Court Opinion

ID: 6117426
Source: CourtListenerOpinion
Date Created: 2022-02-03 19:02:24.969451+00
Date Added: 2024-06-11T08:22:14.072159
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE FORUM MOBILE, INC.          )      C.A. No. 2020-0346-JTL

                                  OPINION

                       Date Submitted: December 10, 2021
                        Date Decided: February 3, 2022

Jeremy D. Anderson, FISH & RICHARDSON P.C., Wilmington, Delaware; Attorney for
Petitioner

Mark Gentile, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Court-
Appointed Amicus Curiae.

LASTER, V.C.
       Petitioner Synergy Management Group LLC (“Synergy”) seeks to have its president

appointed as a custodian for respondent Forum Mobile, Inc. (“Forum” or the “Company”),

a defunct Delaware corporation. Synergy relies on Section 226(a)(3) of the Delaware

General Corporation Law (the “DGCL”), which provides that “[t]he Court of Chancery,

upon application of any stockholder, may appoint 1 or more persons to be custodians . . .

of and for any corporation when . . . [t]he corporation has abandoned its business and has

failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets.”

8 Del. C. § 226(a)(3).

       The Company’s only value lies in the fact that its shares continue to have a CUSIP

number that allows them to trade over the counter.1 Synergy seeks to revive Forum to use

as a blank check company. Through a reverse merger with Forum, a new business could

access the public markets.

       Since 2002, Delaware decisions have enforced a public policy against permitting

capital markets entrepreneurs to use sections of the DGCL to revive defunct Delaware

entities with still extant listings and use them as vehicles to access the public markets. That

policy counseled in favor of denying the application. Mindful that the policy was adopted

       1
         “CUSIP stands for Committee on Uniform Securities Identification Procedures. A
CUSIP number identifies most financial instruments, including: stocks of all registered
U.S. and Canadian companies, commercial paper, and U.S. government and municipal
bonds. The CUSIP system . . . facilitate[s] the clearance and settlement process of
securities. [The] number[] consist[s] of nine characters . . . that uniquely identify a
company or issuer and the type of financial instrument.” U.S. Sec. & Exch. Comm’n,
CUSIP Number, http://www.sec.gov/answers/cusip.htm (last visited Feb. 3, 2022).
two decades ago, and dimly aware of potentially intervening developments in the federal

securities laws, the court appointed an amicus curiae to consult with the United States

Securities and Exchange Commission (the “SEC”) regarding the petition and make a

recommendation as to whether the court should grant it.

       The SEC took no position on the petition. The policy that this court has enforced in

prior cases therefore provides no basis for denying the petition in this case.

       The court therefore must determine whether to grant the petition. Unfortunately for

Synergy, the plain language of Section 226(b) of the DGCL limits the charge of a custodian

appointed under Section 226(a)(3) to winding up the affairs of the corporation and

terminating its existence. Section 226(b) does not contemplate that a custodian appointed

under Section 226(a)(3) could revivify a corporation. Instead, Section 226(b) provides that

when a corporation has abandoned its business such that a custodian is required, then the

time has come for the corporation’s existence to end. This decision therefore denies

Synergy’s petition.

                           I.     FACTUAL BACKGROUND

       The facts are drawn from submissions in the case. The facts also take into account

publicly available information.

A.     The Company

       The Company was incorporated in Delaware on June 21, 1995. During its existence,

the Company has had five distinct entity names and five quite distinct corporate identities.

                                              2
        From June 21, 1995 to June 28, 1999, the Company was named Newmarket

Strategic Development Corp. That incarnation of the Company appears to have issued

shares to the public in 1995.

        In 1999, the Company was the surviving entity in a merger with Reink Corp. After

the merger, the Company adopted Reink Corp. as its name. In that incarnation, the

Company described itself as “an established manufacturer and marketer of environmentally

conscious quality aftermarket ink products for the imaging consumables market.”2

        By early 2004, the Company had “ceased operations and expect[ed] to remain

inactive until additional financing which will enable us to restart operations or acquire an

existing business is obtained.”3 In March 2004, the Company changed its name to Adsero

Corp.

        In January 2005, while operating as Adsero Corp., the Company acquired Teckn-

O-Laser Inc. and Tecknolaser USA Inc. In that incarnation, the Company engaged in the

business of “manufactur[ing] and distribut[ing] remanufactured toner cartridges and inkjet

cartridges.”4 In November 2006, the Company was notified that it “was being removed

from quotation on the Over-The-Counter Bulletin Board . . . due to [its] failure on three

        2
         See Reink Corp., Registration of Securities of Small business Issuers Under
Section 12(b) or 12(G) of the Securities Act of 1934 (Form 10-SB) 3 (Feb. 12, 2001).
        3
        Adsero Corp, Annual Report Under Section 13 or 15(D) of the Securities Exchange
Act of 1934 (Form 10-KSB) 2 (Apr. 26, 2004).
        4
       Adsero Corp, Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Form 10-QSB) 8 (May 24, 2006).

                                             3
separate occasions within a two year period, to make timely filings of [its] quarterly and

annual reports.”5

       On May 14, 2008, the Company made its last filing with the SEC, a Form 15

“Certification and Notice of Termination of Registration Under Section 12(g) of the

Securities Exchange Act of 1934.”6 That filing indicated that the Company had terminated

its public registration under Rule 12g-4(a)(1) for failure to maintain at least 300

stockholders of record. See 17 C.F.R. § 240.12g-4(a)(1). That same month, the Company

changed its name to Quantum Telecom Inc. Under that moniker, the Company primarily

engaged “in the business of computer [and] office equipment.”7

       On September 5, 2012, Quantum Telecom changed its named to Forum Mobile, Inc.

In that incarnation, the Company described itself as a “global Mobile Virtual Network

Enabler (MVNE) . . . specializ[ing] in MVNE, Mobile Services, Telecom, and cloud

services.” Id. Forum also claimed to be “active in a variety of complimentary fields such

as private banking, business development and consulting and provid[ing] hosting and

trading platforms.” Id.

       5
           Adsero Corp., Current Report (Form 8-K) 2 (Dec. 4. 2006).
       6
         Adsero Corp., Certification and Notice of Termination of Registration Under
Section 12(g) of the Securities and Exchange Act of 1934 (Form 15) (May 14, 2008).
       7
             FRMB:      Forum    Mobile      Inc.,    SEC     Edgar    Filing    Tracker,
https://sec.report/Ticker/FRMB (last visited Feb. 3, 2022).

                                             4
       The Company did not survive long under its latest name. On March 1, 2014, the

Delaware Secretary of State declared the Company void for failure to file annual reports or

pay annual franchise taxes. Forum currently has a franchise tax balance in arrears of

$600,000.

       The Company currently has no operating business. Despite its deregistration and

cessation of operations, the Company’s shares have continued to trade under the stock

ticker “FRMB.” Before a recent regulation adopted by the SEC, investors could buy and

sell the Company’s shares through the “Pink Open Market,” an interdealer quotation

system operated by OTC Markets Group, Inc.

B.     Synergy

       Synergy is engaged in the business of reviving defunct entities with still extant

public listings, then making them available to entities that want to access the public

markets. According to its website, Synergy seeks “to restore shareholder value for

[abandoned and distressed companies] and give private companies access to the ability to

go public via reverse merger without a costly IPO.”8

       Synergy owns 494,530 shares of the Company’s common stock. Dkt. 1 (the

“Petition” or “Pet.”) ¶ 7. Synergy seeks an order appointing its president, Benjamin Berry,

as a custodian. Synergy states that it intends to revive the Company and call a special

stockholder meeting to elect a new board of directors (the “Election Meeting”). Once the

       8
         Synergy Mgmt., Home Page, https://www.synergymgtgroup.com/ (last visited
Feb. 3, 2022).

                                            5
Company has been revived, Berry intends to “identify private companies that may be

interested in a reverse merger with” the Company. Id. ¶ 30.

       Synergy maintains that “[t]he value of the stockholders’ equity in the Company will

increase if and when a private company brings a new and viable business to [the

Company].” Id. Doubtless, that is true. In essence, Berry and Synergy plan to use Forum

as a blank check company.

       Synergy and another entity, Universal Management Association, have filed ten

similar petitions in this court. They previously secured custodial appointments for thirteen

additional companies incorporated in Colorado, Nevada, and Wyoming. They also

previously obtained custodial appointments for three Delaware corporations: Renewal

Fuels, Inc., CLST Holdings, Inc., and Critical Solutions, Inc.

       The post-appointment history of the three Delaware entities follows the same

general pattern. After taking control of the entity as custodian, Berry authorizes the

issuance of a single share of super-voting preferred stock that carries 60% of the entity’s

voting power. He then causes the entity to issue that share to a third party. Alternatively,

he issues the share to himself or Synergy, who then sells the share to the third party. In the

two sales in which Berry or Synergy sold the super-voting share to a third party, the

consideration paid was $25,000.

       Berry has attracted a following of investors who appear to purchase shares in the

entities that he seeks to revive. Synergy maintains a website where it posts periodic updates

on the status of its efforts. A web blog called Investors Hub contains a subpage devoted to

the Company on which participants discuss the Company and other “Synergy Plays.”

                                              6
C.     The Filing Of This Litigation

       Synergy commenced this action by filing its Petition on May 8, 2020. In its pleading,

Synergy contended that the Company had ceased all operations and owed the State of

Delaware $600,000 in franchise taxes. Synergy also noted that the Company continued to

maintain a listing and a ticker symbol, but also observed that Forum had “failed to provide

‘adequate current public information’ as defined in Rule 144, promulgated under the

Securities Act of 1933, and is thus subject to revocation by the Securities and Exchange

Commission pursuant to Section 12(k) of the Exchange Act.” Pet. ¶ 6.

       Synergy asked the court to enter an order granting the following relief:

       (a) Berry be appointed as the custodian of [the Company] for the purpose of
           paying back fees owed to the State of Delaware and continuing [the
           Company] as a going concern for the benefit of its stockholders;

       (b) Berry be designated as Chairman of the Board of [the Company] for the
           purpose of calling a Special Meeting of the stockholders of [the
           Company] to be held subject to the terms and conditions hereinafter
           specified (the “Meeting”), for the sole purpose of electing from among
           such persons as might be nominated to stand for election, a board of
           directors of [the Company], to serve until the next successors of the
           elected directors might be elected or appointed and qualified;

       (c) Berry hold the Meeting at a time and date to be selected by him, which is
           not a weekend or a legal holiday, and which is more than ten (10) days
           for [sic] the date on which copies of a notice of the meeting shall be
           mailed in a manner that is consistent with Delaware statutes, the
           [C]ompany’s bylaws and any orders as the Court might make and enter;

       (d) Berry provide notice of the Meeting [to] record owners of the stock
           certificates and the registered officers and directors of [the Company]
           specified in its stockholder lists, by mailing such notice to the addresses
           [of] those stockholders under their respective names and the business
           records;

                                             7
       (e) Berry verify that the stockholders of record are represented at the
           stockholder meeting in person or by a valid proxy, which stockholders
           shall constitute a quorum to conduct an election of directors of [the
           Company], and who will be entitled to participate in the Meeting and to
           vote in the election;

       (f) Berry, as custodian, report back to this Court after the Meeting to inform
           the Court of actions taken at the Meeting, including the nomination of
           directors; and

       (g) Berry report back to this [sic] at intervals determined by the Court for as
           long as the custodianship is maintained or as long as this Court deems
           necessary.

Id. ¶ 29.

       After filing the Petition, Synergy attempted to serve it on CSC Global, the

Company’s last-known registered agent. CSC Global rejected service of process in a letter

which stated that “[t]he service of process received for the party served, as listed above,

cannot be forwarded to the intended party for one of the reasons listed below.” Dkt. 2 Ex.

Unhelpfully, the letter identified four alternative reasons, one of which had five subparts,

without stating which reason might apply. Id.

D.     The Court’s Initial Inquiries

       On October 2, 2020, the court held a status conference and asked Synergy to answer

four questions:

       (a) Why should it be permissible for the Petitioner to be named as custodian for the
           abandoned company?

       (b) How are franchise taxes calculated for the State of Delaware?

       (c) How has Synergy yielded value for the historical stockholders of revived
           companies?

       (d) Should normal quorum requirements apply at the stockholder meeting that the
           custodian planned to call and convene?
                                             8
See Dkt. 4.

       Synergy filed written responses to the court’s questions on October 20, 2020. Dkt.

5. In its responses, Synergy identified an additional individual—Corionne Washington—

who would be involved with the custodianship. Id. at 4. Synergy also explained that the

claimed $600,000 in arrearages to the Delaware Secretary of State was a headline number

that assumed the Division of Corporations charged the maximum allowable amount per

year based on the authorized shares method. Synergy acknowledged that if Berry was

appointed as custodian and sought to bring the Company into compliance, then Berry

would seek to use the assumed-par-value method to calculate franchise taxes. The latter

method could be expected to result in a significantly lower franchise tax payment. Id. at 5.

E.     The Appointment Of The Amicus

       The Petition was not the first time that a capital markets entrepreneur had tried to

use provisions in the DGCL to revive a defunct entity with a still extant listing for use as a

blank check company. Since 2002, the Court of Chancery has maintained a policy against

facilitating the use of defunct entities to access the public markets.9 In reaching these

results, the court recognized and enforced a public policy that sought to channel issuers

       9
        See In re Native Am. Energy Gp., Inc., 2011 WL 1900142 (Del. Ch. May 19, 2011);
Klamka v. OneSource Techs., Inc., 2008 WL 5330541 (Del. Ch. Dec. 15, 2008); Clabault
v. Caribbean Select, Inc., 805 A.2d 913, 914–15 (Del. Ch. 2002), aff’d 846 A.2d 237 (Del.
2003) (TABLE). The court also invoked this policy in related contexts. See Williams v.
Calypso Wireless, Inc., 2012 WL 424880, at *1 n.1 (Del. Ch. Feb. 8, 2012).

                                              9
towards going public using the formal IPO process. The court consequently declined to

exercise its discretion in favor of steps that would enable an issuer to circumvent the formal

IPO process. Summing up the position taken in those cases, this court explained that “using

a defunct Delaware corporation that happens to retain a public listing to evade the

regulatory regime established by the federal securities laws is contrary to Delaware public

policy.” Calypso Wireless, 2012 WL 424880, at *1 n.1.

       The policy can be traced to Vice Chancellor Lamb’s decision in Clabault v.

Caribbean Select, Inc. There, Stirling Corporate Services, LLC (“Stirling”) sought to

revive Caribbean Select, Inc., a defunct corporation, for use as a blank check company.

Stirling principally sought to invoke Section 312 of the DGCL, which permits the “revival

of [a] certificate of incorporation,” but only if “procured as authorized by the board of

directors or members of the governing body of the corporation.” 8 Del. C. § 312(c). Section

312(h) further provides that if the corporation lacks directors who can revive its certificate

of incorporation, then “the stockholders may elect a full board of directors, as provided by

the bylaws of the corporation, and the board so elected may then authorize the revival.” Id.

§ 312(h). The same section provides that “[a] special meeting of the stockholders for the

purpose of electing directors may be called by any officer or stockholder upon notice given

in accordance with § 222 of this title.” Id.

       Stirling could not use Section 312 because even if it succeeded in calling a meeting,

the stockholders in attendance would not be able to “satisfy the normal quorum

requirements of Section 222 of the DGCL [or] . . . the provisions of [Caribbean Select’s]

bylaws.” Clabault, 805 A.2d at 914. To get around that obstacle, Stirling “petitioned for a

                                               10
court-ordered annual meeting pursuant to Section 211(c), which provides that those shares

of stock represented at such meeting ‘shall constitute a quorum for the purposes of such

meeting.’” Id. at 915 (quoting 8 Del. C. § 211(c)). That section permits a stockholder or

director to file a summary proceeding seeking an order compelling a corporation to hold

its annual meeting if (among other circumstances) thirteen months have passed since the

last annual meeting. See 2 Edward P. Welch, et al., Folk on the Delaware General

Corporation Law § 211.07, at 7-26 to 7-27 (6th ed. 2014 & 2020-4 Supp.) (citing 8 Del.

C. § 211(c)).

       Vice Chancellor Lamb denied Stirling’s petition. He acknowledged that Stirling

satisfied the technical requirements for relief under Section 211(c), but he was “unwilling

to use [the court’s] powers” to aid Stirling’s “plan to circumvent important registration and

disclosure elements of the federal securities laws” through a reverse merger. Id. at 918. He

described the petition as part of “a plan to make an ‘end run’ around the federal rules and

regulations governing the public trading of securities,” thereby avoiding “the burden or

expense of complying with SEC disclosure requirements, in particular the need to file the

necessary registration statement.” Id. at 915. He concluded that “it would be an abuse of

discretion to permit Stirling to employ the powers of this court to achieve its questionable

ends.” Id. The Delaware Supreme Court affirmed his decision.

       Subsequent cases took the same approach. Most notably, in Klamka v. OneSource

Technologies, Inc., Peter Klamka sought the appointment of a custodian under Section

226(a)(3) for OneSource Technologies, Inc., another defunct entity. He thus sought to use

the same statutory route that Synergy hopes to follow in this case. Like Synergy, Klamka

                                             11
asserted that “the officers and directors of the corporation have abandoned it and have

failed to comply with any statutory corporate obligations for [two years].” 2008 WL

5330541, at *1. Vice Chancellor Noble noted the similarity between Klamka’s petition and

Clabault. Although Klamka sought to use a different statutory vehicle, Vice Chancellor

Noble found “instructive” the Clabault court’s “reluctance to assist in the avoidance of the

normal order and process of federal securities regulation.” Id. As in Clabault, the court

declined to exercise its discretion to facilitate an effort to “bypass” the “ordinary

procedures to establish a business entity . . . . through the revival of the abandoned

OneSource absent some demonstrated need or purpose.” Id. at *2.

       In other cases, this court acknowledged the policy articulated in Clabault. See

Calypso Wireless, 2012 WL 424880, at *1; Native Am. Energy, 2011 WL 1900142, at *7.

In Calypso Wireless, the court entertained a petition to appoint a receiver for Calypso

Wireless, Inc. under Section 322 of the DGCL. The record showed that Calypso Wireless

had committed “glaring violations of the federal securities laws” and had no “credible plan”

to bring itself into compliance. 2012 WL 424880, at *1. Calypso Wireless had originally

accessed the public securities market by merging with a defunct but still publicly listed

Delaware corporation. The court noted that the use of a defunct entity for that purpose was

contrary to Delaware public policy. Id. at *1 n.1.

       In Native American Energy, the petitioner had attempted to use a reverse merger

with an otherwise defunct entity to access the public markets, but had committed an error

in the process that resulted in the issuance of invalid shares. The court dismissed the action

because it “lack[ed] jurisdiction to render what would be an advisory opinion.” Native Am.

                                             12
Energy, 2011 WL 1900142, at *7. In doing so, the court observed that “Delaware has no

interest in facilitating reverse mergers with defunct but still publicly registered shell

corporations as a means to circumvent the regulatory protections provided by the federal

securities laws.” Id. (citing Klamka, 2008 WL 5330541, at *2, and Clabault, 805 A.2d at

918).

        In its petition, Synergy did not deal forthrightly with these authorities. Synergy cited

Clabault, but conspicuously omitted any reference to Klamka, Native American Energy, or

Calypso Wireless. Omitting Klamka was particularly egregious, because that decision

addressed the same statutory vehicle that Synergy sought to use. Synergy attempted to

distinguish Clabault,, but did not do so effectively.

        Synergy did, however, point out that the Court of Chancery articulated its policy in

2002, and that much had changed since then. For example, Synergy observed that although

the SEC was plainly aware of the risks posed by reverse mergers with blank check

companies, the SEC had not prohibited them.

        The court knew about the precedents that Synergy had failed to cite. The court also

had a general understanding that by the time Synergy filed its petition in this case, the

federal government had introduced greater flexibility into the means by which entities

could access the public markets. It was therefore unclear whether the Clabault policy

should apply to this case.

        To obtain clarity, the court appointed an amicus curiae. In re Forum Mobile, Inc.,

2021 WL 1040978 (Del. Ch. Mar. 18, 2021). The court formally implemented its ruling by

order dated April 7, 2021. Dkt. 8. That order charged the amicus “with providing an

                                               13
independent view regarding the merits of the Petition and whether any relief should be

granted.” Id. ¶ 3. The order specified that “[a]s part of this charge, the [a]micus shall consult

with [the SEC] regarding the [P]etition.” Id.

        Mark Gentile of Richards, Layton & Finger, P.A., served as amicus. The court

expresses its appreciation to the amicus, who acted in the finest tradition of the Delaware

bar.

F.      The SEC Takes No Position.

        Consistent with the court’s instruction, the amicus requested input from the SEC.

On October 29, 2021, the SEC filed a letter brief offering its “views about the effect of the

federal securities laws on the [P]etition.” Dkt. 13 (the “SEC Letter”) at 1. The SEC took

“no position on whether the [P]etition should be granted pursuant to Delaware law.” Id.

        The SEC Letter made clear that granting Synergy’s requested relief would not

enable the Company to circumvent federal securities laws. The SEC noted that “a reverse

merger is not per se illegal under the federal securities laws.” Id. at 1, 3. The SEC also

observed that “regardless of whether this Court decides to grant the [P]etition, Forum (and

Synergy) must follow all federal securities laws and regulations—compliance with

Delaware law will not allow Forum or Synergy to circumvent federal law in this context.”

Id. at 3.

        In its letter, the SEC identified the federal regulations and regulatory practices that

exist to help protect investors from reverse mergers with non-reporting companies. See id.

at 5–7. The SEC also noted that “[a]s a consequence of their association with fraudulent

and manipulative schemes, these types of reverse mergers have prompted Commission

                                               14
action,” and “[t]he Commission has pursued numerous enforcement actions against

defendants who have engaged in fraud in connection with reverse mergers involving non-

reporting issuers, including in response to pump-and-dump schemes and other attempts to

manipulate the markets.” Id. at 2.

       The SEC also described regulatory amendments to Exchange Act Rule 15c2-11 that

became effective on September 28, 2021. Rule 15c2-11 requires broker-dealers to review

issuer information before initiating or resuming quotations for the issuer’s securities. The

amendments ensure that broker-dealers do not publish quotations for a security when

current information about the issuer is not publicly available. The expanded list of

information that a broker-dealer must review includes a complete list of insiders and a

“current” balance sheet (i.e., one prepared less than sixteen months before the publication

of the quotation).

       The Company is not a reporting issuer under the Exchange Act and is therefore not

required by law to file periodic financial reports or other information regarding its business,

management, and ownership with the SEC. Before September 28, 2021, broker-dealers

could provide quotations for the Company’s shares on the Pink Open Market. Since

September 28, 2021, broker-dealers cannot provide quotations unless the Company

supplies and the broker-dealers review the information required by the amendments to Rule

15c2-11. Broker-dealers can continue to provide unsolicited quotations on the OTC

Markets’ Expert Market tier, but those quotations are not publicly available. In addition,

OTC Markets has labeled the Company’s securities on the Expert Market tier as “Caveat

Emptor.” That designation signals to investors “that there is a public interest concern

                                              15
associated with the company, which may include a spam campaign, questionable stock

promotion, known investigation of fraudulent activity committed by the company or

insiders, regulatory suspensions, or disruptive corporate actions.”10

       The SEC did not give any indication that it wanted this court to act as a first line of

defense against potential violations of the securities laws by rejecting the Petition.

G.     The Amicus Recommends Conditional Approval.

       As directed, the amicus provided the court with his recommendation regarding the

Petition. The amicus acknowledged that “[g]ranting the Petition poses risks to Forum’s

stockholders arising from their limited access to information” due to Forum’s status as a

non-reporting issuer. Dkt. 14 at 15. Nevertheless, the amicus recommended that the court

grant the Petition and appoint Berry as a custodian subject to “appropriate safeguards.” Id.

       As noted, Synergy and Berry asked the Court to appoint Berry as a custodian so that

Berry can call the Election Meeting at which stockholders would elect a new board of

directors for the Company. To rectify the present lack of disclosure, the amicus proposed

“imposing certain disclosure obligations on the custodian” in advance of the Election

Meeting. Id. at 17–18. The amicus’ proposed disclosures generally would require Berry

and Synergy to explain their reasons for pursuing the custodianship, reveal any conflicts of

interest, provide contact information, and supply information on the risks of reverse

       10
            Id.    at    3     (quoting Compliance   Flags,     OTC        Mkts.,
https://www.otcmarkets.com/files/OTCM%20Compliance%20Flags.pdf (last visited Feb.
3, 2022)).

                                             16
mergers. Id. at 18–19. The amicus additionally proposes requiring that one of the directors

be “independent of Synergy, [] Berry, and prospective third party merger partners.” Id. at

27. Finally, the amicus would require Berry and Synergy to notify the court if (i) a

stockholder filed a Section 220 action demanding Forum’s books and records, (ii) a

stockholder made a litigation demand on the Forum board of directors; (iii) a stockholder

filed a lawsuit alleging breaches of fiduciary duties by any Forum fiduciary, or (iv) Berry,

Synergy, or their affiliates or associates, received any investigations, inquiries, subpoenas,

or indictments from the SEC or any other government agency in connection with their

practice of reviving defunct entities. Id. at 19. The amicus provided a proposed order

incorporating its recommendations. Dkt. 14, Proposed Order.

       The court had not asked the amicus to address whether a custodian appointed under

Section 226(a)(3) could be imbued with the authority to revive an entity that had abandoned

its business. The amicus did not address that issue, but rather proceeded as if the authority

existed. The amicus therefore only analyzed whether the court should exercise its discretion

in favor of granting the Petition. Given that this decision concludes that a custodian

appointed under Section 226(a)(3) cannot be empowered with the authority to revive an

entity that has abandoned its business, this decision provides no opportunity for the court

to consider the salutary recommendations of the amicus or to discuss additional conditions

that the court might have imposed.

                               II.     LEGAL ANALYSIS

       Synergy seeks an order appointing Berry as a custodian for Forum under Section

226(a)(3). Synergy’s stated purpose for appointing Berry is so that he can “establish an

                                             17
experienced management team that will identify private companies that may be interested

in a reverse merger with [Forum].” Pet. ¶ 30. Section 226(b) does not permit a custodian

to act for that purpose under the auspices of Section 226(a)(3). Accordingly, the Petition

must be denied.

       This court has not previously had to address this issue. In Klamka, the case where

the issue might have arisen, the court denied relief because of the Clabault policy. The

SEC’s decision not to take any position on the Petition provides no basis for applying the

Clabault policy in this case. The SEC easily could have supported the application of the

Clabault policy. Instead, the SEC detailed the protections that exist under the federal

securities laws, described its vigilance in enforcing those requirements, and took no

position on the Petition. The policy articulated in Clabault therefore provides no basis for

denying relief.

       With the Clabault policy inapplicable, this court must determine whether Section

226 permits a custodian appointed under Section 226(a)(3) to revive a corporation that has

abandoned its business. The plain language of Section 226(b) demonstrates that a custodian

appointed under Section 226(a)(3) lacks that authority.

       1.     Principles Of Statutory Interpretation

       “The principles of statutory interpretation under Delaware law are clear.” Jud.

Watch, Inc. v. Univ. of Del., 2021 WL 5816692, at *5 (Del. Dec. 6, 2021). “The goal of

statutory construction is to determine and give effect to legislative intent.” Eliason v.

Englehart, 733 A.2d 944, 946 (Del. 1999). “[I]f a statute is clear and unambiguous, ‘the

plain meaning of the statutory language controls.’” Shawe v. Elting, 157 A.3d 152, 164

                                            18
(Del. 2017) (quoting LeVan v. Indep. Mall, Inc., 940 A.2d 929, 932–33 (Del. 2007)). “This

is because ‘[a]n unambiguous statute precludes the need for judicial interpretation.’” Id.

(quoting LeVan, 940 A.2d at 932–33).

       A statute is ambiguous “if it is susceptible of two reasonable interpretations.” CML

V, LLC v. Bax, 28 A.3d 1037, 1041 (Del. 2011). “If [a statute] is ambiguous, ‘[Delaware

courts] consider the statute as a whole, rather than in parts, and [they] read each section in

light of all the others to produce a harmonious whole.’” Doroshow, Pasquale, Krawitz &

Bhaya v. Nanticoke Mem’l Hosp., Inc., 36 A.3d 336, 343 (Del. 2012) (quoting Taylor v.

Diamond State Port Corp., 14 A.3d 536, 538 (Del. 2011)). Delaware courts “also ascribe

a purpose to the General Assembly’s use of statutory language, construing it against

surplusage, if reasonably possible.” Taylor, 14 A.3d at 538; see also Giuricich v. Emtrol

Corp., 449 A.2d 232, 238 (Del. 1982) (“It is fundamental that the Courts ascertain and give

effect to the intent of the General Assembly as clearly expressed in the language of a

statute.”).

       2.     The Plain Language Of The Statute

       The plain language of Section 226 prevents a custodian or receiver appointed under

Section 226(a)(3) from reviving a defunct corporation that has abandoned its business.

Section 226(a) provides as follows:

       The Court of Chancery, upon application of any stockholder, may appoint 1
       or more persons to be custodians, and, if the corporation is insolvent, to be
       receivers, of and for any corporation when:

       (1) At any meeting held for the election of directors the stockholders are so
       divided that they have failed to elect successors to directors whose terms

                                             19
       have expired or would have expired upon qualification of their successors;
       or

       (2) The business of the corporation is suffering or is threatened with
       irreparable injury because the directors are so divided respecting the
       management of the affairs of the corporation that the required vote for action
       by the board of directors cannot be obtained and the stockholders are unable
       to terminate this division; or

       (3) The corporation has abandoned its business and has failed within a
       reasonable time to take steps to dissolve, liquidate or distribute its assets.

8 Del. C. § 226(a). Section 226(a)(3) thus permits a custodian to be appointed when a

corporation “has abandoned its business and has failed within a reasonable time to take

steps to dissolve, liquidate or distribute its assets.” Id. § 226(a)(3).11

       Satisfying one of the statutory grounds identified in Section 226 does not entitle a

petitioner to relief. The plain language of Section 226 makes the appointment of a custodian

permissive, giving the court discretion over whether to appoint a custodian. See, e.g.,

Giuricich, 449 A.2d at 239; Paulman v. Kritzer Radiant Coils, Inc., 143 A.2d 272, 273

(Del. Ch. 1958). In Klamka, the court relied on its discretionary authority to deny the

petition for the appointment of a custodian. 2008 WL 5330541, at *2.

       Section 226 does not stop with Section 226(a). In Section 226(b), the statute sets

out the powers that a custodian under Section 226 can have. It states:

       A custodian appointed under this section shall have all the powers and title
       of a receiver appointed under § 291 of this title, but the authority of the

       11
          The statute speaks in terms of either a custodian or a receiver. A custodian is
appointed for a solvent entity. A receiver is appointed for an insolvent entity. Synergy seeks
the appointment of a custodian, so this decision uses that term. The analysis would apply
equally to the appointment of a receiver.

                                               20
          custodian is to continue the business of the corporation and not to liquidate
          its affairs and distribute its assets, except when the court shall otherwise order
          and except in cases arising under paragraph (a)(3) of this section or §
          352(a)(2) of this title.

8 Del. C. § 226(b). The Delaware Supreme Court has interpreted Section 226(b) “as setting

forth the maximum statutory limits on the powers of the custodian.” Giuricich, 449 A.2d

at 240.

          Section 226(b) first establishes the general rule that “a custodian appointed under

this section shall have all the powers and title of a receiver appointed under § 291 of this

title, but the authority of the custodian is to continue the business of the corporation and

not to liquidate its affairs and distribute its assets.” 8 Del. C. 226(b). It then provides two

exceptions to the general rule that “the authority of the custodian is to continue the business

of the corporation and not to liquidate its affairs and distribute its assets.” See id. The first

is “except when the court shall otherwise order.” Id. The second is “except in cases arising

under paragraph (a)(3) of this section or § 352(a)(2) of this title.”12

          The plain language of the second exception thus states that “the authority of the

custodian is to continue the business of the corporation and not to liquidate its affairs and

distribute its assets . . . except in cases arising under paragraph (a)(3) of this section.” See

Id. § 226(b). The exception creates an alternative scope of authority under which the

          12
           Id. Section 352(a)(2) applies only to close corporations, and it permits the court,
“upon application of any stockholder,” to appoint a custodian or receiver “of any close
corporation when . . . (2) The petitioning stockholder has the right to the dissolution of the
corporation under a provision of the certificate of incorporation permitted by § 355 of this
title.” 8 Del. C. § 352(a)(2).

                                                 21
custodian does not have authority to continue the business. Instead, the custodian only has

authority to liquidate its affairs and distribute its assets.

       This is the only reading that gives meaning to the exception. If a custodian appointed

under Section 226(a)(3) “had the authority . . . to continue the business of the corporation

and not to liquidate its affairs and distribute its assets,” then the “except in cases arising

under paragraph (a)(3)” clause would be superfluous, a result that is contrary to canons of

statutory interpretation. See Cordero v. Gulfstream Dev. Corp., 56 A.3d 1030, 1036 (Del.

2012) (“When construing a statute, we must give effect to the whole statute, and leave no

part superfluous.” (cleaned up)). The court retains discretion over whether to appoint a

custodian and the scope of its powers, but that discretion is cabined by “the clear legislative

mandate of the [s]tatute.” See Giuricich, 449 A.2d at 240.

       For a custodian appointed under Section 226(a)(3), therefore, the scope of potential

authority is limited to liquidating the affairs of the abandoned corporation and distributing

its assets. A leading contemporary treatise interprets the exception in this fashion, noting

that “[the exception’s] effect would seem to mandate that a custodian appointed pursuant

to Section 226(a)(3) will invariably be charged with liquidating the corporation rather than

reinvigorating it.” Donald J. Wolfe & Michael A. Pittenger, Corporate and Commercial

Practice in the Delaware Court of Chancery § 9.10[c][4], at 9-265 (2d. ed. 2018 & 2021

Supp.).13

       13
         The treatise finds the abandoned business limitation “odd . . . when viewed in the
context of the statute as a whole” and in light of “the flexible case-by-case approach to
custodial powers adopted by the Delaware Supreme Court in Giuricich.” Id. The statute as
                                                22
       Although no Delaware court has held that a custodian appointed under Section

226(a)(3) only has authority to liquidate the business of the corporation, extant precedent

points in that direction. In Shawe v. Elting, the Delaware Supreme Court interpreted

Section 226 consistent with this reading of the statute’s plain language. The custodian in

Shawe was appointed to address a deadlock and empowered “to sell the corporation, with

a view toward maintaining the business as a going concern and maximizing value for the

stockholders.” In re Shawe & Elting LLC, 2015 WL 4874733, at *1 (Del. Ch. Aug. 13,

2015), aff’d sub nom. Shawe v. Elting, 157 A.3d 152 (Del. 2017). On appeal, Shawe argued

that “the custodian statute does not authorize the court to order the custodian to sell the

Company over the stockholders’ objection.” Shawe, 157 A.3d at 162. Shawe focused on

the language in Section 226(b) which provides that “the authority of the custodian is to

continue the business of the corporation and not to liquidate its affairs and distribute its

assets.” See 8 Del. C. § 226(b).

       The Delaware Supreme Court rejected Shawe’s argument because it failed to

grapple with Section 226(b)’s “except” clause. The Court explained that “[u]nder a plain

a whole distinguishes between an active corporation, where it gives the court broad
authority to appoint a custodian to continue the business or take such other action as the
court determines, and a corporation that has abandoned its businesses, where the statute
only authorizes the custodian to liquidate the corporation’s affairs and terminate its
existence. The Giuricich case dealt with a custodian for an active corporation that was
suffering from stockholder deadlock, not a corporation that had abandoned its business. To
distinguish between these settings is rational and within the purview of the General
Assembly. Of course, if the organs of the bar that oversee the DGCL and the General
Assembly wish to alter the scope of authority that a custodian under Section 226(a)(3) can
have, they are free to eliminate the abandoned business limitation found in Section 226(b).

                                            23
reading of § 226(b), the custodian has the powers of a receiver under § 291, and his duties

are to continue the business unless the Court otherwise orders, and except under the special

circumstances of abandoned businesses and close corporations.” Id. at 164 (emphasis

added). The Supreme Court stressed “the conjunctive words ‘and except,’” explaining that

       [t]he statute cannot reasonably be read to express the three exceptions as a
       series of similar events. Instead, when the words “and except’” are given
       meaning, the statute is reasonably read to list three distinct exceptions to the
       custodian’s default duty to maintain the business—“except when the Court
       shall otherwise order;” and “except in cases arising under paragraph (a)(3)
       of this section;” or “§ 352(a)(2) of this title.”

Id. (quoting 8 Del. C. § 226(b)).

       In Shawe, the plain language of Section 226 established that this court properly

authorized the custodian to pursue a sale of the company as something the court could

“otherwise order.” In this case, the distinction between a custodian appointed because of a

deadlock under Section 226(a)(1) or 226(a)(2) and a custodian appointed for an abandoned

business under Section 226(a)(3) establishes that the latter type of custodian does not have

the authority to continue the corporation’s business. In “the special circumstances of

abandoned businesses,” the custodian’s duties are limited to liquidating the corporation’s

affairs and distributing its assets. See id.

       The few Court of Chancery decisions that invoke Section 226(a)(3) are consistent

with the limited authority provided by Section 226(b). For example, in a decision denying

an application for the appointment of a custodian under Section 226(a)(3), Chancellor

                                               24
Chandler indicated that the custodian would have limited powers.14 The court ruled that

the entity had not abandoned its business and therefore refused to exercise its “limited

statutory authority to order the dissolution of a corporation under 8 Del. C. § 226(a)(3)

when a corporation has ‘abandoned its business’ and failed to dissolve, liquidate or

distribute assets within a reasonable time.” Id. at 260; see id. at 260–61 (emphasizing that

Section 226(a)(3) only grants the court a “narrowly defined statutory authority to dissolve”

a corporation). Three other cases invoking Section 226(a)(3) addressed petitions to appoint

custodians to liquidate or wind up the company’s affairs, not to revive the entity.15 The

       14
         In re Seneca Investments LLC, 970 A.2d 259 (Del. Ch. 2008). The decision
involved a limited liability company, but Section 226(a)(3) applied “because the parties
contractually agreed that the LLC would be governed as a corporation and that Delaware
General Corporation Law would apply.” Id. at 260 n.1.
       15
          See Apple Comput., Inc. v. Exponential Tech., 1999 WL 39547, at *1 (Del. Ch.
Jan. 21, 1999) (describing the plaintiff’s litigation goals as including an order appointing a
custodian “to wind up [the company’s] affairs”); Rosan v. Chi. Milwaukee Corp., 1990 WL
13482, at *5 (Del. Ch. Feb. 6, 1990) (“[Plaintiff] next asks that a custodian be appointed
pursuant to 8 Del. C. § 226(a)(3) to effectuate a forced liquidation of [the company].”);
Giancarlo v. OG Corp., 1989 WL 72022, at *1 (Del. Ch. June 23, 1989) (“The complaint
seeks the appointment of a liquidating custodian for [the corporation] . . . .”). Several orders
issued by this court are also consistent with the view that a Section 226(a)(3) custodian can
only dissolve, liquidate, or distribute an abandoned corporation’s assets. See Wahl v.
Centerville Swimming Club, Inc., 2021 WL 1549805, at *1 (Del. Ch. Apr. 19, 2021)
(ORDER) (appointing a custodian “pursuant to 8 Del. C. § 226(a)(3) to wind down,
administer claims, and dissolve [the company]”); Camac Fund, LP v. Surety Hldgs. Co.,
C.A. No. 2019-0541-JTL, Dkt. 19 (Feb. 7, 2020) (ORDER), (appointing receiver under
Section 226(a)(3) to “take all actions necessary to wind up the [c]ompany’s operations and
dissolve the [c]ompany.”), vacated by Camac Fund, LP v. Sur Hldgs. Corp., 2020 WL
883465 (Del. Ch. Feb. 21, 2020) (ORDER); B.E. Cap. Mgmt. Fund LP v. Fund.com Inc.,
2016 WL 6967899, at *1 (Del. Ch. Nov. 29, 2016) (ORDER) (appointing a receiver under
Section 226(a)(3); receiver then began liquidating the company before moving to
                                              25
only exception is Klamka, where the petitioner sought to achieve what Synergy wants in

this case. As noted, the court in Klamka had no occasion to reach the question of statutory

authority because the request conflicted with the policy espoused in Clabault.16

       Under the plain language of Section 226(b), Synergy cannot use a custodian

appointed under Section 226(a)(3) to revive Forum’s business and use the entity as a blank

check company. With Synergy having demonstrated that the Company has abandoned its

business and sought the appointment of a custodian under Section 226(a)(3), the plain

language of Section 226(b) limits the authority of such a custodian to liquidating the

Company’s affairs, distributing its assets, and terminating its existence.

                                  III.    CONCLUSION

       Synergy filed the Petition to obtain the appointment of a custodian under Section

226(a)(3) for the purpose of reviving Forum for use as a blank check company. Section

226 does not authorize the appointment of a custodian under Section 226(a)(3) to revive

an entity that has abandoned its business. Under Section 226(b), “the authority of the

custodian is to continue the business of the corporation and not to liquidate its affairs and

distribute its assets, . . . except in cases arising under [Section 226(a)(3)].” 8 Del. C. §

discontinue the liquidation under Section 301 of the DGCL because “cause for liquidation
. . . no longer exists,” see id., C.A. No. 12843-VCL, Dkt. 74 (Oct. 17, 2018) (ORDER)).
       16
          There are three other petitions that Synergy filed in this court and which this court
granted. As noted, Synergy did not deal forthrightly with the extant precedent, and the
petitions were unopposed. In that setting, “the checks inherent in the adversarial system do
not operate.” Forum, 2021 WL 1040978, at *5. The court therefore gives no weight to
those orders, and “the fact that the petitioner obtained [them] is not persuasive.” Id. at *5.

                                              26
226(b). Thus, for an abandoned corporation, the “authority of the custodian is . . . to

liquidate [the abandoned corporation’s] affairs and distribute its assets.” Id. The Petition is

therefore denied.

                                              27