    IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DR. THOMAS MARKUSIC, DR. MAXYM         )
POLYAKOV, NOOSPHERE VENTURE            )
PARTNERS, LP, and FIREFLY AEROSPACE,   )
INC.,                                  )
                                       )
         Plaintiffs,                   )
                                       )
    v.                                 ) C.A. No. 2019-0753-KSJM
                                       )
MICHAEL BLUM, PATRICK JOSEPH KING,     )
LAUREN MCCOLLUM, STEVEN                )
BEGLEITER, GREEN DESERT N.V., SWING    )
INVESTMENTS BVBA, BRIGHT SUCCESS       )
CAPITAL LTDL, and WUNDERKIND SPACE     )
LTD.,                                  )
                                       )
         Defendants.                   )
                                       )
                                       )
MICHAEL BLUM, PATRICK JOSEPH KING,     )
LAUREN MCCOLLUM, STEVEN                )
BEGLEITER, GREEN DESERT N.V., SWING    )
INVESTMENTS BVBA, BRIGHT SUCCESS       )
CAPITAL LTD., and WUNDERKIND SPACE     )
LTD.,                                  )
                                       )
          Counterclaim-Plaintiffs,     )
                                       )
    v.                                 )
                                       )
DR. THOMAS MARKUSIC, DR. MAXYM         )
POLYAKOV, MARK WATT, NOOSPHERE         )
VENTURE PARTNERS, LP, and FIREFLY      )
AEROSPACE, INC.,                       )
                                       )
          Counterclaim-Defendants.     )
       ORDER GRANTING MOTION TO DISMISS COUNTERCLAIMS1

      1.     Firefly Space Systems, Inc. (“Original Firefly”) was an aerospace

startup founded in late 2013 by Michael Blum, Patrick Joseph King, and Thomas

Markusic to launch small-load rockets into orbit. Counterclaim-Plaintiffs Blum,

King, Lauren McCollum, Steven Begleiter, Green Desert N.V., Swing Investments

BVBA, Bright Success Capital Ltd., and Wunderkind Space Ltd. (collectively,

“Original Firefly Investors”) all owned stock in Original Firefly. Markusic was the

CEO and sole board member of Original Firefly at all relevant times.

      2.     In June 2015, Original Firefly raised approximately $1 million in

funding from Space Florida, the aerospace economic development agency of the

State of Florida, in the form of a convertible note (the “Space Florida Note”). The

Space Florida Note was senior to all other Original Firefly debt, and it could not be

assigned to another lender without Original Firefly’s consent.

      3.     In October 2016, Original Firefly raised another $1.5 million in debt

financing from FITA, Inc., an entity controlled by one of Original Firefly’s investors

(the “FITA Note”). The FITA Note served as a bridge loan while Original Firefly

worked to conclude its Series A funding round. The FITA Note was senior to the

Original Firefly Investors’ own investments in Original Firefly.


1
 The facts are drawn from the Verified Counterclaims. C.A. No. 2019-0753-KSJM,
Docket (“Dkt.”) 3, Defs.’ Answer to Compl. for Declaratory J., Affirmative Defenses, &
Verified Countercls. (“Countercls.”).

                                          2
          4.    On October 16, 2016, Original Firefly entered into a confidentiality

agreement (the “Confidentiality Agreement”) with another prospective investor,

Noosphere Venture Partners, LP. (“Noosphere”).           Noosphere’s CEO, Maxym

Polyakov, then visited Original Firefly’s facilities in Texas. After the visit, Polyakov

and his partner, Mark Watt, sent Markusic a summary of Noosphere’s proposed next

steps regarding an investment in Original Firefly. Over the next month, Markusic

negotiated with Polyakov regarding Noosphere’s investment.

          5.    On November 29, 2016, Noosphere presented a proposed term sheet for

a convertible note financing. The Original Firefly Investors and Markusic believed

this proposal “substantially undervalued” their Original Firefly equity. 2 Markusic

told the Original Firefly Investors that he would continue negotiating with

Noosphere.

          6.    By December 2016, Noosphere had shifted gears from negotiating a

new convertible note financing to acquiring portions of Original Firefly’s existing

debt. The Original Firefly Investors allege that Markusic encouraged this change of

plans, helping Polyakov, Watt, and Noosphere to “identify and target outstanding

debt held by creditors that would be ripe for foreclosure.”3 The Original Firefly




2
    Id. ¶ 24.
3
    Id. ¶ 25.

                                           3
Investors also allege that at this time, Markusic began negotiating his own

employment with Noosphere.

          7.    On January 11, 2017, Polyakov, Watt, and Noosphere renewed their

proposal to acquire Original Firefly’s existing senior debt. This time, Markusic

supported their proposal. On January 27, 2017, Markusic announced an intent to

travel to Ukraine “to determine firsthand what capabilities Polyakov’s companies

had and to solicit further strategic investment from Polyakov that would purportedly

benefit Original Firefly.”4 Also on January 27, 2017, Polyakov incorporated a

company named EOS in Delaware.

          8.    On February 10, 2017, EOS purchased the FITA Note. After becoming

aware of this transaction, the Original Firefly Investors “actively voiced their

disapproval and concerns.”5 On February 14, 2017, EOS purchased the Space

Florida Note. The Original Firefly Investors allege that Markusic approved the

assignment of the Space Florida Note to EOS in his capacity as the sole director of

Original Firefly. Markusic did not obtain the approval of the Original Firefly

Investors or any other Original Firefly stockholders, which the Original Firefly

Investors allege was required.




4
    Id. ¶ 28.
5
    Id. ¶ 33.

                                          4
          9.    Shortly after acquiring the FITA Note and Space Florida Note, EOS

foreclosed on both loans. The Original Firefly Investors then demanded that

Markusic cause Original Firefly to voluntarily file for bankruptcy “so that a

bankruptcy trustee could manage the sale of Original Firefly’s assets and protect it

from the selective foreclosure process.”6 Instead, Markusic scheduled a foreclosure

auction of Original Firefly’s assets for March 16, 2017, but took “minimal action”

to organize it.7 The Original Firefly Investors notified media outlets and potential

bidders, but the auction was not widely publicized. EOS carried out the auction and

also purchased every asset up for sale, including Original Firefly’s intellectual

property. After the auction, Original Firefly had very few assets. It filed for

Chapter 7 bankruptcy protection and went out of business. In a subsequent auction

run by a bankruptcy trustee, EOS purchased Original Firefly’s remaining assets.

          10.   On March 24, 2017, EOS changed its name to Firefly Aerospace, Inc.

(“New Firefly”) and appointed Markusic as its CEO. Markusic’s compensation and

equity interests in his new role are “far greater” than his interests in Original Firefly.8

          11.   On September 19, 2019, New Firefly and its management and investors,

Markusic, Polyakov, and Noosphere, filed this litigation seeking a declaratory



6
    Id. ¶ 36.
7
    Id. ¶ 38.
8
    Id. ¶ 41.

                                            5
judgment that Markusic did not breach his fiduciary duties and that Polyakov,

Noosphere, and New Firefly did not aid and abet any alleged breaches.9 On

November 22, 2019, the Original Firefly Investors answered the complaint and filed

counterclaims against the plaintiffs and Watt (collectively, the “New Firefly

Contingent”).10 On February 7, 2020, the New Firefly Contingent moved to dismiss

the Counterclaims.11 The parties fully briefed the motion,12 and the Court held oral

argument on June 25, 2020.

         12.       The Original Firefly Investors assert five causes of action, which this

decision refers to as Counterclaims I through V:

                  Counterclaim I claims that Markusic breached his fiduciary duty
                   of loyalty.

                  Counterclaim II claims that Polyakov, Watt, Noosphere, and
                   New Firefly aided and abetted in Markusic’s breaches of
                   fiduciary duty.

                  Counterclaim III claims that Noosphere breached the
                   Confidentiality Agreement by misusing Original Firefly’s
                   confidential information to engineer a takeover of Original
                   Firefly rather than to invest in Original Firefly.



9
    Dkt. 1, Compl. for Declaratory J.
10
     Countercls.
11
     Dkt. 5, Pls.’ Mot. to Dismiss Defs.’ Countercls.
12
   Dkt. 15, Pls.’ Mot. to Dismiss Defs.’ Countercls. Pursuant to Ct. of Chancery
Rules 12(b)(1) & 23.1; Dkt. 17, Def./Counter-Pls.’ Answering Br. in Opp’n to Mot. to
Dismiss (“Answering Br.”); Dkt. 18, Pls.’ Reply Br. in Further Supp. of Their Mots. to
Dismiss (“Reply Br.”).

                                               6
             Counterclaim IV claims that Markusic, Polyakov, Watt, and New
              Firefly tortiously interfered with the Confidentiality Agreement
              by causing Noosphere’s breach.

             Counterclaim V claims that Polyakov, Watt, Noosphere, and
              New Firefly tortiously interfered with the Original Firefly
              Investors’ prospective economic advantage by disrupting their
              business relationship with Original Firefly.

                                LEGAL ANALYSIS
      13.     The New Firefly Contingent has moved to dismiss the Counterclaims.

They contend that Counterclaims I, II, III, and IV are derivative in nature, that the

claims were not assigned to the Original Firefly Investors by the bankruptcy court,

and thus, the Original Firefly Investors lack standing. They also contend that

Counterclaim V fails to state a claim upon which relief can be granted.

      14.     The Original Firefly Investors respond that their fiduciary duty claims

in Counterclaims I and II are direct in nature and that they state a claim upon which

relief can be granted. They concede that Counts III and IV are derivative but argue

that the bankruptcy did not affect those claims and that they have adequately pleaded

demand futility. They last argue that Count V states a claim upon which relief can

be granted.




                                          7
         15.    Under Rule 12(b)(6), the Court may grant a motion to dismiss if the

complaint “fail[s] to state a claim upon which relief can be granted.”13 “[T]he

governing pleading standard in Delaware to survive a motion to dismiss is

reasonable ‘conceivability.’”14 When considering such a motion, the Court must

“accept all well-pleaded factual allegations in the [c]omplaint as true . . . , draw all

reasonable inferences in favor of the plaintiff, and deny the motion unless the

plaintiff could not recover under any reasonably conceivable set of circumstances

susceptible of proof.”15        The Court, however, need not “accept conclusory

allegations unsupported by specific facts or . . . draw unreasonable inferences in

favor of the non-moving party.”16

         16.    In Counterclaim I, the Original Firefly Investors allege that Markusic

owed fiduciary duties as CEO of Original Firefly and that he breached those duties

by “leverag[ing] his control over [Original] Firefly’s assets to secure a deal for

himself with Polyakov, Watt, and Noosphere.”17 In Counterclaim II, Counterclaim-



13
  Ct. Ch. R. 12(b)(6); see also Dover Historical Soc. v. City of Dover Planning Comm’n,
838 A.2d 1103, 1110 (Del. 2003) (evaluating standing argument under Ct. Ch.
R. 12(b)((6)).
14
  Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 537 (Del.
2011).
15
     Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
16
   Price v. E.I. du Pont de Nemours Co., Inc., 26 A.3d 162, 166 (Del. 2011) (citing Clinton
v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).
17
     Answering Br. at 15.

                                              8
Plaintiffs allege that Polyakov, Watt, Noosphere, and New Firefly aided and abetted

Markusic’s alleged breaches in Counterclaim I. The Original Firefly Investors argue

that their claims are direct in nature because they suffered a “special injury distinct

from that suffered by [Original Firefly] or the stockholder group as a whole.”18 They

argue under the Court’s Gentile paradigm that Markusic “effectively controlled”

Original Firefly and that he exploited this control to expropriate all economic value

and voting power from the Original Firefly Investors for himself.19

          17.      The Original Firefly Investors’ reliance on Gentile is misplaced. In

Gentile, the Delaware Supreme Court recognized “a species of corporate

overpayment claim” that a stockholder can assert both derivatively and directly. 20

The Supreme Court held that breach of fiduciary claims may take on this dual

character where:

                   (1) a stockholder having majority or effective control
                   causes the corporation to issue “excessive” shares of its
                   stock in exchange for assets of the controlling stockholder
                   that have a lesser value; and (2) the exchange causes an
                   increase in the percentage of the outstanding shares owned
                   by the controlling stockholder, and a corresponding
                   decrease in the share percentage owned by the public
                   (minority) shareholders.21


18
 Id. at 17 (quoting Odyssey P’rs v. Fleming Co., 1998 WL 155543, at *3 (Del. Ch.
Mar. 27, 1998)).
19
     Id. at 15.
20
     Gentile v. Rosette, 906 A.2d 91, 99 (Del. 2006).
21
     Id. at 100.

                                               9
The Court concluded that in these instances, “the public shareholders are harmed,

uniquely and individually, to the same extent that the controlling shareholder is

(correspondingly) benefitted.”22 Put differently, “the harm Gentile seeks to remedy

arises ‘when a controlling stockholder, with sufficient power to manipulate the

corporate processes, engineers a dilutive transaction whereby that stockholder

receives an exclusive benefit of increased equity ownership and voting power for

inadequate consideration.’”23

           18.      The Delaware Supreme Court has since narrowly construed the Gentile

doctrine in El Paso Pipeline GP v. Brinckerhoff.24 In that case, a limited partner

challenged alleged overpayments to a controller that reduced the limited partners’

economic interests but not their voting rights.25 The Court distinguished the facts of

Gentile and declined to apply its holding where the challenged transactions did not

“result[] in an improper transfer of both economic and voting power from the

minority stockholders to the controlling stockholder.”26


22
     Id.
23
  Klein v. H.I.G. Capital, L.L.C., 2018 WL 6719717, at *6 (Del. Ch. Dec. 19, 2018)
(quoting Feldman v. Cutaia, 956 A.2d 644, 657 (Del. Ch. 2007), aff’d, 951 A.2d 727
(Del. 2008)).
24
     152 A.3d 1248 (Del. 2016).
25
     Id. at 1264.
26
  Id. at 1263. In a concurring opinion, then-Chief Justice Strine urged his colleagues to
overrule Gentile. Id. at 1266 (Strine, C.J., concurring). Consequently, “[i]n the wake of
El Paso, [the Court of Chancery] has exercised caution in applying the Gentile framework,
commenting in one case that ‘[w]hether Gentile is still good law is debatable’ and finding
                                              10
         19.    The facts of this case do not fit the mold of Gentile as set by El Paso.

The Original Firefly Investors more or less complain that Markusic approved

transactions that depleted the economic value of Original Firefly for Markusic’s own

benefit. They do not allege any dilution or loss of voting rights. Our Supreme Court

has “decline[d] the invitation to further expand the universe of claims that can be

asserted ‘dually’” to include solely “the extraction of solely economic value from

the minority by a controlling stockholder.”27 Thus, the Original Firefly Investors’

claims are derivative in nature.28

         20.    Upon commencement of Chapter 7 bankruptcy proceedings, derivative

claims “become the property of the bankruptcy estate and subject to the control of

the [b]ankruptcy [c]ourt.”29 “Upon the filing of a bankruptcy petition . . . , any

claims for injury to the debtor from actionable wrongs committed by the debtor’s



in another that ‘Gentile must be limited to its facts.’” Klein, 2018 WL 6719717, at *7 (first
quoting ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *26 n.206 (Del. Ch.
July 21, 2017), aff’d, 184 A.3d 1291 (Del. 2018) (TABLE); then quoting Almond for
Almond Family 2001 Tr. v. Glenhill Advisors LLC, 2018 WL 3954733, at *24 (Del. Ch.
Aug. 17, 2018), aff’d, 224 A.2d 200 (Del. 2019) (TABLE)).
27
     El Paso, 152 A.3d at 1264.
28
   The Original Firefly Investors do not address the Supreme Court’s holding in El Paso
and instead appeal to this Court’s equitable inclinations to regard substance over form. See
Answering Br. at 12–13 (citing Gatz v. Ponsoldt, 925 A.2d 1265 (Del. 2007)); id. at 14–15
(citing Odyssey P’rs, 1998 WL 155543). All of the cases relied upon by the Original
Firefly Investors pre-date El Paso.
29
  Thornton v. Bernard Techs., Inc., 2009 WL 426179, at *3 (Del. Ch. Feb. 20, 2009); see
Police & Fire Ret. Sys. of City of Detroit v. Callen, 44 A.3d 922 (Del. 2012) (TABLE)
(confirming that Thornton is the “controlling rule of law”).

                                             11
officers and director become property of the estate under 11 U.S.C. § 541 and the

right to bring a derivative action asserting such claims vests exclusively to the

trustee.”30 “This is true regardless of whether the derivative action is brought prior

to or after the filing of the petition.”31 Claims subject to the control of the bankruptcy

trustee “must be dismissed unless the [p]laintiffs are able to demonstrate some

authority to proceed in the [t]rustee’s stead.”32 This delegation of authority requires

a showing that “(1) that the bankruptcy trustee has affirmatively assigned or

abandoned the claims to the [p]laintiffs and (2) the [b]ankruptcy [c]ourt approved of

[p]laintiffs’ prosecution of the claims in this Court.”33

           21.   The Original Firefly Investors have neither pled that the bankruptcy

trustee assigned them the authority to bring Counterclaims I and II nor that the

bankruptcy court approved any such assignment. Counterclaims I and II must be

dismissed because they are derivative, and the Original Firefly Investors do not have

the authority to bring them on behalf of Original Firefly. 34



30
  In re RNI Wind Down Corp., 348 B.R. 286, 292 (Bankr. D. Del. 2006), aff’d, 359 F.
App’x 352 (3d Cir. 2010); see also Thornton, 2009 WL 426179, at *3 & n.29 (collecting
cases).
31
     In re RNI Wind Down Corp., 348 B.R. at 293.
32
     Thornton, 2009 WL 426179, at *4.
33
     Id.
34
  The Original Firefly Investors argue instead that these claims were not “discharged”
during Original Firefly’s bankruptcy because they were never considered by the trustee.
Answering Br. at 23. But the discharge doctrine in bankruptcy applies to debts of the
                                           12
         22.    In Counterclaim III, the Original Firefly Investors allege that

Noosphere breached the Confidentiality Agreement by misusing Original Firefly’s

confidential information. In Counterclaim IV, the Original Firefly Investors allege

that Markusic, Polyakov, Watt, and New Firefly tortuously interfered with the

Confidentiality Agreement. The parties appear to agree that Counterclaims III and

IV are derivative in nature.35 These claims thus must also be dismissed because the

Original Firefly Investors neither allege that they were assigned the authority to

bring these claims nor that the bankruptcy trustee approved any such assignment.

         23.    In Counterclaim V, the Original Firefly Investors allege that Polyakov,

Watt, Noosphere, and New Firefly tortiously interfered with their prospective

economic advantage as stockholders of Original Firefly. To state a claim for tortious

interference with prospective economic advantage, a plaintiff must plead: “(a) the

reasonable probability of a business opportunity, (b) the intentional interference by

the defendant with that opportunity, (c) proximate causation, and (d) damages.”36 To

plead a reasonable probability of a business opportunity, a plaintiff “must identify a



bankruptcy estate. See 11 U.S.C. § 727. Derivative actions are assets of the estate, not
debts. The Original Firefly Investors’ argument is thus inapposite.
35
     Answering Br. at 23, 26; Reply Br. at 15.
36
   Organovo Hldgs., Inc. v. Dimitrov, 162 A.3d 102, 122 (Del. Ch. 2017) (quoting
DeBonaventura v. Nationwide Mut. Ins. Co., 419 A.2d 942, 947 (Del. Ch. 1980)). The
parties dispute whether Delaware or California law applies to Counterclaim V, but the
Original Firefly Investors’ conclusory allegations fail to state a claim under either state’s
law.

                                                 13
specific party who was prepared to enter into a business relationship but was

dissuaded from doing so by the defendant and cannot rely on generalized allegations

of harm.”37

         24.    The Original Firefly Investors have not identified a party who was

prepared to enter into a business relationship with them as stockholders of Original

Firefly. Their conclusory allegation that they “had an existing and prospective

business with Original Firefly” does not suffice.38 Counterclaim V is thus dismissed.

                                   CONCLUSION
         25.    For the foregoing reasons, the motion to dismiss the counterclaims is

granted in full.

                                         /s/ Kathaleen St. J. McCormick
                                         Vice Chancellor Kathaleen St. J. McCormick
                                         Dated: August 18, 2020




37
  Id. (quoting Agilent Techs., Inc. v. Kirkland, 2009 WL 119865, at *7 (Del. Ch. Jan. 20,
2009)).
38
     Countercls. ¶ 67.

                                           14
