s interests, and the analysis must address the degree to which Delaware has a particular interest in the subject matter of the case. It therefore includes considerations such as the nature and novelty of questions of law to be answered, the desirability of providing a Delaware forum, and the importance of overseeing the conduct of particular classes of actors and policing against particular types of wrongdoing.
Hamilton, 11 A.3d at 1213; see Warburg, Pincus Ventures, L.P. v. Schrapper, 774 A.2d
264, 271 (Del. 2001) (explaining that the “choice of law factor, while relevant to
establishing hardship and inconvenience, primarily focuses on ‘Delaware’s interest in the
litigation’” (quoting Ison, 729 A.2d at 843 (Del. 1999))).
As a result of the Standing Decision, the two principal claims in this case are
governed by Delaware law. The first claim is a direct challenge to the Outbound Merger
on the grounds that (i) Mary Ellen and Petigrow failed to disclose all material information
in connection with that transaction, (ii) Mary Ellen and Petigrow failed to afford any
value to the Company’s pending derivative claims, and (iii) the other Advisors aided and
abetted Mary Ellen and Petigrow in their breaches of duty. That claim is governed by
Delaware law. See, e.g., Morris v. Spectra Energy P’rs (DE) GP, LP, 246 A.3d 121, 138–
39 (Del. 2021); Parnes v. Bally Ent. Corp., 722 A.2d 1243, 1244–46 (Del. 1999); In re
Primedia, Inc. S’holder Litig., 67 A.3d 455, 477–90 (Del. Ch. 2013).
There are derivative claims that will need to be considered to determine whether
the Outbound Merger was an interested transaction, when assessing whether its terms
were entirely fair, and to value the Company for purposes of a quasi-appraisal remedy.
Under the internal affairs doctrine, the law that governs the underlying claims for breach
of fiduciary duty and aiding and abetting depends on whether the Company was a
21 Delaware corporation or a New Jersey corporation when the misconduct occurred. Mary
Ellen gained control of the Company in April 2015. The Company became a Delaware
corporation in May 2016 as a result of the Inbound Merger, and it remained a Delaware
corporation until May 2019, when the Outbound Merger closed. All of the derivative
claims challenging alleged incidents of self-dealing and wrongful extraction of value that
took place during the Company’s three-year stint in Delaware are governed by Delaware
law. Standing Decision, 2023 WL 115541, at *11.
To be sure, there are some transactions that pre-date the Company’s sojourn in the
First State, and those claims will be governed by New Jersey law, but that does not
undermine the primacy of Delaware law. The central claim—the challenge to the
Outbound Merger—is governed by Delaware law. As part of deciding that claim, the
court will be considering the underlying derivative claims, but the court will not be
deciding the underlying derivative claims as claims in their own right. The parties will
need to conduct discovery into the underlying claims and present sufficient evidence
regarding the claims so that the court can assess the fairness of the Outbound Merger and
value the Company, but the court will not need to make formal determinations regarding
liability. To the extent New Jersey law governs aspects of the underlying claims, the role
of New Jersey law is secondary.
The plaintiffs’ challenges to the Share Withdrawal are also governed by Delaware
law. Section 3332(b) of Title 12 of the Delaware Code provides that that “[e]xcept as
otherwise provided by the terms of a court order and notwithstanding a general choice of
law provision in the governing instrument of a trust, . . . the laws of this State shall
22 govern the administration of a trust while the trust is administered in this State . . . .” 12
Del. C. § 3332(b). The statute creates a default rule under which the appointing of a
Delaware trustee brings the trust situs into Delaware and results in the application of
Delaware law to trust administration. In re Peierls Fam. Inter Vivos Trs., 77 A.3d 249,
256 (Del. 2013). The appointment of First Republic Delaware as the trustee of Mary
Ellen’s GRAT caused the situs of the GRAT to move to Delaware and caused Delaware
law to govern its administration. As part of that transaction, the trust instrument
governing Mary Ellen’s GRAT was amended to confirm that “the situs of the Trust shall
be Delaware” and “the governing law of the Trust shall henceforth be the law of the State
of Delaware.” Ex. 16 at ‘945. Mary Ellen and the GRAT subsequently engaged in the
Share Withdrawal, which therefore must be tested under Delaware law.
A final and critical factor is Delaware’s “strong interest in policing against duty of
loyalty violations and the misuse of its entities for fraudulent purposes.” Hamilton, 11
A.3d at 1218. “Delaware has more than an interest in providing a sure forum for
shareholder derivative litigation involving the internal affairs of its domestic
corporations. Delaware has an obligation to provide such a forum.” Sternberg v. O’Neil,
550 A.2d 1105, 1125 (Del. 1988) (internal citations and footnote omitted). “Delaware
courts have a significant and substantial interest in overseeing the conduct of corporate
fiduciaries.” Hamilton, 11 A.3d at 1213; see, e.g., Ryan v. Gifford, 918 A.2d 341, 349–50
(Del. Ch. 2007); In re Chambers Dev. Co., Inc. S’holders Litig., 1993 WL 179335, at *3
(Del.Ch. May 20, 1993). Likewise, “Delaware has a powerful interest of its own in
preventing the entities that it charters from being used as vehicles for fraud. Delaware’s
23 legitimacy as a chartering jurisdiction depends on it.” NACCO Indus., Inc. v. Applica,
Inc., 997 A.2d 1, 26 (Del. Ch. 2009). As the Supreme Court of the United States has
recognized, a chartering state has “a substantial interest in preventing the corporate form
from becoming a shield for unfair business dealing.” CTS Corp. v. Dynamics Corp. of
Am., 481 U.S. 69, 93 (1987).
In this case, the defendants came to Delaware in the apparent belief that Delaware
law would provide an accommodating forum for their schemes. See Ex. 1 (Mary Ellen
stating “I have to work out a billion things at the office to get things ready for Delaware.
They have better laws regarding shit like bob is pulling and we have connections there.”).
Then, when Tim Harris began asking questions, the defendants attempted to flee the state.
Delaware has an interest in having the defendants’ conduct reviewed under its laws to
evaluate whether it passes muster.
Given the predominant role of Delaware law and Delaware’s significant interest in
this dispute, the second Cryo–Maid factor militates powerfully in favor of retaining
jurisdiction.
C. The Relative Ease Of Access To Proof
The third Cryo-Maid factor examines the relative ease of access to proof.
Holsopple, 250 A.3d at 973–74. With current technology, the importance of this factor
has faded for corporate and commercial disputes.6 In the third decade of the twenty-first
6 See, e.g., Barrera, 2016 WL 4938876, at *6 (observing that evidence may be transmitted electronically with ease); Pipal Tech, 2015 WL 9257869, at *6 (noting that “[m]odern methods of information transfer render concerns about transmission of 24 century, “evidence has undergone a shift to electronic data and courts now recognize that
transmittal of evidence electronically is not a burden, particularly in corporate and
commercial disputes.” GXP Cap., LLC v. Argonaut Mfg. Servs., Inc., 253 A.3d 93, 103
(Del. 2021) (internal quotation marks omitted).
For this factor to weigh in favor of dismissal, the defendants must “identify
specific evidence that could not be produced in Delaware.” Id. “[M]ost corporate
litigation in the Court of Chancery involves companies and documents located outside of
Delaware, and this mere inconvenience, without more, does not warrant a stay or
dismissal.” Rosen v. Wind River Sys., Inc., 2009 WL 1856460, at *6 (Del. Ch. June 26,
2009) (cleaned up).
The defendants have not pointed to any evidence that could not be produced in
Delaware. This factor favors denying the motion.
D. The Availability Of Compulsory Process For Witnesses
The fourth “Cryo-Maid factor asks whether this court can compel the relevant
witnesses to appear for discovery and trial.” Holsopple, 250 A.3d at 974. When assessing
documents virtually irrelevant”) (internal quotations omitted); Vichi v. Koninklijke Philips Elecs. N.V., 2009 WL 4345724, at *13 (Del. Ch. Dec. 1, 2009) (noting that parties to Delaware action could collect evidence from other jurisdictions, even where most of the relevant documents and witnesses were in Italy and the Netherlands); In re IBP, Inc. S’holders Litig., 2001 WL 406292, at *9 (Del. Ch. Apr. 18, 2001) (“While it is true that Arkansas will be more convenient for Tyson’s witnesses, that is not a substantial factor. Depositions can be scheduled in a manner convenient to witnesses, and business travel is expected of top corporate executives . . . .”).
25 this factor, the court “must evaluate whether ‘another forum would provide a substantial
improvement as to the number of witnesses who would be subject to compulsory
process.’” Aveta, Inc. v. Colon, 942 A.2d 603, 613 (Del. Ch. 2008). The court’s subpoena
power is not limited to individuals who reside in or pass through Delaware. Through its
jurisdiction over Delaware entities, “this Court can compel production of (i) documents
in the entities’ possession, custody, or control, (ii) corporate representatives pursuant to
Rule 30(b)(6), and (iii) officers, directors, and managing agents of the firms pursuant to
Rule 30(a).” Hamilton, 11 A.3d at 1214.
The principal witnesses to the events in question are parties to the case. The
defendants correctly point out that all of the defendants live in New Jersey, but they
remain subject to compulsory process in this court. With one exception, the court has
ruled that each of the defendants is subject to this court’s jurisdiction and can be
compelled to participate in discovery and appear at trial. If necessary, sanctions can be
imposed and entered as orders, or a default judgment can be awarded. Those orders can
be domesticated and enforced in New Jersey. The lone exception is Schwager, where the
court has deferred ruling on whether this court can exercise jurisdiction over him until
after jurisdictional discovery.
The principal non-party witness, First Republic Delaware, is a Delaware entity and
subject to this court’s jurisdiction. Any other third parties organized as Delaware entities
also would be subject to this court’s jurisdiction.
It is possible that there could be non-party witnesses that live in New Jersey and
who are outside this court’s jurisdiction. As to those witnesses, a New Jersey court would
26 have an advantage. The advantage is not overly great because the parties can secure
subpoenas through the commission process or by using the Uniform Interstate
Depositions and Discovery Act, which both Delaware and New Jersey have adopted. See
43 Del. C. § 4311; N.J. R. 4:11-4 to 11-5. The depositions of those witnesses who are not
subject to this court’s jurisdiction can be used at trial.
The parties have not pointed to legitimate witnesses who are beyond the court’s
subpoena power. The defendants state that they intend to depose the two non-party
Siblings, their spouses and children, and the physicians for Dr. Harris and Mary Ellen.
Those are credibility-compromising threats. It is highly unlikely that those individuals
would have any knowledge relevant to the claims at issue. But the idea of deposing those
witnesses is consistent with how some of the defendants, most notably Mary Ellen, Lolli,
and Grinnell, have approached discovery. They have repeatedly sought to frustrate
discovery in this proceeding, then leveled over-the-top allegations in the New Jersey
Miscellaneous Action and the New Jersey Discovery Action about the burdens and
injustice associated with producing materials that are plainly relevant. Then, when the
time came to identify witnesses who might be necessary for trial and beyond the court’s
subpoena power, they identified individuals tangential to this proceeding who appear to
have been selected to cause maximum annoyance. The court already quashed a subpoena
that the defendants served, in-person during the pandemic, on Tim Harris’s spouse
because “[t]he circumstances surrounding the subpoena suggest that it was served for
purposes of harassment . . . .” Harris v. Harris FRC Corp., 2021 WL 1103395, at *2
27 (Del. Ch. Mar. 22, 2021). The defendants’ argument about witnesses smacks of more of
the same.
The fifth factor is in equipoise. To be charitable to the defendants, it marginally
favors dismissal.
E. All Other Practical Problems That Would Make The Trial Easy, Expeditious, And Inexpensive
The last Cryo-Maid factor is a catch-all factor that “looks to any other matters that
would affect the conduct of the litigation and the expeditious and economic
administration of justice.” Holsopple, 250 A.3d at 974. “Under this prong, Delaware
courts have examined a wide array of considerations[,] including judicial economy, the
motives of the parties filing suit in the respective jurisdictions, and public interest.” Pipal
Tech, 2015 WL 9257869, at *9. “It authorizes a trial court to take into account the need to
control its own docket, manage its affairs, achieve the orderly disposition of its business,
and promote the efficient use of judicial resources.” Holsopple, 250 A.3d at 974–75. The
final factor “will seldom, in isolation, be dispositive of whether dismissal on the grounds
of forum non conveniens is warranted.” Martinez, 86 A.3d at 1113.
A significant consideration under this factor is the amount of judicial resources
that the court already has devoted to the case. The parties have litigated in this court for
three years, and the court has expended a significant amount of time addressing and
resolving discovery disputes. After engaging in a pattern of bad faith discovery conduct,
the defendants would understandably like to start over with a clean slate elsewhere. That
is not a reason for dismissal. It is a reason for retaining the case. A new judge would have
28 to invest time and energy to come up to speed on the issues, and given the defendants’
litigiousness, the new judge likely would be asked to revisit the decisions that this court
has made. Dismissing the action thus would result in considerable duplication of effort,
and the timeline for resolving it would be extended further into the future.
As their principal argument under this factor, the individual defendants point out
that all of them live in New Jersey. True, but the Garden State is not a faraway country. It
is not even a faraway state. Delaware and New Jersey are neighbors. Interstate 95
transects both, and Interstate 295 links the two. Amtrak offers convenient rail service, and
a more cost-conscious traveler can take New Jersey Transit to Trenton, then change to
SEPTA for a commuter train to Wilmington. And while the Delaware River serves as a
dividing line, the Delaware Memorial Bridge, the Commodore Barry Bridge, the
Benjamin Franklin Bridge, and the Betsy Ross Bridge (to name a few) connect the
opposing banks.
For the defendants to litigate in Delaware is not a significant burden. They happily
moved the Company to Delaware for three years, and they established an office for the
Company in Newark. They happily moved Mary Ellen’s GRAT to Delaware to facilitate
the Share Withdrawal. They can handle litigating in this court.
F. The Overall Balancing
In the absence of a Prior Action, the defendants must establish that they will suffer
overwhelming hardship from litigating in this court, which means that the Cryo-Maid
factors, taken as a whole, must favor dismissal heavily and decisively. The defendants
have failed to make that showing. The choice of law factor and the practical
29 considerations associated with the case point strongly in favor of this court retaining
jurisdiction. The ease of access to proof is in equipoise. The availability of compulsory
process for witnesses points marginally in favor of New Jersey. Taking all the factors into
account, they do not aggregate to the level of hardship required for dismissal.
III. CONCLUSION
The court will not dismiss this action under the doctrine of forum non conveniens.
The motion for dismissal on that basis is denied.