After CEO and Chairman of closely held company was removed by board of directors, he sued, requesting specific performance of the removal of the other members of the board. The Chancery Court dismissed several claims in the complaint for want of personal jurisdiction, and also denied the CEO’s motion for summary judgment, finding that each side of the litigation alleged disputed facts and complex legal theories not appropriate for resolution on summary judgment.
In 2016, Craig Bouchard founded Braidy Industries, Inc., a Delaware corporation with principal places of business in Kentucky and Massachusetts whose purpose is to manufacture efficient and eco-friendly aluminum alloys. Bouchard served as CEO, Chairman of the board of directors, and Secretary. The board also consisted of John Preston, Charles Price, Michael Porter, and Christopher Schuh. All members of the board were Braidy stockholders.
In 2018, Bouchard and the other directors entered into an Amended and Restated Voting Agreement. The directors and Bouchard executed the agreement in their capacity as stockholders. The board unanimously approved the agreement, and the agreement was referenced throughout the Braidy bylaws. The agreement specified that only persons who were nominated in accordance with the agreement were eligible for election as directors. The agreement also contained provisions regarding the removal of directors.
In January 2020, the Board held a special meeting. During this meeting, all members of the board except Bouchard voted to remove Bouchard as Secretary and replace him with Preston. The board also voted to remove Bouchard as Chairman and CEO and appoint Price and Tom Modrowski to those positions. Bouchard objected to his removal, claiming that it was in contravention of the agreement and that he had the right under the agreement to dismiss the other members of the board. Bouchard then filed suit in February 2020 alleged breach of the Voting Agreement.
Several of the stockholder defendants filed a motion to dismiss the first count of the complaint for lack of personal jurisdiction, while Preston filed a motion to dismiss the count against him for lack of personal jurisdiction as well as failure to state a claim. Bouchard moved for summary judgment on the entirety of the complaint. The defendants responded by claiming that actions taken by the board to issue a stock split, adopt several amendments, and expand the size of the board from six to eighteen seats mooted Bouchard’s requests for specific performance.
The Delaware Chancery Court began by addressing the status of the stockholder defendants. The court found that it lacked personal jurisdiction over the defendants. The court found that the voting agreement did not contain a consent to personal jurisdiction, only a consent to equitable remedies. The court further found that the defendants had not waived their ability to object to personal jurisdiction via their pre-litigation conduct. The court then stated that the plaintiffs had identified no statutory basis for jurisdiction over the stockholder defendants and that the claims against them must be dismissed.
Next, the court found that it lacked personal jurisdiction over the claims asserted against Preston. The plaintiffs had relied on Delaware’s director consent statute, 10 Del. C. § 3114(a) to provide jurisdiction. The court, however, determined that the complaint did not state a claim against Preston in his role as Secretary. Therefore, the court reasoned, the count did not implicate Preston’s corporate powers for personal jurisdiction purposes, and it was therefore dismissed.
Next, the court determined that Bouchard was entitled to judgment on the pleadings on Braidy’s affirmative defense of unclean hands. The court found that Braidy’s unclean hands defense did not ber an immediate and necessary relation to Bouchard’s claims for breach of contract. The court noted that the defense related to Bouchard’s alleged misuse of company funds, self-dealing, and other wrongful acts, which related to Bouchard’s fiduciary duties as a director and officer, not to his rights under the agreement or to Braidy’s obligations under the agreement.
Finally, the court denied Bouchard’s motion for summary judgment. The court found that the defendant’s interpretation of the agreement was correct. The court further found that each side of the litigation had raised several issues relating to the effectiveness of the actions taken by the board to moot Bouchard’s request for specific performance. The court stated that some arguments raised disputed facts or complicated legal theories and were therefore not appropriate for resolution on summary judgment. The court, therefore, denied the motion for summary judgment.
You can read the full decision here.
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