IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CALESA ASSOCIATES, L.P.; 

CALESA FAMILY TRUST, JULY 6, 

2000; FRED APPLEGATE; JAY 

BERNSTEIN; GRAEME W. BUSH; 

CRAWFORD FAMILY TRUST, 

SEPTEMBER 8, 2000; PETER C. 

FARRELL; FRANK NORMAN 

FJELDHEIM II; STEVEN R. 

HOWARD; LEONARD GLINER; 

ANDREW HARRISON; ROBERT S. 

KRIM; JOEL LIFFMANN; THOMAS 

LLOYD; JAMES P. MCGUCKIN; RLR 

GROUP, LLC; RICHARD RUBIN; 

STEVEN RUBIN; RUBIN FAMILY 

FUND, LLC; CHARLES ANDREW 

RUSSELL; JACK SCHNEIDER; 

SHERMAN-CALESA

FAMILY TRUST, FEBRUARY 10, 

1998; and JASON WILD,

Plaintiffs,

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v.

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C.A. No. 10557-VCG

AMERICAN CAPITAL, LTD.; 

AMERICAN CAPITAL EQUITY I, 

LLC; AMERICAN CAPITAL EQUITY 

II, LP; JEFFREY M. COHEN; NEIL M. 

HAHL; MICHAEL JANISH; JOHN L. 

LEWIS IV; and GORDON O’BRIEN,

Defendants.

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MEMORANDUM OPINION

Date Submitted: November 13, 2015

Date Decided: February 29, 2016
Thaddeus J. Weaver, of DILWORTH PAXSON LLP, Wilmington, Delaware; OF 

COUNSEL: Joseph H. Jacovini and Thomas S. Biemer, of DILWORTH PAXSON 

LLP, Philadelphia, Pennsylvania, Attorneys for Plaintiffs.

Gregory V. Varallo, Robert J. Stearn, Jr., and Richard P. Rollo, of RICHARDS, 

LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: John C. 

Massaro and Dana Y. Elliott, of ARNOLD & PORTER LLP, Washington, District 

of Columbia, Attorneys for Defendants.

GLASSCOCK, Vice Chancellor
1

The Plaintiffs, a group of minority stockholders of Halt Medical, Inc. (“Halt” 

or the “Company”), filed this action against certain current and former directors of 

Halt and its alleged controller, stockholder American Capital, Ltd. (“American 

Capital”) and its affiliates, in connection with a transaction (the “Transaction”) that 

the Plaintiffs denominate a “squeeze-out merger,” but which was in fact an issuance 

of equity that diluted the interest in the Company held by the Plaintiffs, who remain 

stockholders. The Complaint alleges breaches of fiduciary duty, aiding and abetting 

breaches of fiduciary duty, and violations of Sections 242(b)(1) and 228 of the 

Delaware General Corporation Law (“DGCL”). The fiduciary duty claims are 

derivative in nature, but the Plaintiffs have eschewed the opportunity to so pursue 

them; instead, they seek to proceed only directly, under the rubric, concisely stated 

by this Court in Carsanaro v. Bloodhound Technologies, Inc.,

1

that a breach of 

loyalty resulting in dilution in favor of an insider represents an extraction of value 

from the unaffiliated stockholders, a claim which may be advanced directly. The 

Plaintiffs seek money damages and a judgment rescinding the Transaction. The 

Defendants, in turn, move to dismiss the Complaint on the grounds of acquiescence, 

estoppel, and laches, or alternatively, for failure to state a claim. For the following 

reasons, that motion is, with one narrow exception, denied.

 

1

65 A.3d 618 (Del. Ch. 2013).
2

I. BACKGROUND FACTS2

A. The Parties

Non-party Halt is a Delaware corporation, founded in 2004 by Edward F. 

Calesa for the purpose of supporting and marketing a procedure to treat fibroid 

tumors in women.3 Calesa is a former Halt director and served as Chairman of the 

Halt board of directors (the “Board”) at the time of the Transaction.4 Halt’s 

intellectual property includes valuable patents and trademarks related to the 

AcessaTM System, an FDA-approved procedure and technology for the treatment of 

fibroid tumors in women, which is said to substantially reduce the pain, trauma, and 

potential cancer risk associated with the once-traditional use of power morcellators.5 

As such, the AcessaTM System is well-positioned to become the standard of care for 

women in the treatment of fibroid tumors, according to the Complaint. 

 

2 The facts, drawn from the Plaintiffs’ Verified Complaint (the “Complaint”) and from documents 

incorporated by reference therein, are presumed true for purposes of evaluating the Defendants’ 

Motion to Dismiss. The parties dispute whether I may consider the documents related to the 

Transaction (the “Transaction Documents”), attached as Exhibit 1 to the Plaintiffs’ Complaint, in 

evaluating the Defendants’ Motion to Dismiss. Generally, the Court “may consider documents 

outside of the pleadings only when: (1) the document is integral to a plaintiff’s claim and 

incorporated in the complaint or (2) the document is not being relied upon to prove the truth of its 

contents.” In re Crimson Exploration Inc. S’holder Litig., 2014 WL 5449419, at *8 (Del. Ch. Oct. 

24, 2014) (citation omitted). Here, because the Complaint cites to and relies upon the Transaction 

Documents as the basis for many alleged facts—for instance, facts regarding the independence of 

Messrs. Hahl, Janish, and O’Brien—I find that it is appropriate to consider them in my analysis. 

The parties also dispute whether the Court may take judicial notice of the Halt Capitalization Table. 

See Defs’ Reply Br. 32. I do not address this argument, however, as the Capitalization Table is 

not pertinent to my analysis.

3 Compl. ¶¶ 52–53.

4

Id. at ¶¶ 52, 68.

5

Id. at ¶ 3. To morcellate is to physically reduce a body to small bits convenient to extraction.
3

Plaintiffs Calesa Associates, L.P. and Calesa Family Trust, July 6, 2000

(collectively, the “Calesa Entities”) are stockholders and minority investors in Halt.

6

 

Calesa serves as General Partner and Trustee, respectively, to these entities.

7

 

Plaintiffs Fred Applegate; Jay Bernstein; Graeme W. Bush; Crawford Family Trust, 

September 8, 2000; Peter C. Farrell; Frank Norman Fjeldheim II; Leonard Gliner; 

Andrew Harrison; Steven R. Howard; Robert S. Krim; Joel Liffmann; Thomas 

Lloyd; James P. McGuckin; RLR Group, LLC; Richard Rubin; Steven Rubin; Rubin 

Family Fund, LLC; Charles Andrew Russell; Jack Schneider; Sherman-Calesa 

Family Trust, February 10, 1998; and Jason Wild are stockholders and minority 

investors in Halt.8 Many of the Plaintiffs also hold debt, options, or warrants as part 

of their investments in the Company.9

Defendant American Capital, Ltd. (“American Capital”), a Delaware 

corporation with its principal place of business in Bethesda, Maryland, is a publicly 

traded private equity firm.10 It is the largest stockholder in Halt and, the Plaintiffs 

allege, controls the Halt Board.11 Defendant American Capital Equity I, LLC, a 

Delaware limited liability company and affiliate of American Capital, is a 

 

6

Id. at ¶¶ 21–22.

7

Id.

8

Id. at ¶¶ 23–43.

9

Id. at ¶ 1.

10 Id. at ¶ 44.

11 Id.
4

“participant” in American Capital’s investments in Halt.12 Defendant American 

Capital Equity II, LP (collectively with American Capital and American Capital 

Equity I, LLC, “ACAS”)13 is a Delaware limited partnership and affiliate of 

American Capital, and is a “participant” in American Capital’s investments in Halt.14 

Collectively, ACAS held a 26 percent equity interest in Halt prior to the 

Transaction.15

Defendants Jeffrey M. Cohen, Neil M. Hahl, Michael Janish, John L. Lewis 

IV, and Gordon O’Brien (collectively, the “Director Defendants”) are all current or 

former Board members of Halt who the Plaintiffs assert were under the control of 

ACAS. Cohen is the Chief Executive Officer (CEO) of Halt and a current member 

of the Board.16 Prior to the Transaction, the Halt Board voted to more than double 

Cohen’s compensation and to raise his secretary’s salary by more than $100,000.17

Cohen was also allowed to continue as CEO after the Transaction and became 

eligible to participate in a management incentive plan created as a part of the 

Transaction, which will give him six percent of the net equity in Halt.

18

 The 

 

12 Id. at ¶ 45.

13 The Complaint, at points, appears to conflate “American Capital” and “ACAS.” Subsequent 

quoted references to “American Capital” or “ACAS,” for purposes of this Memorandum Opinion, 

refer to the alleged control group of American Capital, Ltd.; American Capital Equity I, LLC; and 

American Capital Equity II, LP.

14 Compl. ¶ 46.

15 Id. at ¶ 11(b).

16 Id. at ¶ 47.

17 Id. at ¶ 70.

18 Id. at ¶ 71.
5

Plaintiffs concede that Cohen “has not always been a controlled director,” but argue 

that he “became a controlled director when ACAS became empowered to decide 

whether Mr. Cohen would continue to receive material benefits in the form of salary 

and incentives.”19

Hahl was appointed to the Halt Board by ACAS around January 2012.20 He 

has also served as a member of the board of directors of American Capital since 

1996.

21

 Throughout his service on the Halt Board, Hahl has consistently taken 

positions “that favor American Capital or that are in accord with ACAS’s desires.”22 

In documents created by Halt related to the Transaction (the “Transaction 

Documents”), Hahl was identified as being “affiliated with American Capital, Ltd.,” 

and following the Transaction, Hahl became Chairman of the Halt Board.23

Janish was appointed to the Halt Board by ACAS in late 2013 or early 2014 

and served until September 2014.24 Janish also served as President and Chief 

Executive Officer of Avalon Laboratories, an American Capital portfolio company 

in which ACAS “had invested” over $66 million, until September 2014.

25

 While 

 

19 Id. at ¶ 69. See also id. at ¶ 108 (“While recognizing that ACAS’s conduct was detrimental, Mr. 

Cohen supported ACAS through his votes as a director because he knew that his job as Halt’s 

Chief Executive Officer and his income depended upon ACAS’s support.”).

20 Id. at ¶ 48.

21 Id.

22 Id. at ¶ 72.

23 Id. (quoting id. at Ex.1 (the “Transaction Documents”), at 19).

24 Id. at ¶ 49.

25 Id.
6

serving on the Halt Board, Janish “consistently favored positions beneficial to 

American Capital and voted in lockstep with other ACAS Controlled Directors.”26 

Like Hahl, Janish is identified in the Transaction Documents as being “affiliated 

with American Capital, Ltd.”27 Janish’s resignation from the Halt Board in 

September 2014 immediately followed ACAS’s “sale of Avalon Laboratories.”28

Lewis joined the Halt Board at American Capital’s request around January 

201229 and fills the so-called independent director seat.30 He is also the co-founder 

of Gardner Lewis Asset Management, which “was among the largest” investors in

ACAS.31 Lewis is currently the second largest senior debt holder in Halt, after 

ACAS.32 Lewis is also a close friend of ACAS Chairman Malon Wilkus33 and has

“consistently voted with ACAS-designated directors for positions favoring 

American Capital.”34 In January 2014, Calesa asked Lewis to either resign from the 

Halt Board or to fill an ACAS-designated seat, but Calesa “was defeated by ACAS 

and . . . Lewis remained on the Halt board as the ‘independent director.’”35

Finally, O’Brien was appointed to the Halt Board by ACAS around January 

 

26 Id. at ¶ 75.

27 Id. (quoting Transaction Documents, at 19).

28 Id. at ¶ 76. 

29 Id. at ¶ 50.

30 Id. at ¶ 77.

31 Id. at ¶ 50.

32 Id. at ¶ 79.

33 Id. at ¶ 80.

34 Id. at ¶ 81.

35 Id.
7

2012.36 O’Brien also serves as President, Special Finance and Operations, for ACAS 

and is one of seven executive officers of ACAS.37 The Transaction Documents 

identify O’Brien as being “affiliated with American Capital, Ltd.,”

38 and O’Brien 

“routinely represent[ed] ACAS’s interests in ACAS’s negotiations with Halt,” 

including in negotiations related to the Transaction.39 The Plaintiffs allege that, upon 

information and belief, American Capital Chairman Malon Wilkus directed O’Brien 

regarding his dealings with Halt and the Halt Board.40

B. Factual Overview

1. ACAS Investments in Halt

On June 22, 2007, American Capital announced its first investment, along 

with Defendant American Capital Equity I, LLC, of $8.9 million in Halt.41 Under 

the terms of this initial investment, ACAS was granted two ACAS-designated 

directors on Halt’s five-seat Board42 and the right to block any subsequent pari passu

investments in Halt.

43

 From that point on, the relationship between ACAS and Halt 

began to deteriorate. ACAS did not make any further investments in Halt over the 

 

36 Id. at ¶ 51.

37 Id.

38 Id. at ¶ 83 (quoting Transaction Documents, at 19).

39 Id.

40 Id. at ¶ 84.

41 Id. at ¶ 59.

42 Id. at ¶ 66(a).

43 Id. at ¶ 62.
8

next three-and-a-half years,

44 often misleading Halt as to whether it intended to 

provide or extend funding.45 Instead, certain Halt investors—including Calesa and 

the Plaintiff investors—established a bridge loan (the “Bridge Note”) that provided 

all of Halt’s financing during this period.

46

 The Bridge Note consisted of junior debt 

at a 15% interest rate plus “options, warrants, and/or conversion rights.”47 Over the 

course of this three-and-a-half year period, the Bridge Note came due and was 

extended several times by the investors.48 

In June 2011, in response to Halt’s need for additional funds, ACAS offered 

to provide $5 million in exchange for a 50% interest in Halt.49 The Halt Board

declined the offer,50 instead entering into a short-term loan agreement with 

Broadband Capital, under which Broadband Capital provided $5 million secured by 

Halt’s intellectual property.51 Miles Arnone, Managing Director of American 

Capital’s Technology Group and one of ACAS’s designated directors at the time, 

informed the Halt Board that it had made a “big mistake” in not taking American 

 

44 Id. at ¶ 61.

45 See id. at ¶ 85; id. at ¶ 87 (“On several occasions, ACAS, through its designated directors, 

informed the Halt board either collectively or through Mr. Calesa that it would provide additional 

funding, only to withdraw or never formally make the offer, forcing the Halt board to negotiate 

under duress, which was to Halt’s detriment and American Capital’s benefit.”).

46 Id. at ¶ 61.

47 Id. at ¶ 62.

48 Id.

49 Id. at ¶ 89.

50 Id. The Plaintiffs allege that “ACAS’s offer also would have severely diluted the interests of 

other shareholders and delayed repayment to debt holders who had been carrying Halt for much 

of the preceding three-and-a-half years.” Id.

51 Id. at ¶ 90.
9

Capital’s offer.52 Four months later, Arnone informed the Halt Board that ACAS 

had “secretly” purchased the Broadband note and security interest in Halt’s 

intellectual property.53

In the fall of 2011, again needing additional funds, the Board negotiated a 

potential deal with investors “Genesis” and “Novaquest” for a combined $35 million 

investment at a 15% interest rate, subject to ACAS’s waiver of its blocking rights.

54

 

Instead, ACAS exercised those blocking rights, offering, as an alternative, to loan

Halt an additional $20 million at a 22% interest rate, with the right to add one Board 

member and appoint Lewis as the “independent director.”

55

 Halt accepted ACAS’s 

offer.56

By the fall of 2013, Halt owed ACAS $50 million under a note due at the end 

 

52 Id. at ¶ 91.

53 Id. at ¶ 92.

54 Id. at ¶ 93. While the Complaint does not specify that the proposed Genesis and Novaquest 

investment would consist of senior debt, in order for ACAS’s blocking rights to apply, Genesis 

and Novaquest presumably sought a pari passu investment to that of ACAS.

55 Id. at ¶ 94.

56 The Complaint omits details regarding several subsequent issuances of senior secured debt. In 

January 2012, the Company sold $12.5 million in Term A Senior Secured Promissory Notes 

(“Term A Notes”) and $8.25 million in Term B Senior Secured Promissory Notes (“Term B 

Notes”). Id. at Ex. 1, at 9 (Ex. 1, at 1–10 is hereinafter referred to as the “Information Statement”). 

In December 2012, the Company sold $15 million of Term C Senior Secured Convertible 

Promissory Notes. The Company, in connection with this financing, also agreed to issue an 

additional $2,411,111.13 of Term A Notes and an additional $1,453,083.33 in Term B Notes in 

exchange for an extension of the maturity dates of the existing Term A Notes and Term B Notes. 

Id.
10

of 2013.57 Despite indications that ACAS would extend the note,58 in September 

2013, ACAS unexpectedly demanded repayment in full by December 31, 2013.59 

Calesa called a Halt Board meeting to discuss different proposals for how Halt might 

raise money, including a possible sale from within a Chapter 11 proceeding, 

effectively prohibiting voluntary bankruptcy relief absent ACAS consent.

60

 In 

October 2013, ACAS loaned Halt an additional $3 million to help it operate through 

the end of 2013, in return for Halt agreeing to a supermajority vote requirement for 

any future Chapter 11 proceeding.61 The Plaintiffs allege that a majority of the Board 

approved the loan and that, at the time, ACAS had control of four of Halt’s then-six 

Board seats: two designated directors, Hahl and O’Brien, and two captured directors, 

Lewis and Cohen.62 At some point “thereafter,” Janish also became a member of 

the Board.63

Around the same time, the Board launched and conducted a sales process, 

 

57 Compl. ¶ 100. It is not clear from the Complaint whether the $50 million note includes the $20 

million loaned to Halt in March 2012. See infra note 61.

58 The Plaintiffs allege that, speaking on behalf of ACAS, O’Brien made it clear to the Board that 

they should not be concerned about the $50 million note and that ACAS would extend it if the 

need arose. Id. at ¶ 101.

59 Id. at ¶ 102.

60 Id. at ¶ 103.

61 Id. at ¶¶ 104, 106. See also Information Statement, at 9 (describing the Company’s sale of $3 

million in Term D Senior Secured Convertible Promissory Notes). The Plaintiffs allege that this 

note was an extension of the $20 million March 2012 note, Compl. ¶ 106, and that ACAS “intended 

the supermajority voting requirement to give ACAS the absolute authority as to whether Halt could 

ever file a voluntary Chapter 11 proceeding.” Id. at ¶ 104.

62 Id. at ¶¶ 105; 66(c).

63 Id. at ¶ 109. It is unclear whether Janish joined the Board in connection with the October 2013

financing or early the following year. See id. at ¶ 49. 
11

discussing other alternative transactions with potential advisors, investors, and 

acquirers.64 Most recently prior to the Transaction, in December 2013, the Board 

approved a proposal from Davidson Kempner Capital Management LCL for a 

recapitalization and debt financing, but Davison Kempner could not proceed with 

the transaction because, according to Davidson Kempner, its investment committee 

did not approve the deal.65 Ultimately, none of these negotiations came to fruition;

66

they either could not meet Halt’s working capital needs (operating expenses and 

payroll, for example), or were unlikely to close before the maturity dates of Halt’s 

existing senior secured notes.

67

 

2. The Transaction

Given Halt’s failure to secure financing elsewhere, and under pressure from 

the impending due date of the $50 million note, Calesa, as representative of Halt, 

met with O’Brien, as representative of ACAS, to “negotiate a deal that would allow 

Halt to be sold to a third party, with Mr. Calesa leading the selling effort.”68 Cohen, 

along with ACAS’s Robert Sacks, documented the proposed deal in the Transaction 

 

64 Id. at ¶¶ 95–96; Information Statement, at 10.

65 Information Statement, at 10.

66 Compl. ¶¶ 103, 110.

67 Information Statement, at 10. The Complaint also omits discussion of additional notes issued 

in early 2014. In January 2014, the Company sold $500,000 in convertible promissory notes that 

were convertible into debt instruments issued in the Transaction financing. Information Statement, 

at 9. Additionally, in February and March 2014, the Company sold $1.2 million in additional Term 

A Notes. Id.

68 Compl. ¶ 110.
12

Documents.69

The Transaction Documents called for a series of actions including, among 

others, the following. First, the Company would form Halt Merger Sub, Inc.

(“Merger Sub”), a Delaware corporation,70 and purchase 100 shares of common 

stock of Merger Sub.71 Merger Sub and the Company would enter into an 

Agreement and Plan of Merger, pursuant to which Merger Sub would merge with 

and into the Company.72 As a result of the merger, the Company’s Certificate of 

Incorporation would be amended;73 all issued and outstanding shares of the 

Company’s common stock would remain outstanding and be unaffected; all issued 

and outstanding shares of the Company’s preferred stock would be “cancelled and 

extinguished and delivered in exchange” pursuant to the terms of the merger 

agreement; and any shares of capital stock of the Merger Sub would be cancelled.74 

Additionally, the stockholders would waive any appraisal rights under the DGCL or 

other applicable laws,

75 and the bylaws of the Company would be amended and 

restated.

76

The Company and its stockholders would also enter into a Note Purchase and 

 

69 Id. at ¶ 112.

70 Information Statement, at 1.

71 Compl. ¶ 125; Information Statement, at 1.

72 Compl. ¶ 125; Information Statement, at 1.

73 Compl. ¶ 125; Information Statement, at 1.

74 Information Statement, at 2.

75 Id. at 6.

76 Compl. ¶ 125; Information Statement, at 11.
13

Exchange Agreement with ACAS, pursuant to which ACAS would loan the 

Company up to $73 million.77 ACAS would get a blanket first priority security 

interest in the Company’s assets and certain other rights as set forth in the Purchase 

Agreement and related agreements.78 Additionally, the Transaction Documents 

called for the cancellation of any outstanding warrants to purchase common stock or 

preferred stock issued pursuant to prior agreements,79 and the adoption of a 

management incentive plan, under which 12% of the proceeds of a subsequent sale 

of Halt, after repayment of any ACAS debt, would be divided among certain 

employees.80 The management incentive plan, the Plaintiffs allege, was adopted 

mainly for the benefit of Jeffrey Cohen.81 Finally, the Transaction called for changes 

to subordinated notes affecting the Plaintiffs, including provisions in the Transaction 

Documents providing that, if Halt were not sold within one year of the Transaction 

(by March 2015), the subordinated debt owned by minority investors would be 

 

77 Compl. ¶ 11(a). The Plaintiffs allege that, of the $73 million note, $55 million would be used 

to repay existing senior secured notes held by ACAS, plus accrued interest. Id. I note, however, 

that the Halt Information Statement suggests that ACAS was not the sole participant in the $73 

million note, Information Statement at 3 (“[T]he Company [will] enter into a Note Purchase and 

Exchange Agreement with certain investors . . . , pursuant to which the [investors] will loan the 

Company up to approximately $73,000,000 and the Company will issue to the Lenders senior 

secured promissory notes . . . and shares of its Series AA Preferred Stock, Series BB Preferred 

Stock, and Common Stock.”) (emphasis added), and that the Complaint elsewhere indicates that 

investors other than ACAS participated, Compl. ¶ 11(b) (“Following the Merger, the holders of 

the $73 million note, primarily ACAS, held approximately 66% of the equity in Halt.”) (emphasis 

added).

78 Information Statement, at 3.

79 Compl. ¶¶ 11(e), 127.

80 Id. at ¶ 11(c).

81 Id. at ¶ 11(c).
14

converted to equity,82 and the Series BB preferred stock owned by minority investors 

would be cancelled.83

3. The Transaction Documents

The Plaintiffs received copies of the Transaction Documents on March 11, 

2014 via e-mail with instructions to sign and return them by the end of the following 

day.84 The 297-page set of Transaction Documents consists of an “Information 

Statement,” 14 other agreements, and various attachments.85 The Information 

Statement provides an overview of the Transaction’s structure and key terms. The 

Plaintiffs allege that the terms recorded in these Transaction Documents are

significantly different from the deal negotiated by Calesa and O’Brien, to the benefit 

of ACAS,86 and that of these documents, several were “incomplete, in draft form, or 

were missing entirely.”87 

 

82 Id. at ¶ 11(d).

83 Id. at ¶ 11(f).

84 Id. at ¶ 114.

85 Id. at ¶ 124. The Transaction Documents include the Information Statement; Stockholder 

Consent; Certificate of Incorporation of Merger Sub; Agreement and Plan of Merger by and 

Among Halt Medical, Inc. and Halt Merger Sub, Inc.; Certificate of Merger; Amended and 

Restated Certificate of Incorporation of Halt Medical, Inc.; Second Amended and Restated Bylaws 

of Halt Medical, Inc.; Note Purchase and Exchange Agreement; Form of Note; Security 

Agreement; IP Security Agreement; Voting Agreement; IRA Termination Agreement; Co-Sale 

Agreement; 2011 Amended and Restated Certificate of Incorporation; two 2012 Amendments to 

the Amended and Restated Certificate of Incorporation; 2013 Amendment to the Amended and 

Restated Certificate of Incorporation; a copy of 8 Del. C. § 262; unaudited financials for Halt;

Subordination and Amendment Agreement; Second Amended and Restated Investor Rights 

Agreement; and the Halt Medical Capitalization Table. Id. at ¶ 130.

86 Id. at ¶ 113.

87 Id. at ¶ 15. The allegedly missing terms were not detailed in the Complaint, but the Plaintiffs 

clarified during oral argument that the Transaction Documents excluded a provision providing for 
15

Additionally, the Plaintiffs allege that “[t]he pressure to close 

the . . . Transaction within one day was manufactured by American Capital in order 

to force the [Plaintiffs] to sign”

88 and that they were “coerced into 

the . . . Transaction through ACAS’s Controlled Directors’ pressure and inequitable 

conduct, including false representations by ACAS representatives that Halt would 

be sold within one year, which would have given the [Plaintiffs] an opportunity to 

recover some of their investments, despite the significantly dilutive impact of the 

[Transaction] on the [Plaintiffs’] interests.”

89

 The Plaintiffs only signed, they allege, 

“under a threat that if they did not sign, American Capital would demand payment 

in full of its $50 Million Note, which Halt could not pay, and could no longer prevent 

through a Chapter 11 proceeding.”90

Upon information and belief, the Plaintiffs allege that the Board—which at 

the time consisted of Hahl, Janish, O’Brien, Lewis, Cohen, Calesa, and Lee91—also 

received and signed the Transaction Documents within one day.92 The Plaintiffs 

allege that, due to this tight timeframe, the Transaction was approved by Halt’s 

 

the sale of Halt within one year. Oral Argument Tr. 62:21–24 (“THE COURT: So what’s the 

material term that was missing? Is it this agreement to sell the company in a year? MR. BIEMER: 

Yes, Your Honor.”).

88 Compl. ¶ 15.

89 Id. at ¶ 13.

90 Id. at ¶ 115.

91 Id. at ¶¶ 66–67.

92 Id. at ¶ 14.
16

Board with “little or no analysis as to its fairness” to the Plaintiffs.93 Specifically, 

the Board approved the Transaction without an independent valuation of the 

Transaction or the benefits ACAS was to receive in exchange for its additional 

financing; a fairness opinion or the assistance of a financial advisor; a special 

committee of independent directors to review the Transaction; an opportunity to 

solicit or explore financing from other sources under less “onerous” terms; having 

read the Transaction Documents; or holding a meeting of the Board to vote on the 

Transaction Documents.

94

4. The Board’s Failure to Sell Halt Post-Transaction

Following the Transaction, ACAS’s position in Halt increased from 

approximately 26% to almost 66%,95 and ACAS had four ACAS-designated seats

out of a total of seven, held by Hahl, Janish, O’Brien, and non-party Sacks,

96

 who

 

93 Id. at ¶ 8. But see infra, note 94.

94 Compl. ¶¶ 9, 119–23. I note, however, that the Information Statement provides that the Board 

“determined that the Merger . . . represented the most attractive transaction for Halt and its 

stockholders taking into account the terms of the proposal, the level of commitment on the part of 

the potential investors and the likelihood that the transaction would close so that Halt could 

continue its business.” Information Statement, at 10. The Board noted specifically that “the 

proposed transactions provided for the simplification of the Company’s capital structure making 

the Company more attractive to prospective investors, provided for the conversion of the Senior 

Secured Notes and Bridge Notes, and provided the Company with additional equity financing to 

meet[] its near term working capital needs.” Id.

95 Compl. ¶ 11(b). As pled, ACAS’s post-Transaction equity position is not entirely clear. The 

Complaint alleges that, “[f]ollowing the Merger, the holders of the $73 million note, primarily 

ACAS, held approximately 66% of the equity in Halt,” but does not state what percentage of the 

equity of Halt that ACAS, alone, held. Id. (emphasis added).

96 Id. at ¶ 66(d).
17

replaced former director Lee.

97

 The Plaintiffs allege that ACAS received a 

disproportionate benefit from the Transaction, representing an unfair price to 

Plaintiffs in light of the substantial contributions made by the minority investors to 

help keep Halt afloat during the preceding years.98 They allege that only after the 

Transaction did the Defendants’ true motive emerge:99 ACAS sought to starve Halt, 

ensuring the dilution of the Plaintiffs’ interests and the cancellation of their Series 

BB Preferred stock, all in order to “squeeze” the minority investors out of the 

Company.100 According to the Plaintiffs, ACAS—ignoring the fact that Halt was 

“well-positioned for a sale” prior to the Transaction101—had no intention to sell Halt, 

seeking instead to seize the value of the Company for itself.102

 

97 Id. at ¶ 68.

98 See id. at ¶ 138 (“American Capital received a disproportionate benefit from the [] Transaction 

in the form of almost all of Halt’s value in comparison to the money that ACAS might advance to 

Halt as part of the Transaction. On the other hand, the [Plaintiffs], whose Bridge Note and equity 

investments provided significant support to Halt for many years, have seen their interests severely 

diluted and will suffer further dilution in March 2015. The [] Transaction therefore was entirely 

unfair in terms of price.”).

99 Id. at ¶ 16 (“The true facts only emerged post-Merger. Since March 2014, it has been made 

clear that the purpose of the . . . Transaction was not to fund Halt, which has seen little benefit 

from the [Transaction], but to squeeze out the minority investors and leave ACAS with 

everything.”).

100 See id. at ¶ 133 (“American Capital instead has demonstrated an intent to (a) starve Halt by

cutting Halt’s budget to the bone; (b) prevent Halt from commercializing the AcessaTM System; 

(c) block any possibility of a sale or full blown commercialization until at least 2016, thereby 

making certain that the Minority Investors have no opportunity to prevent the further dilution and 

subordination of their interests and the cancellation of the Series BB Preferred stock; and (d)

position Halt to miss its covenants in 2014, which will allow American Capital to take over”).

101 See, e.g., id. at ¶ 98 (“In 2013, the Center for Medicare and Medicaid Service (“CMS”) 

announced it would cover the AccessaTM procedure at the highest reimbursement amount offered 

for any gynecological procedure.”).

102 Id. at ¶ 18 (“American Capital and the Controlled Directors announced that there is no interest 

in selling Halt, and that they will do little in respect to commercializing and marketing the 
18

C. Procedural History

The Plaintiffs filed their Verified Complaint on January 16, 2015 as a direct 

action against ACAS and the Director Defendants. Count I, against ACAS, alleges 

breach of fiduciary duty, owed as a controlling stockholder, to minority investors.103 

Count II, against the Director Defendants, alleges breach of fiduciary duty by 

approving the Transaction with terms dictated by ACAS and without adequate 

review, and by attempting to conceal and avoid disclosure of the relevant details of 

the Transaction by providing the Transaction Documents one day before they had to 

be signed and returned.104 Count III, pled in the alternative against ACAS, alleges 

aiding and abetting breaches of fiduciary duty owed by the Director Defendants.105 

Finally, Count IV, against the Director Defendants, alleges violations of Sections 

242(b)(1) and 228 of the DGCL.

106

 The Plaintiffs seek a judgment rescinding the 

Transaction and restoring the rights and investment interests of the Plaintiffs,

damages, a judgment enjoining further violations of the Defendants’ fiduciary 

duties, and costs of the action.

107

 

AccessaTM System until after 2015, thereby furthering their scheme to seize the value of Halt for 

ACAS, to the detriment of Halt’s” minority investors, the Plaintiffs here.).

103 Id. at ¶ 142. The Plaintiffs contend that ACAS, the purported controller of Halt, concocted a 

scheme to substantially reduce the Plaintiffs’ interests in Halt and to take control of its valuable 

intellectual property without fair price or process. Id. at ¶ 2.

104 Id. at ¶¶ 157–58.

105 Id. at ¶¶ 162–73.

106 Id. at ¶¶ 174–82.

107 Id. at 47.
19

The Defendants filed a Motion to Dismiss on February 10, 2015 (the 

“Motion”). After full briefing of the Motion, I heard oral argument on September 

16, 2015, at which time I requested supplemental briefing relating to the 

acquiescence and estoppel defenses raised by the Defendants.

108

 This Memorandum 

Opinion denies in part and grants in part the Defendants’ Motion.

II. ANALYSIS

A. Standard of Review

In deciding a motion to dismiss under Rule 12(b)(6), the Court “must accept 

as true all well-pled allegations of fact and draw reasonable inferences in the 

plaintiff’s favor.”109 The Court will dismiss the complaint “only if it determines with 

reasonable certainty that, under any set of facts that could be proven to support the 

claims asserted, the plaintiff would not be entitled to relief.”110 However, the Court 

need not accept “[m]ere conclusions of law or fact.”111 

The Plaintiffs have made no attempt to argue that demand on the current 

Board should be excused here, and presumably in light of the restriction of the 

 

108 Specifically, I asked the parties to address whether “the actions and knowledge of Mr. Calesa 

[can] be imputed to Plaintiffs, Calesa Associates, L.P. and Calesa Family Trust, July 6, 2000, upon 

the record appropriate to consideration of the Motion to Dismiss?” Calesa Assoc., L.P. v. Am. 

Capital, Ltd., C.A. 10557-VCG, at 1 (Del. Ch. Oct. 15, 2015) (LETTER).

109 Caspian Alpha Long Credit Fund, L.P. v. GS Mezzanine Partners 2006, L.P., 93 A.3d 1203, 

1205 (Del. 2014) (citation omitted).

110 Berger v. Intelident Solutions, Inc., 911 A.2d 1164, 1168–69 (Del. Ch. 2006) (internal quotation 

omitted).

111 Id. at 1169 (citation omitted).
20

Complaint to extraction-type Gentile112 direct claims, the Defendants have moved 

under Rule 12(b)(6), and have argued for dismissal under the lenient notice standard 

set out above. A few observations are in order, however.

Claims alleging dilution resulting from a breach of the duty of loyalty 

benefiting an insider were recognized as both derivative and direct in Gentile v. 

Rossette and Carsanaro. These decisions were in the post-merger context: the 

derivative claims there were extinguished by the merger and, absent direct actions, 

the breaches of loyalty alleged could never be remedied, an anathema to equity. 

Here, by contrast, the fiduciary duty claims alleged—similarly dual in nature as were 

those in Gentile and Carsanaro—could be pursued derivatively by the Plaintiffs, 

who remain stockholders in Halt. That, however, would require a specific pleading 

sufficient to show that demand, with reference to the current Board, would be futile. 

In other words, the dual nature of the extraction claim in this context allows a 

plaintiff to choose a form of action with either a lenient or a strict pleading standard. 

The result is not hard to predict.

Such a situation is problematic. The negative aspects of derivative 

litigation—including diversion of the board’s attention from the company’s 

business, as well as the possibility of strike suits—gave rise to the pleading 

requirements of Rule 23.1. The same negatives apply to the direct extraction claim. 

 

112 Gentile v. Rossette, 906 A.2d 91 (Del. 2006).
21

This pleading anomaly and its potential for mischief was noted by the Court in the 

recent In re El Paso Pipeline Partners, L.P. Derivative Litigation.

113 In that case, a 

cause of action that was in fact both direct and derivative was brought as a derivative 

claim only. A merger subsumed the derivative claim. In addition to finding that the 

cause of action survived the merger, the El Paso Court opined that

[t]he more appropriate way to view [such a] cause of action . . . is as a 

dual-natured claim with aspects that are both derivative and direct. In 

my view, Delaware law can and should treat a dual-natured claim as 

derivative for purposes of Rule 23.1 and the doctrine of demand, but as 

direct for purposes of determining whether sell-side investors can 

continue to pursue the claim after a merger.114

In other words, El Paso suggeststhat a dual-natured claim should be addressed under 

the particularized pleading standard of Rule 23.1.

If this rationale—which, to my mind, is self-evidently reasonable and 

efficient—were applied here, it would require a pleading that the Plaintiffs have not 

attempted to make, and a review under a particularized pleading standard that neither 

party has argued is appropriate.115 Therefore, I analyze the Complaint under the 

pleading requirements of Rule 12(b)(6).

B. Counts I and II: Breaches of Fiduciary Duties by ACAS and the Director 

Defendants

 

113 2015 WL 7758609 (Del. Ch. Dec. 2, 2015).

114 Id. at *2.

115 The Defendants have argued that the Plaintiffs’ claims are derivative, not direct; they have not 

argued that to the extent direct claims were pled, they were nonetheless subject to Rule 23.1.
22

The “reasonable conceivability” pleading standard of Rule 12(b)(6) “asks 

whether the allegations in the complaint could entitle a plaintiff to relief,” which in 

turn “depends upon the level of scrutiny under which those allegations are 

reviewed.”116 The business judgment rule establishes a presumption in favor of the 

directors,117 which a plaintiff can overcome by adequately alleging facts to support 

a reasonable inference that “(1) a controlling stockholder stands on both sides of a 

transaction or (2) at least half of the directors who approved the transaction were not 

disinterested or independent.”118 Where the business judgment rule is rebutted,

entire fairness is the applicable standard of review.

119

 Under the entire fairness 

standard, the Court will inquire “into two interrelated concepts: fair dealing and fair 

price.”120 Because I find below that the Plaintiffs have pled facts supporting a 

 

116 Crimson Exploration, 2014 WL 5449419, at *8.

117 See id. at *9 (“Under 8 Del. C. § 141(a), the business and affairs of a corporation are managed 

under the direction of the board of directors. The business judgment rule is a principle of prudence 

and discretion that operates to preclude a court from imposing itself unreasonably on the business 

and affairs of a corporation. The rule in effect provides that where a director is independent and 

disinterested, there can be no liability for corporate loss, unless the facts are such that no person 

could possibly authorize such a transaction if he or she were attempting in good faith to meet their 

duty. The rule posits a powerful presumption in favor of actions taken by the directors in that a 

decision made by a loyal and informed board will not be overturned by the courts unless it cannot 

be attributed to any rational business purpose.”) (internal quotations omitted).

118 In re KKR Fin. Holdings LLC S’holder Litig., 101 A.3d 980, 990 (Del. Ch. 2014) (citations 

omitted).

119 E.g., New Jersey Carpenters Pension Fund v. info GROUP, Inc., 2011 WL 4825888, at *8 (Del. 

Ch. Sept. 30, 2011).

120 Crimson Exploration, 2014 WL 5449419, at *9. See also id. (“[Fair dealing] embraces 

questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed 

to the directors, and how the approvals of the directors and stockholders were obtained. The [fair 

price] aspect of fairness relates to the economic and financial considerations of the proposed 

merger, including all relevant factors: assets, market value, earnings, future prospects, and any 
23

reasonable inference that ACAS was a controlling stockholder standing on both 

sides of the Transaction, entire fairness review is triggered.

121

A stockholder is controlling, and owes fiduciary duties to the other 

stockholders, “if it owns a majority interest in or exercises control over the business 

affairs of the corporation.”122 Here, because ACAS owned only 26% of the 

Company prior to the Transaction, the Plaintiffs must allege facts to demonstrate 

that ACAS exercised “actual control” over the Board at the time of the Transaction. 

The Plaintiffs allege in Count I that ACAS breached its fiduciary duties owed as a 

controlling stockholder to the minority Plaintiff investors by “exercise[ing] control 

over Halt’s business and affairs,”123 and by “promoting its own interests over the 

interests” of the Plaintiffs.124 They allege further that “American Capital on its own 

and through [the Director Defendants] on the Halt Board has repeatedly manipulated 

Halt by promising, then withholding, funding, and acquiring the Broadband note 

secured by Halt’s intellectual property in order to force the Halt board to make 

 

other elements that affect the intrinsic or inherent value of a company's stock.” (quoting Emerald 

Partners v. Berlin, 787 A.2d 85, 97 (Del. 2001))).

121 Orman v. Cullman, 794 A.2d 5, 21 (Del. Ch. 2002) (“One way for a plaintiff to overcome [the] 

burden [of the business judgment rule], for example, is to allege facts demonstrating a squeeze out 

merger or a merger between two corporations under the control of a controlling shareholder. If 

facts of that nature are sufficiently alleged, the business judgment presumption is rebutted and 

entire fairness is the standard of review.”).

122 Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110, 1113 (Del. 1994) (emphasis in original).

123 Compl. ¶ 144.

124 Id. at ¶ 145.
24

decisions under duress that were to the detriment” of the Plaintiffs.125 The 

Defendants counter that the “Plaintiffs’ theory appears to be that the contractual 

rights held by ACAS allegedly gave it superior bargaining position with respect to 

the Transaction and, therefore, ACAS had the ability to control the Halt Board by 

virtue of that bargaining position,”126 contending that “[n]o other theory is pled.”127 

They argue that, because a plaintiff cannot demonstrate control by merely alleging

facts demonstrating that a stockholder has exercised duly obtained contractual rights 

to its benefit and to the detriment of the company,

128 I should dismiss Count I for 

failure to state a claim.

While I agree with the Defendants that the Plaintiffs’ allegations regarding 

ACAS’s exercise of contractual rights, alone, are not sufficient to demonstrate 

control,129 that is not the only theory on which the Plaintiffs have relied in claiming

 

125 Id. at ¶ 146.

126 Defs’ Opening Br. 25.

127 Id.

128 See, e.g., Thermopylae Capital Partners v. Simbol, Inc., 2016 WL 368170, at *14 (Del. Ch. 

Jan. 29, 2016) (“[A] stockholder who—via majority stock ownership or through control of the 

board—operates the decision-making machinery of the corporation, is a classic fiduciary; in 

controlling the company he controls the property of others—he controls the property of the noncontrolling stockholders. Conversely, an individual who owns a contractual right, and who exploits 

that right—even in a way that forces a reaction by a corporation—is simply exercising his own 

property rights, not that of others, and is no fiduciary.”); Superior Vision Serv., Inc. v. ReliaStar 

Life Ins. Co., 2006 WL 2521426 (Del. Ch. Aug. 25, 2006).

129 For instance, the Plaintiffs’ following allegation, alone, would be insufficient to demonstrate 

control by ACAS:

ACAS . . . has used its blocking rights (a) to force the Halt board to accept funding 

on increasingly egregious terms, including an above-market interest rate, exorbitant 

fees, additional equity, and additional seats on the Halt board; (b) to prevent Halt 

from financing with other institutional investors on a pari passu basis from ACAS; 
25

that ACAS exercised control over the Halt “corporate machinery”;

130 the Plaintiffs 

have pled sufficient facts to demonstrate that a majority of the Board was under the 

actual control and influence of ACAS.131 

In In re Crimson Exploration Inc. Stockholders Litigation,

132 after conducting 

a survey of nine cases considering controller status for a minority stockholder, thenVice Chancellor Parsons found no correlation between the percentage of equity 

owned and the determination of control status, holding that “[t]hese cases show that 

a large blockholder will not be considered a controlling stockholder unless [it]

actually control[s] the board's decision about the challenged transaction.”133 In 

conducting this survey, the Vice Chancellor determined that there is no magic 

formula to find control; rather, it is a highly fact specific inquiry.134 For example, in 

 

and (c) to preclude certain [Plaintiffs] from participating on a pari passu [sic] even 

when the terms were better than those offered by ACAS.

Compl. ¶ 63.

130 See Harman v. Masoneilan Int’l., Inc., 442 A.2d 487, 499 (Del. 1982).

131 The facts before me here differ from those in ReliaStar and Thermopylae, where the plaintiffs 

did not allege facts sufficient to demonstrate that a majority of the board was under the control of 

the purported controller. In ReliaStar, any issuance of dividends by the company’s board of 

directors was subject to a limitation in a series of stock purchase agreements requiring the “written 

consent of at least two-thirds of the [securities] then owned by such [i]nvestors.” ReliaStar—a 

44% equity-holder—thus wielded the contractual power to unilaterally block any issuance of 

dividends approved by the company’s board. The action, alleging a breach of fiduciary duties by 

ReliaStar through its refusal to provide written consent to a dividend issuance unanimously 

approved by the board, was ultimately dismissed on the grounds that the exercise of a duly obtained 

contractual right does not amount to control. Similarly, the complaint in Thermopylae was 

dismissed, in part, because the allegation that the purported controller exercised its duly obtained 

contractual rights to the detriment of the Company, alone, was insufficient to demonstrate control.

132 2014 WL 5449419 (Del. Ch. Oct. 24, 2014).

133 Crimson Exploration, 2014 WL 5449419, at *10.

134 Id. (“[T]he scatter-plot nature of the holdings highlights the importance and fact-intensive 

nature of the actual control factor.”).
26

one of the examined cases, New Jersey Carpenters Pension Fund v. info GROUP, 

Inc.,

135 the Court “denied the defendants’ motion to dismiss merger-related duty of 

loyalty claims on the grounds that the complaint adequately alleged that a majority 

of the directors lacked independence from Gupta, a director and the alleged 

controller, who the court found was interested in the transaction because of a unique 

liquidity need.”136 Similarly, I find here that the Plaintiffs’ factual allegations are 

sufficient, under the low “reasonable conceivability” standard of Rule 12(b)(6), to 

infer that a majority of the Board was not independent or disinterested, but rather 

was under the influence of, or shared a special interest with, ACAS in regard to the 

Transaction, such that ACAS was a controlling stockholder at the time of the 

Transaction. This determination, in turn, is sufficient to rebut the business judgment 

rule with respect to actions of the Board.

Directors are “self-interested” when they appear on “both sides of a 

transaction” or expect to “derive any [material] personal financial benefit from it in 

the sense of self-dealing.”137 They lack independence where they were “‘beholden’ 

to . . . or so under [the controller’s] influence that their discretion would be 

sterilized.”138 The Plaintiffs allege that, at the time of the Transaction, five of the 

 

135 2013 WL 610143 (Del. Ch. Feb. 13, 2013).

136 Crimson Exploration, 2014 WL 5449419, at *11.

137 Orman, 794 A.2d at 23 (internal quotation marks omitted).

138 Id. at 24 (alteration in original).
27

Halt Directors were under the “control and influence of ACAS”: Cohen, Hahl, 

Janish, Lewis, and O’Brien.139 However, because there were seven directors on the 

Board at the time of the Transaction,140 I need only make such a determination with 

respect to four of the Director Defendants in order to deny the Motion.

ACAS appointed several of the Director Defendant to the Board of Halt. The 

Defendants correctly argue that “[t]he fact that an allegedly controlling stockholder 

appointed its associates to the board of directors . . . without more, does not establish 

actual domination.”141 Whether these Defendants were controlled is an issue of fact 

which must, at this stage, be determined from an examination of the well-pled facts 

in the Complaint. I turn first to the allegations surrounding Director Defendants 

O’Brien and Hahl. “[F]or purposes of this Motion,” the Defendants do not contest 

that O’Brien—who negotiated the Transaction on ACAS’s behalf—lacked 

independence.142 With respect to Hahl, the Plaintiffs allege that he, in addition to 

serving on Halt’s Board, also served on the board of American Capital starting in

1996.

143

 Hahl is thus a classic dual fiduciary, with duties to both sides in the 

 

139 Compl. ¶ 7.

140 Id. at ¶ 67.

141 In re Primedia Inc. Derivative Litig., 910 A.2d 248, 258 (Del. Ch. 2006) (citation omitted).

142 See Defs’ Opening Br. 35 (“The Complaint does not articulate a theory by which Mr. O’Brien 

is interested in the Transaction. However, the Complaint alleges that Mr. O’Brien is an officer of 

ACAS, who acted as the primary negotiator for ACAS in the Transaction. Although Defendants 

do not concede that Mr. O’Brien lacked independence from ACAS, they do not contest that issue 

for purposes of this Motion.”).

143 Compl. ¶ 48.
28

Transaction.144

I next turn to Director Defendant Janish. The Plaintiffs allege that at the time 

of the Board action on the Transaction, Janish served as President and Chief 

Executive Officer of Avalon Laboratories, an American Capital portfolio company 

in which ACAS “had invested” over $66 million.145 The Defendants argue that this 

is insufficient; they point out that the Complaint does not establish that Janish’s 

position at Avalon Laboratories was in any way under the control of ACAS, or that 

any compensation from Avalon Laboratories was material to him.146 For purposes 

of this Motion, I need not resolve this issue, because Halt’s Information Statement 

itself provides the following disclosure regarding Janish, as well as O’Brien and 

Hahl:

In considering whether to approve the Merger, Halt Stockholders 

should be aware that certain members of the Board of Directors have 

interests that are in addition to or different than the interests of Halt’s 

Stockholders generally.

The following directors are affiliated with parties that have 

indicated their intention to participate in the Financing: Gordon 

O’Brien (by virtue of his association with American Capital, Ltd. 

and/or its affiliates), Neil Hahl (American Capital, Ltd. and/or its 

affiliates), and Mike Janish (American Capital, Ltd. and/or its 

affiliates).147

It is well-settled that a director “is considered interested when he will receive a 

 

144 See Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983).

145 Compl. ¶ 74.

146 Defs’ Opening Br. 31–32.

147 Information Statement, at 8 (emphasis added).
29

personal financial benefit from a transaction that is not equally shared by the 

stockholders.”148 Therefore, I find that this disclosure in the Information Statement, 

along with the other factual allegations described above, is sufficient for Plaintiffs 

to satisfy the low “reasonable conceivability” standard of pleading under a 12(b)(6) 

motion with respect to these Director Defendants, including Janish.

I turn next to the allegations surrounding Cohen, the Halt CEO. The Plaintiffs

suggest that Cohen was subject to a classic Morton’s Fork:149 approve the transaction 

despite what the Plaintiffs allege is the detriment to the unaffiliated stockholders, or 

see the Company—the source of his income—driven into ruin. Thus, in the 

Plaintiffs’ view, Cohen was unable to exercise his independent business judgement 

on behalf of the Company. Specifically, the Plaintiffs allege that Cohen became 

beholden to ACAS when ACAS “became empowered to decide whether Mr. Cohen 

would continue to receive material benefits in the form of salary and incentives,”

150

and that Cohen, “[w]hile recognizing that ACAS’s conduct was 

detrimental, . . . supported ACAS through his votes as a director because he knew 

that his job as Halt’s Chief Executive Officer and his income depended upon 

ACAS’s support.”151 I find that these factual allegations are sufficient to 

 

148 Orman, 794 A.2d at 29 (emphasis in original) (citation omitted).

149 Not to be confused with the less-problematic Morton’s Toe.

150 Compl. ¶ 69.

151 Id. at ¶ 108.
30

demonstrate that Cohen was not independent from ACAS. Given that Cohen faced 

a decision between supporting the Transaction, on terms highly favorable to ACAS, 

and rejecting the Transaction, which was tantamount (on the facts alleged) to voting 

for the collapse of the Company and losing his employment, it is reasonably 

conceivable that Cohen was “beholden” to ACAS.152

I therefore find that the Plaintiffs have pled sufficient facts to support a 

reasonable inference that a majority of the Board was not disinterested or lacked 

independence from ACAS,153 such that ACAS was a controlling stockholder at the 

time of the Transaction. Accordingly, the Defendants’ Motion is denied with respect 

to Count I.

154 Count II alleges that the Director Defendant acted in pursuit of selfinterest in breach of the duty of loyalty. For the reasons stated above, explaining 

that the Complaint has sufficiently pled that ACAS controlled the Board, it has 

similarly sufficiently pled that the majority of the directors were interested in this 

transaction, and the Motion is denied with respect to Count II as well.

C. Count III: Aiding and Abetting a Breach of Fiduciary Duty

Count III asserts a claim against ACAS for aiding and abetting the Director 

 

152 Carsanaro, 65 A.3d at 639 (citing Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993); Orman, 

794 A.2d at 25 n.50).

153 Because I have already determined that sufficient allegations of lack of independence or 

disinterestedness were made with respect to four of the seven Directors, I need not address the 

allegations surrounding Director Defendant Lewis.

154 See Orman, 794 A.2d at 20 n.36 (holding that, once triggered, entire fairness “normally will 

preclude dismissal of a complaint on a Rule 12(b)(6) motion to dismiss.”).
31

Defendants’ breaches of fiduciary duty. To state a claim for aiding and abetting, a 

plaintiff must allege “(1) the existence of a fiduciary relationship; (2) the fiduciary 

breached its duty; (3) a defendant, who is not a fiduciary, knowingly participated in 

a breach; and (4) damages to the plaintiff resulted from the concerted action of the 

fiduciary and the nonfiduciary.”155

Should I ultimately determine that ACAS was a controlling stockholder at the 

time of the Transaction, then this claim will fail for lack of a “defendant, who is not 

a fiduciary,” participating in the breach. However, if I ultimately find that ACAS 

was not a controlling stockholder, but that a majority of the Board nonetheless lacked 

independence or was not disinterested, it is conceivable that ACAS was a 

non-fiduciary aider and abettor of the disloyal Board; thus, the Complaint states a 

justiciable claim.156 Of course, this is an alternative pleading, and the Plaintiffs must 

recover under one theory or the other. That can await a developed record. 

Accordingly, I reserve this determination for a later stage of the proceedings, and

the Defendants’ Motion with respect to Count III is denied.

 

155 Metro. Life Ins. Co. v. Tremont Grp. Holdings, Inc., 2012 WL 6632681, at *18 (Del. Ch. Dec. 

20, 2012).

156 Carsanaro, 65 A.3d at 658 (“In my view, the Delaware Supreme Court's decisions preserve 

stockholder standing to pursue individual challenges to self-interested stock issuances when the 

facts alleged support an actionable claim for breach of the duty of loyalty. Standing will exist if a 

controlling stockholder stood on both sides of the transaction. Standing will also exist if the board 

that effectuated the transaction lacked a disinterested and independent majority. Standing will not 

exist if there is no reason to infer disloyal expropriation, such as when stock is issued to an 

unaffiliated third party, as part of an employee compensation plan, or when a majority of 

disinterested and independent directors approves the terms.”).
32

D. Count IV: Violation of DGCL Sections 242(b)(1) and 242

Count IV asserts a violation of DGCL Sections 242(b)(1)157 and 228158 against 

the Director Defendants. Specifically, the Plaintiffs allege that “[b]y giving the 

[Plaintiffs] only one day to review the 297-page [Transaction] Documents and 

demanding that they execute the stockholder consent and other agreements related 

to the [Transaction] under duress, the [Directors Defendants] violated the purpose

of the Delaware law, which is to make certain that shareholders make informed 

judgments.”159 Additionally, the Plaintiffs allege that “several of the [Transaction] 

Documents that [the Plaintiffs] were asked to sign were incomplete, had missing 

attachments, or were in draft form.”160 In reply, the Defendants argue that neither 

section sets a minimum time for considering and executing a written consent161 and 

that, “[a]t best, Plaintiffs’ allegations suggest some sort of breach of fiduciary duty 

 

157 Under Section 242(b)(1), when an amendment to a certificate of incorporation effects a change 

in stock or stockholder rights, the board of directors “shall adopt a resolution setting forth the 

amendment proposed, declaring its advisability, and either calling a special meeting of the 

stockholders entitled to vote in respect thereof for the consideration of such amendment or 

directing that the amendment proposed be considered at the next annual meeting of the 

stockholders.” 8 Del. C. § 242(b)(1) (emphasis added).

158 Section 228 provides, in part, that “[u]nless otherwise provided in the certificate of 

incorporation,” the stockholders may act “without a meeting, without prior notice and without a 

vote, if a consent or consents in writing” are “signed by the holders of outstanding stock having 

not less than the minimum number of votes that would be necessary to authorize or take such 

action at a meeting at which all shares entitled to vote thereon were present and voted . . . .” 8 Del. 

C. § 228(a) (emphasis added).

159 Compl. ¶ 178 (emphasis added).

160 Id. at ¶ 179.

161 Defs’ Reply Br. 29.
33

regarding disclosure.”162

The Plaintiffs fail to state a claim with respect to Section 242. The Plaintiffs 

allege that they were given the directive to “review, execute, and return the 

stockholder consent and other agreements within one day,”163 and that this quick 

timeframe forced them to “act without a complete understanding of what was 

contained in the documents or what changes the Halt board intended with respect to 

Halt ownership,”

164 which constituted a failure to “strictly comply with Delaware 

law in form or substance.”165 The Plaintiffs do not specifically tie any of these 

allegations to Section 242(b)(1). As I understand this argument, it is that the time 

for consideration of the action by consent must be as full as would be the case where 

the action was considered at a Section 242 meeting. However, as a threshold matter, 

I find that Section 242 is not relevant to the facts at hand; the Board availed itself of 

the exception to the general rule set forth in Section 242(b)(1)—Section 228—in

obtaining stockholder approval by written consent. If that section was complied 

with, the statutory scheme is satisfied. 

However, the Plaintiffs do allege sufficient facts to state a claim under Section 

 

162 Id. at 30. The Defendants continue to argue that, even if such a disclosure claim were made in 

the Complaint, it would nonetheless fail, because the Plaintiffs have failed to allege “that the 

purported disclosure deficiencies were material to their decision to vote in favor of the 

transaction.” Id. (emphasis in original).

163 Compl. ¶ 180.

164 Id.

165 Id. at ¶ 181.
34

228. They allege that “several of the [Transaction] Documents that [the Plaintiffs] 

were asked to sign were incomplete, had missing attachments, or were in draft 

form.”166 Parts of the Transaction Documents, the 297-page series of documents

sent to the Plaintiffs for review, were named as exhibits to the stockholder written 

consent. I agree with this Court’s reasoning in Carsanaro, pointing out that, 

“[b]ecause Section 228 permits immediate action without prior notice to minority 

stockholders,” actions under Section 228 require strict compliance to avoid mischief 

and disorder in corporate actions.167 The Carsanaro Court held that, “[w]hen a 

consent specifically refers to exhibits and incorporates their terms, the plain 

language of Section 228(a) requires that a stockholder have the exhibits to execute 

a valid consent.”168 Though Carsanaro involved more clear-cut facts—in that 

several of the referenced exhibits were missing in their entirety—the Plaintiffs’ 

allegation here that several of the exhibits were in draft form or were missing 

attachments is nonetheless sufficient to state a claim at this stage of the 

proceedings.169

E. Acquiescence, Estoppel, and Laches

 

166 Id. at ¶ 179.

167 Carsanaro, 65 A.3d at 641 (quoting Empire of Carolina, Inc. v. Deltona Corp., 501 A.2d 1252, 

1255–56 (Del. Ch. 1985), aff’d, 505 A.2d 452 (Del. 1985)).

168 Carsanaro, 65 A.3d at 641.

169 Because I find sufficient the Plaintiffs’ allegations regarding incomplete documents attached as 

exhibits to the stockholder written consent, I do not reach the Plaintiffs’ allegations that the 

stockholder written consents were signed under duress.
35

The Defendants urge me to, in the alternative, dismiss the Complaint under 

the doctrines of acquiescence, estoppel, and laches. They argue that the factual 

allegations of the Complaint make clear that the Plaintiffs “acquiesced in the 

transaction and cannot now attack it,” and that the Plaintiffs unreasonably delayed 

in raising their challenges to the Transaction by waiting ten months to file their

Complaint.170 The Plaintiffs, in turn, contend that the Defendants’ acquiescence and 

estoppel defenses must fail for two reasons: first, the Defendants rely upon authority 

that does not apply in transactions governed by entire fairness; and second, the 

Defendants ignore case law applying to situations, such as the Plaintiffs allege is the 

case here, where the plaintiffs lacked informed consent or acted under duress.171 

With respect to the laches defense, the Plaintiffs argue that a ten-month delay was 

not unreasonable given their need to carefully examine the Transaction Documents, 

secure representation, and draft the Complaint.

172

Whether or not the acquiescence and estoppel defenses apply is a highly factspecific inquiry, and one that I cannot conduct on the record before me now. The 

Defendants, for instance, urge me to impute the actions of Halt’s co-founder and 

former Director, Calesa, to the Calesa Entities that are named Plaintiffs in this action. 

 

170 Defs’ Opening Br. 12 (quoting Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 848 (Del. 

1987)).

171 Pls’ Answering Br. 40.

172 Id. at 47.
36

They argue that because Calesa negotiated the Transaction, urged the Plaintiffs to 

vote for it, and then did personally vote for it, he—and the entities on behalf of which 

he signed—should be barred from now challenging the Transaction. After reviewing 

the Complaint and the supplemental briefing with respect to this issue, however, I 

do not find that the record is sufficient, at this stage of the proceedings, to impute 

the actions of Calesa to the Calesa Entities. Moreover, even if the acquiescence and 

estoppel doctrines could apply to the facts of this case, which assumption I note the 

parties vigorously debate,

173 the application of these defenses would not bar every 

named Plaintiff from pursuing this action. Of the 23 named Plaintiffs, the 

Defendants have identified only 17 that executed written stockholder consents to the 

Transaction.174 Given this fact—that the application of these defenses would not 

require dismissal of the entire Complaint—it makes little sense from the perspective 

of judicial economy to address these arguments now, without the aid of a developed

record. Similarly, I consider the fact-intensive laches analysis—in light of the fact 

that that the analogous statute of limitations had not run at the filing of the 

 

173 The Plaintiffs have vigorously argued that the doctrines of estoppel and acquiescence cannot

be applied to transactions warranting entire fairness review, in light of this Court’s opinions in 

Gesoff v. IIC Industries, Inc., 902 A.2d 1130 (Del. Ch. 2006); In re JCC Holding Co., Inc., 843 

A.2d 713 (Del. Ch. 2003); and In re Best Lock Corp. S’holder Litig., 845 A.2d 1057 (Del. Ch. 

2001). See Oral Arg. Tr. 63:16–64:9. Conversely, the Defendants have pointed to the opinions in 

Bershad, 535 A.2d 840, and Kahn v. Household Acquisition Corp., 591 A.2d 166 (Del. 1991), to 

demonstrate that, historically, the Delaware Supreme Court has allowed the application of these 

doctrines in cases triggering entire fairness review. See Oral Arg. Tr. 21:10–22:1.

174 See Pls’ Answering Br. 45 n.13.
37

Complaint—to be better deferred to a time when the record is more developed.

III. CONCLUSION

For the foregoing reasons, the Defendants’ Motion to Dismiss is granted with 

respect to the portion of Count IV alleging non-compliance with DGCL Section 

242(b)(1), and is otherwise denied. The parties should supply an appropriate form 

of order.