Court Opinion

ID: 4661385
Source: CourtListenerOpinion
Date Created: 2021-02-18 22:02:30.556685+00
Date Added: 2024-06-11T08:02:13.021574
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

 DANIEL J. RISKIN, M.D.,               §
                                       § No. 31, 2021
         Plaintiff Below,              §
         Appellant,                    § Court Below: Court of Chancery
                                       § of the State of Delaware
         v.                            §
                                       § C.A. No. 2019-0570
 BRENTON BURNS; MARY BETH              §
 JENKINS; RAYMOND SCOTT;               §
 JOHN STEPHEN WHITEHURST;              §
 SCOTT HUEBNER; JOHN                   §
 KUZMISHIN; FRED SCHWARZER;            §
 CRAIG GOMULKA; UNIVERSITY             §
 OF PITTSBURGH MEDICAL                 §
 CENTER, a Pennsylvania                §
 corporation; CHARTER LIFE             §
 SCIENCES (OHIO) II, L.P., a           §
 Delaware limited partnership;         §
 CHARTER LIFE SCIENCES II, L.P.,       §
 a Delaware limited partnership; CLS   §
 PARTNERS II (OHIO), LLC, a            §
 Delaware limited liability company;   §
 CLS PARTNERS II, L.P., a Delaware     §
 limited partnership; and CLS          §
 MANGEMENT II, LLC, a Delaware         §
 limited liability company,            §
                                       §
         Defendants Below,             §
         Appellees.                    §

                        Submitted: January 29, 2021
                        Decided: February 18, 2021

Before SEITZ, Chief Justice; VALIHURA and MONTGOMERY-REEVES,
Justices.

                                 ORDER
          After consideration of the notice of appeal from an interlocutory order and the

documents attached thereto, it appears to the Court that:

          (1)     The appellant, Daniel J. Riskin, M.D. (the “plaintiff”), has petitioned

this Court, pursuant to Supreme Court Rule 42, to accept an appeal from the Court

of Chancery’s memorandum opinion dated December 31, 2020.1 Specifically, the

plaintiff seeks review of the portion of the opinion that dismissed a direct claim for

breach of fiduciary duty relating to a corporate financing transaction.

          (2)     The claim at issue involved a transaction in which Health Fidelity, Inc.,

a Delaware corporation of which the plaintiff is a common stockholder and co-

founder, issued preferred stock to an alleged controlling stockholder at an unfair

price (the “Series B Financing”). The plaintiff pleaded the claim both directly and

derivatively, and the defendants moved to dismiss the direct claim. The plaintiff

argued that the claim could be asserted both derivatively and directly under Gentile

v. Rossette2 because the Series B Financing increased the controlling stockholder’s

1
    Riskin v. Burns, 2020 WL 7973803 (Del. Ch. Dec. 31, 2020).
2
    906 A.2d 91 (Del. 2006). In Gentile, the Court wrote:
                  There is, however, at least one transactional paradigm—a species of
          corporate overpayment claim—that Delaware case law recognizes as being both
          derivative and direct in character. A breach of fiduciary duty claim having this dual
          character arises where: (1) a stockholder having majority or effective control causes
          the corporation to issue “excessive” shares of its stock in exchange for assets of the
          controlling stockholder that have a lesser value; and (2) the exchange causes an
          increase in the percentage of the outstanding shares owned by the controlling
          stockholder, and a corresponding decrease in the share percentage owned by the
          public (minority) shareholders. Because the means used to achieve that result is an
          overpayment (or “over-issuance”) of shares to the controlling stockholder, the
                                                    2
economic stake and voting power and effected a corresponding decrease in the

economic value and voting power of Health Fidelity’s minority stockholders. The

Court of Chancery held that the claim is derivative, and not direct, in nature. It

therefore dismissed the count of the operative complaint that asserted the claim

directly.3

       (3)     The plaintiff asked the Court of Chancery to certify an interlocutory

appeal. The Court of Chancery denied the application for certification.4 The court

determined that, by dismissing the direct claim, the opinion decided a substantial

issue of material importance.5 The Court of Chancery determined that Supreme

Court Rule 42(b)(iii)(B) supported the plaintiff’s application because “the Gentile

         corporation is harmed and has a claim to compel the restoration of the value of the
         overpayment. That claim, by definition, is derivative.
                 But, the public (or minority) stockholders also have a separate, and direct,
         claim arising out of that same transaction. Because the shares representing the
         “overpayment” embody both economic value and voting power, the end result of
         this type of transaction is an improper transfer—or expropriation—of economic
         value and voting power from the public shareholders to the majority or controlling
         stockholder. For that reason, the harm resulting from the overpayment is not
         confined to an equal dilution of the economic value and voting power of each of
         the corporation’s outstanding shares. A separate harm also results: an extraction
         from the public shareholders, and a redistribution to the controlling shareholder, of
         a portion of the economic value and voting power embodied in the minority interest.
         As a consequence, the public shareholders are harmed, uniquely and individually,
         to the same extent that the controlling shareholder is (correspondingly) benefited.
         In such circumstances, the public shareholders are entitled to recover the value
         represented by that overpayment—an entitlement that may be claimed by the public
         shareholders directly and without regard to any claim the corporation may have.
Id. at 99-100 (footnotes omitted).
3
  Riskin, 2020 WL 7973803, at *12-14.
4
  Riskin v. Burns, 2021 WL 303999 (Del. Ch. Jan. 29, 2021).
5
  Id. at *1.
                                                  3
doctrine is in flux and . . . our law could benefit from clarity concerning its

continuing vitality.”6 It also determined that interlocutory review would serve

considerations of justice under Rule 42(b)(iii)(H), for similar reasons.7 But the court

concluded that the benefits of interlocutory review would not outweigh the costs

because the court had determined that the plaintiff could pursue the claim concerning

the Series B Financing derivatively and, thus, “[a]t most, a successful interlocutory

appeal would add back overlapping direct claims for the same alleged breaches of

fiduciary duties.”8 The court also observed that the case “is already proceeding

piecemeal,” the defendants’ motions to dismiss are not fully resolved, and the nature

of the case would make it “difficult to neatly tee up resolution of an issue related to

an evolving area of law.”9

       (4)    We agree that interlocutory review is not warranted in this case.

Applications for interlocutory review are addressed to the sound discretion of this

Court.10 In the exercise of its discretion and giving great weight to the trial court’s

view, this Court has concluded that the application for interlocutory review does not

meet the strict standards for certification under Supreme Court Rule 42(b).

Exceptional circumstances that would merit interlocutory review of the Court of

6
  Id.
7
  Id. at *2.
8
  Id.
9
  Id.
10
   DEL. SUPR. CT. R. 42(d)(v).
                                          4
Chancery’s decision do not exist in this case,11 and the potential benefits of

interlocutory review do not outweigh the inefficiency, disruption, and probable costs

caused by an interlocutory appeal.12

          NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is

REFUSED.

                                             BY THE COURT:

                                             /s/ Collins J. Seitz, Jr.
                                                   Chief Justice

11
     Id. R. 42(b)(ii).
12
     Id. R. 42(b)(iii).
                                         5