Court Opinion

ID: 6330692
Source: CourtListenerOpinion
Date Created: 2022-04-13 14:06:17.64499+00
Date Added: 2024-06-11T09:23:04.453013
License: Public Domain

COURT OF CHANCERY
                                      OF THE
    SAM GLASSCOCK III
     VICE CHANCELLOR
                                STATE OF DELAWARE                      COURT OF CHANCERY COURTHOUSE
                                                                                 34 THE CIRCLE
                                                                          GEORGETOWN, DELAWARE 19947

                              Date Submitted: March 1, 2022
                               Date Decided: April 8, 2022

    Eric M. Andersen, Esq.                           Steven L. Caponi, Esq.
    Andersen Sleater Sianni LLC                      Matthew B. Goeller, Esq.
    Two Mill Road, Suite 202                         K&L Gates LLP
    Wilmington, Delaware 19806                       600 King Street, Suite 901
                                                     Wilmington, Delaware 19801

                 RE: Houseman et al. v. Sagerman et al,
                     C.A. No. 8897-VCG

Dear Counsel:

         This action is before me with respect to the Plaintiffs’ remaining Specific

Exceptions taken to the Special Master’s Final Report of October 19, 2020. 1 As

noted in my Letter Opinion of March 1, 2022,2 the parties have previously agreed

that it is proper for me to review the exceptions on the record. I do so and review

1
  Final Report by Special Master James P. Dalle Pazze on Oct. 19, 2020, Dkt. No. 204
[hereinafter “Final Report”]; see also Exceptions to Special Master’s Final Report, Dkt. No. 205.
2
  Houseman v. Sagerman, 2022 WL 598977, at *1 (Del. Ch. Mar. 1, 2022).
the Special Master’s conclusions, both factual and legal, de novo in accordance with

DiGiacobbe v. Sestak. 3

      I have previously denied one of the Specific Exceptions, challenging a

payment made to Sagerman, as that Specific Exception was predicated upon an

argument earlier rejected in this case. 4

      The following Specific Exceptions remain:

          o The Special Master’s approval of payment to Whittingon & Aulgur, the

             Shareholder Representative’s law firm;

          o The Special Master’s approval of a payment to Sergio;

          o The Special Master’s approval of payments in connection with the

             Minnesota litigation’s defense;

          o The Special Master’s approval of payments to Laird and Vinton;

          o The Special Master’s approval of payments to Database Logic;

          o The Special Master’s partial approval of payments to Whittington &

             Aulgur associated with litigation filed by David Ferrel;

          o The Special Master’s treatment of payments identified as “from

             Houseman”; and finally

          o The Special Master’s denial of the Plaintiffs’ request for lost interest. 5

3
  743 A.2d 180, 184 (Del. 1999).
4
  Houseman, 2022 WL 598977, at *4.
5
  See id.
                                            2
    DiGiacobbe instructs that the court “may read the portion of the record relevant

to the exception raised and draw its own factual conclusions” in evaluating master’s

exceptions where a new hearing is not required.6 I have therefore reviewed the

Plaintiffs’ briefing and supplemental memoranda in detail and have cross-referenced

the trial transcripts, joint exhibits, and other associated exhibits to aid in my

understanding of the matter.

    Upon the record before me, I find that the Special Master correctly found and

applied the law, with the single exclusion of the standard of review applicable to the

actions of the Shareholder Representative, as described in detail in my Memorandum

Opinion of July 20, 2021.7 As described therein, the standard of review applicable

to the Shareholder Representative’s actions is that of subjective good faith.8

Supplemental briefing was submitted to address whether this change in standard of

review should affect my consideration of the Specific Exceptions.9 Even with the

benefit of the supplemental briefing, the application of the subjective good faith

standard to review of the Shareholder Representative’s actions does not, to my mind,

affect any of the Special Master’s findings.

6
  743 A.2d at 184.
7
  Houseman v. Sagerman, 2021 WL 3047165, at *6 (Del. Ch. July 20, 2021).
8
  See id.
9
  See, e.g., Pls.’ Suppl. Mem. Supp. Exceptions to the Special Master’s Final Report, Dkt. No.
216; Pls.’ Suppl. Reply Mem. Supp. Exceptions to the Special Master’s Final Report, Dkt. No.
218.
                                               3
     As such, I deny the remaining Specific Exceptions. After reviewing the

memoranda, briefing, and citations thoroughly, I am satisfied that the Special

Master’s report treated each of the Specific Exceptions appropriately.10 There is no

basis for reaching any different factual conclusions, in my view, even following the

extensive briefing that has been undertaken in this matter. I therefore adopt the

Special Master’s Final Report dated October 19, 2020, with the exception of the

10
   In the Special Master’s otherwise detailed report, one lacuna exists that gave me pause in
conducting de novo review of the factual findings. The Special Master ultimately determined
that a $36,860 payment made to Whittington personally and denominated “from Houseman” on
the Whittington and Aulgur trust account transaction detail report could remain with
Whittington. Final Report 60. A brief background is helpful. Whittington (in his personal
capacity) and Universata, Inc. had entered into a release absolving Universata, Inc. of any
reimbursement obligation to Whittington for any financial loss relating to a put right belonging
to the Housemans. See JX 34; Houseman, 2021 WL 3047165, at *2. That release provided
Whittington with a $100,000 payment. JX 34 at SMP-3268. At the Special Master’s hearing,
Whittington testified that he had also been authorized to receive a “second, undisclosed” $50,000
payment in connection with the put liability. See Final Report 58; Trial Tr. 786:19–24.
Whittington testified that the $50,000 was not disclosed because “the whole concept was that the
Housemans would not know about the additional $50,000 in costs,” in order, presumably, to
cabin their negotiating leverage. Trial Tr. 788:3–7. The Special Master found that the purpose
behind the $50,000 payment was “to provide Whittington with additional room to negotiate a
resolution with the Housemans” regarding the put. Final Report 58. The Special Master then
found that “it is unusual that Whittington took only $36,860 of this $50,000 secret payment,” but
he determined that, in any event, the $36,860 was not due to the Housemans personally. Id. The
question not addressed by the Special Master, to my mind, was whether the $36,860 amount
ought to have been withdrawn by Whittington for his personal benefit or whether it was owed to
the stockholders. After reviewing the papers and the testimony, it appears to me that the $50,000
payment accepted by the Special Master was a continuation of the $100,000 documented
payment owed to Whittington in his personal capacity. See JX 34; see also Final Report 58–60
(discussing the $50,000 as a contextual “second” payment following the “initial” disclosed
$100,000 payment); Trial Tr. 787:3–788:17 (Whittington testifying about the “$150,000” he had
handy to “buy” the put). I am therefore satisfied that the Special Master’s conclusion with
respect to the payment “from Houseman” is correct.
                                               4
standard of review applicable to the Shareholder Representative’s actions, which I

have found is subjective good faith.11

      IT IS SO ORDERED.

                                             Sincerely,

                                             /s/ Sam Glasscock III

                                             Sam Glasscock III

11
     See Houseman, 2021 WL 3047165, at *6.
                                               5