                            COURT OF CHANCERY
                                  OF THE
 SAM GLASSCOCK III          STATE OF DELAWARE               COURT OF CHANCERY COURTHOUSE
  VICE CHANCELLOR                                                    34 THE CIRCLE
                                                              GEORGETOWN, DELAWARE 19947


                          Date Submitted: May 23, 2018
                          Date Decided: August 22, 2018

Thaddeus J. Weaver, Esquire                  Gregory V. Varallo, Esquire
Dilworth Paxson, LLP                         Robert J. Stearn, Jr., Esquire
704 North King Street, Suite 500             Richard P. Rollo, Esquire
Wilmington, Delaware 19899                   Robert L. Burns, Esquire
                                             Sarah A. Clark, Esquire
                                             Richards, Layton & Finger, P.A.
                                             920 North King Street
                                             Wilmington, Delaware 19801

                                             Marc S. Casarino, Esquire
                                             Nicholas Wynn, Esquire
                                             White and Williams LLP
                                             600 North King Street, Suite 800
                                             Wilmington, Delaware 19801

              Re: Calesa Associates, L.P. et al. v. American Capital, Ltd. et al.,
              Civil Action No. 10557-VCG

Dear Counsel:

      This matter involves a challenged issuance of equity in a medical-device

company, Halt Medical, Inc., to Defendant American Capital, Ltd. (together with

its affiliates, “ACAS”). At the time of the challenged transaction, ACAS held a

large block, but not a majority, of common stock of Halt. ACAS was also a major

creditor of Halt, and had contractual rights in that regard.         The Plaintiff

stockholders (including entities managed by Edward F. Calesa, who founded Halt
and chaired the board of directors) sued, alleging breaches of fiduciary duty against

the Halt directors and ACAS, and, in the alternative, aiding and abetting against

ACAS.

       The Defendants moved to dismiss, and (with a minor exception) I denied

that motion by Memorandum Opinion on February 29, 2016 (the “Mem. Op.”).1 In

the Mem. Op., I found that the Plaintiffs had sufficiently pled that ACAS was a

controller, or had aided and abetted a transaction in which a majority of the

directors were not independent or disinterested, such that entire fairness applied to

the transaction.2 I also found that the Complaint stated a claim with respect to

Section 228, because of alleged inadequacies in the stockholder consents.3

       After I denied the Motion to Dismiss, discovery ensued. Currently before

me are the Plaintiffs’ Motion for Partial Summary Judgment and the Defendants’

Motions for Summary Judgment. “[S]ummary judgment will be entered only

where the moving party demonstrates the absence of issues of material fact and

that it is entitled to a judgment as a matter of law.” 4 The burden is on the movant.5

“There is no ‘right’ to a summary judgment.”6 “When confronted with a [summary

judgment] motion, the court may, in its discretion, deny summary judgment if it


1
  Calesa Assocs., L.P. v. Am. Capital, Ltd., 2016 WL 770251, at *1 (Del. Ch. Feb. 29, 2016).
2
  Id. at *9–13.
3
  Id. at *13–14.
4
  Wagamon v. Dolan, 2012 WL 1388847, at *2 (Del. Ch. Apr. 20, 2012).
5
  Id.
6
  Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002).
                                               2
decides upon a preliminary examination of the facts presented that it is desirable to

inquire into and develop the facts more thoroughly at trial in order to clarify the

law or its application.”7 Because I find that that the issues for which judgment is

sought are either factually contested or would benefit from development at trial,

the Motions are denied. In the interests of efficiency, I will not repeat the facts laid

out in the Mem. Op. I briefly discuss major issues below. To the extent summary

judgment was sought on a particular issue, and that issue is not addressed, then I

have declined summary judgment with respect to that issue on the general

reasoning set out above.

                              I. STANDARD OF REVIEW

         In the Mem. Op., I found a sufficient pleading that ACAS was a controller,

and that a majority of the directors were interested or not independent. Therefore,

entire fairness presumptively was the standard of review, precluding dismissal.

The Plaintiffs ask me to find as a matter of law, based on the record created, that

entire fairness applies. ACAS’s ability to influence decisions of the board arose in

part from contractual rights. The extent to which it exerted control in a way that

must imply fiduciary duties, or exerted control over a majority of directors,

requires an intensely factual analysis. I note that record evidence exists indicating

that Calesa, at least, considered it the board’s responsibility to prevent ACAS from


7
    Chen v. Howard-Anderson, 87 A.3d 648, 665 (Del. Ch. 2014).
                                               3
becoming a controller at the time the transaction was negotiated. Consequently, a

final determination of the standard of review is appropriate on a post-trial record.

                                    II. FAIR PROCESS

       The Plaintiffs ask that I find as a matter of law that the process by which

Halt approved the challenged transaction was unfair to the Plaintiff stockholders. I

decline to examine this question, which I believe lacks independent legal

significance.     The Plaintiff has specifically eschewed the argument that the

unfairness of the process was itself so grave that the transaction was not entirely

fair. Entire fairness involves a unified analysis of both process and price. 8 I see no

utility in examining the record at this stage of the proceedings to evaluate the

fairness of the process in a vacuum.

                                     III. SECTION 228

       The Plaintiffs argue that deficiencies in the consents violate the requirements

of Section 228 of the DGCL. The Defendants counter that evidence in the record

indicates that any defects were not material. I find that justice would be better

served by evaluating this issue in light of the trial record.

                IV. WAIVER, ACQUIESCENCE, AND ESTOPPEL

       The Defendants raise these affirmative defenses against all the Plaintiffs—

who signed waivers in connection with their consents—but principally against
8
  See, e.g., Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1244 (Del. 2012) (holding that the
entire fairness standard is not bifurcated between process and price, and that “all aspects of the
issue must be examined as a whole”).
                                                4
Calesa, who was heavily involved in the negotiation of the deal in question. They

contend that the record allows me to find the defenses applicable as a matter of

law. The Plaintiffs, however, point to record evidence that material information

was knowingly withheld from them by the Defendants in connection with their

waivers, with the result that the waivers are ineffective, and precluding the other

equitable defenses. Moreover, the Plaintiffs assert that the evidence establishes

ACAS’s controller status, precluding a finding that the Plaintiffs freely waived

their right to challenge the transaction.9            Accordingly, this issue remains for

decision after trial.10

                                V. DERIVATIVE CLAIMS

       The Defendants argue that the Plaintiffs’ claims are derivative, that they

have not attempted to comply with Court of Chancery Rule 23.1, and that

judgment against the Plaintiffs is therefore appropriate. I denied a motion to

dismiss on the same grounds in the Mem. Op. The Defendants point out that

jurisprudence in the interim has clarified the rubric under which the Plaintiffs’


9
   See, e.g., In re JCC Holding Co., Inc., 843 A.2d 713, 723 (Del. Ch. 2003) (“[I]t would be
illogical to bar stockholders who voted for or accepted the consideration from a merger governed
by [Kahn v. Lynch] from any recovery, when Lynch is premised on the notion that these
stockholders lack the free will to cast votes ratifying the fairness of the transaction, even after
receiving full disclosure of the material facts.”).
10
   See George v. Frank A. Robino, Inc., 334 A.2d 223, 224 (Del. 1975) (“It is for the jury to say
whether plaintiff’s conduct under the circumstances of this case evidenced an intentional,
conscious and voluntary abandonment of his claim or right. Summary judgment is inappropriate
where, as here, the inference or ultimate fact to be established concerns intent or other subjective
reactions.” (citation omitted)).
                                                 5
claims must be analyzed to determine if they are derivative or direct.11 I agree that

my analysis in the Mem. Op. may not be consistent with the current state of the

law.      I nonetheless find, based on my current understanding of the law, and

consistent with my decision that the controller status of ACAS awaits a post-trial

determination, that I cannot say that the Plaintiffs’ claims are purely derivative as a

matter of law.

         To the extent the foregoing requires an Order to take effect, IT IS SO

ORDERED.



                                                     Sincerely,

                                                     /s/ Sam Glasscock III

                                                     Sam Glasscock III




11
     See El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1262–65 (Del. 2016).
                                                 6
