IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE 

MICKAEL A. FLAA, 

Plaintiff, 

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v. 

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Civil Action No. 9146-VCG 

DANIEL C. MONTANO, VIKTORIYA 

T. MONTANO, JOHN W. JACOBS, 

ERNEST C. MONTANO, ERNEST 

MONTANO III and JOONG KI BAIK, 

Defendants, 

and 

CARDIOVASCULAR 

BIOTHERAPEUTICS, INC. 

Nominal Defendant. 

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MEMORANDUM OPINION

Date Submitted: May 2, 2014 

Date Decided: May 29, 2014 

Richard P. Rollo, of Richards, Layton & Finger, P.A., Wilmington, Delaware; OF 

COUNSEL: Barry F. Cannaday, of Dentons US LLP, Dallas, Texas, Attorneys for 

the Plaintiff. 

David L. Finger, of Finger & Slanina, LLC, Wilmington, Delaware, Attorney for 

the Defendants. 

GLASSCOCK, Vice Chancellor 
 2

 This Memorandum Opinion concerns the latest skirmish in the battle for 

control of CardioVascular BioTherapeutics, Inc. (“Cardio,” or the “Company”), 

between forces allied with its founder, Daniel Montano, and those supporting a 

large creditor of Cardio, Calvin Wallen. Although Cardio has not yet been able to 

monetize any product, both parties view the Company as on the cusp of success. 

The current dispute is over the second written consent action taken on behalf of the 

Wallen faction in less than a year, seeking to seat a board of directors amenable to 

him, and purporting to remove Montano and his supporters from the Cardio board. 

The stockholders’ view, as revealed by the written consent actions, is in near 

equipoise. The deciding votes in both consent actions were cast by Vizier 

Investment Capital Limited (“Vizier”), an entity created by Montano to hold 

Cardio stock he held jointly with his then-wife, Victoria “Vicki” Montano. Vicki,1

now divorced from Montano, purported to consent with respect to the Vizier shares 

in favor of the Wallen slate in the first consent action; I found those consents to be 

invalid, as Vicki lacked the authority to vote the shares. Montano has since 

entered personal bankruptcy, and the Vizier shares are now under the control of a 

trustee in bankruptcy. The trustee provided a proxy to Wallen which he used to 

vote the Vizier shares in favor of his slate of directors in the second consent action; 

for the reasons below, I find that the agreement between Wallen and the trustee 

 

1

 I refer to Vicki Montano by her first name to avoid confusion. No disrespect is intended. 
 3

was inadequately disclosed to stockholders of Cardio, and that the second consent 

action is invalid. 

 Shortly after the first consent action, the Wallen faction was seated as the 

“new” Cardio board, and one of the board members, Plaintiff Mickael A. Flaa, 

brought the first incarnation of this action under Section 225 to confirm the validity 

of that board. I entered a status quo order leaving the Wallen faction in place as 

the interim board of directors, with its ability to act limited to actions in the normal 

course of business, pending resolution of the dispute in this Court. After I found 

that the first consent action was invalid, the Plaintiff appealed, and the parties 

agreed that the status quo order should remain in effect. That appeal was delayed, 

however, as Wallen mounted the second consent action. Because this second 

action had the potential to moot all issues on appeal, the Supreme Court stayed 

consideration of the appeal, and the current litigation ensued. 

Cardio has been, effectively, in limbo for nearly a year, with a board of 

directors unable to exercise plenary authority over the corporation. Moreover, the 

record indicates that it has been years since an annual meeting of the stockholders 

has taken place. A stockholder meeting presided over by the interim board would 

inevitably drive more litigation, and seating the old Montano-faction board would 

put back in place directors last elected years ago, who have not served in nearly a 

year. In order to ensure a board of directors representing the preference of the 
 4

stockholders as expressed by exercise of their franchise, I employ my discretion to 

order a stockholder meeting to be held promptly, presided over by a special master. 

I. FACTS 

1. Flaa I

 As explained in a prior iteration of this action, Flaa I,

2

 Cardio is a Delaware 

corporation that, due to its as-yet unsuccessful efforts to develop a drug candidate 

for treating coronary artery disease, peripheral artery disease, venous ulcers, and 

diabetic foot ulcers, has faced a serious liquidity crisis.3 This litigation involves 

the second Court of Chancery action within a matter of months brought pursuant to 

8 Del. C. § 225, seeking to confirm the removal of certain directors of Cardio, 

including its founder Daniel Montano, by way of a written consent action led by 

one of Cardio’s largest creditors, Calvin Wallen. 

 As presented in more detail in Flaa I, in January 2013, Wallen, hoping to 

salvage some of his investment in Cardio, sent a letter to the Company’s board of 

directors, in which he set forth a financing proposal intended to infuse $8,500,000 

of capital into the Company, contingent on the immediate resignation of the 

director Defendants, including Montano, and on Montano waiving all claims 

 

2

Flaa v. Montano, 2013 WL 5498045 (Del. Ch. Oct. 4, 2013). 

3

See Defs.’ Op. Pre-Trial Br. at 2 (“Finding investors who wanted to invest in a company with 

no saleable products was difficult.”). 
 5

against Cardio.4

 When the Cardio board rejected his financing proposal, Wallen 

initiated a written consent action (the “First Consent Action”), requesting that 

stockholders consent to (1) amending the Company’s bylaws with respect to 

director removal and appointments, (2) removing the Defendant directors from the 

Cardio board, and (3) directing the remaining directors to consider his financing 

proposal. As a result of Wallen’s written consent solicitation, the Company 

received consents from 51.22% of shares outstanding, and the Plaintiff filed suit in 

this Court in June 2013, seeking to confirm the effectiveness of the First Consent 

Action. However, I determined in Flaa I that a dispositive consent delivered on 

behalf of Vizier, a Bahamian company jointly owned by Montano and his ex-wife, 

Vicki, was executed without actual or apparent authority; accordingly, I found that 

the First Consent Action was ineffective to remove the Defendant directors from 

the Cardio board. 

 At the start of litigation in Flaa I, a status quo order was put in place (the 

“Status Quo Order”), permitting incumbent directors Grant Gordon and Mickael 

Flaa, as well as the incoming directors seated pursuant to the First Consent 

Action—Wallen, Jon Ross, and Robert Schleizer—(collectively, the “Interim 

 

4

 That letter was preceded by both a June 2012 request by Wallen that Cardio convert his debt to 

equity, which request was rejected by the Cardio board, and a September 2012 Nevada action in 

which Wallen sought to enforce Montano’s personal guarantee of loans from Wallen to Cardio. 

Those transactions are described in additional detail in Flaa I. See Flaa, 2013 WL 5498045, at 

*2. 
 6

Board”) to sit on the Cardio board of directors pending resolution of the litigation.5

 

After I issued my October 4, 2013 Memorandum Opinion, the Plaintiff filed an 

appeal of that decision in our Supreme Court. Pending that appeal, the parties 

stipulated to abide by the Status Quo Order. As explained in more detail below, 

the appeal of my October 4 Memorandum Opinion has been stayed pending 

resolution of this 225 action,6 and the Interim Board continues to manage the 

Company pursuant to the Status Quo Order. 

2. The Second Consent Action 

 On November 6, 2013, as the parties were briefing the Defendants’ appeal in 

Flaa I, Wallen caused Cardio stockholder CCM Partners Fund LP (“CCM”) to 

deliver a written consent to Cardio’s registered agent, initiating a new written 

consent action (the “Second Consent Action”). In a November 16, 2013 press 

release, the Company said of the Second Consent Action, “[t]o avoid any potential 

confusion, the solicitation is being made by Calvin Wallen III, a [Cardio] 

stockholder, and not by [Cardio].”7 Upon delivery of CCM’s written consent, 

Wallen circulated proxy solicitation materials, consisting of a proxy statement and 

proxy card dated November 11, 2013, to Cardio’s stockholders. 

The proxy card included in Wallen’s solicitation materials stated, in part: 

 

5

Flaa v. Montano, No. 8632–VCG (Del. Ch. July 12, 2013) (ORDER). 

6

Flaa v. Montano, No. 577,2013 (Del. Jan. 30, 2014) (Letter to Counsel). 

7

 JX 82. 
 7

The undersigned hereby acknowledges receipt of the proxy statement 

in connection with the proposals to amend the Amended and Restated 

Bylaws of [Cardio] and to remove all members of the Board of 

Directors of the Corporation other than Mickael Flaa and Grant 

Gordon . . . . 

The undersigned hereby constitutes and appoints Calvin A. Wallen, 

III, as his, her or its true and lawful agent and proxy with full power 

of substitution and re-substitution, to execute a written consent, 

withhold consent, or abstain on behalf of all of the shares held by the 

undersigned as of the Record Date, in accordance with the instructions 

given herein.8

The proxy statement included in the solicitation materials described Wallen’s 

“proposals” in more detail: Proposition 1 purported to amend the Cardio bylaws 

with respect to removal and appointments, and Proposition 2 to remove certain 

directors. Specifically, Proposition 2 stated: 

BE IT RESOLVED, that the undersigned hereby consents to, adopts 

and approves the removal of all of the members of the Board of 

Directors of the Corporation in office immediately prior to the 

effective time of [the] Written Consent other than Mickael A. Flaa and 

Grant Gordon (each director so removed, a “Removed Director,” and 

all directors so removed, collectively, the “Removed Directors”), and 

without limiting the intent of the stockholders to remove all such 

Removed Directors, the Removed Directors shall specifically include 

each of Daniel C. Montano, Viktoriya Tamlenova Montano, Ernest C. 

Montano, Ernest Montano III, John (Jack) W. Jacobs and Joong Ki 

Baik, if he or she is in office immediately prior to the effective time of 

this Written Consent.9

Though stockholders received identical proxy solicitation materials, Wallen 

obtained proxies in the Second Consent Action by three methods: (1) Vizier and 

 

8

 Pl.’s Pre-Trial Answering Br. at 5. 

9

 Compl. Ex. E at 1799982.2. 
 8

certain other stockholders not at issue here executed proxies by hand-delivery of 

completed paper proxy cards; (2) certain Cardio stockholders of record executed 

electronic proxies by telephone and internet, purporting to permit Wallen to deliver 

written consents on their behalves; and (3) certain brokerage firms executed 

powers of attorney to a proxy tabulating agency, Broadridge, which in turn 

executed proxies purporting to permit Wallen to deliver written consents on behalf 

of the stocks’ record owners. On November 27, 2013 and January 2, 2014, Wallen 

delivered written consents to Cardio’s registered agent supported by proxies 

obtained from these other Cardio stockholders, by which a majority of the Cardio 

shares purported to consent to the removal of the “Removed Directors”—the 

Defendants in this action. 

A. The Vizier Proxy

 In Flaa I, I determined that a written consent, executed by Montano’s exwife Vicki on behalf of Vizier, was executed without actual or apparent authority. 

At that time, Vizier held 30 million shares of Cardio, jointly owned by Daniel and 

Vicki Montano. I found that Montano, as President of Vizier, had authority to vote 

the Cardio shares, and that Vicki, in her capacity as either Vice President or 

stockholder, did not. 

 In July 2013, Montano filed for bankruptcy under Chapter 7 of the U.S. 

Bankruptcy Code. As a result of that filing, U.S. Bankruptcy Trustee Dotan 
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Melech (the “Trustee”) obtained control over Montano’s interest in 4 million 

directly-held shares of Cardio, as well as his fifty-percent interest in the 30 million 

Cardio shares held by Vizier. Soon after this Court issued its Memorandum 

Opinion on October 4, 2013 in Flaa I, the Trustee began to discuss with Wallen 

and the other members of the Cardio Interim Board the Company’s financial status. 

Specifically, in late October, the Trustee “requested a copy of the [Cardio] 

business plan and copies of the financial proposals [from Wallen] that will fund the 

business plan,”10 which Flaa provided in detail by email dated November 1, 2013. 

 Around the same time in early November, Wallen communicated with the 

Trustee via email and conference call in an attempt to secure Vizier’s proxy in the 

Second Consent Action.11 As a preliminary matter, for the Trustee to obtain the 

authority to execute the requested proxy on Vizier’s behalf, the Trustee and 

Montano’s ex-wife Vicki, acting as stockholders of Vizier, 

(a) . . . executed a Unanimous Written Consent (i) removing the 

current directors of Vizier and appointing the Trustee and [Vicki] 

Montano as the sole Directors of Vizier, and (ii) removing [Montano] 

as President of Vizier and appointing the Trustee as President and 

[Vicki] Montano as the Vice President of Vizier, and (b) [Vicki] 

Montano and the Trustee, as the sole Directors of Vizier, executed a 

 

10 JX 72 at 2014CVBT00005103. 

11 Although the final written agreement into which Wallen and the Trustee ultimately entered, as 

described in more detail below, did not include a requirement that the Trustee vote in favor of the 

Second Consent Action, such was clearly the parties’ intent. See, e.g., JX 113 at 

2014CVBT00003066 (“I fear that the vote will not get done unless we can get [the Trustee] 

additional insurance re the below.”); id. at 2014CVBT00003067 (“Here is [Wallen’s] signature

on the share purchase agreement. Please let me know whether you now have everything you 

need in order for the Trustee to be able to vote today.”). 
10

Unanimous Written Consent of Board of Directors (i) appointing the 

Trustee as President and [Vicki] Montano as the Vice President of 

Vizier, (ii) affirming that, in accordance with the Memorandum of 

Association and Articles of Association of Vizier, it is the sole 

responsibility of the Trustee, as the President of Vizier, to manage the 

day to day affairs of Vizier, including, but not limited to voting the 

Vizier shares of [Cardio].12

 

In seeking to secure the Trustee’s commitment to execute a proxy on 

Vizier’s behalf, Wallen and the Trustee also began negotiating a deal whereby 

Wallen would purchase 1 million shares of Cardio from the Montano bankruptcy 

Estate, in exchange for a sum of money (described by the Trustee as five times its 

actual value) and a director seat on the Cardio board of directors; such an 

agreement would provide the Montano Estate some much-needed liquidity in 

addition to an ability to protect its only asset, Cardio stock. According to a series 

of emails between counsel for the Trustee and Wallen, the Trustee’s bankruptcy 

counsel “propos[ed] (subject to Bankruptcy Court approval) that the Trustee would 

vote the Vizier shares ‘as requested,’ the Trustee would designate a member of the 

[Cardio] board to replace a member of the Interim Board, Mr. Wallen or another 

party would purchase 1 million shares of [Cardio] stock from Vizier for $1.00 per 

share, and the estate would receive certain undefined minority stockholder 

rights.”13 Wallen countered that “the Trustee’s vote would be irrevocable, [the 

Trustee’s board designee] Mr. Moran would be appointed as an additional, and not 

 

12 JX 78 at AR11. 

13 Defs.’ Op. Pre-Trial Br. at 11-12. 
11

a replacement, director, and Mr. Wallen would pay 5 cents a share for the 1 million 

shares of [Cardio].”14 The parties eventually settled on an exchange under which 

Wallen would purchase from the Montano Estate 1 million shares of Cardio at 

$0.25 per share, in addition to granting the Trustee certain other rights described in 

more detail below. Further, Wallen’s counsel explained to the Trustee that: 

Under Delaware law, the Cardio Board of Directors has a fiduciary 

duty to the shareholders to consider the qualifications of any proposed 

addition to the Board and to make an independent determination that 

it will be in the best interest of the shareholders of Cardio to appoint 

the person who is put up for a vacant position on the Board (which is 

what will happen here). They cannot agree in advance to simply 

appoint anyone the Trustee designates.15

While the Trustee initially responded that the Cardio Interim Board’s inability to 

commit to appointing the Trustee’s board designee was a “deal breaker,”16 the 

parties eventually agreed to the following language in a November 22, 2013 

Agreement for the Purchase and Sale of Stock (the “Stock Purchase Agreement”): 

If Wallen is able to confirm the Wallen Group’s right to manage 

[Cardio] . . . then Wallen will use his best efforts, consistent with his 

fiduciary duties, to cause the Board of Directors to add an additional 

two members, with one to be selected by the Wallen [sic] and the 

other by the Trustee. If Wallen and his aligns are confirmed as 

management of [Cardio] and these two positions are not added 

through no fault of the Trustee, Wallen shall return the Shares to the 

 

14 Id. at 12. 

15 JX 86 at 6. 

16 Id. at 5. 
12

Trustee for no consideration, but the Trustee shall be entitled to retain 

the Purchase Price and apply it to the Montano Estate asset base.17

In addition, the parties agreed that if the Second Consent Action was unsuccessful 

or ineffective, “then the Trustee [would] promptly repurchase from Wallen 

500,000 shares of [Cardio] stock for $0.25 per share with such $125,000 payment 

to [be] made from the Purchase Price funds. The Trustee [would] then apply the 

remaining $125,000 of the Purchase Price to the Montano Estate asset base.”18

 In other words, Wallen and the Trustee agreed that, in exchange for the 

Trustee’s proxy, Wallen would purchase 1 million Cardio shares from the Montano 

Estate for $250,000. If the Second Consent Action was successful, Wallen would 

use his best efforts to secure an additional seat on the Cardio board for the 

Trustee’s designee; if, despite his best efforts, he failed to secure that seat, Wallen 

would return all 1 million shares but the Trustee would retain the entire $250,000. 

If the Second Consent Action was unsuccessful, Wallen would return 500,000 

shares and the Trustee would return $125,000. 

 Prior to executing the November 22 Stock Purchase Agreement, on 

November 8, 2013, the Trustee filed a Motion for Order Authorizing Trustee to 

Take Certain Actions and Sell Certain Assets Free and Clear of Liens, Claims and 

 

17 JX 87 at ¶ 5. Wallen’s counsel noted that “Wallen would not be doing this deal if he had any 

uncertainty about being able to fulfill his obligations to have new directors appointed. If he 

doesn’t meet his commitment, he forfeits $250,000 and the Trustee gets all the stock back. That 

is a pretty drastic penalty for not performing, but [Wallen] is willing to agree to this because he 

is very comfortable that he can fulfill this obligation.” JX 113 at 3087. 

18 JX 87 at ¶ 3. 
13

Encumbrances without Further Court Approval (the “Motion”) in the District of 

Nevada U.S. Bankruptcy Court.19 In that Motion, the Trustee submitted to the 

court that: 

[Cardio] is . . . currently at a crossroads, where either (a) [Cardio] will 

resolve its litigation and obtain sufficient funding to launch a new 

product that may result in significant returns to its shareholders, or (b) 

[Cardio] will not resolve its litigation, will not obtain funding, and 

may ultimately wind up in its own bankruptcy proceeding, leaving 

this Estate’s creditors with little to no return on account of their 

claims.20

The Trustee sought in his Motion “authority, out of an abundance of caution, to 

take actions necessary to allow the estate to vote the [Cardio] shares that it owns 

[in Vizier],” as well as permission to sell 1 million Cardio shares held by the 

bankruptcy estate to Wallen for $0.25 per share, in order “to provide for an 

immediate return to the Estate, limiting the Estate’s downside should [Cardio] 

ultimately be unsuccessful in its business endeavors.”21 The Trustee also 

represented in his Motion that, based on “multiple meetings with Calvin Wallen, 

[Montano], related parties, and their representatives to determine how to proceed 

with regard to [Cardio],” “the Trustee ha[d] determined that it may be prudent to 

 

19 JX 78. 

20 Id. at AR8. 

21 Id. at AR9. 
14

take action with regard to the composition of [Cardio’s] board of directors to poise 

[Cardio] for future success.”22

 The bankruptcy court granted the Trustee’s Motion on November 18, 2013. 

The court’s order indicated that: 

The Trustee is authorized to take the following actions which are 

consistent and fall within the Trustee’s ordinary course duties under 

11 U.S.C. § 704: 

a. to vote the Vizier Investment Capital Limited (“Vizier”) 

shares to serve as President and director of Vizier and take all 

actions attendant to serving as President and director . . . ; [and] 

b. to sell up to 2 million of the 19 million shares at a price of no 

less than $0.25 per share, provided any such sale shall include a 

commitment to add a Trustee appointed representative to the 

board of [Cardio], and the [Montano] Estate retains a right to 

repurchase the shares within 1 year of any public offering of 

such shares for 110% of the purchase price . . . .23

The Trustee noted in his declaration appended to the Motion that “$.25 per 

share . . . appears to be at least five times what the shares are currently worth,” as 

well as his belief that the Interim Board on which the Defendants are not directors 

“provides the best opportunity for success of [Cardio] (because, in part, it will 

result in necessary funding to [Cardio]), and therefore it is in the best interest of the 

Estate to keep the [Interim] Board intact.”24

 

22 Id. at AR11. 

23 JX 84 at ¶ 2(a)-(b). 

24 JX 79 at ¶¶ 5, 7. 
15

 Wallen’s November 11 proxy solicitation materials failed to describe 

negotiations—then well-advanced—leading up to the bankruptcy court’s 

November 18 order or the resulting November 22 Stock Purchase Agreement 

between Wallen and the Trustee. Instead, with respect to that transaction, the 

proxy statement provided only that “[b]ased on the opinion of bankruptcy counsel, 

it is my belief that the Trustee, with the cooperation of Montano’s ex-wife, has or 

will obtain the right to grant a proxy with respect to the shares held by [Vizier],”25

and that “[i]t is anticipated that the Board might appoint one or two additional 

directors after these initial designations.”26 On November 15, 2013, Montano 

disseminated “proxy revocation” materials to the Cardio stockholders, “writing to 

explain the full facts of the matter, to tell [stockholders] what [Montano had] done 

for [Cardio], and to explain how [those] efforts are imminently poised to bring in 

millions of dollars in partnering agreements that will save the company without 

destroying the interests of the existing shareholders,” and urging stockholders not 

to grant proxies in the Second Consent Action.27 Montano did not describe the 

details of the Stock Purchase Agreement in those materials, although he had notice 

of, objected to, and appeared before the bankruptcy court to oppose the Trustee’s 

November 8 Motion seeking approval of, that Agreement. 

 

25 JX 80 at 3. 

26 Id. at 8. 

27 JX 81 at 1. 
16

B. The Parties’ Contentions 

The Defendants contend (1) that the transaction described above constitutes 

improper vote-buying, and (2) that because “Wallen had been negotiating (and was 

continuing to negotiate) to place a director designated by the Trustee on the 

[Cardio] board in connection with his purchase of [Cardio] stock, [and] he did not 

disclose that fact in [his proxy solicitation] materials,”28 the Court should 

invalidate the transaction under Portnoy v. Cryo-Cell International, 

Incorporated.

29 The Plaintiff responds that (1) the Vizier proxy is not the result of 

improper vote-buying; (2) Montano acquiesced to the transaction in the bankruptcy 

court proceedings; (3) the proxy statement disclosed all it could have given that the 

parties were still in the process of negotiating the Stock Purchase Agreement when 

the solicitations were sent to stockholders; and (4) the failure to disclose the terms 

of the Stock Purchase Agreement does not result in the same unfairness present 

under the facts in Portnoy. 

II. STANDARD OF REVIEW 

 The Plaintiff brings this action to confirm the validity of the Second Consent 

Action pursuant to 8 Del. C. § 225, in accordance with which, “[u]pon application 

of any stockholder or director, or any officer whose title to office is contested, the 

Court of Chancery may hear and determine the validity of any election, 

 

28 Defs.’ Op. Pre-Trial Br. at 14-15. 

29 940 A.2d 43 (Del. Ch. 2008). 
17

appointment, removal or resignation of any director or officer of any corporation, 

and the right of any person to hold or continue to hold such office . . . .”30 Such a 

proceeding is summary in nature. Further, in a Section 225 action, “[t]he burden of 

proving that a director’s removal is invalid rests with the party challenging its 

validity”31—here, the Defendants. 

 The Court conducted a one-day trial in this action on May 2, 2014. The 

following is my determination of the merits of the Section 225 dispute. 

III. ANALYSIS 

 The bedrock principles underlying our conception of corporate governance 

are that the directors run the corporation on behalf of the owners, the stockholders, 

who delegate power to the directors through the operation of the stockholder 

franchise. For this reason, both our statutory and common law are protective of the 

right of stockholders to vote, and by exercising that vote, to choose the directors. 

This Court can interfere with an effective operation of the franchise, in the consent 

arena, in two ways, both equally deleterious: by invalidating actions properly taken 

by consent; and by ratifying actions purportedly by consent, where those actions do 

not represent the will of the stockholders. I have already invalidated one purported 

vote to remove the Montano board, and I am therefore cognizant of the risk to 

exercise of the franchise in invalidating a second. Nonetheless, imposing the 

 

30 8 Del. C. § 225(a). 

31 Unanue v. Unanue, 2004 WL 5383942, at *10 (Del. Ch. Nov. 9, 2004). 
18

results of an uninformed vote is inimical to the exercise by the stockholders of 

their right to elect the board of directors. For the reasons that follow, the Plaintiff’s 

request to ratify the results of the Second Consent Action must be denied. 

The Defendants challenge the validity of the Second Consent Action on four 

grounds: they contend that (1) the Vizier proxy is invalid as vote-buying or due to 

inadequate disclosure of the Stock Purchase Agreement in the solicitation 

materials; (2) the electronic proxies are invalid as procedurally deficient; (3) the 

brokerage proxies from the proxy tabulating agency, Broadridge, are invalid as 

procedurally deficient; and (4) the Second Consent Action should be invalidated 

because the proxy solicitation materials contained materially misleading 

disclosures. I address only the Defendants’ first contention, as well as outstanding 

requests for attorneys’ fees, below. 

1. Vote-Buying 

 The Defendants seek to (1) invalidate the Vizier proxy on the basis that 

Wallen and the Trustee’s Stock Purchase Agreement constitutes impermissible 

vote-buying, or (2) invalidate the Second Consent Action in its entirety on the 

basis that, even if not impermissible vote-buying, the Stock Purchase Agreement 

was material such that its existence should have been disclosed to stockholders 

considering whether to execute a proxy. 
19

In Schreiber v. Carney, this Court defined vote-buying as any “voting 

agreement supported by consideration personal to the stockholder, whereby the 

stockholder divorces his discretionary voting power and votes as directed by the 

offeror.”32 Although the Plaintiff suggests that the Stock Purchase Agreement did 

not by its express terms compel the Trustee to deliver a proxy in favor of the 

Second Consent Action, it is clear from the record before me that the Trustee’s 

proxy was a vital part of that Agreement.33 In other words, because I understand 

the transaction at issue involved the sale of both stock and a proxy, the Stock 

Purchase Agreement constituted vote-buying under the definition articulated in

Schreiber. The mere existence of an agreement to vote shares in a particular way 

does not end the inquiry, however. 

 Under Delaware law, “an agreement involving the transfer of stock voting 

rights without the transfer of ownership is not necessarily illegal and each 

arrangement must be examined in light of its object or purpose.” 34 In fact, under 

most circumstances, “[s]hareholders are free to do whatever they want with their 

votes, including selling them to the highest bidder.”35 However, “vote-buying is 

illegal per se if its object or purpose is to defraud or disenfranchise the other 

 

32 Schreiber v. Carney, 447 A.2d 17, 23 (Del. Ch. 1982). 

33 See JX 113 at 2014CVBT00003071 (indicating that the Trustee would vote “as requested”); 

see also supra note 11. 

34 Schreiber, 447 A.2d at 25. 

35 Hewlett v. Hewlett-Packard Co., 2002 WL 549137, at *4 (Del. Ch. Apr. 8, 2002). 
20

stockholders.”36 In considering whether a vote-buying scheme has defrauded or 

disenfranchised the stockholders, our case law distinguishes between vote-buying 

agreements secured by corporate assets and assets owned by third parties. 

Accordingly, a third party is prohibited from buying votes only where doing so 

would be “disenfranchising” by “creat[ing] a misalignment between the voting 

interest and the economic interest of [the] shares.”

37 By contrast, even where 

economic interests remain aligned, “[m]anagement . . . may not use corporate 

assets to buy votes in a hotly contested proxy contest about an extraordinary 

transaction that would significantly transform the corporation, unless it can be 

demonstrated . . . that management’s vote-buying activity does not have a 

deleterious effect on the corporate franchise.”38

 The Plaintiff suggests that, were I to evaluate the Stock Purchase Agreement 

as a third-party transaction, the Stock Purchase Agreement could not constitute 

impermissible vote-buying under the authorities cited above, as the Agreement did 

not misalign the Trustee’s voting and economic interests as a fiduciary of Vizier. 

Specifically, the Plaintiff explains that, while the Trustee transferred to Wallen 1 

million shares of Cardio from the Montano Estate, Vizier continued to hold an 

additional 29 million Cardio shares, and therefore retained a significant economic 

 

36 Schreiber, 447 A.2d at 24. 

37 Crown EMAK Partners, LLC v. Kurz, 992 A.2d 377, 388 (Del. 2010). 

38 Hewlett, 2002 WL 549137, at *4 (emphasis added). 
21

stake in the Company.39 The alignment of interests relevant in a vote-buying 

analysis, however, is an alignment of a vote-buyer’s interests upon the exercise of 

his vote, not of the vote-seller’s interests upon forfeiture of his vote.40 That is 

because “what legitimizes the stockholder vote as a decision-making mechanism is 

the premise that stockholders with economic ownership are expressing their 

collective view as to whether a particular course of action serves the corporate goal 

of stockholder wealth maximization.”41 In other words, where a party has no 

equity stake in the corporation, his vote distorts an effective exercise of the 

franchise, the ultimate goal of which is the financial success of the company for the 

stockholders’ benefit. Accordingly, it is Wallen’s equity interests, rather than the 

Trustee’s, that are relevant to a third-party vote-buying analysis. Although Wallen 

maintains a significant debt and equity stake in the Company, it is not clear from 

the record before me to what extent those interests may be opposed. What is clear 

is that, independent of the vote-buying arrangement, Wallen has a significant 

economic interest in the success of Cardio, both as an equity-holder and as a 

creditor, and that if the Company fails under the management of the Montano slate, 

his interests will be extinguished as both shareholder and creditor. It is unlikely, 

 

39 Pl.’s Pre-Trial Answering Br. at 21. 

40 To the extent the Trustee’s interests are relevant, he acted under a fiduciary duty to advance 

Vizier’s interest, and only if he were near-indifferent to the Wallen and Montano slates would an 

ability to provide the Estate liquidity influence the Trustee’s decision to favor Wallen’s slate 

over Montano’s. 

41 Kurz v. Holbrook, 989 A.2d 140, 178 (Del. Ch. 2010), aff’d in part, rev’d in part sub nom.

Crown EMAK Partners, LLC v. Kurz, 992 A.2d 377 (Del. 2010). 
22

therefore, that the voting rights obtained pursuant to the Stock Purchase Agreement 

resulted in the agency problems that misalignment of incentives creates, and about 

which third-party vote-buying doctrine is concerned. 

 It is not clear to me, however, that the Stock Purchase Agreement at issue 

can rightly be characterized as a third-party transaction. While it is true that 

Wallen used his personal assets to purchase the 1 million Cardio shares from the 

Montano Estate, there remained another crucial term to be satisfied: the delivery of 

a board seat on Cardio’s board of directors. Of course, Wallen could not deliver 

that seat on his own, and the Interim Board’s legal counsel understood that under 

Delaware law, its fiduciary duties to the Cardio stockholders prevented it from 

entering into an enforceable agreement to deliver a seat to the Trustee’s designee.42 

As a result, while Wallen contractually agreed only to use his “best efforts” to 

secure the seat, he assured the Trustee that the Interim Board saw no reason its 

fiduciary duties would prevent it from agreeing to the seat despite an inability to 

enter into an enforceable agreement to that effect.43 Most revealingly, he 

demonstrated his absolute confidence that the board seat would be approved by 

 

42 See JX 86 at 6 (email from Barry Cannaday, counsel for the Plaintiff, to Justin Rawlins, 

counsel for the Trustee) (“Under Delaware law, the Cardio Board of Directors has a fiduciary 

duty to the shareholders to consider the qualifications of any proposed addition to the Board and 

to make an independent determination that it will be in the best interest of the shareholders of 

Cardio to appoint the person who is put up for a vacant position on the Board (which is what will 

happen here). They cannot agree in advance to simply appoint anyone the Trustee designates.”). 

43 See, e.g., id. at 2 (email from Cannaday, counsel for the Plaintiff, to Wallen, Gordon, and Flaa) 

(“I have asked that [the Trustee’s counsel] provide [the Trustee’s designee] Al Moran’s resume, 

so that it can be determined that there is a legitimate basis for making this statement.”). 
23

agreeing to forfeit his 1 million purchased shares—while permitting the Trustee to 

retain the $250,000 consideration—if despite his best efforts, he proved unable to 

deliver the board seat. Wallen’s own bankruptcy counsel, in communications with 

the Trustee’s counsel, explained that Wallen’s willingness to put $250,000 worth 

of shares on the line if the Interim Board did not approve the Trustee’s designee 

demonstrated that Wallen was “willing to agree [only] because he [was] very 

comfortable that he [could] fulfill this obligation.”44 That confidence is 

unsurprising given that the Interim Board and Wallen’s slate were identical.45 

And, of course, the Plaintiff’s suggestion that the Trustee’s board seat was not an 

essential term of the Stock Purchase Agreement is belied by the fact that the 

Trustee, despite selling the Estate’s Cardio stock at five times its market value, 

initially considered the Interim Board’s failure to agree to appoint his designee a 

“deal breaker.”46 Based on those considerations, it is conceivable that the Interim 

Board agreed to deliver a valuable corporate asset—a seat on the Cardio board—in 

exchange for the Trustee’s proxy. 

 Ultimately, however, I need not determine whether the Stock Purchase 

Agreement constituted impermissible vote-buying. The Defendants contend that 

the Agreement, even if not impermissible vote-buying, was a material transaction, 

 

44 JX 113 at 3087. 

45 Both the Interim Board and Wallen’s slate include Wallen, Flaa, Grant Gordon, Jon Ross, and 

Robert Schleizer. JX 80 at 7-8. 

46 JX 86 at 5. 
24

and Wallen’s failure to disclose it in his proxy solicitation materials provides a 

compelling basis to invalidate the Second Consent Action. For the reasons detailed 

below, I agree. Despite the Plaintiff’s suggestion that no duty to disclose could be 

imputed to Wallen acting in his capacity as a stockholder, even acting in their 

individual capacities, directors owe a duty of candor to the stockholders of the 

corporation for which they serve,47 and in any event, assuming the Interim Board’s 

collusion with respect to the Stock Purchase Agreement, the Interim Board itself 

had a duty to update the stockholders regarding its participation in the transaction. 

 It is axiomatic that “directors of Delaware corporations are under a fiduciary 

duty to disclose fully and fairly all material information within the board’s control 

when it seeks shareholder action.”48 Information is material “if there is a 

substantial likelihood that a reasonable stockholder would consider it important in 

deciding how to vote.”49 For the reasons that follow, I find that the promise to 

grant the Trustee’s designee a seat on the Company’s board in connection with the 

 

47 See Zaucha v. Brody, 1997 WL 305841, at *4-5 (Del. Ch. June 3, 1997) (“[The plaintiff] 

argues that he sought consents not as a director but as a stockholder. The statute does not limit 

the right to seek consents to stockholders. More fundamentally, fiduciary duties are not limited 

to the board as a body or to the controlling majority, but bind directors individually. . . . I see no 

sound reason to relieve a director of his fiduciary duty simply on the basis that he is acting in 

another capacity. One reason for the fiduciary duty of disclosure is directors’ greater access to 

knowledge. A dissident director like [the plaintiff] has that knowledge no less when challenging 

controlling board members. Stockholders have a right to assume that directors always act in 

what they believe to be the stockholder’s best interest, and I see no reason why that assumption 

should not apply to a dissident director who solicits stockholders’ consents.”). 

48 Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 143 (Del. 1997) (internal quotation 

omitted) (citing Arnold v. Society for Savs. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994)). 

49 Id.
25

Stock Purchase Agreement was material such that Wallen and the Interim Board 

had a duty to disclose its existence to the Cardio stockholders, either in Wallen’s 

initial solicitation materials, or in a supplement to those materials. 

 Several factors, taken together, lead to my conclusion that the board seat 

secured by the Trustee pursuant to the Stock Purchase Agreement was information 

a stockholder would likely find material. In executing a proxy in favor of Wallen’s 

Second Consent Action, the Cardio stockholders believed they were delivering 

proxies to remove six directors to be replaced by Wallen and his two designees, 

Jon Ross and Robert Schleizer. In reality, a proxy in support of the Second 

Consent Action effectuated the appointment not only of Wallen, Ross, and 

Schleizer, but of both the Trustee’s designee, Moran, and an additional director to 

be designated by Wallen.50 I find it likely that the Cardio stockholders would have 

found it material to know that, by delivering proxies in favor of the Second 

Consent Action, they were also supporting Moran’s appointment to the Cardio 

board. Importantly, while the stockholders received written biographies on Flaa, 

Gordon, Wallen, Ross, and Schleizer in their proxy solicitation materials, they 

received no such information about Moran, and accordingly were denied any 

 

50 See Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43, 73 (Del. Ch. 2008) (invalidating an election 

on the basis that “the disinterested Cryo-Cell electorate voted in ignorance of the actual board 

that would govern them in the event the Management Slate won”). 
26

opportunity to assess his credibility before delivering the proxies that would 

effectuate his appointment.51

Further, in addition to assessing Moran’s credibility, the stockholders likely 

would have found the existence of the Stock Purchase Agreement relevant in 

assessing Wallen’s credibility. Wallen has initiated two “successful” written 

consent actions that squeaked by with majority approval only by obtaining the 

support of a dispositive block of shares—the 30 million shares held by Vizier—in 

both cases by conduct that has fallen under scrutiny in this Court. Tellingly, the 

First Consent Action was invalidated because Vicki Montano, in response to a 

request by Wallen, executed a written consent on behalf of Vizier without authority 

to do so. While the proxy solicitation materials addressed that problem as if it 

were a technical error that had been corrected, in fact the success of the Second 

Consent Action still required that a proxy be delivered to Wallen on Vizier’s 

behalf, and Wallen sought to secure the support of that dispositive block by 

promising its fiduciary’s designee a seat on Cardio’s board. Thus, to the extent 

stockholders read in the proxy solicitation materials that “it [was Wallen’s] belief 

that the Trustee, with the cooperation of Montano’s ex-wife, has or will obtain the 

 

51 See id. at 72 (“Problematically, the Cryo-Cell stockholders did not know that [the party to the 

vote-buying arrangement] clearly intended to designate [a particular designee], a person whose 

recent past would have weighed heavily on the mind of a rational stockholder considering 

whether to seat him as a fiduciary.”). 
27

right to grant a proxy with respect to the shares held by [Vizier],”52 and rightly 

understood that statement to indicate that the primary concern in the first 

litigation—Vicki’s authority to vote the Vizier shares—had been effectively 

resolved, stockholders would have found it an important clarification that the 

Trustee, though he had the right to grant the Vizier proxy, had at least in part 

determined to do so as a result of his bargained-for ability to fill a newly-created 

director seat. The relevant points here are that (1) in both the First and Second 

Consent Actions, even after securing the Vizier block, Wallen’s slate was favored 

only by a narrow majority of shares,53 and (2) stockholders would likely have 

found it material to know that the slate they were supporting felt it necessary to 

rely on the voting agreement described above in order to obtain the requisite 

number of proxies. 

 The Plaintiff contends that, even if the existence of the Stock Purchase 

Agreement was information material to the Cardio stockholders, Wallen could not 

possibly have disclosed its contents on November 11 when his proxy solicitation 

materials went sent, as the Agreement was not finalized until it was approved by 

the bankruptcy court on November 18 and executed on November 22.54 I find it 

 

52 JX 80 at 3. 

53 See Portnoy, 940 A.2d at 72 (“What [the party to the vote-buying agreement] did with his own 

bought shares is less the point than that the disinterested electorate voted in a razor-thin election 

without knowledge of very material facts.”). 

54 The Plaintiff suggests that the existence of the Stock Purchase Agreement was publically 

available as it was approved in a public bankruptcy court proceeding and disclosed in Delaware 
28

telling, however, that, despite his failure to describe the Stock Purchase Agreement 

even in the conditional, Wallen did find the transaction sufficiently likely such that 

it warranted the partial disclosure that “[i]t is anticipated that the Board might 

appoint one or two additional directors after these initial designations.”55

 

Moreover, the Plaintiff contends that an effective number of proxies were 

delivered five days after the Agreement was executed, on November 27; as the

parties were on the cusp of an agreement since mid-November, Wallen should 

have provided a supplemental disclosure immediately upon execution of the 

Agreement. Even so, Wallen continued to accept proxies through January 2, and 

even then did not update his solicitation materials.

56

 Because I find that the Trustee’s agreement to deliver its dispositive proxy in 

exchange for a seat on the Company’s board was material information that should 

have been disclosed to the Cardio stockholders, I find it appropriate to invalidate 

the Second Consent Action. I do so despite Montano’s failure to disclose the Stock 

 

Supreme Court filings. Pl.’s Pre-Trial Op. Br. at 29. Though a diligent stockholder might have 

discovered the existence of the Stock Purchase Agreement by seeking out and reviewing those 

filings, as explained above, the Interim Board had a fiduciary duty to disclose all material 

information—including the existence and terms of the Agreement—in the proxy solicitation 

materials provided to stockholders; further, even the filings to which the Plaintiff refers did not 

disclose that the Agreement was supported by the Trustee’s commitment to deliver a proxy on 

behalf of the Vizier stock supporting the Second Consent Action. 

55 JX 80 at 8. 

56 The Plaintiff also suggests that “[n]o improper vote buying could have occurred here, where a 

federal court explicitly sanctioned the transaction and, further, directed the Trustee be given the 

ability to appoint a board representative.” Pl.’s Pre-Trial Op. Br. at 23. That the bankruptcy 

court determined that approval of the Stock Purchase Agreement was appropriate under the U.S. 

Bankruptcy Code has no bearing on whether disclosure of that Agreement was material as a 

matter of Delaware corporate law. 
29

Purchase Agreement in his own solicitation, which failure in no way justifies 

depriving the Cardio stockholders of material information to which they should 

have access when comparing the competing Montano and Wallen slates. 

For almost twelve months, since June 2013, the Cardio stockholders have 

had no certainty regarding who constitutes the Company’s proper board of 

directors. Even prior to the First Consent Action, Cardio had not held an annual 

election since 2008,57 despite the requirements of the DGCL and in the Company’s 

bylaws that a director election be held annually.58 Significantly, were I to 

invalidate the Second Consent Action and do no more, the Defendants would 

return to positions on the Cardio board to which they were last elected more than 

five years ago. Clearly, both Montano and Wallen believe that, in the right hands, 

this struggling pharmaceutical company will eventually return value to its 

stockholders, but without a board able to negotiate agreements to sell its drug 

candidates, this company will at best continue on the brink of insolvency. 

Therefore, rather than simply invalidating the Second Consent Action, I find that 

an appropriate resolution of this action requires ordering an annual election 

 

57 Montano Dep. (July 12, 2013) 303:2-3. 

58 See Bylaws § 3.3 (“Except as provided in Section 3.4 of these Bylaws [governing resignations 

and vacancies], directors shall be elected at each annual meeting of stockholders to hold office 

until the next annual meeting. Each director, including a director elected or appointed to fill a 

vacancy, shall hold office until the expiration of the term for which elected and until a successor 

has been elected and qualified.”). 
30

pursuant to Section 225(a).59 A special master shall be appointed by this Court to 

oversee the election. The Cardio stockholders are entitled to certainty and to a 

process free of the irregularities that have tainted the First and Second Consent 

Actions over the last twelve months, as well as a board that can manage with 

certainty the few assets of the Company that remain. 

2. Requests for Attorneys’ Fees 

 Three issues remain to be decided in this action and in the earlier-filed 

action, Civil Action No. 8632-VCG. Those issues include (1) a request by the 

Defendants for attorneys’ fees in connection with their Motion to Compel; (2) the 

Defendants’ Motion for Sanctions seeking attorneys’ fees for responding to the 

Plaintiff’s Motion for Relief from the Status Quo Order; and (3) the Defendants’ 

Motion to Hold the Interim Board in Contempt for Violating the Status Quo Order. 

 

59 See 8 Del. C. § 225(a) (“Upon application of any stockholder or director, or any officer whose 

title to office is contested, the Court of Chancery may hear and determine the validity of any 

election, appointment, removal or resignation of any director or officer of any corporation, and 

the right of any person to hold or continue to hold such office, and, in case any such office is 

claimed by more than 1 person, may determine the person entitled thereto; and to that end make 

such order or decree in any such case as may be just and proper . . . . In case it should be 

determined that no valid election has been held, the Court of Chancery may order an election to 

be held in accordance with § 211 or § 215 of this title.”) (emphasis added); Portnoy v. Cryo-Cell 

Int’l, Inc., 940 A.2d 43, 83 n.208 (Del. Ch. 2008) (ordering an election to be overseen by a 

special master, noting that “[t]he DGCL gives this court wide discretion to craft a remedy in the 

case of a tainted election,” and citing both Section 225(a) and Section 227(b)); Magill v. N. Am. 

Refractories Co., 129 A.2d 411, 413 (Del. Ch. 1957) (“We think that under our statute the 

reviewing court, which must make ‘such order or decree in any such case as may be just and 

proper,’ is given a discretion to determine whether a new election should be ordered.”) (citation 

omitted). 
31

 With respect to the Defendants’ requests for attorneys’ fees in connection 

with defending against the Plaintiff’s earlier-filed Motions, that request is denied. 

I find that while the parties aggressively litigated this action, neither party’s 

conduct rose to a level of bad faith sufficient to trigger an exception to the 

American Rule on fees. Specifically, in connection with the Defendants’ Motion 

to Compel, I find that the Plaintiff’s opposition was substantially justified, 

particularly in light of the over-breadth of the Defendants’ request. Further, with 

respect to the Defendants’ request for attorneys’ fees for responding to the 

Plaintiff’s Motion for Relief from the Status Quo Order, I find that such fees are 

not warranted as it does not appear that the Plaintiff acted in bad faith in pursuing 

that Motion. Accordingly, the parties shall bear their own fees in connection with 

those Motions. 

As to the Defendants’ Motion to Hold the Interim Board in Contempt for 

Violating the Status Quo Order, that Motion is also denied, to the extent that it is 

not moot in light of this Memorandum Opinion. Without addressing whether the 

Plaintiff violated the spirit of the Status Quo Order by initiating the Second 

Consent Action, I find that the relief the Defendants request—declaring written 

consents delivered in the Second Consent Action ineffective, dissolving the Status 

Quo Order, and awarding the Defendants attorneys’ fees—are either inappropriate 

or moot at this juncture. 
32

IV. CONCLUSION 

 For the reasons stated above, I find the Second Consent Action ineffective to 

remove the Defendants from the Cardio board of directors, but order the Company 

to hold, as soon as is convenient, an annual election, to be overseen by a special 

master appointed by the Court. The parties should submit an appropriate Order.