IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MANICHAEAN CAPITAL, LLC,

CHARLES CASCARILLA, 

EMIL KHAN WOODS, 

LGC FOUNDATION, INC. and

IMAGO DEI FOUNDATION, INC.,

 Plaintiffs,

 v.

EXELA TECHNOLOGIES, INC., 

EX-SIGMA LLC, 

BANCTEC (PUERTO RICO), INC.

BANCTEC GROUP, LLC

BANCTEC INTERMEDIATE HOLDING, INC. 

BANCTEC, INC.

BILLSMART SOLUTIONS, LLC

BTC INTERNATIONAL HOLDINGS, INC.

BTC VENTURES, INC.

CHARTER LASON, INC.

CORPSOURCEHOLDINGS, LLC

DELIVEREX LLC

DFG UK, LLC

DFG2 HOLDINGS, LLC

DFG2, LLC

ECONOMIC RESEARCH SERVICES, INC.

EXELA INTERMEDIATE HOLDINGS LLC

EXELA INTERMEDIATE LLC

EXELA FINANCE INC.

EXELA ENTERPRISE SOLUTIONS, INC.

EXELA RECEIVABLES HOLDCO LLC

EXELA RE LLC

EXELA RECEIVABLES 1, LLC

EXELA RECEIVABLES 2, LLC

FTS PARENT, INC.

HOV ENTERPRISE SOLUTIONS, INC.

HOV SERVICES, INC.

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 C.A. No. 2020-0601-JRS
HOV SERVICES, LLC 

J&B SOFTWARE, INC.

KINSELLA MEDIA, LLC

LASON INTERNATIONAL, INC.

MANAGED CARE PROFESSIONAL, LLC

PANGEA ACQUISITIONS, INC.

RC4 CAPITAL, LLC

REGULUS AMERICA, LLC

REGULUS GROUP II, LLC

REGULUS GROUP, LLC

REGULUS HOLDING, INC.

REGULUS INTEGRATED SOLUTIONS, LLC

REGULUS WEST, LLC

RUSTIC CANYON III, LLC

SOURCECORP BPS, INC.

SOURCECORP BPS NORTHERN 

CALIFORNIA INC.

SOURCEHOV HEALTHCARE, INC.

SOURCEHOV HOLDINGS, INC.

SOURCEHOV LLC

SOURCECORP LEGAL, INC.

SOURCECORP, INCORPORATED

TRAC HOLDINGS, LLC

TRANSCENTRA, INC.

UNITED INFORMATION SERVICES, INC.

SOURCECORP MANAGEMENT, INC.

 Defendants.

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OPINION

Date Submitted: February 25, 2021

Date Decided: May 25, 2021
Rudolf Koch, Esquire, Matthew W. Murphy, Esquire and Andrew L. Milam, Esquire 

of Richards, Layton & Finger, P.A., Wilmington, Delaware; Samuel J. Lieberman, 

Esquire and Alexander H. McCabe, Esquire of Sadis & Goldberg LLP of New York, 

New York; and Steven K. Davidson, Esquire, Michael J. Baratz, Esquire, Claire 

Schachter, Esquire and Lauren Goldschmidt, Esquire of Steptoe & Johnson LLP, 

Washington, DC, Attorneys for Plaintiffs.

T. Brad Davey, Esquire, Matthew F. Davis, Esquire and Andrew H. Sauder, Esquire

of Potter Anderson & Corroon LLP, Wilmington, Delaware and Jennifer Barrett, 

Esquire, Dennis H. Hranitzky, Esquire and Blair Adams, Esquire of Quinn Emanuel 

Urquhart & Sullivan, LLP, New York, New York, Attorneys for Defendants.

SLIGHTS, Vice Chancellor
1

Under the Delaware General Corporation Law, a board of director’s decision 

to cause the company it serves to merge leaves the company’s stockholders with one 

of two options: participate in the merger as negotiated by the board, or dissent to the 

merger and seek statutory appraisal. It has not always been this way. At common 

law, all major corporate decisions, including whether to merge, required unanimous 

stockholder consent, providing each and every shareholder an effective veto power 

over any corporate transaction.1

 That veto right created an unhealthy phenomenon 

known as “nuisance blocking,” where a single stockholder could withhold consent 

to a merger in order to extract hold up consideration. This dynamic, and others, 

prompted the Delaware General Assembly to create a statutory right of appraisal as 

a means to quash the minority’s blocking right while also addressing the nonconsensual taking of the stockholders’ property (their stock).2

 

1 In re Appraisal of Transkaryotic Therapies, Inc., 2007 WL 1378345, at *3 (Del. Ch. 

May 2, 2007) (“Historically, all major corporate decisions required unanimous shareholder 

consent. This requirement created a veto power and allowed even a single shareholder to 

obstruct corporate action.”). 

2 Id. 
2

The plaintiffs here, former stockholders of SourceHOV Holdings, Inc., 

(“SourceHOV Holdings”)3 dissented when presented with the decision of the 

SourceHOV Holdings board of directors to merge the company with Exela 

Technologies, Inc., and then sought statutory appraisal of their SourceHOV 

Holdings shares. They pursued their appraisal rights at great costs, both opportunity 

and financial, and were vindicated in their efforts when the court awarded them an 

appraisal judgment reflecting their shares were worth well in excess of what they 

were offered in the merger. SourceHOV Holdings appealed and the plaintiffs 

prevailed again. Following the entry of final judgment, the court entered a charging 

order against SourceHOV Holdings’ interests in its subsidiaries to facilitate the 

payment of the judgment. Yet the judgment remains unsatisfied. 

Confronted with the highly unusual circumstance where an appraisal 

judgment debtor cannot or will not pay, the plaintiffs in this action, and in a parallel 

action,

4 seek to hold Exela (as acquirer) and its affiliated entities accountable for the 

appraisal judgment.5

 According to the plaintiffs, as the appraisal action was nearing 

3 There are several “SourceHOV” entities involved in this action. For the sake of precision, 

and at the risk of occasional redundancy, I will refer to SourceHOV Holdings by its full 

name. 

4 Manichaean v. Chadha, et al., No. 2020-0711-JRS, 2021 WL 229480 (Del. Ch. Aug. 27, 

2020) (COMPLAINT).

5 See generally Verified Compl. (“Compl.”) (D.I. 1). 
3

its inevitable conclusion, and since the appraisal judgment and subsequent charging 

order were entered against SourceHOV Holdings, Exela and its subsidiaries have 

been executing a scheme to prevent post-merger SourceHOV Holdings from paying 

the judgment. 

Against this backdrop, the plaintiffs seek to hold Exela and its subsidiaries 

liable under two theories: (1) given the abuse of corporate form by Exela and its 

subsidiaries, principally through fraudulent maneuvers, the Court should pierce the 

SourceHOV Holdings corporate veil upwards to reach Exela and downwards to

reach SourceHOV Holdings’ solvent subsidiaries so that Plaintiffs can enforce their 

charging order against these entities; and (2) given that Exela now holds a 100% 

stake in SourceHOV Holdings but has refused to pay all SourceHOV Holdings

stockholders for their share of the company, the Court should determine that Exela 

was unjustly enriched and order it to pay the plaintiffs restitution in the amount of 

the appraisal judgment plus interest. 

Plaintiffs’ well-pled allegations support a reasonable inference that Exela, 

lacking in corporate formality, engaged in a transaction, as described in the 

plaintiffs’ complaint, for the purpose of preventing funds that would otherwise flow 

from SourceHOV Holdings’ subsidiaries directly to SourceHOV Holdings to flow 

instead directly to Exela, thereby leaving the judgment debtor unable to satisfy the 

plaintiffs’ appraisal judgment. Because the charging order requires any money 
4

flowing through SourceHOV Holdings first to be paid to the judgment creditors, 

including the plaintiffs, Exela’s participation in a scheme to deprive SourceHOV 

Holdings of those funds has conceivably rendered the charging order worthless 

parchment. This supports the plaintiffs’ prayer for relief in the form of traditional 

veil-piercing (i.e., piercing SourceHOV Holdings’ corporate veil to reach upwards 

to Exela). 

It is likewise reasonably conceivable that SourceHOV Holdings’ subsidiaries 

knowingly participated in the wrongful scheme, such that the plaintiffs’ prayer for 

relief in the form of reverse veil-piercing (i.e., piercing SourceHOV Holdings’ 

corporate veil to reach downwards to its wholly owned subsidiaries) is likewise 

appropriate. The legality of reverse veil-piercing appears to be a matter of first 

impression in Delaware. After carefully reviewing the justifications for and against 

the adoption of reverse veil-piercing, I find that this equitable remedy (or right) is 

an appropriate means, in limited circumstances, to remedy fraud and injustice.6

 

Under the framework set out below, the plaintiffs’ claim for reverse veil-piercing, 

which, again, seeks to hold SourceHOV Holdings’ subsidiaries liable for its debts, 

is, I believe, viable as a matter of Delaware law. 

6 See Medi-Tec of Egypt Corp. v. Bausch & Lomb Surg., 2004 WL 415251, at *2 (Del. Ch. 

Mar. 4, 2004) (noting “it is not necessarily clear under Delaware law whether veil piercing 

is an equitable right or an equitable remedy”). 
5

On the other hand, the plaintiffs’ claim for unjust enrichment is not viable 

because the charging order, as a matter of law, prevents the use of equitable claims 

and remedies, such as unjust enrichment, as separate means to reach LLC assets that 

are subject to the charging order. The unjust enrichment claim, consequently, must 

be dismissed.

The procedural posture in which these issues are presented to the Court is a 

motion to dismiss all claims under Court of Chancery Rule 12(b)(6). For reasons 

stated below, the motion is granted in part and denied in part. 

I. BACKGROUND

I have drawn the facts from well-pled allegations in the Verified Complaint 

(the “Complaint”) and documents incorporated by reference or integral to that 

pleading.7

 For purposes of the motion, I accept as true the Complaint’s well-pled 

factual allegations and draw all reasonable inferences in the plaintiffs’ favor.8

 

A. Parties

Plaintiff, Manichaean Capital, LLC, a Delaware LLC, along with individual 

plaintiffs, Charles Cascarilla and Emil Woods, both New York residents, and LGC 

Foundation, Inc. and Imago Dei Foundation, Inc., both Ohio corporations, 

7

 Compl.; Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting 

that on a motion to dismiss, the Court may consider documents that are “incorporated by 

reference” or “integral” to the complaint). 

8 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002). 
6

(collectively, “Plaintiffs”), were equity holders in SourceHOV Holdings prior to its 

acquisition by Exela in a merger consummated on July 12, 2017.

9

 

Defendant, Exela, a Delaware corporation, sits atop a network of “resident 

and non-resident direct and indirect subsidiaries,” many of which have been named 

as defendants here (the “Exela Subsidiaries”).10 Exela operates in the business 

process automation space.

The Exela Subsidiaries include: Ex-Sigma LLC, the Delaware LLC formed to 

combine with SourceHOV Holdings in the Merger, SourceHOV Holdings, the 

surviving entity from the Merger, SourceHOV, LLC, an entity immediately below 

SourceHOV Holdings in which SourceHOV Holdings maintains a 100% 

membership interest, and then a number of subsidiary LLCs, which I refer to as the 

“SourceHOV Subsidiaries.”11 The Exela network is depicted in the chart below: 

9

 Compl. ¶¶ 12–16, 33. 

10 Compl. ¶¶ 17, 19–21. 

11 Compl. ¶¶ 17–21. 

Remainder of Page Intentionally Left Blank
7

B. The Merger 

On July 12, 2017, SourceHOV Holdings merged with Ex-Sigma LLC and ExSigma Merger Sub, Inc., in a transaction whereby each share of SourceHOV 

Holdings common stock was converted into a right to receive one membership unit 

of Ex-Sigma LLC (the “Merger”).12 Prior to the Merger, Plaintiffs held 10,304 

shares of common stock in SourceHOV Holdings.

13 The creation of Ex-Sigma and 

subsequent conversion of stock was a preliminary step to effectuate the merger of 

SourceHOV Holdings into SourceHOV Merger Sub, with SourceHOV Holdings

12 Compl. ¶ 33. 

13 Compl. ¶ 31. 

Exela Technologies

Exela Intermediate

SourceHOV Holdings, LLC

SourceHOV, LLC

SourceHOV Subsidiaries

Exela Subsidiaries
8

emerging as the surviving entity.14 The Merger made SourceHOV Holdings an 

indirect subsidiary of Quinpario Acquisition Corp. 2, which was later renamed 

Exela.15 

Under the Consent, Waiver and Amendment to the Business Combination 

Agreement (the “Modification Agreement”), dated June 15, 2017, any Merger 

consideration was to be delivered to Ex-Sigma LLC without deductions for 

dissenting shares.16 The Modification Agreement declared that if a stockholder 

sought appraisal, Ex-Sigma would send that stockholder’s equity interests in

SourceHOV Holdings to Exela.17 

C. The Appraisal Action

Plaintiffs expressly dissented with respect to the Merger and, on 

September 27, 2017, filed an appraisal action in this court (the “Appraisal 

Action”).18 This Court issued its post-trial memorandum opinion on January 30, 

14 Compl. ¶ 34. 

15 Id. For a more comprehensive discussion of the mechanics of the Merger, interested 

readers are referred to Manichaean Cap., LLC v. SourceHOV Hldgs., Inc., 2020 

WL 496606, at *7 (Del. Ch. Jan. 30, 2020), aff’d, 2021 WL 225817 (Del. Jan. 22, 2021)

(“Manichaean Appraisal Action”). 

16 Compl. ¶¶ 54, 57. 

17 Compl. ¶ 57. 

18 Compl. ¶¶ 35–36. 
9

2021.19 As is typical in appraisal litigation, the parties’ experts were miles apart in 

their determinations of SourceHOV Holdings’ fair value as of the Merger. For 

reasons stated in the post-trial opinion, the Court, in large measure, adopted the 

petitioners’ fair value evidence and appraised the fair value of their shares in 

SourceHOV Holdings at the time of the Merger at $4,591 per share.20 This valued 

the petitioners’ stake at $57,684,471 plus interest, significantly above the 

consideration they would have received in the Merger.

21 The Court entered its final 

judgment to this effect on March 26, 2020 (the “Appraisal Judgment”).22 

SourceHOV Holdings moved for reargument and then for a new trial; both motions 

were denied.23 SourceHOV Holdings appealed the Appraisal Judgment and our 

Supreme Court summarily affirmed.24 

19 Compl. ¶ 40. 

20 Compl. ¶ 37; Manichaean Appraisal Action, 2020 WL 496606, at *2. 

21 Compl. ¶ 50. 

22 Manichaean Cap., LLC v. SourceHOV Hldgs., Inc., 2020 WL 1511189 (Del. Ch. 

Mar. 26, 2020) (ORDER) (“Manichaean Appraisal Action Final Order”). 

23 Manichaean Cap., LLC v. SourceHOV Hldgs., Inc., 2020 WL 1166067 (Del. Ch. 

Mar. 11, 2020); Manichaean Cap., LLC v. SourceHOV Hldgs., Inc., 2020 WL 3097678

(Del. Ch. June 11, 2020); Compl. ¶¶ 41, 44. 

24 Compl. ¶ 45; SourceHOV Hldgs., Inc. v. Manichaean Cap., LLC, 2021 WL 225817 

(Del. Jan. 22, 2021) (ORDER). 
10

While the appeal was pending, Plaintiffs sent a demand letter to SourceHOV 

Holdings requesting immediate payment of the Appraisal Judgment.

25 As of the 

filing of this lawsuit, none of that judgment had been paid.26 According to Plaintiffs, 

when Ex-Sigma transferred Plaintiffs’ SourceHOV Holdings shares to Exela over 

their dissent to the Merger, shares that constituted 6.5% of SourceHOV Holdings’ 

outstanding stock, and then Exela subsequently failed to pay the $57.6 million owed 

for that stock as determined by the Appraisal Judgment, Exela, in essence, seized 

Plaintiffs’ property without paying for it.27

D. The Charging Order

On July 15, 2020, Plaintiffs filed a Motion for Charging Order against 

SourceHOV Holding’s membership interest in SourceHOV, LLC.28 The Court 

granted the Motion on August 15, 2020.29 The charging order mandated that 

“[a]ny and all distributions made by SourceHOV, LLC and payable to SourceHOV 

Holdings, Inc. in respect of SourceHOV Holdings, Inc.’s membership interest in 

25 Compl. ¶ 47. 

26 Compl. ¶ 50. Since the filing, the Court was advised in related litigation that SourceHOV

has paid $1 million toward the judgment. Manichaean v. Chadha, et al., C.A. No. 2020-

0711-JRS (D.I. 73). 

27 Compl. ¶ 62. 

28 Compl. ¶ 49. 

29 Manichaean Cap., LLC v. SourceHOV Hldgs., Inc., 2020 WL 5074386 (Del. Ch. 

Aug. 25, 2020) (ORDER). 
11

SourceHOV, LLC shall be paid to [Plaintiffs]” (the “Charging Order”).30 In other 

words, to the extent Exela, as parent of SourceHOV Holdings, wishes to receive 

distributions from its subsidiaries below SourceHOV Holdings, any money that 

flows through SourceHOV Holdings must first be paid to Plaintiffs as SourceHOV

Holdings’ judgment creditors before it reaches Exela. 

E. The A/R Facility

On January 10, 2020, mere weeks before this Court’s decision in the Appraisal 

Action, Exela, through its subsidiaries, entered into a $160 million accounts 

receivable securitization facility (the “A/R Facility”).31 To facilitate the transaction, 

Exela created two entities, Exela Receivables Holdco LLC (“Receivables Holdco”)

and Exela Receivables I LLC (“Receivables I”).

32 Under the First Tier Purchase and 

Sale Agreement, thirteen of the SourceHOV Subsidiaries sold their accounts 

receivable to Receivables Holdco.33 Then, under the Second Tier Purchase 

Agreement, Receivables Holdco sold those receivables to Receivables I.34 Under 

the Loan and Security Agreement, Receivables I then pledged the receivables as 

30 Id. at ¶ 3. 

31 Compl. ¶ 136. 

32 Compl. ¶¶ 136–39. 

33 Compl. ¶ 138. 

34 Compl. ¶ 139. 
12

collateral for loans and letters of credit to be issued to Receivables I.35 More 

specifically, Receivables I pledged certain collection accounts, including sixteen 

“Interim Collection Accounts,” all but three of which were accounts owned directly 

by the SourceHOV Subsidiaries.

36 The A/R Facility permitted value once held by 

the SourceHOV Subsidiaries to be held by Exela’s indirect subsidiary, allowing a 

diversion of funds around SourceHOV Holdings and directly into the coffers of 

Exela.37 

II. ANALYSIS

The standard for deciding a Motion to Dismiss under Court of Chancery 

Rule 12(b)(6) is well-settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even 

vague allegations are “well-pleaded” if they give the opposing party 

notice of the claim; (iii) the Court must draw all reasonable inferences 

in favor of the non-moving party; and (iv) dismissal is inappropriate 

unless the plaintiff would not be entitled to recover under any 

reasonably conceivable set of circumstances susceptible of proof.38

35 Compl. ¶ 140. 

36 Compl. ¶ 141. 

37 Compl. ¶ 144. 

38 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citation omitted). 
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A. The Rationale for Statutory Appraisal 

The creation of a statutory appraisal right was a significant step forward in the 

development of our corporate law. Before then, at common law, “an arbitrary 

minority” could prevent a transformative transaction with the wave of a hand, 

holding the majority hostage to their whim.39 The appraisal right granted under 

8 Del. C. § 262 is a “statutory right . . . given [to] the shareholder as compensation 

for the abrogation of the common law rule that a single shareholder could block a 

merger.”40 The right is significant and reflects the reality that our law now allows a 

corporation’s majority owners to force a sale of the corporation, and the minority’s 

equity in the corporation, without minority consent and even when the price paid in 

the transaction may be deemed by the minority to be inadequate. For this result to 

make sense, the dissenting shareholders must have a means to secure fair value 

through a proper appraisal of their shares.

41 And, importantly, the dissenting 

39 Salomon Bros. Inc. v. Interstate Bakeries Corp., 576 A.2d 650, 651 (Del. Ch. 1989). 

40 Id. (quoting Francis I. duPont & Co. v. Universal City Studios, 343 A.2d 629, 634 

(Del. Ch. 1975)). 

41 Saul Levmore & Hideki Kanda, The Appraisal Remedy and the Goals of Corporate Law, 

32 UCLA L. Rev. 429, 434 (1985) (“The conventional view is built on the idea that 

appraisal statutes have sought to protect minority shareholders. . . . [A]ppraisal retains the 

flavor of minority veto power.”). See also Matter of Appraisal of Ford Hldgs. Pref. 

S’holders, 698 A.2d 973, 976 (Del. Ch. 1997) (Allen, C.) (holding that statutory appraisal 

rights are among those set forth in the Delaware General Corporation Law that are 

“mandatory”). 
14

shareholder should, absent compelling circumstances, actually get paid the fair value 

of “that which has been taken from him.”42 Anything less frustrates the origin and 

purpose of the statutory appraisal remedy. 

In the ordinary course, when judgment debtors fail to pay, the legal remedies 

of a charging order against a judgment debtor’s LLC interests or a writ of execution 

against the judgment debtor’s assets are available as tools for collection.43 This 

Opinion considers what options are available to the judgment debtor in an appraisal 

action if, after a plaintiff receives a writ of execution or charging order, an appraisal 

judgment is still left unpaid. In considering the question, it is useful to remember 

that in appraisal actions, it is the acquirer, not the target, who is “the real party in 

interest on the respondent’s side of the case.”44 

42 Tri-Cont’l Corp. v. Battye, 74 A.2d 71, 72 (Del. 1950); see also ONTI, Inc. v. Integra 

Bank, 751 A.2d 904, 929 (Del. Ch. 1999) (“[The] appraisal statute [has a] goal of 

preventing the . . . corporation from retaining unjust benefits from the use of the dissenting 

shareholders’ funds.”). 

43 6 Del. C. § 18-703(a); Manichaean Appraisal Action Final Order, 2020 WL 1511189, 

at *1 (“This Final Order and Judgment may be enforced in Delaware by the issuance of 

writs of execution substantially in the form and with the same effect as those used in 

Delaware Superior Court, as provided in Court of Chancery Rule 69(a), and by any other 

means allowed by applicable law or procedure in any jurisdiction where enforcement is 

sought.”). 

44 In re Appraisal of Columbia Pipeline Gp., Inc., 2019 WL 3778370, at *17 (Del. Ch. 

Aug. 12, 2019) (“Although technically the respondent in an appraisal proceeding is the 

surviving company, the acquirer is typically the real party in interest on the respondent’s 

side of the case.”); see also In re Stillwater Mining Co., 2019 WL 3943851, at *1 (Del. Ch. 

Aug. 21, 2019) (“The respondent in an appraisal proceeding is technically the surviving 

corporation, but the real party in interest is the acquirer.”); E. Thom Rumberger, Jr., 
15

B. The Impact of the Charging Order

Upon request by a judgment creditor of a member of a Delaware limited 

liability company, the court “may charge the limited liability company interest of 

the judgment debtor to satisfy the judgment.”45 Once entered, the charging order 

acts as a lien on the judgment debtor’s membership interest.46 Importantly, 6 Del. C.

§ 18-703(d) provides that “a charging order is the exclusive remedy by which a 

judgment creditor of a member or a member’s assignee may satisfy a judgment out 

of the judgment debtor’s limited liability company interest and attachment, 

garnishment, foreclosure or other legal or equitable remedies are not available to the 

judgment creditor . . . .”47 In this regard, Section 18-703(e) makes clear that a 

creditor who obtains a charging order does not maintain “any right to obtain 

The Acquisition and Sale of Emerging Growth Companies: The M & A Exit § 11:33 

(2d ed. 2017) (“From an acquirer’s perspective, target stockholders pursuing appraisal 

rights create uncertainty as to how much [the] acquirer will have to pay for the shares of 

target.”); Joseph Evan Calio, New Appraisals of Old Problems: Reflections on the 

Delaware Appraisal Proceeding, 32 Am. Bus. L.J. 1, 68 n.64 (1994) (“[E]ither in the 

market or in an appraisal the acquiror pays the entire bill no matter how it is apportioned.”); 

Ethan Klingberg & Yavor Efremov, Delaware’s M&A Wildcard-Appraisal Rights, 

9 No. 2 M & A Law. 1 (June 2005) (discussing the effects of dissenting target shareholders 

on the acquirer’s pre- and post-acquisition role). 

45 6 Del. C. § 18-703(a). 

46 6 Del. C. § 18-703(b). 

47 6 Del. C. § 18-703(d). 
16

possession of, or otherwise exercise legal or equitable remedies with respect to, the 

property of the limited liability company.”48 

While the charging order statute clearly limits the types of actions a judgment 

creditor may take against a debtor to fulfill its judgment once the charging order is 

in hand, it does not limit the means by which the judgment debtor may enforce the 

charging order itself. To the extent a judgment creditor seeks merely to define which 

entities are (or should be) subject to the charging order, that action is not barred by 

the charging order statute. That is precisely what Plaintiffs’ veil-piercing claims 

seek to do here. 

On the other hand, if a judgment creditor seeks to bypass its charging order to 

enforce its judgment through “other legal or equitable remedies,” that action is 

barred by statute and must be dismissed.49 That is what Plaintiffs seek to do through 

their unjust enrichment claim. I address the effects of the Charging Order more 

specifically below as I address each of Plaintiffs’ claims in turn.

50 

48 6 Del. C. § 18-703(e). 

49 6 Del. C. § 18-703(d). 

50 I note that Defendants have not argued that the charging order bars Plaintiffs’ traditional 

veil-piercing claim but have argued that it bars the reverse veil-piercing claim. 

Defs.’ Opening Brief in Supp. of Mot. to Dismiss the Verified Compl. (D.I. 11) (“OB”) 

at 21. This is likely because a charging order is the exclusive remedy as against a judgment 

debtor’s LLC interests and SourceHOV’s LLC interests sit below SourceHOV Holdings, 

hence the claim for reverse veil-piercing. 
17

C. Traditional Veil-Piercing 

Plaintiffs allege that Exela’s undercapitalization of its subsidiary

(SourceHOV Holdings), lack of corporate separateness and subsequent attempts to 

divert funds away from SourceHOV Holdings to avoid the claims of its creditors 

provide ample bases to pierce SourceHOV Holdings’ corporate veil to reach up the 

chain to Exela. “Delaware public policy disfavors disregarding the separate legal 

existence of business entities.”51 With that said, in “exceptional case[s],” corporate 

veil-piercing is necessary and appropriate.

52 

Delaware courts consider a number of factors in determining whether to 

disregard the corporate form and pierce the corporate veil, including: “(1) whether 

the company was adequately capitalized for the undertaking; (2) whether the 

company was solvent; (3) whether corporate formalities were observed; (4) whether 

the dominant shareholder siphoned company funds; and (5) whether, in general, the 

company simply functioned as a facade for the dominant shareholder.”53 While 

these factors are useful, any single one of them is not determinative. An ultimate 

51 Paul Elton, LLC v. Rommel Del., LLC, 2020 WL 2203708, at *14 (Del. Ch. May 7, 

2020); see also Wallace ex rel. Cencom Cable Income P’rs II, L.P. v. Wood, 752 A.2d 

1175, 1183 (Del. Ch. 1999) (“Persuading a Delaware court to disregard the corporate entity 

is a difficult task.” (quoting Harco Nat’l Ins. Co. v. Green Farms, Inc., 1989 WL 110537, 

at *4 (Del. Ch. Sept. 19, 1989))). 

52 Vichi v. Koninklijke Philips Elecs. N.V., 62 A.3d 26, 49 (Del. Ch. 2012). 

53 Doberstein v. G-P Indus., Inc., 2015 WL 6606484, at *4 (Del. Ch. Oct. 30, 2015). 
18

decision regarding veil-piercing is largely based on some combination of these 

factors, in addition to “an overall element of injustice or unfairness.”54 

As to the specific factors, Plaintiffs make a compelling case in their Complaint 

that Exela and SourceHOV Holdings “operate[] as a single economic entity such that 

it would be inequitable for this Court to uphold a legal distinction between them.”55

First, accepting the allegations in the Complaint as true, it is reasonably conceivable 

that SourceHOV Holdings is insolvent and that its insolvency, at least in part, is the 

result of Exela’s undercapitalization of SourceHOV Holdings. Insolvency is 

adequately pled if a plaintiff’s allegations allow a reasonable inference of either 

“(1) a deficiency of assets below liabilities with no reasonable prospect that the 

business can be successfully continued in the face thereof or (2) an inability to meet 

maturing obligations as they fall due in the ordinary course of business.’”56

54 Id.; see also Gadsden v. Home Pres. Co., 2004 WL 485468, at *4 (Del. Ch. Feb. 20, 

2004, revised Mar. 12, 2004) (“A court of equity will disregard the separate legal existence 

of a corporation where it is shown that the corporate form has been used to perpetrate a 

fraud or similar injustice.”); United States v. Golden Acres, Inc., 702 F. Supp. 1097, 1104 

(D. Del. 1988) (“[N]o single factor could justify a decision to disregard the corporate entity, 

but . . . some combination of them [is] required, and . . . an overall element of injustice or 

unfairness must always be present . . . .”). 

55 Mabon, Nugent & Co. v. Texas Am. Energy Corp., 1990 WL 44267, at *5 (Del. Ch. 

Apr. 12, 1990). 

56 N. Am. Cath. Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 98 

(Del. 2007) (cleaned up). 
19

SourceHOV Holdings is a holding company with no direct operating assets.

57 

In fact, its only asset is its membership interest in SourceHOV, LLC, which in turn 

holds interests in its solvent subsidiaries.

58 SourceHOV Holdings has no bank 

account, money market account or brokerage account.59 With those facts as 

background, the Complaint alleges funds that once flowed up from the SourceHOV

Subsidiaries to SourceHOV Holdings as a matter of course, are now bypassing 

SourceHOV Holdings and flowing directly to Exela.

60 According to Plaintiffs, this 

arrangement was put in place by Exela and others while the likelihood that 

SourceHOV Holdings would face a substantial appraisal judgment was well known 

to all involved in the A/R Facility.61 Now that SourceHOV Holdings has no funds, 

and no prospect of securing funds, it is unable to meet its obligations as they become 

due, and it is at least reasonably conceivable that it will never be able to do so. The 

fact that certain of the SourceHOV Subsidiaries might be profitable, say Plaintiffs, 

does not suggest that SourceHOV Holdings itself is solvent, absent evidence that 

57 Compl. ¶ 82. 

58 Compl. ¶ 84. 

59 Id. 

60 Compl. ¶ 29. 

61 Compl. ¶ 148. 
20

such money flows through SourceHOV Holdings, which, according to the 

Complaint, is not and may never again be the case. 

The Complaint’s case for veil-piercing does not rest on insolvency alone.

62 

It alleges that Exela was aware of SourceHOV Holdings’ potential liability long ago 

and yet made a deliberate decision to undercapitalize the entity.63 Exela knew at the 

time it acquired SourceHOV Holdingsthat dissenting shareholders would be entitled 

to the fair value of their shares.64 Indeed, Exela recognized in its Form 10-K, filed 

on March 16, 2018, that there was a risk of a significant loss associated with the 

Appraisal Action.65 It corrected its past filings in an 8-K filed on March 17, 2020, 

and was even more explicit in disclosing that the obligation to pay fair value to 

dissenting shareholders represented an obligation on the date the Appraisal Action

was filed in September 2017.66 Yet, notwithstanding its recognition of substantial 

exposure to the appraisal petitioners, Exela made the deliberate decision to avoid 

62 Defendants argue that insolvency, alone, is not enough to pierce the corporate veil. 

Mason v. Network of Wilm., Inc., 2005 WL 1653954, at *4 (Del. Ch. July 1, 2005) 

(“[I]nsolvency, with nothing more, is not sufficient to warrant the piercing of the corporate 

veil”). I agree. But Plaintiffs allege more. 

63 Compl. ¶¶ 87–103. 

64 Compl. ¶ 87. 

65 Compl. ¶ 94. 

66 Compl. ¶ 98. 
21

flowing funds through SourceHOV Holdings.

67 With funds either remaining at the 

subsidiary level or potentially flowing around SourceHOV Holdings to Exela, there 

is no way for Plaintiffs to enforce their judgment against SourceHOV Holdings.

68 

Beyond the apparently deliberate effort to starve SourceHOV Holdings of 

cash, Plaintiffs further allege that Exela failed to observe certain corporate 

formalities. Specifically, Plaintiffs allege that Exela: (1) is headquartered at the 

same address as SourceHOV Holdings,

69 (2) has failed to maintain proper business 

registrations for SourceHOV Holdings,

70 (3) has significantly overlapping personnel

with SourceHOV Holdings,

71 (4) has referred to Exela and its subsidiaries as one 

67 Compl. ¶¶ 6, 28. 

68 Compl. ¶¶ 7, 29. 

69 Compl. ¶ 125. 

70 Compl. ¶ 126. 

71 Compl. ¶ 129 (“Chadha was the principal stockholder of SourceHOV immediately prior 

to the business combination and is now Exela’s Executive Chairman. Ronald Cogburn is 

the Chief Operating Officer of Exela and an officer, director, general partner, or manager 

of SourceHOV LLC. Jim Reynolds is a member of Exela’s board of directors and treasurer 

of SourceHOV LLC. Mark Fairchild is president of Exela Smart Office and president of 

SourceHOV LLC. Shrikant Sortur is the Chief Financial Officer of Exela and an officer 

of SourceHOV LLC. Eric Mengwall serves as secretary for both Exela and 

SourceHOV LLC.”). 
22

combined enterprise in SEC filings72 and (5) requires SourceHOV Holdings to 

obtain Exela’s consent before SourceHOV Holdings may pay its own creditors.

73 

With concerns about insolvency, undercapitalization and corporate 

formalities well pled, Plaintiffs turn next to the fraud and injustice associated with 

the A/R Facility. “Acts intended to leave a debtor judgment proof are sufficient to 

show fraud and injustice.”74 Plaintiffs compellingly allege that fraud and injustice 

has resulted and will result from the diversion of funds from SourceHOV Holdings

to Exela in an explicit attempt to avoid payment of the Appraisal Judgment. 

As mentioned, Exela knew that SourceHOV Holdings would be required to pay a 

judgment of some amount, at the latest, when Plaintiffs sent their appraisal demand

in September 2017.75 The extent of that exposure became all too clear as the 

appraisal petitioners developed evidence, including expert valuation evidence, that 

72 Compl. ¶ 131. 

73 Compl. ¶ 133. Again, Defendants argue that the failure to observe corporate formalities, 

alone, is not sufficient to well-plead veil-piercing. Wenske v. Blue Bell Creameries, Inc., 

2018 WL 5994971, at *6 (Del. Ch. Nov. 13, 2018) (“A parent corporation is not liable for 

the acts of its subsidiary merely because it owns (and votes) a majority of the subsidiary’s 

stock or shares common shareholders, directors or officers with the subsidiary.”). Once 

again, I agree. But, a combination of insolvency, intentional undercapitalization and a lack 

of corporate formalities, coupled with valid claims of fraud and injustice, is enough to meet 

Plaintiffs’ pleading stage burden. 

74 Compagnie des Grands Hotels d’Afrique S.A. v. Starwood Cap. Gp. Glob. I LLC, 

2019 WL 148454, at *5 (D. Del. Jan. 9, 2019). 

75 Compl. ¶¶ 35–36. 
23

the fair value of SourceHOV Holdings was exponentially greater than the price paid 

in the Merger. This evidence was presented at trial in June 2019, summarized in 

post-trial oral arguments in October 2019, then relied upon in the Court’s post-trial 

decision issued on January 30, 2020.76 Yet, mere weeks before entry of the 

judgment, on January 10, 2020, Defendants entered into the A/R Facility.

77 

According to the Complaint, and as discussed above, the A/R Facility created 

a structure whereby thirteen of the SourceHOV Subsidiaries sold certain receivables 

to Receivables Holdco, and those receivables were subsequently sold to 

Receivables I.78 As designed, Receivables I, an indirect subsidiary of Exela but not 

SourceHOV Holdings, pledged those receivables as collateral under the Loan and 

Security Agreement in exchange for money paid by the lender under the facility.79 

Exela is the guarantor for all moneys borrowed under the A/R Facility and is the 

servicer on the Loan and Security Agreement.80 According to Plaintiffs’ well-pled 

allegations, the receivables pledged were not Exela’s to pledge and yet, as a result 

76 Compl. ¶¶ 38, 40. 

77 Compl. ¶¶ 39, 136. 

78 Compl. ¶¶ 138–139. 

79 Compl. ¶ 140. 

80 Compl. ¶¶ 136, 140. 
24

of the pledge, accounts receivable income that should flow up to SourceHOV 

Holdings no longer does.

81 

Defendants take issue with the Complaint’s pled characterization of the 

A/R Facility. The arguments are granular and, if accepted, would re-write Plaintiffs’ 

pleading. To be sure, the A/R Facility is a complicated transaction. And 

Defendants’ characterization of it may well prove to be the better one. But this is 

not the time to make that potentially dispositive determination, particularly given the 

fact-intensive intricacies of the transaction.82 Taking Plaintiffs’ well-pled

characterization as fact, it is reasonably conceivable the A/R Facility was created in 

order deliberately to prevent funds from flowing through SourceHOV Holdings and 

to enable SourceHOV Holdings to avoid its obligations to creditors, including, and 

perhaps especially, Plaintiffs. Assuming the pled facts are true, it is reasonably 

81 Compl. ¶ 144. 

82 Doe 30’s Mother v. Bradley, 58 A.3d 429, 445 (Del. Super. Ct. 2012) (“While it is true 

that the Court need not accept conclusory assertions as true when deciding a motion to 

dismiss, the Court will not adjudicate contested issues of fact on a motion to dismiss, nor 

will it deem a pleading inadequate under Rule 12(b)(6) simply because a defendant presents 

facts that appear to contradict those plead by the plaintiff.”); Malpiede v. Townson, 

780 A.2d 1075, 1082 (Del. 2001) (“[On] a motion to dismiss . . . the Court of Chancery 

may not resolve material factual disputes . . . .”); Windy City Invs. Hldgs., LLC v. Tchrs. 

Ins. & Annuity Ass’n of Am., 2019 WL 2339932, at *10 (Del. Ch. May 31, 2019) 

(“[Defendant’s] efforts to refute [plaintiff’s] version of the facts are not appropriate at the

motion to dismiss stage, where [plaintiff] has pled its allegations adequately.”). 
25

conceivable that it is necessary to pierce the SourceHOV Holdings corporate veil to 

avoid fraud and injustice. 

D. Reverse Veil-Piercing

The question of whether and to what extent courts of Delaware should allow 

so-called reverse veil-piercing is one of first impression. This is not to say that 

parties in litigation have not asked our courts to authorize reverse veil-piercing. 

They have. But our courts have yet to accept or deny the claim.83 For reasons 

explained below, I am satisfied that Delaware law allows for reverse veil-piercing

in limited circumstances and in circumscribed execution. 

The Mechanics of Reverse Veil-Piercing and its Proper Application

At its most basic level, reverse veil-piercing involves the imposition of 

liability on a business organization for the liabilities of its owners.

84 In the 

parent/subsidiary context, “where the subsidiary is a mere alter ego of the 

83 See, e.g., Cancan Dev., LLC v. Manno, 2015 WL 3400789, at *22 (Del. Ch. May 27, 

2015), aff’d, 132 A.3d 750 (Del. 2016) (noting that “[h]ad the claim [for reverse veilpiercing] been properly presented” it “might have prevailed,” but because “[n]o one 

grappled with the different implications” of reverse veil-piercing and traditional veilpiercing, the claim failed for lack of adequate prosecution); Spring Real Estate, LLC v. 

Echo/RT Hldgs., LLC, 2016 WL 769586, at *3 (Del. Ch. Feb. 18, 2016) (explaining the 

doctrine of “reverse veil-piercing” but ultimately declining to address its validity). 

84 Sky Cable, LLC v. DIRECTV, Inc., 886 F.3d 375, 385 (4th Cir. 2018) (“Reverse veil 

piercing attaches liability to the entity for a judgment against the individuals who hold an 

ownership interest in that entity.”); Litchfield Asset Mgmt. Corp. v. Howell, 799 A.2d 298, 

311 (2002) (Conn. App. Ct. 2002) (defining reverse veil-piercing as when “the assets of 

the corporate entities [are] made available to pay the personal debts of an owner”). 
26

parent . . . the Court [will] treat the assets of the subsidiary as those of the parent.”85 

As the doctrine has evolved, courts now recognize two variants of reverse veilpiercing: insider and outsider reverse veil-piercing.

86 Insider reverse veil-piercing

is implicated where “the controlling [member] urges the court to disregard the 

corporate entity that otherwise separates the [member] from the corporation.”87 

Outsider reverse veil-piercing is implicated where “an outside third party, frequently 

a creditor, urges a court to render a company liable on a judgment against its 

member.”88 Given Plaintiffs are creditors of SourceHOV Holdings, the single 

member and 100% owner of SourceHOV LLC, which in turn is the single member 

and owner of the SourceHOV Subsidiaries, and Plaintiffs seek to hold the 

subsidiaries liable for a judgment held against the member, this case concerns 

outsider veil-piercing. 

The case associated with the first substantive treatment of reverse veilpiercing is Judge Learned Hand’s decision in Kingston Dry Dock Co. v. Lake 

85 Spring Real Estate, 2016 WL 769586, at *3. 

86 Sky Cable, 886 F.3d at 385. 

87 Id. (quoting 1 W. Fletcher, Fletcher Cyclopedia of the Law of Corporations § 41 (2017)); 

McKay v. Longman, 211 A.3d 20, 45 (Conn. 2019) (“Insider reverse veil piercing is 

applicable to cases in which the plaintiff is a corporate insider seeking to disregard the 

corporate form for his own benefit.”). 

88 Sky Cable, 886 F.3d at 385; C.F. Tr., Inc. v. First Flight, L.P., 306 F.3d 126, 134 

(4th Cir. 2002). 
27

Champlain Transp. Co.89 There, the court considered a trial court order allowing a 

judgment creditor to seize property of a subsidiary controlled by the judgment debtor 

in satisfaction of the judgment.90 In refreshingly short order, Judge Hand found that 

reverse veil-piercing was not warranted. In doing so, he observed that the subsidiary 

had not “interpose[d] in any way in the conduct of [the parent’s] affairs.”91 He also 

emphasized that “[s]o long as the law allows associated groups to maintain an 

independent unity, its sanction is not so easily evaded, and persons dealing with 

either do so upon the faith of the undertaking of that one which they may select.”92 

And so began the reverse veil-piercing debate. Since then, many courts have adopted 

the doctrine, while others have shied away.93 

89 Kingston Dry Dock Co. v. Lake Champlain Transp. Co., 31 F.2d 265 (2d Cir. 1929). 

90 Id. at 266. 

91 Id. at 267. 

92 Id. 

93 See, e.g., Sky Cable, 886 F.3d at 386–88 (concluding that Delaware would accept reverse 

veil-piercing); Litchfield, 799 A.2d 298 (accepting reverse veil-piercing); C.F. Tr., Inc. v. 

First Flight L.P., 580 S.E.2d 806 (Va. 2003) (same); LFC Mktg. Gp., Inc. v. Loomis, 8 P.3d 

841 (Nev. 2000) (same); State v. Easton, 647 N.Y.S.2d 904 (N.Y. Sup. Ct. 1995) (same); 

Stoebner v. Lingenfelter, 115 F.3d 576 (8th Cir. 1997) (same); Permian Petrol. Co. v. 

Petroleos Mexicanos, 934 F.2d 635 (5th Cir. 1991) (same). Contra Acree v. McMahan, 

585 S.E.2d 873 (Ga. 2003) (rejecting reverse veil-piercing); Postal Instant Press, Inc. v. 

Kaswa Corp., 77 Cal. Rptr. 3d 96 (Cal. Ct. App. 2008) (same); Cascade Energy and Metals 

Corp. v. Banks, 896 F.2d 1557 (10th Cir. 1990) (same). 
28

Courts declining to allow reverse veil-piercing have relied primarily, and 

understandably, on a desire to protect innocent parties. This is revealed in the two 

most often cited state court decisions rejecting reverse veil-piercing, Acree v. 

McMahan94 and Postal Instant Press, Inc. v. Kaswa Corp.95 In Acree, the Supreme 

Court of Georgia rejected reverse veil-piercing, holding that the risk reverse piercing 

would facilitate harm, through judicial decree, to innocent shareholders and thirdparty creditors could not adequately be managed by the courts.

96 In Postal Instant 

Press, a California appellate court rejected reverse veil-piercing on similar

grounds.

97 

The concerns expressed in Acree and Postal Instant Press are well-founded. 

To start, reverse veil-piercing has the potential to bypass normal judgement 

collection procedures by permitting the judgment creditor of a parent to jump in front 

94 585 S.E.2d at 874 (“We reject reverse piercing, at least to the extent that it would allow 

an ‘outsider,’ such as a third-party creditor, to pierce the veil in order to reach a 

corporation’s assets to satisfy claims against an individual corporate insider.”); id. at 874–

75 (noting that the “particular concern” implicated by reverse piercing is not only harm to 

“non-culpable third-party shareholders” but also harm to other “[c]orporate creditors”). 

95 77 Cal. Rptr. 3d at 101 (“Our independent research and analysis lead us to reject outside 

reverse piercing.”); id. at 103 (observing that “non-culpable shareholders” would be 

prejudiced by allowing reverse veil-piercing). 

96 Acree, 585 S.E.2d at 874–75. 

97 Kaswa, 77 Cal. Rptr. 3d at 102–04. 
29

of the subsidiary’s creditors.98 For obvious reasons, this dynamic would “unsettle 

the expectations of corporate creditors who understand their loans to be secured . . . 

by corporate assets” and could lead to corporate creditors “insist[ing] on being

compensated for the increased risk of default posed by outside reverse-piercing 

claims.”99 As (if not more) important, “to the extent that the corporation has other 

non-culpable shareholders, they obviously will be prejudiced if the corporation’s 

assets can be attached directly.”100 Courts rejecting reverse veil-piercing have 

emphasized that the risk of harm to innocent stakeholders is often avoidable because 

judgment creditors can invoke other claims and remedies to achieve the same 

outcome.

101 

The risks that reverse veil-piercing may be used as a blunt instrument to harm 

innocent parties, and to disrupt the expectations of arms-length bargaining, while 

real, do not, in my view, justify the rejection of reverse veil-piercing outright. 

98 Cascade, 896 F.2d at 1577. 

99 Floyd v. I.R.S. U.S., 151 F.3d 1295, 1299 (10th Cir. 1998). 

100 Cascade, 896 F.2d at 1577. As was the case in Kingston, the backdrop often animating 

these concerns is the very real possibility that, in many instances, the subsidiary itself has 

not engaged in any wrongdoing. See Kingston, 31 F.2d at 267. 

101 Cascade, 896 F.2d at 1577 (“[W]e are inclined to conclude that more traditional theories 

of conversion, fraudulent conveyance of assets, respondeat superior and agency law are 

adequate to deal with situations where one seeks to recover from a corporation for the 

wrongful conduct committed by a controlling stockholder without the necessity to invent 

a new theory of liability.”). 
30

Rather, the recognition of the risks creates an opportunity to manage them, and to 

do so in a manner that serves the interests of equity.102 

In C.F. Trust, Inc. v. First Flight L.P., the Supreme Court of Virginia adopted 

reverse veil-piercing upon observing that, at their most basic level, traditional and 

reverse veil-piercing claims both seek to prevent the same sort of wrongdoing: abuse 

of the corporate form and fraud.103 The court recognized the risk that reverse veilpiercing could negatively impact innocent third-parties and defined the reverse veilpiercing standard expressly to manage that risk.

104 Specifically, the court held that 

a plaintiff asking the court to authorize reverse veil-piercing, in addition to proving 

the elements required to justify traditional veil-piercing, must also demonstrate that 

reverse veil-piercing will not cause harm to “innocent investors . . . [or] innocent 

102 See, e.g., Mattingly L. Firm, P.C. v. Henson, 466 P.3d 590, 596 (Okla. Civ. App. 2019) 

(“We also acknowledge, however, that these concerns may be lessened or eliminated in the 

presence of particular facts, such as ‘where a corporation is controlled by a single 

shareholder [and] there are . . . no third-party shareholders to be unfairly prejudiced by 

disregarding the corporate form.’” (alteration in original) (citation omitted)). 

103 580 S.E.2d at 810–11; see also Comm’r of Env’t Prot. v. State Five Indus. Park, Inc., 

37 A.3d 724, 741 (Conn. 2012) (“Put differently, if an individual and a corporation are 

indistinguishable by virtue of the individual’s own acts, the corporate veil should be subject 

to piercing in either direction. Thus, both traditional piercing and reverse piercing attempt 

to rectify the same inequity . . . .”). 

104 C.F. Tr., 580 S.E.2d at 811. 
31

secured and unsecured creditors,” and that there are no other legal or equitable 

remedies “availab[le] . . . [for] the creditor [to] pursue.”105 

Similarly, in In re Phillips, the Supreme Court of Colorado determined that 

outside reverse veil-piercing claims must be permitted when justice so requires 

“[d]ue to the similarities and parallel goals achieved in outside reverse piercing and 

traditional piercing.”106 The court then clarified that, in evaluating reverse veilpiercing claims, courts must first make the traditional determinations of whether the 

subsidiary is an alter ego of the parent and whether the subsidiary is being used in 

perpetration of fraud or injustice.107 Then the court must assess whether there is an 

inequitable result that can be remedied by piercing.108 And finally, before 

authorizing the piercing, the court must consider whether innocent shareholders or 

creditors would be prejudiced as a result of the piercing.109 

105 Id.; see also Loomis, 8 P.3d at 847 (noting that “there are other equities to be considered 

in the reverse piercing situation—namely, whether the rights of innocent shareholders or 

creditors are harmed by the pierce”). 

106 139 P.3d 639, 645 (Colo. 2006) (“Due to the similarities and parallel goals achieved in 

outside reverse piercing and traditional piercing, we hold that Colorado law permits outside 

reverse piercing when justice so requires.”). 

107 Id. at 646. 

108 Id. 

109 Id. 
32

In the only case cited by the parties that purported to apply Delaware law,

Sky Cable, the court likewise acknowledged the risks of reverse veil-piercing and 

then addressed how limits on the doctrine would adequately manage those risks.110 

As with other courts that have adopted reverse veil-piercing, the Fourth Circuit 

found it difficult to justify an outright rejection of the doctrine when “the same 

considerations that justify [traditional] piercing [of] the corporate veil” are at work 

to justify a plaintiff’s request to “pierc[e] the veil in reverse.”111 In the traditional 

veil-piercing context, Delaware courts have forcefully stated that “Delaware has a 

powerful interest of its own in preventing the entities that it charters from being used 

as vehicles for fraud. Delaware’s legitimacy as a chartering jurisdiction depends on 

it.”112 With this in mind, the Sky Cable court noted that if reverse veil-piercing was

not available, such that an alter ego entity could not be held liable for its member’s 

debts under any circumstance, “fraudulent members could hide assets in plain sight 

to avoid paying a judgment.”113 To address this unacceptable outcome, the court 

held that where: (1) an LLC has a single member, (2) that LLC is the member’s alter 

ego, and (3) that member is using the LLC as a fraudulent shield against judgment 

110 Sky Cable, 886 F.3d at 387. 

111 Id. (alteration in original) (internal quotations omitted). 

112 NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 26 (Del. Ch. 2009). 

113 Sky Cable, 886 F.3d at 387. 
33

creditors, reverse veil-piercing is a tool available to the court to avoid fraud and 

injustice when other legal and equitable means are unavailing.114 

Delaware embraces and will protect “corporate separateness”115; but 

Delaware will not countenance the use of the corporate form as a means to facilitate 

fraud or injustice.116 Mindful of the need to balance these important policies, and 

taking the lead from First Flight, Phillips and Sky Cable, I am satisfied there is a 

place for a carefully circumscribed reverse veil-piercing rule within Delaware 

law.117 

114 Id. at 387–88. 

115 See NAMA Hldgs, LLC v. Related WMC LLC, 2014 WL 6436647, at *26 (Del. Ch. 

Nov. 17, 2014) (“Delaware law respects corporate separateness”); Pauley Petrol., Inc. v. 

Cont’l Oil Co., 231 A.2d 450, 454 (Del. Ch. 1967) (“[T]he law must and does respect the 

separateness of the corporate entity. . . .”). This notion of “corporate separateness” 

includes, of course, the presumptive understanding that “shareholders in a corporation are 

not liable for the obligations of the enterprise beyond the capital that they contribute in 

exchange for their shares.” Robert B. Thompson, Piercing the Corporate Veil: 

An Empirical Study, 76 Cornell L. Rev. 1036, 1039 (1991). 

116 NACCO Indus., 997 A.2d at 26; see also Martin v. D.B. Martin Co., 88 A. 612, 614 

(Del. Ch. 1913) (“[T]he fiction of a legal corporate entity should be ignored when it has 

been used as a shield for fraudulent or other illegal acts.”); Paul v. Univ. Motor Sales Co., 

278 N.W. 714, 720 (Mich. 1938) (noting that corporate separateness will be set aside if 

“the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, 

or defend crime,” in which cases “the law will regard the corporation as an association of 

persons” individually liable for the acts of the entity); cf. In re Massey Energy Co., 

2011 WL 2176479, at *20 (Del. Ch. May 31, 2011) (“Delaware law does not charter law 

breakers.”) 

117 Kingston, 31 F.2d at 267 (noting that the instances where reverse veil-piercing might be 

justified “must be extremely rare”). 
34

In defining the rule, I begin by stressing that I am not endorsing “insider” 

reverse veil-piercing.118 The rule stated here applies only to “outsider” reverse veilpiercing. Also at the threshold, it must be emphasized that, just like with traditional 

veil-piercing, reverse veil-piercing should be sanctioned only in the most 

“exceptional circumstances.”119 The framework outlined here to evaluate reverse 

veil-piercing claims comes with an express recognition that such claims, if not 

guided by appropriate standards, can threaten innocent third-party creditors and 

shareholders and lead to a host of unpredictable outcomes for these constituencies.

120 

Only in cases alleging egregious facts, coupled with the lack of real and substantial 

118 I note that commentators and courts take different views of insider reverse piercing. 

See David G. Epstein & Jake Weiss, The Fourth Circuit, “Suem” and Reverse Veil 

Piercing in Delaware, 70 S.C. Law Rev. 1189, 1207–08 (Summer 2019) (observing that 

most “courts and commentators” agree that inside reverse veil piercing is not sustainable 

since there is no equity to be served by “allowing a company’s veil to be pierced for the 

benefit of the individuals who themselves have created the company” (citation omitted)). 

But see Gregory S. Crespi, The Reverse Pierce Doctrine: Applying Appropriate Standards, 

16 J. Corp. L. 33, 69 (1990) (“Crespi”) (endorsing a rule that would allow “insider” reverse 

veil-piercing in limited circumstances). To be clear, I am not endorsing or rejecting

“insider” reverse veil-piercing because that claim is not implicated here. 

119 Vichi, 62 A.3d at 49. 

120 See Cascade, 896 F.2d at 1577; Crespi, at 64 (observing that outside reverse veilpiercing “will prevent the shareholders of a corporation from shielding corporate assets 

from claims against a controlling insider; as a result, the general expectations of investors 

that their corporations will be free from liability for claims against corporate insiders may 

be impaired,” thereby “reduc[ing] the usefulness of the corporate form as a vehicle for 

raising and deploying capital”); id. at *64–65 (noting that the “existing body of corporate 

disregard jurisprudence in the standard corporate creditor veil-piercing context is 

consequently [] more applicable here than in the insider reverse piercing context”). 
35

prejudice to third parties, should the court even consider utilizing the reverse veilpiercing doctrine.121 With prejudice to third-parties in mind and a framework 

designed to deal with such concerns, however, reverse veil-piercing can act as a 

deterrent to owners of companies, particularly those that are closely held, from 

shuffling their assets among their controlled entities with the express purpose of 

avoiding a judgment.

The natural starting place when reviewing a claim for reverse veil-piercing 

are the traditional factors Delaware courts consider when reviewing a traditional 

veil-piercing claim—the so-called “alter ego” factors that include insolvency, 

undercapitalization, commingling of corporate and personal funds, the absence of 

corporate formalities, and whether the subsidiary is simply a facade for the owner.

122 

The court should then ask whether the owner is utilizing the corporate form to 

perpetuate fraud or an injustice.123 This inquiry should focus on additional factors, 

including “(1) the degree to which allowing a reverse pierce would impair the 

legitimate expectations of any adversely affected shareholders who are not 

121 Sky Cable, LLC v. Coley, 2016 WL 3926492, at *1 (W.D. Va. July 18, 2016) (adopting 

reverse veil-piercing, in part, because “[t]he facts of [the] case [were] egregious”). 

122 See Doberstein, 2015 WL 6606484, at *4; see also Litchfield, 799 A.2d at 311 

(observing that “the direction of the piercing was immaterial where the general tests 

supporting it ha[ve] been met”). 

123 Doberstein, 2015 WL 6606484, at *4. 
36

responsible for the conduct of the insider that gave rise to the reverse pierce claim, 

and the degree to which allowing a reverse pierce would establish a precedent 

troubling to shareholders generally; (2) the degree to which the corporate entity 

whose disregard is sought has exercised dominion and control over the insider who 

is subject to the claim by the party seeking a reverse pierce; (3) the degree to which 

the injury alleged by the person seeking a reverse pierce is related to the corporate 

entity’s dominion and control of the insider, or to that person’s reasonable reliance 

upon a lack of separate entity status between the insider and the corporate entity; 

(4) the degree to which the public convenience, as articulated by [the Delaware 

General Corporation Law and Delaware’s common law], would be served by 

allowing a reverse pierce; (5) the extent and severity of the wrongful conduct, if any, 

engaged in by the corporate entity whose disregard is sought by the insider; (6) the 

possibility that the person seeking the reverse pierce is himself guilty of wrongful 

conduct sufficient to bar him from obtaining equitable relief”; (7) the extent to which 

the reverse pierce will harm innocent third-party creditors of the entity the plaintiff 

seeks to reach; and (8) the extent to which other claims or remedies are practically 

available to the creditor at law or in equity to recover the debt.124 Fundamentally, 

124 Crespi, at 68. I recognize that, as a practical matter, the consideration of whether the 

reverse pierce will cause harm to innocent third parties will substantially limit the 

doctrine’s application. See id. (“A review of the case law suggests that most, if not all, 

outsider reverse piercing claims will be denied if the above standards are reasonably 

applied regardless of the precise balance struck among the factors.”); see also id. at 69 
37

reverse veil-piercing, like traditional veil-piercing, is rooted in equity, and the court 

must consider all relevant factors, including those just noted, to reach an equitable 

result.125

Applying this framework, Delaware courts will be well-equipped to handle 

the varying concerns courts and commentators have rightfully expressed regarding 

reverse veil-piercing. The expectations of third-party creditors and investors will be 

well-protected.126 And the “public convenience” factor will require “the balancing 

of the social value of upholding the legitimate expectations of the affected corporate 

creditors or debtors, applying a rebuttable presumption in favor of assuring such 

expectations, against the importance of the policies served by allowing a reverse 

pierce under the particular circumstances involved.”127 

(“The proper scope of this equitable doctrine . . . would appear to be limited to closely held 

firms in which a single insider, or a small group of insiders acting in concert, holds all or 

virtually all economic claims.”). Borrowing from our “bad faith” jurisprudence in the 

fiduciary duty context, the case meeting this rigid framework for reverse veil-piercing can 

safely be classified as a “rare bird.” In re Chelsea Therapeutics Int’l Ltd. S’holders Litig., 

2016 WL 3044721, at *1 (Del. Ch. May 20, 2016) (describing a finding of bad faith as “a 

rara avis” or “rare bird” in the fiduciary duty context). Of course, the fact the doctrine will 

rarely be invoked by the court to reach assets does not suggest that it should be unavailable 

to aggrieved creditors in all instances as a matter of law. 

125 See C.F. Tr., 580 S.E.2d at 810. 

126 Cascade, 896 F.2d at 1577. 

127 Crespi, at 51. 
38

Plaintiffs’ Reverse Veil-Piercing Claim Is Well-Pled

After carefully reviewing the Complaint, I am satisfied this is one of those 

“exceptional circumstances” where a plaintiff has well pled a basis for reverse veilpiercing. It is at least reasonably conceivable that the SourceHOV Subsidiaries are 

alter egos of SourceHOV Holdings and that the subsidiaries have actively 

participated in a scheme to defraud or work an injustice against SourceHOV 

Holdings creditors, like Plaintiffs, by diverting funds that would normally flow to 

SourceHOV Holdings away from that entity to Exela. At this stage, from the well 

pled allegations in the Complaint, I see no innocent shareholders or creditors of the 

SourceHOV Subsidiaries that would be harmed by reverse veil-piercing, nor any 

potential alternative claims at law or in equity, as against the SourceHOV 

Subsidiaries or SourceHOV Holdings itself, that would for certain remedy the 

harm.128 

Beginning with the “alter ego” factors, as previously discussed, the Complaint 

well-pleads facts that allow a reasonable inference that SourceHOV Holdings is 

insolvent and that it is undercapitalized.129 The Complaint also pleads a reasonably 

conceivable basis to conclude that corporate formalities have not been maintained 

128 In other words, it is reasonably conceivable that reverse veil-piercing will be the only 

means by which Plaintiffs may collect the Appraisal Judgment. 

129 Compl. ¶¶ 8, 82, 84. 
39

since the Merger. As alleged, all of the Exela entities, including SourceHOV 

Holdings and the SourceHOV Subsidiaries, have overlapping personnel and 

directors130 and share the same offices;

131 many of the SourceHOV Subsidiaries do 

not have updated corporate registrations;

132 the entities have failed to maintain 

accurate or complete corporate records;

133 Exela must give its approval before 

SourceHOV Holdings can pay debts;

134 and all Exela-related entities have been 

collectively referred to as one Exela-controlled enterprise in SEC filings.

135 

Turning to the broader fraud or injustice inquiry, the question here is whether 

the subsidiaries are being used to perpetuate fraud or injustice against a judgment 

creditor of their parent. Certain of the SourceHOV Subsidiaries’ active participation 

in a potential fraudulent or unjust scheme, as pled, is evident with a glance at the 

First Tier Purchase and Sale Agreement associated with the A/R Facility.136 Under 

130 Compl. ¶¶ 78, 130 (“Shirkant Sortur on July 12, 2017, signed onto an agreement as 

authorized signatory for thirty-eight difference SourceHOV subsidiaries in connection with 

Exela’s $1.35 billion in financing . . . .”). 

131 Compl. ¶ 125. 

132 Compl. ¶ 126. 

133 Compl. ¶ 132. 

134 Compl. ¶ 133. 

135 Compl. ¶ 131. 

136 Compl. ¶ 138. 
40

this agreement, thirteen of the SourceHOV Subsidiaries sold their receivables to 

another one of Exela’s indirect subsidiaries.137 The Complaint alleges that the 

managers of these SourceHOV Subsidiaries knew about SourceHOV Holdings’ 

inadequate capitalization and, knowing that certain of their proceeds would 

otherwise go to the judgment creditors of SourceHOV Holdings, they actively 

“divert[ed] assets away from SourceHOV by pledging certain accounts receivable 

as collateral for a $160 million accounts receivable security facility.”138 

As mentioned in the discussion of traditional veil-piercing, discovery will bear out 

whether (or not) Plaintiffs accurately describe the mechanics and purpose of the 

A/R Facility in the Complaint. For now, accepting those allegations as true, it is 

reasonably conceivable that certain SourceHOV Subsidiaries used the A/R Facility 

to prevent their proceeds from going to SourceHOV Holdings’ judgment creditors. 

Specific allegations of intentional acts aimed at avoiding judgments through the use 

of legal constructs are sufficient to well plead fraud under traditional veil-piercing, 

and the review of such pled facts in support of a reverse veil-piercing claim is no 

different.139

137 Id. 

138 Compl. ¶ 28. 

139 Compagnie des Grands Hotels, 2019 WL 148454, at *5 (“Acts intended to leave a 

debtor judgment proof are sufficient to show fraud and injustice”). 
41

Finally, the Complaint well pleads a bases to infer that Plaintiffs will be able 

to satisfy the additional elements to sustain a reverse veil-piercing claim. I address 

them briefly in turn.

Impairment of expectations of adversely affected shareholders. The 

Complaint pleads no basis to infer that other owners of SourceHOV Holdings or the 

SourceHOV Subsidiaries will be adversely affected by reverse veil-piercing. The 

SourceHOV Subsidiaries indirectly are wholly owned by SourceHOV Holdings, 

which in turn is wholly-owned by Exela.140 Thus, all entities involved in the alleged 

scheme to starve SourceHOV Holdings of funds are connected by unified 

ownership.141 

The exercise of dominion and control and degree to which that caused 

Plaintiffs’ injury. According to the Complaint, Exela and certain of the

SourceHOV Subsidiaries agreed to the A/R Facility without the involvement or 

consent, and to the detriment of, the dormant SourceHOV Holdings.

142 This allows 

140 Compl. ¶¶ 82–84. 

141 Kingston, 31 F.2d at 267 (noting that reverse veil-piercing may be appropriate when the 

subsidiary “interpose[s] ... in the conduct of [the parent’s] affairs”); Compl. ¶ 138; OB at 1 

(“[SourceHOV Holdings] owns 100% of the membership interests of SourceHOV, LLC, 

which in turn owns several profitable portfolio companies.”). 

142 Compl. ¶ 28. 
42

a pleading-stage inference of dominion and control causing injury to Plaintiffs 

sufficient to justify reverse veil-piercing. 

The public convenience as articulated by the DGCL and Delaware 

Common Law. As noted at the outset, Delaware’s statutory appraisal scheme 

eliminated the minority stockholder’s common law right to prevent a merger and 

replaced it with a mandatory statutory right to obtain the fair value of what is to be 

taken from the minority stockholder via the merger (his shares) over his dissent. 

Plaintiffs allege, “Exela and SourceHOV have retained all of the benefits of the 

[Merger] at issue in the Appraisal Action without paying compensation for 

Plaintiffs’ dissenting shares and are using their corporate structure as a sham in an 

attempt to render SourceHOV ‘judgment proof.’”143 The Complaint then alleges 

that the scheme by which the SourceHOV Subsidiaries have agreed to channel funds 

directly to Exela is “fundamentally inequitable because Exela’s own financial 

statements recognize the [Appraisal] Judgment as ultimately Exela’s liability, given 

its 100% control over SourceHOV.”144 Reverse veil-piercing, in this circumstance, 

would serve the public convenience as expressed in Delaware’s appraisal statute. 

143 Compl. ¶ 2. 

144 Compl. ¶ 3 (emphasis in original). 
43

The extent of the wrongful activity. The Complaint well-pleads that Exela

and the SourceHOV Subsidiaries (with SourceHOV Holdings’ acquiescence) have 

initiated a scheme to ensure that Exela retains the significant value of Plaintiffs’ 

ownership in pre-Merger SourceHOV Holdings, interest taken over Plaintiffs’ 

dissent to the Merger, without paying a nickel for that equity. If true, this is the sort 

of wrongful conduct that justifies reverse veil-piercing.

Plaintiffs’ wrongful conduct. There is no basis in the Complaint to infer that 

Plaintiffs themselves have engaged in wrongful conduct that would disable them 

from calling upon equity to address their harm. They lawfully dissented to the 

Merger, properly sought statutory appraisal of their SourceHOV Holdings shares, 

prevailed at trial, prevailed on appeal, obtained a final judgment and diligently 

sought to execute on that judgment. 

Harm to innocent third-party creditors. There is no basis in the Complaint 

to infer that reverse veil-piercing will cause harm to innocent third-party creditors. 

In this regard, Defendants argue that because the SourceHOV Subsidiaries are 

primary obligors on certain debt at a level above SourceHOV Holdings, those debt 

holders will be prejudiced if SourceHOV Holdings’ judgment creditors can hold 

those subsidiaries liable for the Appraisal Judgment.

145 To be clear, factual 

145 Defs.’ Reply Br. in Supp. of Mot. to Dismiss the Verified Compl. (D.I. 17) at 10. 
44

allegations related to SourceHOV Holdings’ or the SourceHOV Subsidiaries’ thirdparty creditors are not in the Complaint, and for now at least, my analysis is confined 

to the “four corners” of that pleading.146 

Other claims or remedies at law or equity. As for the existence of other 

claims or remedies, it does not appear that other remedies exist to serve the ultimate 

purpose the reverse veil-piercing claim is meant to serve here: to enforce the 

Charging Order held against SourceHOV Holdings. While certain jurisdictions 

consider the availability of “conversion, fraudulent conveyance of assets, respondeat 

superior and agency law” as relevant when considering this factor, no such argument 

has been developed here apart from a reference to the existence of such remedies in 

other jurisdictions.

147 In any event, it is not clear at this nascent stage of the 

proceedingsthat enforcement of the properly placed Charging Order can be achieved 

through means other than reverse veil-piercing. With that said, it may well be that 

Defendants will be able to demonstrate that traditional judgment collection measures 

are adequate and that reverse piercing, therefore, would be unnecessarily extreme 

146 Malpiede, 780 A.2d at 1090; see also Savor, 812 A.2d at 896–97 (noting that the trial 

court may not speculate as to facts that may be developed in discovery when adjudicating 

a motion to dismiss the complaint). 

147 Floyd, 151 F.3d at 1299; OB at 20. 
45

and inappropriate.148 But, for now, I see no reason to dismiss the claim on the basis

that some other (as yet to be identified) means to collect the Appraisal Judgment 

may be available to Plaintiffs.

149 

The Charging Order Does Not Prohibit Reverse Veil-Piercing

Section 18-703(d) provides that when a judgment creditor obtains a charging 

order with respect to a member’s LLC interests, that order functions as the exclusive 

remedy by which the judgment creditor may satisfy its judgment.

150 The statute 

explicitly prohibits a judgment creditor from pursuing claims for “attachment, 

garnishment, foreclosure or other legal or equitable remedies” against the judgment 

148 Cascade, 896 F.2d at 1577 (expressing concerns about using reverse veil-piercing to 

“bypass[] normal judgment-collection procedures”). 

149 I note that courts and commentators have focused on a number of other concerns that 

have no bearing on reverse veil-piercing’s application in this case, so I need not address 

them. First, some argue that reverse veil-piercing is not appropriate when the plaintiff is a 

voluntary contractual creditor rather than a judgment creditor. Floyd, 151 F.3d at 1299–

1300. Here, Plaintiffs are judgment creditors. Second, some argue that a reverse veilpiercing plaintiff should not get to attach a corporation’s assets directly and then force a 

sale of those assets. Id. at 1299 (“[T]hird parties may be unfairly prejudiced if the 

corporation’s assets can be attached directly.”). Plaintiffs have not sought a forced sale of 

any of the SourceHOV Subsidiaries or any of their assets. Third, there is a concern that 

innocent shareholders will be prejudiced if reverse veil-piercing is permitted in cases where 

the judgment debtor merely controls rather than owns shares in the company to be reached 

by the pierce. Ariella M. Lvov, Preserving Limited Liability: Mitigating the Inequities of 

Reverse Veil Piercing with A Comprehensive Framework, 18 U.C. Davis Bus. L.J. 161, 

179 (2018). This case regards ownership not mere control. 

150 6 Del. C. § 18-703(d). 
46

debtor’s interest in the LLC.151 The canon of construction, ejusdem generis, 

provides that “where general language follows an enumeration of persons or things, 

by words of a particular and specific meaning, such general words are not to be 

construed in their widest extent, but are to be held as applying only to persons or 

things of the same general kind or class as those specifically mentioned.”152 

So construed, the phrase “other legal or equitable remedies” in Section 18-703(d) is 

modified by the specific list of remedies mentioned before that phrase. And the 

remedies listed “involve traditional common law actions by which a creditor may 

seize particular property of a debtor.”153 

This construction makes perfect sense; each of the enumerated remedies are 

other means by which to force the judgment debtor to pay a creditor’s judgment and, 

thus, would be displaced by the exclusive statutory remedy of the charging order. 

The reverse veil-piercing claim, as asserted here, does not rest on or invoke a remedy 

other than the charging order; it, instead, seeks a judicially sanctioned expansion of 

the entities against whom the Charging Order may be enforced. In other words, if 

the court determines that the SourceHOV Subsidiaries fall under the purview of the 

151 Id. 

152 Aspen Advisors LLC v. United Artists Theatre Co., 861 A.2d 1251, 1265 (Del. 2004) 

(citation omitted). 

153 Sky Cable, 886 F.3d at 388. 
47

Charging Order, then Plaintiffs’ only remedy against those entities would still be 

enforcement of the Charging Order. Any attempt to pursue separate legal or 

equitable claims, or to seek attachment, garnishment or foreclosure against any one 

of those entities would be barred by statute. 

The implication of a successful reverse veil-piercing claim here, as pled, is 

that the SourceHOV Subsidiaries are alter egos of SourceHOV Holdings and that 

“the ultimate part[ies] in interest, the [subsidiaries], [should] be regarded in law and 

fact as the sole party in a particular transaction.”154 If Section 18-703(d)–(e)

prevented the application of reverse veil-piercing, judgment debtors, their parents 

and their subsidiaries would be incentivized to facilitate the movement of funds from 

parent to subsidiary, and perhaps back again, to avoid a judgment against the entity 

in between.

155 There is no basis to conclude the General Assembly intended that 

result when it enacted the charging order statute. 

E. Plaintiffs’ Unjust Enrichment Claim Fails to State a Claim 

Unjust enrichment is defined as “the unjust retention of a benefit to the loss 

of another, or the retention of money or property of another against the fundamental 

154 Pauley Petrol. Inc. v. Cont’l Oil Co., 239 A.2d 629, 633 (Del. 1968). 

155 Sky Cable, 886 F.3d at 389. 
48

principles of justice or equity and good conscience.”156 Plaintiffs allege Exela was 

enriched by obtaining all of SourceHOV Holdings assets without paying full 

compensation by virtue of the failure to pay for Plaintiffs’ dissenting shares.157 They

further allege SourceHOV Holdings’ failure to pay the approximately $57 million 

Appraisal Judgment resulted in an impoverishment to Plaintiffs because that was 

money owed to them as the fair value of the property that has been taken from 

them.158 

For its part, Exela argues that it was not enriched, but rather impoverished, as 

a result of the Merger, the Appraisal Action and the Appraisal Judgment.

159 More 

relevant here, Exela also argues that Plaintiffs unjust enrichment claim fails because 

they have an adequate (and exclusive) remedy in the form of the Charging Order

against SourceHOV Holdings.

160 On this latter point, I agree. 

156 Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del.1988); see also 

Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010) (laying out the elements of unjust 

enrichment). 

157 Compl. ¶ 65. 

158 Compl. ¶ 71. 

159 OB at 24–25 (maintaining that the Merger was not accretive, and that the Appraisal 

Action and Appraisal Judgment have only exacerbated the losses). 

160 OB at 24–26. 
49

Plaintiffs cite Mehta v. Smurfit-Stone Container Corp. in support of their 

unjust enrichment claim.161 There, a shareholder who notified the company it would 

seek statutory appraisal of its shares in dissent of a merger ultimately failed to perfect 

its appraisal rights in the statutorily required 120-day period.162 Notwithstanding the 

failure to seek appraisal, Rock-Ten withheld the merger consideration from the 

plaintiff, arguing the stockholder made its election and yet failed to execute on its 

appraisal right through no fault of the company.

163 The court held the denial of 

merger consideration to the plaintiffs amounted to an enrichment of Rock-Ten 

because it received the full benefit of its bargain by merging with Smurfit-Stone, yet 

had not paid the full price it agreed to pay (by withholding consideration to the 

dissenting shareholders).164 

Unlike in Mehta, where the plaintiff might not have had any legal claim or 

remedy by which to recover the merger consideration owed to it, Plaintiffs have an 

adequate remedy in the form of the Appraisal Judgment and Charging Order. That

order provides that, to the extent any dollar flows through SourceHOV Holdings by 

distribution from a subsidiary, it must first be paid to Plaintiffs before flowing up to 

161 2014 WL 5438534, at *4 (Del. Ch. Oct. 20, 2014). 

162 Id. 

163 Id. at *5. 

164 Id. 
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Exela. Plaintiffs argue the Charging Order clearly is not adequate because the 

judgment has not yet been paid. But, in this context, that is not what adequacy 

means. “[T]o be ‘adequate,’ a [] remedy must be available as a matter of right, be 

full, fair and complete, and be as practical to the ends of justice and to prompt 

administration as the remedy in equity.”165 A charging order, as a remedy, was 

practically available to Plaintiffs and they, in fact, sought and received that remedy. 

The fact the Charging Order has yet to deliver satisfaction does not mean it is legally 

inadequate. 

Moreover, the charging order statute declares that the charging order is the 

judgment creditor’s exclusive remedy under the circumstances.166 The unjust 

enrichment claim is not merely an action to expand the Charging Order’s application 

to other entities, as is the case with the veil-piercing claims; it is a claim that, if 

successful, will side-step the Charging Order completely as a means to obtain a new 

judgment on a new claim. The “exclusive remedy” language of the statute prevents 

that result. Accordingly, Plaintiffs’ unjust enrichment claim must be dismissed. 

165 Travelers Cas. & Sur. Co. of Am. v. Colonial Sch. Dist., 2001 WL 287482, at *3 

(Del. Ch. Mar. 16, 2001) (citation omitted). 

166 6 Del. C. § 18-703(d); see also 6 Del. C. § 18-703(e) (“No creditor of a member or of a 

member's assignee shall have any right to obtain possession of, or otherwise exercise legal 

or equitable remedies with respect to, the property of the limited liability company.”). 
51

III. CONCLUSION

For the foregoing reasons, the Motion to Dismiss is GRANTED as to Count I 

but DENIED as to Count II. 

IT IS SO ORDERED.