Title: Poliak v. Keyser, et al.

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
ALBERT POLIAK, 
 
 
§ 
 
 
 
 
 
 
§  No. 478, 2012 
 
Defendant Below,  
 
§ 
 
Appellant,  
 
 
§  Court Below – Court of Chancery 
 
 
 
 
 
 
§  of the State of Delaware 
 
v. 
 
 
 
 
§  C.A. No. 7109 
 
 
 
 
 
 
§ 
ROBERT D. KEYSER, JR., FRANK § 
SALVATORE and SCOTT SCHALK,§ 
 
 
 
 
 
 
§ 
 
Plaintiffs Below,  
 
§ 
 
Appellees,  
 
 
§ 
 
 
 
 
 
 
§ 
and 
 
 
 
 
 
§ 
 
 
 
 
 
 
§ 
ARK FINANCIAL SERVICES, INC.,§ 
 
 
 
 
 
 
§ 
 
Nominal Defendant Below, 
§ 
 
Appellee. 
 
 
 
§ 
 
 
 
 
 
   Submitted:  April 10, 2013 
 
 
 
 
      Decided:  May 6, 2013 
 
Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and 
RIDGELY, Justices, constituting the Court en Banc. 
 
O R D E R 
 
 
This 6th day of May 2013, it appears to the Court that: 
 
1) 
This is an appeal by the defendant-appellant, Albert Poliak 
(“Poliak”), from the July 31, 2012 Memorandum Opinion, and the August 3, 
2012 Order and Final Judgment of the Court of Chancery in an action under 
title 8, section 225 of the Delaware Code to determine the composition of 
2 
 
the board of directors of Ark Financial Services, Inc. (“Ark”).  The 
complaint was filed on December 13, 2011, by plaintiffs-appellees, Robert 
D. Keyser, Jr., Frank Salvatore, and Scott Schalk (collectively the 
“Plaintiffs”), who alleged they comprised Ark’s board of directors by virtue 
of a stockholders’ consent signed on December 13, 2011 (the “2011 Written 
Consent”). 
 
2) 
The holders of a majority of Ark’s common stock acted by 
written consent on December 13, 2011, to remove the existing Ark board 
and to elect the Plaintiffs as Ark’s directors.  The defendants – three 
directors removed by the 2011 Written Consent and Poliak, a former director 
and CEO of Ark – submitted that the stockholder consent was ineffective 
because Poliak held super-voting Series B preferred stock.   
3) 
The Plaintiffs argued that the 2011 Written Consent was 
effective because Ark’s Series B Preferred Stock held by Poliak should not 
be counted in determining what constituted a majority of the Ark stock 
outstanding and entitled to vote.  Poliak caused ARK to issue that Series B 
Preferred Stock one year earlier, in December 2010, to block a prior 
takeover attempt by Keyser. 
 
4) 
Following the 2010 issuance of the Series B Preferred Stock, 
the groups contending for control of Ark negotiated a series of agreements 
3 
 
that ultimately led to Ark issuing $4,000,000 of new Series A Preferred 
Stock to third party investors.  In the Series A Preferred Stock Offering 
materials, Ark informed these investors that Poliak controlled Ark through 
the Series B Preferred Stock.  The sale of the Series A Preferred Stock 
permitted Ark to negotiate settlements with its creditors on its past-due, 
multi-million debts and remain in business.   
5) 
Following expedited proceedings, the Court of Chancery held a 
two-day trial on March 14-15, 2012.  After trial, the Court of Chancery 
determined that Poliak, while serving as Ark’s sole director in December 
2010, had violated his fiduciary duty of loyalty by causing the super-voting 
preferred stock to be issued to himself for the admitted purpose of thwarting 
holders of a majority of Ark’s common stock from removing him as a 
director.  Specifically, the Court of Chancery concluded that “Poliak’s self-
dealing was motivated by a desire to prevent Ark’s shareholders from 
electing a new Board . . .,” that Poliak’s issuance of super-voting preferred 
stock “to himself at a bargain price in order to gain control of the 
corporation and prevent its stockholders from removing him (or those 
aligned with him) from office” was not entirely fair, and that the issuance of 
the preferred stock was therefore invalid.  Accordingly, the Court of 
Chancery concluded that holders of “a majority of Ark’s common stock, the 
4 
 
only valid and outstanding class of Ark stock entitled to vote in a Board 
election, executed the 2011 Written Consent, and that consent elected the 
Plaintiffs to the Board and removed [the prior directors].” 
 
6) 
Poliak is the only defendant who appealed.  He has not 
contested the Court of Chancery’s ruling that he violated his fiduciary duty 
of loyalty by issuing super-voting preferred stock to himself for the admitted 
purpose of preventing his own removal.  Instead, in this appeal, Poliak 
asserts that the Court of Chancery erred in rejecting several equitable 
defenses – laches, ratification, acquiescence, and waiver.  
 
7) 
First, Poliak argues that “[s]tockholders who are fully informed 
about the issuance of a control block of a corporation’s stock and who accept 
the benefits of a subsequent sale of corporate stock to third party investors 
that is based on the existence and identity of the controlling stockholder may 
not later attack the issuance of the control block of stock.”  According to 
Poliak, “[l]aches bars that attack.”  Second, Poliak contends that 
“[s]tockholders who accept the benefits of a corporation’s sale of its stock 
with full knowledge ratify, acquiesce or waive objections to the transaction 
that made that sale of stock possible.” 
8) 
The legal issues in this case present mixed questions of law and 
fact.  The applicable standards of appellate review in this context are well 
5 
 
established.1  After a trial, findings of historical fact are subject to the 
deferential “clearly erroneous” standard of review.2  That deferential 
standard applies “not only to historical facts that are based upon credibility 
determinations but also to findings of historical fact that are based on 
physical or documentary evidence or inferences from other facts.  Where 
there are two permissible views of the evidence, the factfinder’s choice 
between them cannot be clearly erroneous.”3  Once the historical facts are 
established, the issue becomes whether the trial court properly concluded 
that a rule of law is or is not violated.  We review the trial court’s legal 
conclusions de novo.4 
9) 
The Court of Chancery concluded that laches does not bar 
Plaintiffs’ challenge to the validity of the super-voting preferred stock.  The 
Court of Chancery made factual findings that the Defendants had failed to 
show unreasonable delay and had failed to show any prejudice.  Those 
findings of fact are entitled to deference on appeal.5  The record reflects that 
the Plaintiffs filed suit the same day they delivered to Ark the 2011 Written 
Consent electing a new board, and one year after Poliak caused the super-
                                          
 
1 Hall v. State, 14 A.3d 512, 516-17 (Del. 2011).  
2 Id. 
3 Id. at 516-17. 
4 Id. at 517.  See also Blake v. State, 954 A.2d 315, 317-18 (Del. 2008). 
5 See Hudak v. Procek, 806 A.2d 140, 153 (Del. 2002). 
6 
 
voting preferred stock to be issued to himself.  The Court of Chancery found 
that the Plaintiffs did not file suit sooner due to good faith efforts to 
negotiate a settlement.  Poliak’s argument that third-party investors 
detrimentally relied on a belief that he would control Ark through the super-
voting preferred stock is not supported by the record.   
10) 
The Court of Chancery concluded that the Plaintiffs did not 
ratify or acquiesce in Poliak’s self-dealing conduct, and had not waived the 
right to challenge Poliak’s self-dealing issuance of super-voting preferred 
stock to himself.  The Court of Chancery found that Keyser had reserved the 
right to challenge the preferred stock issuance.  The Court of Chancery also 
found that the Defendants had failed to show that third-party investors made 
their investment because they wanted to have Poliak as a controlling 
stockholder or that they believed the self-dealing issuance of preferred stock 
to Poliak could never be challenged.   
11) 
The Court of Chancery held that “none of the equitable 
defenses raised by the Defendants has any merit.”  That holding, which was 
based on the trial court’s findings of historical fact and its conclusion that 
Poliak had failed to carry his burden of proof with regard to any of the 
affirmative equitable defenses he asserted, is entitled to deference on appeal. 
7 
 
12) 
Having considered this matter after oral argument and on the 
briefs filed by the parties, the Court has determined that the final judgment 
of the Court of Chancery should be affirmed on the basis of and for the 
reasons assigned by the Court of Chancery in its July 31, 2012 
Memorandum Opinion.   
NOW, THEREFORE, IT IS HEREBY ORDERED that the judgment 
of the Court of Chancery be, and the same hereby is, AFFIRMED. 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
/s/ Randy J. Holland 
 
 
 
 
 
Justice