Opinion ID: 2394569
Heading Depth: 1
Heading Rank: 3

Heading: The Lesh Action

Text: On May 20, 2005, Lesh, unilaterally commenced the Lesh Action in the Superior Court of Delaware, New Castle County, C.A. 05C-05-218, on his own behalf as a shareholder, and on behalf of certain other shareholders as a Shareholder Representative. On August 8, 2005, the defendants in the Lesh Action moved to dismiss Lesh's complaint under Rule 12(b)(6). Besides arguing that Lesh's allegations of breach of contract and common law and statutory fraud were deficient, the defendants asserted that the plain terms of the Merger Agreement and the SRA precluded Lesh's standing: (i) as an individual shareholder of Appriva, because the shareholders had irrevocably relinquished the right to act independently and other than through the Shareholder Representatives in bringing an action under the Agreement, and (ii) as a Shareholder Representative, because Lesh did not act jointly and together with van der Burg in filing the Lesh Action. In an opinion dated June 15, 2006, a Superior Court judge granted the defendants' motion to dismiss the Lesh Action. [2] The Superior Court held that Lesh, as the party invoking the jurisdiction of a court, has the burden of proof and persuasion as to the existence of standing, and that Lesh fell far short of carrying his burden demonstrating that he has standing to sue either as a shareholder representative or in his individual capacity. The Superior Court explained: The Merger Agreement, explicitly and unambiguously states that Lesh and van der Burg are to jointly act as the agent for all shareholders with respect to the taking of any and all actions and the making of any decisions required or permitted to be taken by the Shareholders' Agent under the Merger Agreement. The claims asserted in this action arise under the Merger Agreement. Therefore, the Court finds that Lesh cannot sue as a shareholder representative without van der Burg. Moreover, the Court finds that Lesh cannot sue in his individual capacity. At the hearing, Lesh never claimed that the Defendants fraudulently induced him to agree specifically to Section 1.1(c) of the SRA or Section 15.5 of the Merger Agreement. Rather, he claimed that the entire document was the product of fraudulent behavior and that but for the fraud the Agreements would not have been entered. In short, the Court finds that the claim of fraud actually bears upon the entire agreement and upon the activities of the Defendants' in general, not upon a particular clauses within the Merger Agreement or the SRA. On June 28, 2006, Lesh filed a motion for reargument, asserting that the Superior Court had erroneously held that Lesh's pleading of a contract claim was fatal to his ability, or standing, to assert the tort/fraud claims individually. By order dated October 31, 2006, the Superior Court denied Lesh's motion for reargument, explaining that it did not grant Defendants' motion because Plaintiff's pleadings contained `alternate theories,' but rather because [t]he documents that control the rights of the former Shareholders of Appriva Medical, Inc. and that govern the authority of the Shareholder Representatives preclude Plaintiff from establishing standing. [3] The Superior Court reasoned: The Shareholder Representatives, Lesh and van der Burg, were fully empowered by the Shareholder Representative Agreement (SRA). However, both the [Merger] Agreement and the SRA prohibit Lesh from acting independently from van der Burg. As Lesh and van der Burg each filed his own lawsuit, the Shareholder Representatives have not acted jointly as authorized by the Agreement and SRA. Thus, after a careful review of this matter, the Court determines that it will not hear reargument limited to the issue of Plaintiff's standing to sue in his individual capacity. Relying upon Sections 15.5 of the Agreement and Sections 1.1(a)-(c) and 2.3 of the SRA, the Superior Court concluded that [t]he former Shareholders of Appriva, including Lesh, irrevocably relinquished and irrevocably and exclusively delegated their rights to act independently in bringing claims under the Agreement.