Court Opinion

ID: 4174753
Source: CourtListenerOpinion
Date Created: 2017-06-06 19:10:54.883737+00
Date Added: 2024-06-11T14:39:07.828824
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PAUL NGUYEN,                              :
                                          :
                        Plaintiff,        :
                                          :
                v.                        :     C.A. No. 11138-VCS
                                          :
VIEW, INC., a Delaware corporation,       :
                                          :
                        Defendant.        :

                         MEMORANDUM OPINION

                         Date Submitted: March 6, 2017
                          Date Decided: June 6, 2017

Theodore A. Kittila, Esquire of Greenhill Law Group, LLC, Wilmington, Delaware,
and Tan Dinh, Esquire of CrossPoint Law, Palo Alto, California, Attorneys for
Plaintiff.

R. Judson Scaggs, Jr., Esquire and Richard Li, Esquire of Morris, Nichols, Arsht &
Tunnell LLP, Wilmington, Delaware, Attorneys for Defendant.

SLIGHTS, Vice Chancellor
      In the fall of 2009, Defendant, View, Inc. (“View” or the “Company”), sought

the consent of its stockholders to pursue a round of Series B preferred stock

financing (the “Series B Financing”) following a successful round of Series A

preferred stock financing (the “Series A Financing”) that had closed two years prior.

Plaintiff, Paul Nguyen, View’s founder and then-owner of approximately 70% of

the Company’s common stock, initially consented to the Series B Financing. Prior

to the closing of the transaction, however, Nguyen purported to revoke his consent

after determining that the restated governance documents related to the Series B

Financing would dramatically diminish his rights as a stockholder. View contested

Nguyen’s right to revoke his consent and moved forward with the Series B Financing

as if Nguyen had consented. Nguyen, in turn, pursued claims against the Company

in binding arbitration, including a claim in which he sought declarations that his

revocation of consent was valid and, therefore, the closing of the Series B Financing

was “void and invalid.”

      While the arbitration was pending, View closed several more rounds of

financing (raising approximately $500 million). One must presume that View

understood that if the arbitrator found in favor of Nguyen on the consent issue, then

the later rounds of financing that rested on the Series B Financing would collapse

when that block was removed from the tower of blocks that comprised the

Company’s preferred stock offerings. On December 18, 2015, the arbitrator ruled,

                                         1
inter alia, that Nguyen validly revoked his consent to the Series B Financing and

that the closing of that round was “void and invalid.” With that stroke of the pen,

View’s capital structure was turned upside down.

      In an attempt to turn back time in order to restore the Series B Financing,

beginning in early 2016, View undertook a series of steps intended to ratify the

various charter amendments and other corporate acts it had purportedly authorized

in connection with the several rounds of financing that closed after the Series A

Financing—beginning with the now-void Series B Financing––pursuant to 8 Del. C.

§ 204 (“Section 204”). As part of this process, View’s two Series A preferred

stockholders converted their shares to common stock as they were permitted to do

pursuant to the operative governance documents relating to the Series A Financing.

This conversion had the effect of stripping Nguyen of his voting protections and

majority stockholder status, thereby rendering his consent to effect the Series B and

subsequent rounds of financing no longer necessary.

      In his Amended Verified Complaint (the “Complaint”), Nguyen seeks a

declaration from this Court pursuant to 8 Del. C. § 205 (“Section 205”) that the

Company’s attempts to ratify the invalid rounds of financing were improper. View

has moved to dismiss the Complaint on the ground that Nguyen has failed to plead

facts that would support a reasonable inference that View’s ratification was

technically invalid or that it should be disregarded as a matter of equity under

                                         2
Section 205. The parties’ competing positions, while stated in terms set forth in

Section 205, fundamentally raise the issue of whether View’s attempt to ratify the

invalid Series B Financing (and subsequent rounds) comports with Section 204.

          For the reasons I explain below, Section 204 does not fit here because the

Series B Financing was not a “defective corporate act” that is subject to ratification

under Section 204. Rather, View’s decision to proceed with the Series B Financing

was an unauthorized corporate act––unauthorized because Nguyen has been deemed

to have effectively revoked his consent to the transaction before it closed. View

cannot invoke ratification to validate a deliberately unauthorized corporate act. The

motion to dismiss must be denied.

                                 I. BACKGROUND

          In considering Defendant’s motion to dismiss, I have drawn the facts from the

well-pled allegations in the Complaint, documents integral to the Complaint and

matters of which I may take judicial notice.1 At the motion to dismiss stage of the

proceedings, I presume that all well-pled factual allegations in the Complaint are

true.2

1
  In re Crimson Exploration Inc. S’holder Litig., 2014 WL 5449419, at *8 (Del. Ch.
Oct. 24, 2014) (“A judge may consider documents outside of the pleadings only when
(1) the document is integral to a plaintiff’s claim and incorporated in the complaint or
(2) the document is not being relied upon to prove the truth of its contents.”) (internal
quotation marks and citations omitted).
2
    Id.

                                            3
   A. Parties and Relevant Non-Parties

       Plaintiff, Paul Nguyen, a resident of California, is the owner of 4,537,500

shares of the common stock of View. He is the Company’s founder and former

President, Chief Technology Officer, Chairman of the board of directors, and a

former member of its board of directors. He was terminated from his management

positions and removed from the Company’s board of directors prior to the filing of

this litigation.

       Defendant, View, is a Delaware closely-held corporation headquartered in

Milpitas, California. View was incorporated on April 9, 2007, as Echromics, Inc. It

changed its name to Soladigm, Inc. on October, 2, 2007, and then to View on

November 8, 2012. View developed and now sells windows and commercial

building glass that allows the light, heat, shade and glare properties of the glass to

be controlled manually or electronically. This “switchable electrochromatic glass”

is designed to reduce energy consumption and greenhouse gas emissions while

improving comfort of living.

   B. Venture Capital Funds Invest in View

       In 2007, View accepted investments from venture capital funds Sigma

Partners Ventures (“Sigma”) and Kholsa Ventures (“KV”). The two firms agreed to

invest in View based on a $5 million pre-money valuation, in what became the

Series A Financing. After the closing of the Series A Financing, Mike Scobey was

                                          4
to take over the reins from Nguyen and become the new Chief Executive Officer of

the Company.

      As a result of the Series A Financing, Sigma and KV collectively held

16,666,666 shares of Series A preferred stock, which represented 50% of View’s

equity on a fully-diluted basis and 62% of View’s outstanding shares. After the

Series A Financing, Nguyen held 7,260,000 shares (or approximately 70%) of the

Company’s outstanding common stock and Scobey and a third individual owned the

remaining 30%.       The Company’s common stock collectively represented

approximately 30% of the Company’s equity on a fully-diluted basis. An additional

6,666,667 shares of common stock were reserved for an option pool for future grants

to employees and consultants. Nine months after the initial close of the Series A

Financing, Sigma and KV acquired another 4,965,242 Series A preferred shares,

bringing their total ownership to 56% of View’s equity on a fully-diluted basis and

68% of the shares outstanding.

      In connection with the Series A Financing, Nguyen and Scobey entered into

a voting agreement with KV and Sigma. This agreement established the size and

composition of View’s board of directors (the “Board”), how each Board member

would be selected, which stockholders would select the CEO and which stockholders

would vote in Board elections. Through the voting agreement, KV and Sigma

gained control of the corporate structure, composition of the Board, and selection of

                                         5
the CEO. Both Sigma and KV agreed that each would vote for the other’s Board

designee. The voting agreement also provided some protection to Nguyen, as

“Founder,” by allowing him, inter alia, to name one member to the Board.

         View adopted an Amended and Restated Certificate of Incorporation to reflect

the Series A Financing, which was filed on May 22, 2007, with the Delaware

Secretary of State. This gave Sigma and KV approval and veto rights for many

corporate acts, including any “decision to pay or declare dividends, redeem

securities, amend the certificate of incorporation and bylaws, create new classes of

stock, adjust the size of the Board, or authorize a merger or acquisition.”3 Under the

new governance scheme in place after the close of the Series A Financing, View

would have a five-person Board, with Sigma and KV controlling four seats and

Nguyen in the fifth seat.4 The scheme contemplated that Nguyen’s “only elements

of protection [would be] (a) a class vote provision under 8 Del. C. § 242(b)(2)

[(“Section 242(b)(2)”)],5 requiring that any amendment to the Company’s certificate

3
    Am. Verified Compl. (“Compl.”) ¶ 20.
4
  The four seats controlled by KV and Sigma were comprised of one designee of each
Sigma and KV, the CEO, whom Sigma and KV had the exclusive power to appoint and
remove, and a member elected by the majority of the preferred and common stock (where
KV and Sigma held the majority of the outstanding stock).
5
  Section 242(b)(2) states, in pertinent part, that “the holders of the outstanding shares of a
class shall be entitled to vote as a class upon a proposed amendment, whether or not entitled
to vote thereon by the certificate of incorporation, if the amendment would increase or
decrease the aggregate number of authorized shares of such class, increase or decrease the
                                              6
of incorporation changing the number of authorized shares of common stock,

changing the par value of the common stock, or changing the rights or preferences

of common stock be approved by holders of the majority of the common stock, and

(b) the various rights under the [v]oting [a]greement relating to Nguyen’s ability to

approve changes to the size of the Board and to fill a seat on the Board, along with

rights to information about the Company and its plans and actions.”6

     C. View Terminates Nguyen and Engages in Further Financing
        Transactions

         In December 2008, Raul Mulpuri became the new CEO of View which, under

a new voting agreement dated February 21, 2008 (the “Voting Agreement”), granted

him a seat on the Board. After Mulpuri was installed, View began to exclude

Nguyen from Board meetings and to prevent him from accessing Board materials

and other information. Thereafter, on January 9, 2009, Nguyen was removed as

Chief Technology Officer of the Company due to his alleged “inability to perform.”7

One month later, his employment with View was terminated entirely. 8 At the same

time, he was removed as a member and Chairman of the Board.

par value of the shares of such class, or alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely.”
6
    Compl. ¶ 22.
7
    Compl. ¶ 26.
8
 Upon his termination from the Company, 2,722,500 shares of the common stock owned
by Nguyen were automatically redeemed by the Company pursuant to a stock restriction
                                             7
      View took all actions to separate Nguyen from the Company without either a

Board or stockholder vote. Under the operative Voting Agreement and certificate

of incorporation, however, Nguyen was entitled to a seat on the Board due to his

position as the holder of a majority of the common stock. Asserting this and other

grounds, Nguyen challenged View’s actions to remove him as a manager and

member of the Board and threatened litigation. The parties agreed to mediate before

Nguyen filed suit.

      On June 5, 2009, while the dispute over Nguyen’s termination was pending,

Sigma and KV caused View to amend its charter to authorize the issuance of

convertible notes to Sigma and KV and to increase the number of authorized shares

of common stock. Nguyen did not consent to these amendments, either as a Board

member or the majority holder of common stock, as required by Section 242(b)(2).

On August 27, 2009, View’s charter was amended again so that it could issue further

convertible notes to Sigma and KV and further increase the authorized number of

shares of common stock. And again, Nguyen’s approval was not sought or obtained

for these amendments.

agreement, resulting in a reduction in Nguyen’s ownership to 4,537,500 shares of common
stock. Even with this reduction in ownership, Nguyen still held a majority of the
outstanding shares of View’s common stock.

                                          8
         The mediation between Nguyen and View regarding Nguyen’s termination

dispute was set to take place on September 18, 2009. A week prior to the scheduled

mediation, View’s attorneys informed Nguyen that View was working on a round of

Series B Financing. View requested that Nguyen sign the various transaction

documents related to the Series B Financing, including a stockholder consent to the

Second Amended and Restated Certificate of Incorporation and a consent to change

the terms of the then-operative Voting Agreement.

         The documents revealed that while the Series B Financing would provide

needed capital for the Company, it would otherwise not be favorable to Nguyen.

Specifically, “(a) holders of common stock would no longer have any right to

appoint any Board members; (b) Nguyen’s consent right to any amendment to the []

Voting Agreement would be eliminated; and (c) View would be filing with the

Delaware Secretary of State the [Second Amended and Restated Certificate of

Incorporation] into which View had slipped a waiver of 8 Del. C. § 242(b)(2)” that

would eliminate Nguyen’s right as the majority common stockholder to approve any

amendments to the certificate of incorporation changing the number of authorized

shares of common stock.9 Notwithstanding these elements that View knew were not

9
    Compl. ¶ 30.

                                         9
favorable to Nguyen, View pushed Nguyen to consent to this dramatically altered

governance structure because it needed his vote to proceed with the transaction.

         At the mediation between View and Nguyen on September 18, 2009, Nguyen

expressed his concern about the Series B Financing.

         Nevertheless, View insisted that Nguyen consent to the transaction as a

component of any broader resolution of Nguyen’s termination claims. Ultimately,

View and Nguyen reached a settlement (the “Settlement Agreement”) that included

Nguyen’s consent to the Series B Financing and related transaction documents.

Importantly, however, the Settlement Agreement allowed that either party could

rescind the Settlement Agreement within seven days of its execution.

         Following the mediation, Nguyen looked more closely at the transaction

documents for the Series B Financing and realized that they would “(a) eliminate his

class vote right in the Restated Certificate under 8 Del C. § 242(b)(2); (b) eliminate

his approval right for any amendments under the Voting Agreement; (c) eliminate

the right of the holders of common stock to elect any Board seat; and (d) eliminate

his only Board seat together with his position as Chairman.”10 Nguyen believed that

the effect of the Series B Financing on his interests in the Company, as reflected in

the documents, was directly contrary to what had been represented to him at the

10
     Compl. ¶ 34.

                                         10
mediation by the Company and its counsel. Accordingly, on September 24, 2009,

before the seven-day revocation period expired, Nguyen served a notice of rescission

of the Settlement Agreement on View, which included a rescission of his consent to

the Series B Financing.

      Unbeknownst to Nguyen, View had already proceeded to close the Series B

Financing while the seven-day revocation period was still open. If the Series B

Financing was deemed to be properly executed, Nguyen’s interest in the Company

would have been reduced from 23% of the overall equity and 70% of the common

stock to approximately 3% of the Company’s overall equity without any effective

voting protections. When Nguyen discovered that the transaction had closed without

his consent, he was, to put it mildly, not pleased.

   D. Nguyen Initiates Litigation and the Parties Engage in Arbitration

      On or about January 11, 2010, Nguyen filed suit in California state court to

challenge, among other things, his termination from View and the validity of the

Series B Financing. Soon thereafter, the parties to that action agreed to have the

dispute adjudicated in arbitration by JAMS (the “JAMS Arbitration”). Nguyen, over

time, amended his petition in the JAMS Arbitration to include claims regarding the

invalidity of subsequent charter amendments and related transactions, including the

Series C through F financings that had been undertaken by View while the

                                          11
arbitration was pending. These later rounds raised over $500 million in additional

investments.

         The respondents in the arbitration quickly moved to enforce the Settlement

Agreement which, if successful, arguably would have nullified Nguyen’s revocation

of his consent to the Series B Financing. In January 2011, the arbitrator denied this

motion and ruled that Nguyen had properly revoked the Settlement Agreement. The

issue of whether the revocation of the Settlement Agreement amounted to revocation

of Nguyen’s consent to the Series B Financing remained undecided.

         On March 4, 2015, while the JAMS Arbitration was still pending, View filed

two certificates of validation under Section 204, both of which sought to validate by

ratification certain charter amendments that increased the authorized number of

shares of stock (one filed December 17, 2009, the other filed March 8, 2012).11

Nguyen responded on June 11, 2015, by filing this action under Section 205 to

challenge View’s attempt to correct its unauthorized amendments to its governance

documents. Shortly after this action was filed, the parties stipulated to stay the action

pending resolution by the JAMS arbitrator of the question of whether Nguyen had

effectively revoked his consent to the Series B Financing.

11
     See Compl. Ex. E.

                                           12
         On December 18, 2015, the JAMS arbitrator issued his decision finding that

Nguyen had properly revoked the Settlement Agreement, including his consent to

the Series B Financing, thereby rendering the Series B Financing invalid and void.12

This ruling effectively meant that all of the related transaction documents, including

the Second Amended and Restated Certificate of Incorporation, were likewise

invalid and void because Nguyen had not consented to them. Since each of the

subsequent rounds of financing rested on the Series B Financing, the invalidation of

the Series B effectively invalidated the Series C through Series F financings as well.

The arbitrator’s ruling also effectively reinstated the Voting Agreement from

February 21, 2008, which provided that View’s Board would be comprised of five

members, one of whom Nguyen was entitled to designate.

      E. Holders of Preferred Stock Convert their Shares to Common Stock and
         Attempt to Validate the Series B through Series F Financings

         After the JAMS ruling essentially blew up View’s extant capital structure, the

holders of View’s Series A preferred stock scrambled to set things straight. They

began by converting their preferred shares to common stock in January or February

2016. This conversion displaced Nguyen as majority common stockholder and, by

its terms, cancelled the Voting Agreement since there were now less than 1 million

12
     See Compl. Ex. B.

                                           13
shares of Series A preferred stock outstanding.13 With these changes in place, on

February 26, 2016, View filed two certificates of correction and twenty-two

certificates of validation with the Secretary of State, pursuant to Section 204, in

which it purported to ratify various defective charter amendments and other

corporate acts. Of particular relevance here, View purported to ratify the Series B

Financing that the JAMS arbitrator had ruled was void and invalid, and built off of

that to ratify all subsequent financing rounds View had undertaken throughout the

pendency of the JAMS Arbitration.14

      Through the termination of the Voting Agreement, View reconstituted its

Board from a five-member to an eleven-member Board, removing Nguyen from the

Board in the process. Soon after implementing these steps, View discovered that

there were irregularities with its Board composition which, in turn, undermined the

validity of the attempted ratifications. Accordingly, in April 2016, View ratified

and/or corrected its prior ratifications (collectively with the February ratifications,

the “2016 Ratifications”).

13
  Transmittal Aff. of Richard Li in Supp. of Def. View, Inc.’s Opening Br. in Supp. of its
Mot. to Dismiss the Am. Verified Compl. Ex. C (Voting Agreement) at 4 (“This Agreement
shall terminate upon . . . such time as in the aggregate fewer than 1,000,000 shares of
Series A Preferred Stock . . . are outstanding . . . .”). See also Compl. ¶ 51.
14
  View also sought to withdraw the two certificates of validation previously filed in March
2015, which formed the original basis of this action.

                                            14
   F. Procedural Posture

      Nguyen filed his Amended Verified Complaint on May 10, 2016, in which he

challenges the certificates of validation from 2016 under Section 205 and the validity

of certain corporate acts and the transactions related thereto. He also seeks to compel

arbitration of this dispute. On June 23, 2016, View moved to dismiss the Complaint

for failure to state a claim under Court of Chancery Rule 12(b)(6). After the oral

argument on the motion to dismiss, I permitted the parties to file supplemental

submissions regarding the question of whether the certificates of validation filed by

View complied with Section 204. The last of those submissions was filed on

March 6, 2017.

                                 II. ANALYSIS

      View has moved to dismiss Count I in which Nguyen seeks to compel

arbitration and Counts II through VIII in which he seeks declarations that the 2016

Ratifications are invalid. I will address Nguyen’s demand that the matter be referred

to arbitration only briefly as it appears he has now abandoned that claim. I will then

turn to View’s arguments that Nguyen’s attempt to invalidate the 2016 Ratifications

fails as a matter of law.

   A. Motion to Dismiss Standard

      In considering this motion to dismiss for failure to state a claim under Court

of Chancery Rule 12(b)(6):

                                          15
         (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
         reasonable conceivable set of circumstances susceptible of proof.’15

      B. The Arbitration Claim

         In Count I of the Complaint, Nguyen seeks to compel View to arbitrate the

claims relating to the 2016 Ratifications in the still-pending JAMS Arbitration.

View argues that this count should be dismissed as “tactical maneuvering,”

particularly given the clear language in Section 205 that this court is vested with

exclusive jurisdiction to adjudicate claims brought under the statute.16 At the oral

argument on the motion to dismiss on January 11, 2017, Nguyen’s counsel agreed

to stipulate to the dismissal of Count I.17 The concession was well-founded. Count I

is dismissed with prejudice.

      C. The Claims Relating to the 2016 Ratifications

         View contends that it took pains to comply with Section 204 when

undertaking the 2016 Ratifications and that the Court can declare as a matter of law

and equity under Section 205 that Nguyen’s challenges to those corporate acts must

15
     Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted).
16
     See 8 Del. C. § 205(e).
17
  Tr. of Oral Arg. on Def.’s Mot. To Dismiss (“Oral Arg. Tr.”) 75. While the parties stated
they would submit a stipulation of dismissal, no such stipulation has been filed.

                                             16
be dismissed. Before addressing whether View’s attempts to correct the “void”

Series B Financing (and later rounds) should be validated under Section 205(d), I

first must consider what the parties have referred to as the “gating issue” of whether

the corporate acts that were the objects of the 2016 Ratifications were eligible for

ratification under the remedial provisions of Section 204. Specifically, I must

consider whether an act that the majority of stockholders entitled to vote deliberately

declined to authorize, but that the corporation nevertheless determined to pursue,

may be deemed a “defective corporate act” under Section 204 that is subject to later

validation by ratification of the stockholders. The question presents an issue of first

impression. To answer it, I turn to the plain language of the statute.18

          1. The Relevant Statutory Provisions

       Section 204 provides that “no defective corporate act or putative stock shall

be void or voidable solely as a result of a failure of authorization if ratified as

provided in this section or validated by the Court of Chancery in a proceeding

18
  82 C.J.S. Statutes § 410 (“The starting point in statutory construction is to determine the
legislative intent from the language itself. The statutory words should be given the
meaning intended by the lawmakers. Where the statutory language is plain and the
meaning is clear and unambiguous, the courts do not search for legislative intent beyond
the express terms of the statute and must give effect to the language as written.”) (footnotes
omitted). See also Freeman v. X-Ray Assocs., P.A., 3 A.3d 224, 227 (Del. 2010).

                                             17
brought under § 205 of this title.”19 It goes on to define a “defective corporate act”

as

         an overissue, an election or appointment of directors that is void or
         voidable due to a failure of authorization, or any act or transaction
         purportedly taken by or on behalf of a corporation that is, and at the
         time such act or transaction was purportedly taken would have been,
         within the power of a corporation under subchapter II of this chapter,
         but is void or voidable due to a failure of authorization.20

“Failure of authorization,” in turn, is defined as

         (i) the failure to authorize or effect an act or transaction in compliance
         with the provisions of this title, the certificate of incorporation or
         bylaws of the corporation, or any plan or agreement to which the
         corporation is a party, if and to the extent such failure would render
         such act or transaction void or voidable; or (ii) the failure of the board
         of directors or any officer of the corporation to authorize or approve
         any act or transaction taken by or on behalf of the corporation that
         would have required for its due authorization the approval of the board
         of directors or such officer.21

         Section 204 was adopted as a “safe harbor procedure” so that corporations can

validate acts that would otherwise be void or voidable.22 The legislative synopsis

19
     8 Del. C. § 204(a).
20
     8 Del. C. § 204(h)(1).
21
     8 Del. C. § 204(h)(2).
22
  Del. H.B. 127 syn., 147th Gen. Assem. (2013). The legislative synopsis is the “most
prevalent source of legislative history for a Delaware statute” and has been held by our
Supreme Court to be “‘a proper source for ascertaining legislative intent.’” Agar v. Judy,
151 A.3d 456, 475 (Del. Ch. 2017) (quoting Bd. of Adjustment of Sussex Cnty. v. Verleysen,
36 A.3d 326, 332 (Del. 2012)).

                                            18
explains that Section 204 was “intended to overturn the holdings in case law . . . that

corporate acts or transactions and stock found to be ‘void’ due to a failure to comply

with the applicable provisions of the General Corporation Law or the corporation’s

organizational documents may not be ratified or otherwise validated on equitable

grounds.”23

         As the synopsis acknowledged, Section 204 was a legislative response to

prevailing case law that had

         treated the statutory formalities for the issuance of stock as substantive
         prerequisites to the validity of the stock being issued, and [] determined
         that failure to comply with such formalities renders the stock in
         question void. A finding that stock [was] void [meant] that defects in
         it [could not] be cured, whether by ratification or otherwise. Thus,
         practitioners finding defects in stock issuances [were] put in the
         uncomfortable position of having to make a judgment whether the
         defect [was] one that render[ed] the stock void, in which case
         ratification [was] not an option, or voidable, in which case ratification
         [was] an option.24

Corporations were left with “few practical options” as the Court of Chancery was

“required to treat the stock as void” and precluded from “giving effect to the relevant

provisions of the Delaware UCC designed to validate defective stock in the hands of

23
     Del. H.B. 127 syn.
24
  C. Stephen Bigler & John Mark Zeberkiewicz, Restoring Equity: Delaware’s Legislative
Cure for Defects in Stock Issuances and Other Corporate Acts, 69 Bus. Law. 393, 394–95
(2014) (quoting C. Stephen Bigler & Seth Barrett Tillman, Void or Voidable? – Curing
Defects in Stock Issuances Under Delaware Law, 63 Bus. Law. 1109, 1110 (2008)).

                                            19
a purchaser for value.”25 “Accordingly, legislative intervention was necessary to

resolve the statutory inconsistency and to otherwise address this issue.” 26 “The

legislative synopsis . . . suggests that the General Assembly drafted the law in hopes

of creating an adaptable, practical framework for corporations and their counsel”

whereby they could correct “mistakes made in the context of a corporate act without

disproportionately disruptive consequences.”27

          2. The 2016 Ratifications did not Address Defective Corporate Acts

          The 2016 Ratifications, all initiated on the purported authorization of

Section 204, sought to ratify numerous charter amendments and equity issuances

after the Series A preferred stockholders had converted their preferred stock to

common stock. To understand their impact, it is necessary to rewind the clock to

the timeframe following the Series A Financing leading up to the Settlement

Agreement that was the subject of the parties’ arbitration.

          In 2009, before Nguyen signed the Settlement Agreement, he had the right

under Section 242(b)(2), as the majority common stockholder, to approve any

amendments to the Company’s certificate of incorporation that would change the

25
     Id. at 400–01.
26
     Id. at 401.
27
  In re Numoda Corp. S’holders Litig., 2015 WL 402265, at *8 (Del. Ch. Jan. 30), aff’d,
128 A.3d 991 (Del. 2015) (TABLE).

                                          20
number of authorized shares entitled to vote and to approve any amendments to the

then-operative Voting Agreement among the shareholders.                  The Settlement

Agreement (that included Nguyen’s consent to the Series B Financing) would have

waived these rights. Nguyen’s revocation of his consent, and the arbitrator’s

subsequent decision validating that revocation, rendered the Series B Financing and

accompanying transaction documents invalid and void. This, in turn, reinstated the

Voting Agreement, Nguyen’s protection under Section 242(b)(2) as the holder of the

majority of the common shares, and his entitlement to elect one of the five members

of the View Board. It was in this context that the Series A preferred stockholders

converted their shares and proceeded with the 2016 Ratifications, starting with the

ratification of the Series B Financing documents to which Nguyen had refused to

consent.

       Based on the definition of “defective corporate act” found in Section 204, to

be captured within the remedial purposes of the statute, the 2016 Ratifications must

have been directed to acts that, “at the time such act[s] [were] purportedly taken[,]

would have been[] within the power of a corporation under subchapter II of the

chapter, but [were] void or voidable due to a failure of authorization.”28 View

28
   8 Del. C. § 204(h)(1). The legislature provided more guidance on this definition in the
synopsis for Section 204, explaining that: “The term ‘defective corporate act’ is intended
to include all corporate acts and transactions . . . purportedly taken that were within the
power granted to a corporation under this title but are subsequently determined not to have
been effected in accordance with the applicable provisions of the General Corporation Law,
                                            21
correctly points out that the Company had “the power” to “issue one or more classes

of stock”29 and to “issue . . . rights or options,”30 in addition to the “powers and

privileges . . . necessary or convenient to the conduct, promotion or attainment of

the business or purposes set forth in its certificate of incorporation.”31 View is also

correct that Section 204 expressly contemplates that a corporation may deploy the

statute to ratify charter amendments and equity issuances, such as View purported

to do with the 2016 Ratifications.32 It is at this point in the analytical sequence,

however, that View’s Section 204 argument breaks down.

         Section 204 makes clear that the defective corporate acts that a corporation

purports to ratify must be within the corporation’s power “at the time such act was

the corporation’s certificate of incorporations or bylaws, or any plan or other agreement to
which the corporation is a party, where the failure to comply with such provisions,
documents or instruments would render such act void or voidable.” Del. H.B. 127 syn.
29
     8 Del. C. § 151.
30
     8 Del. C. § 157.
31
     8 Del. C. § 121.
32
   See 8 Del. C. § 204(e) (requiring the filing of a “certificate of validation” for the
ratification of any act that would require the filing of a certificate with the Secretary of
State, which includes amendments to and restatements of a certificate of incorporation);
8 Del. C. § 204(h)(1) (including an “overissue” in the definition of a defective corporate
act); 8 Del. C. § 204(b)(1)(C) (discussing the requirements for of the resolutions that the
board of directors of a corporation must adopt if the defective corporate act involves the
issuance of shares of putative stock).

                                            22
purportedly taken.”33 As determined by the arbitrator,34 at the time the various

corporate acts sought to be ratified by View through the 2016 Ratifications were

purportedly taken, Nguyen enjoyed class voting protections as the holder of the

majority of the common stock as well as the right to appoint one of the members of

the Board of Directors pursuant to the Voting Agreement. The 2016 Ratifications

must be viewed in light of that operative reality. Through this lens, it is clear that,

at the time View purported to proceed with the Series B Financing, it did so

notwithstanding that the majority common stockholder had deliberately withheld his

consent for the transaction—consent that was required for the transaction to be valid

as a matter of law. Therefore, at the time the defective corporate acts at issue here

were taken, the Company did not have the power to take these acts because its

majority common stockholder had declined to approve them.

         What occurred when Nguyen revoked his consent to the Series B Financing

was much more than a mere “failure of authorization” as contemplated by

Section 204. It was the classic exercise of the stockholder franchise to say “no” to

33
     8 Del. C. § 204(h)(1) (emphasis added).
34
  I do not pass on the correctness or validity of the arbitrator’s determination regarding the
bona fides of Nguyen’s revocation of consent or the resulting impact on the Series B
Financing. That issue has been decided and is not joined in this action.

                                               23
a Board-endorsed proposal.35 To reiterate, in the context of a required stockholder

vote, Section 204 defines “failure of authorization” as “the failure to authorize or

effect an act or transaction in compliance with the provisions of this title [or] the

certificate of incorporation or bylaws of the corporation . . . if and to the extent such

failure would render such act or transaction void or voidable.”36 The plain meaning

of “failure” in this context is distinct from a “no” vote or outright rejection of the

proposal by the majority of stockholders entitled to vote. The reason the Series B

Financing was declared void was not that View failed to comply with the Delaware

General Corporation Law or its own governance documents in securing the

stockholders’ approval of the transaction; the transaction was void because the

majority common stockholder deliberately rejected it.

         Lest there be any lingering doubt regarding the distinction between a “failure”

to authorize and a “rejection” of a corporate proposal, the plain meanings of these

terms brings the matter into inescapable focus.37 “Failure” has been defined as

35
  In re First Boston, Inc. S’holders Litig., 1990 WL 78836, at *7 (Del. Ch. June 7, 1990)
(noting that the stockholders’ “power to say no is a significant power”).
36
     8 Del. C. § 204(h)(2).
37
   See Freeman, 3 A.3d at 227–28 (observing that Delaware courts frequently refer to
dictionary definitions when searching for the plain meaning of statutory terms); 1 Del. C.
§ 303 (“Words and phrases shall be read with their context and shall be construed according
to the common and approved usage of the English language.”).

                                            24
“omission of occurrence or performance”;38 “a lack of success”;39 “deficiency; lack;

want”;40 “[a]n omission of an expected action, occurrence, or performance.”41 In

contrast, to “reject” means “to refuse to accept, consider, submit to, take for some

purpose, or use.”42

           According to View, “[a]n action is either consented to, or it is not, and a

decision by stockholders not to consent to an action is not a ‘rejection’ of the act that

precludes the Company from later taking action to certify it.” 43 I disagree. First, as

noted above, View’s interpretation of Nguyen’s revocation of his consent to the

Series B Financing is contrary to the plain meaning of the words “failure” and

“rejection.” It also diminishes the import of the stockholders’ right to vote “no.”44

38
     Merriam-Webster’s Collegiate Dictionary (10th ed. 1996).
39
     Id.
40
     Black’s Law Dictionary (10th ed. 2014).
41
     Id.
42
     Merriam-Webster’s Collegiate Dictionary (10th ed. 1996).
43
  Def. View, Inc.’s Opening Br. in Supp. of its Mot. to Dismiss the Am. Verified Compl.
48 n.24.
44
   See First Boston, 1990 WL 78836, at *7. See also Corwin v. KKR Fin. Hldgs. LLC, 125
A.3d 304, 313 (Del. 2015) (“Where the real parties in interest––the disinterested equity
owners––can easily protect themselves at the ballot box by simply voting no, the utility of
a litigation-intrusive standard of review promises more costs to stockholders in the form of
litigation rents and inhibitions on risk-taking than it promises in terms of benefits to them.”)
(emphasis added).

                                               25
As View’s counsel conceded at oral argument, View’s construction of Section 204

would allow a corporation to ratify an act that stockholders years earlier had

expressly voted not to take and to certify that act as effective on the date the

stockholders rejected it.45 Nothing in the text of the statute or its legislative history

suggests that the General Assembly intended to facilitate such a result. 46

         View adds another layer of complexity to the cause and effect paradigm of

time travel by arguing that because it had the right to convert its Series A preferred

stock to common prior to the Series B Financing, the Court should consider View’s

45
     Oral Arg. Tr. 36:20–40:14.
46
   The legislative synopsis for Section 204 explains that the statute “is intended to overturn
the holdings in case law, such as STAAR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del.
1991) and Blades v. Wisehart, 2010 WL 4638603 (Del. Ch. Nov. 17, 2010), that corporate
acts or transactions and stock found to be ‘void’ due to a failure to comply with the
applicable provisions of the General Corporation Law or the corporation’s organizational
documents may not be ratified or otherwise validated on equitable grounds.” Del. H.B.
127 syn. In STAAR Surgical, a corporation violated 8 Del. C. § 151 in connection with a
stock issuance when its board of directors failed to adopt a board resolution authorizing the
issuance of the shares, board minutes that referenced the successful board vote and a
certificate of designation of the issuance of shares. 588 A.2d at 1132–33. Due to the failure
formally to adopt these documents, the Supreme Court reversed the Court of Chancery’s
decision to remedy the defects upon concluding that the Court of Chancery had overstepped
its equitable powers and that the company’s unwitting failure to comply with the applicable
statute was fatal to the stock issuance. Id. at 1134. In Blades, the court found that the
former board of directors of a company had not validly adopted a stock split where there
not had been “scrupulous adherence to statutory formalities” set forth in 8 Del. C. § 242,
but instead had adopted “a resolution to amend the company’s certificate of incorporation;
a corresponding certificate of amendment increasing the number of authorized shares from
10,000,000 to 50,000,000; a later resolution referencing a split; and the company’s stock
ledger documenting the purported split.” Numoda, 2015 WL 402265, at *8 (describing the
decision in Blades, 2010 WL 4638603). These instances reflect classic “failures to
authorize” corporate acts, not the “rejection” of a corporate act as occurred here.

                                             26
attempt to ratify the Series B Financing as if View had made the conversion prior to

the transaction, and not well after it actually occurred. In this alternative version of

history, Sigma and KV converted their preferred stock to common, gained majority

stockholder status and voted their common stock to approve the Series B Financing

to overcome Nguyen’s minority opposition to the transaction.47

         Section 204 is not a “license to cure just any defect.”48 Indeed, it cannot be

“used to authorize retroactively an act that was never taken but that the corporation

now wishes had occurred, or to ‘backdate’ an act that did occur but that the

corporation wishes had occurred as of an earlier date.”49 Yet this is exactly what

View attempts to do: backdate an act that was expressly rejected by Nguyen, the

majority holder of the common stock whose authorization was required, by

retroactively converting Sigma and KV’s Series A preferred stock to common stock

even though those preferred stockholders have for several years enjoyed the benefits

that attached to their preferred stock.50

47
   Def. View, Inc.’s Reply Br. in Further Supp. of its Mot. to Dismiss the Am. Verified
Compl. 5 n.4 (“Sigma and [KV] converted their Series A Preferred Stock to common stock,
as they were entitled to at the time of the original approval of the Series B Charter (and at
all times since the Series B financing), and voted in favor of the 2016 Ratification[s] in
order to protect View’s capital structure.”).
48
     Numoda, 2015 WL 402265, at *8.
49
     Id. at *9 (quoting Bigler & Zeberkiewicz, supra, at 403).
50
  During the six years the dispute over the Series B Financing was pending, as holders of
Series A preferred stock, KV and Sigma enjoyed: “(a) board management rights; (b)
                                              27
         I note that no decision of this court or our Supreme Court has applied

Sections 204 or 205 in a circumstance where a board of directors sought to employ

statutory ratification as a means to alter the outcome of a stockholder vote. Rather,

our courts have blessed efforts to ratify defective corporate acts where the failure of

authorization was the product of: (1) a board failure to adhere to the corporate

formalities required to authorize a stock issuance;51 (2) technical dating

discrepancies in shareholder consents;52 (3) improper notice to stockholders;53

(4) “missing records issues, timing issues, authority issues, and validity of board and

stock issues;”54 or (5) a failure properly to seek the required approval from either a

liquidation preferences; (c) participation rights; (d) registration rights related to IPOs; (e)
rights of first refusal in the sale of the Company’s stock; and (f) veto rights related to (i)
charter and bylaw amendments, (ii) dividends and distributions, (iii) stock redemptions,
(iv) increases and/or decreases in any authorized number of common or preferred shares
of stock, (v) mergers, acquisitions, or sales of assets, and (vi) other corporate acts.” Compl.
¶ 52.
51
  Numoda, 2015 WL 402265, at *10–12; Steinberg v. Townley, C.A. No. 12539-VCL, at
*5–6, 37 (Del. Ch. Feb. 27, 2017) (TRANSCRIPT); In re Xencor, Inc., C.A. No. 10742-
CB, at *6, 51 (Del. Ch. Dec. 10, 2015) (TRANSCRIPT) (describing the ratifications that
were being approved under Section 205 as “technical defects”).
52
  In re Trupanion, Inc., C.A. No. 9496-VCP, at *9–10, 16 (Del. Ch. Apr. 28, 2014)
(TRANSCRIPT).
53
     Xencor, C.A. No. 10742-CB, at *6; Trupanion, C.A. No. 9496-VCP, at *10.
54
  In re Wine.com, Inc., C.A. No. 10401-VCG, at *14–19 (Del. Ch. Apr. 16, 2015)
(TRANSCRIPT).

                                              28
board of directors or stockholders.55 None of these decisions, either expressly or by

analogy, support the use of Section 204 to undo a stockholder vote rejecting a

transaction proposed by the company’s board of directors.56

         I am satisfied that Nguyen has pled facts that support his prayers for

declaratory judgments that the 2016 Ratifications cannot be sanctioned under any

reading of Section 204. Accordingly, I need not reach View’s arguments that

Nguyen has failed to plead technical non-compliance with Section 204 or its

arguments that Nguyen has failed to plead that enforcement of the 2016 Ratifications

would be inequitable under the factors set forth in Section 205(d).57

55
     Trupanion, C.A. No. 9496-VCP, at *12, 14.
56
  I note for the sake of completeness that View does not contend that the 2016 Ratifications
ratified either Nguyen’s vote against the Series B Financing through his revocation of the
Settlement Agreement or his allegedly improper removal from the Board of Directors. See
Letter to the Honorable Vice Chancellor Slights from R. Judson Scaggs, Jr. dated Mar. 6,
2017 in response to Pl.’s Feb. 20, 2017 Letter regarding supplemental briefing on the
“Gating Issue” (Transaction ID 60296587) 5 (“The 2016 Ratification[s] did not ratify
removing Nguyen as a director, so it is irrelevant whether removal of a director could be a
defective corporate act.”), 7 (“The 2016 Ratification[s] did not ratify a stockholder vote,
so it is irrelevant whether a stockholder vote is a ‘defective corporate act.’”).
57
   I appreciate that the declarations Nguyen seeks here, if granted, will be problematic if
not potentially devastating for View. That View placed itself in this bind by aggressively
pursuing multiple rounds of financing while the outcome of the arbitration remained
uncertain is, I am certain, cold comfort. Section 204 fully occupies “the decisional space”
here, however. Cf. TCV VI, LP v. TradingScreen, Inc., 2015 WL 1726442, at *1 (Del. Ch.
Mar. 27, 2015) (noting that the statute at issue there did not “exclusively occupy the
decisional space” and that the court had authority to render its decision as a matter of
contract). Section 204 was intended, in part, to address instances where this court’s
attempts to exercise its equitable powers to correct defective corporate acts had been struck
down by our Supreme Court. See Del. H.B. 127 syn. While I acknowledge some urge to
“do equity” here, “[c]ourts of equity cannot create new substantive rights under the guise
                                             29
                                III. CONCLUSION

         For the foregoing reasons, Defendant’s motion to dismiss is GRANTED as to

Count I of the Amended Verified Complaint and DENIED as to the remaining

Counts. The parties should confer and promptly submit a proposed case scheduling

order.

         IT IS SO ORDERED.

of ‘doing equity.’” Dave Greytak Enters., Inc. v. Mazda Motors of Am., Inc., 622 A.2d 14,
22 (Del. Ch. 1992). Any attempt to sustain View’s attempted ratification on equitable,
rather than statutory, grounds would surely find no endorsement at the next level of review.
See, e.g., STAAR Surgical, 588 A.2d 1130 (Del. 1991). Having determined that Section
204 does not fit here, I am satisfied that I cannot fill that void with a make-shift equitable
remedy.

                                             30