      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE


LEILANI ZUTRAU individually and
on behalf of ICE SYSTEMS, INC.,

                 Plaintiff,

            v.                                               C.A. No. 7457-VCP

JOHN C. JANSING,

                   Defendant,

             and

ICE SYSTEMS, INC.

                   Nominal Defendant.




                                        OPINION

                              Submitted: November 21, 2013
                                 Decided: July 31, 2014

Stephen B. Brauerman, Esq., Vanessa R. Tiradentes, Esq., Sara E. Bussiere, Esq.,
BAYARD, P.A., Wilmington, Delaware; Attorneys for Plaintiff Leilani Zutrau.

Kurt M. Heyman, Esq., Melissa N. Donimirski, Esq., PROCTOR HEYMAN LLP,
Wilmington, Delaware; Attorneys for Defendant John C. Jansing.


PARSONS, Vice Chancellor.
       This is an action by a former employee and minority stockholder of a private

Delaware corporation specializing in proxy servicing against the president, sole director,

and majority stockholder of that corporation. The defendant hired the plaintiff to start

working for the company as a controller sometime in 2000 or 2001 and, in 2004, granted

the plaintiff a minority equity interest in the company and promoted her to treasurer and,

later, executive vice president. Beginning in 2004, the plaintiff and defendant were the

sole stockholders of the company, which earns an average of $3 million in revenues per

year. Due to differences in management philosophies, among other factors, the defendant

fired the plaintiff in 2007.

       In 2009, the plaintiff commenced litigation against the defendant in the state of

New York, asserting direct claims challenging her termination and derivative claims

challenging numerous actions taken by the defendant in the course of running the

company.      In 2011, the New York court dismissed the plaintiff‘s derivative claims

without prejudice, holding that they would need to be brought in a separate action.

       In 2012, the plaintiff commenced this action, effectively reasserting her derivative

claims. Shortly thereafter, the defendant executed a reverse stock split in which he

cashed out the plaintiff‘s shares. The plaintiff subsequently amended her complaint to

add claims challenging the propriety of the reverse stock split, including direct claims for

breach of fiduciary duty, violation of Section 155 of the Delaware General Corporation

Law (―DGCL‖), and equitable fraud.

       Although the plaintiff is no longer a stockholder of the company, the defendant

has expressly waived any objection to the plaintiff litigating her derivative claims for

                                             1
purposes of valuing her interest in the company at the time of the reverse stock split. Any

derivative claims that were outstanding at the time of the reverse stock split, therefore,

may be treated as corporate assets that should be accounted for when valuing the

company.

       This Opinion constitutes my post-trial findings of fact and conclusions of law in

this matter. In terms of the merits, I begin my analysis with the plaintiff‘s claim for

equitable fraud based on her allegation that the defendant promised her that she would

remain a stockholder of the company and benefit from its success until it could be sold, at

which time she would share pro rata in the resulting proceeds.            Plaintiff failed to

demonstrate a false representation in connection with that claim, however, because she

adduced no evidence that the defendant‘s alleged promises were false when made. She

therefore failed to prove a claim for equitable fraud.

       The plaintiff‘s derivative claims seemingly challenge virtually every decision the

defendant made and actions he took, no matter how picayune, in running the company

after the plaintiff‘s termination. The plaintiff failed to prove many of her claims, but did

demonstrate that the defendant breached his fiduciary duties to the company by paying

himself excessive compensation, by charging certain personal expenses to his company-

issued credit card, and by causing the company to pay interest on sums that he withdrew

from its credit line for his own purposes.

       I then turn to the plaintiff‘s claims that the defendant breached his fiduciary duties

and violated Section 155 of the DGCL by effecting the reverse stock split. Initially, I

reject the plaintiff‘s contention that the defendant effected the reverse stock split for the

                                              2
purpose of depriving her of derivative standing based on a failure of proof. I do hold,

however, that the reverse stock split was implemented at an unfair price, in breach of

Jansing‘s fiduciary duties and Section 155. I reach this conclusion because the valuation

on which the defendant relied to value the plaintiff‘s shares did not take into account his

pre-existing breaches of fiduciary duty and their impact on the fair value of the company.

As a remedy, I award the plaintiff the fair value of her shares.

       In that regard, I determine that two adjustments must be made to the valuation that

the defendant used to estimate properly the company‘s fair value. First, the monetary

value of the meritorious derivative claims that the company had against the defendant at

the time of the reverse stock split should be treated as a non-operating corporate asset and

added to the value of the company. Second, because the valuation relied on a discounted

cash flow analysis, which, in turn, used the company‘s historical performance to project

its future performance, a normalizing adjustment is required to the historical data to

remove expenses incurred as a result of the defendant‘s excessive compensation during

the relevant period, so that the future projections are not artificially suppressed as a result

of that self dealing.

       Finally, I consider a counterclaim asserted by the defendant in this action. The

court presiding over the New York litigation ultimately issued a post-trial opinion in

which it awarded the plaintiff $60,307 for the amount remaining in her capital account at

the company. The defendant argues that this award should be setoff from any amount he

is held to owe the plaintiff in connection with the reverse stock split, because the baseline

valuation of the plaintiff‘s shares for purposes of the reverse stock split already included

                                              3
the value remaining in her capital account. I reject this counterclaim as barred by

collateral estoppel, because the same factual argument was made by the defendant to the

New York court and ultimately was rejected by that court.

                               I.        BACKGROUND1

                                    A.    The Parties

       Nominal Defendant, ICE Systems, Inc. (―ICE‖ or the ―Company‖), is a Delaware

corporation that specializes in proxy services. It is one of only two companies in the

United States that provides substantive third party proxy processing to trust institutions,

such as banks, that hold shares on behalf of beneficial owners.

       Defendant, John Jansing, is the President and sole director of ICE. Before the

reverse stock split that is contested by the plaintiff in this action (the ―Reverse Stock

Split‖), Jansing was the majority stockholder of ICE, holding 78% of the shares of the

Company. He now purports to be ICE‘s sole stockholder.

       Plaintiff, Leilani Zutrau, is a former ICE employee. Zutrau served as ICE‘s

controller and, at various points during her tenure with the Company, held the position of

ICE‘s Treasurer and oversaw the Company‘s sales and marketing functions. Before the

Reverse Stock Split, Zutrau was a minority stockholder of ICE, holding 22% of the

shares in the Company.




1
       Unless otherwise noted, this background is drawn from the stipulated facts section
       of the parties‘ First Amended Pre-Trial Stipulation and Order (D.I. No. 177) and
       from alleged facts admitted in Jansing‘s Answer to the Third Amended and
       Supplemental Verified Complaint (D.I. No. 129).

                                            4
                                     B.      Facts

                           1.    History and business of ICE

      ICE was formed as an S corporation under the laws of New York in 1990. In its

early years, ICE‘s principal business activity was providing ballot processing services to

trade associations, unions, and public advocacy groups. Jansing acquired an interest in

ICE in 1993, becoming one of four equal stockholders in the Company. Although each

of the four stockholders initially were employed by ICE, the three stockholders other than

Jansing left their positions with the Company in the mid-to-late nineties.2 In that same

time frame, ICE ceased providing ballot processing services, instead becoming active in

the proxy services business. Consistent with that change in its business focus, ICE began

operating under the name ―Proxytrust.‖3

      Since entering the proxy services segment, ICE‘s principal business activity has

been providing proxy processing services to trust institutions, typically banks, that hold

shares on behalf of individual beneficial owners.4 ICE serves as an outsourcing solution

for these institutions to print, distribute, and tabulate proxies in conjunction with

corporate votes initiated by the issuing corporations, or issuers, for any shares that the

bank is holding in trust.5 Thus, ICE serves as an intermediary between beneficial owners

2
      Tr. 445-46 (Jansing). References in this form are to the trial transcript. Where the
      identity of the testifying witness is not apparent from context, it is indicated
      parenthetically after the page citation.
3
      Id. at 446.
4
      Tr. 6-7 (Zutrau); Tr. 448 (Jansing).
5
      Tr. 448 (Jansing).

                                             5
of shares and publicly traded corporations, but its direct clients are the trust institutions or

banks utilized by those beneficial owners. As of 2012, ICE was providing third-party

proxy processing to 176 client banks in the United States. Those clients collectively

represented over 850,000 beneficial owners.6 In any given year, ICE generally processes

proxies from over 5,000 corporations.7

       ICE communicates with its bank and trust clients through ―data feeds‖ established

with several trust system providers. A ―data feed‖ allows for a two-way transfer of

electronic data between ICE and a trust system provider.8 Trust system providers process

data for banks, including beneficial share owner data that ICE needs to perform the work

that it is contracted to do.9 The data feeds are the lifeline of the Company. To serve its

clients and process the data obtained from those feeds, ICE has developed proprietary

information processing software.10 ICE incurs costs to establish and maintain data feeds,

but those feeds are of no use to ICE if it does not have bank or trust clients using the

particular data feed.11




6
       Id. at 448-49.
7
       Id.
8
       Id. at 460.
9
       Id. at 460-62.
10
       Id. at 457-58.
11
       Id. at 462-64.

                                               6
       Although ICE‘s direct clients are trust institutions, issuers are required under

securities regulations to reimburse those institutions for the costs of distributing proxies.12

Thus, ICE ultimately is paid by the issuers. Because of this arrangement, many of the

fees that ICE can charge its clients are regulated by the New York Stock Exchange

(―NYSE‖) with oversight from the Securities Exchange Commission (―SEC‖).13

       ICE is one of only two companies that provide third-party proxy processing to

trust institutions holding shares on behalf of beneficial owners. The other company

operating in that space, and ICE‘s only direct competitor, is Broadridge Financial

Solutions, Inc. (―Broadridge‖). 14 Broadridge, however, dominates the market. It is much

larger than ICE, controls over 99% of the market in which ICE operates, and is an

aggressive competitor.15 Among other things, Broadridge provides a wider array of

services than ICE does, including services outside of the proxy services sector. In

addition, Broadridge offers various services to its clients for free in order to maintain or

attract their proxy services business.16 This has caused ICE to purchase similar services

from third parties and offer them to its clients for free, including, for example, tax

reporting services from Commerce Clearing House (―CCH‖).17

12
       Tr. 82-83 (Zutrau).
13
       Tr. 454-55 (Jansing).
14
       Tr. 6-7 (Zutrau).
15
       Id.; Tr. 449-50 (Jansing).
16
       Tr. 449-50 (Jansing).
17
       Id. at 452-53.

                                              7
       The proxy services market is highly saturated. Thus, there are very few new or

unclaimed clients in the market. That means ICE and Broadridge effectively are engaged

in a ―zero sum game.‖18

                      2.      Zutrau becomes involved with ICE

       By 2000, Jansing was the President and sole Director of ICE. In its first ten years

of operations, the Company had accumulated over $1 million in debt, which Jansing had

guaranteed personally. In 1999, Jansing contracted to sell ICE and its assets to Anne O.

Faulk and Boardvote.com, Inc. for $1,425,000. The transaction never closed, however,

and instead devolved into litigation.

       Following the failed transaction, Jansing retained an individual named Morton

Berger as a consultant to help organize the Company and assist with various finance,

human resource, and general and administrative tasks.19 In May of 2000, Berger enlisted

Zutrau to help with some of the financial aspects of his consulting work for ICE.20

Berger and Zutrau were acquainted because Berger served as a director of a company for

which Zutrau previously had worked.21 While she was working at ICE in a consultative

capacity, Zutrau purportedly caught Berger engaging in certain financial improprieties,




18
       Id. at 456.
19
       Tr. 467 (Jansing).
20
       Tr. 9-10 (Zutrau).
21
       Id. at 9.
                                            8
including improperly charging expenses to ICE. Subsequently, Jansing refused to do

business with Berger.22

      At ICE, Zutrau was tasked, among other things, with organizing financial records

and managing the Company‘s accounts payable and accounts receivable. 23 She also had

an assignment pertaining to SunGard, a trust systems provider that was ICE‘s largest

business partner and source for client data. In June 2000, Sungard threatened to cancel a

joint venture contract with ICE that involved revenue sharing between ICE and SunGard.

Sungard had threatened cancellation based on ICE‘s delinquency in making the payments

called for under the agreement.24 Zutrau reviewed ICE‘s books and worked with Sungard

to resolve those issues. In the course of doing so, Zutrau discovered that ICE actually

had overpaid SunGard in the past.25 Based on Zutrau‘s discovery, SunGard waived its

claim against ICE for delinquent payments.26

      Pleased with the work that Zutrau had done, Jansing made her a full-time job

offer, essentially to serve as ICE‘s controller, which she accepted.27 Zutrau formally was

given the title ―controller‖ sometime in 2002 or 2003.28

22
      Tr. 469 (Jansing).
23
      Tr. 9-10 (Zutrau).
24
      Id. at 10.
25
      Id. at 151-52.
26
      Tr. 475-76 (Jansing).
27
      Tr. 19 (Zutrau); Tr. 469-70 (Jansing).
28
      Tr. 134 (Zutrau).

                                            9
       According to Zutrau, in the spring of 2001, after she had become a full-time ICE

employee, Jansing also offered her equity in the Company. 29 Specifically, Zutrau alleges

that Jansing told her that he needed the help of someone with her accounting and

financial skills to turn the Company around and promised her an equity stake in ICE if

she would commit herself to rehabilitating the Company until it became profitable and

could be sold.30 Jansing purportedly further represented to Zutrau that she would share in

the proceeds of the eventual sale of the Company in accordance with the percentage of

her equity ownership and that, until such a sale occurred, they both would benefit from

their efforts in line with the success of the Company.31

       Jansing acknowledges having conversations with Zutrau about the possibility of

her obtaining equity in the Company, but maintains that they were informal and non-

specific. According to Jansing, Zutrau approached him about obtaining equity in the

Company.32 When she first broached the subject, he explained that granting her equity at

that time would be difficult because of the Company‘s three other stockholders.33

Jansing admits, however, that he thought Zutrau had done good work and told her that he




29
       Id. at 17.
30
       Id. at 18.
31
       Id.
32
       Tr. 477 (Jansing).
33
       Id.
                                            10
would consider her request, stating something along the lines of ―[i]f we can ever get

around to it, I‘ll see what I can do.‖34

       After her initial discussion with Jansing about equity, Zutrau worked hard to

improve the operations of the Company. She continued to serve as its controller, in

which role she, among other things, maintained and improved ICE‘s financial and

accounting records, issued statements and invoices, and was responsible for the

Company‘s accounts payable and receivable.35 Before Zutrau started working at ICE, the

Company had no reliable accounting system to track and collect receivables. 36 Zutrau

researched software solutions to rectify that problem and discovered a software system

called Sage, which was capable of managing ICE‘s receivables and interfacing with the

Company‘s proprietary system.        During Zutrau‘s employment at ICE, the Company

purchased and installed the Sage software system, which it still uses today. 37 Zutrau also

assisted in the Company‘s sales and marketing efforts by helping to produce professional

marketing materials and by enrolling the Company in a number of industry conferences

each year, some of which she attended personally. 38




34
       Id. at 477-78.
35
       Tr. at 19 (Zutrau).
36
       Id. at 38-39.
37
       Id.
38
       Id. at 35-36 (Zutrau); Tr. 485–86 (Jansing).

                                            11
      In addition to her work efforts, Zutrau loaned money to ICE on a number of

occasions, even before she had acquired an equity interest.39 Around the time Zutrau

began working for ICE, the Company had maxed out its available credit lines. 40 Zutrau

then periodically and voluntarily would make unsecured, interest free loans to the

Company to help cover operating expenses.         ICE repaid those loans when it had

sufficient funds available.41   In total, during her tenure at ICE, Zutrau loaned the

Company approximately $400,000,42 but all of those loans were repaid.43

      In early 2003, Jansing had discussions with another ICE employee, Jeff Berg, the

Company‘s IT specialist, about the possibility of granting him equity. 44 Zutrau strongly

opposed that possibility and wrote a lengthy letter to Jansing in February 2003 expressing

her view that Berg was not as deserving as she was.45 In the letter, Zutrau stated that

Berg ―put[s] in less time than me, and hasn‘t yet made a commitment to work above and




39
      Tr. 16-17 (Zutrau).
40
      Id. at 16.
41
      Id. at 16-17, 315; JX 309 at 535.
42
      See JX 309.
43
      Tr. 315 (Zutrau).
44
      Tr. 478 (Jansing).
45
      JX 533. At trial, Zutrau denied being opposed to Berg receiving equity in the
      Company. Tr. 166-67. The clear import of her letter to Jansing, however, belies
      her testimony in that regard. I also credit Jansing‘s testimony that Zutrau orally
      advised him of her opposition to Berg receiving stock. Tr. 478.

                                           12
beyond the normal work responsibilities.‖46 The letter also noted that ―although [Zutrau]

gave without having a formal arrangement,‖ she had stuck to the parties‘ ―original

understanding‖ and had ―been working for equity of some sort.‖47 Ultimately, Berg

chose not to accept any equity in the Company, instead opting to receive a higher

salary.48

                    3.         Zutrau becomes a stockholder of ICE

       In late 2003, Zutrau followed up with Jansing about receiving stock in the

Company. Jansing responded that he would grant her equity, but that the other three

stockholders would need to be bought out for that to occur.49 Jansing then retained

corporate governance attorneys (―ICE‘s Counsel‖) on behalf of ICE to issue stock to

Zutrau, buy out the three non-participating stockholders, and reorganize ICE.

       Because there were still other stockholders in addition to Jansing, and to legitimize

the transfer of stock to Zutrau, ICE‘s Counsel recommended that the Company adopt a

Stock Incentive Plan (the ―Plan‖) as a vehicle to grant Zutrau stock. The Plan was

implemented in December 2003.50 In April 2004, before any equity had been issued

under the Plan, ICE‘s Counsel prepared a Restricted Stock Agreement (―RSA‖) to



46
       JX 533.
47
       Id.
48
       Tr. 478-79 (Jansing).
49
       Tr. 22-23 (Zutrau).
50
       JX 24.

                                            13
formalize the terms of the stock issuance to Zutrau.51 Zutrau reviewed the RSA and

discussed its terms with ICE‘s Counsel before it was executed on April 23, 2004. 52

         Pursuant to the RSA, Zutrau received 36 shares of common stock in ICE, which

fully vested on May 22, 2004. Among other things, the RSA contained an integration

clause, which stated that ―[t]his Agreement together with the Plan contain the entire

agreement and understanding of the parties relating to the subject matter hereof, and

supersede[s] all prior agreements, understandings, representations, warranties and

covenants of any kind between the parties with respect to this subject matter.‖53

         On May 25, 2004, ICE was reorganized and reincorporated in Delaware, and the

original ICE Systems, Inc., the New York S corporation (―ICE NY‖), was dissolved. In

connection with the reorganization, the three non-participating stockholders were bought

out with funds lent to the Company by Zutrau.54 Zutrau‘s recently issued shares in ICE

NY were converted to a 22% equity stake in ICE, the newly formed Delaware S

corporation. Following the reorganization, Jansing owned the remaining 78% of ICE‘s

stock.

         Around the time of the reorganization, Jansing reiterated his promise that,

together, he and Zutrau would improve ICE so that it could be sold and they could share



51
         JX 472; Tr. 29-30 (Zutrau).
52
         Tr. 29-30 (Zutrau).
53
         JX 472 § 10.
54
         Tr. 24 (Zutrau).

                                            14
the resulting proceeds.55 Zutrau further alleges that Jansing told her at that time that he

did not want her to incur tax liabilities in connection with her equity ownership.56

             4.      ICE’s operations after Zutrau became a stockholder

       After the reorganization and issuance of stock to Zutrau, Jansing remained ICE‘s

President and sole director.57 On August 4, 2004, Jansing executed a Unanimous Written

Consent (the ―Consent‖), as the sole director, that (1) abolished the Plan and (2) elected

Zutrau to serve as ICE‘s Treasurer. Zutrau‘s responsibilities as Treasurer were similar to

her responsibilities as ICE‘s controller and included overseeing ICE‘s books and records

and making sure that they were kept in order.58

       Both before and after the reorganization, ICE operated on a fairly informal basis.

The Company had no written budget and did not have its books audited.59 ICE also had

no written policy regarding business or travel expenses,60 which Jansing and certain other

employees charged directly to Company credit cards.61 Instead, ICE had an informal


55
       Id. at 24, 27, 30-31.
56
       Id. at 24-25, 30-31. In an S corporation, by contrast to a C corporation, the
       stockholders, not the corporation itself, are liable for the taxes on the corporation‘s
       net earnings. 26 U.S.C.A. § 1363 (2005) (―The taxable income of an S
       corporation shall be computed in the same manner as in the case of an individual
       . . . .‖).
57
       Tr. 481-82 (Jansing); JX 196 ¶ 2.
58
       Tr. 135-36 (Zutrau).
59
       Tr. 195-97 (Zutrau).
60
       Id. at 192-93; Tr. 482 (Jansing).
61
       Tr. 586-87 (Jansing).

                                             15
policy that employees should be mindful of their expenditures and generally avoid

expensive meals and lodging.62 Zutrau typically reviewed business expenses charged by

Company employees as well as other payments made by the Company when she entered

them into ICE‘s accounting system.63 If Zutrau found any charges or payments that she

considered to be inappropriate, such as charges or payments for personal or non-business

expenses, she brought them to Jansing‘s attention.64 In that regard, during her tenure at

ICE, Zutrau prompted Jansing to reimburse ICE for a number of personal expenses he

had charged to his Company credit card.65 For his part, Jansing maintains that those

expenses were negligible and amounted to no more than a few thousand dollars.66

      Similarly, ICE lacked a formal policy on compensation.67 Zutrau provided some

input on that topic,68 but Jansing made the ultimate determination regarding how much to

pay employees, including himself and Zutrau, both in salary and bonuses.69

      After becoming a stockholder, Zutrau continued to make periodic loans to the

Company and, in addition, used her creditworthiness to benefit ICE on several occasions.

62
      Tr. 192-93 (Zutrau); Tr. 482-83 (Jansing).
63
      Tr. 37, 341 (Zutrau).
64
      Id. at 37.
65
      Id. at 37-38.
66
      Tr. 483-84.
67
      Tr. 191 (Zutrau); Tr. 484 (Jansing).
68
      Tr. 191 (Zutrau).
69
      Id.; Tr. 485 (Jansing).

                                             16
In December 2004, Jansing and Zutrau signed as co-guarantors on ICE‘s new five-year

office lease, which commenced in early 2005.70     In that same month, Zutrau signed for

and co-guaranteed, with Jansing, an auto loan in the Company‘s name for a truck to be

used by Jansing.71 In February 2007, Zutrau obtained and, together with Jansing, co-

guaranteed a $250,000 business line of credit for ICE with Citibank, N.A. (the ―Credit

Line‖).72 The funding made available to ICE from the Credit Line obviated the need for

Zutrau to make personal loans to the Company.73 In each of these instances, however,

Zutrau‘s creditworthiness facilitated the Company‘s actions because Jansing had poor

personal credit.74

       In early 2005, Jansing hired an individual named Walter Lotspeich to serve as a

―relationship manager.‖75 In that sales and marketing role, Lotspeich was responsible

both for maintaining ICE‘s existing business relationships and for attempting to establish

new ones. Jansing previously had interacted with Lotspeich in various business settings,

including as an employee of one of ICE‘s clients, and had developed a good working

relationship with him.76 Each party to this dispute alleges that the other party was

70
       JX 36.
71
       Tr. 32 (Zutrau); Tr. 496 (Jansing).
72
       Tr. 32, 52 (Zutrau); Tr. 500 (Jansing).
73
       Tr. 52 (Zutrau).
74
       Id. at 33-34; Tr. 496, 572-73 (Jansing).
75
       Tr. 36-37 (Zutrau).
76
       Tr. 514-16 (Jansing).

                                             17
concerned that Jansing and Lotspeich‘s pre-existing relationship would hinder Jansing‘s

ability to supervise Lotspeich effectively, and insisted that Zutrau serve as his direct

supervisor.77 Regardless of who, in fact, proposed that arrangement, in February of 2005,

Zutrau‘s job duties were expanded to include supervising Lotspeich and overseeing the

sales and marketing functions of the Company. As part of that division of duties, Jansing

and Zutrau agreed that Jansing would focus on the Company‘s internal operations.78

Around that time, Zutrau also was given the title of ―executive vice president.‖79

       When Zutrau became more involved in the Company‘s marketing efforts, she

helped organize an annual golf outing that ICE hosted for marketing purposes.80 She also

assisted in various giveaways and other marketing efforts, such as creating promotional

ICE gear.81 In 2005 and 2006, the Company added approximately eighty new clients and

successfully negotiated contracts with additional business partners. Zutrau signed on a

few additional clients herself, but Lotspeich primarily was responsible for making sales

presentations to and signing new clients.82 In early to mid-2007, ICE was pursuing




77
       Tr. 213, 216-17 (Zutrau); Tr. 517-18 (Jansing).
78
       Tr. 216-17 (Zutrau); Tr. 518 (Jansing).
79
       Tr. 134 (Zutrau); Tr. 481 (Jansing).
80
       Tr. 300-01 (Zutrau); JX 554, 618, 621, 622.
81
       Tr. 493 (Jansing).
82
       Tr. 222-23 (Zutrau); Tr. 520-21 (Jansing).

                                              18
several banks in an effort to switch them from Broadridge to ICE, including M&I,

Investors Bank & Trust, US Bank, LaSalle Bank, Mitsubishi Trust, and Mizuho Trust.83

      Between 2000 and 2006, the Company had grown significantly larger and more

successful. In 2000, ICE‘s gross revenues were $652,000 and the Company had over $1

million in long term debt.84 By 2006, gross revenues had risen to approximately $2.6

million and the Company had paid off nearly all of its long term debt.85 Moreover, by the

end of 2006, the Company had been profitable for two consecutive years.86 As ICE grew

more successful, Jansing‘s and Zutrau‘s compensation also increased. In 2000, Zutrau

and Jansing were compensated at the annual rates of $75,000 and $85,000, respectively.

By 2006, Zutrau and Jansing‘s base annual salaries had grown to $180,000 and

$200,000.87 Moreover, in that year, Zutrau and Jansing collectively received more than

$1 million from ICE in total compensation, distributions, and benefits.

                5.      Companies express interest in acquiring ICE

      Due to its success, ICE received expressions of interest from a few potential

acquirers in 2006. In January of that year, Jansing and Zutrau met with the CEO and

another senior executive from Institutional Shareholder Services (―ISS‖), which

specializes in providing proxy voting recommendations to trust institutions based on their

83
      Tr. 224-27 (Zutrau); Tr. 537-39 (Jansing); JX 293 at 22.
84
      JX 8.
85
      JX 293 Exs. 5.0, 5.1.
86
      Id. Ex. 5.1.
87
      JX 518.

                                            19
preferred investment strategies.88   Although the discussions were informal, the ISS

executives expressed interest in the possibility of partnering with or acquiring ICE.89

Jansing ultimately decided not to pursue a transaction with ISS, instead adopting a ―wait

and see‖ approach.90

       In November 2006, ICE also received an expression of interest from

Computershare Limited (―Computershare‖), a multinational company that engaged in

limited proxy distribution activities in the United States.91 Computershare expressed

interest in acquiring ICE so that it could leverage ICE‘s business and technology to

expand its operations in the U.S. proxy services sector. From November 2006 through

May 2007, Jansing and Zutrau participated in discussions with Computershare regarding

a potential acquisition.92   Contemporaneous notes taken by Zutrau as well as notes

emailed to Jansing and Zutrau by a Computershare representative indicate that, at a

meeting held in late February or early March of 2007, the parties discussed the possibility

of Computershare acquiring all of the equity in ICE for up to $25 million in total

consideration, consisting of $8 million in cash upfront with a potential $17 million earn-




88
       Tr. 40-42 (Zutrau).
89
       Id. at 41.
90
       Id. at 43-44.
91
       Id. at 44; Zutrau Del. Dep. 189; Paul Conn Dep. 7.
92
       Tr. 45-46 (Zutrau).
                                            20
out.93 Computershare never made a firm offer to acquire the Company, however, and

discussions between ICE and Computershare terminated without a deal being reached.94

                       6.     Zutrau is Terminated from ICE

      Despite Zutrau‘s contributions to the Company, Jansing testified that a negative

side of her involvement emerged in the 2004–2007 timeframe. According to Jansing,

Zutrau did not get along well with the Company‘s other employees and had an abrasive

management style that regularly brought her into conflict with the people under her. 95

For example, on one occasion, Zutrau insisted that Jansing write up an employee for

insubordination, which he did, to his later regret.96 The employee subsequently resigned

because she felt Zutrau had targeted her unfairly.97     Zutrau also had a tendency to

micromanage the employees who reported to her. Ultimately, that caused Lotspeich to


93
      JX 480, 481; see also Tr. 46-48 (Zutrau).
94
      Tr. 524 (Jansing). Zutrau claims that in late May or early June 2007, Garet Hill, a
      consultant who had been retained by Computershare, made a verbal final offer to
      Jansing on behalf of Computershare to acquire the Company for $25 million. Tr.
      236-37. There is no documentary evidence that such an offer was made, however,
      and Zutrau admits that she was not present when the purported offer was
      communicated to Jansing and that Jansing did not discuss the details of the offer
      with her. Rather, she alleges only that Jansing told her that some kind of an offer
      had been made. Id. at 237-38. Jansing, Hill, and Paul Conn, a Computershare
      executive who participated in the negotiations with ICE, however, all testified that
      Computershare never made a final offer to acquire ICE. Tr. 524 (Jansing); Hill
      Dep. 45-46, 64; Conn Dep. 132-33. Having considered the available evidence, I
      find that no such ―final‖ or firm offer was ever made.
95
      Tr. 512-13.
96
      Id. at 513-14.
97
      Id. at 514.

                                           21
threaten to leave the Company, citing a desire for greater autonomy, among other

things.98

       Zutrau‘s management style also conflicted with that of Jansing, who gave priority

to employee morale. Although Jansing had the final say, he and Zutrau clashed over a

variety of issues such as whether certain employees should be required to clock in and

out.99 They also had disagreements regarding the salary and bonuses employees should

receive, with Jansing generally wanting to pay employees more. 100 Zutrau‘s supervision

of Lotspeich became another source of tension between her and Jansing. After Lotspeich

was placed under Zutrau‘s supervision, she attempted to restrict any direct

communication between Lotspeich and Jansing, apparently concerned that such

communications would undermine her authority.101         Indeed, if Zutrau discovered

Lotspeich and Jansing communicating without her knowledge, even about non-work-

related matters such as a sporting event, she became irate and proceeded to chastise one

or both of them.102

       By June of 2007, Jansing had concluded that Zutrau was a ―toxic element in the

office‖ and resolved to terminate her.103 Shortly before that, Zutrau had been diagnosed

98
       Lotspeich Dep. 60-61; Tr. 209-12 (Zutrau); JX 512.
99
       Tr. 529 (Jansing); Lotspeich Dep. 72-76.
100
       Tr. 485 (Jansing).
101
       See id. at 517, 519-20; JX 476, 544, 545, 547.
102
       See Tr. 519-20 (Jansing); JX 476, 544.
103
       Tr. 529, 567 (Jansing).

                                           22
with metastatic cancer, for which she was scheduled to go on medical leave sometime in

mid-June.104 Zutrau had postponed her medical leave until the end of June, however, to

help prepare for an internal financial audit of the Company, which one of the Company‘s

clients had requested.105 Jansing was aware of Zutrau‘s diagnosis as well as her intention

to take a medical leave of absence.106

       On June 19, 2007, Jansing removed Zutrau‘s name and signatory power from all

Company bank accounts, a credit card account, and a retirement benefits administration

account, but left Zutrau‘s name as a co-guarantor on the Credit Line. On that same day,

Jansing withdrew the full $250,000 available on the Company‘s Credit Line and placed it

in his personal Citibank account. Jansing testified that his banker at Citibank advised

him to hold that amount in his personal account until a new credit line could be

approved.107 According to Zutrau, however, Jansing made it impossible, by doing so, for

Zutrau to remove herself as a guarantor on the Credit Line.108 The Company made the

interest payments on the Credit Line after Jansing‘s withdrawal.



104
       Tr. 86 (Zutrau).
105
       Id.
106
       At trial, Jansing denied knowing about Zutrau‘s planned medical leave, Tr. 570-
       71, but I consider that testimony unreliable. In a prior deposition in the related
       New York Action, Jansing admitted that Zutrau requested to be able to take time
       off to deal with her medical condition and stated that he approved that request.
       Jansing N.Y. Dep. 133-34.
107
       Tr. 500-01.
108
       Tr. 87-88.

                                           23
       On June 20, 2007, Jansing officially terminated Zutrau without giving her any

prior notice. Rather, when Zutrau arrived at the Company, she discovered that the locks

had been changed.109 Although she attempted to speak with Jansing over the phone, he

did not take or return her call.110 Instead, Jansing faxed Zutrau a formal termination letter

sometime that day.111 He also did not provide Zutrau with any severance pay and

cancelled her healthcare coverage.112

       On June 22, 2007, Jansing made a $271,000 down payment, including closing

costs, on a new home in Southampton, New York.113 The amount of the down payment

is similar to the amount Jansing withdrew from the Credit Line and placed into his

Citibank account two days earlier, but Zutrau failed to prove that the two transactions

were related. The funds for the down payment came from Jansing‘s personal bank

account at United States Trust, not his Citibank account.114 After he had withdrawn the

funds from the Credit Line, Jansing maintained the balance in his Citibank account at




109
       Tr. 80 (Zutrau).
110
       Tr. 569 (Jansing).
111
       Id. at 567-68; JX 94.
112
       Tr. 585 (Jansing).
113
       Id. at 509-12 (Jansing); JX 341, 482.
114
       Tr. 509-12 (Jansing); JX 482.

                                               24
approximately $250,000, and at all times greater than $240,000, until he used the funds in

that account to repay the balance on the Credit Line on November 27, 2007.115

       Citibank records subpoenaed by Zutrau indicate that Jansing did not apply for a

new credit line with Citibank in or after June 2007.116 Rather, Jansing applied for an

extension of the existing Credit Line in October 2008.117         Citibank approved that

application in December 2008 and expanded the Credit Line to $500,000. By that time,

Zutrau had been removed as a co-guarantor.118

                 7.       ICE’s operations after Zutrau’s termination

       Following Zutrau‘s termination, Jansing hired Eric Henriksen to perform many of

the day-to-day bookkeeping functions for which Zutrau had been responsible, including

paying bills, tracking collections, and invoicing.119 Jansing also began to rely on Maurice

Kalaygian, Jansing‘s personal accountant, to serve as the Company‘s tax accountant.120

Jansing did not appoint a replacement Treasurer.121



115
       JX 692; Tr. 502-03 (Jansing). Jansing apparently intended to keep the amount in
       the Citibank account above $250,000 until the Credit Line was repaid, and the
       handful of times the amount in that account dipped below $250,000 resulted from
       poor bank management on his part. Tr. 502-03 (Jansing).
116
       See JX 221.
117
       JX 221 at 30-32.
118
       Tr. 250 (Zutrau); Tr. 502 (Jansing).
119
       Tr. 582-83 (Jansing).
120
       Id. at 583-84.
121
       Id. at 585-86.

                                              25
       ICE encountered some accounting difficulties after Zutrau‘s termination. First,

ICE experienced significant problems with the Sage accounting software it had been

using. Among other things, those problems threatened the integrity of ICE‘s historical

accounting data and prevented the Company from keeping its accounting records up-to-

date.122 ICE retained an outside computer consultant, Exeplex, to assess these problems

and make recommendations for how to resolve them. Exeplex ultimately recommended

that the Company take several actions, including catching up on previously released Sage

upgrades, which it did.123 The Company also paid for Henriksen to receive formal

training in Sage.124 In addition, the record shows that Zutrau had experienced difficulties

with Sage during her time at ICE, due at least in part to ICE‘s failure regularly to update

its software.125

       Second, Jansing and Henriksen initially had trouble determining how to generate

the Sungard revenue sharing reports. Zutrau previously had been responsible for that

function and there were no written procedures in place as to how to generate the

reports.126 At one point, Henriksen asked Zutrau to help with the Sungard account.

Zutrau offered to provide assistance, but only if she would be compensated. Jansing and



122
       Id. at 529-32; JX 653, 654.
123
       Tr. 531-32 (Jansing); JX 653, 654.
124
       Tr. 531 (Jansing).
125
       JX 612.
126
       Tr. 533 (Jansing).

                                            26
Henriksen, with assistance from Exeplex, eventually resolved the issues related to

Sungard independently.127

      In most other respects, ICE‘s operations remained similar to how they had been

before Zutrau‘s termination. As ICE‘s sole director, president, and majority stockholder,

Jansing continued to have the authority to make all major decisions on behalf of the

Company, including compensation and bonus decisions for himself and ICE‘s

employees.128 ICE continued to engage in various marketing activities begun while

Zutrau was with ICE, such as the annual golf outing, and Lotspeich remained the primary

driver behind the Company‘s direct sales efforts.129 Although Lotspeich pursued the

bank leads ICE had identified in the first half of 2007, his efforts did not produce any

additional clients.130 Certain of the targeted banks were acquired by other banks during

that same timeframe.131

      Following Zutrau‘s termination, ICE had further contact with Computershare and

ISS. About a month after the termination, Hil sent Jansing an email referencing ongoing

strategic discussions between Computershare and ICE and telling Jansing to ―let me

know if you need a buyer for the 20% equity position,‖ an apparent reference to Zutrau‘s



127
      Id.
128
      Id. at 485.
129
      Id. at 520, 537-39; JX 202, 364, 378, 668.
130
      Tr. 537-39 (Jansing); JX 650.
131
      Tr. 226-27 (Zutrau); Tr. 538-39 (Jansing); JX 643, 674.

                                           27
minority stake.132 Later, in March 2008, Zutrau approached Computershare to gauge

their interest in acquiring her equity in ICE.133 Computershare expressed some interest

initially and took steps toward executing a non-disclosure agreement.134 According to

Zutrau, Computershare contacted Jansing at some point during their discussions and then

abruptly ceased its discussions with her.135 Shortly thereafter, Zutrau alleges that Jansing,

through counsel, offered her $150,000 for her shares in ICE.136 Jansing denies ever

making such an offer.137

       In 2009, ISS again approached Jansing about acquiring ICE. After preliminary

due diligence, ISS submitted a non-binding indication of interest in acquiring ICE for




132
       JX 100. At trial, Jansing claimed that this statement referred to earlier
       conversations regarding Computershare purchasing an unrelated minority stake in
       ICE. Tr. 525-27 (Jansing). Based on the timing and phrasing of the email,
       however, I find that it was more likely a reference to Zutrau‘s equity position. See
       Tr. 49-52 (Zutrau).
133
       Tr. 242 (Zutrau).
134
       Id. at 127; JX 127. In an internal Computershare email dated March 25, 2006,
       Conn wrote ―[w]e might be able to pick this up [i.e., Zutrau‘s shares] for circa
       $500K or $500K-$1M (vs $4M+ If you assumed we‘d had any interest in paying
       $20-25M for the whole company, which we didn‘t. We thought it was worth
       approx $10M).‖ JX 127.
135
       Tr. 242, 127.
136
       Id. at 243.
137
       Tr. 528.

                                             28
$2.5 million, with a maximum earnout potential of $4 million. 138 But ISS terminated

those discussions after its parent company was acquired.139

      In terms of overall performance, ICE has experienced slight growth since 2006,

with gross revenues for the past several years averaging at or just under $3 million per

year.140 ICE‘s most profitable year on record was 2009, when revenues spiked due to

certain non-recurring business and the Company became more current on its receivables

resulting in a net profit of nearly $1 million.141 From 2010 to 2012, the last year for

which the parties provided financial information, ICE recorded an overall net loss of

approximately $200,000 and operated at a loss in two of those three years.142

      The parties dispute the reasons for ICE‘s recent lack of profitability. Zutrau

blames it on, among other things, mismanagement, wasteful spending, and

overcompensation of Jansing and ICE employees, citing overall net increases in payroll,

fringe benefit, and travel and entertainment expenses.143 Jansing attributes the increases

in ICE‘s payroll and fringe expenses to its expanded staff, which has grown by three or

four employees since 2006 and currently stands at thirteen,144 and to ever increasing

138
      JX 375.
139
      Tr. 49 (Zutrau).
140
      JX 293 Ex. 5.1.
141
      Id.; see Tr. 539-40 (Jansing).
142
      JX 293 Ex. 5.1.
143
      See id.; Tr. 94-96, 106-09 (Zutrau).
144
      See Tr. 108, 318 (Zutrau); Tr. 449 (Jansing).

                                             29
healthcare costs.145 Jansing also dismisses as insignificant the travel and entertainment

expenses that Zutrau questions. Instead, he emphasizes that ICE‘s bottom line also has

suffered due to increased competition from Broadridge, which has forced ICE to pay for

and provide additional free services to its clients.146

       In her complaint, Zutrau challenges, among other things, a wide array of the

decisions Jansing made and actions he took in running the Company after her

termination, claiming they constituted breaches of his fiduciary duties.          To avoid

unnecessary repetition, I defer until the analysis portion of this Opinion many of the other

facts pertinent to the specific acts and decisions that Zutrau disputes.

                                8.     The New York Action

       In March of 2008, Zutrau sent a formal request to inspect books and records of

ICE. Following Jansing‘s refusal to comply with that request, Zutrau commenced a

books and records action against Jansing and the Company in the Supreme Court of the

State of New York for the County of Suffolk (the ―New York Court‖). On August 1,

2008, the New York Court ordered Jansing to produce ICE‘s responsive books and

records to Zutrau.147

       In September 2009, Zutrau filed another complaint against Jansing and ICE with

the New York Court, broadly asserting: (1) direct claims challenging her termination; and

(2) derivative claims based on numerous actions taken by Jansing in the course of

145
       Tr. 534-35.
146
       Id. at 449-54, 534-35.
147
       JX 140.

                                              30
running the Company (the ―New York Action‖).148 One of the direct claims Zutrau

brought against Jansing was for breach of an alleged oral agreement to employ her until

the Company could be sold.

      In October 2011, the New York Court issued an opinion on Jansing and ICE‘s

motion for summary judgment.149       In that opinion, the New York Court dismissed

Zutrau‘s derivative claims without prejudice, holding that they needed to be brought in a

separate action.150 Zutrau later reasserted those derivative claims and others in this

action. The New York Court also granted summary judgment in favor of Jansing on

Zutrau‘s breach of contract claim, based on the integration clause in the RSA.151

      The remaining claims in the New York Action were tried in July and September

2012. In its post-trial opinion, issued in March 2013, the New York Court entered

judgment against Zutrau on all but one of her remaining claims.152 The one claim on

which the court ruled in Zutrau‘s favor was a claim for $60,307 that remained in Zutrau‘s

accumulated capital account at ICE.153 In its opinion, the New York Court made several

other findings and rulings that are relevant to this action, including that the bonuses

Jansing received in the years following Zutrau‘s departure were not, as Zutrau claimed,

148
      JX 672.
149
      Zutrau v. Ice Sys., Inc., 2011 WL 5137152 (N.Y. Sup. Ct. Oct. 28, 2011).
150
      Id. at *4.
151
      Id. at *3-4.
152
      Zutrau v. Ice Sys., Inc., 2013 WL 1189213 (N.Y. Sup. Ct. Mar. 20, 2013).
153
      Id. at *8.

                                            31
disguised stockholder distributions as to which she was entitled to receive her pro rata

share.154 The New York Court further held that any challenges to the amounts of the

bonuses themselves would need to be pursued as derivative claims in this action.155 The

court also held that a pro rata share of the stockholder distributions that ICE actually did

make after Zutrau‘s termination had been credited properly to Zutrau‘s accumulated

capital account. As a result, the Court awarded to Zutrau as damages the approximately

$60,307 that remained in that account.156

                            9.      The Reverse Stock Split

       In December 2011, after the New York Court had dismissed the derivative claims

without prejudice and before the commencement of this action, Jansing retained Farrell

Fritz, P.C. as counsel to advise him regarding how to accomplish a reverse stock split.157

On January 13, 2012, Jansing, through counsel, engaged Duff & Phelps, LLC for the

purpose of ―estimating [the] Fair Value of 100 percent of the Shareholders‘ Equity of ICE

Systems as of a current date to be provided by [Farrell Fritz].‖158

       On June 11, 2012, after the filing of this action and shortly before his answer was

due, Jansing filed an amendment to ICE‘s Certificate of Incorporation (―COI‖) purporting

to effect a reverse stock split of all outstanding shares of the Company‘s common stock

154
       Id. at *6.
155
       Id. at *7.
156
       Id. at *6-8.
157
       JX 496.
158
       JX 497.

                                             32
(the ―Reverse Stock Split‖), thereby eliminating Zutrau‘s ownership interest in ICE.

Jansing relied on a Duff & Phelps report dated June 11, 2012 as the basis for valuing

Zutrau‘s 22% interest in the Company. Duff & Phelps estimated the fair market value of

100% of the equity in the Company as of June 5, 2012 as being $2,217,233.159 Thus, in

connection with the Reverse Stock Split, ICE valued Zutrau‘s approximately 22% interest

at $495,779, reflecting her pro rata share of the Duff & Phelps valuation with no

minority discount. ICE sent Zutrau a check for that amount, but she never deposited it.160

      Of relevance to this action, the New York Court, in its post-trial opinion, rejected

for lack of evidence an argument by Jansing that the $60,307 left in Zutrau‘s accumulated

capital account already had been incorporated into ICE‘s valuation of Zutrau‘s equity

interest for purposes of the Reverse Stock Split.161 On that basis, the Court awarded

Zutrau $60,307 in damages, notwithstanding the $495,779 that had been tendered to her

in connection with the Reverse Stock Split.

                              C.      Procedural History

      On April 25, 2012, Zutrau commenced this litigation by filing a verified complaint

against Jansing in which she effectively reasserted the derivative claims that had been

severed from the New York Action. Those claims challenged the manner in which

Jansing ran the Company following her termination. Zutrau subsequently amended her

complaint.

159
      JX 500 at 8.
160
      JX 501; Tr. 131 (Jansing).
161
      Zutrau, 2013 WL 1189213, at *8.

                                              33
       On June 19, 2012, following the Reverse Stock Split, Jansing moved to dismiss

Zutrau‘s amended complaint on the grounds that Zutrau lacked standing to pursue her

derivative claims because she no longer owned ICE stock. On August 3, 2012, Zutrau

filed a second amended and supplemental complaint that addressed the Reverse Stock

Split. The new pleading asserted derivative and direct claims for breach of fiduciary duty

and direct claims for failure to pay fair value for Zutrau‘s cashed-out stock under 8 Del.

C. § 155 and for equitable fraud and negligent misrepresentation.

       On September 21, 2012, Jansing moved to dismiss the second amended and

supplemental complaint for failure to state a claim and on res judicata and collateral

estoppel grounds.162 In a Memorandum Opinion issued on March 18, 2013, I held that

Jansing had failed to show that dismissal of any of the claims asserted by Zutrau was

warranted and denied Jansing‘s motion in its entirety.163

       On April 2, 2013, Jansing filed his answer to the second amended and

supplemental complaint.       In that pleading, Jansing also asserted two verified

counterclaims, the first of which he later withdrew. The remaining counterclaim sought a


162
       In his reply brief in support of the motion to dismiss, Jansing raised several
       additional arguments against Zutrau‘s equitable fraud and negligent
       misrepresentation claims, including that they constituted an impermissible
       ―bootstrap‖ of the breach of contract claim she asserted in the New York Action
       and ―face[d] serious laches and statute of limitations obstacles.‖ Def.‘s Reply Br.
       in Supp. of the Mot. to Dismiss Pl.‘s Second Am. Compl. 6-8. Because those
       arguments had not been addressed in Jansing‘s opening brief, however, I deemed
       them to be waived for purposes of his motion to dismiss. Zutrau v. Jansing, 2013
       WL 1092817, at *6 (Del. Ch. Mar. 18, 2013).
163
       Zutrau, 2013 WL 1092817, at *6.

                                            34
setoff of the $60,307 in damages awarded in the New York Action against any amount

awarded to Zutrau in connection with the Reverse Stock Split.

       On May 15, 2013, Zutrau filed her third amended and supplemental verified

complaint (the ―Complaint‖), adding claims challenging the amount of Jansing‘s

compensation.

       In a pre-trial conference held on July 25, 2013, the Court heard argument on two

motions to compel filed by Zutrau as well as a motion in limine by Jansing to exclude the

amended report of Zutrau‘s valuation expert, Roy D‘Souza. The Court ordered Jansing

to produce his personal tax returns in response to Zutrau‘s second motion to compel, but

reserved decision on the remaining motions and asked the parties to address any issues

that remained outstanding in post-trial briefing.

       From July 31 to August 2, 2013, I presided over a three-day trial in this action.

After extensive post-trial briefing, counsel presented their final arguments on November

21, 2013. This Opinion constitutes my post-trial findings of fact and conclusions of law

in this matter.

                              D.      Parties’ Contentions

       Zutrau asserts numerous claims against Jansing related to his conduct in running

the Company after her termination and his execution of the Reverse Stock Split. As to

Jansing‘s conduct in running the Company, Zutrau has asserted a derivative claim for

breach of fiduciary duty, challenging a broad array of Jansing‘s actions and decisions.

Specifically, Zutrau claims that Jansing breached his fiduciary duties by, among other

things, failing to replace her with someone who could provide competent financial

                                             35
oversight of the Company, paying unreasonable compensation to himself and his

employees, causing ICE to pay for his personal expenditures, and wasting ICE‘s

corporate assets.

       Regarding the Reverse Stock Split, Zutrau brought a direct claim for breach of

fiduciary duty, asserting that Jansing executed the Reverse Stock Split for the improper

purpose of depriving her of derivative standing, thereby rendering the Reverse Stock

Split invalid. Alternatively, Zutrau alleges that the Reverse Stock Split was executed at

an unfair and inadequate price, in breach of Jansing‘s fiduciary duties and in violation of

8 Del. C. § 155. Zutrau also argues that Jansing is liable for equitable fraud because he

previously had represented to her that she would retain her equity in ICE until the

Company could be sold, at which time she would share in the profits of the sale on a pro

rata basis.164 As a remedy for Jansing‘s alleged breaches of fiduciary duty and equitable

fraud, Zutrau seeks rescission of the Reverse Stock Split and dissolution of the Company.

Alternatively, Zutrau requests that the Court award money damages to her and to ICE as

compensation for Jansing‘s wrongful conduct.

       In his defense, Jansing contends that most of Zutrau‘s claims regarding his

running of ICE after her termination challenge disinterested business decisions and,

therefore, are protected by the business judgment rule and by the Company‘s exculpatory


164
       The Complaint characterizes Zutrau‘s fraud claim as being one for ―Equitable
       Fraud / Negligent Misrepresentation.‖ Compl. 22. Zutrau, however, made no
       reference to her claim for negligent misrepresentation at all in her post-trial briefs.
       Thus, she has waived that aspect of her fraud claim. Emerald P’rs v. Berlin, 726
       A.2d 1215, 1224 (Del. 1999) (―Issues not briefed are deemed waived.‖).

                                             36
charter provisions adopted pursuant to 8 Del. C. § 102(b)(7). For other decisions that

Zutrau challenges, Jansing alleges that he relied in good faith upon the advice of experts

and is thus shielded from liability under 8 Del. C. § 141(e). As to Zutrau‘s challenge to

his compensation, Jansing avers that the compensation he received at the Company was

reasonable, as confirmed by the analysis and report submitted by his compensation

expert. Jansing attempts to brush off Zutrau‘s remaining claims that he caused the

Company to pay for his personal expenditures as largely unsubstantiated and, in any

event, involving amounts that are de minimis.

       As to the Reverse Stock Split, Jansing claims that he initiated it as a means of

bringing closure to the contentious relationship between the parties and not to deprive

Zutrau of derivative standing. In that regard, Jansing emphasizes that he has not objected

to Zutrau litigating the derivative claims for the purpose of determining her pro rata

share of the value of those claims at the time of the Reverse Stock Split.                He

acknowledges that those claims could entitle Zutrau to additional consideration. Jansing

also contends that the Duff & Phelps report fairly valued the equity of the Company, has

not been rebutted effectively, and provided an appropriate basis for valuing Zutrau‘s

interest. In addition, Jansing urges this Court to reject Zutrau‘s claims for equitable fraud

because the facts are not as Zutrau alleges, Zutrau failed to prove the elements of

equitable fraud, and the fraud claim is barred by the statute of limitations and the doctrine

of laches.

       Jansing also asserts that the $60,307 left in Zutrau‘s accumulated capital account,

which the New York Court awarded to Zutrau as damages, already had been incorporated

                                             37
into ICE‘s valuation of Zutrau‘s equity interest for purposes of the Reverse Stock Split.

Thus, in a counterclaim, Jansing seeks a setoff of the $60,307 from any amount awarded

to Zutrau in connection with the Reverse Stock Split.165

                                       II.     ANALYSIS

       In this analysis, I first consider Zutrau‘s claim against Jansing for equitable fraud.

I then address Zutrau‘s derivative claim for breach of fiduciary duty based on Jansing‘s

conduct in running the Company following her termination. Next, I examine Zutrau‘s

claims challenging the validity and fairness of the Reverse Stock Split. Finally, I address

the appropriate relief for any wrong Zutrau has established and Jansing‘s counterclaim

for a monetary setoff from any amount awarded to Zutrau in connection with the Reverse

Stock Split.

                                  A.         Equitable Fraud

       In Delaware, the elements of common law fraud are as follows: ―(1) a false

representation, usually one of fact, made by the defendant; (2) the defendant‘s knowledge

or belief that the representation was false, or was made with reckless indifference to the

truth; (3) an intent to induce the plaintiff to act or to refrain from acting; (4) the plaintiff's

action or inaction taken in justifiable reliance upon the representation; and (5) damage to




165
       In response, Zutrau has alleged that, but for improper and self-interested
       accounting by Jansing and his accountant, her accumulated capital account would
       have contained an additional $118,461. Thus, Zutrau denies that Jansing is
       entitled to deduct the New York Court‘s award of $60,307 from any amounts that
       she is owed in connection with the Reverse Stock Split.

                                                38
the plaintiff as a result of such reliance.‖166 The elements of equitable fraud are the same

as those of common law fraud, except that ―there is no requirement that the defendant

have known or believed its statement to be false or to have made the statement in reckless

disregard of the truth.‖167 In contrast to common law fraud, however, ―equitable fraud

can only be applied in those cases in which one of the two fundamental sources of equity

jurisdiction exist: (1) an equitable right founded upon a special relationship over which

equity takes jurisdiction, or (2) where equity affords its special remedies, e.g., ‗rescission,

or cancellation; where it is sought to reform a contract . . . or to have a constructive trust

decreed.‘‖168

       Zutrau alleges that Jansing committed equitable fraud by making false promises to

her in conversations between the two in 2001, when he offered her equity in ICE, and in

2004, around the time she received that equity. According to Zutrau, in 2001, Jansing

promised her that if she would dedicate herself to rehabilitating the Company until it was

profitable and could be sold, he would grant her equity and, together, the parties would:

(1) benefit from their efforts in line with the success of the Company; and (2) remain

stockholders of the Company until the sale of ICE to a third party, at which point they

would share in the sale proceeds according to their respective percentages of equity



166
       Zirn v. VLI Corp., 681 A.2d 1050, 1060 (Del. 1996) (citing Gaffin v. Teledyne,
       Inc., 611 A.2d 467, 472 (Del. 1992)) (emphasis omitted).
167
       Id. (citing Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983)).
168
       U.S. W., Inc. v. Time Warner Inc., 1996 WL 307445, at *26 (Del. Ch. June 6,
       1996) (citing 37 Am. Jur. 2d Fraud and Deceit § 220 (1968)).

                                              39
ownership. Jansing allegedly reiterated those two promises in 2004, when Zutrau was

granted stock in the Company.

       Zutrau avers that those promises were later broken and proven false when Jansing

effected the purported Reverse Stock Split in June of 2012 and froze out her shares,

because after that she could no longer benefit from the success of the Company through

distributions or otherwise and would be unable to share in the proceeds of a sale of the

Company to a third party. Zutrau claims that she relied to her detriment on Jansing‘s

false promises by investing herself completely in the Company and foregoing other

opportunities. On that basis, she contends that Jansing is liable for equitable fraud for the

false promises that he made to her.

       Jansing contests the factual underpinnings of Zutrau‘s equitable fraud claim,

denying, for example, that he made the promises that she claims he did. Even if Jansing

did make those promises, however, Zutrau has failed to prove a claim of equitable fraud.

As an initial matter, Zutrau‘s fraud claim appears to be an impermissible attempt to

―bootstrap‖ the breach of contract claim she asserted in the New York Action. There,

Zutrau alleged that she and Jansing had entered into an oral agreement based on a

promise he made to her in 2001, and reiterated in 2004, that he would employ her for as

long as she owned stock in ICE.169 The New York Court ultimately dismissed Zutrau‘s

breach of contract claim based on the integration clause in the RSA.170 Based on the


169
       Zutrau v. Ice Sys., Inc., 2011 WL 5137152, at *3 (N.Y. Sup. Ct. Oct. 28, 2011).
170
       Id. at *4.

                                             40
timing and nature of the promises that Zutrau challenges in her equitable fraud claim

here, it is reasonable to infer that they were part of the same alleged oral agreement that

she asserted in the New York Action.171 The law is clear, however, that a party who has

asserted a breach of contract claim may not ―bootstrap‖ that claim into a claim of fraud,

merely by asserting that the promises underlying the contract were made fraudulently. 172

      Even if, however, the representations at issue here are treated as distinct from

those underlying the breach of contract claim asserted in the New York Action, Zutrau

still has failed to prove a claim of equitable fraud. Specifically, Zutrau has failed to

prove that Jansing made a false representation that would support a fraud claim because

the representations that she challenges were exclusively promises as to future conduct,

and Zutrau has neither claimed nor submitted any convincing evidence indicating that

Jansing did not intend to perform those promises when they were made.173




171
      In any event, Zutrau has not asserted a breach of contract claim in this action.
172
      See Iotex Commc’ns, Inc. v. Defries, 1998 WL 914265, at *6 (Del. Ch. Dec. 21,
      1998) (―[A] claim for breach of contract . . . . cannot be ‗bootstrapped‘ into a fraud
      claim merely by adding the words ‗fraudulently induced‘ or alleging that the
      contracting parties never intended to perform.‖). See also Grunstein v. Silva, 2009
      WL 4698541, at *6 (Del. Ch. Dec. 8, 2009); BAE Sys. N. Am. Inc. v. Lockheed
      Martin Corp., 2004 WL 1739522, at *8 (Del. Ch. Aug. 3, 2004).
173
      For purposes of this analysis, I assume without deciding that Zutrau‘s equitable
      fraud claim could qualify as being within one of the two sources of equity
      jurisdiction discussed supra in the text accompanying note 168.

                                            41
       ―To support a claim for fraud, the putative misrepresentation must concern either a

past or contemporaneous fact or a future event that falsely implies an existing fact.‖174 In

general, therefore, ―statements which are merely promissory in nature and expressions as

to what will happen in the future are not actionable as fraud.‖175 As an exception to this

general rule, Courts have held that an unfulfilled promise of future performance can

support a claim for fraud if, ―at the time the promise was made, the speaker had no

intention of performing.‖176 That is because a promise is regarded as a representation of

a promisor‘s intention or state of mind, and a ―knowing misrepresentation of one‘s

intention or state of mind is a misrepresentation of an existing fact.‖177         Thus, a

promisor‘s intention not to perform at the time a promise is made is a necessary factual

predicate to that promise qualifying as a false representation for purposes of fraud. In

that regard, I also note that, although scienter is not an element of equitable fraud, a




174
       Winner Acceptance Corp. v. Return on Capital Corp., 2008 WL 5352063, at *7
       (Del. Ch. Dec. 23, 2008) (citing Berdel, Inc. v. Berman Real Estate Mgmt., Inc.,
       1997 WL 793088, at *8 (Del. Ch. Dec. 15, 1997)).
175
       Grunstein, 2009 WL 4698541, at *13 (quoting Outdoor Techs., Inc. v. Allfirst
       Fin., Inc., 2001 WL 541472, at *4 (Del. Super. Apr. 12, 2001)) (internal quotation
       marks omitted).
176
       Id. (citing Winner Acceptance Corp., 2008 WL 5352063, at *7).
177
       Id. (quoting Stevanov v. O’Connor, 2009 WL 1059640, at *12 n.66 (Del. Ch. Apr.
       21, 2009)).

                                            42
plaintiff alleging equitable fraud nonetheless bears the burden of demonstrating that the

defendant made an actionable false representation.178

      Here, there can be no genuine dispute that the representations Zutrau cites in

support of her equitable fraud claim were promises of future conduct. Indeed, in her own

post-trial briefing, Zutrau characterizes those representations as promises.179 Moreover,

the promises related to future conduct by Jansing because, according to Zutrau, they

represented commitments by him to share the success of the Company with her over time

and to allow her to remain an ICE stockholder until the Company could be sold to a third

party at some future date.     Thus, in order for those promises to qualify as false

representations for purposes of fraud, including equitable fraud, Jansing must have made

those promises with the contemporaneous intent not to perform them.

      Zutrau, however, adduced no evidence that Jansing did not intend to keep the

disputed promises at the time that he made them. Indeed, when she was asked about this

subject at trial, Zutrau admitted that she was not claiming that Jansing never intended to

keep his alleged promises and that she did not see evidence of an intent by him to break




178
      Cf. Winner Acceptance Corp. v. Return on Capital Corp., 2008 WL 5352063, at
      *9 n.56 (Del. Ch. Dec. 23, 2008) (Court‘s holding dealt only with a common law
      fraud claim).
179
      See Pl.‘s Opening Br. 50 (―Jansing committed equitable fraud by falsely promising
      Ms. Zutrau that the parties would jointly (i) benefit from ICE‘s success through
      distributions from its revenue stream once it became profitable, and (ii) remain
      stockholders of the company until the sale of ICE to a third party . . . .‖) (emphasis
      added).

                                            43
those promises until after her termination.180     Moreover, the evidence of Jansing‘s

conduct before he terminated Zutrau comports with an original intent by Jansing to keep

the alleged promises. In that regard, I note that between 2001 and 2007, Jansing granted

Zutrau equity, paid her a generous and steadily increasing salary, and promoted her on

several occasions. Although Zutrau claims that Jansing ultimately violated the alleged

promises by executing the Reverse Stock Split, ―a party‘s failure to keep a promise does

not prove the promise was false when made.‖181

       Thus, Zutrau has failed to prove that when Jansing made the promises she

challenges as fraudulent, he intended not to keep those promises. The alleged promises,

therefore, are not actionable false representations for purposes of fraud. On that basis, I

find in favor of Jansing and against Zutrau on her claim for equitable fraud.

         B.      Standards Applicable to Breach of Fiduciary Duty Claims

       Zutrau has asserted both direct and derivative breach of fiduciary duty claims

against Jansing, as ICE‘s sole director.     The starting point in analyzing breach of

fiduciary duty claims ―is with the well-established presumption of the business judgment

rule, which reflects and promotes the role of the board of directors, and not the Court, as

the appropriate body to manage the business and affairs of the corporation.‖182 The

business judgment rule ―is a presumption that in making a business decision the directors

180
       Tr. 178-79 (Zutrau).
181
       Grunstein, 2009 WL 4698541, at *13 (quoting Berdel, Inc. v. Berman Real Estate
       Mgmt., Inc., 1997 WL 793088, at *8 (Del. Ch. Dec. 15, 1997)).
182
       Wayne Cty. Employees’ Ret. Sys. v. Corti, 2009 WL 2219260, at *10 (Del. Ch.
       July 24, 2009), aff’d, 996 A.2d 795 (Del. 2010) (citing 8 Del. C. § 141(a)).

                                            44
of a corporation acted on an informed basis, in good faith and in the honest belief that the

action taken was in the best interests of the company.‖183 Where the business judgment

presumption is applicable, a director-approved decision will be upheld unless it cannot be

―attributed to any rational business purpose.‖184      The burden is on the plaintiff to

establish facts rebutting the presumption by ―showing that the board breached either its

fiduciary duty of due care or its fiduciary duty of loyalty.‖185 If that showing is made,

then the burden shifts to the defendant ―to demonstrate that the transaction complained of

was entirely fair to the stockholders.‖186

       The fiduciary duty of care is a process-oriented duty that requires the directors of a

Delaware corporation to ―consider all material information reasonably available in

making business decisions.‖187 Duty of care violations are actionable only if the directors

acted with gross negligence, which is ―conduct that constitutes reckless indifference or

actions that are without the bounds of reason.‖188




183
       Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
184
       In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (Del. 2006) (quoting Sinclair
       Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971)).
185
       Ryan v. Gifford, 918 A.2d 341, 357 (Del. Ch. 2007).
186
       Williams v. Geier, 671 A.2d 1368, 1378 (Del. 1996).
187
       In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 747 (Del. Ch. 2005), aff’d, 906
       A.2d 27 (Del. 2006) (quoting Brehm v. Eisner, 746 A.2d 244, 259 (Del. 2000))
       (internal quotation marks omitted).
188
       McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008).

                                             45
       The fiduciary duty of loyalty, in essence, ―mandates that the best interest of the

corporation and its shareholders takes precedence over any interest possessed by a

director, officer or controlling shareholder and not shared by the stockholders

generally.‖189 Classic examples that implicate the duty of loyalty are ―when a fiduciary

either appears on both sides of a transaction or receives a personal benefit not shared by

all shareholders.‖190 The duty of loyalty also precludes directors from acting in bad faith,

which may be shown, among other examples that might be cited, ―where the fiduciary

intentionally acts with a purpose other than that of advancing the best interests of the

corporation, where the fiduciary acts with the intent to violate applicable positive law, or

where the fiduciary intentionally fails to act in the face of a known duty to act,

demonstrating a conscious disregard for his duties.‖191

       If a plaintiff fails to rebut the business judgment presumption by showing a breach

of the duties of care or loyalty, she will not be entitled to any remedy unless the

challenged transaction constitutes waste.192 To recover on a claim of waste, a plaintiff

must prove that the relevant exchange was ―so one sided that no business person of

ordinary, sound judgment could conclude that the corporation has received adequate


189
       Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993).
190
       In re Walt Disney Co. Deriv. Litig., 907 A.2d at 749 (citing Cede & Co. v.
       Technicolor, Inc., 634 A.2d at 362).
191
       Stone v. Ritter, 911 A.2d 362, 369 (Del. 2006) (citing In re Walt Disney Co. Deriv.
       Litig., 906 A.2d 27, 67 (Del. 2006)).
192
       In re Walt Disney Co. Deriv. Litig., 906 A.2d at 73-74 (citing In re J.P. Stevens &
       Co. S’holders Litig., 542 A.2d 770, 780 (Del. Ch. 1988)).

                                            46
consideration.‖193 Thus, a claim of waste will lie ―only in the rare, unconscionable case

where directors irrationally squander or give away corporate assets.‖194

       I also note that ICE‘s COI includes an exculpatory provision adopted pursuant to 8

Del. C. § 102(b)(7). Such a provision prohibits the recovery of monetary damages from

directors for a successful shareholder claim that is based solely upon establishing a

violation of the duty of care.195 A provision adopted under Section 102(b)(7) does not,

however, eliminate a director‘s fiduciary duty of care, as a court still may grant injunctive

relief for a violation of that duty.196

                C.       Derivative Claims for Breach of Fiduciary Duty

       In her derivative claims against Jansing for breach of his fiduciary duties, Zutrau

challenges a wide array of decisions he made and actions he took while running the

Company after her termination.            As a threshold matter, I note that one possible

consequence of the Reverse Stock Split, assuming it was valid, would be that Zutrau

technically would lack standing to bring her derivative claims on behalf of ICE because

she no longer would qualify as an ICE stockholder.197          Under those circumstances,


193
       Id. (quoting Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000)) (internal quotations
       omitted).
194
       Id.
195
       Emerald P’rs v. Berlin, 787 A.2d 85, 91 (Del. 2001).
196
       In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 752 (Del. Ch. 2005), aff’d, 906
       A.2d 27 (Del. 2006) (citing Malpiede v. Townson, 780 A.2d 1075, 1095 (Del.
       2001)).
197
       See 8 Del. C. § 327; Ct. Ch. R. 23.1; Parfi Hldg. AB v. Mirror Image Internet,
       Inc., 954 A.2d 911, 935 (Del. Ch. 2008) (―a plaintiff, bringing a derivative suit on
                                               47
however, the derivative claims would qualify as corporate assets which would be relevant

to determining the fair value of Zutrau‘s shares at the time of the Reverse Stock Split.198

In addition to challenging the validity of the Reverse Stock Split, Zutrau questions, in the

alternative, the adequacy of the consideration she received in the Reverse Stock Split.

       Zutrau‘s standing to pursue her derivative claims, however, is not at issue in this

case. Jansing has waived any objection to Zutrau litigating her derivative claims in the

context of valuing her interest in ICE in connection with the Reverse Stock Split.199

Thus, Jansing‘s liability for any derivative claims that existed at the time of the Reverse

Stock Split will be relevant to assessing the damages in this action, whether or not the

Reverse Stock Split ultimately is upheld as a valid corporate action. On that premise, I

next evaluate the merits of the derivative claims Zutrau has asserted against Jansing.

       Zutrau‘s derivative breach of fiduciary duty claims fall into several different

categories.   Specifically, Zutrau alleges that Jansing breached his fiduciary duties by

engaging in the following five categories of misconduct: (1) failing to replace Zutrau


       behalf of a corporation, must be a stockholder of the corporation at the time he
       commences the suit and must maintain that status throughout the course of the
       litigation.‖) (quoting Heit v. Tenneco, Inc., 319 F. Supp. 884, 886 (D. Del. 1970))
       (internal quotation marks omitted); Lewis v. Anderson, 477 A.2d 1040, 1049 (Del.
       1984) (―A plaintiff who ceases to be a shareholder, whether by reason of a merger
       or for any other reason, loses standing to continue a derivative suit.‖).
198
       See Bomarko, Inc. v. Int’l Telecharge, Inc., 1994 WL 198726, at *3 (Del. Ch. May
       16, 1994) (holding, in the appraisal context, that derivative ―breach of fiduciary
       duty claims . . . are corporate assets that may be included in the determination of
       fair value.‖) (citing Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1142-44 (Del.
       1989)).
199
       Def.‘s Opening Post-trial Br. 58.

                                            48
with anyone who could provide competent financial oversight of the Company; (2)

paying himself unreasonable compensation; (3) causing ICE to pay for his personal

expenditures; (4) paying unreasonable compensation, fringe benefits, and remuneration to

ICE employees; and (5) wasting ICE‘s assets. I address these claims in approximately

reverse order. First, I examine the fourth and fifth categories of alleged misconduct, for

which Zutrau does not allege direct self-dealing by Jansing. Then, I turn to the second

and third categories of alleged misconduct, which do involve self-dealing by Jansing.

Finally, I address the first category of alleged wrongdoing. Central to the latter claim is

Zutrau‘s assertion that Jansing terminated her and failed to appoint an adequate

replacement in order to facilitate all of his other breaches of fiduciary duty. Because that

claim depends to some extent on the strength of her more specific claims, I find it helpful

to consider it last.

      1.       Zutrau’s claim that Jansing paid unreasonable compensation to ICE
                                            employees

           Zutrau alleges that Jansing breached his fiduciary duties by paying unreasonable

compensation to ICE employees following her termination. Among other things, she

complains that Jansing began paying larger salaries and bonuses to certain employees.

Zutrau‘s former co-worker, Berg, who received a bonus of $7,500 in 2006,200 began

receiving larger annual bonuses thereafter including a bonus of $30,000 in 2011. 201 In

addition, after Zutrau‘s termination, Henriksen and one other ICE employee who

200
           JX 329 at ICE010119.
201
           JX 409.

                                              49
previously had received only minor bonuses began receiving annual bonuses in the range

of $20,000-$25,000.202    Zutrau also complains that ICE has no formal policy on

employee bonuses and that Jansing determines bonus awards solely through the exercise

of his discretion.

       In addition to challenging employee bonuses, Zutrau disputes various fringe

benefits that Jansing has awarded to ICE employees. In that regard, Zutrau objects to

ICE‘s payment of vehicle expenses for Lotspeich and another sales employee,203 as well

as social club expenses for Lotspeich.204 Zutrau also complains that Jansing has caused

ICE to award employees holiday gifts that have included $500 gift cards and i-Pads.205 In

general, she argues that Jansing‘s lavish and excessive spending on Company employees

for increases in ICE‘s payroll and fringe expenses have caused ICE‘s bottom line to

suffer.206   Similarly, to the extent that ICE‘s increased fringe expenses are due to

increased healthcare costs, Zutrau contends Jansing should have reduced the healthcare

coverage that ICE offers its employees.



202
       Compare JX 329 at ICE010126, with JX 409.
203
       Jansing Del. Dep. 141-43.
204
       Jansing N.Y. Dep., vol. 2, 412-13; JX 372.
205
       Henriksen Del. Dep. 101-02; Pollino Del. Dep. 28-30.
206
       Zutrau also has alleged that certain of the perks and benefits given to ICE
       employees were not accounted for properly for tax purposes. Pl.‘s Opening Br.
       24-25, 40-41. Zutrau did not provide any expert testimony or cite to any tax laws
       or regulations in support of that argument, however. Thus, I reject Zutrau‘s
       allegation that the disputed tax treatment was improper for lack of proof.

                                           50
       As the sole director of ICE, Jansing‘s decisions regarding what level of

compensation and benefits to provide to ICE employees are entitled to the presumption of

the business judgment rule.     Thus, Zutrau bears the burden of demonstrating that

Jansing‘s decisions breached his fiduciary duties of loyalty or care, or constituted waste.

She has failed to do so.

       As to the duty of loyalty, Zutrau argues that Jansing‘s decisions regarding

employee compensation were made in bad faith and were indirectly self-interested. She

alleges that Jansing intentionally overpaid ICE employees in order to deprive Zutrau of

any return on her investment, ostensibly so that she would be forced to sell her shares to

him at an unfair price.207 The only evidence that Zutrau offers to support this theory is

her testimony that, in the past, Jansing had interfered with her negotiations with

Computershare and offered her a lowball price of $150,000 for her shares, which Jansing

denies. Even if I accept Zutrau‘s testimony on the Computershare negotiations, however,

it is insufficient to support her theory that Jansing intentionally overpaid ICE employees

to deprive her of a return. At the time of the challenged compensation decisions, Jansing

was the majority stockholder of ICE, owning 78% of its shares compared to Zutrau‘s

22% equity stake.      Thus, any unnecessary reduction in ICE‘s profits would have


207
       At various points in her testimony and in her post-trial briefs, Zutrau also
       insinuates that Jansing may have overpaid ICE employees in order to elicit
       favorable testimony from them in the New York Action. Tr. 319-20 (Zutrau);
       Pl.‘s Opening Br. 26. In support of this accusation, Zutrau cites only the fact that
       ICE‘s overall payroll and fringe expenses increased during the same timeframe as
       the New York Action. This minimal evidence, however, fails to support a
       reasonable inference that Jansing acted for the purposes Zutrau alleges.

                                            51
negatively impacted Jansing‘s return, and the value of his stake in the Company, nearly

four times as much as it would Zutrau‘s. Under these circumstances, I find that, more

likely than not, Jansing would not intentionally have overpaid ICE employees in order to

diminish the value of the Company and place additional pressure on Zutrau to sell her

shares. Thus, Zutrau has failed to demonstrate that Jansing‘s employee compensation

decisions were a breach of his duty of loyalty.

       Regarding the duty of care, the only legally cognizable claim that Zutrau asserted

with respect to Jansing‘s employee compensation decisions challenged his process for

determining employee bonuses.208 Jansing described the criteria he used to determine

whether to give employee bonuses as including: ―[p]erformance; attitude; behavior;

contributions . . . on a professional level, on a business level. You know, just generally

their contribution from a performance standpoint.‖209 When asked how he measured

performance, and whether he relied on any objective factors to do so, Jansing answered:

―[n]o, there are no real – there‘s no policy, and I don‘t have anything written, . . . it‘s just

generally I go from year to year. And I look back on the year and make a determination

based on what‘s transpired and work off that.‖210 Zutrau asserts that the relatively


208
       Zutrau generally averred that the level of compensation and benefits Jansing
       provided to ICE employees was excessive and not in the economic best interests
       of the Company. As this Court previously has noted, however, ―merely alleging
       that Defendants made poor business decisions does not rebut the business
       judgment rule or state a claim for breach of the duty of care.‖ TVI Corp. v.
       Gallagher, 2013 WL 5809271, at *13 (Del. Ch. Oct. 28, 2013).
209
       Jansing Del. Dep. 164.
210
       Id.

                                              52
imprecise and subjective process Jansing used for making bonus determinations and the

lack of a formal policy amounted to a breach of his duty of care.

       As previously noted, to demonstrate a breach of the duty of care, a plaintiff must

demonstrate that a director defendant was grossly negligent in, for example, failing to

inform himself of reasonably available material information before making a challenged

corporate decision.   Delaware courts have long recognized that there is ―no single

blueprint‖211 for satisfying the duty of care and that ―[e]xactly what the law requires

varies according to the nature and importance of the considered transaction.‖ 212 For a

micro-cap company such as ICE, which employs only thirteen people, I do not consider it

unreasonable, and certainly not grossly negligent, for the chief executive to base annual

employee bonuses upon his qualitative assessment of each employee‘s performance,

attitude, behavior, and professional contributions for the preceding year. The mere lack

of a formal written policy does not render such a decision-making process unreasonable.

For these reasons, Zutrau has failed to prove her claim that Jansing breached his fiduciary

duty of care in connection with awarding employee bonuses after Zutrau was terminated.

       Finally, I hold that Zutrau has not shown that the compensation and benefits

Jansing awarded to ICE employees constituted corporate waste. There was a significant

increase in aggregate payroll and fringe benefit expenses at ICE between 2006 and 2012,


211
       Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (Del. 1989).
212
       Blackmore P’rs, L.P. v. Link Energy LLC, 2005 WL 2709639, at *8 (Del. Ch. Oct.
       14, 2005) (citing Citron v. Steego Corp., 1988 WL 94738 (Del. Ch. Sept. 9,
       1988)).

                                            53
although the precise magnitude of that increase is disputed. Jansing credibly testified,

however, that a significant portion of that increase was due to the addition of new staff

and increasing healthcare costs. Those types of standard operating costs associated with

running a business almost by definition do not qualify as waste. Nevertheless, Zutrau

also complains about specific examples of what she considers to be lavish and excessive

spending, including ICE making employee vehicle payments, paying employee social

club dues, and giving employees holiday gifts.        But, each of these categories of

expenditures can be attributed to a rational business purpose, including, respectively,

enabling ICE salespeople to travel to conferences and visit prospective clients, providing

an environment for ICE salespeople to meet with prospective clients, and improving

employee morale and loyalty. None of these expenditures comes close to qualifying as

―irrationally squander[ing] or giv[ing] away corporate assets,‖213 as would be required to

establish a claim for waste.

       Thus, Zutrau has failed to prove that Jansing‘s decisions regarding employee

compensation breached his fiduciary duties. I next consider Zutrau‘s claim that Jansing

wasted ICE‘s corporate assets through various other, non-compensation related

expenditures.

         2.      Zutrau’s claim that Jansing wasted ICE’s corporate assets

       As previously noted, the traditional test for waste is whether the disputed

exchange was ―so one sided that no business person of ordinary, sound judgment could


213
       Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000).

                                           54
conclude that the corporation has received adequate consideration.‖214 This stringent

standard ―is a corollary of the proposition that where business judgment presumptions are

applicable, the board‘s decision will be upheld unless it cannot be ‗attributed to any

rational business purpose.‘‖215

       Zutrau challenges as wasteful numerous actions and decisions Jansing made while

running the Company from 2007 to 2012. Among other things, Zutrau takes issue with

Jansing‘s decision to upgrade ICE‘s Sage accounting software, his making of a loan on

behalf of ICE to a business acquaintance, his alleged overpayment of vendors, and other

miscellaneous expenditures that he caused ICE to incur. None of these criticisms suffices

to prove a waste claim.

       In 2007, after the Company had experienced several technical malfunctions related

to its Sage accounting software, Jansing, on the advice of outside consultants, caused ICE

to pay for the system to be upgraded.       The upgrades and related training cost the

Company approximately $60,000.216 Zutrau alleges that she was able to use the software

effectively before the upgrades and that acquiring them was a waste of ICE‘s corporate

assets.217 Because the record shows that ICE experienced disruptive malfunctions of the

Sage system, including some during Zutrau‘s tenure and that Jansing relied on an outside


214
       In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (quoting Brehm v. Eisner,
       746 A.2d at 263) (internal quotation marks omitted).
215
       Id. (quoting Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971)).
216
       Tr. 532 (Jansing).
217
       Tr. 102-05 (Zutrau).

                                           55
consultant in responding to those problems, I find that the upgrades had a rational

business purpose and do not constitute waste.

      As to the loan made on behalf of ICE to a business acquaintance, sometime in

2009, Jansing made a phone call to Ray Unger, the President of Accutech, an ICE

business partner. In that phone call, Unger revealed that he did not expect his company

to be able to make payroll the following day.218 Jansing responded by offering Unger a

loan from ICE, which Unger accepted. The loan, executed that day, was for $200,000; it

was unsecured and had no specified repayment date.219 Zutrau challenges the loan as

irrational and a waste of ICE‘s resources. The loan, however, was repaid with interest.

Moreover, Jansing credibly testified that part of his reason for making the loan was his

concern that if Accutech failed, it would negatively impact ICE‘s business.220 In those

circumstances, I find that the loan was not so one-sided as to be irrational, and did not

amount to waste.

      Zutrau also claims that Jansing wastefully caused ICE to overpay certain vendors.

Specifically, she asserts that he over-estimated amounts owing to a firm known as

Infovisa, and caused ICE to pay them $32,000 instead of $23,000, an alleged

overpayment of $9,000. She also avers that, in 2009, Jansing caused ICE to overpay

vendor Commerce Clearing House (―CCH‖) by $57,000, paying more than double what



218
      Tr. 540 (Jansing).
219
      Id. at 541-42.
220
      Id. at 542.

                                           56
contractually was required. Zutrau, however, has offered no competent evidence in

support of her allegations that these expenditures meet the stringent test for waste. As to

Infovisa, she merely has compared the amounts that company charged during her tenure

at ICE with what it charged in later years. For her claim that Jansing overpaid CCH,

Zutrau relies almost exclusively on her own deposition testimony. 221 Jansing offered

undisputed testimony that ICE needed to increase the services it obtained from vendors

such as CCH sometime after Zutrau left to meet competition from Broadridge.222 Zutrau

asserts that, even so, ICE was overpaying for CCH‘s services. But, that allegation is

insufficient to support a waste claim for which a claimant must show that virtually no

consideration was received in the relevant exchange. Thus, Zutrau failed to establish

waste as to Jansing‘s alleged overpayment of vendors.

       Finally, Zutrau challenges as wasteful a large number of miscellaneous

expenditures, including, but not limited to, spending on company outings for ICE

employees, office supplies, and an apparently large supply of gummy bear snacks for the

office. Having reviewed the record and considered the briefing and arguments of both

sides, I conclude that none of Zutrau‘s complaints about these miscellaneous

expenditures provide a basis for a finding of waste.




221
       See Pl.‘s Opening Br. 24. In the circumstances of Zutrau‘s limited knowledge as
       to the rationale for payments after her termination, the value of her testimony on
       this issue is limited.
222
       See Tr. 452-54.

                                            57
      3.       Zutrau’s claim that Jansing paid himself unreasonable compensation

           Zutrau alleges that Jansing also breached his fiduciary duties by paying himself

unreasonable bonuses from ICE during the six years from 2007 to 2012. It is uncontested

that, during that timeframe, Jansing was responsible for determining his own

compensation at ICE, as he had been before Zutrau‘s termination. In each of the years in

question, Jansing earned a base salary of $200,000. He also awarded himself a bonus of

over $100,000 in five of those years. Specifically, the bonus income Jansing received

from ICE is as follows: $432,000 in 2007; no bonus in 2008; $275,000 in 2009; $172,000

in 2010; $272,866 in 2011; and $180,172 in 2012. Thus, from 2007 to 2012, Jansing

received, in the aggregate, approximately $1.3 million in bonus compensation. His total

compensation from both salary and bonuses was approximately $2.5 million during that

period.

           ―Like any other interested transaction, directoral self-compensation decisions lie

outside the business judgment rule‘s presumptive protection, so that, where properly

challenged, the receipt of self-determined benefits is subject to an affirmative showing

that the compensation arrangements are fair to the corporation.‖223 Thus, ―self-interested

compensation decisions made without independent protections are subject to the same

entire fairness review as any other interested transaction.‖224 Under this heightened




223
           Telxon Corp. v. Meyerson, 802 A.2d 257, 265 (Del. 2002).
224
           Valeant Pharm. Int’l v. Jerney, 921 A.2d 732, 745 (Del. Ch. 2007).

                                               58
standard of review, the defendant must demonstrate to the court‘s satisfaction and subject

to its exacting scrutiny that the challenged transaction is entirely fair to stockholders. 225

       The concept of entire fairness has two basic components: fair dealing and fair

price.226   Fair dealing ―concerns how the board action was initiated, structured,

negotiated, and timed.‖227        Fair price ―relates to the economic and financial

considerations of the [transaction.]‖228      The two aspects of entire fairness are not

independent, however. Rather, ―the fair dealing prong informs the court as to the fairness

of the price obtained through the process. The court does not focus on the components

individually, but determines the entire fairness based on all aspects of the entire

transaction.‖229

                                    a.       Fair dealing

       The only record evidence on the process utilized by Jansing to award himself

bonuses are his answers to a handful of questions posed at depositions in the New York

Action and in this action.       Based on that limited evidence, Jansing has failed to

demonstrate that he undertook any meaningful process to ensure that the amount of his

bonus awards would be reasonable and fair to the Company or its minority stockholder.


225
       See Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 42 n.9 (Del.
       1994); Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993).
226
       Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983).
227
       In re Digex Inc. S’holders Litig., 789 A.2d 1176, 1207 (Del. Ch. 2000).
228
       Weinberger v. UOP, Inc., 457 A.2d at 711.
229
       Valeant Pharm. Int’l v. Jerney, 921 A.2d at 746.

                                               59
       On March 21, 2011, in his deposition in the New York Action, Jansing was asked

how he determined his annual bonus for 2010. He answered as follows:

              [T]he way that we do our year end financial management . . .
              is we try to pay as many bills as we can, try to clear up as
              much as we possibly can, get as much money as we possibly
              can, pay bonuses to employees, try to legitimately come up
              with expenses for the business, and after that, if there's money
              left over, . . . I will take a bonus. So I wait until everything
              else is accomplished until I determine what my bonus is.230

When Jansing was pressed further on how he determined the amount of any bonus he

received, he replied ―I just take whatever is . . . appropriate at that point. There is no real

formula or process.‖231

       On April 29, 2013, in Jansing‘s deposition in this action, the following exchange

occurred during questioning as to his 2012 bonus:

              Q.     Do you think it‘s appropriate to give yourself a six-
                     figure bonus when ICE lost money?

              A.     Yes.

              Q.     Why?

              A.     I thought we did a great job as a company, and I was
                     responsible for its operations. And this was all during a
                     time when we were going through litigation and were
                     distracted, and we still managed to do a lot of good
                     things. And, you know, as far as – you‘re asking me
                     about my bonus and employees‘ bonuses or just mine?

              Q.     Just right now asking about yours.


230
       Jansing N.Y. Dep. 317.
231
       Id. at 318 (emphasis added).

                                              60
              A.     Okay. If I could have, I would have paid myself more.

              Q.     Why didn't you?

              A.     I just decided that was the amount that I would take.
                     Whatever that amount was.232

       Jansing has submitted no evidence of any independent review of his bonus

determinations, and has not identified any objective criteria, formula, or procedure used

to ensure that the amount of his bonuses was reasonable. Rather, his statements under

oath indicate that he merely waited to see if the Company had cash left over at the end of

the year, without regard to whether the Company had turned a profit or to the rights of the

minority stockholder, Zutrau, and, if there was cash left over, he would award himself

some discretionary amount as a bonus, on a seemingly arbitrary basis. The process that

Jansing employed lacks any semblance of fairness.

       In defense of his method for determining his bonuses, Jansing makes two

arguments, neither of which is persuasive.       First, Jansing asserts that it would be

unreasonable to expect a Company with ICE‘s size and ownership structure to use an

independent compensation committee. Second, Jansing contends that the procedural

fairness of his bonus determinations for the years in question is supported by the fact he

never has had a formal process for determining the amount of his bonuses, including

during Zutrau‘s tenure with the Company.

       The first argument is a red herring. Even if it would be unreasonable to expect a

Company such as ICE to use an independent compensation committee, that would not

232
       Jansing Del. Dep. 196-97.

                                            61
excuse Jansing‘s complete and total failure to adopt any meaningful procedure for

ensuring that his self-interested bonus awards were fair to ICE and its minority

stockholder. Jansing‘s second argument is equally unavailing. A wholly unconstrained

process for executing self-interested transactions does not amount to fair dealing simply

because it comports with a defendant‘s past practices.

       For all of these reasons, I conclude that Jansing‘s bonus awards were not the result

of an adequate and fair process.

                                   b.      Fair price

       Having concluded that Jansing‘s bonuses during the 2007-2012 timeframe were

the product of an unfair process, I proceed to consider whether the amount of those

bonuses was fair. As this Court previously has noted:

              The court‘s finding that . . . [an interested] board used an
              unfair process to authorize the bonuses does not end the
              court‘s inquiry because it is possible that the pricing terms
              were so fair as to render the transaction entirely fair.
              Nevertheless, where the pricing terms of a transaction that is
              the product of an unfair process cannot be justified by
              reference to reliable markets or by comparison to substantial
              and dependable precedent transactions, the burden of
              persuading the court of the fairness of the terms will be
              exceptionally difficult. Relatedly, where an entire fairness
              review is required in such a case of pricing terms that, if
              negotiated and approved at arm‘s-length, would involve a
              broad exercise of discretion or judgment by the directors,
              common sense suggests that proof of fair price will generally
              require a showing that the terms of the transaction fit
              comfortably within the narrow range of that discretion, not at
              its outer boundaries.233


233
       Valeant Pharm. Int’l v. Jerney, 921 A.2d at 748-49.

                                            62
       Among the factors a Court may consider in determining whether salary is

reasonable are whether it bears a reasonable relation to salary received in the past and

how the amount of the challenged salary compares to other salaries paid by the

employer.234 Thus, I consider the amount of salary and bonuses that Jansing and Zutrau

received in the three years preceding Zutrau‘s termination to be a useful starting point in

this analysis.

       During those three years, Jansing was the President and sole director of ICE and

Zutrau was its Treasurer and Vice President. As President, Jansing ultimately was

responsible for all of ICE‘s major operational decisions and effectively acted as the

Company‘s CEO. Jansing received a base salary of $200,000 in each of the three years

from 2004 to 2006.235 Zutrau‘s annual salary was $140,000 in 2004 and 2005, and

$180,000 in 2006.236 As for bonuses, in 2004, bonuses of $120,000 were awarded to

Jansing and Zutrau; in 2005, Jansing received no bonus and Zutrau received $100,000;

and in 2006, Jansing and Zutrau received bonuses of $378,000 and $211,000,

respectively.237   Thus, in the three years preceding Zutrau‘s termination, substantial



234
       Wilderman v. Wilderman, 315 A.2d 610, 615 (Del. Ch. 1974).
235
       JX 518.
236
       Id.
237
       Id. Although the sums of $378,000 and $211,000 were paid as bonuses through
       payroll to Jansing and Zutrau, respectively, in 2007, Zutrau maintains that only
       she received a bonus that year. Specifically, she claims that $100,000 of the
       amount she received was actually a bonus, and that the remaining amounts that
       were paid to herself and Jansing were actually disguised shareholder distributions,
       awarded to them to cover their shareholder tax liability and issued through payroll
                                            63
bonuses had been awarded to ICE‘s officers, with Jansing and Zutrau each receiving

average bonuses of approximately $166,000 and $144,000, respectively. As Jansing‘s

bonuses were only slightly larger than Zutrau‘s in those three years, despite his more

senior position, I consider those bonus awards to be presumptively fair. The average size

of Jansing‘s annual bonus in the six years from 2007-2012, however, was approximately

$222,000, significantly larger than his previous bonuses. Moreover, even if the size of

Jansing‘s average annual bonus had not increased after Zutrau‘s termination, Jansing still

would bear the burden of proving that the same level of bonus compensation was justified

and entirely fair in those later years.




       so they could be written off by ICE as compensation expenses. See Tr. 54-55. I
       reject this argument as barred by collateral estoppel or issue preclusion.

       Zutrau made precisely this same argument to the New York Court. She claimed
       that the bonuses Jansing awarded himself from 2007-2012 were also disguised
       shareholder distributions, in which she was entitled to share on a pro rata basis.
       JX 439 at 32-33. In rejecting that claim, the New York Court held as follows:
       ―Maurice Kalaygian, Jansing‘s personal accountant and a CPA, testified that it is
       not an acceptable accounting practice to make shareholder distributions through
       payroll. He also testified that ICE paid shareholder distributions in 2010 and
       2011, but not before 2010. The court credits Kalaygian's testimony over
       contradictory testimony by [Zutrau], who is not an accountant and has no formal
       training in accounting. Moreover, the documentary evidence supports the
       defendants‘ view that the bonuses were not shareholder distributions.‖ Zutrau v.
       Ice Sys., Inc., 2013 WL 1189213, at *8 (N.Y. Sup. Ct. Mar. 20, 2013). I therefore
       consider this factual issue to have been resolved conclusively in the New York
       Action and I will not revisit that issue here. See Sanders v. Malik, 711 A.2d 32, 33
       (Del. 1998) (―The doctrine of collateral estoppel essentially prohibits a party who
       has litigated one cause of action from relitigating in a second cause of action
       matters of fact that were, or necessarily must have been, determined in the first
       action.‖).

                                            64
       Jansing, who has remained ICE‘s President and sole director throughout the

relevant time period, has not identified any change in his business responsibilities at ICE

that would justify an increase in his compensation. Rather, to support the fairness of the

amount of his bonus awards, Jansing relies almost exclusively on the report and

testimony of his expert witness on compensation, Priya Kapila, who conducted a market-

based assessment of Jansing‘s compensation levels.238

       To determine what level of compensation would be reasonable for Jansing, Kapila

first compared ICE‘s financial performance (as a proxy for Jansing‘s performance as

President) with the financial performance of a peer group of six companies (the ―Peer

Group‖).239 The companies in the Peer Group are similar in size to ICE (reporting one-

half to two times ICE‘s annual revenues) and their operations include data processing

services (defined by having a Standard Industry Classification (―SIC‖) code of 7374, as

does ICE).240 Kapila concluded that ICE performed in the 90th percentile compared to the

Peer Group in the first three years under consideration (2007-2009), and in the 50th

percentile in the last three years (2010-2012).241 Using those percentiles, Kapila then

compared Jansing‘s total compensation for each year, including total cash compensation

(i.e., salary and bonuses), long-term incentives, and ―perks,‖ to market compensation



238
       See Tr. 758-83; JX 509.
239
       Tr. 759-61; JX 509 at 4-7.
240
       JX 509 at 4-7.
241
       Id.

                                            65
survey data for CEOs. She collected the market data from five different sources.242

Assuming that Jansing received perks of approximately $3,000 per year, Kapila

concluded that his aggregate total compensation for the six years in question, which she

calculated to be $2,550,038, was reasonable under the circumstances and could have been

higher by $248,503 and still been reasonable.243

      Zutrau presented the report and testimony of a rebuttal expert on compensation,

Thomas Tilghman. Tilghman highlighted a number of problems with Kapila‘s analysis

that he contends render unreliable her conclusion that Jansing‘s compensation during the

relevant period was reasonable.244 Most significantly, Tilghman identified problems with

the Peer Group and with the survey compensation data utilized by Kapila in her report.

      As to the Peer Group, Tilghman asserted that six companies is significantly below

the number that typically is recommended for a peer group analysis and opined that it is

not a sufficient sample size to make meaningful comparisons to ICE.245 At trial, Kapila

conceded that WorldatWork, the professional organization of compensation experts that

sets guidelines for compensation analyses, suggests that a peer group survey should

include at least twelve or more companies.246 Tilghman also observed that, although the

companies in the Peer Group use the same SIC code in government reporting as ICE

242
      Tr. 761-63; JX 509 at 7-13.
243
      JX 509 at 7-13.
244
      See Tr. 784-90; JX 510.
245
      JX 510 at 6.
246
      Tr. 777.

                                           66
does, they do not appear to be genuinely comparable.247 In that regard, public filings of

the companies in the Peer Group indicate that only one of them provides proxy services,

while three are in the business of credit card or other payment processing and two operate

in the healthcare industry.248     Finally, the overall performance of the supposedly

comparable companies was markedly poor for the years in question, with at least half of

the companies having had negative income in each year and with even the 75th percentile

income levels being negative in three of the six years.249

       Based on the Peer Group‘s small sample size, lack of comparability with ICE, and

notably poor performance during the relevant timeframe, I find that the Peer Group does

not provide an effective gauge of ICE‘s performance for the years in question. Yet,

Kapila used the Peer Group to justify her conclusion that Jansing was entitled to receive

compensation in the 90th percentile for three of the six years she analyzed. If the Peer

Group benchmarks are disregarded and Jansing‘s compensation is compared instead to,

for example, the 50th percentile of the compensation survey data, his compensation

appears to have been unreasonable.250 Specifically, assuming Jansing was entitled to the

50th percentile compensation levels that Kapila included in her report, reasonable




247
       JX 510 at 6.
248
       See id. Ex. 4.
249
       See JX 509 at 5-7.
250
       See id. at 11-12.

                                             67
aggregate compensation for Jansing for the years from 2007-2012 would be $2,057,983.

That would imply that Jansing overpaid himself by approximately $500,000. 251

       In addition to identifying problems with the Peer Group, Tilghman objected to

Kapila‘s use of broad based compensation surveys to derive reasonable compensation

figures for Jansing.252 In that regard, Tilghman noted that at least two of the five survey

sources relied upon by Kapila collect information primarily from publically traded

companies that are substantially larger than ICE.253 The category comprised of the

smallest companies for which one of those sources collects information consists of

companies earning under $1 billion or employing fewer than 1,000 full time employees—

revenue and employment statistics that dwarf ICE‘s.254 Although Kapila attempted to fit

the data she collected to a company of ICE‘s size through regression calculations,

Tilghman credibly averred that such calculations can lead to skewed results for

companies whose size is far different from the mean for the relevant data sample.255

Tilghman also asserted that the industry classifications for several of the survey sources,

including classifications such as ―professional services‖ or ―services,‖ were too broad to



251
       Id.
252
       Tr. 787-89; JX 510 at 4-6.
253
       JX 510 at 5.
254
       Id.
255
       Id. The highest annual revenue ICE achieved in the 2007-2012 period was
       approximately $3.7 million. See JX 500 Schedule 3b. Similarly, the most
       employees ICE had in that timeframe was thirteen. Tr. 449 (Jansing).

                                            68
reflect accurately the niche industry within which ICE operates.256 I found Tilghman to

be a competent and reliable witness and agree that the considerations he identified limit

the probative value of the compensation statistics upon which Kapila relied.

       For the foregoing reasons, I conclude that Jansing failed to prove that the bonus

compensation he received from 2007-2012 was at a fair price to the Company.

                   c.      Jansing’s bonuses were not entirely fair

       Because Jansing‘s bonus awards from 2007-2012 were the result of an unfair

process and Jansing failed to prove the fairness of the amount of those bonuses, I hold

that those bonuses were not entirely fair and that Jansing‘s payment of those bonuses to

himself constituted a breach of his duty of loyalty. The remaining question, therefore, is

what remedy to provide for that breach. ―When a transaction does not meet the entire

fairness standard, the Court of Chancery may fashion any form of equitable and monetary

relief as may be appropriate.‖257 Although rescission frequently is granted where self-

dealing transactions are found not to be entirely fair, ―where an officer-director has fixed

his or her own compensation, our courts have recognized a right to recover under a theory

of quantum meruit.‖258

       Although Jansing failed to demonstrate that the full amount of the bonuses he

awarded himself from 2007 to 2012 was reasonable, I recognize that, before Zutrau‘s

256
       Tr. 788; JX 510 at 5.
257
       Julian v. E. States Const. Serv., Inc., 2008 WL 2673300, at *19 (Del. Ch. July 8,
       2008).
258
       Technicorp Int’l II, Inc. v. Johnston, 1997 WL 538671 (Del. Ch. Aug. 25, 1997);
       see also Wilderman v. Wilderman, 315 A.2d 610, 614-16 (Del. Ch. 1974).

                                            69
termination, Jansing and Zutrau both received bonuses that constituted a significant

portion of their total compensation as officers. In addition, Jansing has not increased his

baseline salary, even for cost of living adjustments, since at least 2004.        Overall,

however, ICE was not as profitable from 2007 to 2012 as it had been in the preceding

three years, due mainly to its mediocre performance since 2010. On the other hand, the

Company has increased in size since 2007 and it experienced its most profitable year

under Jansing‘s leadership in 2009. Based on these factors, and in consideration of all of

the other facts and circumstances relevant to Jansing‘s performance, I conclude that

Jansing was entitled to receive annual bonus compensation from 2007 to 2012 at

approximately 75% of the rate he previously had been receiving, which would equate to

about 56% of the rate of bonus compensation that he actually awarded himself from

2007-2012. Thus, for purposes of determining appropriate damages for this claim, I

consider it useful to quantify the amount of excess compensation that Jansing received,

which would be 44% of the bonus compensation that he awarded himself each year in the

2007-2012 timeframe.      The amount of excess compensation year-to-year based on

Jansing‘s bonus compensation, therefore, would be as follows: $190,080 for 2007;

$121,000 for 2009; $75,680 for 2010; $120,061.04 for 2011; and $79,275.68 for 2012.259




259
       For the sake of completeness, I have stated here the putative amount associated
       with Jansing‘s excess compensation in 2012. For the reasons stated infra in note
       363, however, this amount ultimately was not relevant to any remedy the Court is
       awarding Zutrau.

                                            70
     4.     Zutrau’s claim that Jansing caused ICE to pay for personal expenditures

          Zutrau claims that Jansing breached his fiduciary duties after her termination by

causing ICE to pay for various personal expenditures. Most significantly, she alleges

that, on numerous occasions, he improperly charged personal expenses to his company-

issued American Express (―Amex‖) card.             She also alleges that Jansing improperly

caused the Company to pay for several other personal expenses. I first address the claim

relating to Jansing‘s use of his Amex card.

a.        The personal expenditures Jansing allegedly improperly charged to his Amex
                                             card

          Zutrau challenges $50,992.42 in allegedly improper expenses that Jansing charged

to his Amex card from 2007 to 2012 (the ―Amex charges‖), including meal, travel,

vehicle, mailing, and other miscellaneous charges, some as low as $5.99. 260          It is

undisputed that, both before and after Zutrau‘s termination, Jansing used his Amex card

predominantly to pay for business expenses. The $50,992.42 in expenses that Zutrau

challenges are out of a total of over $1 million in expenses that were charged to Jansing‘s

Amex card during the relevant period. Zutrau also complains about Jansing‘s use of his

Amex card‘s ―rewards points‖ to pay for personal expenditures. Specifically, she alleges

that he improperly used 1,391,770 rewards points that, according to Zutrau, have an

approximate value of $.01 each, for a total value of $13,917.70.261




260
          JX 507 Ex. B.
261
          Tr. 315.

                                              71
       As to the rewards points, Jansing does not dispute that he redeemed them for

personal expenditures. Rather, he avers that his use of the rewards points did not cost the

Company any money and should be treated as a de minimis perk. Zutrau admits that

Jansing‘s use of the rewards points did not require any cash outlays by the Company.262

She asserts, however, that they could have been used for other purposes, such as

purchasing office supplies.263 ICE had no formal policy on rewards points,264 but no

evidence has been offered to suggest that Jansing‘s use of the rewards points was

inconsistent with past practices at ICE or with general industry custom. Here, where the

alleged market value of the rewards points accumulated on Jansing‘s Amex card was

approximately $2,300 per year, or just over 1% of his base salary of $200,000 (the

fairness of which is not disputed), I find Jansing‘s use of them to be a de minimis perk

rather than a breach of his fiduciary duties. At trial, Jansing provided uncontroverted

testimony that he used rewards points to pay for $5,976.70 of the Amex charges that

Zutrau challenges.265 Thus, the value of the remaining charges for which Jansing could

be held liable is $45,015.72.




262
       Tr. 316.
263
       Tr. 362; see Tr. 601 (Jansing).
264
       Tr. 601 (Jansing).
265
       See Tr. 551-52 (Jansing); Def.‘s Demonstrative Ex. (―DDX‖) 1. Zutrau has
       objected to DDX 1 and I refer to it only for limited noncontroversial purposes,
       including to the extent it reflects uncontroverted testimony or admissions by
       Jansing.

                                            72
      Jansing avers that a substantial majority of the remaining Amex charges were for

business expenses, but admits that some were for personal expenses and did not get

reimbursed because Jansing considered them to be negligible.266 In that regard, Jansing

admitted that $4,134.26 of the Amex charges were personal, as reflected in a

demonstrative that he presented at trial.267    Jansing also admitted that an additional

$5,065.54 of the Amex charges were combined-purpose travel expenses.268              This

category of expenses included travel expenses for trips that Jansing took with his

daughter and visits to his relatives, including during the holidays. 269 Although Jansing

claims that he also did work on these trips,270 I find that the charges were predominantly

personal expenses for which ICE should not have been charged. Thus, at least $9,199.80

of the Amex charges were for personal expenses.




266
      Tr. 484.
267
      See Tr. 551-53; DDX 1. In DDX 1, one purchase for $216.74 from Hertz Car
      Rental on February 15, 2009 was described as ―Personal‖ but not included in the
      calculation of ―Total Personal Expenses,‖ which were listed as having a value of
      $3,917.52. I take the description of the $216.74 expense as ―Personal‖ in DDX 1
      as an admission and note that Jansing also previously described that expense as
      personal in a deposition. Jansing N.Y. Dep. 566. Thus, I consider its exclusion
      from the ―Total Personal Expenses‖ to be an oversight and deem Jansing‘s
      admitted ―Total Personal Expenses‖ to be $4,134.26.
268
      See Tr. 551-53; DDX 1.
269
      Id.; Jansing NY Dep. 554-55.
270
      Tr. 552-53.

                                           73
         Of the remaining $35,815.92 in Amex charges, $7,943.60 relate to maintenance

and repair of Jansing‘s Company vehicle, a truck.271 The record indicates that the truck

was purchased for business purposes, including to facilitate transportation of business

materials, and provided ICE with a tax benefit.272 Although Zutrau alleges that Jansing

used this truck primarily as his personal vehicle, I am satisfied that maintenance and

repair of the truck was a business expense.

         Thus, $27,872.32 of the Amex charges remain in dispute. Apart from $1,473.38

in charges for which Jansing cannot recall the purpose, Jansing generally has averred that

all of the remaining charges were for business expenses.273 Based on her review of the

Amex card statements, Zutrau stated her opinion at trial that each of these expenses was

most likely personal or otherwise not a proper business expense, but she admitted that the

information available from the credit card statements does not provide definitive proof

one way or another.274 Because neither side has submitted convincing evidence as to the

nature of these expenses, whether Jansing‘s charging of them to the Amex card should be

treated as a breach of his fiduciary duties will depend upon who bears the burden of

proof.

         As the decision of whether or not to charge an expense to the Company card is a

business decision, it is, by default, entitled to the presumption of the business judgment

271
         See Tr. 551-52 (Jansing); DDX 1.
272
         See Tr. 202-03 (Zutrau); JX 539.
273
         See Tr. 549-51; DDX 1.
274
         Tr. 101, 272-75.

                                              74
rule.275 Nonetheless, Zutrau makes two arguments for shifting the burden to account for

the Amex charges to Jansing in the circumstances here.

       First, citing Technicorp Int’l II, Inc. v. Johnston,276 Zutrau argues that, because

there are undisputed instances where Jansing used corporate funds to pay for personal

expenditures, Jansing should bear the burden of demonstrating that the remaining charges

she challenges were incurred for a proper business purpose. I do not read Technicorp as

supporting Zutrau‘s position. In Technicorp, the plaintiffs made a ―prima facie showing‖

that the two individual defendants had diverted over $11 million away from one of the

plaintiff companies while it was under the exclusive control of the defendants.277 Under

those circumstances, the Court stated that the defendants ―have the burden of showing

that they dealt properly with corporate funds and other assets entrusted to their care‖ and

―have a duty to account for their disposition of those funds, i.e., to establish the purpose,

amount, and propriety of the disbursements.‖278 Here, Zutrau has not made a prima facie

showing that any of the remaining Amex charges were incurred improperly; rather, her

challenges to those charges are based on speculation and are not supported by substantial

evidence.279



275
       See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
276
       2000 WL 713750 (Del. Ch. May 31, 2000).
277
       Id. at *15.
278
       Id. at *16.
279
       See Tr. 101, 272-75 (Zutrau).

                                             75
       Another case that arguably supports Plaintiff‘s first argument for shifting the

burden is Carlson v. Hallinan, but it, too, is not controlling under these facts.280 In

Carlson, in response to evidence submitted by the plaintiff that the defendant directors

systematically were diverting corporate assets to benefit other entities they owned, and

failing to keep track of those expenditures, the Court concluded that an accounting was

necessary ―to determine the extent of the misallocation of expenses and the damages

resulting therefrom.‖281 Although ICE‘s lack of formal expense reporting is far less than

ideal, I find that the relatively minimal nature of the personal expenses that Jansing has

been shown to have charged to the Company over a span of six years is not sufficient to

warrant shifting the burden of proof to him.282

       Second, Zutrau renews her first motion to compel and argues that a shifting of the

burden of proof is appropriate as a sanction for Jansing‘s failure to comply with his

discovery obligations. By way of background, on February 27, 2013, Zutrau served

Jansing with her Third Request for the Production of Documents (the ―Third Request for

Production‖),283 in which she requested, among other things, approximately eighty-five

merchant receipts for various purchases charged to Jansing‘s Amex card from 2007 to


280
       925 A.2d 506 (Del. Ch. 2006).
281
       Id. at 537.
282
       See Sutherland v. Sutherland, 2010 WL 1838968, at *16 (Del. Ch. May 3, 2010)
       (rejecting plaintiff‘s attempt to ―have the Court impose an affirmative duty on
       fiduciaries to come forward and explain the allocation of company funds at the
       behest of any inquiring shareholder‖).
283
       Pl.‘s Mot. to Compel Ex. C (D.I. No. 112).

                                            76
2012. On April 4, 2013, Jansing responded to the Third Request for Production. He

objected to Zutrau‘s requests for receipts, among other requests, on the grounds that they

were unduly burdensome, duplicative, and unnecessary,284 and refused to produce the

receipts.

       Zutrau filed a motion to compel production of withheld documents responsive to

the Third Request for Production on May 1, 2013, the last day of fact discovery. 285 I

heard argument on that motion in conjunction with the pre-trial conference on July 25,

2013, less than a week before the commencement of trial. Due to the limited time

remaining before trial, I determined that ordering production of the multitude of

documents requested by Zutrau‘s motion would not be practical, but took the motion

under advisement and granted Zutrau leave to pursue certain burden shifting arguments

originally raised in her motion in post-trial briefing.

       Zutrau now argues that, based on Jansing‘s failure to produce the receipts she

requested in her Third Request for Production, the burden should be shifted to him to

prove that all of the challenged Amex charges were proper business expenses. At the

outset, I conclude that such wholesale burden-shifting would be inappropriate. Only

nineteen of the receipts that Zutrau requested in her Third Request for Production

actually correspond to any of the over 300 Amex charges that she questions in this




284
       Id. Ex. D.
285
       Pl.‘s Mot. to Compel; First Am. Case Scheduling Order (D.I. No. 94).

                                              77
action.286 Moreover, of the nineteen receipts that are relevant to Zutrau‘s claims, twelve

relate to purchases that were made using rewards points.287 Thus, only seven of the

numerous receipts Zutrau requested correspond to Amex charges that she challenges in

this action that were not redeemed with rewards points. Those charges were for the

following transactions: (1) $150 to the Golf Shop Inc. on July 30, 2007; (2) $1004.50 to

PC Richard & Sons on September 28, 2008; (3) $902.96 to PC Richard & Son on March

10, 2010; (4) $456 to the Southampton Inn on November 12, 2010; (5) $963.87 to the

Southampton Inn on November 17, 2010; (6) $651.73 to Best Buy Co. on December 1,

2010; and (7) $1,060.00 to Bissinger‘s Web Catalog on May 5, 2011. 288 The total

amount of these seven charges is $5,189.06.

      As to these seven charges for which receipts were requested, I hold that burden-

shifting is appropriate. Court of Chancery Rule 26(b)(1) provides that parties may obtain

discovery of any non-privileged matter which ―is relevant to the subject matter involved

in the pending action, whether it relates to the claim or defense of the party seeking

discovery or to the claim or defense of any other party‖ and appears ―reasonably

calculated to lead to the discovery of admissible evidence.‖ In her Third Request for



286
      Compare Pl.‘s Mot. to Compel Ex. C, with JX 507 Ex. B.
287
      Compare Pl.‘s Mot. to Compel Ex. C, with JX 507 Ex. B, and DDX 1. The twelve
      purchases that were made with rewards points include one purchase of $136.95
      from Frontgate Catalog Household on September 3, 2009 that initially was
      charged to the Amex card and later backed out using rewards points. See supra
      note 265 & accompanying text.
288
      See supra note 286.

                                           78
Production, Zutrau requested receipts for the seven disputed charges enumerated above. I

find her requests for those receipts were reasonably calculated to lead to the discovery of

admissible evidence.     Jansing‘s objections that the receipts were duplicative and

unnecessary in light of the Amex statements, which provide only general information as

to the date and amount of the purchases and the relevant vendors, is unpersuasive. I also

reject Jansing‘s objection that production of the receipts would have been overly

burdensome. The receipts relevant to the Amex charges were kept in ICE‘s records along

with the Amex statements.289

       Thus, Jansing should have provided Zutrau with at least the seven requested

receipts now at issue. Under these circumstances, I consider shifting the burden of proof

as to the seven underlying purchases to be an appropriate equitable sanction for Jansing‘s

failure to comply with his discovery obligations. As to those seven purchases, I therefore

conclude that Jansing has the burden ―to account for [his] disposition of those funds, i.e.,

to establish the purpose, amount, and propriety of the disbursements.‖290

       Jansing has failed to meet this burden. To prove the propriety of the contested

Amex charges, Jansing relies almost entirely upon the demonstrative exhibit he presented

at trial, which lists the challenged Amex charges and the purported business purposes for

the charges that Jansing asserts were proper.291         A demonstrative exhibit is not


289
       Henriksen N.Y. Dep. 74.
290
       Technicorp Int’l II, Inc. v. Johnston, 2000 WL 713750, at *16 (Del. Ch. May 31,
       2000).
291
       See DDX 1.

                                            79
substantive evidence, however, and Jansing provided no particularized testimony as to

the contested charges or documentation to support the business purposes listed on the

demonstrative. Thus, Jansing has failed to meet his burden as to those charges and will

be deemed to have improperly charged the Company for an additional $5,189.06.

       Jansing‘s use of his Amex card to make the remaining contested purchases,

totaling $22,683.26, is protected by the business judgment rule. As to these, Zutrau has

presented no substantive evidence sufficient to overcome the business judgment

presumption.    Jansing is presumed, therefore, to have made those purchases in

accordance with his fiduciary duties. In sum, I conclude that Jansing improperly charged

the Company for $14,388.86 out of the $50,992.42 in purchases that Zutrau challenges.

To that extent, Jansing breached his duty of loyalty.

 b.      Zutrau’s remaining claims that Jansing improperly caused ICE to pay for
                                 personal expenditures

       In addition to challenging Jansing‘s use of his Amex card, Zutrau claims that

Jansing improperly caused ICE to pay for several other personal expenses, including

interest on funds that he withdrew from the Credit Line as well as various personal tax,

legal, and accounting expenses.292




292
       Earlier in this litigation, Zutrau questioned the propriety of annual charitable
       contributions that Jansing caused ICE to make to the Jansing Cook Foundation, a
       charitable trust of which he is a trustee. See Tr. 93-94 (Zutrau); JX 507 Ex. C.
       Zutrau did not address those contributions in her post-trial briefing, however. I,
       therefore, consider any claims based upon them to be waived. See Emerald P’rs v.
       Berlin, 726 A.2d 1215, 1224 (Del. 1999).

                                            80
      Most significantly, Zutrau questions Jansing‘s withdrawal of $250,000 from the

Credit Line on June 19, 2007, the day before her termination, and placement of that

money in his personal Citibank account.       At various times over the course of this

litigation, Zutrau has suggested that Jansing withdrew the money to help him make the

$271,000 down payment he made on his new home in Southampton, New York, two days

after she was fired. The amount and timing of the down payment is suspicious. The

record developed at trial, however, shows that Jansing used separate funds to make that

down payment and kept the available balance in his Citibank account at approximately

$250,000 until he later used the funds from that account to repay the principle balance on

the Credit Line on November 27, 2007.

      Nonetheless, it is undisputed that Jansing caused ICE to pay the interest on the

Credit Line during the five months that the borrowed sum of $250,000 was in his

personal account. The total interest that ICE paid on the Credit Line as a result of

Jansing‘s withdrawal was $9,919.52.293 Jansing argues that he should not be liable for

this amount, because he withdrew the balance of the Credit Line in reliance on his

banker‘s advice that he should keep those funds in his personal account until such time as

ICE could obtain a new credit line. I do not find Jansing‘s testimony regarding his

reliance on his banker‘s advice to be exculpatory, however, because Jansing never

applied for a new credit line. Rather, in October 2008, approximately one year after he




293
      See JX 484; JX 346 at ISI 001819 (Interest Paid/Payable).

                                           81
repaid the balance on the Credit Line and about a year and a half after Zutrau‘s

termination, Jansing applied for an extension of the existing Credit Line.

       Thus, Jansing has articulated no legitimate business justification for his

withdrawal of the $250,000.       Rather, the evidence suggests that Jansing took the

challenged actions to facilitate his own efforts to keep the Credit Line in place without

having to confront the possibility that Zutrau would remove her name as co-guarantor

and create a risk that ICE would lose the Credit Line. The record indicates that if Zutrau

had withdrawn her guarantee immediately, there was a material risk that the Credit Line

would be revoked. In that regard, Jansing has admitted that, due to his poor credit, ICE

would not have been able to obtain the Credit Line in the first place without the benefit of

Zutrau‘s creditworthiness.294 I also note that, in connection with Zutrau‘s termination,

Jansing removed Zutrau‘s name and signatory power from all Company bank accounts, a

credit card account, and a retirement benefits administration account, but conspicuously

left Zutrau‘s name on the Credit Line as a co-guarantor until sometime after he repaid the

$250,000 he had withdrawn.

       In these circumstances, I find that Jansing intentionally withdrew $250,000 from

the Credit Line so that ICE‘s minority stockholder, Zutrau, would have no choice but to

remain financially responsible for that amount as a co-guarantor. Thus, Jansing also

acted to serve his own purposes in terms of his efforts to sever his ties with Zutrau

without giving her any notice and without having to negotiate with her about matters such


294
       Tr. 572-73; see also Tr. 33-34 (Zutrau).

                                            82
as her guarantee on the Credit Line, and not to further any legitimate business purpose of

ICE. Jansing‘s conduct amounted to a breach of his duty of loyalty, which warrants

holding him liable for the interest that ICE paid on that withdrawal. Although Jansing

claims that he repaid a portion of the interest,295 he adduced no credible evidence as to the

amount of any such repayment. Therefore, I find that the Company has a legitimate

claim against Jansing for the full amount of the interest that it paid, or $9,919.52.

       Zutrau also alleges that, in December of 2007, Jansing caused ICE to pay $12,315

of his personal income taxes and wrote it off as an expense of ICE. As to this claim, I

credit Kalaygian‘s trial testimony that the $12,315 constituted ICE‘s portion of the taxes

due on Jansing‘s income, not Jansing‘s own tax liability.296

       In addition, Zutrau claims that Jansing improperly used ICE‘s corporate funds to

pay for personal legal and accounting work and caused ICE to reimburse him for various

out of pocket expenses that were personal in nature. Zutrau failed to pursue these claims

at trial, however, and proffered no probative evidence in support of them or any related

damages. Thus, she has failed to prove this aspect of her claims for inappropriate

payment of personal expenditures.

5.     Zutrau’s claim that Jansing failed to replace Zutrau with someone who could
                                     provide oversight

       Zutrau claims that Jansing breached his duties of care and loyalty by choosing to

keep the position of Treasurer vacant after her termination and by failing to replace her

295
       Tr. 508-09 (Jansing).
296
       Tr. 691.

                                             83
with anyone who could provide competent financial oversight of the Company, all so that

he could use ICE‘s assets for his own personal benefit and engage in unchecked self-

dealing. In that regard, Zutrau criticizes Jansing‘s appointment of Henriksen to serve as

Controller and his retention of Kalaygian to assist with the Company‘s financials. She

alleges that they were unable to fill the oversight void left by her termination because

both Henriksen and Kalaygian are unqualified for their positions and are beholden to

Jansing.

       Jansing‘s business decision not to appoint a new Treasurer and, instead, to hire

Henriksen and Kalaygian to replace Zutrau and perform most of the functions that she

previously performed at ICE is entitled to the presumption of the business judgment

rule.297 Thus, the burden is on Zutrau to prove that Jansing breached his fiduciary duties

in making that decision. Zutrau has failed to do so.

       As to the duty of loyalty, I find that Zutrau‘s claim that Jansing failed to replace

her with people competent to provide oversight in order to facilitate his own self-dealing

fails, as a matter of fact and law, because Zutrau—who was a minority stockholder and

officer, but not a director of ICE, like Jansing—never had the authority to oversee or

prevent the few instances of inappropriate self-dealing by Jansing that she has proven.298

The two examples of self dealing by Jansing that have been shown in the six year period


297
       See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
298
       See JX 196 ¶ 2 (Stipulation by Zutrau in the New York Action, stating: ―My work
       at ICE was at all times under the control of Jansing, who was the Company‘s
       majority owner, President, and sole Director.‖).

                                            84
following Zutrau‘s termination are: (1) that Jansing paid himself excessive compensation;

and (2) that Jansing improperly charged certain personal expenses to his Amex card.299

       As to the first example, Jansing always has been responsible for setting employee

compensation at ICE, including his own, and Zutrau adduced no evidence that she ever

had the authority to overrule those determinations.300 As Zutrau averred in a stipulation

in the New York Action, ―Jansing set the compensation for all Company employees,

including raises and bonuses, and I had no authority to do so.‖301 Turning to the second

example, although it is undisputed that Zutrau successfully had prompted Jansing to

reimburse the Company for certain personal expenses charged to his Amex card in the

past, she would not have had the authority to overrule him if Jansing insisted that a given

charge be treated as a business expense.302 Furthermore, even if Zutrau‘s questioning of

Jansing‘s Amex charges may have inconvenienced or annoyed him, I find it implausible

that Jansing would have fired Zutrau and appointed Henriksen and Kalaygian as her

replacements to facilitate his ability to charge his personal expenses more freely to the

Company. Therefore, Zutrau has failed to prove a breach of the duty of loyalty in

connection with this claim.

299
       I also concluded that Jansing‘s withdrawal of $250,000 from the Credit Line was
       done in bad faith in that Jansing sought to serve his own interests rather than the
       best interests of ICE. That action, however, was not self-dealing in the traditional
       sense. In any event, Zutrau at no time had the authority to prevent Jansing from
       making such a unilateral withdrawal. Id.
300
       Tr. 485 (Jansing).
301
       JX 196 ¶ 5.
302
       See id. ¶ 2.

                                            85
       As to the duty of care, Zutrau has neither alleged nor presented evidence

suggesting that Jansing failed to inform himself properly before deciding to terminate her

and hire her replacements, nor has she proven any other deficiencies in Jansing‘s

decision-making process that would support a claim for breach of that duty. Thus, Zutrau

has failed to demonstrate that Jansing breached his duty of care by terminating her

employment and replacing her with Henriksen and Kalaygian.

       I also note that to the extent that Zutrau‘s claim can be interpreted as challenging

Jansing‘s own failure to exercise proper oversight over the Company, she has not

proffered evidence of the type of ―sustained or systematic failure‖ needed to succeed on

such a claim.303

       Having addressed the merits of each of Zutrau‘s derivative claims against Jansing

for breach of his fiduciary duties, I now turn to her direct claims challenging the Reverse

Stock Split.

                   D.    Claims Challenging the Reverse Stock Split

       Sections 242 and 155 of the DGCL authorize a corporation to effect a reverse

stock split via a charter amendment that may result in stockholders with fractional

interests being cashed out of the corporation.304 Section 242 provides that a corporation

may amend its COI to ―subdivid[e] or combin[e] the outstanding shares of any class . . .




303
       Stone v. Ritter, 911 A.2d 362, 369 (Del. 2006) (quoting In re Caremark Int’l Inc.
       Deriv. Litig., 698 A.2d 959, 971 (Del. Ch. 1996)).
304
       See Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 455 (Del. Ch. 2011).

                                            86
of shares into a greater or lesser number of outstanding shares,‖305 which may result in

some stockholders getting fractional interests. Under Section 155 of the DGCL, if a

corporation effects a transaction that results in fractional interests, it may opt to

compensate stockholders in lieu of issuing fractional shares, in which case it must ―pay in

cash the fair value of fractions of a share as of the time when those entitled to receive

such fractions are determined.‖306

       On June 11, 2012, Jansing filed an amendment to ICE‘s COI and thereby effecting

the Reverse Stock Split, at a ratio of one share for every 62.5 outstanding shares. 307 The

amendment to the COI provided that, following the split, any stockholders holding less

than one share of ICE stock would be cashed out in lieu of receiving fractional shares.

As a result of the Reverse Stock Split, Jansing‘s 125 shares of ICE stock (representing

about 78% of the outstanding equity) were converted into two shares, and Zutrau‘s 36

shares of ICE stock (representing about 22% of the outstanding equity) were converted

into .576 shares.308 In connection with the Reverse Stock Split, Jansing notified Zutrau

by letter that she was no longer a stockholder of ICE and provided her with a check for

$495,778.81, which Jansing described as ―the fair value for your fractional shares.‖309

Zutrau never deposited the check.

305
       8 Del. C. § 242(a)(3).
306
       8 Del. C. § 155.
307
       JX 681.
308
       See id.; JX 501.
309
       JX 501.
                                            87
       Zutrau challenges the Reverse Stock Split on two principal grounds. First, she

argues that Jansing effected the Reverse Stock Split for the sole purpose of depriving her

of standing to pursue her derivative claims, in breach of his fiduciary duties. Second, she

contends that she received inadequate consideration for her fractional shares, in breach of

Jansing‘s fiduciary duties as well as the ―fair value‖ requirement of Section 155. By way

of relief as to both grounds, Zutrau seeks to have the Reverse Stock Split rescinded and to

be reinstated as an ICE stockholder.

       When, as here, ―a controlling stockholder uses a reverse split to freeze out

minority stockholders without any procedural protections, the transaction will be

reviewed for entire fairness with the burden of proof on the defendant fiduciaries.‖310

This is because ―[a] reverse split under those circumstances is the functional equivalent

of a cash-out merger.‖311 As previously noted,312 ―[t]he concept of fairness has two basic

aspects: fair dealing and fair price.‖313 I address both of Zutrau‘s challenges to the

Reverse Stock Split in the context of analyzing the transaction‘s entire fairness.

                                   1.      Fair dealing

       For purposes of assessing fair dealing, a brief review of the factual background

leading up to the Reverse Stock Split is necessary. Zutrau was terminated from ICE in

June 2007. In the first half of 2008, she commenced a books and records action against

310
       Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 460 (Del. Ch. 2011).
311
       Id. (internal quotation marks omitted).
312
       See supra notes 226-229 and accompanying text.
313
       Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983).

                                             88
Jansing and ICE in the New York Court. On August 1, 2008, the New York Court

ordered Jansing to produce ICE‘s books and records.

       In September 2009, Zutrau commenced the New York Action by filing a

complaint against Jansing and ICE, asserting, among other things, derivative claims

challenging numerous actions taken by Jansing in the course of running the Company. In

October 2011, the New York Court issued an opinion that, among other things, dismissed

Zutrau‘s derivative claims without prejudice, holding that they could not be pursued in

New York but could be asserted in a separate action.314

       In December 2011, before the commencement of this action, Jansing retained

Farrell Fritz, P.C. as counsel to advise him regarding how to accomplish a reverse stock

split. On January 13, 2012, Jansing, through counsel, engaged Duff & Phelps for the

purpose of ―estimating [the] Fair Value of 100 percent of the Shareholders‘ Equity of ICE

Systems as of a current date to be provided by [Farrell Fritz].‖315

       On April 25, 2012, Zutrau commenced this litigation by filing a verified complaint

against Jansing in which she effectively reasserted the derivative claims that had been

dismissed from the New York Action. Jansing was served on May 11, 2012, and later

requested a 30-day extension to file a responsive pleading. The Court granted a 20-day

extension, giving Jansing until June 20, 2012 to respond to the Complaint.316



314
       Zutrau v. Ice Sys., Inc., 2011 WL 5137152, at *4 (N.Y. Sup. Ct. Oct. 28, 2011).
315
       JX 497.
316
       D.I. No. 10.

                                             89
      On June 11, 2012, Duff & Phelps issued a valuation report, estimating the fair

market value of 100% of the equity in the Company as of June 5, 2012 as being

$2,217,233. That same day, Jansing filed the amendment to ICE‘s COI that implemented

the Reverse Stock Split. Jansing utilized the Duff & Phelps report to value Zutrau‘s 22%

interest in the Company at $495,779, which reflects her pro rata share of the Duff &

Phelps valuation with no minority discount.

      Recognizing that it is ultimately Jansing‘s burden to demonstrate entire fairness, I

pause initially to consider Zutrau‘s main challenge to the validity of the Reverse Stock

Split. Based on its timing, Zutrau argues that it is self-apparent that Jansing effectuated

the Reverse Stock Split ―for the sole, fraudulent, and faithless purpose of eliminating

Plaintiff‘s standing to maintain the derivative claims originally brought in the New York

action and re-filed in Delaware on April 25, 2012.‖317 In support of that view, Zutrau

asserts that Jansing has not ―offer[ed] any conceivable, legitimate business purpose that

would justify his approval of the Reverse Stock Split, other than to deprive Plaintiff of

derivative standing.‖318 Based on my review of the record developed at trial, I disagree

with Zutrau and find that depriving Zutrau of derivative standing was not a primary

motivation for the Reverse Stock Split. This finding is informed by three primary

considerations.




317
      Pl.‘s Opening Br. 30.
318
      Id. at 31.

                                              90
         First, Jansing has articulated a credible business justification for the Reverse Stock

Split.    By the time of the Reverse Stock Split in June 2012, the parties had been

embroiled in contentious litigation for over four years in two different states. Jansing

testified that people in the industry in which ICE operates were aware of the litigation

between ICE‘s stockholders and that it was a cause for concern among some of ICE‘s

clients.319 After ―years of withering litigation,‖ Jansing claimed that his decision to

implement the Reverse Stock Split was motivated by ―the desire to have everybody get

on with their lives‖ and to ―mov[e] the company forward and hav[e] everybody go on

their separate ways.‖320 Based on the contentiousness I have observed in this litigation

and the parties‘ sharply divergent concepts of how the Company should be run, I accept

Jansing‘s testimony that the primary purpose of the Reverse Stock Split was to bring an

end to the turbulent relationship between the parties and to allow both of them and the

Company to move on.

         Second, although the timing of the Reverse Stock Split on its face is suspicious,

the process that led to it began before the filing of this action. Specifically, Jansing

engaged both Farrell Fritz and Duff & Phelps after the New York Court‘s decision to

sever the derivative claims, but before Zutrau filed her complaint in Delaware. At that

time, there were no outstanding derivative claims against Jansing and it was unclear when




319
         Tr. 547.
320
         Id. at 546-47.

                                               91
or whether Zutrau would reassert those claims.321 Jansing testified that the Reverse Stock

Split was the culmination of a process being led by Farrell Fritz, and that the timing was

unrelated to the filing of the derivative claims in this action.322        That may be an

overstatement, but, in any event, I find that Jansing would have implemented the Reverse

Stock Split whether or not Zutrau filed this action.

       Third, and most significantly, while Jansing previously has argued that Zutrau

lacks standing to assert her derivative claims independently of the other claims in this

action, he consistently has stated that he has no objection to Zutrau effectively litigating

her derivative claims for purposes of valuing her interest in ICE in connection with the

Reverse Stock Split.323 In that regard, Jansing has suggested that Zutrau would be

entitled, as additional consideration, to 22% of the value (based on her percentage equity

ownership) of any derivative claims that ICE had against Jansing at the time of the

Reverse Stock Split.324 This approximates, at least in part, the monetary relief that Zutrau

could have obtained if she still had standing to assert the derivative claims.

       For the foregoing reasons, I conclude that Jansing did not implement the Reverse

Stock Split for the sole or primary purpose of depriving Zutrau of derivative standing.

That fact alone, however, does not establish fair dealing, and other factors undermine the

fairness of the process that culminated in the Reverse Stock Split. For one thing, Jansing

321
       Id. at 661-62 (Jansing).
322
       Id. at 658-59.
323
       Def.‘s Opening Br. 58; see Tr. 549, 661-62.
324
       Def.‘s Opening Br. 58.

                                             92
failed to implement any procedural protections in connection with the Reverse Stock

Split, other than retaining his own (and ICE‘s) legal counsel and investment advisor. He

did not, for example, form a special committee or otherwise arrange for anyone to

bargain on behalf of or with the minority stockholder. Indeed, it does not appear that

Zutrau was consulted about the Reverse Stock Split at any time before its execution.

Furthermore, although Jansing relied on a contemporaneous valuation of the Company in

determining the fair value of Zutrau‘s shares, that valuation was produced by a valuation

consulting firm, Duff & Phelps, that essentially was working for Jansing and knew that

its valuation was to be used for purposes of a transaction by which Jansing, through ICE,

would buy out ICE‘s minority stockholder.325 For all of these reasons, I conclude that

Jansing failed to prove that the Reverse Stock Split was the product of fair dealing.326

                              2.     Fair price / Fair value

       As recently clarified by this Court in Reis v. Hazelett Strip-Casting Corp.,327 the

fair price standard of entire fairness and the fair value standard applicable to

compensation for fractional interests under Section 155(2) of the DGCL call for

equivalent economic inquiries.328     For both, the appropriate test, as in the appraisal


325
       Tr. 735 (D‘Almeida).
326
       See Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 460 (Del. Ch. 2011)
       (finding lack of fair dealing where majority shareholder effected reverse stock
       split without procedural protections and without engaging in good faith
       negotiations with minority shareholders).
327
       28 A.3d 442.
328
       See id. at 461-64.

                                             93
context, is whether the ―minority stockholder shall receive the substantial equivalent in

value of what he had before.‖329 In assessing the value of the shares that were held

before the relevant transaction, the Court must consider ―all relevant factors,‖ including

―assets, market value, earnings, future prospects, and any other elements that affect the

intrinsic or inherent value of a company‘s stock.‖330

                            a.     The Duff & Phelps report

       Jansing used the Duff & Phelps valuation report as his basis for valuing Zutrau‘s

shares. I therefore begin my analysis of fair price by assessing the merits of that report.

Jaime D‘Almeida, a Director at Duff & Phelps, was the principal author of the Duff &

Phelps report and was called by Jansing as an expert witness at trial. Duff & Phelps

utilized three valuation methods in valuing ICE: the discounted cash flow (DCF) method,

the comparable companies method, and the comparable transactions method.331 The DCF

method produced a fair market valuation for ICE of $2,217,233; the comparable

companies method produced a valuation of $2,012,003; and the comparable transactions

method produced a valuation of $1,328,965.332 Duff & Phelps ultimately concluded that,

due to ICE‘s lack of similarity to the most comparable companies that could be

identified, the comparable companies and comparable transactions valuation methods did



329
       Id. at 462 (quoting Sterling v. Mayflower Hotel Corp., 93 A.2d 107 (Del. 1952)).
330
       Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983).
331
       Tr. 723-24 (D‘Almeida); JX 500 Schedule 1.
332
       JX 500 Schedule 1.

                                            94
not produce reliable estimates of ICE‘s value.333 It therefore assigned a 100% weight to

the results of the DCF method, which produced the highest valuation of the three

methods utilized.334

       As an initial matter, I concur with Duff & Phelps that the DCF method should be

given exclusive weight in valuing ICE. The utility of a comparable, or market-based,

approach to valuation ―depends on actually having companies that are sufficiently

comparable that their trading multiples provide a relevant insight into the subject

company‘s own growth prospects.‖335          In that regard ―[r]eliance on a comparable

companies or comparable transactions approach is improper where the purported

‗comparables‘ involve significantly different products or services than the company

whose appraisal is at issue, or vastly different multiples.‖336 Because ICE operates in

what is effectively a two player market, and its direct competitor is significantly larger

and has a 99% market share, the comparable companies and transactions methods are not

likely to yield reliable estimates of ICE‘s value.

       By contrast, the DCF method provides an effective way to measure ICE‘s fair

market value. Delaware Courts frequently have applied the DCF method in valuing




333
       Tr. 727-28 (D‘Almeida).
334
       Id. at 729; JX 500 at 38.
335
       In re Orchard Enters., Inc., 2012 WL 2923305, at *10 (Del. Ch. July 18, 2012),
       aff’d, 2013 WL 1282001 (Del. 2013) (ORDER).
336
       Id.

                                             95
companies and have described it as ―in theory the single best technique to estimate the

value of an economic asset.‖337 As this Court has noted,

              [t]he basic premise underlying the DCF methodology is that
              the value of a company is equal to the value of its projected
              future cash flows, discounted at the opportunity cost of
              capital. Put simply, the DCF method involves three basic
              components: (i) cash flow projections; (ii) a terminal value;
              and (iii) a discount rate.338

Setting aside for the moment the existence of Jansing‘s fiduciary breaches and the impact

of those breaches on the fair value of Zutrau‘s shares at the time of the Reverse Stock

Split, I consider first whether the Duff & Phelps DCF analysis can be regarded as an

accurate estimate of ICE‘s value in light of its historical performance up to that point.

       In June of 2012, when the Duff & Phelps report was done, management of ICE did

not have any projections for ICE‘s future performance.339 Duff & Phelps, therefore,

independently analyzed ICE‘s historical performance from fiscal year 2007 through the

first half of 2012 (the ―historical period‖) to project future cash flows for the remainder

of 2012 through to fiscal year 2014.340 Duff & Phelps used ICE‘s average revenues

during the historical period as its revenue baseline. To assess ICE‘s expected rate of

revenue growth, Duff & Phelps looked to the forecasted growth rate of the ―transaction

publishing‖ segment of the ―strategic document outsourcing industry,‖ which is the


337
       Cede & Co. v. Technicolor, Inc., 1990 WL 161084, at *7 (Del. Ch. Oct. 19, 1990).
338
       In re Orchard Enterprises, Inc., 2012 WL 2923305, at *10.
339
       JX 500 at 30.
340
       Id.; Tr. 724 (D‘Almeida).

                                             96
business segment in which Duff & Phelps concluded ICE operates.341 The strategic

document outsourcing industry ―is comprised of service providers that assist companies

in customer and investor communications through document processing and scanning and

high volume transaction printing.‖342 The core competencies of transaction publishing

include ―transaction documents, transpromo document production, content versioning,

and response analysis.‖343    The forecasted growth rate of the transaction publishing

segment between 2010 and 2015 was 1.6 percent.344 In light of ICE‘s ―first mover

advantage‖ in the proxy processing space, however, Duff & Phelps concluded that a

higher revenue growth rate of 2.1 percent was appropriate.        That rate equaled the

forecasted long-term U.S. inflation rate.345

       Duff & Phelps projected that ICE‘s operating expenses would remain constant as a

percentage of sales, based on the average operating expenses as a percentage of sales

during the historical period. Duff & Phelps made three normalizing adjustments in order

to remove non-operating or non-recurring expenses from ICE‘s projected future

expenses.346 Specifically, Duff & Phelps removed from expenses the cost of Jansing‘s

annual charitable contributions, certain non-recurring bank fees, and legal costs that it

341
       JX 500 at 20.
342
       Id.
343
       Id.
344
       Id. at 21.
345
       Id. at 30-31; Tr. 724 (D‘Almeida).
346
       Tr. 724-25 (D‘Almeida); JX 500 at 31.

                                               97
determined most likely would be non-recurring.347 Although ICE is an S corporation and

such corporations are not taxed at the entity level, Duff & Phelps, following this Court‘s

practice in Delaware Open MRI Radiology Associates, P.A. v. Kessler,348 estimated an

―equivalent, hypothetical ‗pre-dividend‘ S corporation tax rate‖349 of 28.8 percent, which

it applied to ICE‘s projected operating cash flows.350

       To determine the applicable discount rate to apply to future cash flows, Duff &

Phelps used the well-established Capital Asset Pricing Model (CAPM), which measures

the required rate of return of equity capital based on the relative risk of the investment, as

well as the time value of money.351

       Based on that approach, Duff & Phelps calculated a cost of capital, and thus a

discount rate, of 12.9 percent. Discounting its free cash flow projections for the latter

half of 2012, 2013, and 2014, Duff & Phelps calculated the present value of the free cash

347
       Tr. 724-25 (D‘Almeida); JX 500 at 31.
348
       898 A.2d 290, 336-30 (Del. Ch. 2006).
349
       Id. at 330.
350
       JX 500 at 32-33. This hypothetical rate is the corporate tax rate that a C
       corporation would have to have in order to achieve the same amount of income
       available after dividends as the S corporation. See Delaware Open MRI Radiology
       Assoc., P.A., 898 A.2d at 330. In calculating this rate, Duff & Phelps assumed that
       ICE‘s shareholders are taxed at a personal tax rate of 39.5%, accounting for
       Federal and New York state personal tax rates. JX 500 at 33.
351
       Tr. 725-26 (D‘Almeida); JX 500 at 28. Because ICE‘s capital structure is 100
       percent equity, Duff & Phelps did not need to estimate the required return on debt.
       JX 500 at 28. For a more detailed description of the CAPM calculation, see In re
       Orchard Enters., Inc., 2012 WL 2923305, at *18 (Del. Ch. July 18, 2012) (citing
       Richard A. Brealey, Stewart C. Myers & Franklin Allen, Principles of Corporate
       Finance 214 (9th ed. 2008)).

                                             98
flows from those years to be $309,029, $159,267, and $144,011, respectively, for a total

of $612,307.352

       To calculate the terminal value, Duff & Phelps used the Gordon Growth Model.353

The terminal year cash flow was then capitalized using a rate calculated by subtracting

the long-term expected growth rate of 2.1 percent from the CAPM discount rate of 12.9

percent. The present value of the capitalized terminal year cash flow was calculated to be

$1,359,397.354

       The total present value of the free cash flows from the projection years and the

terminal period, i.e., ICE‘s ―enterprise value,‖ was thus $1,971,704.355 To this, Duff &

Phelps added ICE‘s non-operating assets, including $100,000 in outstanding investments

and $145,527 in funds that were owed to the Company by Jansing.356 Accounting for

fractional dollar amounts, this led to a total fair market valuation for ICE of $2,217,233,

which is the number on which Jansing relied in valuing Zutrau‘s shares.357

       Having reviewed the Duff & Phelps report in detail, I conclude that it accords with

valuation practices endorsed by Delaware Courts and provides an appropriate baseline

352
       JX 500. Schedule 1. The estimated present value of the free cash flows for the
       second half of 2012 were elevated, because ICE collects most of its revenues in
       the second half of the year. Id. at 23.
353
       JX 500 at 33.
354
       Id. Schedule 1.
355
       Id.
356
       Id. at 34; Tr. 726 (D‘Almeida).
357
       JX 500 Schedule 1.

                                            99
estimate of the fair market value of ICE, not accounting for Jansing‘s fiduciary breaches

or the effect of those breaches on the financial performance of the Company. In other

words, if one were to assume that, at the time of the Reverse Stock Split, the Company

had no outstanding derivative claims and that ICE‘s financial performance during the

historical period reflected the performance of a company whose principals were acting in

accord with their fiduciary duties, the Duff & Phelps report appropriately would reflect

the fair value of the Company. In that regard, I note that Plaintiff‘s own valuation and

damages expert, Roy D‘Souza, used the Duff & Phelps valuation as his baseline

valuation for the Company in calculating damages and stated that he would have no

objection to that valuation were it not for Jansing‘s fiduciary breaches.358

       Apart from noting its failure to account for Jansing‘s breaches of fiduciary duty,

Zutrau raised only two objections to the Duff & Phelps report, neither of which is

persuasive. First, she argues that the report uses an unreasonably low growth rate to

project ICE‘s future revenues, on the grounds that the growth rate Duff & Phelps used

was garnered from statistical industry data sources only remotely related to ICE. The

transaction publishing segment of the strategic document outsourcing industry may not

precisely correspond to the proxy services sector in which ICE operates. Nevertheless, I

find that it is closely related enough to serve as a useful reference point in estimating

ICE‘s growth rate. Moreover, Duff & Phelps ultimately assumed that ICE could be

expected to grow at a rate that is above the forecasted growth rate for the transaction


358
       See Tr. 426-27; D‘Souza Dep. 33-34.

                                            100
publishing segment (1.6 percent) and equivalent to the forecasted long-term U.S. inflation

rate (2.1 percent). Given the highly competitive and saturated nature of the market in

which ICE operates, I conclude that Jansing has shown by a preponderance of the

evidence that a higher growth rate would not be justified.

       Second, Zutrau contends that the Duff & Phelps valuation does not ―faithfully

respect the third-party interest ICE received.‖359     Although ICE engaged in several

acquisition discussions with ISS and Computershare in the past, most of those

discussions failed to result in any firm offer to acquire ICE. The one documented

acquisition offer that ICE received, namely, ISS‘s non-binding offer in 2009 to acquire

the Company for $2.5 million, with a maximum earnout potential of $4 million, does not

differ from the Duff & Phelps valuation so significantly as to throw its reliability into

question.

       Thus, I find that the Duff & Phelps report provides a methodologically sound

valuation of the Company as of the time of the Reverse Stock Split, except for the fact

that it does not account for the existence of Jansing‘s breaches of fiduciary duty or the

impact of those breaches on the performance of the Company.              That exclusion is

significant, however, and, as a result of it, the Duff & Phelps valuation ultimately fails to

capture the fair value of ICE at the time of the Reverse Stock Split. I next consider how

properly accounting for Jansing‘s breaches of fiduciary duty would impact the valuation

of the Company.


359
       Pl.‘s Opening Br. 49.

                                            101
         b.      The effect of Jansing’s fiduciary breaches on the valuation

      I find that Jansing‘s breaches of fiduciary duty require that the Duff & Phelps DCF

valuation be modified in two ways to arrive at the fair value of the Company at the time

of the Reverse Stock Split.

      First, the monetary value of the outstanding breach of fiduciary duty claims

against Jansing must be added. This Court has determined that Jansing breached his

fiduciary duties to the Company in the time period between Zutrau‘s termination in June

2007 and the Reverse Stock Split in June 2012. The Company therefore had claims

against him for those breaches at the time of the Reverse Stock Split. As this Court has

acknowledged in other contexts,360 and as Jansing has expressly conceded,361 those

claims can be thought of as non-operating corporate assets the value of which should be

added to that of the Company in determining fair value.

      The Company had a claim against Jansing for personal expenses that he charged to

his Company-issued Amex card that had a value of $15,000.362 The Company also had a

claim against Jansing for $9,919.52 in interest that he improperly caused the Company to

pay on the Credit Line after he withdrew the full balance of that line and placed it in his


360
      See supra note 198.
361
      Def.‘s Opening Br. 60-61.
362
      This value reflects the $14,388.86 in personal expenses Jansing improperly
      charged to the Company during the period from June 2007 to June 2012 rounded
      to $15,000 to account for the addition of a reasonable amount of prejudgment
      interest. Because the individual expenditures were relatively small and numerous
      and spanned a period of several years, it is impracticable to compute a precise
      interest figure.

                                           102
personal bank account. The value of that claim is $9,919.52 plus pre-judgment interest at

the legal rate of 5.75% from November 27, 2007, the date the Credit Line was repaid,

until June 11, 2012. Lastly, the Company had valid claims against Jansing, as of June 11,

2012, for paying himself excessive compensation in the following amounts: $190,080 in

2007; $121,000 in 2009; $75,680 in 2010; and $120,061.04 in 2011.363 The collective

value of these claims is $506,821.04 plus pre-judgment interest on those claims through

June 11, 2012.364 The value of each of the foregoing claims must be added to the Duff &

Phelps valuation as a non-operating asset for it to reflect the fair value of the Company at

the time of the Reverse Stock Split.

       A second modification to the Duff & Phelps valuation is also required. Duff &

Phelps‘ cash flow projections for ICE were based on the revenues and expenses of the


363
       As discussed supra, Plaintiff presented evidence regarding an alleged excessive
       bonus at the end of 2012. Using the same rationale as applied for the years from
       2007 through 2011, the amount of the excess bonus for the calendar year 2012
       would have been $79,275.68. I have not used that figure, however, in determining
       the appropriate remedy in this action for at least two reasons. First, the wrong
       evidently did not occur until December 2012 or later. Thus, that bonus could not
       have formed the basis of a derivative claim ICE would have had as of June 11,
       2012, immediately before the Reverse Stock Split. Thus, that purported claim
       could not have given rise to the equivalent of a non-operating corporate asset.
       And second, based on the way in which Duff & Phelps projected expenses for
       2012 in its DCF analysis, only the excess bonuses for the period ending before
       December 31, 2011 would have been relevant.
364
       To compute the pre-judgment interest on the excess bonus payments, I direct the
       parties to apply an interest rate of 5.75%, which was the legal rate of interest
       during most of the relevant period, compounded quarterly to each of the four
       excess bonus amounts from December 31 of the year corresponding to each bonus.
       Thus, for example, the interest on the excess bonus of $121,000 in 2009 will be
       computed from December 31, 2009 to June 11, 2012.

                                            103
Company during the historical period.      As to expenses specifically, Duff & Phelps

projected that ICE‘s operating expenses would remain constant as a percentage of sales,

based on the average operating expenses as a percentage of sales during the historical

period (2007 to 2011). Payroll expenses during the historical period, however, were

improperly inflated as a result of Jansing‘s self-payment of excessive bonuses. Thus,

projecting that same level of inflated payroll expenses is, in effect, valuing the Company

on the presumption of improper self-dealing continuing into the future. The fair value of

the Company, however, is its going concern value without such self-dealing. For this

reason, a normalizing adjustment is required to the Duff & Phelps model, removing the

expenses attributable to Jansing‘s receipt of excessive compensation from the historical

payroll expenses that served as the basis for projecting ICE‘s payroll expenses into the

future.365   At trial, D‘Almeida acknowledged that such an adjustment would be

appropriate if the Court concluded that Jansing paid himself excessive compensation.366

       Accepting at face value the payroll expenses attributable to Jansing‘s

compensation, Duff & Phelps calculated payroll expenses during the historical period to

be, on average, 49.5% of revenues. If the excessive bonus compensation is removed,

however, average payroll expenses as a percentage of revenues during the historical

period decreases to approximately 46%. When that lowered percentage is projected into

365
       Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 472 (Del. Ch. 2011)
       (―Delaware law on fair value . . . empower[s] a court to make normalizing
       adjustments to account for expenses that reflect controller self-dealing when the
       plaintiff/petitioner provides an adequate evidentiary basis for the adjustment.‖).
366
       Tr. 755-56 (D‘Almeida).

                                           104
the future, it produces a corresponding and significant increase in the projected free cash

flows for the years 2012 to 2014 and the terminal period.           I will direct Jansing,

presumably with the assistance of Duff & Phelps, to compute the present value of those

normalized cash flows for 2012, 2013, and 2014 and for the terminal period, and to share

those figures with Zutrau‘s counsel before submitting them to the Court. The sum of

those amounts will be the fair enterprise value of ICE. To calculate the total fair market

value of ICE, its non-operating assets must be added to the enterprise value, including

$100,000 for ICE‘s investments, $145,527 for funds owed to the Company by Jansing,

and the value of the derivative claims, inclusive of pre-judgment interest on those claims

through June 11, 2012, as described above.

       As the Duff & Phelps report did not account for Jansing‘s breaches of fiduciary

duty, the Duff & Phelps valuation did not reflect the fair value of the Company, and the

Reverse Stock Split was executed at an unfair price. I therefore conclude that that

transaction was not entirely fair to Zutrau, as ICE‘s minority stockholder. In that respect,

the Reverse Stock Split did not comply with 8 Del. C. § 155(b) and the price for Zutrau‘s

fractional shares must be recalculated in accordance with this Opinion.

       Finally, I note that I have considered and reject as unpersuasive Zutrau‘s expert‘s

proposed valuations of the Company.367 D‘Souza modeled three ―but-for‖ scenarios,

which he referred to as the ―less conservative‖ scenario, the ―conservative‖ scenario, and




367
       JX 293.

                                             105
the ―extremely conservative‖ scenario.368 Under these scenarios, he estimated that the

Company would have had a fair market value of $20,100,000, $18,300,000, and

$7,300,000, respectively, but-for Jansing‘s breaches of fiduciary duty.369 Each of the but-

for scenarios analyzed by D‘Souza, however, relied on highly unjustified assumptions.

D‘Souza‘s two more liberal valuations are based on the premise that, but for Jansing‘s

fiduciary breaches, the Company would have successfully signed one or more of the large

banking clients with whom ICE had been having discussions before Zutrau‘s termination,

leading to dramatically increased revenues in every year since.370 I find, however, that

this premise is unsupported by the evidence and not related to any breach that has been

proven. D‘Souza‘s alternative, ―very conservative‖ estimate is equally unavailing. That

valuation essentially attributes all increases in numerous of ICE‘s expense categories

since 2006 to Jansing‘s alleged fiduciary breaches, and makes several other unwarranted

assumptions.371 Zutrau failed to prove many of the claims for breach of fiduciary duties

that underlie her expert‘s report. Thus, I reject the report of her damages expert as a

method for ascertaining the effect of Jansing‘s fiduciary breaches on the value of the

Company.




368
      Id. at 36.
369
      Id.
370
      Id. at 20-26; Tr. 409-10 (D‘Souza).
371
      JX 293 at 26-28.

                                            106
                                     c.      Remedy

       ―In determining damages, the powers of the Court of Chancery are very broad in

fashioning equitable and monetary relief under the entire fairness standard as may be

appropriate, including rescissory damages.‖372 Among the factors a Court will consider

in determining an appropriate remedy is whether there is evidence of ―fraud,

misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and

palpable overreaching.‖373

       Under the facts of this case, I consider an award of fair value to be the appropriate

remedy. Contrary to Zutrau‘s assertions, I have found that Jansing did not execute the

Reverse Stock Split to deprive her of derivative standing. Moreover, Jansing relied on a

credible and largely independent valuation in determining the value of Zutrau‘s shares.

In that regard, Zutrau has not shown that Jansing acted with a conscious intent to deprive

her of the fair value of her shares, or deny her access to the benefits of pending corporate

opportunities. The Reverse Stock Split was a self-interested transaction that I ultimately

have concluded was achieved at an unfair price. It was not, however, the result of

deliberate misconduct, fraud, or gross and palpable overreaching. In light of all relevant

factors, therefore, I conclude that an award of fair value to Zutrau on the basis described

in this Opinion will provide the appropriate remedy in this dispute. Zutrau also is entitled




372
       Int’l Telecharge, Inc. v. Bomarko, Inc., 766 A.2d 437, 440 (Del. 2000).
373
       Weinberger v. UOP, Inc., 457 A.2d 701, 714 (Del. 1983).

                                            107
to prejudgment interest at the legal rate on the adjusted fair value of her fractional shares

compounded quarterly from June 11, 2012 determined in accordance with this Opinion.

       In reaching this conclusion, I also reject Zutrau‘s claim for rescission of the

Reverse Stock Split and dissolution of ICE. Rescission is an equitable remedy and for

the reasons discussed above, I am convinced that the equities attendant to Jansing‘s

implementation of the Reverse Stock Split do not warrant undoing that transaction.374

 E.      Jansing’s Counterclaim Asserting that the New York Judgment Should be
                         Deducted from Amount Owed to Zutrau

       In its post-trial decision, the New York Court determined that Zutrau was entitled

to a judgment of $60,307, representing the positive balance of her ICE capital account.

Jansing asserts a counterclaim in this action, arguing that the amount of the judgment in

the New York Action should be setoff from any amounts owed to Zutrau in connection


374
       In connection with her claim for rescission, Zutrau also sought an order from the
       Court to dissolve ICE. Because I reject Zutrau‘s claim for rescission, she no
       longer is an ICE stockholder and lacks standing to bring a dissolution action
       against the Company. Even assuming, however, that she could bring such a claim,
       I reject it on the merits. As Zutrau recognized in her post-trial briefing, ―for a
       court to order a dissolution or liquidation of a solvent corporation, the proponents
       must show a failure of corporate purpose, a fraudulent disregard of the minority‘s
       rights, or some other fact which indicates an imminent danger of great loss
       resulting from fraudulent or absolute mismanagement.‖ Pl.‘s Opening Br. 56
       (quoting Warshaw v. Calhoun, 221 A.2d 487, 491 (Del. 1966)). Moreover, ―[t]he
       Court exercises this power to dissolve a solvent corporation with great restraint
       and only upon a strong showing.‖ Id. (quoting Carlson v. Hallinan, 925 A.2d 506,
       543 (Del. Ch. 2006)). Zutrau has failed to show that any of the factors specified in
       Warshaw are present here. In addition, Zutrau has made no showing, let alone a
       strong showing, that there are any reasonable grounds to dissolve ICE, a solvent
       corporation. Therefore, I also deny with prejudice Zutrau‘s claim that ICE should
       be dissolved.


                                            108
with the Reverse Stock Split, because the amount remaining in her capital account

effectively was included already in the initial $495,788.81 valuation of her fractional

shares. I reject this counterclaim as barred by collateral estoppel.

       ―The doctrine of collateral estoppel essentially prohibits a party who has litigated

one cause of action from relitigating in a second cause of action matters of fact that were,

or necessarily must have been, determined in the first action.‖375 Collateral estoppel

applies if: (1) the same issue is presented in both actions; (2) the issue was litigated and

decided in the first action; and (3) the determination was essential to the prior

judgment.376

       By the time of trial in the New York Action, Jansing had effected the Reverse

Stock Split and issued Zutrau a check for $495,788.81. In arguing in the New York

Action against Zutrau‘s claim that she was entitled to the $60,307 in her ICE capital

account, Jansing made the same factual argument that he now advances in this Court,

namely, that the $60,307 already was included in the amount tendered to Zutrau in

connection with the Reverse Stock Split. In rejecting that argument, the New York Court

held as follows:

               The record reveals that the plaintiff received a check in June
               2012 for $495,778.71, which represented the value of her ICE
               stock. Although Jansing testified that he believed the $60,307
               was included in that amount, he presented no evidence of how
               the $495,778.71 was computed. Accordingly, the court finds


375
       Sanders v. Malik, 711 A.2d 32, 33 (Del. 1998)
376
       Id. at 33-34.

                                            109
             that the plaintiff is entitled to a judgment in the amount of
             $60,307.377

      In other words, the Court held that Jansing had failed to meet his burden of proof

to show that the amount tendered to Zutrau in connection with the Reverse Stock Split

included the amount remaining in her capital account and decided that factual issue

adversely to him. That decision appears to have been necessary to the New York Court‘s

judgment. The court presumably would not have awarded Zutrau $60,307 in damages if

it had accepted Jansing‘s argument that that amount already had been tendered to her. I

therefore deny Jansing‘s counterclaim for an offset in the amount of $60,307.

                                     F.      Costs

      Under Court of Chancery Rule 54(d), costs ―shall be allowed as of course to the

prevailing party unless the court otherwise directs.‖378         Under Rule 54(d), the

―prevailing‖ party is a party who successfully prevails on the merits of the main issue or

the party who prevailed on most of her claims.379 Courts interpret the term ―prevailing‖

to mean that a party need not be successful on all claims, but rather must succeed on a




377
      Zutrau v. Ice Sys., Inc., 2013 WL 1189213, at *8 (N.Y. Sup. Ct. Mar. 20, 2013).
378
      For the purposes of Rule 54(d), costs include ―expenses necessarily incurred in the
      assertion of a right in court, such as court filing fees, fees associated with service
      of process or costs covered by statute. . . . [I]tems such as computerized legal
      research, transcripts, or photocopying are not recoverable.‖ See FGC Hldgs. Ltd.
      v. Teltronics, Inc., 2007 WL 241384, at *17 (Del. Ch. Jan. 22, 2007).
379
      See id; Brandin v. Gottlieb, 2000 WL 1005954, at *27.

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general majority of claims.380 Because Zutrau succeeded on important aspects of several

of her claims, I award Zutrau her costs under Rule 54(d).

                               III.     CONCLUSION

       For the reasons stated in this Opinion, I reach the following conclusions.

       Count I of the Complaint asserts a derivative claim for breach of fiduciary duty

against Jansing, challenging his running of the Company after Zutrau‘s termination.

Although Zutrau ultimately failed to demonstrate a basis for asserting derivative standing

in this case, the merits of her derivative breach of fiduciary duty claims were nonetheless

relevant to her remaining claims based on the impact the value of those derivative claims

might have on the fair value of ICE at the time of the Reverse Stock Split. As to the

merits of the derivative claims, Zutrau succeeded in demonstrating that Jansing breached

his fiduciary duties to ICE by causing ICE to pay interest on amounts that he withdrew

from ICE‘s Credit Line and placed into his personal bank account, by charging certain

personal expenses to his Company-issued credit card, and by paying himself excess

compensation. Zutrau did not prove any other breaches of fiduciary duty in connection

with Count I.

       Count II of the Complaint asserts a direct claim for breach of fiduciary duty

against Jansing, alleging that he effected the Reverse Stock Split for the improper

purpose of depriving Zutrau of derivative standing and at an inadequate price. Count III

similarly asserts that Jansing violated 8 Del. C. § 155 by failing to provide fair value for


380
       See FGC Hldgs., 2007 WL 241384, at *17.

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Zutrau‘s fractional shares in the Reverse Stock Split. I deny Zutrau‘s claim that Jansing

executed the Reverse Stock Split for the bad faith purpose of depriving her of derivative

standing and dismiss that aspect of Count II with prejudice. I further hold that the

Reverse Stock Split was not entirely fair and violated 8 Del. C. § 155, because the Duff &

Phelps valuation that Jansing relied upon in valuing Zutrau‘s shares did not account for

Jansing‘s pre-existing breaches of fiduciary duty and therefore did not provide Zutrau

with the fair value of her shares. As a remedy, Zutrau is entitled to receive that fair

value.

         As detailed in this Opinion and in the Order being entered concurrently with it,

estimating the fair value of ICE at the time of the Reverse Stock Split requires making

two modifications to the Duff & Phelps valuation. First, a normalizing adjustment to the

payroll expenses during the historical period must be made to eliminate the effect of

expenses attributable to Jansing‘s excess compensation on the projections for years 2012

to 2014 and the Terminal Year. Second, the value of the breach of fiduciary duty claims

that ICE had against Jansing at the time of the Reverse Stock Split, including

prejudgment interest, must be added to the value of the Company. Zutrau is entitled to

22% of the value of that revised fair value of the Company, plus pre and post-judgment

interest at the legal rate, compounded quarterly.

         I also hold that Zutrau failed to prove the claim asserted in Count IV of the

Complaint for equitable fraud and negligent misrepresentation against Jansing. In terms

of relief, I deny Zutrau‘s request for rescission of the Reverse Stock Split and for

dissolution of ICE based on Jansing‘s breaches of fiduciary duty and other alleged

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misconduct. Finally, I deny and will dismiss with prejudice Jansing‘s counterclaim for a

setoff of the judgment awarded to Zutrau in the New York Action against any relief she

obtains in this action.

       The parties shall cooperate in implementing the procedure set forth in the

accompanying Order to prepare and submit promptly an appropriate form of final

judgment and order.




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