Court Opinion

ID: 9962867
Source: CourtListenerOpinion
Date Created: 2024-04-23 21:03:04.425842+00
Date Added: 2024-06-11T08:19:54.206626
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

DNARx LLC, a Delaware limited             §
liability company,                        §
                                          § No. 123, 2024
       Defendant Below,                   §
       Appellant,                         § Court Below—Court of Chancery
                                          § of the State of Delaware
       v.                                 §
                                          § C.A. Nos. 2022-0968
CHRISTOPHER KAUFMAN,                      §            2022-0982
                                          §
       Plaintiff Below,                   §
       Appellee.                          §

                             Submitted: April 12, 2024
                             Decided:   April 23, 2024

Before VALIHURA, TRAYNOR, and LEGROW, Justices.

                                    ORDER

      After consideration of the notice of voluntary dismissal and responses, it

appears to the Court that:

      (1)    In October 2022, plaintiff below-appellee Christopher Kaufman filed

two actions against defendant below-appellant DNARx LLC in the Court of

Chancery. In C.A. No. 2022-0968, Kaufman sought inspection of DNARx’s books

and records under 6 Del. C. § 18-305 (“Documents Action”). In C.A. No. 2022-

0982, Kaufman sought a declaratory judgment regarding loans made to DNARx

under 6 Del. C. § 18-111 (“Loans Action”).
         (2)    On March 22, 2023, after two law firms retained by DNARx withdrew

and DNARx failed to retain new counsel, the Court of Chancery entered default

judgment against DNARx in the Documents Action and appointed a receiver to

ensure DNARx’s production of books and records. The court also found DNARx in

contempt for engaging in discovery and litigation misconduct.

         (3)    In July 2023, new counsel entered his appearance on behalf of DNARx

in the Records Action and the Loans Action. The Court of Chancery held a one-day

trial in the Loans Action on November 17, 2023. Following Kaufman’s testimony,

the parties’ counsel made arguments addressing the merits of the Loans Action and

Kaufman’s request for sanctions for DNARx’s litigation misconduct in the

Documents Action and the Loans Action.

         (4)    On December 29, 2023, the court entered its post-trial opinion in favor

of Kaufman in the Loans Action.1 That same day the court entered an order finding

DNARx “in contempt for repeated and egregious misconduct in the Documents

Action and the Loans Action.”2 As a sanction, the court ordered the dissolution of

DNARx and the appointment of a receiver, serving as a liquidating trustee, to wind

up DNARx’s affairs.          The court noted that, if the receiver appointed in the

1
    Kaufman v. DNARx LLC, 2023 WL 9060288 (Del. Ch. Dec. 29, 2023).
2
    Kaufman v. DNARx LLC, 2023 WL 9052704, at *1 (Del. Ch. Dec. 29, 2023).

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Documents Action was willing to serve in this role, he should submit an appropriate

form of order.

       (5)     On January 8, 2024, the receiver in the Loans Action submitted a

proposed form of order appointing him as the receiver to oversee DNARx’s

liquidation and winding up (the “Receiver”). The proposed order provided, among

other things, for the Receiver to “have the power to commence, continue, join in

and/or control any action, suit or proceeding, of any kind or nature, in the name of”3

DNARx and “to initiate, prosecute, defend, settle or dismiss any and all litigation

by, on behalf of, or against DNARx.”4 The order further provided that DNARx

could not “file or otherwise pursue any litigation or proceeding on behalf of”

DNARx in any forum or hire any attorney for DNARx without the approval of the

Receiver or by further order of the Court of Chancery.5

       (6)     In the letter accompanying the proposed order, the Receiver stated that

Kaufman’s counsel had approved the proposed order. DNARx’s counsel was copied

on the letter. DNARx did not file any objections to the letter. On January 17, 2024,

the Court of Chancery granted the order (“Liquidation Receiver Order”).

       (7)     On January 18, 2024, Kaufman’s counsel submitted a proposed form of

order implementing the court’s December 29, 2023 rulings.                  The letter

3
  Ex. A to Notice of Voluntary Dismissal § 2(a)(vi), D.I. No. 7.
4
  Id. § 2(d)(iii)(3).
5
  Id. § 3(i), (k).

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accompanying the proposed order copied DNARx’s counsel and the Receiver. On

February 22, 2024, the Receiver asked the court to enter the proposed order as

unopposed because DNARx’s counsel had not filed any objections.                Shortly

thereafter, the court granted the order (“Final Order”).

         (8)     On March 21, 2024, DNARx’s trial counsel filed this appeal from the

Final Order on behalf of DNARx. On March 22, 2024, the Receiver filed a notice

of voluntary dismissal under Supreme Court Rule 29(a) on behalf of DNARx. Rule

29(a) allows an appellant to dismiss its appeal voluntarily any time before the filing

of the appellee’s brief. Relying on the terms of the Liquidation Receiver Order, the

Receiver argues that the appeal was filed without his authorization or consent and

that he has the authority to dismiss the appeal.

         (9)     At the Court’s request, DNARx’s trial counsel responded to the

Receiver’s position. DNARx’s trial counsel dismisses the Receiver’s reasoning as

“circular because the Receiver’s authority itself springs from a trial court order that

is appealable.”6 He argues that DNARx has a right to appeal and that the Receiver

is not incentivized to appeal an order creating his authority. DNARx’s trial counsel

warns that, “[i]f an entity like DNARx loses at trial, and faces an involuntary

6
    Response to Receiver’s Assertion of Authority at 2, D.I. 11.

                                                  4
liquidation and the appointment of a liquidating receiver, confining the appellate

rights to the receiver would frustrate any appeal.”7

         (10) In response, the Receiver emphasizes that DNARx could have pursued

interlocutory review of the December 29, 2023 sanctions order or filed objections to

the proposed forms of the Liquidation Receiver Order or the Final Order, but did not

do so. Nor did DNARx seek a stay of the Liquidation Receiver Order or the Final

Order pending appeal. According to Kaufman, it appears as though DNARx’s

counsel is pursuing this appeal on behalf of DNARx’s former manager, who has

been removed from all of his positions with DNARx and no longer has any authority

to file litigation or hire an attorney on behalf of DNARx under the Liquidation

Receiver Order.

         (11) Having considered the parties’ positions, we conclude that the Receiver

has the authority to dismiss this appeal.       The Receiver’s authority under the

Liquidation Receiver Order includes the power “to initiate, prosecute, defend, settle

or dismiss any and all litigation by, on behalf of, or against DNARx.”8 DNARx’s

trial counsel does not argue that dismissal of an appeal falls outside the scope of this

language. In addition, the Liquidation Receiver Order provides that DNARx cannot

“file or otherwise pursue any litigation or proceeding on behalf of” DNARx in any

7
    Id.
8
    See supra n.4.

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forum without the approval of the Receiver or by further order of the Court of

Chancery.9 DNARx’s trial counsel does not claim that either requirement was

satisfied before he filed this appeal.

       (12) Instead, DNARx’s trial counsel argues that restricting an involuntarily

dissolved entity’s appellate rights to a court-appointed receiver would frustrate any

appeal and deprive the entity of its appellate rights. But DNARx failed to take any

steps to protect its ability to pursue an appeal based on the wishes of its former

manager instead of the Receiver. DNARx did not seek interlocutory review of the

December 29, 2023 rulings, oppose the terms of the Liquidation Receiver Order or

the Final Order, or request inclusion of a carveout for its trial counsel to pursue an

appeal. Most importantly, DNARx did not seek a stay of the Liquidation Receiver

Order or the Final Order pending appeal. In the absence of a stay pending appeal,

the terms of the Liquidation Receiver Order, which include the Receiver’s power to

dismiss any litigation by or on behalf of DNARx, and the Final Order are

enforceable.10 Thus, under the circumstances of this case, the Receiver has the

9
  See supra n.5.
10
   See Del. Const. Art. IV, § 24 (providing that an appeal does not stay the trial court judgment
unless sufficient security is posted); DiSabatino v. Salicete, 681 A.2d 1062, 1066 (Del. 1996)
(“The filing of an appeal from a judgment of a trial court does not stay or suspend the enforcement
of that judgment unless the appellant satisfies certain procedural conditions.”); Schmidt v. Schmidt,
610 A.2d 1374, 1377 (Del. 1992) (recognizing that absent a stay or injunction pending appeal a
trial court’s judgment is enforceable against the appellant).

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authority to file a notice of voluntarily dismissal on behalf of DNARx.

      NOW, THEREFORE, IT IS ORDERED, that this appeal is DISMISSED.

                                      BY THE COURT:

                                      /s/ Gary F. Traynor
                                            Justice

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