Title: SDF Funding LLC v. Fry

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
SDF FUNDING LLC AND 
STUART D. FELDMAN, 
derivatively on behalf of 
FLASHPOINT TECHNOLOGY, 
INC., 
 
Plaintiffs Below, 
Appellants, 
 
v. 
 
STANLEY B. FRY, EDWARD D. 
HERRICK, ROSS BOTT, CYRUS 
W. GREGG, AND MAGDALENA 
RAMOS, 
 
Defendants Below, 
Appellees, 
 
and 
 
FLASHPOINT TECHNOLOGY, 
INC., 
 
Nominal Defendant Below, 
Appellee. 
 
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§    No. 205, 2022 
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§    Court Below–Court of Chancery 
§    of the State of Delaware 
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§ 
§    C.A. No. 2017-0732 
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Submitted:  June 24, 2022 
Decided:  July 8, 2022 
 
Before VALIHURA, VAUGHN, and TRAYNOR, Justices. 
 
ORDER 
 
 
After careful consideration of the notice of interlocutory appeal, the 
supplemental notice of appeal, and their exhibits, it appears to the Court that: 
2 
 
 
(1) 
In October 2017, the plaintiffs below/appellants, SDF Funding LLC 
(“SDF”) and Stuart D. Feldman (“Feldman”) (together, the “Plaintiffs”), filed this 
derivative suit on behalf of the nominal defendant FlashPoint Technology, Inc. 
(“FlashPoint”).  Relevant here, Feldman initially invested in FlashPoint through his 
wholly owned subsidiary, Chelsey Capital, LLC (“Chelsey”), in 2019 and caused 
Chelsey to transfer the FlashPoint stock to SDF, another of his wholly owned 
subsidiaries, in March 2015. 
(2) 
On February 16, 2021, the defendants moved for partial summary 
judgment.  Observing that Feldman and SDF’s claims are derivative and subject to 
the contemporaneous-ownership requirement of the DGCL,1 the defendants argued 
that they were entitled to summary judgment because Feldman never owned 
FlashPoint stock and SDF did not acquire FlashPoint stock until 2015.  In its May 
13, 2022 memorandum opinion, the Court of Chancery granted the defendants’ 
motion for summary judgment as to the Plaintiffs’ claims that challenged actions 
taken before SDF acquired FlashPoint stock (the “Opinion”).2  In so doing, the Court 
of Chancery rejected the Plaintiffs’ argument that Feldman has standing to pursue 
those claims under the equitable-standing doctrine. 
 
1 8 Del. C. § 327 (“In any derivative suit instituted by a stockholder of a corporation, it shall be 
averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the 
transaction of which such stockholder complains or that such stockholder’s stock thereafter 
devolved upon such stockholder by operation of law.”). 
2 SDF Funding LLC v. Fry, 2022 WL 1511594 (Del. Ch. May 13, 2022). 
3 
 
 
(3) 
On May 27, 2022, the Plaintiffs asked the Court of Chancery to certify 
an interlocutory appeal from the Opinion under Supreme Court Rule 42.  The 
Plaintiffs maintained that the Opinion decided a substantial issue of material 
importance—namely, that the Plaintiffs do not have standing to pursue the “vast 
majority” of their claims.  The Plaintiffs also argued that the following Rule 
42(b)(iii) factors weighed in favor of interlocutory review: (i) the Opinion decided a 
question of law that is a matter of first impression in Delaware;3 (ii) the Opinion is 
“in tension” with other trial court decisions;4 (iii) the question of law relates to the 
construction and application of Section 327 of the DGCL;5 and (iv) interlocutory 
review would serve the considerations of justice.6  The defendants opposed the 
application. 
 
(4) 
On June 16, 2022, the Court of Chancery denied the application for 
certification.7  The Court of Chancery agreed with the Plaintiffs that the Opinion had 
resolved a substantial issue of material importance—a threshold consideration under 
Rule 428—but nonetheless concluded that the benefits of interlocutory review would 
not outweigh the costs.  First, the Court of Chancery found that, although it had 
 
3 Del. Supr. Ct. R. 42(b)(iii)(A). 
4 Del. Supr. Ct. R. 42(b)(iii)(B). 
5 Del. Supr. Ct. R. 42(b)(iii)(C). 
6 Del. Supr. Ct. R. 42(b)(iii)(H). 
7 SDF Funding LLC v. Fry, 2022 WL 2165922 (Del. Ch. June 16, 2022). 
8 Del. Supr. Ct. R. 42(b)(i) (“No interlocutory appeal will be certified by the trial court or accepted 
by this Court unless the order of the trial court decides a substantial issue of material importance 
that merits appellate review before a final judgment.”). 
4 
 
given serious consideration to the Plaintiffs’ novel theory of the equitable-standing 
doctrine, the Opinion did not adopt it or otherwise expand existing law.  Second, the 
Court of Chancery disagreed with the Plaintiffs’ assertion that the Opinion is in 
conflict with other trial court decisions and distinguished them.  Third, the Court of 
Chancery agreed with the Plaintiffs that the Opinion involves the application of 
Section 327 and that Factor C favored certification.  Fourth, the Court of Chancery 
found the considerations-of-justice factor to be neutral—although the time and 
money that the Plaintiffs had spent litigating and investigating on behalf of the 
injured stockholders is relevant, so too is the allocation of defense and judicial 
resources.   On balance, the Court of Chancery concluded that the support of one of 
the eight Rule 42(b)(iii) factors did not warrant certification of an interlocutory 
appeal. 
 
(5) 
  We agree with the Chancery Court that interlocutory review is not 
warranted in this case.  Applications for interlocutory review are addressed to the 
sound discretion of the Court.9  In the exercise of its discretion and giving due weight 
to the Court of Chancery’s analysis, the Court has concluded that the application for 
interlocutory review does not meet the strict standards for certification under Rule 
42(b).  Exceptional circumstances that would merit interlocutory review of the Court 
 
9 Del. Supr. Ct. R. 42(d)(v). 
5 
 
of Chancery’s decision do not exist in this case,10 and the potential benefits of 
interlocutory review do not outweigh the inefficiency, disruption, and probable costs 
caused by an interlocutory appeal.11 
NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is 
REFUSED.   
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
 
/s/  James T. Vaughn,  Jr.  
 
 
 
 
 
 
Justice 
 
 
10 Del. Supr. Ct. R. 42(b)(ii). 
11 Del. Supr. Ct. R. 42(b)(iii).