IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

 

ACELA INVESTMENTS LLC,
ACELA FIRST INVESTMENTS LLC,
ACELA NEW INVESTMENTS LLC,
and DR. STEFAN AIGNER,
Plaintiffs,
V.

RAYMOND DIFALCO and MANISH SHAH,

Defendants.

 

RAYMOND DIFALCO,

Counterclaim and Third-Party
Plaintiff,

V.
DR. STEFAN AIGNER,
Counterclaim Defendant,
and
INSPIRION DELIVERY SCIENCES, LLC,

Third Party Defendant.

 

 

C.A. No. 2018-0558-AGB

ORDER DENYING PLAINTIFFS’ APPLICATION FOR
CERTIFICATION OF INTERLOCUTORY APPEAL
AND MOTION FOR STAY PENDING APPEAL
WHEREAS:

A. — Inspirion Delivery Sciences, LLC (“IDS” or the “Company”) is the
successor to a private pharmaceutical venture that was co-founded by Manish Shah,
Raymond DiFalco, and Stefan Aigner. Its LLC Agreement contains a bespoke
governance structure (i) that names Aigner and DiFalco as Chief Executive Officer
and President, respectively, and provides that they each must perform their duties
subject to the “advice and consent” of the other, and (ii) that entitles either (a) Aigner
or (b) DiFalco and Shah together to veto any action of its board,' subject to a
provision intended to address conflicts of interest.

B. On November 13, 2018, the parties agreed to bifurcate this action so
that their claims relating to the governance of the Company (the “Governance
Claims”) would be tried on an expedited basis in December 2018 while their
remaining claims for damages (the “Remaining Claims”) would be held in abeyance.

C. On May 17, 2019, the court issued a 94-page post-trial memorandum
opinion (the “Opinion’”’) in which it ruled in favor of DiFalco and Shah and against
Aigner and his affiliated entities (the “Aigner Parties”) on all of the Governance
Claims. Among other things, the court found under 6 Del. C. § 18-802 that it is not

reasonably practicable to carry on the business of IDS in conformity with its LLC

 

' Because Shah resigned from the board on July 6, 2018, DiFalco alone holds the veto right
that originally was afforded to DiFalco and Shah together. Opinion at 39, 75.

2
Agreement and declared that IDS should be dissolved and that a liquidating trustee
should be appointed to wind up its affairs.

D. On May 24, 2019, after the parties notified the court that they jointly
had selected Derek C. Abbott, Esq. to serve as the Liquidating Trustee, the court
entered a judgment on the Governance Claims (the “Implementing Order”).

E. On May 31, 2019, the court entered an order formally appointing the
Liquidating Trustee and authorizing him to, among other things, “identify and
marshal the assets of IDS and dispose of those assets in the manner the Liquidating
Trustee determines is in the best interests of IDS and designed to maximize the value
of IDS, including by creating and implementing a sales process for IDS’s assets”
(the “Trustee Order”).* The Trustee Order expressly provides that any “sale process
shall be approved by the Court after application by the Liquidating Trustee.”?

F, On June 10, 2019, the Aigner Parties applied for certification of an
interlocutory appeal of the Memorandum Opinion, Implementing Order, and Trustee
Order. That same day, the Aigner Parties moved for a stay pending appeal that they

describe as being “limited” in nature.

 

? Trustee Order J 5 (Dkt. 149).

> Id. For the avoidance of doubt, the requirement in the Trustee Order for approval of the
sale process is intended to require court approval of any specific transaction or plan that
the Liquidating Trustee recommends to sell the Company or its assets in connection with
winding up its affairs.
G. On June 20, 2019, DiFalco and Shah filed an opposition to the
application for certification of interlocutory appeal and to the motion for a stay
pending appeal. That same day, the Liquidating Trustee submitted a letter taking no
position on the request for certification of an interlocutory appeal but explaining that
the “so-called ‘limited’ stay requested pending [appeal] will substantially curtail him
in the performance of his duties pursuant to [the Trustee Order].’”*

NOW, THEREFORE, this 28th day of June, 2019, IT IS HEREBY
ORDERED, ADJUDGED, and DECREED as follows:

Application for Certification of Interlocutory Appeal

1. Supreme Court Rule 42 provides that an interlocutory appeal will not
be certified “unless the order of the trial court decides a substantial issue of material
importance that merits appellate review before a final judgment.”°

2. In my view, although the Opinion decided a substantial issue of
material importance (i.e., that it is not reasonably practicable for IDS to carry on its
business in accordance with its LLC Agreement), appellate review is not warranted

before the Liquidating Trustee has recommended and the court has approved

(conditioned on appellate review) a transaction or plan to wind up the Company’s

 

*Dkt. 161 at 1-2.
> Sup. Ct. R. 42(b)(i).
affairs so that that issue and the rulings in the Opinion can be reviewed in a single
appeal.

oh Supreme Court Rule 42 states that “[iJnterlocutory appeals should be
exceptional, not routine, because they disrupt the normal process of litigation, cause
delay, and can threaten to exhaust scarce party and judicial resources.”® Rule 42 sets
forth eight criteria that “the trial court should consider” when evaluating an
interlocutory appeal.

4. The only criterion the Aigner Parties cite is that “[r]eview of the
interlocutory order may serve considerations of justice.”” According to the Aigner
Parties, they “will suffer significant harm if forced to wait for resolution of the
remaining claims” before filing an appeal because their appeal “would be moot as a
practical matter” if they “cannot appeal the Court’s finding that IDS should be
dissolved until a final order has been entered.’”®

SF The court disagrees that appellate review at this time will serve
considerations of justice, or that denial of appellate review at this time will “moot”

the Aigner Parties’ right to appeal. To the contrary, granting an interlocutory appeal

now would create the prospect of piecemeal appeals concerning, among other

 

6 Sup. Ct. R. 42(b)(ii).
7 Pls.’ Application § 14-18 (Dkt. 157).
8 Id. 417.
possible matters, the court’s (i) rulings in the Opinion, (ii) approval of a transaction
or plan to be recommended by the Liquidating Trustee, and (iii) disposition of the
Remaining Claims.

6. As noted above, the Trustee Order expressly requires that the
Liquidating Trustee obtain the court’s approval before consummating a sale process.
Thus, the Aigner Parties’ desire to appeal the court’s determination in the Opinion
that dissolution is warranted will not be moot if the Aigner Parties are required to
wait until after a sale process has occurred—but no sale transaction has closed—
before pursuing an appeal. In that regard, a stay pending appeal of the
consummation of any transaction or plan could be entered to ensure an opportunity
for appellate review of the Governance Claims once the related issue of remedy has
been adjudicated.

7. To be clear, the court is not suggesting that it should resolve the
Remaining Claims before the Aigner Parties are afforded an opportunity for
appellate review, but only that the Governance Claims and the specific remedy for
those claims should be fully adjudicated before any appeal. Proceeding in this
manner will minimize the potential for piecemeal appeals and conserve judicial
resources in addressing a statutory issue this court frequently encounters, i.e.,

decreeing dissolution of a limited liability company when it has been proven that “it
is not reasonably practicable to carry on the business in conformity with a limited
liability company agreement.”?

8. For the foregoing reasons, the application for certification of an
interlocutory appeal is denied.
Motion for Stay Pending Appeal

9. The Aigner Parties’ motion for a stay seeks to prevent the Liquidating
Trustee from taking three actions pending the outcome of an appeal: (1) soliciting
interest from or providing information to third-party buyers; (ii) consummating a
sale of the Company; or (iii) terminating employees. The second limitation is a non-
issue because, for the reasons explained above, the court agrees that any of the
parties should be afforded the opportunity to pursue appellate review before a sale

of the Company is consummated once a proposed transaction or plan is in place.

The first and third limitations are addressed below.

 

? 6 Del. C. § 18-802. Some examples of court-ordered dissolutions of LLCs include: Jn
re: GR BURGR, LLC, 2017 WL 3669511, at *1 (Del. Ch. Aug. 25, 2017) (granting motion
for dissolution and subsequently appointing liquidating trustee to sell assets); Meyer Nat.
Foods LLC v. Duff, 2015 WL 3746283, at *6 (Del. Ch. June 4, 2015) (granting motion for
dissolution of company that was later wound up by its managing member); Jn re Shawe &
Elting LLC, 2015 WL 4874733, at *41 (Del. Ch. Aug. 13, 2015) (ordering dissolution and
sale of LLC’s assets); Vila v. BUWebTies LLC, 2010 WL 3866098, at *14 (Del. Ch. Oct.
1, 2010) (Strine, V.C.) (ordering dissolution and appointing liquidating trustee); Fisk
Ventures, LLC v. Segal, 2009 WL 73957, at *1 (Del. Ch. Jan. 13, 2009) (granting motion
for, and ordering, dissolution); Jn re Silver Leaf, L.L.C., 2005 WL 2045641, at *1, *13
(Del. Ch. Aug. 18, 2005) (same); Haley v. Talcott, 864 A.2d 86, 87, 98 (Del. Ch. 2004)
(Strine, V.C.) (granting motion for dissolution and ordering parties to submit dissolution
plan).
10. When considering a motion for a stay pending appeal, the reviewing
court is required: “(1) to make a preliminary assessment of likelihood of success on
the merits of the appeal; (2) to assess whether the petitioner will suffer irreparable
injury if the stay is not granted; (3) to assess whether any other interested party will
suffer substantial harm if the stay is granted; and (4) to determine whether the public
interest will be harmed if the stay is granted.”!°

11. With respect to the first element, the Aigner Parties have not identified
any issue on which they are likely to succeed on appeal. They merely assert in
conclusory fashion that there are “several litigable issues, including the
interpretation of Section 5.14 and whether a remedy other than dissolution should
have been entered.”!' The court respectfully submits that the Aigner Parties are
unlikely to succeed on appeal for a number of reasons, including the two that follow.

12. First, as the Opinion discusses in great detail, the governance structure
the parties agreed upon in the LLC Agreement provides a recipe for deadlock where,
as was demonstrated at trial, the principals do not trust each other and have
fundamentally different perspectives on important issues because (i) the LLC
Agreement affords Aigner and DiFalco co-equal rights to manage the Company and

to veto board actions and (ii) the provision in the LLC Agreement intended to

 

'° Kirpat, Inc. v. Del. Alcoholic Beverage Control Comm’n, 741 A.2d 356, 357 (Del. 1998).
Pls.’ Application § 22.
address conflicts of interest at the board level (Section 5.14) has proven to be
unworkable. Even if the court’s interpretation of Section 5.14 were incorrect in some
respect, the deadlocks between Aigner and DiFalco would continue because there
currently is no Independent Representative to vote for DiFalco and the parties’
history demonstrates that they would deadlock on selecting a replacement.!”

13. Second, decreeing the dissolution of a limited liability company is a
discretionary remedy under 6 Del. C. § 18-802 that is reviewed under an abuse of
discretion standard.'3 In that regard, the Opinion contains detailed factual findings
concerning the existence of deadlocks on important issues that support the court’s
exercise of discretion to decree dissolution in this case.'*

14. With respect to the second element, the Aigner Parties have not shown
that they will suffer irreparable injury if a stay is not granted to prevent the
Liquidating Trustee from (i) soliciting interest from or providing information to

third-party buyers or (ii) terminating employees. To the contrary, their concerns on

 

12 See Opinion at 77.

'3 Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 175 (Del. 2002) (“This
Court reviews the Court of Chancery’s fashioning of remedies for abuse of discretion.”);
see also Shawe v. Elting, 157 A.3d 152, 167 (Del. 2017) (reviewing and affirming under
abuse of discretion standard lower court’s decision to appoint custodian under 8 Del. C. §
226 to sell corporation).

'4 See Opinion at 68-75.
these points are speculative and, as the Liquidating Trustee has indicated, would
hamstring his ability to perform his duties under the Trustee Order."

15. In order to implement a sale process, the Liquidating Trustee must be
able to solicit third-party buyers. In doing so, the Liquidating Trustee can employ
confidentiality agreements and other measures that are routinely used to protect
proprietary information. Having the ability to terminate employees, moreover, is
necessary for the Liquidating Trustee to be able to exercise his authority over
management of the “daily operations” of IDS as set forth in the Trustee Order."

16. With respect to the third and fourth elements, no showing has been
made that any other interested party or the public will be harmed by denying the
stay. If anything, the public interest would be served best by denying the stay and
winding up the Company’s affairs as quickly as possible in order to maximize the
chances of making the Company’s abuse-deterrent technology available to the public
on a larger scale.

17. For the foregoing reasons, the motion for a stay pending appeal is

denied.

 

 

'S Dkt. 161.
16 Trustee Order 4 5.

10
