      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

KYLE C. KERBAWY, SR.,                                )
                                                     )
      Plaintiff/Counterclaim-Defendant,              )
                                                     )
             v.                                      )      C.A. No. 10769-VCP
                                                     )
JOHN MCDONNELL, MAGNUS                               )
MOLITEUS, MARTIN PFINSGRAFF,                         )
JAMES D‟ORTA, STEVEN P.                              )
MULLINS, and JON T. TREMMEL,                         )
                                                     )
      Defendants/Counterclaim-Plaintiffs.            )
                                                     )
JOHN MCDONNELL, MAGNUS                               )
MOLITEUS, MARTIN PFINSGRAFF,                         )
JAMES D‟ORTA, STEVEN P.                              )
MULLINS, and JON T. TREMMEL,                         )
                                                     )
      Third-Party Plaintiffs,                        )
                                                     )
             v.                                      )
                                                     )
JAMES DEFRANCESCO,                                   )
      Third-Party Defendant.                         )
                                                     )

                                MEMORANDUM OPINION

                                Date Submitted: June 18, 2015
                                Date Decided: August 18, 2015


Eric D. Selden, Esq., David E. Ross, Esq., Nicholas D. Mozal, Esq., ROSS ARONSTAM
& MORITZ LLP, Wilmington, Delaware; Attorneys for Plaintiff/Counterclaim
Defendant.

Kevin R. Shannon, Esq., Matthew F. Davis, Esq., Jaclyn C. Levy, Esq., Matthew A.
Golden, Esq., POTTER ANDERSON & CORROON LLP, Wilmington, Delaware;
Attorneys for Third-Party Defendant.
Kenneth J. Nachbar, Esq., Leslie A. Polizoti, Esq., John P. DiTomo, Esq., Matthew R.
Clark, Esq., Christopher P. Quinn, Esq., Jason Tyler, Esq., Zi-Xiang Shen, Esq., Thomas
P. Will, Esq., MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware;
Attorneys for Defendants/Counterclaim-Plaintiffs/Third-Party Plaintiffs.

Rudolf Koch, Esq., Susan M. Hannigan, Esq., Sarah A. Clark, Esq., RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; Attorneys for Intervenor ACell, Inc.


PARSONS, Vice Chancellor.
       In this action under 8 Del. C. § 225, I am asked to determine whether written

consents delivered by the holders of a majority of a company‟s stock should be set aside

on equitable grounds.     The plaintiff, a stockholder who solicited the consents, was

assisted in his endeavor by a sitting director who controls about twenty-four percent of

the company‟s stock, and a former officer. The defendant incumbent board of directors

of this privately held company was tipped off that a consent solicitation was underway.

The defendant directors immediately went into a forceful defensive effort that ultimately

was unsuccessful. The plaintiff stockholder delivered consents purporting to represent

about 53% of the outstanding stock.

       The incumbent directors refused to recognize the consents as valid or effective.

The plaintiff then commenced this action seeking a declaratory judgment that his new

director nominees, including himself, were validly elected as the company‟s board. The

incumbent directors counterclaimed against the plaintiff and brought third-party claims

against the director-stockholder who assisted in the solicitation. In support of those

claims, and in defense against the plaintiff‟s assertion that his new board validly was

elected, the incumbent directors contend that the consent solicitation was tainted by

inequitable conduct and must be set aside. In particular, the incumbent directors: (1)

challenge certain disclosures that the plaintiff made to other stockholders as materially

misleading; (2) allege that the plaintiff and third-party defendant tortiously interfered

with the former officer‟s separation agreement, which barred him from assisting any

consent solicitation; and (3) allege that the third-party defendant improperly provided

company information to the plaintiff in connection with the solicitation effort.

                                             1
       I presided over a two-day trial. This memorandum opinion contains my post-trial

findings of fact and conclusions of law as to the plaintiff‟s Section 225 claim and the

various counterclaims and third-party claims that conceivably might affect that claim.

For the reasons stated herein, I conclude that none of the grounds advanced by the

defendant directors provides a sufficient justification for me to set aside the stockholders‟

consents. Thus, the plaintiff and the other members of his new board slate validly were

elected as the company‟s directors, and he is entitled to the declaratory relief he seeks.

                                I.      BACKGROUND1

                                      A.      Parties

       Non-party ACell, Inc. (“ACell” or the “Company”) is a Delaware corporation

headquartered in Maryland. It was founded in 1999 and remains privately held, with

roughly 150 stockholders. Together with family members and affiliated entities, Plaintiff

Kyle C. Kerbawy, Sr. has invested over $1.1 million in ACell and holds about five

percent of the Company‟s outstanding stock.2

       Third-party Defendant James R. DeFrancesco began working at ACell in 2002.

Since that time, DeFrancesco has been a member of ACell‟s board of directors; until

October 2014, he also was the Company‟s CEO. His investment in the Company exceeds

$3 million, and together with family members he controls about twenty-four percent of


1
       Few of the facts in this case are disputed. To the extent any facts are in dispute, I
       have used a preponderance of the evidence standard to make the findings
       contained herein. Citations to the trial transcript are in the form “Tr. # (X),” with
       the testifying witness “X” identified if not apparent from the text.
2
       Tr. 11-12, 64 (Kerbawy); JX 714.

                                              2
ACell‟s stock, making him its largest stockholder.3 For purposes of this case, Kerbawy

and DeFrancesco are aligned with non-party Rodney Bosley, who was the Company‟s

COO until he was terminated at the same time as DeFrancesco in October 2014. Bosley

owns about three percent of ACell‟s stock.

      Kerbawy brought this action against six of the Company‟s seven incumbent

directors: Dr. James D‟Orta, John J. McDonnell, Jr., Magnus Moliteus, Steven P.

Mullins, Martin Pfinsgraff, and Jon Tremmel (“Defendants,” or the “Board”).

McDonnell, the Chairman of the Board, is one of ACell‟s largest stockholders, owning

over six percent of the Company‟s stock.4 D‟Orta became CEO in late 2014, after

DeFrancesco‟s removal.

      Non-parties David Anderson, Louis “Skip” Baldino, James Osborne, and Claude

Pering (collectively the “Director Nominees,” and together with Kerbawy, the “New

Board”) are the individuals Kerbawy seeks to have seated on ACell‟s board of directors.

                                     B.      Facts

          1.      The DOJ Investigation dashes ACell’s hopes for an IPO

      ACell develops, manufactures, and markets regenerative medical products. After

years of growth, the Company began realizing profits in 2012, and during 2013 it made

preparations for an initial public offering (“IPO”). The board of directors, which had

included only DeFrancesco, McDonnell, Pfinsgraff, and Moliteus, was expanded with the

addition of Mullins, a former public company CFO, and D‟Orta and Tremmel, who had

3
      Tr. 266 (DeFrancesco).
4
      JX 714.

                                             3
experience in the medical device industry.5      On January 31, 2014, the Company

submitted a preliminary registration statement (the “Draft S-1”) for review by the U.S.

Securities and Exchange Commission (the “SEC”). ACell‟s lead underwriter indicated a

value for the Company in the $400 to $500 million range.6

      The Company‟s prospects took a blow in February 2014 when the Board was

informed that the U.S. Department of Justice (“DOJ”) had served a subpoena requesting

information about ACell‟s regulatory compliance, including alleged improper marketing

of ACell‟s products for non-approved or “off-label” uses (the “DOJ Investigation”). The

DOJ Investigation had two major consequences. First, it derailed the IPO, which fell

apart when the Company‟s underwriters could not formulate a satisfactory risk factor for

inclusion in the registration statement.7 Later in 2014, when the Board and its bankers

canvassed over thirty potential buyers regarding interest in a private transaction, ACell

received bids in the $250 million range.8 Even those significantly reduced numbers were

contingent on further developments with the DOJ Investigation, and no serious offers

materialized.

      The second consequence of the DOJ Investigation was that it divided DeFrancesco

and Bosley from the other members of the Board. As discussed in more detail infra, the

ongoing dispute over the DOJ Investigation—who was to blame for its occurrence, what

5
      JX 700.
6
      Tr. 143 (Pfinsgraff).
7
      E.g., Tr. 460 (McDonnell).
8
      Tr. 143-44 (Pfinsgraff).

                                           4
the Company‟s strategy should be in light of it, and its impact on the validity of the

consent solicitation at issue here—colors nearly every aspect of this case.

       After receiving the DOJ subpoena, the Board made changes to the Company‟s

compliance procedures, some of which already had been under consideration in

preparation for the IPO.9 Instead of having compliance report to Bosley, then COO,

Pfinsgraff, Tremmel, and others on the Board wanted to have compliance report through

the legal department and directly to a compliance committee of the Board, which was

chaired by D‟Orta.10 DeFrancesco and Bosley unsuccessfully resisted such a change. By

mid- to late-summer of 2014, the escalating tension resulted in arguments between

DeFrancesco and Bosley, on one hand, and D‟Orta and Miles Grody, ACell‟s in-house

counsel, on the other hand, which required the Board to intervene regularly in day-to-day

management issues.11

       ACell responded to the DOJ Investigation by hiring Williams & Connolly LLP.

After a preliminary internal investigation, Williams & Connolly made an initial

presentation to the Board in April 2014.         A consensus emerged among the board

members that DeFrancesco and Bosley needed to be terminated.12 CEO McDonnell,

however, persuaded the Board to wait for a more thorough investigation to conclude, and

to continue efforts to sell the Company in the meantime. According to DeFrancesco, the

9
       Id. at 134-38.
10
       Id.
11
       Id.
12
       Id. at 464-66 (McDonnell).

                                             5
Board misleadingly reassured him and Bosley, but in reality was planning to offer them

up as scapegoats.13 Defendants asserted that DeFrancesco “was incensed that Williams

& Connolly would implicate him and Bosley in potential wrongdoing, and his immediate

reaction was to fight.”14 I do not consider it relevant to any material issue in this case,

however, to decide which of those characterizations is more accurate, because

DeFrancesco and Bosley were never involved in managing the DOJ Investigation.15 In

any event, DeFrancesco and Bosley‟s disagreements with D‟Orta and Grody continued to

mount as the summer progressed.

       The DOJ Investigation was not a subject confined to the boardroom. Stockholders

were advised of the Investigation in May 2014 at the annual stockholders‟ meeting,

which, for ACell, apparently involved actual in-person attendance by a number of its 150

or so stockholders.16

      2.       DeFrancesco and Bosley unsuccessfully try to remove the board

       In September 2014, the DOJ became “very upset” at the level of cooperation it

was receiving from ACell.17 For McDonnell, that was a turning point. The Board

“decided that we had to get the DOJ behind us.”18 The Company‟s first in-person

13
       E.g., DeFrancesco Opening Br. 10-16; Tr. 316-18.
14
       Defs.‟ Opening Br. 12.
15
       Tr. 229-30 (Pfinsgraff).
16
       E.g., JX 15; Tr. 174-79 (Pfinsgraff); id. at 273-74 (DeFrancesco).
17
       Tr. 473 (McDonnell).
18
       Id. at 474.

                                            6
meeting with the DOJ was scheduled for late October. On October 15, a week before that

meeting, the Board met and voted, over DeFrancesco‟s objection, to request that

DeFrancesco and Bosley resign before October 20 or be terminated for cause. 19 The

Board also voted to appoint D‟Orta as interim CEO.

      Rather than go quietly, DeFrancesco and Bosley emailed a group of ACell

stockholders on October 19, and asked them to execute written consents removing the

Defendants (the “DeFrancesco Solicitation”).20 McDonnell responded immediately with

an email of his own, stating that DeFrancesco and Bosley‟s email “contain[ed] a number

of errors and material misstatements and omissions,” and that the Board had been

“presented with evidence that caused it to believe that there was a reasonable—if not a

strong—basis to conclude that Jim [DeFrancesco] and Rodney [Bosley] may have

violated certain federal criminal statutes.”21 Once the Board learned of the DeFrancesco

Solicitation, the offer for DeFrancesco and Bosley to resign was revoked and they each



19
      Id. at 478-81; JX 42; JX 707. DeFrancesco suggests the Board‟s action in this
      regard was in violation of ACell‟s charter and bylaws, because the decision to
      terminate an executive was not one that a Board committee could make, and
      because DeFrancesco was excluded from the meetings and discussions in mid-
      October that led to his termination. DeFrancesco Opening Br. 12-16. I do not
      consider that issue relevant to the question of whether the New Board was validly
      elected, which is the Court‟s inquiry in this action.
20
      JX 37.
21
      JX 42. On October 17, two days after the Board meeting, DeFrancesco met with
      McDonnell and D‟Orta. While some aspects of what was said at that meeting are
      disputed, McDonnell admits telling DeFrancesco that he thought DeFrancesco had
      done nothing wrong in connection with the DOJ Investigation. Tr. 480
      (McDonnell).

                                           7
were terminated “for cause.”22 DeFrancesco and Bosley then halted their solicitation

effort, but not before receiving written consents from the holders of 49.6% of ACell‟s

common stock.23

      One supporter of DeFrancesco and Bosley was Kerbawy. Defendants emphasize

that Kerbawy, a former distributor of ACell‟s products, believed as of October 2014 that

the Board‟s approach to the DOJ Investigation was “stupidity” and “tantamount to

admitting guilt.”24   As discussed in more detail infra, Defendants believe that

DeFrancesco and Bosley found a sympathetic ear in Kerbawy in part because Kerbawy

feared the DOJ Investigation potentially could sweep wide enough to bring distributors

like him under scrutiny. Kerbawy testified, however, that he supported DeFrancesco and

Bosley because they had been good leaders of the Company and he thought it was wrong

to fire them.25 In any event, Kerbawy actively supported the DeFrancesco Solicitation

by, for example, editing messages for DeFrancesco before he sent them out.26 But, after

it became clear DeFrancesco and Bosley would not prevail, Kerbawy believed they

needed to stand down and give the Board time to resolve the DOJ Investigation and get




22
      Tr. 150 (Pfinsgraff).
23
      Id. at 65 (Kerbawy).
24
      JX 31.
25
      Tr. 14-15.
26
      JX 33, 40.
                                           8
the business back on track. He advised another stockholder to that effect on November 1

or 2, 2014.27

       The Company offered both DeFrancesco and Bosley separation agreements.28

DeFrancesco did not execute such an agreement, but Bosley did (the “Separation

Agreement”).29 Pursuant to that Agreement, Bosley retained the right to exercise his

outstanding stock options, which were numerous, and ACell agreed to forego any

clawback of either the options or Bosley‟s issued and outstanding shares. In exchange,

Bosley accepted a “Standstill Provision” barring him from directly or indirectly soliciting

consents, or directly or indirectly becoming a “participant” in such a solicitation, or

assisting any other person in such a solicitation.30     The Separation Agreement also

contained a “Confidentiality Provision” forbidding Bosley from misusing the Company‟s

confidential information.31

       Although McDonnell and the Board reached a détente with DeFrancesco and

Bosley, it was clear that “two camps” remained, with each thinking the other was

harming the Company.32 Anne Graham, another significant stockholder, said she felt

“[misled] by the board” and was “in a state of shock” due to DeFrancesco and Bosley‟s

27
       JX 125.
28
       JX 92 (DeFrancesco‟s draft agreement)
29
       JX 149 (the Separation Agreement).
30
       Separation Agreement § 4.
31
       Id. § 5. As discussed infra, Bosley later breached both of those provisions.
32
       JX 158.

                                            9
removal.33 In addition, at least some stockholders who had not supported the October

2014 consent solicitation, such as Joanne Watson, the widow of ACell‟s founder,

nevertheless were “seriously thinking of continuing to make some changes in the

board.”34

                3.        Kerbawy prepares for a new consent solicitation

                     a.       Kerbawy decides to replace the Board

      Through November 2014, Kerbawy was having daily conversations with other

ACell stockholders, and “hearing wildly divergent things about what was going on at the

company,” but he “had no idea who was right.”35 With “little formal info coming out of

the company,”36 Kerbawy demanded books and records under 8 Del. C. § 220, on the

advice of his son-in-law, Jon Steiger, an attorney who also owns ACell stock. In early

January 2015, Kerbawy reached out directly to McDonnell for help in this regard, and

McDonnell appeared to agree that Kerbawy should get the requested information without

any “legal BS.”37




33
      JX 127.
34
      Tr. 651 (Watson).
35
      Id. at 17-18 (Kerbawy).
36
      JX 158.
37
      JX 183. Kerbawy received ACell‟s capitalization table and contact information
      for stockholders on February 9, 2015. JX 276.

                                             10
       Kerbawy testified that he was troubled by departures of key employees and low

morale at the Company during January 2015.38 McDonnell emailed Kerbawy on January

16 to share bad news from a series of strategic meetings at which McDonnell and others

were trying to gauge interest in a possible sale of ACell. When McDonnell indicated that

“no one was viewing ACell as a Strategic Acquisition,” Kerbawy decided it was time to

change the Company‟s management.39 He was even more upset to learn a week later that

the Board had decided to make D‟Orta the permanent CEO without conducting a search

process. Thus, Kerbawy determined that changes were needed as soon as possible.

Other stockholders with whom he had been talking agreed. For example, Watson told

Kerbawy that she would support a change if it involved a “clean slate” of all new

directors.40

       Kerbawy prepared for a new solicitation of written consents (the “Kerbawy

Solicitation”) by reaching out to “everyone [he] could think of” who was knowledgeable

about ACell and the medical device manufacturing industry, including DeFrancesco,

Bosley, an ACell sales executive named Tres Riley, and others.41 Kerbawy also relied

heavily on the assistance of his son-in-law Steiger, and together they formed a “Project

Timeline” for running a successful solicitation.42

38
       Tr. 24-26.
39
       JX 199.
40
       Watson Dep. 55.
41
       Tr. 20-28.
42
       JX 310.
                                            11
                      b.     Bosley and DeFrancesco participate

      The contemporaneous documents demonstrate that both DeFrancesco and Bosley

participated in, or at least substantially assisted with, the Kerbawy Solicitation. On

January 14, 2015, DeFrancesco sent a text message to Kerbawy and Steiger, forwarding

contact information for his attorney, Brett Antonides, and stating that Antonides is “more

than willing to[] assist and work with us in the proper manner.” 43 Kerbawy, Steiger,

DeFrancesco, and Antonides communicated regularly via text, email, and phone during

February and March 2015.44 Kerbawy shared his and Steiger‟s Project Timeline with

DeFrancesco on February 18, and encouraged him to “review and share as appropriate.”45

      One particular way DeFrancesco provided assistance was to help Kerbawy analyze

the stockholder base and estimate the percentage of shares likely to be in favor of the

Kerbawy Solicitation. On February 2, DeFrancesco sent a detailed analysis in that regard

to Kerbawy, Antonides, and Steiger, and the four apparently set up a phone call to discuss

it.46 In that vein, DeFrancesco also enlisted employees of ACell still loyal to him to

determine the level of support Kerbawy could expect from employee-stockholders.47




43
      JX 193.
44
      E.g., JX 307.
45
      JX 310.
46
      JX 568, 247, 248, 253.
47
      JX 228.

                                           12
DeFrancesco also helped with director nominee recruitment by, for example, speaking

with potential candidates Baldino and Anderson at length on the phone.48

       Based on the evidence, I found Bosley‟s assistance to be more limited than

DeFrancesco‟s. He mainly focused on helping Kerbawy identify strong candidates for

his new director slate.    For example, Bosley and Kerbawy conferred by email on

February 4 about Baldino, and also about what the compensation package should be for

independent directors.49 Bosley also corresponded with Anderson about his interest in

joining ACell‟s Board.50 Similarly, Bosley forwarded resumes and bios for several other

candidates that Kerbawy ultimately did not include on his slate.51

                      c.     Kerbawy utilizes inside information

       The evidence showed that DeFrancesco and Bosley provided Kerbawy with some

internal ACell documents for use in helping recruit the Director Nominees and otherwise

furthering the Kerbawy Solicitation. To that end, DeFrancesco used Antonides as a go-

between for exchanging documents with Kerbawy and others.52 On January 21, Steiger

wrote to Kerbawy that Antonides “sent me a large packet of corporate documents I have

48
       JX 177, 294.
49
       JX 255.
50
       JX 222.
51
       JX 256, 272.
52
       For example, on February 19, Kerbawy asked Steiger to “send my timeline to
       Brett [Antonides] as Jim [DeFrancesco] will ask him for it. JX 191. See also JX
       249 (email from DeFrancesco to Antonides dated February 20, 2015, forwarding a
       September 2014 email from Grody that has as an attachment a generic “Senior
       Executive Employment Agreement”).

                                            13
been reviewing.”53 DeFrancesco himself sent Kerbawy a Company stock ledger effective

as of June 2014,54 and a series of documents relating to ACell‟s director and officer

insurance policies.55 On February 11, 2015, he also sent Kerbawy a strategic planning

document that D‟Orta and senior management had circulated to the Board (including

DeFrancesco) in anticipation of an upcoming Board meeting.56 Kerbawy forwarded the

D&O policy documents to at least Anderson and Baldino, neither of whom worked for

ACell.57   Indeed, DeFrancesco apparently sent “an entire series of documents” to

Kerbawy via FedEx with the intention that Kerbawy would relay them to Baldino.58 On

February 18, Kerbawy also sent to the Director Nominees the Draft S-1 from the failed

IPO effort in 2014.59

       Bosley provided substantially less information to Kerbawy, but it seems that he

did provide at least some information, including minutes from ACell board meetings.60


53
       JX 191.
54
       JX 209.
55
       JX 305.
56
       JX 286.
57
       JX 306, 312.
58
       JX 313, 317.
59
       JX 308, 309.
60
       JX 191. In one message dated January 22, 2015, Kerbawy wrote that he had
       talked to Bosley, apparently about ACell board resolutions of some kind, and
       Bosley said that certain of them “definitely did not pass,” but that Bosley would
       send Steiger the meeting minutes. Id. On February 6, Kerbawy asked whether
       Steiger had received anything from Bosley about a potential director nominee that
                                          14
In total, the evidence supports a finding that through DeFrancesco (and to a lesser extent,

Bosley), Kerbawy had access to: (1) ACell‟s bylaws; (2) a Company stock ledger; (3) the

Company‟s D&O policies and related documents; (3) the Draft S-1; (4) unidentified

meeting minutes from ACell Board meetings; and (5) a Company strategic planning

document. Kerbawy also had the charter, which is a public document in any event.61

The record further shows, and Defendants do not dispute, that Kerbawy used that

information to inform his Director Nominees about the Company and otherwise bolster

his plan to solicit consents to remove the Board.

                          d.       Kerbawy finalizes his plan

       One set of issues that the parties vigorously dispute is whether, and to what extent,

Kerbawy‟s plan for ACell included returning DeFrancesco and Bosley to their director or

officer positions. Defendants assert that Kerbawy had a concrete plan to restore Bosley

as a high-level consultant, and insinuate that Kerbawy and the New Board might appoint

DeFrancesco to a vacant Board seat.62 This contention fits within Defendants‟ narrative

that Kerbawy dishonestly advertised that he was proposing a “fresh start” with an

independent board, but in fact planned to return ACell to DeFrancesco and Bosley‟s

control and force the Company to “fight the DOJ.” Based on all the evidence, I find that

Kerbawy did expect Bosley to have a role as a consultant, but the evidence does not bear

       Kerbawy was planning to speak with. Id. Steiger replied that he had forwarded
       everything in his email account from Bosley, but Kerbawy told him to “forget
       about [Bosley‟s] stuff,” because “[h]e will send [it to me] this afternoon.” Id.
61
       JX 207.
62
       E.g., Defs.‟ Opening Br. 3-5, 23-25, 36-37; Defs.‟ Reply Br. 3-4, 10-12, 36-37.

                                            15
out Defendants‟ assertions relating to DeFrancesco specifically, or the “fight the DOJ”

narrative generally.

       With regard to Bosley, I find that while he might have envisioned himself

returning to the CEO post, Kerbawy‟s plan was for the New Board to consider bringing

Bosley back, if at all, as an interim consultant. On February 11, 2015, Bosley emailed

Kerbawy a draft announcement that is written as if it would be delivered to ACell

employees after the New Board took control.63 The draft describes the New Board‟s

initial actions as if they had just occurred: i.e., D‟Orta “was removed from his position as

CEO”; Miles Grody “was removed from his position as General Counsel”; Bosley “was

hired as a consultant and will hold the position as Acting CEO”; Terry Hill “was

reinstated as VP of Quality”; and Bill Knape “was reinstated as VP of Regulatory and

Clinical Affairs.”64 In a March 2 email responding to Steiger‟s questions about who

Kerbawy wanted to assist the new management, Kerbawy replied, among multiple

thoughts, that he would have Bosley “at my shoulder.”65

       But those documents are undermined by other contemporaneous communications

Kerbawy had. As early into his planning process as January 13, 2015, Kerbawy indicated

that he planned to talk to DeFrancesco and Bosely to persuade them it would be “easier to




63
       JX 289.
64
       Id.
65
       JX 331.

                                            16
get vote [sic] on board proposing all new mgmt with them interim only.”66 Similarly, on

February 28, Kerbawy sent a comprehensive email to his Director Nominees, to which he

attached a “New Board Agenda” outlining some of the first steps he believed the New

Board should take.67 That document, rather than presenting any decisions regarding

Bosley as a fait accompli, indicates that the New Board would engage in “discussion” of

various items, including the “proposed” hiring of Bosley as a consultant.68 And, with

respect to the specific items relating to Compliance (i.e., Grody) and reinstating Hill and

Knape, at least several individuals were supposed to address and advise the Board,

including D‟Orta. Those facts, together with the undisputed fact that all of the Director

Nominees are independent of both Kerbawy and DeFrancesco, lead me to conclude that,

in crafting his New Board Agenda, Kerbawy envisioned actual discussion rather than

“rubber stamp[ing].”69




66
       JX 191. Defendants highlight this statement of Kerbawy‟s as evidencing his intent
       to mislead the stockholders into thinking that DeFrancesco and Bosley were not
       really going to have a role with the New Board, when in fact they were. The
       weight of the evidence does not support that characterization. Rather, it seems
       that nearly two months before beginning to solicit consents, Kerbawy was
       formulating his plan and it included telling DeFrancesco and Bosley that his plan
       involved “all new” management, and that the only role they would have, if any,
       would be to assist in the interim. I find this to support, rather than undermine,
       Kerbawy‟s general narrative, which is that he intended to put into place a new,
       independent management team.
67
       JX 327.
68
       Id.
69
       Defs.‟ Opening Br. 39

                                            17
      That conclusion also is supported by statements Kerbawy made during the

Solicitation. For example, in a March 9 email, Kerbawy updated the Director Nominees

as to the progress of the Solicitation, and requested that they each execute a written

consent taking their first actions as the New Board. 70 The topics addressed by the

resolutions included: terminating D‟Orta and Grody; appointing Kerbawy as Chairman of

the New Board, President, and CEO; and appointing Steiger as General Counsel and

Secretary. Absent from these proposed first steps was any mention of reinstating Bosley.

On March 11, Kerbawy exchanged emails with Daniel Toohey, an ACell stockholder

who responded to a Solicitation email by stating to Kerbawy that he would not support

the Solicitation if it meant removing McDonnell, who was Toohey‟s close friend.71 The

communications were amicable, but reflected “an honest disagreement” that Kerbawy

attributed mainly to McDonnell‟s “adamancy on retaining D‟Orta,” which was

incompatible with Kerbawy‟s belief that D‟Orta had to go.72


70
      JX 604.
71
      JX 476.
72
      Id. Kerbawy stated, in part:

             You probably know that [McDonnell] and I spoke yesterday
             . . . . The number of issues that separate us is small in
             number. Like you, I like and respect [McDonnell] and
             considered up to the very end retaining him on the slate for
             the new board. [McDonnell‟s] adamancy on retaining D‟Orta
             plus the politics of getting a strong majority ruled against
             retaining him. The politics behind me, D‟Orta is the issue
             . . . . I can give you valuable employees and former
             employees who have convinced me that D‟Orta . . . is
             harming morale, and diminishing expertise in the company.

                                          18
      Those contemporaneous documents comport with Kerbawy‟s testimony, which I

found credible. In particular, Kerbawy testified that as his Solicitation plan became more

concrete, he determined that Bosley would have only a temporary role, and that Kerbawy

would be the acting CEO only until he could find a more experienced CEO.73 Kerbawy

also considered having D‟Orta and Tremmel as consultants in the interim, not just

Bosley.74 Kerbawy further testified that his immediate goal for the New Board would be


      Id. Defendants cite this email exchange as support for the assertion that Kerbawy
      was misrepresenting the gravity of the DOJ Investigation to lull more stockholders
      into supporting his Solicitation. E.g., Defs.‟ Opening Br. 38. That assertion is not
      supported by JX 476 or the other exhibits cited. Toohey expressed concern about
      the Company‟s compliance issues, and Kerbawy‟s response appears to be
      balanced and a good faith attempt to share what information he had. He wrote, in
      part:

             I am eager to learn first hand from Williams & Connolly the
             status of the DOJ investigation. So far, everything is second-
             hand, and some of the information from the company
             conflicts with what I have heard and is self-serving to the
             status quo. From the research that I‟ve done, what I believe
             to be the issues are not uncommon for companies such as
             ACell and a seasoned medical device professional such as we
             seek will be well versed in them, certainly better than a
             physician such as Dr D‟Orta. I know when my group sold
             MatriStem, we had strong direction on avoiding off-label
             promotion. So that you are aware, several sources have
             reported that the DOJ has no criminal case under
             consideration for anyone at ACell (now or in the past). I
             might also mention that Skip Baldino, one of the new board
             members, has gone through a DOJ situation such as ours, a
             situation that resolved well for the company, and will provide
             valuable insight into working our way through this.

      JX 476.
73
      Tr. 32-33, 94-95.
74
      Id.
                                           19
to conduct a national search for a permanent CEO. That testimony is consistent with his

explanation of why he concluded it was necessary to remove the Board in January 2015,

after D‟Orta was made the CEO without any such search.75 As to the possibility of

DeFrancesco and Bosley reassuming active roles in the Company, Kerbawy testified that

“unless and until they get a clean bill of health after the [DOJ Investigation] resolves

itself[,] they should have no director or officer role.”76

       4.      Kerbawy solicits the Consents, and the Board reacts defensively

       As noted above, Kerbawy‟s Director Nominees were himself, Anderson, Baldino,

Osborne, and Pering. Anderson, Baldino, and Pering have significant experience in the

medical device industry, and none of the parties dispute that they are independent of

Kerbawy, DeFrancesco, and Bosley. Several stockholders told Kerbawy that he also

should be on the New Board.77 Because he envisioned the Company remaining private

and attempting to rebuild its business rather than seeking a sale in the short term,

Kerbawy favored having five directors on the board as opposed to seven.78            He

“struggled” with deciding who to ask for the fifth spot on his slate, considering

DeFrancesco, Bosley, and McDonnell, among others.79 After considering the issue and

75
       Id. at 34.
76
       Id. at 29.
77
       E.g., JX 327.
78
       Tr. 26-28 (Kerbawy).
79
       For example, in an email to Anderson dated February 9, Kerbawy referred to
       DeFrancesco as “a current board member who also will sit on the new board.” JX
       275, 294.

                                              20
discussing it with stockholders, employees, and others, Kerbawy decided that neither

DeFrancesco nor Bosley was the right choice, for two reasons: (1) he “wanted to signal

that we were moving forward rather than going back”; and (2) it was inappropriate for

them to be on the New Board in light of the Company‟s October 2014 statement that

DeFrancesco and Bosley might have violated federal criminal statutes.80

      Kerbawy‟s Solicitation launched on March 2 when he emailed a group of ACell

stockholders to inform them that, on March 5, he would be sending them a written

consent form for the purpose of replacing the Board with his Director Nominees.81 He

attached summary bios and described the qualifications of the Nominees, writing that,

“[a] number of people helped in vetting the candidates. In the end, the sole consideration

in selecting these individuals as candidates for our board was who can contribute the

most to strengthening the company, improving management, and maximizing the

potential of the technology we own.”82




80
      Tr. 29 (Kerbawy).
81
      JX 330.
82
      Id. Defendants contend that this statement “intentionally concealed the fact that
      DeFrancesco and Bosley were active participants in the solicitation and that
      several of the candidates were identified, vetted and educated by Bosley and
      DeFrancesco. . . . [and] left the false impression that the slate was chosen through
      an independent process consistent with a „fresh start‟ platform.” Defs.‟ Opening
      Br. 32. It is true that Kerbawy did not state affirmatively that DeFrancesco and
      Bosley assisted him in the Solicitation, as I discuss in more depth infra. But, the
      totality of the evidence shows that the Director Nominees were chosen through an
      independent process consistent with a “fresh start” platform.

                                           21
      On March 5, Kerbawy emailed the consent forms to the first group of

stockholders, consisting of those he was targeting as highly likely to support the

Solicitation.83 By the end of March 5, he had obtained written consents representing

about 43% of ACell‟s outstanding stock. The Board found out about the solicitation that

day, when a stockholder who received the March 5 email forwarded it to McDonnell.

      The contemporaneous documents and trial testimony demonstrate that upon

learning about the Kerbawy Solicitation, the Board‟s immediate, almost reflexive

reaction was to assume a defensive position and dig in to defeat the effort. McDonnell

circulated the email to the rest of the Board (excluding DeFrancesco, who was then still a

Director), D‟Orta, and Grody, writing that “it has come to our attention that Kyle

Kerbawy is leading an action to replace all of the current directors of ACell,” and

requesting that they schedule a conference call.84 Over the next week, the Board held a




83
      E.g., JX 348. Defendants at one point assert that Kerbawy‟s March 5 email
      misleadingly suggested that stockholders had only 48 hours to submit their
      consents, because he “sought to ram the consents through so as to stifle any
      chance for debate.” Defs.‟ Opening Br. 32-33. The cited email, JX 348, does not
      support that assertion. It states, “[p]lease complete and send your consent form
      within 48 hours. Consents received after midnight EST on March 13, 2015 [i.e.,
      eight days later] may not be counted. If you have questions, please email . . . or
      call me . . . .” Id.
84
      JX 376. I infer from McDonnell‟s decision on March 5 to exclude DeFrancesco
      from the Board‟s written communications and calls regarding Kerbawy‟s
      Solicitation that he knew or had inferred that DeFrancesco was aligned with
      Kerbawy.      This fact undermines Defendants‟ argument that other ACell
      stockholders would not have known that fact without being told about it by
      Kerbawy. As described below, Kerbawy first sent a communication to that effect
      on March 6, 2015.

                                           22
series of such calls, each time excluding DeFrancesco, whom McDonnell now considered

“an adversary” who had “effectively forfeited his rights as a member of the board.”85

       The Board began communicating furiously with ACell‟s stockholders, attempting

to persuade them against executing consents in Kerbawy‟s favor. McDonnell wrote on

March 6 that, “[w]e are reaching out to everyone we know on the list of people who

received Kyle‟s emails. . . . There is a BOD call over the weekend to discuss potential

legal action as well.”86 The outreach effort included McDonnell, Pfinsgraff, D‟Orta, and

Grody calling stockholders,87 and McDonnell offering to travel several hours to meet in

person with several large stockholders.88           McDonnell and Pfinsgraff also emailed

stockholders, advising them that if they were “even thinking about” supporting the

Kerbawy Solicitation, “please do not do so without talking to myself or [stockholder]

Steve Graham first.”89

       On March 6, Kerbawy emailed a group of ACell stockholders, stating that the

Solicitation was off to a “good start,” and that:

              Among the consents that we received were those of former
              CEO Jim DeFrancesco who also owns the largest number of
              ACell shares. Jim earlier wrote to a fellow shareholder “I
              agree with Kyle and his rational[e] that the company would


85
       Tr. 517-20 (McDonnell).
86
       JX 376.
87
       Tr. 484-86 (McDonnell); JX 387, 399, 384, 401.
88
       JX 419. That meeting did not occur.
89
       JX 373, 399, 384, 375, 419.

                                              23
              be better served with a more experienced Board of Directors.
              I will be voting my shares according to his directive.”90

The next day, Kerbawy sent an email to a different group of ACell stockholders,

including several current employees (the “March 7 Email”).91 The March 7 Email, which

Defendants attack on various grounds, stated in relevant part:

              A majority of ACell shareholders have voted to replace the
              current Board of Directors with the experienced medical
              device professionals recommended in our consent effort.

              Somewhat disturbing, however, is a report that the current
              board is attempting to increase the number of outstanding
              shares by rushing through option exercises. We also have
              heard that shareholders who have not yet consented are being
              told that we intend to return Jim DeFrancesco to an officer
              position, which is not true.

              ACell needs leadership from medical device professionals
              who will bring experience, maturity, and a fresh perspective
              to our company. We want to move forward, not backwards.

              We are still looking to add shares to our total in order to
              provide a cushion on the assumption that directors and
              officers are issuing new shares.92

90
       JX 377.
91
       JX 389, 404 (the March 7 Email).
92
       Id. The “report” Kerbawy referred to in the March 7 Email was from Tres Riley,
       then ACell‟s Vice President of Sales. Riley was acting as Kerbawy‟s “eyes and
       ears” inside the Company, and the two exchanged numerous text messages
       between March 6 and 16, 2015, that depict themselves as brothers-in-arms. JX
       370; Tr. 107-09 (Kerbawy). Riley told Kerbawy that, while listening through a
       wall at ACell‟s office, he had heard that the Board was attempting to increase the
       number of outstanding shares by exercising options. Tr. 109-10 (Kerbawy). As
       discussed below, Defendants characterize this aspect of the March 7 Email as
       misleading because they deny there was any such attempt on the Board‟s part. Tr.
       632-33 (McDonnell).

                                            24
Kerbawy testified that he refrained from sending the Solicitation materials to employees

before he was sure that he had a majority, so that “it would be safe for them” to execute

consents. He reasoned that if a stockholder-employee supported him and he lost, “their

jobs would be at risk,” and said that he knew of several employees who had been

threatened in this regard in the October 2014 DeFrancesco Solicitation.93 Defendants, not

implausibly, characterize the outreach to stockholders (and especially stockholder-

employees) as designed to coerce them into supporting the Kerbawy Solicitation out of

fear that if they did not get on the winning side, they might be at risk.94

       One of the Board‟s main responses was to send a letter via email to all of ACell‟s

stockholders on March 8 (the “March Board Letter”).95 In that Letter, the Board sought

to correct what it perceived as misinformation that the stockholders might be relying on

in supporting the Kerbawy Solicitation. Among other things, the Board stated that “Mr.

Kerbawy‟s actions are motivated by a lack of information and understanding on his part

regarding the Company‟s operations and its posture in connection with the [DOJ

Investigation].”96   The Letter stated that the Kerbawy Solicitation posed the risk of

undoing the Company‟s efforts to resolve its compliance problems, and that the “Board


93
       Tr. 36-37.
94
       E.g., Defs.‟ Opening Br. 34. Defendants‟ effort to claim the high ground on this
       issue lost nearly all credibility, however, after they fired several employees upon
       finding out that they executed Consents in favor of Kerbawy.
95
       JX 411 (the March Board Letter).
96
       Id.

                                              25
of Directors and senior management of the Company are, thus, vehemently opposed to

Mr. Kerbawy‟s actions.”       In the next paragraph, the Letter sought to bolster the

stockholders‟ confidence in the Board, stating:

             Moreover, contrary to Mr. Kerbawy‟s claim, the Company‟s
             current Board of Directors and senior management consist of
             highly qualified, experienced, and sophisticated individuals
             who are fully committed to the Company, its stockholders,
             and maximizing stockholder value. For your convenience, at
             the end of this letter we have included bios for these
             individuals[,] excluding Jim DeFrancesco, with whom most if
             not all of you are already very familiar and who remains on
             the Board of Directors.97

The Letter strongly urged stockholders not to give Kerbawy their consents, and included

a form for stockholders to revoke consents already executed.

      I find the March Board Letter to be misleading, in that it would give a reasonable

stockholder the impression that DeFrancesco was aligned with McDonnell and the

incumbent Board. Nowhere in the Letter, which went through multiple drafts and was

reviewed by every Board member (except DeFrancesco) as well as counsel, did the Board

mention that it suspected that DeFrancesco and Bosley might be assisting in the Kerbawy

Solicitation. It did not inform stockholders that the Board was excluding DeFrancesco

from Board meetings and treating him as an adversary, even though McDonnell and the

other Directors took that stance at least three days earlier. Indeed, the Letter states

unequivocally that “the Board of Directors are . . . vehemently opposed to Mr. Kerbawy‟s

actions,” while in the next lines falsely implies that DeFrancesco, “with whom most if not


97
      Id. (emphasis added).

                                            26
all of you are already very familiar and who remains on the Board of Directors,” was part

of the “Board of Directors” opposing the Kerbawy Solicitation.

      These statements cannot be explained away as the product of mere carelessness or

rushed drafting in the heat of a hostile consent solicitation. 98    A central tenet of

Defendants‟ ultimate argument as to why Kerbawy‟s Solicitation needed to be defeated—

and why this Court should now set aside the Consents on equitable grounds—was that

Kerbawy was misleading stockholders into supporting him without adequately disclosing

that he had DeFrancesco and Bosley on his side. If as of March 8 the Board truly

believed that, it is inexplicable why the Letter was written the way it was. Because the

Board began excluding DeFrancesco on March 5, I infer that they believed then that he

was backing Kerbawy. Yet, the March Board Letter did not disclose that. I find that the

most reasonable inference from the evidence presented is that the reason for the omission

is that the Board wished to muddy the waters by implying that DeFrancesco, who was

admittedly popular with many stockholders, remained in their camp. Because the March

Board Letter went through several drafts that were reviewed by the Board and its counsel,




98
      McDonnell‟s testimony in this regard, Tr. 553-69, does not change my view of the
      March Board Letter. Although McDonnell refused to concede that the Letter was
      misleading, he admitted that at the time the March Board Letter went out, the
      Board considered DeFrancesco an adversary and was excluding him from Board
      communications regarding the consents. Id. at 562-67. Nor were the misleading
      statements cured by the purportedly remedial letter sent by the Board on March
      11, JX 474, by which time the Board had received and rejected the written
      consents, and filed this action.

                                           27
I do not find credible McDonnell‟s suggestion that the attorneys mistakenly caused the

confusion regarding DeFrancesco.99

         On March 10, 2015, Kerbawy delivered written consents representing 24,147,798

shares of ACell voting stock, or roughly 53.3% of the 45,304,546 issued and outstanding

shares of voting stock (the “Consents”).100

         Before the Consents were even delivered, the Board had determined that it was not

going to accept them as valid, and would not vacate their board seats until ordered to do

so.101    Upon review of the Consents, Pfinsgraff learned that at least two current

employees, Tres Riley and a regional sales manager, Kay Lay, had supported Kerbawy.

That night, in an email to D‟Orta, Pfinsgraff recommended that Riley and Lay be fired.102

Just two weeks earlier, Pfinsgraff had supported increasing Riley‟s bonus compensation

structure, and McDonnell testified that Riley was an excellent salesman, “one of the best”




99
         Tr. 563-67.
100
         Kerbawy actually delivered consents that, on their face, added up to 23,948,944.
         JX 600 ¶ 41; JX 714. The larger figure includes 198,854 shares that were not
         initially accounted for because two stockholders mistakenly wrote in the wrong
         number of shares on their consents. The 24,147,798 share total excludes 21,000
         shares that Plaintiff agrees were erroneously included on two stockholders‟
         consents due to scriveners‟ errors. Defendants do not dispute that those shares
         should be included, nor do they raise any technical or numerical arguments as to
         whether the Kerbawy Solicitation achieved a majority. The only other numerical
         issue, as I note infra, relates to whether I should set aside Bosley‟s shares.
101
         Tr. 573 (McDonnell).
102
         JX 462.

                                              28
in the Company.103 After learning that they had supported Kerbawy, however, Pfinsgraff

concluded that Riley and Lay “now were being extraordinarily disloyal.”104

       Those actions, in addition to the Board‟s immediate determination to refuse to

recognize the Consents regardless of the outcome, reflect the tenacity with which the

Board sought to defeat the Kerbawy Solicitation. When asked if he believed it was

appropriate for him to “work to defeat stockholder intent,” McDonnell responded

unequivocally that it was.105      He viewed himself as being “at war” with Kerbawy,

DeFrancesco, and Bosley ever since learning of the Kerbawy Solicitation, and was

“prepared to do whatever it takes to win this war.”106

                              C.       Procedural History

       Kerbawy filed this action the same day he delivered the Consents, March 10,

2015. He seeks a declaratory judgment pursuant to 8 Del. C. § 225 that Defendants,

McDonnell, Moliteus, Pfinsgraff, D‟Orta, Mullins, and Tremmel, validly were removed

by a majority of ACell stockholders acting by written consent, and that the New Board

validly was elected to replace them.

       Defendants counterclaimed against Kerbawy and filed third-party claims against

DeFrancesco.     As amended, Defendants‟ Counterclaims and Third-party Complaint

charge Kerbawy with making misleading disclosures in connection with his Solicitation,

103
       Tr. 614-15.
104
       Id. at 245.
105
       Id. at 489-90.
106
       Id. at 488.

                                            29
and accuse DeFrancesco of breaching his fiduciary duties by facilitating Kerbawy‟s

actions in that regard. Defendants also allege that Kerbawy and DeFrancesco tortiously

interfered with Bosley‟s Separation Agreement, which they claim Bosley breached by

participating in the Solicitation.

       I presided over a two-day trial on May 13 and 14, 2015. Thereafter, the parties

submitted expedited briefing and I heard argument June 26. This Memorandum Opinion

contains my post-trial findings of fact and conclusions of law.

                               D.      Parties’ Contentions

       Defendants contend that this Court is empowered to determine whether the

Kerbawy Solicitation was fair, and to invalidate the results of that Solicitation if it was

procured through breaches of fiduciary duty, misleading disclosures, or breaches of

contract. They argue that the evidence proves that the consent solicitation was not fair,

and that the ACell stockholders‟ decisions to execute consents were not informed, and

thus the only equitable result is to set aside those Consents.

        Kerbawy and DeFrancesco assert that Defendants have misconstrued the relevant

standard in this regard, and that they essentially seek to have the Court enforce a

purported right to engage in a full policy debate, which is not required under the consent

statute or equity. Kerbawy argues that, in any event, none of the equitable grounds

Defendants advance are supported by the factual record or equitable considerations.

                              II.     LEGAL STANDARD

       Under Section 228(a) of the Delaware General Corporation Law (“DGCL”),

unless otherwise provided in the certificate of incorporation, stockholders may act by

                                             30
written consent upon any action that may be taken at any annual or special meeting of

stockholders, “without a meeting, without prior notice and without a vote.”107 Written

consents delivered pursuant to Section 228 are required to bear the date of signature of

each stockholder who signs the consent.108 Action by written consent is effective under

the statute only if a number of consents sufficient to take the action are delivered to the

corporation within sixty days of the earliest dated consent.109

       In an action such as this one under Section 225, “[u]pon application of any

stockholder,” the Court of Chancery “may hear and determine the validity of any

election.”110 “One of the most frequent theories under which stockholders have asked

this Court to find an election invalid is a breach of fiduciary theory—in particular, a

claim that the company and the board of directors made material misstatements or

omissions” during the solicitation process.111 A challenge under Section 225 also might

allege that a director or board “does not validly hold corporate office because that

director obtained the office through fraud, deceit, or breach of contract.”112 As relevant


107
       8 Del. C. § 228(a).
108
       Id. § 228(c). The date-of-signature requirement in Section 228(c) has been
       construed strictly. See H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 151-52
       (Del. Ch. 2003).
109
       Id.
110
       8 Del. C. § 225.
111
       Red Oak Fund, L.P. v. Digirad Corp., 2013 WL 5740103, at *10 (Del. Ch. Oct.
       23, 2013).
112
       Genger v. TR Invs., LLC, 26 A.3d 180, 200 (Del. 2011).

                                             31
here, if a fiduciary breaches his or her disclosure obligations in connection with soliciting

stockholders‟ votes or consents, and the Court finds that such breaches “inequitably

tainted the election process,” that could be grounds for setting aside otherwise valid votes

or consents.113

       Regardless of the theory under which the removal or election of a director is

challenged, “[t]he burden of proving that a director‟s removal or election is invalid rests

with the party challenging its validity.”114 In a case like this one, where a majority of

stockholders have executed written consents removing the Board and the Board asks this

Court to set aside the consents on equitable grounds, that burden is a heavy one. This is

particularly true in light of the importance Delaware law places on protecting the

stockholder franchise, which “has been characterized as the „ideological underpinning‟

upon which the legitimacy of the directors managerial power rests.”115

                                  III.     ANALYSIS

       ACell‟s certificate of incorporation does not eliminate or limit stockholder action

by written consent.116 Aside from the issues noted supra in Section I.B.4, the parties do

not dispute the validity of the Consents on any technical grounds. I therefore conclude

that the Consents are presumptively valid and binding upon ACell and its Board.


113
       Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43, 72 (Del. Ch. 2008).
114
       Unanue v. Unanue, 2004 WL 5383942, at *10 (Del. Ch. Nov. 9, 2004).
115
       MM Cos., Inc. v. Liquid Audio, Inc., 813 A.2d 1118, 1126 (Del. 2003) (quoting
       Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 (Del. Ch. 1988)).
116
       JX 2.

                                             32
Defendants assert that the Court should set aside the otherwise valid Consents on

equitable grounds, contending that they were procured by: (1) Kerbawy‟s allegedly

misleading disclosures, in violation of his purported duty of disclosure; (2)

DeFrancesco‟s misuse of Company confidential information, in violation of his fiduciary

duties; and (3) Kerbawy and DeFrancesco‟s tortious interference with Bosley‟s

Separation Agreement.         For the reasons stated herein, I conclude that none of

Defendants‟ equitable arguments are sufficient to justify setting aside the Consents

executed by a majority of ACell‟s stockholders.

                         A.       Alleged Disclosure Violations

                  1.       Was Kerbawy under a duty of disclosure?

       Defendants argue that Kerbawy had a duty of disclosure in connection with the

Consent Solicitation, because Kerbawy was working with DeFrancesco, who as a

Director owed fiduciary duties to ACell and its stockholders. Thus, Defendants urge the

Court to hold Kerbawy to the same disclosure requirements as would have applied to the

directors pursuant to their fiduciary duties. Defendants also advance the more general

proposition that “a duty of disclosure applies to the solicitation of consents,” and that this

Court can and must intervene because Kerbawy failed to fully disclose all material facts

underlying his Solicitation.117

       Although I ultimately need not decide the issue, I would reject Defendants‟

argument that, regardless of the fact that he is only a minority stockholder and not a



117
       E.g., Defs.‟ Reply Br. 26-32.

                                             33
director or officer, Kerbawy is subject to a duty of disclosure in connection with his effort

to solicit written consents. Most of the cases on which Defendants rely in this regard

stand for the proposition that, “[d]irectors of Delaware corporations are under a fiduciary

duty to disclose fully and fairly all material information within the board‟s control when

it seeks shareholder action.”118 Those cases stand for the unremarkable proposition that

the director‟s fiduciary duties encompass the so-called duty of disclosure, which “is not

an independent duty, but derives from the duties of care and loyalty.”119

       Kerbawy, however, is not a director, officer, controlling stockholder, or member

of a control group.    Defendants do not cite any case holding that such a minority

stockholder generally owes any fiduciary duties, or a duty of disclosure specifically.120



118
       Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992); see also, e.g., Arnold v. Soc’y for
       Sav. Bancorp, Inc., 678 A.2d 533, 537 (Del. 1996); Arnold v. Soc’y for Sav.
       Bancorp, Inc., 650 A.2d 1270, 1276-77 (Del. 1994); Kurz v. Holbrook, 989 A.2d
       140, 183 (Del. Ch.) (“The duty of disclosure applies to directors who solicit
       written consents.”) aff’d in part, rev’d in part sub nom. Crown EMAK P’rs, LLC v.
       Kurz, 992 A.2d 377 (Del. 2010); Zaucha v. Brody, 1997 WL 305841, at *4 (Del.
       Ch. June 3, 1997) (“[E]quitable relief may be granted for a fiduciary‟s non-
       fraudulent failure to disclose material facts in soliciting consents.”), aff’d, 697
       A.2d 749 (Del. 1997).
119
       Pfeffer v. Redstone, 965 A.2d 676, 684 (Del. 2009).
120
       In the one case Defendants cited as support for “a duty of disclosure [that] derives
       from the common law standard that applies when soliciting consents,” Defs.‟
       Reply Br. 28, the individuals whose allegedly misleading disclosures the Court
       enjoined were the President and Secretary of the corporation, who had solicited
       proxies from the stockholders under the guise of board-approved authority, when
       in fact they had none. Empire S. Gas Co. v. Gray, 46 A.2d 741, 745-46 (Del. Ch.
       1946). Because the individuals whose actions the Court scrutinized there were
       officers and would have owed fiduciary duties on that basis, that case is different
       from the situation here.

                                             34
Indeed, to the contrary, non-controlling stockholders generally do not owe fiduciary

duties, even if they are attempting to become directors.121 “Just as Delaware law does not

require directors-to-be to comply with their fiduciary duties, former directors owe no

fiduciary duties.”122 Defendants have not even attempted to prove that Kerbawy qualifies

as a fiduciary on grounds of being a controlling stockholder, director, or officer. Thus,

because the disclosure obligations flow from the traditional fiduciary duties of care and

loyalty, which Kerbawy does not owe, Defendants‟ argument is analytically flawed. The

risk of attributing to stockholders a duty that our law does not clearly impose on them,

together with the reality that this Court “„must act with caution and restraint when

ignoring the clear language of the [DGCL] in favor of other legal or equitable

principles,‟”123 leads me to conclude that Kerbawy, on his own, would not owe a

fiduciary duty of disclosure in connection with his Solicitation.          Thus, I reject

Defendants‟ suggestion that I should impose such a duty on him.124



121
      E.g., In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 995 (Del. Ch.
      2014) (“[I]n deciding whether a stockholder owes a fiduciary obligation to the
      other stockholders of a corporation in which it owns only a minority interest, the
      focus of the inquiry is on whether the stockholder can exercise actual control over
      the corporation‟s board.”).
122
      In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 758 (Del. Ch. 2005), aff’d, 906
      A.2d 27 (Del. 2006).
123
      Unanue v. Unanue, 2004 WL 2521292, at *9 (Del. Ch. Nov. 3, 2004) (quoting
      Stroud, 606 A.2d at 87).
124
      This does not mean that Kerbawy or any other stockholder has license to mislead a
      fellow stockholder in soliciting written consents. A stockholder clearly could
      challenge the results of an election or bring a claim against another stockholder (or
      any person, for that matter) who convinced the stockholder to vote or execute a
                                           35
       In the alternative, Defendants contend that Kerbawy should be held to a duty of

disclosure because DeFrancesco, who was at all relevant times a director and fiduciary of

ACell, participated in the Kerbawy Solicitation.        As discussed above, the evidence

supports a finding that Kerbawy, DeFrancesco, and Bosley worked together in

furtherance of the Kerbawy Solicitation. Furthermore, DeFrancesco‟s involvement was

not merely in his capacity as a stockholder. For example, he allowed Kerbawy and

Steiger to use documents and information that he had obtained due to his current role as a

Director and previous role as CEO of ACell. He also allowed Kerbawy to use his name

and forward a quote from him in a show of support for Kerbawy‟s Solicitation, a move

clearly designed to persuade other stockholders that the Solicitation should be viewed as

having legitimacy, because it was supported by a major stockholder and sitting director.

In this respect, I note that, “even acting in their individual capacities, directors owe a duty

of candor to the stockholders of the corporation for which they serve.”125 Thus, I agree

that DeFrancesco himself would be held to a duty of disclosure in this situation.

       All of the challenged disclosures, however, were Kerbawy‟s, not DeFrancesco‟s.

Defendants therefore ask me to hold that DeFrancesco‟s duties are imputed to Kerbawy

or Kerbawy is transformed into a fiduciary of ACell, because DeFrancesco helped him in



       consent on false pretenses or by fraud. That defrauded stockholder would have a
       claim cognizable either under Section 225 or in a plenary action. But, the record
       in this case contains no indication of any stockholder alleging that he or she was
       defrauded by Kerbawy.
125
       Flaa v. Montano, 2014 WL 2212019, at *9 (Del. Ch. May 29, 2014); see also
       Zaucha, 1997 WL 305841, at *4.

                                              36
his Solicitation effort in the relatively limited way reflected by the facts of this case. The

only case Defendants cite as support for this theory is Kurz v. Holbrook,126 but it does not

really address the issue. Therefore, I am reluctant to hold that Kerbawy is subject to

fiduciary duties, including the duty of disclosure, in the circumstances of this case.127

Ultimately, however, I need not make that decision because, as I next discuss, even if

Kerbawy did owe a duty of disclosure, the disclosure violations that Defendants identify

in support of setting aside the Consents on equitable grounds are not sufficient to justify

doing so.

 2.      Should the Consents be set aside on grounds of any challenged disclosure?

       I consider the merits of Defendants‟ disclosure challenges with a view toward

determining whether any alleged breach of the duty of disclosure “inequitably tainted the




126
       989 A.2d 140 (Del. Ch. 2010), aff’d in part, rev’d in part sub nom. Crown EMAK
       P’rs, LLC v. Kurz, 992 A.2d 377 (Del. 2010). In Kurz, the consents that were
       challenged on disclosure grounds had been solicited by an LLC, one member of
       which was a sitting director. Id. at 144-45. The Court considered whether certain
       of the LLC‟s statements in connection with the solicitation were materially
       misleading, and concluded they were not. The issue posed here—whether a
       person who otherwise would not owe fiduciary duties should be subject to a duty
       of disclosure on the basis that he was assisted by a sitting director—was neither
       discussed nor explicitly decided in Kurz. Id. at 183-84.
127
       The duty of disclosure, like all fiduciary duties, derives from “the principle . . .
       stated most generally, [that] one who controls property of another may not,
       without implied or express agreement, intentionally use that property in a way that
       benefits the holder of the control to the detriment of the property or its beneficial
       owner.” In re USACafes, L.P. Litig., 600 A.2d 43, 48 (Del. Ch. 1991). In this
       case, I am not convinced that Kerbawy, directly or indirectly, comes within that
       principle.

                                             37
election process” and would be grounds for setting aside the Consents.128 In this regard,

if a majority of stockholder consents were procured at least in part by materially

misleading disclosures, that could support such a finding of inequity that would warrant

the Court‟s intervention.     A statement, omission, or partial disclosure is considered

material “if there is a substantial likelihood that a reasonable shareholder would consider

it important in deciding how to vote,” or if, “under all the circumstances, the omitted fact

would have assumed actual significance in the deliberations of the reasonable

shareholder[,] . . . [or] would have been viewed by the reasonable investor as having

significantly altered the „total mix‟ of information made available.”129       In assessing

materiality, this Court considers all the relevant circumstances, including “the nature of

the corporation and its business, the information already available to stockholders, the

other information being provided in the solicitation, and the type of action being

solicited.”130

       a.        The role of Bosley and DeFrancesco in the Kerbawy Solicitation

       Defendants contend the record shows that DeFrancesco and Bosley not only voted

in favor of Kerbawy‟s plan, but were “equal participants in designing” that plan and

active participants in each step of its execution.131 They assert that stockholders were


128
       Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43, 72 (Del. Ch. 2008).
129
       Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus.,
       Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
130
       Kurz, 989 A.2d at 183.
131
       Defs.‟ Reply Br. 34.

                                            38
entitled to know about the extent of that participation, because DeFrancesco and Bosley‟s

involvement “makes it likely that DeFrancesco and Bosley would have a material role in

shaping the corporate policy that the new board would implement—which is exactly what

occurred.”132 This aspect of Defendants‟ disclosure claim is without merit for several

reasons.

         First, the facts do not support Defendants‟ assertion in this regard. The totality of

the evidence convinces me that, while Kerbawy involved DeFrancesco and Bosley in his

Solicitation and made use of the information and assistance they provided, it was

Kerbawy who made the critical decisions as to: whether to run the Solicitation; when and

how to go about amassing the Consents; which stockholders to contact, and how to

persuade them to join; what vision for the future of ACell the New Board should espouse;

and who would be the Director Nominees. In short, contrary to many statements made

by Defendants throughout their briefing and argument, it was Kerbawy‟s Solicitation, in

which DeFrancesco and Bosley—along with many other individuals—played supporting

roles.     I reject as unconvincing Defendants‟ allegation that it was “just as much

DeFrancesco and Bosley‟s Solicitation as it was Kerbawy‟s.” Thus, I do not consider the

extent of DeFrancesco and Bosley‟s support, such as it was, to have been a material fact

that Kerbawy failed to disclose fully and fairly.133        In fact, one day after formally


132
         Id.
133
         Defendants heavily rely on Joanne Watson‟s testimony to prove the materiality of
         the role DeFrancesco and Bosley played in the Kerbawy Solicitation. Tr. 644-66
         (Watson). Although I found Watson‟s testimony credible, it does not change my
         view as to this issue. Viewed in isolation, Watson‟s statements would support a
                                              39
launching his Solicitation, Kerbawy publicly signaled that DeFrancesco was on his side.

Given the degree of DeFrancesco and Bosley‟s involvement, and the fact that the New

Board is an independent board that will be managing ACell going forward, I find that

Kerbawy satisfied any disclosure obligation he might have had.134

      Second, even accepting Defendants‟ premise that Kerbawy should have disclosed

more about Bosley and DeFrancesco‟s role than he did, I do not find this disclosure

deficiency sufficient to justify setting aside the validly executed Consents. Defendants

have a heavy burden in asking the Court potentially to disenfranchise a majority of the




      finding that a reasonable stockholder would have found it important to know of
      DeFrancesco‟s participation. The primary import of Watson‟s testimony,
      however, was that she believed then and believes now that Kerbawy‟s Director
      Nominees and platform generally represent a “fresh start,” which is what she was
      seeking. In any event, Watson‟s testimony would be insufficient to overcome the
      effect of the March Board Letter on this issue, which I address shortly infra.
134
      In arguing for a contrary conclusion, Defendants assert that the extent of
      DeFrancesco and Bosley‟s involvement should have been disclosed pursuant to
      “the broader proposition that stockholders must be able to assess fairly the bona
      fides of an insurgent‟s campaign platform, and, thus, it is material to stockholders
      to know who all the proponents of the solicitation are.” Defs.‟ Reply Br. 34
      (citing Portnoy, 940 A.2d 43; Flaa v. Montano, 2014 WL 2212019; Henwood,
      1961 WL 116793). In Portnoy, members of the board conspired with a
      stockholder who agreed to help them defeat a consent solicitation if the board
      would create a new seat and appoint him to it. The Court found that agreement
      material and held that its omission inequitably tainted the election. Flaa similarly
      involved an agreement, unknown to the stockholders, to appoint a director that
      was found material and inequitable. This case is distinct from those situations.
      Additionally, Henwood was decided under the federal securities laws, not
      Delaware‟s law of fiduciary duty, and I find it inapposite.

                                           40
stockholders, and a breach of the duty of disclosure (again, assuming such a duty even

applies here) only supports that result if it “inequitably taints the electoral process.”135

       The fact of the matter is that Defendants‟ actions with respect to informing the

stockholder base about the role DeFrancesco and Bosley played in the Kerbawy

Solicitation were equally as misleading, if not more so, than anything Kerbawy said or

did not say. While Defendants complain now about how DeFrancesco‟s and Bosley‟s

involvement irredeemably tainted the Kerbawy Solicitation, when the Board had the

chance to alert stockholders to this purportedly material fact, it failed to do so. In fact,

Defendants implied through ambiguous language in the March Board Letter that

DeFrancesco remained on the “Board,” and, as such, was “vehemently” opposed to

Kerbawy‟s Solicitation. In these circumstances, I do not consider it to be equitable to set

aside the Consents on the grounds that Kerbawy did not disclose something that the

Board itself also failed to disclose when it had the time and ability to do so.136 For all of

these reasons, I conclude that Defendants have failed to satisfy their burden of proving

that the Consents should be set aside on equitable grounds due to materially misleading

disclosures about the role of DeFrancesco and Bosley in the Kerbawy Solicitation.




135
       Portnoy, 940 A.2d at 72.
136
       This Court “refuses to consider requests for equitable relief in circumstances
       where the litigant‟s own acts offend the very sense of equity to which he appeals.”
       Nakahara v. NS 1991 Am. Trust, 718 A.2d 518, 522 (Del. Ch. 1998). Defendants‟
       actions here in regard to the March Board Letter contribute to this Court‟s
       consideration of the equities of this case, but I do not consider them dispositive in
       the same sense that an unclean hands defense might be.

                                              41
       b.     The “corporate agenda” of Kerbawy, DeFrancesco, and Bosley

      Defendants contend that Kerbawy, DeFrancesco, and Bosley had a definite agenda

as to the first steps the New Board would take, from the hiring and firing of key

employees, to the Company‟s strategy vis-à-vis the DOJ investigation. Because those

plans were “pre-ordained,” according to Defendants, they needed to be disclosed to

stockholders in connection with the Kerbawy Solicitation.

      As with the disclosure claim relating to the role of DeFrancesco and Bosley, the

record does not support Defendants‟ claim about Kerbawy‟s purportedly secret plans for

ACell. Concerning the DOJ Investigation, Kerbawy‟s contemporaneous communications

demonstrate that, at the time of the Solicitation, he had an open mind and wanted to learn

more information from Williams & Connolly. More importantly, however, even if he

was determined to “fight the DOJ” as Defendants suggest, Kerbawy was only one of five

directors on the New Board.        Based on the record as to the qualifications and

independence of the other Director Nominees, I would have to draw unreasonable

inferences unsupported by the record to conclude that those individuals somehow would

be puppets for Kerbawy (or DeFrancesco or Bosley, for that matter) when it came to the

DOJ Investigation, or any other aspect of the business and affairs of ACell. Thus, I find

Defendants‟ argument that Kerbawy‟s failure to disclose the alleged “fight the DOJ” plan

warrants invalidating the Consents to be misplaced on multiple levels.

      As to the firing of D‟Orta, Grody, and possibly other employees, I reach a similar

conclusion. Kerbawy successfully campaigned on a “fresh start” platform, featuring a

slate of Director Nominees with impressive industry experience and no meaningful

                                           42
connections to either side of the old Board versus New Board divide. A reasonable

stockholder would have assumed that some, and perhaps many, employees would be

terminated, as the “fresh start” platform implies. In any event, in contemporaneous

communications with any stockholder who would listen, Kerbawy made no secret of the

fact that he believed D‟Orta needed to be replaced. Thus, the facts do not bear out

Defendants‟ argument that Kerbawy‟s disclosures were misleading or otherwise deficient

due to material omissions.

                             c.   Kerbawy’s March 7 Email

       Defendants contend that Kerbawy‟s March 7 Email was materially misleading in

several ways. First, Defendants challenge Kerbawy‟s statement that a majority of the

stockholders had voted to replace the Board, when that was not in fact true at that

moment. Defendants further argue that the March 7 Email was designed to have a

coercive effect on stockholders who also were employees of the Company, because, upon

learning that Kerbawy and his slate were the new Directors, they would feel compelled to

join the winning side.     In addition, Defendants assert that the March 7 Email was

misleading based on Kerbawy‟s allusion to a report that the Board was “attempting to

increase the number of outstanding shares by rushing through option exercises.”          I

address these issues in turn.

       In the specific factual context of this case, I do not consider Kerbawy‟s statement

that a majority of ACell stockholders had voted to replace the Board to be a material

misrepresentation that would justify setting aside the Consents. The main reason is that,

even assuming a reasonable ACell stockholder might have considered Kerbawy‟s

                                           43
prediction of success to be important in deciding whether and how to vote, the impact of

that statement does not cut clearly in one direction or the other. It is plausible, as

Defendants emphasize, that an ACell stockholder who also was employed at the

Company might feel pressured to join the winning side in the Solicitation even though,

all else being equal, they might have preferred to stay with Defendants‟ Board or remain

neutral.   It is equally plausible, however, that there were some ACell stockholder-

investors who, all else equal, wanted to join Kerbawy‟s Solicitation but would have

feared doing so if they were not virtually certain his effort would prevail. The record

suggests that there was some evidence of the latter dynamic in connection with the

October 2014 solicitation. Moreover, as to ACell stockholders not employed at the

Company, Kerbawy‟s prediction of victory easily could have resulted in a reasonable

stockholder deciding not to vote on the theory that, if the outcome already was clear, their

consent would not make a difference anyway.

       Thus, even if I were to assume that Kerbawy‟s prediction of victory would have

been viewed as material, I am not persuaded that it justifies setting aside the Consents

because it is not clear what effect the statement would have had on the vote. Defendants

suggest that because Kerbawy received consents representing approximately 2.7 million

shares after sending the March 7 Email, the Court should infer that materially misleading

statements in the email caused stockholders to deliver those consents.137         Kerbawy

believed, however, that consents representing a majority of the outstanding shares of


137
       E.g., Defs.‟ Opening Br. 57; Defs.‟ Reply Br. 41.

                                            44
ACell already had been executed in support of Kerbawy‟s slate before he sent the March

7 Email.138 In fact, Defendants‟ own Demonstrative Exhibit 1 shows that consents

representing approximately 22,905,456 shares (or 50.6% of shares outstanding)—

including 1.3 million of the 2.7 million shares Defendants argue were received after the

March 7 Email—were executed before Kerbawy sent the email.139 I am not persuaded,

therefore, that the March 7 Email caused stockholders to execute and deliver the consents

necessary to give Kerbawy the majority he needed; without witness testimony or

additional evidence to that effect, reaching such a conclusion would be speculative at

best. As a separate and independent ground for reaching this conclusion, I do not find

this aspect of the March 7 Email to be material. One reason is that the effect on a

reasonable stockholder of the March 7 Email‟s prediction of victory likely would have

been neutralized, one day later, by her receipt of the competing letter from the Board,

which included a form and instructions for revoking consents. Even if a stockholder had

taken Kerbawy‟s assertion at face value, she would have been forced by Defendants‟

letter and revocation form to reconsider whether the contest truly was settled.140

       As to Kerbawy‟s statement that he had received a “report that the current board is

attempting to increase the number of outstanding shares by rushing through option



138
       Pl.‟s Opening Br. 36; Pl.‟s Reply Br. 13.
139
       Pl.‟s Reply Br. Ex. 1.
140
       See Red Oak Fund, L.P. v. Digirad Corp., 2013 WL 5740103, at *11-12 (Del. Ch.
       Oct. 23, 2013) (declining to set aside the results of a proxy solicitation based on
       disclosure challenge relating to the leaking of preliminary election results).

                                            45
exercises,” Kerbawy in fact received such a report from Riley and believed it to be true.

Defendants make much of the fact that Riley acquired the information by eavesdropping

through his office wall that he shared with Miles Grody, the Company‟s General

Counsel, on conversations of ACell‟s officers.       That the source of the information

admittedly was ignoble does not necessarily mean that, as Defendants contend,

Kerbawy‟s statement was “reckless[]”141 or “false and misleading.”142 In fact, during

email communications that same day with a sympathetic stockholder, McDonnell advised

that he recently had exercised stock options and that “any options exercised before the

13th will count.”143 Thus, McDonnell essentially was instructing a stockholder to do just

what Kerbawy‟s statement indicated the Board might attempt to do. That fact merely

buttresses Plaintiff‟s convincing showing that Defendants moved immediately and

furiously to defeat the Kerbawy Solicitation, and were willing to do “whatever it took” to

be successful. Against that backdrop, I cannot conclude that Kerbawy‟s statement, which

he had a legitimate basis to believe was true, was so “reckless” or “false and misleading”

as to justify granting Defendants‟ claim to set the Consents aside.

      B.     Alleged Tortious Interference with Bosley’s Separation Agreement

       Defendants contend that both Kerbawy and DeFrancesco knew about Bosley‟s

Separation Agreement and nevertheless asked Bosley to assist in the Kerbawy

Solicitation, thereby causing him to breach the Agreement.            Because that alleged

141
       Defs.‟ Opening Br. 56-57.
142
       Id. at 34, 56; Defs.‟ Reply Br. 41.
143
       JX 606.

                                             46
interference with the Separation Agreement was unjustified and caused ACell harm,

Defendants argue, Kerbawy and DeFrancesco are subject to a claim for tortious

interference, and because the Consent Solicitation was furthered by that interference,

Defendants assert that the “only equitable result is for the Court to invalidate the

solicitation.”144 For the following reasons, I disagree.

       The preponderance of the evidence supports the conclusion that by assisting

Kerbawy in his Solicitation—i.e., helping Kerbawy formulate a plan for the New Board,

giving him Company information, and recommending and communicating with

individuals who would be qualified to serve on the New Board, Bosley breached the

Standstill and Confidentiality Provisions of the Separation Agreement.145 As discussed

supra, Bosley‟s involvement was somewhat limited and, therefore, I have rejected

Defendants‟ overblown assertion that the Kerbawy Solicitation was “as much Bosley‟s as

it was Kerbawy‟s.” Nevertheless, Bosley breached the Agreement, and neither Plaintiff

nor DeFrancesco seriously contend otherwise.146

       Bosley is not a party to this action, however. Hence, the relevant question is

whether the record supports Defendants‟ claim that Kerbawy and DeFrancesco tortiously



144
       Defs.‟ Reply Br. 45.
145
       The Separation Agreement prevented Bosley from both directly or indirectly
       soliciting consents and directly or indirectly becoming a “participant” or assisting
       any other person in such a solicitation (the Standstill Provision) and forbid him
       from misusing Company confidential information (the Confidentiality Provision).
       Standstill Agreement §§ 4-5.
146
       E.g., Pl.‟s Reply Br. 22-24; DeFrancesco‟s Reply Br. 19-23.

                                             47
interfered with Bosley‟s Separation Agreement.          The elements for proving tortious

interference with contract are: (1) a contract, (2) about which the defendant knew, and (3)

an intentional act by that defendant that is (4) without justification and is (5) a significant

factor causing a breach of the contract and resulting injury.147 I seriously question

whether Kerbawy‟s and DeFrancesco‟s alleged interference with Bosley‟s Separation

Agreement was “without justification” and a significant factor in causing injury to

ACell—which is the party to the Agreement, not Defendants. Defendants contend that

ACell had bargained for the right to be free from Bosley participating in another consent

solicitation, in exchange for which the Company allowed him to retain certain stock

options and other interests as part of an agreed upon separation. The suggestion is that,

absent the Separation Agreement, ACell might have terminated Bosley for cause and

sought to claw back from him the options and other interests he held.

       Importantly, the only reason the alleged tortious interference properly is before me

in the context of this Section 225 action is “because [it] bear[s] directly on [the New

Board‟s] entitlement to office,” but “the nature of a § 225 action does limit the scope of

relief [Defendants] can obtain if they are successful on these claims.”148 In this in rem

action, for example, I could not order Bosley to forfeit his stock options or any other

interest he obtained through the Separation Agreement, nor could I award ACell




147
       Agranoff v. Miller, 1999 WL 219650, at *21 (Del. Ch. Apr. 12, 1999), aff’d, 737
       A.2d 530 (Del. 1999).
148
       Id. at *18.

                                              48
compensatory damages for breaches of the agreement.149 Even if I were to enforce the

parties‟ obligations under the Separation Agreement by removing all of Bosley‟s shares

from the total number of shares included in the Consents, however, the result would not

change: the Kerbawy Solicitation still would have a majority, if only barely.150

       Defendants‟ strongest response to this point is that the harm to ACell of Bosley‟s

breach goes beyond just the stock he owned, and impacted the validity of the entire

Kerbawy Solicitation. Specifically, Defendants point to Section 14(f) of the Separation

Agreement, in which the parties agreed that any breaches thereof would result in harm

that would be “difficult to measure” and for which money damages would be an

“inadequate remedy.”151 Thus, Defendants contend, “[b]y actively concealing Bosley‟s

breach of the Separation Agreement, DeFrancesco and Kerbawy deprived ACell of its

available injunctive remedy.”152 For the following reasons, I conclude that this argument

does not provide a sufficient basis for setting aside the Consents.




149
       Id.; see also, e.g., EDWARD P. WELCH ET AL., FOLK ON THE DELAWARE GENERAL
       CORPORATION LAW (6th ed. 2015) [hereinafter “FOLK ON THE DGCL”] §§ 225.03-
       225.04. While I may consider claims that the New Board “obtained the office
       through fraud, deceit, or breach of contract,” I may do so “only for the limited
       purpose of determining the corporation‟s de jure directors and officers.” Genger v.
       TR Invs., LLC, 26 A.3d 180, 200 (Del. 2011).
150
       Pl.‟s Opening Br. 24-26; Pl.‟s Reply Br. 25. As noted above, Defendants‟ briefing
       did not contest the issue of the numerical sufficiency of the Consents, and it was
       not addressed at argument.
151
       JX 149 § 14(f).
152
       Defs.‟ Opening Br. 62; see also Defs.‟ Reply Br. 45.

                                             49
       In the hypothetical case Defendants posit—where Bosley participated in a consent

solicitation in breach of the Separation Agreement, and the Company found out and

sought to enjoin him from such breaches before or while they were ongoing (i.e., sought

the “available injunctive remedy” Defendants complain that ACell was deprived of)—the

Court would analyze whether ACell was entitled to preliminary injunctive relief by

assessing whether it had “(1) a reasonable probability of success on the merits at a final

hearing, (2) an imminent threat of irreparable injury, and (3) a balance of the equities that

tips in favor of issuance of the requested relief.”153 In such an analysis, the Court would

have to weigh whether the harm to ACell of not invalidating a consent solicitation that

was being advanced in part by Bosley‟s breach of the Separation Agreement outweighed

the countervailing harm—i.e., the frustration of the intent of stockholders who sought to

replace the board by executing written consents. That is the same equitable balancing I

must conduct here. To my mind, therefore, Defendants‟ argument—that not setting aside

the Consents would be inequitable because ACell was deprived of the chance to seek an

injunction in the hypothetical situation I described—begs the question. Thus, that line of

reasoning on its own does not support taking the extraordinary step of setting aside the

Consents. Instead, I must balance the equities in the face of Bosley‟s breaches based on

the circumstances of this case.




153
       Nutzz.com, LLC v. Vertrue, Inc., 2005 WL 1653974, at *6 (Del. Ch. July 6, 2005)
       (internal citations omitted); Concord Steel, Inc. v. Wilm. Steel Processing Co.,
       2008 WL 902406, at *3 (Del. Ch. Apr. 3, 2008).

                                             50
       In conducting that analysis, I have considered carefully the decision in Agranoff v.

Miller,154 the main case upon which Defendants rely. In that case, Chief Justice Strine,

writing as Vice Chancellor, decided a Section 225 action in favor of the parties seeking to

invalidate written consents purporting to remove sitting directors because the stockholder

delivering the consents, “in conspiracy with two faithless fiduciaries,” wrongfully

obtained his shares.155 In particular, the defendant, who had had no stockholdings or

other association with the company, used confidential information provided to him by a

self-interested director to secretly buy up a controlling stake in the closely held company,

in contravention of a stockholders‟ agreement under which the company itself and then

the other stockholders had rights of first refusal as to any sales of company stock. The

Court held that the defendant, in conspiracy with two fiduciaries and a company

consultant, usurped a corporate opportunity by depriving the company of the right to re-

purchase its stock or to facilitate the purchase thereof by existing stockholders, and for

that reason “should not „benefit from [his] wrongful actions‟ by being permitted to vote

those shares.”156

       There are several material distinctions between Agranoff and the situation here.

For one thing, the equities in that case cut much more clearly in favor of the challengers

to the consent solicitation. In Agranoff, fiduciaries self-interestedly enabled a stranger to



154
       1999 WL 219650 (Del. Ch. Apr. 12, 1999), aff’d, 737 A.2d 530 (Del. 1999).
155
       Id. at *1.
156
       Id. at *21 (quoting Yiannatsis v. Stephanis, 653 A.2d 275, 279 (Del. 1995)).

                                             51
the corporation to accumulate a controlling stake in secret, in violation of the

corporation‟s and the stockholders‟ rights of first refusal, and apparently without paying a

control premium. Here, one fiduciary (DeFrancesco) and one former fiduciary (Bosley),

who was acting in breach of an agreement with the Company, provided limited assistance

to a stockholder who sought and obtained a majority of consents to replace the Board

with a majority of new, independent directors. The agreement at issue in Agranoff went

to the core of the consent solicitation‟s validity, because, if not for the contractual

breaches, the defendant there would not have owned stock at all, much less the

controlling block he used to replace the board.        This case involves a much more

attenuated connection between the Board‟s removal and the alleged breaches of Bosley‟s

Separation Agreement; the factual record suggests that, if Bosley had not helped

Kerbawy at all, the Solicitation still would have succeeded.

       More importantly, though, the contractual rights that Defendants seek to vindicate

here are materially different than the rights the Court protected in Agranoff. There,

setting aside the written consents furthered interests of the corporation and all its

stockholders, i.e., the possibility of enjoying a control premium rather than letting an

outsider secretly acquire control, and the benefits of keeping the ownership among the

original group of investors, who viewed themselves as a private partnership. In this case,

the principal benefit that would accrue from setting aside the Consents is that the

incumbent Board would remain in control of ACell. Taking into consideration all the

facts of this case, and with the teachings of cases like Agranoff in mind, I conclude that

the balance of the equities here does not support setting aside the Consents in order to

                                            52
vindicate the Company‟s rights under the Separation Agreement. 157 Granting such relief

would benefit primarily, if not solely, the incumbent Board, as opposed to the Company

and its stockholders at large.

                   C.       Alleged Misuse of Company Information

       Defendants also argue that, in violation of his duty of loyalty, DeFrancesco

provided Kerbawy with confidential Company information. As discussed above, there is

no real dispute that at least some documents and information that DeFrancesco and

Bosley provided Kerbawy contained ACell information to which he otherwise would not

have had access. Furthermore, DeFrancesco and Kerbawy probably were negligent, and

arguably might have been grossly negligent, in failing to take basic precautions such as

requiring the recipients of the information to execute non-disclosure agreements.158 That



157
       This conclusion finds support in then-Vice Chancellor Strine‟s reasoning in an
       earlier opinion in the Agranoff case, where he observed that: “[T]he proper way
       ultimately to address this situation may be to analyze whether there exists, on an
       objective basis, a valid corporate or shareholder interest that will be served by the
       enforcement of the contract. If there is not, then regardless of the subjective good
       faith of the plaintiffs, the contract should not serve as a basis for depriving [the
       party delivering consents] of control because enforcement of the contract would
       not serve any valid interest of the corporation or its stockholders. Such a merits-
       based approach has the virtue of enabling directors to assert corporate contractual
       rights which might benefit the stockholders while ensuring that directors do not
       usurp corporate contractual rights simply to protect their incumbency.” Agranoff,
       734 A.2d at 1074.
158
       See Tr. 361, 364-66 (DeFrancesco). At least three of the Director Nominees
       previously might have been or currently might be affiliated with companies
       operating in the same industry as ACell. Id. at 361, 365. It would be difficult on
       this record, however, to go further and find that their actions in this regard
       constituted bad faith or disloyalty. In any event, based on the rest of my analysis
       of this aspect of Defendants‟ argument, I need not delve into that issue.

                                            53
type of carelessness easily could have harmed ACell if sensitive information fell into the

wrong hands, but Defendants presented no evidence that any such harm occurred here.

      There are several problems, however, with Defendants‟ argument that I should set

aside the Consents because of DeFrancesco‟s and Bosley‟s willingness to provide certain

documents to Kerbawy in furtherance of his Solicitation. One problem is that, based on

the evidence, the documents and information at issue were fairly unremarkable corporate

documents, many, if not all, of which would have been available to Kerbawy or any other

stockholder by using Section 220.       This is not a case in which trade secrets or

commercially valuable proprietary information was put at risk, nor is it like some of the

cases Defendants rely upon that involved disloyal disclosure by fiduciaries of business

opportunities or other highly sensitive information.159 A related problem is that, in the

particular context of this privately held Company, the Board itself often shared with the

stockholders information that it considered confidential or privileged, even during their

efforts to dissuade stockholders from supporting Kerbawy‟s Solicitation.160

      Most problematic for Defendants in this regard, however, is that they cannot point

convincingly to any harm to ACell as a result of Kerbawy obtaining the Company

159
      See, e.g., Agranoff, 1999 WL 219650, at *8-9, *19-21; Shocking Techs., Inc. v.
      Michael, 2012 WL 4482838, at *9 (Del. Ch. Oct. 1, 2012), vacated on other
      grounds by Shocking Techs., Inc. v. Michael, 2015 WL 3455210 (Del. Ch. May
      29, 2015). The most troubling of the Company information that DeFrancesco
      disclosed to Kerbawy was contained in the Draft S-1 and the strategic planning
      document (JX 286). Even having considered those documents, however, I do not
      find this case to be analogous to either Agranoff or Shocking Technologies in
      terms of the confidential information at issue.
160
      E.g., Tr. 176-79, 212-16 (Pfinsgraff); id. at 568-70 (McDonnell).

                                           54
information and documents he did from DeFrancesco and Bosley.               Attempting to

demonstrate such harm, Defendants assert: that this “misuse of confidential information

harmed the Company, as it allowed Kerbawy to keep the solicitation secret”;161 that

DeFrancesco “misappropriated the information, in a manner that deprived the Company

of its ability to enforce its rights under Section 220 and Bosley‟s Separation

Agreement”;162 and that it was wrong for DeFrancesco “to use his office as a director to

facilitate the solicitation in secret for his own personal interest without regard to the

Company‟s interest.”163

      Each of these assertions is flawed. The first is the easiest to reject: neither the

Company nor the incumbent Board has any right to prevent a stockholder from engaging

in “secret” solicitation of written consents.164 As to Defendants‟ second assertion, I find

it unpersuasive as to both Section 220 and the Separation Agreement. I already have

discussed the Separation Agreement supra. The suggestion that Kerbawy‟s “secret”

Solicitation violated rights of ACell under Section 220 misconstrues the statute. Section

220 is designed to give stockholders rights to inspect corporate books and records, not to



161
      Defs.‟ Reply Br. 23; see also Defs.‟ Opening Br. 42.
162
      Defs.‟ Reply Br. 24.
163
      Id. at 26.
164
      “[Section 228(a)] creates a right in shareholders to act independently of the
      directors upon whom they may be dependent to call a meeting. Under Section
      228, unless the charter otherwise provides, shareholders may act by written
      consent, without notice, a meeting and or a vote.” Prime Computer, Inc. v. Allen,
      1988 WL 5277, at *4 (Del. Ch. Jan. 22, 1988), aff’d, 540 A.2d 417 (Del. 1988).

                                            55
serve as a kind of early-warning system for an incumbent Board to gird itself against

consent solicitations.165

       Defendants‟ contention that DeFrancesco improperly placed his own interests

above ACell‟s when he provided Kerbawy with inside information comes closest to

providing an equitable ground to find the Consents invalid. As a legal matter, the

proposition Defendants cite in this regard, that “[i]nherent in the duty of loyalty is an

obligation to protect the corporation by maintaining the confidentiality of its sensitive

information,”166 seems indisputable. As a factual matter, however, the record does not

support their assertion that DeFrancesco was favoring his own interests over ACell‟s.

       For starters, as ACell‟s largest stockholder, DeFrancesco‟s “interest” is closely

aligned with ACell‟s: if the Company is destroyed or harmed materially by the New

Board‟s approach to the DOJ Investigation, or for some other business reason,

DeFrancesco stands to lose his more than $3 million investment. He is more motivated

than any other individual to see that the Company succeeds with an IPO in the $500

million range or greater.    Furthermore, in the immediate context of the Kerbawy


165
       See 8 Del. C. 220(b) (“Any stockholder, in person or by attorney or other agent,
       shall, upon written demand under oath stating the purpose thereof, have the right
       during the usual hours for business to inspect for any proper purpose, and to make
       copies and extracts from: (1) The corporation‟s stock ledger, a list of its
       stockholders, and its other books and records . . . .”) (emphasis added).
       Defendants cite no authority for the proposition that ACell might have rights under
       Section 220 in this situation.
166
       J. Travis Laster & John Mark Zeberkiewicz, The Rights and Duties of Blockholder
       Directors, 70 BUS. LAW 33, 52 (2015); see also Shocking Techs., Inc., 2012 WL
       4482838, at *9.

                                           56
Solicitation, DeFrancesco stands to lose his current Board seat, not gain more control.

Defendants insinuate at various points in their argument that DeFrancesco will benefit if

the New Board determines to grant him advancement of the legal costs he personally is

incurring or is likely to incur in connection with the DOJ Investigation. If a company has

a permissive advancement regime, as ACell does here,167 there conceivably will be

situations where the board has to decide whether to advance funds. But, that is an issue

for another day.

             D.       The Fairness of the Kerbawy Solicitation Generally

       In sum, the facts of this case do not provide sufficient justification for this Court to

take the extraordinary step of setting aside the written consents executed by a majority of

ACell‟s stockholders. In addition to the contentions I have addressed supra, a persistent

theme running through Defendants‟ argument was that the Kerbawy Solicitation was not

fundamentally fair. In particular, Defendants fall back on the argument that they possess

superior knowledge related to the DOJ Investigation and believe themselves to be

pursuing the course of action that will lead to the best resolution of that issue for ACell

and its stockholders. They also complain that the Kerbawy Solicitation was sprung on

the Board without giving it enough time to respond and give stockholders its side of the

argument. On that basis, Defendants contend that I should set aside the Consents and




167
       JX 1 art. V, § 5.

                                              57
allow for a new vote—which Defendants suggest would come soon in the form of the

Company‟s annual meeting—that can be based on “full and fair information.”168

        Based on the record, and as already discussed, I do not doubt the Incumbent Board

believed that they would manage the Company better than the New Board. But in the

context of a consent solicitation under Section 228, the Board is not entitled to a full and

fair debate. The DGCL and ACell‟s charter clearly enable ACell‟s stockholders to act by

written consent, without notice. Section 228 “creates a right in shareholders to act

independently of the directors upon whom they may be dependent to call a meeting.”169

Adopting the rule Defendants urge in this regard threatens to impinge upon that right.

My inquiry in this case must be and was limited to ensuring the fairness of the consent

solicitation not in the sense that Defendants use it here—i.e., that both sides fairly were

able to present their views to the ACell stockholders—but in the sense that there was not

a breach of fiduciary duty, breach of contract, fraud, or other wrongdoing that so

“inequitably tainted the election” that the Court must intervene.170 For the reasons I have

discussed, I conclude that Defendants failed to carry their burden of showing such an

inequitable circumstance in the facts of this case. I decline to go beyond that and delve

into the merits of the decisions that Delaware law allocates to ACell‟s stockholders to

make.


168
        Defs.‟ Reply Br. 5. See also id. at 46-49; Defs.‟ Opening Br. 5, 62-65.
169
        Prime Computer, Inc. v. Allen, 1988 WL 5277, at *4 (Del. Ch. Jan. 22, 1988),
        aff’d, 540 A.2d 417 (Del. 1988).
170
        Portnoy, 940 A.2d at 72.

                                            58
                              IV.      CONCLUSION

      For the foregoing reasons, Plaintiff is entitled to a declaratory judgment as to his

claim under Section 225 that the New Board validly was elected as of March 10, 2015.

The Defendants‟ counterclaims and third-party claims against Kerbawy and DeFrancesco

are dismissed. An implementing order accompanies this Opinion.




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