Title: B.F.Rich & Co. v. Gray

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
B.F. RICH & CO., INC., a Delaware § 
corporation, 
 
§ 
 
 
§ 
No. 617, 2006      
 
Plaintiff Below, 
§ 
 
Appellant, 
§ 
Court Below:  Court of Chancery  
 
 
§ 
of the State of Delaware in and for 
              v. 
 
§ 
New Castle County 
 
 
§ 
RICHARD E. GRAY, SR.,  
§ 
individually, 
 
§ 
C. A. No. 1896-N 
 
 
§ 
 
 
Defendant Below, 
§ 
 
 
Appellee, 
§ 
 
 
§ 
           and 
 
§ 
 
 
§ 
RICH REALTY, INC., a Delaware  
§ 
corporation, 
 
§ 
 
 
§ 
 
Nominal Defendant § 
 
Below, Appellee. 
§ 
 
 
 
Submitted:  April 4, 2007 
 
 
Decided:     September 11, 2007 
 
Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and 
RIDGELY, Justices, constituting the Court en Banc. 
 
Upon Appeal from the Court of Chancery.  REVERSED and REMANDED. 
 
 
Michael F. Bonkowski (argued), Norman L. Pernick and Kimberly L. 
Gattuso, Esquires, of Saul Ewing, LLP, Wilmington, Delaware; for Appellant. 
 
 
Henry A. Heiman, Esquire, of Heiman Gouge & Kaufman, LLP, 
Wilmington, Delaware; for Appellees. 
 
 
JACOBS, Justice: 
 
Two minor children, who reside in Connecticut, own 49% of the stock of a 
Delaware corporation.  The father of those minor children voted that stock to gain 
operational control of that corporation without having first been appointed as 
guardian of his children’s estate (property).  A Connecticut statute requires the 
appointment of a guardian of a minor’s estate where a parent receives or uses 
property of the minor child having a value exceeding $10,000.1  The value of the 
minor children’s shares exceeds $10,000.  The sole question of substance on this 
appeal is whether the father’s voting of the minor children’s shares constituted a 
“use” of those shares within the meaning of the Connecticut guardianship statute, 
thus requiring the appointment of a guardian of the minor children’s estate to vote 
the shares.  We hold that the father’s voting of those shares constituted a “use” of 
the shares within the meaning of that statute.  As a consequence, the voting of the 
children’s shares by anyone other than a court-appointed guardian was invalid, 
with the result that less than a majority of the corporation’s shares were validly 
voted and the written consent action had no legal force.  Because the Court of 
Chancery reached a contrary result, we reverse and remand. 
The plaintiff below-appellant, B.F. Rich & Co., Inc. (“Rich”), is a minority 
stockholder of Rich Realty, Inc. (“Realty”), a corporation that is the subject of the 
control fight in this action.  The Court of Chancery determined that Richard E. 
                                          
 
1 Connecticut General Statutes, Section 45a-631(a).  
 
2 
 
 
Gray (“Gray, Sr.”); his adult daughter, Carson Gray; and his brother, B. David 
Gray; properly voted a majority of Realty’s outstanding shares, thereby validly 
electing themselves as the de jure directors and officers of Realty.2  On or about 
December 6, 2005, Realty was served with an “Action by Consent of the 
Shareholders of Rich Realty, Inc.,” in which Gray, Sr. and Carson Gray were 
elected as the new directors of Realty (the “2005 Shareholder Consent”).  Realty 
was also served with an “Action by Unanimous Consent of the Directors of Rich 
Realty, Inc.” whereby Gray, Sr., Carson Gray, B. David Gray and another person 
were appointed as Realty’s new officers.  In both written consents, Gray, Sr. voted 
his minor children’s shares, which represented 49% of Realty’s outstanding stock. 
Thereafter, Rich, as a Realty stockholder, brought this action under 8 Del. C. 
§ 2253 in the Court of Chancery.  Rich sought a declaratory judgment that Gray, 
Sr.’s consent action to remove Realty’s incumbent directors and officers, and to 
elect himself and his relatives as Realty’s sole directors and officers, was invalid.  
The basis for Rich’s claim was that under Connecticut law, only a court-appointed 
guardian of the property of Gray, Sr.’s minor children could lawfully vote the 
children’s stock for that purpose.  On November 9, 2006, after a trial, the Court of 
Chancery issued a Memorandum Opinion determining that Gray Sr. had properly 
                                          
 
2 Rich and Realty are both Delaware corporations. 
 
3 Rich brought its Section 225 action as Plaintiff, naming Gray, Sr. as the Defendant and Realty 
as a Nominal Defendant. 
 
3 
 
 
voted his minor children’s shares, that the written consents were legally effective, 
and that Gray, Sr., his daughter, and his brother were properly elected as Realty’s 
de jure directors and officers.4 
Rich appeals from the judgment implementing that Opinion.  Upon 
reviewing the record and the applicable authorities, we conclude that in ruling that 
no guardian was required, the Court of Chancery reversibly erred.  
FACTS 
The Parties 
 
Rich, whose principal place of business is Newark, Delaware, is a 
manufacturer and distributor of custom vinyl windows and aluminum storm 
products for the remodeling and new construction markets.  Rich owns 18 shares, 
or 15.25%, of Realty’s 118 outstanding shares, for which Rich paid $1 million.  
Rich also leases space from Realty in Newark.  Until the date that Gray, Sr. 
purported to remove them by the 2005 written consents, Rich’s two officers, 
Richard Rebmann and George Simmons, were the officers of Realty as well. 
Realty, the other corporate party, was formed on July 3, 1997 for the sole 
purpose of facilitating the acquisition of the Newark, Delaware property upon 
which Rich constructed the building that it now leases from Realty.  That property 
and the lease revenue it earns represent Realty’s only assets. 
                                          
 
4 B. F. Rich Co., Inc. v. Richard E. Gray, et. al.,  2006 WL 3337163 (Del. Ch.) (cited herein as 
“Chancery Op.”). 
 
4 
 
 
As noted above, Rich owns 18 shares of Realty.  Gray, Sr. owns no stock in 
Realty and never has.  Realty’s other shareholders are:   (1) Jepsco, Ltd.; (2) Adelia 
and Richard Gray, Jr., who are Gray Sr.’s minor children by Gray Sr.’s former 
wife, Sabele Foster; (3) Josslyn Gray, who is Gray Sr.’s niece and the minor 
daughter of B. David Gray; and (4) Carson Gray, who is Gray, Sr.’s adult daughter 
by a previous marriage.  The chart below sets forth Realty’s shareholders (other 
than Rich) and their respective shareholdings: 
STOCKHOLDER 
NUMBER OF SHARES
OWNERSHIP  % 
Jepsco, Ltd. 
                4 
              3.39 % 
Josslyn Gray, minor 
                9 
              7.62 % 
Carson M. Gray 
              29 
            24.58 % 
Adelia H. Gray, minor 
              29 
            24.58 % 
Richard E. Gray, Jr., minor 
              29 
            24.58 % 
 
 
The shares of the minor children, Adelia and Richard Gray, Jr., have been at 
all times owned outright and held in the children’s own names.5  The issuance of 
those shares to the minor children was not a gift under the Connecticut (or any 
other) Uniform Transfers to Minors Act. 
 
                                          
 
5 Because the minor children reside in Connecticut, all parties agree that the substantive issue in 
this case—whether a court-appointed guardian was required to vote the children’s Realty shares 
in the manner in which they were voted here—is governed by Connecticut law. 
 
5 
 
 
Gray, Sr., the other principal actor, is a New York resident, and was an 
attorney and a member of the New York State Bar until his disbarment in 2002.  In 
an unrelated proceeding, Gray, Sr. served two years in prison as a result of being 
held in contempt by the Supreme Court of New York.  He also pled guilty to 
bankruptcy and tax fraud in the United States District Court for the Eastern District 
of Missouri.  And, in 2004, the United States District Court for Delaware, per then-
District Court (now Third Circuit Court of Appeals) Judge Kent A. Jordan, held 
Gray, Sr. liable for approximately $40 million for acts of corporate malfeasance.6 
Gray Sr.’s  Efforts  In  2004 To Vote 
His Minor Children’s Realty Shares 
 
As noted, the dispute here concerns whether, at the time he executed the 
2005 Shareholder Consent, Gray, Sr. was lawfully authorized to vote his minor 
children’s Realty shares.  Although the 58 shares owned by Gray Sr.’s two minor 
children did not represent an absolute majority interest in Realty, those 58 shares 
were indispensable to anyone seeking to obtain voting control.7  Hence, starting in 
                                          
 
6 Summit Metals, Inc. v. Richard E. Gray, et. al., 2004 WL 1812700 (D. Del.).  As the Vice 
Chancellor stated in his Opinion, Judge Jordan “found that Gray, in his capacity as sole director 
of the company involved, violated his fiduciary duties by engaging in self-dealing transactions 
and usurping corporate opportunities.”  Chancery Op., 2006 WL 3337163, at *3. 
 
7 Adelia Gray and Richard Gray, Jr. together own 58 of Realty’s 118 outstanding shares, which  
represent 49.1% of Realty’s voting power.  Those 58 shares, when combined with Carson Gray’s 
29 shares, total 87 shares, or 73% of Realty’s voting power.  Because Carson Gray was allied 
with her father (who owned no Realty shares), to obtain majority control of Realty it was 
essential that Gray, Sr. obtain the right to vote his minor children’s 58 shares. 
 
6 
 
 
2004, Gray made various attempts to obtain and exercise the power to vote his 
minor children’s Realty shares.  
 
First, in August 2004, Gray, Sr. notified Rich by letter that he had exercised, 
on behalf of his minor children, a “Written Consent by Holders of In Excess of 
50% of the … Outstanding Capital Stock in Lieu of Meeting.”  That consent was 
also signed by Carson Gray in her individual capacity.  In the 2004 shareholder 
consent, the minor children (through Gray Sr.) and Carson Gray purported to 
remove the existing directors of Realty, and to replace them with Gray, Sr., B. 
David Gray, and Carson Gray, as Realty’s new directors.  Those persons also 
executed a “Written Action and Consent of Directors in Lieu of a Meeting of the 
Board of Directors,” wherein they purported to discharge the current slate of 
officers and elect themselves (respectively) as Realty’s President, Secretary, and 
Treasurer.  Gray, Sr. then instructed the allegedly removed directors and officers to 
turn over certain company books and records in their possession. 
 
In response, Rich, through its officers, Messrs. Rebmann and Simmons, 
questioned the validity of the 2004 shareholder consent, noting that none of the 
signatures on that consent had been verified or separately corroborated.  Rich 
requested corroboration of the authenticity of the signatures.  Correspondence 
between Gray, Sr. and Rich then ensued.  In a letter dated September 1, 2004 (on 
Realty letterhead on which Gray, Sr. signed as the president of Realty), Gray, Sr. 
 
7 
 
 
promised to provide evidence verifying the signatures appearing on the 2004 
shareholder consent.  Thereafter, Gray, Sr. provided what he represented were 
notarized certificates of the shareholders confirming and verifying their respective 
signatures.  The certificate that was signed by Gray Sr. and dated October 5, 2004, 
stated: 
As the father of both [Adelia Gray and Richard Gray, Jr.], I have full 
legal right and authority to take various actions on their respective 
behalves, including, without limitation, the execution and delivery to 
all parties whom I deem necessary and/or appropriate, of all such legal 
and other documents as I may deem necessary and/or appropriate to 
protect their respective legal rights and interests in respect of all 
property owned by each of them. 
 
 
On or about October 21, 2004, Rich responded by letter, rejecting Gray, 
Sr.’s claim that he had authority to speak for his minor children, and inviting Gray, 
Sr. to provide additional evidence of his authority to act on their behalf in this 
matter.  Gray, Sr. never responded.  Instead, he abandoned his efforts to take 
control of Realty in reliance upon the 2004 shareholder consent, and sought to 
achieve that goal in a different way. 
Gray, Sr.’s Effort To Be Appointed As The 
Guardian of His Minor Children’s Estates 
 
 
During 2005, Gray, Sr. was involved in a contested divorce proceeding with 
his ex-wife, Sabele Foster, in the Connecticut Superior Court.  The divorce 
proceeding was not resolved until December 10, 2005, under circumstances that 
are later described. 
 
8 
 
 
While the divorce proceeding was ongoing, Gray, Sr. attempted a second 
strategy to obtain the right to vote his minor children’s Realty shares.  In July 
2005, he filed in the Probate Court for the State of Connecticut a petition seeking 
his appointment as guardian of his minor children’s estates, specifically their 
Realty shares.  A guardian ad litem on behalf of the minor children (the 
“Guardian”) was then appointed.  On August 24, 2005, the Guardian filed with the 
Connecticut Probate Court a report (the “Report”) responding to the petition on 
behalf of the minor children.  In her Report, the Guardian stated: 
I have also spoken with Ms. Sabele Foster, Mr. Gray’s ex-wife. 
[Foster] expressed serious concerns regarding Mr. Gray being given 
control of their children’s money….  She reports that their marital 
settlement is still being negotiated in Middlesex Superior 
Court…[and]…that one of the issues being discussed in Superior 
Court is the same issue as petitioned for here.  She also reports that 
Mr. Gray is currently suing her in New York State regarding the 
property that was awarded her in Middlesex Superior Court.  She 
reports that both she and her elderly parents currently have to contest 
this action at great cost…[and] that the money being used in that 
lawsuit to fight over this property (in New York) is also money that 
would be better used toward the children’s college costs. 
 
Ms. Foster also expressed concerns regarding Mr. Gray’s daughter 
Carson due to events that have occurred in the past.  She believes that 
Carson will essentially work solely for Mr. Gray’s interests…[and 
that]…Mr. Gray’s brother David would not be a neutral party either.  
She has concerns that having Mr. Gray, his daughter Carson (a 
stockholder) and his brother David (the father of another stockholder) 
appointed as directors [of Realty] would give them the ability to do 
anything they wish with Adelia and Teddy’s money.  She suspects 
that choices might be made that would not be in the children’s best 
interests. She believes that Mr. Gray, Carson, and David have 
 
9 
 
 
significant conflicts of interest in this matter.  Essentially, Ms. Foster 
does not wish for Mr. Gray to control their children’s money. 
 
 
The Guardian also discussed in some detail her concerns regarding Gray, 
Sr.’s ability to discharge faithfully his fiduciary duties as guardian of his minor 
children’s property: 
The undersigned has obtained a copy of Judge [Elaine] Gordon’s 
decision at the dissolution hearing on August 12, 2003.  Judge Gordon 
found Mr. Gray to be less than forthcoming in his financial disclosure, 
in fact she found there to be almost no disclosure even after thirteen 
months of notice.  The only evidence before the court that date was an 
unsworn financial affidavit filed by Mr. Gray, hence the court’s 
financial findings were all estimates based on what little evidence was 
before it….  According to his unsworn financial affidavit, Mr. Gray 
claimed to be making [$36,000] per year, yet the expenses he had paid 
that year, not counting legal costs for his dissolution attorney, criminal 
defense attorney, and business attorneys, were [$86,000].  Hence the 
court assigned him a higher earning capacity.  One of Mr. Gray’s 
financial affidavits in the dissolution file showed an outstanding debt 
of approximately $14 million dollars. 
 
The Guardian concluded her Report thusly: 
Mr. Gray maintains that he simply wishes to protect his children’s 
interests via this petition….  If what he is alleging is indeed true, then 
it makes sense for him to wish to gain control of this corporation to 
protect his children’s interests.  Unfortunately however, there is 
evidence in the dissolution file that Mr. Gray has been less than 
truthful in the past, particularly as pertaining to business matters.8  
The undersigned does not feel therefore, that she can formulate what 
is in the children’s best interests by simply relying on Mr. Gray’s 
                                          
 
8 At a hearing held on August 12, 2003 on issues relating to the divorce proceeding, the 
Middlesex Superior Court found that Gray, Sr. had never disclosed certain items of valuable 
property to his former wife or to the court “as part of his pattern of deceit and deception.”  
Continuing further, the Connecticut Superior Court Judge commented about Gray, Sr. that 
“[t]here is no spirit of observance of the law, the power of the Court, or the goal of this 
proceeding, which is to do equity.” 
 
10 
 
 
statements.  And although I have no doubt that Mr. Gray is an 
accomplished business person, there is evidence in the dissolution file 
that his choices regarding business deals in the past apparently led to 
incarceration….  However,… I have been appointed to represent the 
children’s [interests], and must do so with whatever evidence is before 
me.  Mr. Gray has provided no evidence … other than verbal 
allegations.  In light of the history and circumstances of this case, I 
would need more…. As a representative for the children’s best 
interests … I am hesitant to recommend that Mr. Gray be made 
guardian of his children’s estate, especially when these estates may 
involve significant assets and Mr. Gray shows evidence of significant 
personal debt.9 
  
Shortly after the Guardian’s Report was submitted, Gray, Sr. withdrew his 
application to be appointed as guardian of his minor children’s estates.  That, 
however, did not deter his effort to obtain the right to vote his children’s Realty 
shares.  Gray, Sr. merely adopted a different strategy, which gave rise to this 
lawsuit. 
Gray, Sr. Negotiates A Stipulation With His Former 
Wife As The Basis To Assert His Power To Vote His   
Minor Children’s Shares 
 
 
As the Guardian reported to the Connecticut Superior Court, Gray, Sr. was 
suing his former wife, Ms. Foster, in New York over property she had been 
awarded in the divorce proceeding.  According to the Report, Ms. Foster and her 
elderly parents were contesting that lawsuit at considerable personable expense.  
Ultimately, Gray, Sr. and Ms. Foster negotiated a settlement that was embodied in 
                                          
 
9 The Report pre-dates Judge Jordan’s decision holding Gray, Sr. liable for approximately $40 
million in damages for acts of corporate malfeasance. 
 
11 
 
 
a formal post-judgment Stipulation executed on September 11, 2005 (the 
“Stipulation”).  In that Stipulation, Gray, Sr. dismissed the New York litigation and 
conferred other benefits upon Ms. Foster,10 in exchange for which Ms. Foster 
agreed not to oppose or object to any effort by Gray, Sr. to pursue the minor 
children’s rights in their Realty shares, including the right to vote those shares.  
The critical portion of that Stipulation provides that: 
7. [Gray, Sr.] will have the right to pursue, and will pursue without 
any active involvement on the part of [Foster], the rights of the 
minor children Adelia and Teddy [Richard E. Gray, Jr.], by virtue 
of their respective ownerships of the capital stock of Rich Realty, 
Inc. At [Foster’s] request, [Gray, Sr.] shall keep [Foster] or a 
representative designated by [Foster] periodically advised as to the 
status of his efforts on the children’s behalf.  [Foster] will not 
oppose any motions or other court proceedings initiated by [Gray, 
Sr.] on behalf of the children, for the purpose of pursuing the 
aforementioned rights on behalf of the minor children and will 
                                          
 
10 The Stipulation provides, inter alia, that: 
 
 
 
1.  [Gray, Sr.] shall withdraw forthwith all pending appeals and legal actions filed  
 
     by him and/or any corporations on his behalf against [Foster] or any of her                        
 
     family members.  [Gray, Sr.] shall also sign a release with respect to any future 
 
     such litigation, except as to rights and/or disputes that may arise out of the                  
 
     [Decision] dated 8/12/2003…as modified by this Stipulation, and/or matters               
 
     the subject of this Stipulation not addressed in the Stipulation.  [Foster] will      
 
     sign a similar release. 
 
2. Within 7 days of the date on which this Stipulation is entered as an order of 
[the] court, [Gray, Sr.] shall provide to counsel for [Foster] executed letters 
addressed to those entities  (such as  Doyle, Christies, Gander & White and 
Latham) holding property being claimed by either [Gray, Sr.] or various 
corporations with which he is affiliated or owns, releasing his or the relevant 
corporation’s or entity’s claim to the items held in their possession, and  
confirming  [Foster’s]  right to the same, except as provided below.  [Foster] 
and her counsel shall release such letters to such entities when and as she 
chooses. 
 
12 
 
 
execute any documents necessary to such pursuit with respect 
thereto as requested by [Gray, Sr.]  or his  representatives.  [Gray, 
Sr.] will indemnify and hold  [Foster] harmless from and against  
any liability or other obligations relating to his efforts on behalf  of 
the minor children and any document execution [sic] by [Foster]. 
  
The 2005 Shareholder Consents and 
The  Purported  Change  of  Control 
 
Three months later, on or about December 6, 2005, the 2005 Shareholder 
Consent executed on November 26, 2005 by Gray, Sr. on behalf of his minor 
children, was served on the registered agent of Realty.  The 2005 Shareholder 
Consent—also signed by B. David Gray on behalf of his minor child, Josslyn 
Gray; and by Carson Gray in her individual capacity—purported to oust Realty’s 
current directors and to elect Gray, Sr. and Carson Gray as the new Realty board. 
 Realty was also served with an “Action by Unanimous Consent of the 
Directors of Rich Realty, Inc.,” dated November 26, 2005, in which Gray, Sr. and 
Carson Gray purported to terminate the incumbent officers of Realty and (among 
other things) to appoint Gray, Sr. as President and Treasurer and Carson Gray as 
Vice President.  By letter dated December 13, 2005, counsel for Carson Gray 
informed Richard K. Rebmann and George W. Simmons that they were terminated 
as officers of, and were no longer authorized to speak for, Realty. 
In response, Rich again demanded proof of Gray, Sr.’s authority to act on 
behalf of his minor children.  Gray, Sr. then furnished Rich with a redacted copy of 
the Stipulation.  It is undisputed, and the Court of Chancery found, that the 
 
13 
 
 
Connecticut Superior Court-approved Stipulation is the sole basis of Gray, Sr.’s 
claim of authority to exercise the right to vote his minor children’s Realty stock.11 
The § 225  Action  And The 
Court of Chancery Rulings 
 
After receiving service of the 2005 Shareholder Consent, on January 20, 
2006, Rich brought this action under 8 Del. C. § 225, seeking a declaration that the 
Consent was invalid, and a determination of the de jure directors and officers of 
Realty.  Rich’s principal claim was that the 2005 written consents were invalid 
because Gray, Sr. lacked the authority under Connecticut law to vote his children’s 
shares.   Rich advanced several arguments in support of that claim.  Specifically, 
Rich contended that:  (a) Ms. Foster had no right under Connecticut law to “assign” 
or “transfer” her children’s voting rights to Gray, Sr. in the Stipulation; (b) the order 
approving the Stipulation exceeded the Connecticut Superior Court’s jurisdiction, 
for which reason that order was not entitled to full faith and credit; (c) the 
Stipulation did not appoint Gray, Sr. as guardian for the estate of his minor children; 
and (d) in all events, the voting of the minor children’s stock by Gray, Sr. 
constituted a “use” of their stock that triggered the Connecticut statutory 
requirement that Gray, Sr. first be appointed as guardian of his children’s estate.12  
                                          
 
11 Chancery Op., 2006 WL 3337163, at *2. 
 
12 Connecticut General Statutes, Section 45a-631(a). 
 
14 
 
 
The Court of Chancery rejected all these arguments.  Holding that both 2005 
written consents were valid, the Court ruled that:  (1) as a stranger to the divorce 
proceedings and having no legally protected interest adversely affected, Rich had 
no standing under Connecticut law (and, therefore, no standing in this case) 
collaterally to challenge the validity of the Stipulation; (2) even if Rich had 
standing, the Connecticut Superior Court did not exceed its jurisdiction by entering 
the order approving the Stipulation; which, therefore, was entitled to full faith and 
credit; (3) the Stipulation neither transferred nor assigned to Gray, Sr. the voting 
rights in his children’s shares.  Because Gray, Sr. and Ms. Foster, as parents of the 
minor children, could lawfully have voted the shares on their children’s behalf, the 
only effect of the Stipulation was to bind Ms. Foster contractually to her decision 
not to exercise her right to vote those shares or oppose Gray, Sr. exercising that 
voting right on their children’s behalf; and (4) Gray Sr.’s voting his minor 
children’s Realty shares did not constitute a “use” of a valuable asset of the 
children that triggered the requirement, under the Connecticut guardianship statute, 
that a guardian of the children’s estate be appointed.  
This appeal followed. 
ANALYSIS OF THE 
CLAIMS OF ERROR 
 
On appeal, Rich claims that the Vice Chancellor committed reversible error 
by determining that:  (i) Rich lacked standing to collaterally attack the Stipulation; 
 
15 
 
 
(ii) the Connecticut Superior Court did not exceed its jurisdiction when entering 
the order approving the Stipulation; (iii) that order was entitled to full faith and 
credit; (iv) the Stipulation did not confer upon Gray, Sr. any voting rights that he, 
as the minor children’s parent, did not already have; and (v) Gray, Sr.’s voting of 
his minor children’s shares was not a “use” of his children’s property that required 
the prior appointment of a guardian of the children’s estate under Connecticut law.  
Because the facts material to these claims are uncontroverted, the  issues presented 
are all essentially questions of law that this Court reviews de novo.13 
Having considered the issues raised on this appeal, we conclude that only the 
fifth presents an issue of substance.  The substantive issue is whether the 
Connecticut guardianship statute, as applied to these facts, required the 
appointment of a guardian of the estates of the minor children before their Realty 
stock could be voted in the manner set forth in the 2005 Shareholder Consent.  
Rich’s other four claims are procedural, in that they involve a collateral attack 
upon the Connecticut Superior Court order approving the Stipulation.  Those 
procedural claims are readily disposed of, because they rest on an incorrect 
                                          
 
13 Oceanport, Inc. v. Wilmington Stevedores, 636 A.2d 892, 899 (Del. 1994); Scharf v. Edgcomb 
Corp., 864 A.2d 909, 916 (Del. 2004) (stating that where the facts are admitted or established, 
the issue is “’whether the rule of law as applied to the established facts is or is not violated,’” 
(quoting Pullman-Standard v. Swint, 456 U.S. 273, 289, n. 19 (1982)); Delaware Ins. Guar. v. 
Christiana Care, 892 A.2d 1073, 1076 (Del. 2006) (questions of statutory construction are 
reviewed de novo). 
 
16 
 
 
premise.  For that reason we first address the collateral attack issues and then turn 
separately to the remaining issue of substance. 
Preliminarily, we note that the basis of this action is 8 Del. C. § 225, a statute 
that empowers the Court of Chancery to determine the validity of any election, 
appointment, removal or resignation of any director or officer of a Delaware 
corporation, and the right of any person to hold or continue to hold such office.14  
Section 225 also authorizes inquiry into the validity of actions taken by written 
consent.15  The scope of a Section 225 action, however, is not unlimited, and 
embraces only issues that are pertinent to determining the validity of the 
election16—in this case, the validity of the written consents themselves. 
The Collateral Attack Issues 
 
Rich first contests the Court of Chancery’s determination that Rich lacked 
standing to attack collaterally the Stipulation and the Connecticut Superior Court 
order approving it.  The Vice Chancellor held that Rich had no standing to attack 
that order under Connecticut law, because Rich was not a party to, and had no 
cognizable interest in, that proceeding.  Consequently, Rich also lacked standing to 
                                          
 
14 Chancery Op., 2006 WL 3337163, at *4 and authorities cited at n. 25. 
 
15 Id. at n. 26. 
 
16 Loudon v. Archer-Daniels-Midland Co., 1996 WL 74730, at *3 (Del. Ch.), aff’d, 700 A. 2d 
135 (Del. 1997). 
 
17 
 
 
mount that collateral attack in a Section 225 Chancery proceeding.  That ruling is 
correct as a matter of both Connecticut and Delaware law.   
As the Vice Chancellor correctly held, “[i]n Connecticut a person not a party 
to prior divorce proceedings has no standing to attack collaterally the divorce 
decree where the person has no legally protected interest adversely affected by the 
decree itself at the time it was rendered.”17  Noting that the Delaware law on 
standing is similar,18 the Vice Chancellor concluded that in this case:  
“… Rich failed to identify any legally protected interest it had in the 
Stipulation between Foster and Gray [Sr.] when the Connecticut 
Superior Court granted it.… Rich was a stranger to the divorce 
proceedings and had no interest in the divorce or standing to 
participate in those proceedings.  Furthermore … Rich’s challenge to 
the Stipulation is not based on a wrong committed against it.19 
 
In the alternative, the Court of Chancery ruled that even if Rich had standing 
to attack collaterally the Superior Court order approving the Stipulation, the attack 
had no merit.  That alternative ruling is also correct. 
                                          
 
17 Chancery Op., 2006 WL 3337163, at *9 (citing Tippin v. Tippin, 166 A.2d 448, 450-51 (Conn. 
1960); Tyler v. Aspinwall, 47 A. 755, 756 (Conn. 1901); and Fattibene v. Fattibene, 441 A.2d 3, 
5 (Conn. 1981)). 
 
18 Id. (“In the absence of a specific statutory grant of review, the test for standing, set forth most 
recently in Dover Historical Society v. City of Dover Planning Commission, provides that a 
plaintiff or petitioner must demonstrate first, that he or she sustained an ‘injury in fact’; and 
second, that the interests he or she seeks to protect are within the zone of interests to be 
protected.”) (internal citations and footnote omitted). 
 
19 Id. (emphasis omitted). 
 
18 
 
 
Rich claims that, in approving the Stipulation, the Connecticut Superior 
Court exceeded its jurisdiction.  The Stipulation, therefore, was not entitled to full 
faith and credit, and the Court of Chancery erred in holding otherwise.  Rich’s 
argument runs as follows:  the Stipulation was ultra vires, because it conferred 
upon Gray, Sr. the power to vote their minor children’s Realty stock—a power that 
neither Gray, Sr. nor Ms. Foster could exercise without first being appointed 
guardian(s) of their children’s estate.  By approving the Stipulation, the 
Connecticut Superior Court implicitly validated Gray, Sr.’s and Ms. Foster’s status 
as guardians.  The Superior Court had no power to do that, because only the 
Connecticut Probate Court is empowered to appoint a guardian of a minor’s estate.  
The Connecticut Superior Court having had no jurisdiction to approve the 
Stipulation, the Vice Chancellor erred by according the Stipulation legal force and 
effect in this Section 225 action. 
This argument fails for two separate, though interrelated, reasons.  First, it 
rests on the erroneous premise that the Stipulation “transferred” or “assigned” to 
Gray, Sr. Ms. Foster’s power to vote the minor children’s Realty shares.  In fact, 
the Stipulation did no such thing.  It merely documented and rendered enforceable 
Ms. Foster’s promise not to interfere with, or oppose, any efforts by Gray, Sr. to 
pursue their minor children’s rights (including voting rights) in the Realty shares.  
As the Vice Chancellor pointed out, both parents already possessed the right to 
 
19 
 
 
vote the Realty shares on their minor children’s behalf, subject only to the 
Connecticut guardianship statute, if applicable.  Thus, the premise that the 
Stipulation “transferred” or “assigned” to Gray, Sr. the children’s voting rights in 
the stock is unfounded.   
Second, Rich’s collateral attack argument rests upon the premise that the 
Connecticut Superior Court order approving the Stipulation operated as a sub 
silentio appointment of Gray, Sr. as guardian of his minor children’s estate.  That 
premise is also unfounded, because it mischaracterizes the order.  The only effect 
of that order was to approve a negotiated settlement of the Connecticut divorce 
proceeding.  That any court having jurisdiction over a dispute is empowered to 
approve a binding settlement of that dispute, is a proposition so basic as to require 
no citation.  No party disputes that the Connecticut Superior Court possessed 
jurisdiction to adjudicate issues relating to the divorce of Gray, Sr. and Ms. Foster, 
and the Vice Chancellor correctly so recognized.20  
                                          
 
20  The Vice Chancellor held (Chancery Op., 2006 WL 3337163, at *12): 
 
In this case the [Connecticut] Superior Court had exclusive jurisdiction to assess 
and approve the divorce proceeding and could have transferred this portion of the 
Stipulation (which explicitly deals with the Rich Realty stock) to the Probate 
Court had it found it necessary to do so.  Instead, the Superior court approved the 
Stipulation as presented.  Without evidence casting material doubt on the Superior 
Court’s approval of the Stipulation, this Court is reluctant to second guess a 
Connecticut court of competent jurisdiction on a novel issue of Connecticut law.  
Consequently, I reject [Rich’s] argument that the Superior Court lacked 
jurisdiction to approve the Stipulation entered in Foster and Gray’s divorce 
proceeding. 
 
20 
 
 
                                               **** 
For the above reasons, the Court of Chancery properly rejected Rich’s 
collateral attack upon the Stipulation and the Connecticut Superior Court order 
approving it, and accorded the Stipulation the full faith and credit to which it was 
entitled under Connecticut law.  The Vice Chancellor also correctly determined 
that neither the Stipulation nor the order created or vested in Gray, Sr. any voting 
rights that he, as the minor children’s parent, did not already possess.  As a 
consequence, only one substantive legal issue remained for decision: whether in 
these specific circumstances, Connecticut statutory law required that Gray, Sr. be 
appointed as guardian for his minor children’s estate(s) before he could lawfully 
exercise his parental right to vote their Realty shares in the manner set forth in the 
2005 Shareholder Consent.  The Court of Chancery answered that question in the 
negative.  Therefore, the only issue left for us to decide is whether in so ruling the 
Court of Chancery erred.  That issue being one of statutory construction, our 
review is de novo.21 
The Merits of Rich’s 
Guardianship Claim 
 
We first pause to place Rich’s guardianship claim into its proper legal 
context.  Connecticut law distinguishes between two types of guardianship for 
                                          
 
21 Delaware Insurance Guaranty Assoc. v. Christiana Care Health Services, Inc., 892 A.2d 
1073, 1076 (Del. 2006). 
 
 
21 
 
 
minors:  a guardian of a minor’s person and a guardian of a minor’s estate.  A 
guardian of the person has the right to custody and responsibility for the care of the 
minor.  Under Section 45a-606 of the Connecticut statute, the father and mother of 
a minor child are automatically recognized as joint guardians of the person of the 
minor.  A guardian of the estate manages the property of the minor, other than 
property managed under the Uniform Transfers to Minors Act.  The statutory 
sections that govern guardianships of a minor’s estate, however, contain no 
provision parallel to Section 45a-606 that would recognize the father and mother as 
the default joint guardians of a minor’s estate.22 
 
The basis for Rich’s claim—that only a court-appointed guardian may 
lawfully vote the minor children’s Realty shares as set forth in the 2005 
Shareholder Consent—is Connecticut General Statutes Section 45a-631(a) 
(“Section 631(a)”).  That statute pertinently provides: 
A parent of a minor, guardian of the person of a minor or spouse of a 
minor shall not receive or use any property belonging to the minor in 
an amount exceeding ten thousand dollars in value unless appointed 
guardian of the estate of the minor, except that such parent, guardian 
or spouse may hold property as a custodian under the provisions of 
[The Uniform Transfers to Minors Act] without being so appointed.23 
 
It is undisputed that the value of the “property” at issue (the minor children’s 
Realty shares) exceeds $10,000, and that Gray, Sr.’s minor children have never 
                                          
 
22 See Chancery Op., 2006 WL 3337163, at *5 and Connecticut authorities cited therein. 
 
23 (italics added). 
 
22 
 
 
held their Realty shares subject to the Uniform Transfers to Minors Act.  Thus, the 
legal issue narrows to whether Gray, Sr.’s voting his minor children’s shares to 
oust Realty’s incumbent directors, and to elect himself and his adult daughter as 
Realty’s directors and officers, constituted a “use” of the minor children’s Realty 
shares under Section 631(a).  We hold that it was. 
First, we agree with the Court of Chancery’s construction of the term “use” 
in Section 631(a).  The Vice Chancellor correctly noted that “[v]ery few cases have 
interpreted this section, and in particular, the phrase “receive or use,” but: 
In each of those cases, however, a court appointed a guardian of the 
estate of the minor where a minor was entitled to financial or real 
property through the court system and where underlying policy 
required procedural protections to ensure proper oversight. 
Connecticut courts have held, for example, that a parent must obtain 
court approval to settle a personal injury claim by a minor if the 
amount of that claim exceeds $10,000.  Similarly, a court must 
appoint a guardian of the estate when a minor receives monetary 
damages resulting from a personal injury claim.  Though a minor is 
entitled to full enjoyment and immediate possession, the use of the 
injury recovery must be exercised by a guardian of the estate.  The 
probate court will appoint a guardian of the estate when a minor child 
obtains a tort recovery to ensure that the award is conserved for its 
proper purposes or receives monies through probate.  Connecticut 
courts do not apply § 45a-631 to child support because they treat that 
as a payment to the mother and not [as] the minor child’s property.24 
 
                                          
 
24 Chancery Op., 2006 WL 3337163, at *5 (citing Saccente v. LaFlamme, 2003 WL 21716586 
(Conn. Super. 2003); Coakley v. Silvermine Farm, Inc., 1994 WL 34209 (Conn. Super. 1994); 
Lametta v. Conn. Light & Power Co., 92 A.2d 731 (Conn. 1952); Langs v. Harder, 338 A.2d 458 
(Conn. 1973); United States Trust Co. v. Bohart, 495 A.2d 1034 (Conn. 1985); and Steinmann v. 
Steinmann, 186 A. 501 (Conn. 1936)). 
 
 
23 
 
 
 
As the Vice Chancellor recognized, Connecticut cases distinguish between 
the parent’s right to (i) bring or prosecute a money damages action on a minor 
child’s behalf and (ii) to receive or use the monetary recovery resulting from that 
action.  Thus, in Lametta v. Connecticut Light & Power Co.,25 the Connecticut 
court, construing an earlier version of Section 631(a), rejected the argument that the 
potential recovery was sufficiently high as to require that a father be appointed as 
guardian of his minor child’s estate in order to prosecute a lawsuit on the child’s 
behalf.  Observing that the statute did not preclude an action by a next friend under 
common law, and that the powers and responsibilities of a next friend and those of a 
guardian of the estate were the same, the Connecticut court upheld the father’s 
standing to pursue his minor child’s claims.  Thus, the Vice Chancellor concluded, 
under Lametta, “[i]t is only upon the date of a judgment in the minor’s favor that the 
rights must be exercised by an appointed guardian of the estate.”26 
 
Doe v. City of Waterbury,27 also addressed by the Court of Chancery, further 
illuminates the distinction between prosecuting a lawsuit on a minor’s behalf (which 
does not require appointment of a guardian of the minor’s estate) and receiving or 
using the proceeds of that lawsuit (which does).  Doe was a tort action filed in 
                                          
 
25 92 A.2d 731 (Conn. 1952). 
 
26 Chancery Op., 2006 WL 3337163, at *6. 
 
27 2004 U.S. Dist. LEXIS 5522 (D. Conn. Mar. 31, 2004). 
 
 
24 
 
 
federal court by Jane Doe and Susan Roe on behalf of their respective minor 
children.  Thereafter, the Connecticut Superior Court appointed the Commissioner 
of the Department of Children and their Families as legal guardian of the person of 
the children.  The Commissioner, as guardian, sought to intervene in the federal 
court action and to be substituted for Doe and Roe, claiming that the parents would 
wrongfully obtain or misuse any recovery.  Denying the motion, the federal court 
concluded that Section 631(a) afforded sufficient protection against any misuse of 
funds by the parents, since a guardian of the minor’s estate would have to be 
appointed before “the receipt of any recovery.” 
 
Summarizing the teaching of these cases, and of an earlier case, Ryle v. 
Reedy,28 the Vice Chancellor accurately concluded that the case law reflected the 
Connecticut courts’ concern that “in certain situations there is a greater risk that the 
holder of a minor’s property will fail to use it for its proper purpose.”  Accordingly, 
the Connecticut courts have required the “appointment of a guardian for the estate 
of a minor when a liquid asset, such as cash, is received.”29 
 
Applying this teaching to the facts at bar would have been non-problematic 
had this case involved Gray, Sr. bringing a lawsuit seeking a monetary recovery on 
                                          
 
28 121 A. 460 (Conn. 1923) (holding that where a payment to a minor would have satisfied a debt 
owed to the minor, a cash payment to the child’s mother individually, rather than to a guardian 
for the child’s estate, was insufficient protection to be considered a payment to the child). 
 
29 Chancery Op., 2006 WL 3337163, at *6, *7. 
 
 
25 
 
 
behalf of his minor children.  But, it does not.  Rather, this case involves a father’s 
effort to vote his minor children’s stock to place himself (and his close relatives) in 
control of a corporation, 49% of whose shares are owned by the minor children.  
Neither the parties nor the Court of Chancery could identify any Connecticut case 
addressing the applicability of Section 631(a) to voting rights in corporate stock.  
The question (to reiterate) is whether the voting of the children’s shares in these 
circumstances was a “use” by the father of the minor children’s property for 
purposes of Section 631(a).30  
  
The Court of Chancery analogized Gray, Sr.’s voting the shares to his 
bringing a suit on behalf of his minor children as next friend.  Reasoning from that 
analogical premise, the Vice Chancellor held that the same policy that justifies 
allowing a “next friend” suit to proceed without appointing a guardian for the 
minor’s estate “warrants the conclusion that [Gray Sr.’s] ability to vote the stock in 
[Realty] of his minor children does not represent a ‘use’ of a valuable asset of 
theirs under [Section 631(a)].”31 The Court of Chancery reasoned that: 
                                          
 
30 Although the Court of Chancery Opinion does not explicitly so state, it suggests that the voting 
of the Realty shares was not a “receipt” of the minor children’s asset, because (analogizing the 
shares to a monetary recovery) Gray, Sr. never legally acquired ownership or power to dispose of 
the Realty shares.  That is, the shares continued to be owned by the children and remained titled 
in their names.  Accordingly, the Vice Chancellor proceeded to analyze the applicability of 
Section 631(a) in terms of whether the voting of the minor children’s Realty shares constituted a 
“use” under that statute.  Given our disposition of the case, we do not reach the issue of whether 
Gray, Sr.’s voting the shares constituted a “receipt” under Section 631(a). 
 
31 Chancery Op., 2006 WL 3337163, at *10-*11. 
 
26 
 
 
Unlike many of the Connecticut cases, [Gray, Sr.’s] situation does not 
contemplate the transfer of a liquid asset from an outside or third party 
to a minor, such as was involved in the Ryle case….  Here, the stocks 
and the economic interest in them have always been and remain in the 
children’s names….  [Rich’s] primary concern seems to be that [Gray, 
Sr.] will misuse the children’s voting rights to benefit himself and 
thereby undermine the rights of [Rich], as well as the children.  Based 
on [Gray Sr.’s] troublesome history as a corporate fiduciary, these 
concerns are understandable.  Adelia and Richard [Gray] and, for that 
matter, [Rich], have other means, however, to protect their respective 
interests against such wrongdoing.  In the case of the children, their 
mother continues to have moral and fiduciary duties to them, and she, 
as well as others who might sue as next friend on behalf of the minors, 
could seek appropriate relief if [Gray, Sr.] breached any applicable 
duty.32 
 
 
Having considered the record and the positions of the parties, we conclude 
that although the Court of Chancery correctly determined the applicable legal 
principle, it misapplied that principle to the facts at bar.  The Court accurately 
distilled from the Connecticut cases the principle that a guardian for a minor 
child’s estate must be appointed where a liquid asset belonging to the minor child, 
such as cash, is to be received.  The Vice Chancellor held, however, that the 
concerns animating that principle are not implicated where the parent merely 
                                          
 
32 Id. at *11.  As an additional rationale for its holding, the Court observed that a “failure to vote 
the children’s stock in these circumstances effectively would prevent the holders of a collective 
majority of shares from voting altogether, and preserve the status quo.  As a result, the holders of 
15% of the company’s stock [Rich] would continue to control the board of [Realty].  By doing 
so, [Rich] would continue to control its landlord.”  Id.  That observation has force only if it is 
assumed that no guardian of the children’s estate is appointed, or that the appointment process 
would be unduly protracted.  There is no evidence of record that a person other than Gray, Sr. 
would be precluded from being appointed, or that that the process of appointing that person 
would be protracted.  Once duly appointed, the guardian would be empowered to vote the 
children’s shares, thereby ending the minority control of Realty’s board. 
 
27 
 
 
exercises the voting rights associated with shares representing 49% of the 
corporation’s voting power.  
The difficulty with that analysis is that it ignores the reality of what the 
voting of those shares actually accomplished, and the resulting risk to the value of 
the minor children’s Realty stock.  The Court of Chancery analogized voting the 
children’s shares to a scenario where a next friend brings a lawsuit on the 
children’s behalf.  The prosecution of such a lawsuit does not, by itself, pose any 
risk to the minor’s assets.  Only having access to the proceeds of a recovery would 
create that risk, against which Connecticut statutory law protects by requiring the 
prior appointment of a guardian of the minor’s estate.  Applying that analogy to 
these facts, the Court concluded that the mere casting of a vote representing 49% 
of Realty’s shares did not place the minor children’s stock in jeopardy, because the 
children continued to own the Realty shares and to control their underlying value. 
The flaw in that reasoning is that in these specific circumstances the analogy 
breaks down.  The Vice Chancellor accurately noted that if Realty were a publicly 
held corporation in which the minor children’s shares did not enable the Gray 
family members to vote a controlling interest, then Gray, Sr. voting those shares 
would not create any risk that requires a court-appointed guardian.  The reason is 
that in those circumstances, Gray, Sr. would have no access to the corporate assets 
 
28 
 
 
that constitute the  economic value underlying those shares.33  That is not this case, 
however.  Here, Gray, Sr.’s ability to vote his children’s shares would result in 
giving him lawful access to the corporation’s underlying economic value.  Realty 
is a privately held company.   The vote cast by Gray, Sr., combined with the vote 
cast by his daughter (Carson Gray) and his brother (B. David Gray), represented 
over 80% of the corporation’s voting power.  Casting that combined vote was 
intended to—and did—enable Gray, Sr. to replace the incumbent board.  
Importantly, the shares owned by Gray, Sr.’s minor children were indispensable to 
taking control of Realty, because without the votes those shares represented, 
Carson Gray and B. David Gray would have had only a minority voting interest. 
 By electing himself and his daughter as the new Realty board, which then 
elected Gray, Sr. as Realty’s President and Treasurer, Gray, Sr. placed himself in 
operational control of a multi-million dollar asset—Realty.34  Once installed in 
office, Gray, Sr. was positioned to have lawful access to Realty’s cash stream and 
other economic values.  That access would enable Gray, Sr. to divert Realty’s cash 
for purposes that could reduce Realty’s economic worth and the value of the minor 
children’s stock interest.  In the case of Gray, Sr., the gravity of that risk is well 
                                          
 
33 Id. at *10 (“If the disputed shares were in a publicly traded company, like IBM, it is unlikely 
that anyone would claim that only a guardian could vote them.”) 
 
34 The lease payments are equal to $390,000 for the first five years (1998-2002) and $420,000 for 
the next five years (2003-2007).  Appellees’ Ans. Br. at  6. 
 
29 
 
 
documented in this record.  In that respect the position of Gray, Sr. in relation to 
Realty’s cash stream was no different than that of a next friend or parent who 
successfully prosecutes a lawsuit on a minor child’s behalf and then takes 
possession of the dollar recovery.  For the same reasons a Connecticut court would 
require a guardian of the minor child’s estate in that “next friend” scenario, a 
Connecticut court would require a guardian in this case, which is functionally 
indistinguishable.  In concluding otherwise, the Court of Chancery failed to apply 
Section 631(a) properly to the facts before it.35 
 We hold that because the Realty shares owned by Gray, Sr.’s minor children 
could not be voted in the manner in which they were voted by anyone other than a 
court-appointed guardian, the vote cast by Gray, Sr. in the 2005 Shareholder 
Consent was invalid.  As a consequence, the 2005 Shareholder Consent did not 
constitute lawful action by a majority of Realty’s shareholders.   It follows that the 
election of Gray, Sr. and Carson Gray as the de jure board of directors of Realty 
was also legally invalid, as was the election of the officers by Gray, Sr. and Carson 
Gray acting in their capacity as Realty’s new board. 
 
                                          
 
35 That “Adelia and Richard and, for that matter, [Rich] have other means…to protect their 
respective interests against…wrongdoing…” (Chancery Op., 2006 WL 3337163, at *11), is not a 
sufficient basis for the result reached by the Court of Chancery.  The policy underlying Section 
631(a), as enunciated by the Connecticut cases, is to have in place a protection that would 
prevent harm to the minor children’s property, as opposed to providing a remedy for the harm 
after it has already occurred. The available remedies identified by the Vice Chancellor in his 
Opinion are ex post, not ex ante. 
 
30 
 
 
CONCLUSION 
For the reasons set forth, the judgment of the Court of Chancery is reversed, 
and the case is remanded to that Court for further proceedings consistent with this 
Opinion.