   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE


NABIL AKROUT,                          :
                                       :
                       Plaintiff,      :
                                       :
               v.                      :    C.A. No. 2017-0473-JRS
                                       :
ROMAN JARKOY, VLADIMIR                 :
BOBROVSKY, BORIS KALK, and             :
INTELLIGENT SECURITY                   :
SYSTEMS INTERNATIONAL, INC.,           :
                                       :
                       Defendants.     :


                       MEMORANDUM OPINION

                       Date Submitted: April 17, 2018
                        Date Decided: July 10, 2018



David L. Finger, Esquire of Finger & Slanina, LLC, Wilmington, Delaware,
Attorney for Plaintiff.

Kenneth J. Nachbar, Esquire and Alexandra M. Cumings, Esquire of Morris,
Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, and Steven G. Mintz,
Esquire and Kevin M. Brown, Esquire of Mintz & Gold LLP, New York, New York,
Attorneys for Defendant Roman Jarkoi.




SLIGHTS, Vice Chancellor
         A sidelined director and stockholder of a dissolved corporation seeks the

Court’s assistance to resurrect the corporation and cause the corporation and its

directors to answer his claims of wrongdoing. In his Verified Complaint for Breach

of Fiduciary Duties, Declaratory Relief and Appointment of a Receiver

(the “Complaint”), Plaintiff, Nabil Akrout, seeks a declaration that the dissolution

of Intelligent Security Systems International, Inc. (“ISSI”) is void. He requests that

the Court revive ISSI and appoint a receiver on its behalf. He also alleges that

Defendants, Vladimir Bobrovsky, Boris Kalk and Roman Jarkoi1 (together the

“Individual Defendants”), breached their fiduciary duties of “candor/loyalty, and

good faith and fair dealing” by failing to apprise Akrout of ISSI’s dissolution and

“affirmatively mislead[ing] him regarding ISSI’s financial condition and legal

standing.”2 These actions allegedly allowed the Individual Defendants to benefit

from revenues generated by ISSI to the exclusion of Akrout and to deny Akrout

accrued salary and benefits.3




1
  It appears from Jarkoi’s filings that his name is misspelled in the case caption and
throughout the Complaint.
2
  Compl. ¶¶ 14, 16. I note that the Complaint contains two different paragraphs numbered
“11” and two different paragraphs numbered “12.” Citations to the first iteration of each
duplicate-numbered paragraph will be to “11A” or “12A” and citations to the second
iteration will be to “11B” or “12B.”
3
    Compl. ¶ 15.


                                           1
      Certain defendants, ISSI, Bobrovsky and Kalk, have not appeared in the

litigation. Accordingly, Akrout seeks a default judgment against them pursuant to

Court of Chancery Rule 55. Jarkoi has appeared and has filed a motion to dismiss

the Complaint as to Count I (breach of fiduciary duty) under Court of Chancery

Rule 12(b)(6) for failure to state a claim and under Court of Chancery Rule 23.1 for

Akrout’s lack of standing to pursue what Jarkoi characterizes as solely derivative

claims.4

      The Complaint is not a model of clarity. Nevertheless, I have done my best

to discern the claims Plaintiff intended to plead and to draw all reasonable inferences

in Plaintiff’s favor. Even after giving Plaintiff all benefits of the highly deferential

Rule 12(b)(6) standard of review, I am satisfied that Plaintiff has failed to plead

viable claims. Accordingly, I grant Jarkoi’s motion to dismiss, deny Plaintiff’s

motions for default judgment against Bobrovsky, Kalk and ISSI and dismiss the

Complaint with prejudice.

                            I. FACTUAL BACKGROUND
      I have drawn the facts from the allegations in the Complaint and documents

incorporated by reference or integral to the Complaint.           I accept as true the




4
 As discussed below, the Court dismissed Counts II and III as to Jarkoi in a Bench Ruling
on December 18, 2017.


                                           2
Complaint’s well-pled factual allegations and draw all reasonable inferences in

Plaintiff’s favor.5

     A. The Parties

         Plaintiff, Akrout, was a director and stockholder of Defendant, ISSI, a

Delaware corporation that operated in the digital security and surveillance video

space.6 Akrout and the Individual Defendants founded ISSI on March 3, 2004.7

According to the Complaint, Akrout held 170 shares of ISSI’s 655 outstanding

shares at the time of the dissolution, and he continues to hold those shares today.8

Like Akrout, the Individual Defendants were each directors and stockholders of

ISSI.9

         Akrout and the Individual Defendants were all parties to a stockholders

agreement dated March 1, 2004.10 It appears that Akrout was identified as a




5
    In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006).
6
    Compl. ¶¶ 1, 5.
7
    Compl. ¶ 5.
8
    Compl. ¶ 6.
9
    Compl. ¶¶ 2–4.
10
   Compl. ¶ 6. The Complaint refers to both a “shareholders agreement” and a
“stockholders agreement.” Compare Compl. ¶ 6 with Compl. ¶ 11A. As best I can tell
from the Complaint, the two agreements are one and the same. Thus, I will refer to the
agreement as the “stockholders agreement.”


                                             3
“founder” in that agreement and that he was granted approximately 12.2% of ISSI’s

authorized shares in that capacity.11

         Akrout served as President and CEO of ISSI pursuant to an employment

contract until he was removed from those positions on January 29, 2008.12 After his

removal as President and CEO, Akrout alleges that he continued to serve as an ISSI

director even though the other directors stopped communicating with him.13

      B. The Aftermath of Akrout’s Removal from ISSI’s Management

         According to Plaintiff, ISSI’s board of directors (“the Board”) did not hold

regular meetings.14 The last meeting of the Board of which Akrout had notice

convened on May 16, 2007.15 Consequently, Akrout has not been afforded an

opportunity to participate in the management of ISSI since his removal as President

and CEO in January 2008.16




11
     Compl. ¶¶ 6, 11A.
12
 Compl., Ex. A. Although he was removed as CEO at a January 29, 2008 stockholders
meeting, Akrout did not receive notification of his removal until February 12, 2008. Id.
13
     Compl. ¶ 9; Compl., Ex. A.
14
     Compl. ¶ 9.
15
     Compl. ¶ 9.
16
     Compl. ¶ 9.


                                           4
         Akrout alleges that ISSI “still owes [him] approximately $2,000,000 in

accrued salary (exclusive of bonuses)” under his employment contract.17 After his

removal from management, Akrout communicated with “other members [of] ISS[I]

to inquire about when he would receive any payment of his back salary and any

dividends, the most recent communication being in January, 2017.”18 In response to

these inquiries, Akrout allegedly was told (by whom he does not say) that “ISS[I]

had no money [to pay him] and to be patient.”19

          Following his removal from ISSI management, Akrout followed ISSI’s

operations by “read[ing] routinely ISS[I]’s website, including press releases . . . in

the hopes of receiving his back pay plus stock dividends.”20 This practice of remote

monitoring led Akrout to discover on February 21, 2017, that ISSI had filed a

certificate of dissolution on June 26, 2014.21 Akrout was surprised to learn of ISSI’s

dissolution because he had received no prior notice of either a meeting of the Board




17
     Compl. ¶ 8.
18
     Compl. ¶ 10.
19
     Compl. ¶ 10.
20
     Compl. ¶ 11A.
21
   Compl. ¶ 12A; Compl., Ex. C. Akrout alleges that he made this discovery when he
received a copy of ISSI’s certificate of dissolution from the Delaware Secretary of State on
February 21, 2017. Compl., Ex. C at 1–2.


                                             5
at which a recommendation to dissolve was to be discussed, or a meeting of

stockholders where a vote to authorize dissolution was to be held.22

      C. Plaintiff’s Claims

         Count I comprises the following six paragraphs:

         12[B]. Akrout incorporates by reference the allegations contained in
         numbered paragraphs 1-11[B] above.

         13. Prior to “dissolution,” Defendants Jarko[i], Bobrovsky and Kalk
         owed fiduciary duties to Akrout as a stockholder. Upon dissolution,
         Jarko[i], Bobrovsky and Kalk owed fiduciary duties to Akrout as a
         creditor.

         14. Jarko[i], Bobrovsky and Kalk knowingly and intentionally kept
         Akrout in the dark about the dissolution and affirmatively misled him
         about ISS[I]’s financial condition and legal standing.

         15. Their actions allowed them to benefit from revenues generated by
         ISS[I] at the expense of Akrout, denying him accrued salary and
         dividends.

         16. The actions of Jarko[i], Bobrovsky and Kalk, constitute breaches
         of their fiduciary duties of candor/loyalty, and good faith and fair
         dealing.

         17. Jarko[i], Bobrovsky and Kalk should be ordered to account for all
         money that came in and/or out of ISS[I] since Akrout was removed as
         President and CEO of ISS[I]. They should also be required to disgorge
         any money they took or otherwise obtained from ISS[I] in violation of
         Akrout’s contract rights and stockholder dividend rights.




22
     Compl. ¶ 11B.


                                           6
During oral argument, Plaintiff’s counsel explained that:

       The crux of the complaint is that Mr. Akrout discovered just
       inadvertently that the company had been dissolved and what he really
       wants to do is get the company back what may have been taken from
       him improperly; that is, moneys that have gone in and out either through
       operation of the company as a going concern, notwithstanding it being
       dissolved, and money that should have been distributed, as one does in
       a dissolution if there was a proper dissolution—marshal the assets, pay
       off creditors, and distribute the—whatever is left over to the
       stockholders as dividends.23

       Notwithstanding counsel’s attempt at clarification, even after drawing all

inferences in Plaintiff’s favor, I can discern no well-pled claim in Count I that the

Individual Defendants breached their fiduciary duty to Akrout by failing to make


23
   Tr. of Oral Arg. on Def. Roman Jarko[i]’s Mot. to Dismiss and Pl.’s Mot. for Entry of
Default J. Against Vladimir Bobrovsky and Boris Kalk (Apr. 17, 2018) (the “April 17,
2018 Oral Argument”) (Dkt. 42) at 20. Plaintiff’s counsel’s post hoc attempt to clarify the
allegations in the Complaint in response to a motion to dismiss, while understandable given
the paucity of the Complaint, cannot be received as a supplement or amendment to the
pleading itself. Gen. Motors (Hughes) S’holder Litig., 897 A.2d at 168 (“The complaint
generally defines the universe of facts that the trial court may consider in ruling on a
Rule 12(b)(6) motion to dismiss. When the trial court considers matters outside of the
complaint, a motion to dismiss is usually converted into a motion for summary judgment
and the parties are [then] permitted to expand the record.”); Gerber v. EPE Hldgs., LLC,
2013 WL 209658, at *4 n.38 (Del. Ch. Jan. 18, 2013) (noting that an answering brief in
response to a motion to dismiss is not the appropriate vehicle “for expanding claims”);
Orman v. Cullman, 794 A.2d 5, 28 n.59 (Del. Ch. 2002) (“[Plaintiff] improperly attempts
to expand the scope of his complaint in his brief opposing the motion to dismiss . . . At this
stage of litigation, the Court is only permitted to consider the well-pleaded facts contained
in the complaint and any documents incorporated by reference into that complaint. Briefs
relating to a motion to dismiss [and, logically, oral argument regarding those briefs,] are
not part of the record and any attempt contained within such documents to plead new facts
or expand those contained in the complaint will not be considered.”). In deciding Akrout’s
motion, the Court’s focus must not stray from the four corners of the Complaint and any
documents it incorporates by reference. Gen. Motors (Hughes) S’holder Litig., 897 A.2d
at 169.


                                              7
proper distributions to him following the dissolution of ISSI. Instead, the only

allegedly improper distributions that are mentioned in Count I took the form of pre-

dissolution “dividends” that allegedly were declared and paid following his removal

as President and CEO in 2008.24 Akrout also alleges that the Individual Defendants

breached their fiduciary duties by failing to pay him “accrued salary” per his “signed

contract” with ISSI.25 As remedies, Akrout seeks damages, an accounting “for all

money that came in and/or out of ISS[I] since Akrout was removed as President and

CEO of ISS[I]” and disgorgement of “any money [the Individual Defendants] took

or otherwise obtained from ISS[I].”26 He does not, however, make any mention,

much less make a formal prayer for relief, relating to any improper post-dissolution

distributions.

         Count II seeks a declaratory judgment that ISSI’s dissolution is void.27

Count III seeks the appointment of a receiver for ISSI.28




24
     Compl. ¶¶ 15, 17.
25
     Compl. ¶¶ 8, 15, 17.
26
     Compl. ¶ 17.
27
     Compl. ¶ 22.
28
     Compl. ¶ 25.


                                          8
      D. Procedural History

         Plaintiff filed the Complaint on June 26, 2017, three years to the day after ISSI

filed its certificate of dissolution. As noted, only Jarkoi has entered an appearance

as among the defendants. On December 18, 2017, the Court dismissed Counts II

and III as to Jarkoi, with prejudice.29 In doing so, the Court explained:

         You’ve got a director [Jarkoi] who is no longer a director. He is at best,
         a former director of at least a facially dissolved entity. I disagree that
         he maintains some status as trustee. Our statute isn’t built that way.
         I don’t see that he has any interest separate and apart from the company
         to defend here. . . . [ISSI] might have a basis to defend [] Count II
         [declaration of no valid dissolution] and III [appointment of a receiver]
         on the merits but I don’t think Mr. Jarkoi needs to be the one articulating
         those arguments. . . . [Section] 3114 does not provide a basis to have
         the Court exercise personal jurisdiction over [Jarkoi] as a defendant in
         a claim where the plaintiff is seeking a declaratory judgment relating to
         the bona fides of a dissolution resolution by the board of a company or
         the appointment of a receiver.30

         In January and February 2018, Plaintiff moved for default judgment against

ISSI, Bobrovsky and Kalk.31 In accordance with Court of Chancery Rule 55(b), on

January 17, 2018, the Court directed that Akrout’s counsel provide notice to ISSI

and submit an affidavit of such notice in advance of the default judgment hearing




29
  Tr. of Oral Arg. Re Def[].’[s] Mot. to Dismiss Counts II and II[I] of the Compl. and the
Court’s Ruling (Dec. 18, 2017) (“December 18, 2017 Oral Argument”) (Dkt. 28) at 23–28.
30
     Id. at 25–26.
31
     Dkt. 34.


                                             9
scheduled for February 27, 2018.32 At the February 27, 2018 oral argument, the

Court learned that the affidavit of notice had not been filed.33 Accordingly, the Court

declined to take the motion for default judgment against ISSI under submission,34

and again directed that Plaintiff’s counsel submit an affidavit reflecting notice as to

ISSI as per Rule 55(b), and also as to Bobrovsky and Kalk. The Court requested

that Plaintiff’s counsel file the notice in advance of the April 17, 2018 hearing on

Plaintiff’s motion for default judgment against Bobrovsky and Kalk and Jarkoi’s

motion to dismiss Count I.35 Once again, the affidavit of notice for ISSI, Bobrovsky

or Kalk was not filed as directed prior to the April 17, 2018 hearing.36 Nevertheless,

the Court took all pending motions—Jarkoi’s motion to dismiss Count I and

Plaintiff’s motions for default judgment against ISSI, Bobrovsky and Kalk—under

submission.




32
     Dkt. 30.
33
  Tr. of Oral Arg. on Pl.’s Mot. for Default J. Against Def. Intelligent Sec. Sys. Int’l, Inc.
(Feb. 27, 2018) (“February 27, 2018 Oral Argument”) (Dkt. 41) at 14–15.
34
     Tr. of Feb. 27, 2018 Oral Arg. at 14–15.
35
     Id. at 15.
36
     Tr. of Apr. 17, 2018 Oral Arg. at 16.


                                                10
                                  II. LEGAL ANALYSIS
       I address the three pending motions in the following sequence: (A) Plaintiff’s

motion for default judgment against ISSI; (B) Jarkoi’s motion to dismiss Count I;

and (C) Plaintiff’s motion for default judgment against Bobrovsky and Kalk.

     A. Plaintiff’s Motion for Default Judgment Against ISSI

       Plaintiff has moved for default judgment against ISSI. Although not specified

in his motion papers,37 I assume Plaintiff seeks default judgment against ISSI on

Counts II and III of the Complaint as the entity does not appear to be a subject of

Count I.38 As explained below, Plaintiff’s motion for default judgment against ISSI

must be denied because the claims against ISSI were brought outside of the three-

year period for post-dissolution winding up set forth under 8 Del. C. § 278.

       Section 278 states, in relevant part:

       All corporations, whether they expire by their own limitation or are
       otherwise dissolved, shall nevertheless be continued, for the term of 3
       years from such expiration or dissolution or for such longer period as
       the Court of Chancery shall in its discretion direct, bodies corporate for
       the purpose of prosecuting and defending suits, whether civil, criminal
       or administrative, by or against them, and of enabling them gradually
       to settle and close their business, to dispose of and convey their
       property, to discharge their liabilities and to distribute to their

37
  See Mot. for Entry of Default Declaratory J. Against Def. Intelligent Sec. Sys. Int’l, Inc.
(Jan. 12, 2018) (Dkt. 29) (“ISSI Default J. Mot.”).
38
  As noted, Count I alleges breach of fiduciary duty (presumably against the Individual
Defendants) while Counts II and III seek a declaratory judgment that ISSI’s dissolution is
void and the appointment of a receiver, respectively. Compl. ¶¶ 12B–25. See also ISSI
Default J. Mot. ¶¶ 4, 8 (addressing alleged infirmities in the dissolution process).


                                             11
         stockholders any remaining assets, but not for the purpose of continuing
         the business for which the corporation was organized.39

         While Section 278 sets a three-year post-dissolution winding up period within

which claims against the dissolved corporation may be prosecuted, it does not

specify how the three-year period is to be calculated. In In re Citadel Industries,

Inc., this Court determined that the three-year period under Section 278 begins to

run as of the date of the filing of the certificate of dissolution and that it expires three

years thereafter.40 Here, ISSI filed its certificate of dissolution with the Delaware

Secretary of State on June 26, 2014, and the last day of the statutory three-year

winding up period was June 25, 2017.41 Plaintiff filed the Complaint at 6:36 PM on

June 26, 2017, one day late.42

         Although Section 278 grants the Court discretion to extend the statutory three-

year winding up period,43 the court explained in Citadel that Section 278


39
     8 Del. C. § 278.
40
   423 A.2d 500, 502 (Del. Ch. 1980) (finding that where the certificate of dissolution was
filed with the Delaware Secretary of State on November 18, 1976, “November 17, 1979,
[was] the date on which the statutory three-year winding up period provided under
[Section] 278 had expired as to [the company]”). I note that the relevant provisions of
Section 278 have remained unchanged since Citadel was decided in 1980. See 56 Del.
Laws, c. 50, § 0 (1967); 66 Del. Laws, c. 136, § 36 (1987); 77 Del. Laws, c. 290, § 26
(2010).
41
     Compl. ¶ 12A; Compl., Ex. C at 2.
42
     Dkt. 1.
43
  8 Del. C. § 278 (“All corporations, whether they expire by their own limitation or are
otherwise dissolved, shall nevertheless be continued, for the term of 3 years from such

                                            12
         merely [] permit[s] this Court, in its discretion, and prior to the
         expiration of three years from the date of dissolution, to continue
         corporate existence for such an additional period of time beyond three
         years as might be required in order to permit a corporation to complete
         the winding up of its affairs through its officers and directors. . . . [T]he
         statute, as amended, gives this Court no power to “continue” a
         corporation for winding up purposes on an application made after the
         statutory three-year period has expired and thus after the corporation
         has ceased to exist as a legal entity.44

         Because Plaintiff filed the Complaint after the expiration of the statutory

three-year winding up period provided for in Section 278, and did not seek an

extension within that period, the Court is without authority to resurrect ISSI to

answer the allegations in the Complaint.45 Accordingly, Plaintiff’s motion for




expiration or dissolution or for such longer period as the Court of Chancery shall in its
discretion direct . . .”) (emphasis added).
44
     Citadel, 423 A.2d at 507 (emphasis added).
45
   I note that June 25, 2017 was a Sunday. If the deadline at issue was one set by Court
rule, or was a statute of limitations, then Court of Chancery Rule 6(a) would extend the
deadline to the following Monday, June 26, 2017. Fleming v. Jackson, 888 A.2d 231 (Del.
2005) (TABLE) (holding that when the statute of limitations expires on a weekend, a filing
on the following Monday would be timely). But the winding up period prescribed by
Section 278 is not per se a filing deadline. It is, instead, a timeframe within which a
corporation “shall nevertheless be continued” following dissolution “for the purpose of
prosecuting and defending suits” and winding up affairs. 8 Del. C. § 278. That
“continued” status cannot be extended by court rule. See Nelson v. Frank E. Best Inc., 768
A.2d 473, 475 (Del. Ch. 2000) (holding that the twenty-day period set forth in 8 Del. C.
§ 262(d)(2) is not extended when the twentieth day falls on a Sunday). If Akrout had
wanted to extend the winding up period, he was obliged to seek that extension while the
corporation was still in its “continued” status. Citadel, 423 A.2d at 507.



                                              13
default judgment against ISSI is denied46 and the claims against ISSI (Counts II and

III), which are indisputably untimely under Section 278, are dismissed.

      B. Jarkoi’s Motion to Dismiss Count I

           Under Court of Chancery Rule 12(b)(6), a complaint must be dismissed if the

plaintiff would be unable to recover under “any reasonably conceivable set of

circumstances susceptible of proof” based on the facts as pled in the complaint.47 In

considering a motion to dismiss, the Court must accept as true all well-pled

allegations in the complaint and draw all reasonable inferences from those facts in

Plaintiff’s favor.48 The Court need not accept, however, conclusory allegations that

lack factual support nor “accept every strained interpretation of the allegations

proposed by the plaintiff.”49

           1. The Direct Versus Derivative Inquiry
           As an initial matter, I note that it is unclear on the face of the Complaint

whether the claims Akrout sets forth in Count I are intended to be derivative or




46
  I note that even if Section 278 is not operative here, the motion for default judgment
against ISSI must nevertheless be denied because Plaintiff’s counsel has twice failed to
provide proper notice to ISSI. See Tr. of Feb. 27, 2018 Oral Arg. at 13–15; Tr. of Apr. 17,
2018 Oral Arg. at 16.
47
     Gen. Motors (Hughes) S’holder Litig., 897 A.2d at 168.
48
     Id.
49
     Id.


                                             14
direct.50 The distinction is always consequential; it is particularly so here because

Akrout did not make a demand upon the Board to bring the claim and has made no

effort in his Complaint to plead that demand would have been futile. 51

           The court will deem a claim derivative “[w]here all of a corporation’s

stockholders are harmed and would recover pro rata in proportion with their

ownership of the corporation’s stock solely because they are stockholders.”52 “The

mere fact that the alleged harm is ultimately suffered by, or the recovery would

ultimately inure to the benefit of, the stockholders does not make a claim direct.”53

Rather, “[i]n order to state a direct claim, the plaintiff must have suffered some

individualized harm not suffered by all of the stockholders at large.”54 Plaintiff



50
     See Compl. ¶¶ 12B–17; Tr. of April 17, 2018 Oral Arg. at 18–19.
51
   Ct. Ch. R. 23.1. Brehm v. Eisner, 746 A.2d 244, 254 (Del. 2000) (“Pleadings in
derivative suits are governed by Chancery Rule 23.1. . . . Those pleadings must comply
with stringent requirements of factual particularity that differ substantially from the
permissive notice pleadings governed solely by Chancery Rule 8(a). Rule 23.1 is not
satisfied by conclusory statements or mere notice pleading.”) (citation omitted); La. Mun.
Police Empls.’ Ret. Sys. v. Pyott, 46 A.3d 313, 351 (Del. Ch. 2012) (“Rule 23.1 requires
that a derivative plaintiff allege with particularity the efforts, if any, made by the plaintiff
to obtain the action the plaintiff desires from the directors or comparable authority and the
reasons for the plaintiff’s failure to obtain the action or for not making the effort.”)
(quotation marks omitted), rev’d on other grounds, Pyott v. La. Mun. Police Empls.’ Ret.
Sys., 74 A.3d 612 (Del. 2013).
52
     Feldman v. Cutaia, 951 A.2d 727, 733 (Del. 2008).
53
     Id.
54
     Id.


                                              15
argues that his claims are direct because ISSI was “a closely-held corporation where

three of the stockholders have enriched themselves to the detriment of the only other

stockholder.”55

       It is likely that Akrout’s claim regarding the Board’s disclosure violations

relating to the dissolution and his claim regarding the Individual Defendants’

misappropriation of corporate assets are derivative. Having acknowledged that he

made no effort to make a demand upon the Board to bring these claims, or to plead

demand futility, the claims would be subject to dismissal under Court of Chancery

Rule 23.1.56 I need not decide the motion on that ground, however, because even

after drawing all reasonable inferences in Plaintiff’s favor, it is clear that Plaintiff’s

claims against the Individual Defendants, whether derivative or direct, fail as a

matter of law.




55
   Answering Br. of Pl. Nabil Akrout in Opp’n to the Second Mot. of Def. Roman Jarko[i]
to Dismiss the Verified Compl. 11.
56
   See Khanna v. McMinn, 2006 WL 1388744, at *14 (Del. Ch. May 9, 2006). See also Tr.
of Apr. 17, 2018 Oral Arg. at 28–30 (The Court: “Where is the demand futility pleading?”
Counsel: “[T]here may be practice but no rule that says you have to go through a formalistic
approach, demand is excused because of X, Y, and Z, as long as the facts in the complaint
allow that conclusion to be drawn. And the facts we are relying on is A that they kept him
out of the management of the company and they utilized the company to their own benefit.”
The Court: “Do you say for that reason that demand is excused? . . . Where is that?”
Counsel: “No, Your Honor. I don’t use that formalistic term. What I’m saying is that if
those facts permit an inference that they are disqualified, a disqualifying interest, then
demand is excused.”).


                                            16
         2. Laches
         Regardless of whether Plaintiff’s claims in Count I are derivative or direct,

they are barred by laches.57          “Laches is an equitable defense born from the

longstanding maxim equity aids the vigilant, not those who slumber on their

rights.”58 The doctrine of laches is “generally defined as an unreasonable delay by

the plaintiff in bringing suit after the plaintiff learned of an infringement of his rights,

thereby resulting in material prejudice to the defendant.”59 Therefore, in order to

defend on laches, Jarkoi must demonstrate that (a) Plaintiff had knowledge of the

invasion of his rights, (b) Plaintiff unreasonably delayed in bringing suit to vindicate

those rights, and (c) the delay resulted in injury or prejudice to Jarkoi.60




57
  The Court will undertake a full laches analysis here because it appears Akrout is seeking
both legal and equitable remedies. See Kraft v. WisdomTree Invs., Inc., 145 A.3d 969, 979
(Del. Ch. 2016) (holding that where a plaintiff seeks only damages for an equitable claim,
the court “will apply the statute of limitations by analogy” and will not undertake a more
thorough laches analysis).
58
     Reid v. Spazio, 970 A.2d 176, 182 (Del. 2009).
59
     Reid, 970 A.2d at 182.
60
  Homestore, Inc. v. Tafeen, 888 A.2d 204, 210 (Del. 2005). See also Whittington v.
Dragon Gp. L.L.C., 2010 WL 692584, at *5 (Del. Ch. Feb. 15, 2010), aff’d 998 A.2d 852
(Del. 2010) (TABLE).


                                             17
            a. Plaintiff Had Knowledge of His Claims
         Akrout concedes that he stopped receiving any information about ISSI after

he was removed as president and CEO in early 2008.61 The Complaint states that

“since his removal from his offices, Akrout has not participated in the operation and

management of ISS[I]” and “[a]fter being removed from management of ISS[I],

Akrout began to read routinely ISS[I]’s website, including press releases, to follow

its progress.”62     Thus, the information vacuum in which Akrout alleges the

Individual Defendants placed him was created more than nine years prior to the filing

of the Complaint. And Akrout was well aware of that fact. Indeed, given the nature

of this aspect of his breach of fiduciary claim (that the Individual Defendants

wrongfully kept him in the dark regarding ISSI), how could he not have been?

         It is also clear from the Complaint that Akrout had knowledge of any

misappropriation resulting in the deprivation of back pay and dividends soon after

he was removed from management in 2008.63 At paragraph 10 of the Complaint, he



61
     Compl. ¶ 14.
62
     Compl. ¶¶ 9, 11A (emphasis added).
63
   I cannot help but observe that Akrout’s claim that the Individual Defendants breached
their fiduciary duties by denying Akrout his contract rights and stockholder dividend
rights,” is puzzling. Compl. ¶ 15. The Complaint does not specify the basis for the contract
and stockholder dividend rights at issue in this allegation. See id. ¶ 17. I assume, however,
that the contracts in question governing the rights at issue are the only two contracts
mentioned in the Complaint—Akrout’s employment agreement and the stockholders
agreement. Therefore, I struggle to discern how the Individual Defendants’ alleged

                                             18
alleges that he “communicate[d] with other members [of] ISS[I] to inquire about

when he would receive any payment of his back salary and any dividends, the most

recent communication being in January, 2017.”64 He then alleges that “[o]n those

occasions that he received a response, it was to tell him that ISS[I] had no money

and to be patient.”65 Clearly, then, Plaintiff knew for many years before bringing

this action that he was owed back pay and dividends, that he had not been paid what

was allegedly owed to him, and that the Individual Defendants had no present

intention of making the payments because “ISS[I] had no money.”66 Thus, as to the



breaches of contracts with Akrout would amount to breaches of fiduciary duty, and Akrout
has offered no explanation to clear up the confusion.
64
     Compl. ¶ 10.
65
     Compl. ¶ 10 (emphasis added).
66
   I note that the Complaint is devoid of any factual allegations regarding dividend
payments, and the term “dividends” as referenced in Count I is without any context or
explanation. At the April 17, 2018 Oral Argument, Akrout’s counsel represented that the
“reference to dividends” is “whatever is left over to the stockholders as dividends” after
paying off creditors in a dissolution. Tr. of Apr. 17, 2018 Oral Arg. at 20. That
understanding is simply not correct. Dividends are distributions of corporate profits to
stockholders in proportion to their shares or interest in the corporation. See 11 William
Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations § 5318 (Perm. Ed.,
Rev. Vol. 2015). See also id. (“Dividends have been described as the share or interest of
individual shareholders in a fund representing corporate profits. A dividend also may be
defined as a portion of a company’s earnings or profits distributed pro rata to its
shareholders . . . On the other hand, the following transactions have not been treated as
dividends: court ordered divestitures; payments upon reacquisition and cancellation of
shares; options to purchase shares; and refunds to purchasers.”) (emphasis added) (internal
citations omitted). As explained above, Akrout arguably has pled (albeit too late) a right
to recover dividends declared after his removal from management but prior to dissolution.
His attempt at oral argument to convert that claim into a claim for post-dissolution
distributions cannot be countenanced. Gen. Motors (Hughes) S’holder Litig., 897 A.2d at

                                            19
two failures to make payments to which Akrout has identified in Count I—“accrued

salary and dividends”—Akrout had knowledge (or, at least, inquiry notice) of those

failures at or soon after his removal as an officer of ISSI in 2008.67

          b. Plaintiff Unreasonably Delayed in Bringing His Claims

       When determining whether Akrout unreasonably delayed in bringing his

claims, the Court must ask whether Akrout has exercised “that degree of diligence

which the situation . . . in fairness and justice require[s].”68 “The law in Delaware is




168–69; Gerber, 2013 WL 209658, at *4 n.38; Orman v. Cullman, 794 A.2d at 28 n.59.
Even if a claim for post-dissolution distributions had been pled, it too would be untimely.
According to the certificate of dissolution attached to the Complaint, distributions in
connection with the dissolution were made prior to the time the certificate was filed and
any claims regarding such dissolution accrued prior to June 26, 2017. See Compl., Ex. C
at 1–2 (“[t]he corporation has no assets and has ceased transacting business.”); Albert v.
Alex. Brown Mgmt. Servs., Inc., 2005 WL 1594085, at *18 (Del. Ch. June 29, 2005) (“The
law in Delaware is crystal clear that a claim accrues as soon as the wrongful act occurs.”).
Even if Akrout did not know about the dissolution until February 21, 2017, “[t]he statute
of limitations [began] to run even if [he was] unaware of the injury because ignorance of
the facts constituting a cause of action does not act as an obstacle to the operation of the
statute.” Shea v. Delcollo & Werb, P.A., 2009 WL 2476603, at *2 (Del. 2009) (TABLE)
(internal quotations omitted). Akrout learned of ISSI’s dissolution on February 21, 2017,
which was within the analogous three-year statute of limitations, but he opted to file the
Complaint on June 26, 2017, outside of the analogous three-year statute of limitations.
Thus, even if a claim for post-dissolution distributions had been pled, the claim would fail
as a matter of law because Akrout unreasonably delayed in bring it.
67
  Compl. ¶¶ 15, 17. “Inquiry notice exists when the plaintiff learns of ‘facts sufficient to
put a person of ordinary intelligence and prudence on inquiry which, if pursued, would lead
to the discovery [of injury].’” Whittington, 2010 WL 692584, at *5 (citing Wal-Mart
Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 319 (Del. 2004)).
68
  Scotton v. Wright, 117 A. 131, 136 (Del. Ch. 1922), aff’d sub nom. Wright v. Scotton,
121 A. 69 (Del. 1923).


                                            20
crystal clear that a claim accrues as soon as the wrongful act occurs.”69 Under

10 Del. C. § 8106, a three-year period of limitations applies to claims sounding in

tort, contract, or breach of fiduciary duty for “damages caused by an injury

unaccompanied with force,” and “that three-year period applies by analogy to

proceedings in equity.”70 In Count I, Plaintiff alleges the Individual Defendants

breached their fiduciary duties. Accordingly, the three-year limitations period under

10 Del. C. § 8106 must be given “great weight in determining whether [the claim] is

to be time-barred in equity.”71

         Akrout’s claim that the Individual Defendants deprived him of information

relating to ISSI accrued as soon as he stopped receiving information. The Complaint

suggests, but does not expressly state, that Akrout stopped receiving information

when he was removed from management in January 2008.72 Thus, Plaintiff’s claim

for deprivation of information accrued more than nine years prior to the filing of the


69
     Albert, 2005 WL 1594085, at *18.
70
  Id. at *12. See also Atlantis Plastics Corp. v. Sammons, 558 A.2d 1062, 1064 (Del. Ch.
1989) (“An analogous statute of limitations period applicable at law [] is to be given great
weight in determining whether a suit is to be time-barred in equity by laches and will be
applied in the absence of unusual or mitigating circumstances.”).
71
     Atlantis Plastics Corp., 558 A.2d at 1064.
72
   Compl. ¶ 9 (“The last meeting of directors of which Akrout had notice of and an
opportunity to participate in was May 16, 2007. As such, since his removal from his
offices, Akrout has not participated in the operation and management of ISS[I].”); id. ¶ 11A
(“After being removed from management of ISS[I], Akrout began to read routinely ISS[I]’s
website, including press releases, to follow its progress . . .”).


                                              21
Complaint in June 2017. The Complaint says nothing of why Akrout delayed in

asserting his claim for deprivation of information and, consequently, provides no

basis to consider whether a tolling doctrine might apply here.73

         To understand whether Akrout unreasonably delayed in bringing his claims

based on the misappropriation of back pay and dividends due to him, I must first

analyze when those claims accrued. Akrout’s claim to back pay accrued the moment

the Individual Defendants first declined to pay him the salary he was owed. The

allegations regarding when exactly Akrout stopped receiving his earned salary are,

in a word, thin.74 Nevertheless, the only reasonable inference to be drawn from the

pled facts is that Akrout’s claim for back pay could not have accrued any later than

the year following his removal from his management positions at ISSI (January

2008). The claim is for “accrued salary,” meaning that Akrout had already earned

the salary at the time of his removal.75 Whether the payment was due at the time of

removal, a week later, a month later or a year later, the only reasonable inference is




73
  See Winner Acceptance Corp. v. Return on Cap. Corp., 2008 WL 5352063, at *14 (Del.
Ch. Dec. 23, 2008) (holding that “the plaintiff has the burden of pleading facts leading to
a reasonable inference that one of the tolling doctrines adopted by Delaware courts
applies”).
74
   Compl. ¶ 8 (“ISS[I] still owes Akrout approximately $2,000,000 in accrued salary
(exclusive of bonuses) under that [employment] contract.”).
75
     Compl. ¶ 8.


                                            22
that the claim for back pay accrued well before the three-year mark prior to the filing

of the Complaint.

         As noted, Akrout’s claim for dividends lacks any detail at all. He says nothing

of past dividend practices or of any specific dividends that were paid to other

stockholders but not to him. Nevertheless, the only reasonable inference is that

Akrout was aware of his claim for dividends soon after his removal, made inquiries

to the Individual Defendants about the dividends but, inexplicably, delayed in

bringing his claim until the summer of 2017.76

         Akrout’s only attempt to justify his delay in bringing his claims for “accrued

salary and dividends” is to allege summarily that he made inquiries to “other

members [of] ISS[I] to inquire about when he would receive any payment of his

back salary and any dividends” and was told “that ISS[I] had no money and to be

patient.”77 This allegation falls well short of a basis to toll the statute of limitations

or to avoid laches. First, the allegation is devoid of any details about when he

reached out to ISSI78 and with whom he spoke, both of which are details that would



76
  I note that any dividends to which Akrout might be entitled would have been declared
and paid prior to ISSI’s dissolution on June 26, 2014. Thus, the dividends would have
been declared and paid more than three years prior to the filing of this action.
77
     Compl. ¶ 10.
78
  The only specific time mentioned, “January, 2017,” is well beyond three years from the
date the claim for “accrued salary and dividends” would have accrued. It cannot, therefore,
serve as a basis to toll the statute of limitations or to avoid laches. See Krahmer v.

                                            23
be at the heart of any tolling doctrine Akrout might seek to invoke. Without more,

the vague assurances referenced in the Complaint are inadequate to toll “the running

of the statute.”79 Second, on their face, the responses to Akrout’s inquiries provide

no assurance that payment will ever be made and, consequently, provide no basis for

Akrout to have delayed in bringing his claims to court.80

          c. Jarkoi is Prejudiced by Plaintiff’s Unreasonable Delay

       “After the statute of limitations has run, defendants are entitled to repose and

are exposed to prejudice as a matter of law by a suit by a late-filing plaintiff who had

a fair opportunity to file within the limitations period.”81 Thus, as to all of Plaintiff’s

claims—deprivation of information, back pay, dividends (and post-dissolution

distributions, if pled)—Plaintiff unreasonably delayed bringing his claims until the

claims were outside of the analogous statute of limitations period. The consequence

of Plaintiff’s unreasonable delay is presumed prejudice to the Individual



Christie’s Inc., 911 A.2d 399, 408 (Del. Ch. 2006) (holding that tolling cannot be based on
a communication that occurred after the statute of limitations had already expired).
79
  Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 2012 WL 3201139, at *23
(Del. Ch. Aug. 7, 2012) (quoting Burrows v. Masten Lumber & Supply Co., 1986
WL 13111, at *2 (Del. Super. Oct. 14, 1986)).
80
   See In re Tyson Foods, Inc., 919 A.2d 563, 585 (Del. Ch. 2007) (doctrines of equitable
tolling and fraudulent concealment require reasonable reliance by the plaintiff).
81
  In re Sirius XM S’holder Litig., 2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013).
See also Kraft, 145 A.3d at 979 (“The Court may also presume prejudice if the claim is
brought after the analogous limitations period has expired.”).


                                            24
Defendants.82 In this case, however, prejudice need not be presumed. ISSI is

dissolved, past its statutory winding up period, and the claims at issue relate to a

string of events that began almost a decade ago. Under these circumstances, the

Individual Defendants would face significant and potentially insurmountable

challenges in mounting their defense due to the difficulty of securing relevant

corporate records (if any still exist) and securing appropriate witness testimony

(even assuming that memories are still intact).83

                                         *******

      I acknowledge that the laches defense is frequently not “well-suited for

treatment” on a motion to dismiss.84 But that is far from an absolute rule. When it

is “clear from the face of the complaint” that the claims are time-barred, particularly

when an analogous statute of limitations is in play, it is appropriate to adjudicate the

claims then and there on a motion to dismiss rather than kick the can down the road


82
     Sirius XM S’holder Litig., 2013 WL 5411268, at *4; Kraft, 145 A.3d at 979.
83
   Chaplake Hldgs., LTD. v. Chrysler Corp., 766 A.2d 1, 6 (Del. 2001) (“Statutes of
limitation are designed to avoid the undue prejudice that could befall defendants, after the
passage of an unreasonable amount of time, due to the loss of evidence, disappearance of
witnesses, or fading memories.”); Cent. Mortg., 2012 WL 3201139, at *21 (“Statutes of
limitations are enacted to require plaintiffs to use diligence in bringing suits so that
defendants are not prejudiced by undue delay, in recognition of the fact that memories fade
and information goes stale. Stale claims pose an obvious threat to doing real justice, as
any trial judge knows. It is difficult enough to discern what happened when adverse parties
are talking about what happened last year.”) (internal citations and quotations omitted).
84
     Reid, 970 A.2d at 183.


                                             25
to summary judgment.85 This is such a case. Akrout’s claims as set forth in Count I

fail as a matter of law because it is clear on the face of the Complaint that they are

barred by laches.

     C. Default Judgment Against Bobrovsky and Kalk

       Count I rests on the same allegations and asserts the exact same claims against

Jarkoi, Bobrovsky and Kalk; Akrout has made no effort to distinguish between the

three Individual Defendants. Thus, I see no principled basis to allow Akrout’s time-

barred claims to proceed against Bobrovsky and Kalk simply because they have not

appeared (well after the dissolution of ISSI) to defend them. And having dismissed

Count II and III of the Complaint as to Jarkoi on the basis that a former director of

ISSI should not be made to answer claims against the dissolved entity outside of the

statutory winding up period, the same reasoning applies to Bobrovsky and Kalk.86

Therefore, the motion for default judgment against Bobrovsky and Kalk is denied,

and Counts I through III against Bobrovsky and Kalk are dismissed.




85
   Bean v. Fursa Cap. P’rs, LP, 2013 WL 755792, at *6 (Del. Ch. Feb. 28, 2013). See also
de Adler v. Upper N.Y. Inv. Co. LLC, 2013 WL 5874645, at *12 n.145 (Del. Ch. Oct. 31,
2013) (collecting cases where this court has dismissed claims as untimely based on laches
at the motion to dismiss stage).
86
  See Tr. of Dec. 18, 2017 Oral Argument at 25–26. See Clinton v. Enterprise Rent-A-Car
Co., 977 A.2d 892, 897 (Del. 2009) (affirming trial court’s denial of a motion for default
judgment that was based, in part, upon a determination that identical claims against an
appearing co-defendant were barred by the statute of limitations).


                                           26
                             III.   CONCLUSION
      For the foregoing reasons, the motion to dismiss is GRANTED and the

motions for default judgment against ISSI, Bobrovsky and Kalk are DENIED. The

Complaint is dismissed with prejudice.

      IT IS SO ORDERED.




                                         27
