                               COURT OF CHANCERY
                                     OF THE
                               STATE OF DELAWARE
ANDRE G. BOUCHARD                                              LEONARD L. WILLIAMS JUSTICE CENTER
   CHANCELLOR                                                        500 N. KING STREET, SUITE 11400
                                                                    WILMINGTON, DELAWARE 19801-3734


                           Date Submitted: August 15, 2018
                           Date Decided: September 19, 2018

 David J. Teklits, Esquire                    Michael A. Pittenger, Esquire
 Richard Li, Esquire                          Jacqueline A. Rogers, Esquire
 Morris, Nichols, Arsht & Tunnell LLP         Potter Anderson & Corroon LLP
 1201 N. Market Street                        1313 N. Market Street, 6th Floor
 Wilmington, DE 19899                         Wilmington, DE 19899

        RE:     David Schultz, et al. v. QuantPower, Inc., et al.
                Civil Action No. 12919-CB
 Dear Counsel:

        At the conclusion of the hearing held on August 15, 2018, the court denied

 plaintiffs’ motion to dismiss QuantPower, Inc.’s counterclaims against them and

 took under advisement the parties’ cross-motions for partial summary judgment.

 For the reasons explained briefly below, the cross-motions for partial summary

 judgment also will be denied.

        The cross-motions for partial summary judgment concern Counts I and II of

 plaintiffs’ three-count Verified Complaint and Petition for Appraisal filed on

 November 18, 2016. Although styled as a single claim, Count I asserts essentially

 three separate claims arising out of QuantPower’s acquisition of Banyan Energy,

 Inc. in a merger transaction that closed in August 2016 (the “Merger”): (i) a claim

 for breach of fiduciary duty against the three members of Banyan’s board of
David Schultz, et al. v. QuantPower, Inc., et al.
Civil Action No. 12919-CB
September 19, 2018

directors; (ii) a claim for breach of fiduciary duty against Acero Capital, L.P. as

Banyan’s controlling stockholder; and (iii) a claim for aiding and abetting against

QuantPower. Count II asserts a claim for unjust enrichment against QuantPower

and Acero relating to the Merger.

          On May 10, 2018, plaintiffs moved for partial summary judgment in their

favor on Count I. On June 25, 2018, defendants cross-moved for partial summary

judgment in their favor on Counts I and II. Count III of plaintiffs’ complaint,

which is not the subject of either of the pending motions, seeks an appraisal of

their Banyan shares under 8 Del. C. § 262.

          In simplified terms, the Merger was a stock-for-stock transaction in which

each outstanding share of Banyan common stock was converted into the right to

receive approximately .075 shares of QuantPower common stock. Banyan and

QuantPower are both private corporations.           As a condition of the Merger,

QuantPower was to acquire, as of consummation of the Merger, certain assets and

liabilities of another company called SmartTrak Solar.1           QuantPower also

anticipated completing a Series A preferred stock financing with Acero and certain

other investors (the “Series A offering”) concurrently with the Merger.2



1
    Pls.’ Opening Br. Ex. A at 8 (Dkt. 68).
2
    Id. at 11.

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David Schultz, et al. v. QuantPower, Inc., et al.
Civil Action No. 12919-CB
September 19, 2018

          In advance of the Merger, plaintiffs received an Information Statement from

Banyan. It stated, in relevant part: “In order to receive Merger Consideration . . .

you must review and sign the Stockholder Agreement in the form attached as

Annex A-3 to this Information Statement . . . , which entails your representation

that you are an ‘accredited investor’ as defined in Rule 501(a) of the Securities Act

of 1933 . . . .”3 Notwithstanding this statement, the attached form of Stockholder

Agreement provided an option for the stockholder to check a box indicating that he

was not an accredited investor4 and other documents in the record indicate that

Banyan informed plaintiffs before the Merger closed that they could receive the

Merger consideration, apparently without regard to whether or not they were

accredited investors.5

          Plaintiffs assert that Banyan’s directors breached their fiduciary duties of

care and loyalty by structuring the Merger in a way that prevented them from

receiving the consideration offered in the Merger, i.e., shares of QuantPower.

Relying on the text of the Information Statement quoted above, plaintiffs contend

that because they are not accredited investors, they could not receive shares of

QuantPower under federal securities laws. In other words, the director defendants’

3
    Id. at 2.
4
    Pls.’ Opening Br. Ex. B at PLS00014541.
5
    See Transmittal Aff. of Jacqueline A. Rogers Exs. 5, 12 (Dkt. 72).
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David Schultz, et al. v. QuantPower, Inc., et al.
Civil Action No. 12919-CB
September 19, 2018

alleged breach of duty resulted from their failure to ensure that the consideration

offered to plaintiffs in the Merger complied with federal securities laws.

         As a remedy for this alleged breach of duty, plaintiffs seek damages

equivalent to the value of the QuantPower shares that were offered in the Merger

based on a disclosure in the Information Statement concerning the pre-money

value of QuantPower implied by the proposed terms of the Series A offering.6

This amount would include elements of value attributable to the combination of

Banyan and SmartTrak Solar (e.g., synergies) that was a condition of the Merger.

In other words, this amount would exceed the value of plaintiffs’ shares of Banyan

under the appraisal statute, which requires that the court “determine the fair value

of the shares exclusive of any element of value arising from the accomplishment or

expectation of the merger.”7

         In response, defendants contend that plaintiffs could have received shares of

QuantPower in connection with the Merger under the private placement exemption

of Section 4(a)(2) of the Securities Act of 1933. Defendants further contend that a

Banyan stockholder’s status as an accredited investor was relevant to whether that

person could participate in the Series A offering, but was irrelevant to whether that



6
    See Pls.’ Opening Br. Ex. A at 11.
7
    8 Del. C. § 262(h).

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David Schultz, et al. v. QuantPower, Inc., et al.
Civil Action No. 12919-CB
September 19, 2018

person could receive the Merger consideration. Finally, defendants dispute that the

Information Statement purports to value Banyan.

       Having further considered the parties’ submissions and the arguments made

during the August 15 hearing, I am denying the cross-motions for partial summary

judgment for essentially two reasons. First, genuine issues of material fact exist

concerning matters central to deciding the motions. For example, with respect to

plaintiffs’ breach of fiduciary duty claim against Banyan’s directors:

        The record is devoid of evidence concerning the deliberative
         process the directors undertook in structuring and approving the
         Merger.8 None of the directors has been deposed and no evidence
         has been provided concerning, among other things, their
         understanding as to whether structuring the Merger as an exchange
         of shares of Banyan for shares of QuantPower was permissible
         under federal securities laws. A factual record on these issues is
         necessary to adjudicate plaintiffs’ assertion that the directors acted
         in bad faith and breached their duty of loyalty.

        It is unclear from the record whether Banyan’s certificate of
         incorporation contains a provision exculpating its directors for


8
  Instead of addressing this issue, the parties focused their briefs on whether offering
QuantPower shares as the Merger consideration complied with federal securities laws.
The answer to that question of federal law, however, does not answer the Delaware law
question whether Banyan’s directors acted in bad faith. See, e.g., Nguyen v. Barrett,
2016 WL 5404095, at *3 (Del. Ch. Sept. 28, 2016) (“A showing of bad faith requires an
extreme set of facts to establish that disinterested directors were intentionally
disregarding their duties or that the decision . . . [was] so far beyond the bounds of
reasonable judgment that it seems essentially inexplicable on any ground other than bad
faith.”) (internal quotations and citation omitted).


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David Schultz, et al. v. QuantPower, Inc., et al.
Civil Action No. 12919-CB
September 19, 2018

          monetary damages for breaches of the duty of care.9 The existence
          of such a common provision would be dispositive of plaintiffs’
          duty of care claim.

        Plaintiffs’ theory of damages is extrapolated from a disclosure
         concerning the post-Merger, pre-money value of QuantPower
         derived from the pricing of the Series A offering. It is not apparent
         to the court that this disclosure provides a reliable measure of
         damages for a breach of the directors’ fiduciary duty, if proven,
         and defendants dispute that this disclosure represents the pre-
         Merger value of Banyan.

       Second, the remaining claims implicated by the parties’ cross-motions for

partial summary judgment have not been briefed adequately.                  In particular,

plaintiffs’ (i) breach of fiduciary duty claim against Acero as Banyan’s controlling

stockholder, (ii) aiding and abetting claim against QuantPower, and (iii) unjust

enrichment claim against both Acero and QuantPower are barely mentioned much

less analyzed in any meaningful sense in the parties’ briefs so as to fairly present

those issues for decision.

       For the foregoing reasons, the parties’ cross-motions for partial summary

judgment are denied. IT IS SO ORDERED.

                                                    Sincerely,
                                                    /s/ Andre G. Bouchard
                                                    Chancellor
AGB/gm

9
 When asked, defense counsel was unable to confirm whether or not Banyan’s certificate
of incorporation contains such a provision. Tr. 47 (Aug. 15, 2018) (Dkt. 84).

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