Court Opinion

ID: 4398001
Source: CourtListenerOpinion
Date Created: 2019-05-17 14:02:31.985807+00
Date Added: 2024-06-11T14:52:16.150899
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ACELA INVESTMENTS LLC, ACELA             )
FIRST INVESTMENTS LLC, ACELA NEW         )
INVESTMENTS LLC, and DR. STEFAN          )
AIGNER,                                  )
                                         )
          Plaintiffs,                    )
                                         )
    v.                                   )   C.A. No. 2018-0558-AGB
                                         )
RAYMOND DIFALCO and MANISH               )
SHAH,                                    )
                                         )
          Defendants,                    )
                                         )
    and                                  )
                                         )
INSPIRION DELIVERY SCIENCES, LLC         )
and INSPIRION DELIVERY                   )
TECHNOLOGIES, LLC,                       )
                                         )
       Nominal Defendants.               )
RAYMOND DIFALCO,                         )
                                         )
          Counterclaim and Third-Party   )
          Plaintiff,                     )
                                         )
    v.                                   )
                                         )
DR. STEFAN AIGNER,                       )
                                         )
          Counterclaim Defendant,        )
                                         )
    and                                  )
                                         )
INSPIRION DELIVERY SCIENCES, LLC,        )
                                         )
          Third-Party Defendant.         )
                       MEMORANDUM OPINION

                       Date Submitted: March 15, 2019
                        Date Decided: May 17, 2019

Peter B. Ladig and Brett M. McCartney of BAYARD, P.A., Wilmington, Delaware;
David H. Wollmuth and Michael C. Ledley of WOLLMUTH MAHER &
DEUTSCH LLP, New York, New York. Attorneys for Plaintiffs and Counterclaim
Defendant.

Norman M. Monhait and Carmella P. Keener of ROSENTHAL, MONHAIT &
GODDESS, P.A., Wilmington, Delaware; William T. Reid, IV, Michael Yoder,
Jordan L. Vimont, and Ryan M. Goldstein of REID COLLINS & TSAI LLP, Austin,
Texas. Attorneys for Defendants and Counterclaim and Third-Party Plaintiff.

BOUCHARD, C.
      About thirteen years ago, Raymond DiFalco and Manish Shah began working

together on a promising technology to deter the abuse of opioids and other drugs. In

2008, they joined with Stefan Aigner, a pharmaceutical executive, to form the

predecessor of a Delaware limited liability company known as Inspirion Delivery

Sciences, Inc. (“IDS”), which was established in 2016. Today, IDS owns two FDA-

approved drugs but has achieved limited commercial success.

      The LLC agreement for IDS contains a bespoke governance structure. It

names Aigner and DiFalco as Chief Executive Officer and President, respectively,

and provides that they each must perform their duties subject to the “advice and

consent” of the other. The LLC agreement further provides that either (i) Aigner or

(ii) DiFalco and Shah together can veto any action of the IDS board of managers.

The LLC agreement also contains a provision that was intended to address conflicts

of interest by having an “Independent Representative” vote in place of a conflicted

manager, but which has become a central point of controversy in its application.

      Although Aigner, DiFalco, and Shah began their venture with a promising

technology and presumably the best of intentions, their relationship has devolved

into one of distrust and animosity between Aigner, on the one hand, and DiFalco and

Shah, on the other hand. The two camps have become deadlocked on fundamental

questions concerning who IDS should partner with to manufacture its two current

products and to develop new products, and concerning the strategic direction of the

                                         1
company, in particular whether its limited resources should be used for research and

development or to build an in-house sales force. After a lengthy period of infighting

and numerous unsuccessful efforts to resolve their disputes, Shah resigned from his

positions as Chief Science Officer and a manager of IDS. Shortly after, Aigner

initiated litigation against DiFalco and Shah, prompting DiFalco to request judicial

dissolution of IDS.

      In this post-trial decision, the court concludes for the reasons explained in

detail below that it is not reasonably practicable to carry on the business of IDS in

conformity with its LLC agreement and that judicial dissolution of the company is

warranted. In brief, the record shows that Aigner has arrogated to himself virtually

unfettered control over the company’s management in contravention of the

company’s contractually specified governance structure by acting unilaterally

instead of trying to work collaboratively with DiFalco and by using the conflict of

interest provision in the LLC agreement improperly as a weapon to marginalize

DiFalco’s role in managing the company.

I.    BACKGROUND

      The facts recited in this opinion are my findings based on the testimony and

documentary evidence presented during a three-day trial held in December 2018.

The record includes stipulations of fact from the Pre-Trial Stipulation and Order

(“PTO”), over 350 trial exhibits, and testimony from eight fact witnesses.

                                         2
         A.     The Players

         The company at the center of the dispute in this case is Inspirion Delivery

Sciences, LLC (“IDS” or the “Company”), a Delaware limited liability company that

develops abuse-deterrent pharmaceutical products.1          IDS is the successor to

Inspirion Delivery Technologies, LLC (“IDT”), a Delaware limited liability

company that now serves as a holding company for IDS and owns approximately

72% of its membership interests.2 IDT was co-founded by Stefan Aigner, Raymond

DiFalco, and Manish Shah, the main protagonists in this action.

         Aigner is the Chief Executive Officer and a manager of both IDT and IDS.3

Aigner has executive experience in the specialty pharmaceutical industry and is the

owner and/or managing partner of three entities through which he owns membership

interests in IDT and IDS: Acela Investments LLC, Acela First Investments LLC,

and Acela New Investments LLC, all Delaware limited liability companies. 4 For

simplicity, this decision refers to Aigner and these three entities together as “Aigner”

when discussing the plaintiffs collectively.

1
    PTO ¶¶ 21, 24, 36; Tr. 7 (Aigner).
2
    PTO ¶¶ 23, 36.
3
    PTO ¶ 20.
4
    PTO ¶¶ 17-20; Tr. 9-10 (Aigner).
                                           3
         DiFalco is a member, manager, and President of IDT, and a manager and

President of IDS.5 Aigner attempted to remove DiFalco as President of IDS in

November 2018 but, as discussed below, that action was invalid. DiFalco is trained

in chemical engineering and has expertise in the development and construction of

pharmaceutical manufacturing processes.6

         Shah is a member of IDT.7 Shah is a scientist with more than twenty years of

experience in the pharmaceutical industry, primarily in developing pharmaceutical

products.8 Shah was formerly a manager of both IDT and IDS and the Chief Science

Officer of IDS.9 He resigned as a manager of IDT and IDS on July 6, 2018, and as

an officer of both companies on October 15, 2018.10

         DiFalco and Shah have been aligned with each other at all relevant times.

They are the co-inventors of the abuse-deterrent technology that was the reason for

creating IDT and that is central to IDS’s business prospects.11 DiFalco and Shah

co-own Cerovene, Inc., a Delaware corporation, which served as IDT’s development

5
    PTO ¶ 21.
6
    Tr. 662, 664 (DiFalco).
7
    PTO ¶ 22.
8
    Tr. 547-48 (Shah).
9
    PTO ¶ 22.
10
     PTO ¶ 22; JX 277.
11
     PTO ¶ 22.
                                           4
partner for two drugs (MorphaBond and RoxyBond) and is a party to a supply

agreement with IDS for one of those drugs (MorphaBond).12

         Before Shah resigned as a manager of IDS in July 2018, the Company’s board

of managers (the “Board”) consisted of four members: Aigner, DiFalco, Shah, and

Gerard Leduc. Leduc is a French citizen who invested in IDT in 2015 and became

a manager of IDS and IDT in September 2016.13

         Most of the funds that were invested in IDT to pay for the development of

MorphaBond and RoxyBond came from the predecessor of an entity known as Trygg

IDT I Holdings Corporation (“Trygg”), a Delaware corporation.14 Trygg is a joint

venture between private equity firm Lindsay Goldberg LLC and Aker AS, a

Norwegian industrial investment company.15 Aigner introduced IDT to Trygg

through Egil Bodd, a Norwegian doctor and clinical pharmacology specialist who

was working at Lindsay Goldberg at the time. Bodd invested in IDT personally and

facilitated Trygg’s investment in IDT as well as an investment from his friend, Per

Wold-Olsen, a Norwegian citizen who previously worked with Bodd at Merck

Pharmaceuticals.16 Aaron Kramer is the CEO of Trygg and serves as a Board

12
     PTO ¶ 30.
13
     PTO ¶ 25.
14
     PTO ¶ 27.
15
     PTO ¶ 27.
16
     Tr. 145, 150-54 (Bodd); PTO ¶¶ 28-29.
                                             5
observer under the IDS LLC agreement.17              John Aiello, a partner at Lindsay

Goldberg, also is a Board observer.18

         B.      Basic Process for Production of New Drugs

         The production of new drugs in the United States typically proceeds in the

following stages: formulation, clinical development, commercial manufacturing,

and commercialization.19 Formulation involves developing specific formulas for a

new drug, which can be done in-house or by an outside firm.20 Clinical development

includes performing studies to show that the new drug is effective, filing a new drug

application (“NDA”) with the Food and Drug Administration (the “FDA”), and

receiving FDA approval.21 The cost of obtaining FDA approval for a single drug of

the kind IDS develops is approximately $10 to $15 million.22

         Commercial manufacturing entails large-scale manufacturing of the drug,

which may include a transfer of technology or “tech transfer” to a high-capacity

manufacturing facility under the guidance of the drug developers.23 Third-party

firms that perform the commercial manufacturing are called contract manufacturing

17
     PTO ¶ 27.
18
     PTO ¶ 27.
19
     Tr. 16-18 (Aigner); Tr. 624 (Shah).
20
     Tr. 16 (Aigner).
21
     Tr. 16-17 (Aigner).
22
     Tr. 156 (Bodd); Tr. 550-51 (Shah); Tr. 700 (DiFalco).
23
     Tr. 17 (Aigner).
                                              6
organizations or “CMOs.”24 Finally, commercialization focuses on the marketing

and sale of the new drug by a sales force, which can range in size from about thirty

to 500 people.25 A pharmaceutical company may employ its own sales force or

license its products to an outside firm with a sales force.26

         C.     The Formation of IDT

         It is well documented that the United States is facing an opioid crisis. A

contributing factor to the abuse of opioids and other drugs is that the time-release

characteristic of tablets of such drugs can be compromised by crushing the tablets,

which allows for faster absorption of the drug. In 2006 and 2007, DiFalco and Shah

worked together to develop a promising technology to deter abuse by preventing the

rate of release of the drug from changing significantly if the tablets are crushed as

compared to taking the tablets intact.27

         In 2008, Aigner, DiFalco, and Shah formed Abuse Deterrent Pharmaceuticals

LLC, which was renamed IDT in 2009, to develop pharmaceutical products,

including abuse-deterrent opioid pain medications.28 Aigner provided $1.2 million

of initial capital while DiFalco and Shah contributed all patents and other intellectual

24
     Tr. 17 (Aigner).
25
     Tr. 18 (Aigner).
26
     Tr. 18 (Aigner).
27
     Tr. 549-50 (Shah); see Tr. 7 (Aigner).
28
     PTO ¶ 31; Tr. 552 (Shah).
                                              7
property related to abuse-deterrent products.29 To document their contribution of

intellectual property, DiFalco and Shah entered into Invention Assignment

Agreements dated June 17, 2008.30

         The contribution of intellectual property from DiFalco and Shah included

MorphaBond and RoxyBond.31 MorphaBond is a monotherapy, abuse-deterrent,

extended-release formulation of morphine sulfate; RoxyBond is a monotherapy,

abuse-deterrent, immediate-release formulation of oxycodone hydrochloride.32 The

FDA approved MorphaBond in November 2015 and RoxyBond in April 2017, but

29
     PTO ¶ 31; see Tr. 21-23 (Aigner); Tr. 552 (Shah).
30
   PTO ¶ 31. A dispute arose over whether DiFalco and Shah attempted to alter the
Invention Assignment Agreements to narrow the scope of the technology they assigned
from all inventions they conceived “concerning or related to abuse deterrent technology”
to all such inventions “concerning or related to tablet coated solid oral dosage form abuse
deterrent technology.” JX 11 at 3, 10 (broader versions); JX 12 at 2, 8 (narrower versions).
The evidence of record is too inconclusive to support such a finding. According to Aigner,
when organizing a data room in 2015, the Company could not find copies of the Invention
Assignment Agreements and asked DiFalco to provide original copies. The copies DiFalco
provided were the narrower versions (JX 12), which prompted Aigner to accuse DiFalco
and Shah of creating forged documents. Tr. 35-39 (Aigner). On the other hand, the broader
versions (JX 11), which Aigner claimed to be the originals that DiFalco and Shah signed
in 2008, contain a footer bearing the date “03/13/2015.” On cross-examination, Aigner
could not explain this discrepancy, conceding that it “[d]oesn’t make any sense.” Tr. 257
(Aigner). In a March 2016 email that Aigner sent to DiFalco and Shah, Aigner
characterized the matter as a “misunderstanding” and suggested they all “move on.” JX
13 at 1; Tr. 258-59 (Aigner). New agreements were prepared “to eliminate the
misunderstanding,” which DiFalco and Shah signed. JX 13 at 1; Tr. 702-03 (DiFalco).
Also in 2016, DiFalco and Shah assigned to IDT a patent that originally had been filed in
Cerovene’s name that Aigner contends was covered by the Invention Assignment
Agreements. Tr. 40-42 (Aigner); Tr. 703-05 (DiFalco).
31
     PTO ¶ 31.
32
     PTO ¶ 31.
                                              8
only MorphaBond, which was launched commercially in 2017, is available for sale

today.33 The abuse-deterrent technology that DiFalco and Shah invented could be

applied to other drugs, but no other products have been developed by IDT or IDS to

date.34

          D.     Trygg Invests in IDT

          On April 30, 2012, IDT entered into a letter agreement with Trygg IDT I LLC

(“Trygg LLC”)—a predecessor of Trygg—to establish a joint venture with, and

secure financing from, Trygg LLC.35 The purpose of Trygg LLC’s investment was

“to fund the development of the pharmaceutical products” by IDT.36 Specifically,

this meant financing the “pre-commercial activities” for three future IDT products

with an option for the development of three additional products. 37 As part of its

investment, Trygg LLC financed the build-out of improvements at a manufacturing

facility located in Orangeburg, New York (the “Orangeburg Facility”).38

          Trygg LLC invested $10 million in IDT initially, with approximately $8

million earmarked for the Orangeburg Facility build-out, and it anticipated investing

33
     Tr. 8 (Aigner); Tr. 155 (Bodd).
34
     Tr. 557 (Shah).
35
     PTO ¶ 32; JX 3.
36
     Tr. 817 (Kramer).
37
     Tr. 817-18 (Kramer); PTO ¶ 32; see Tr. 700 (DiFalco).
38
     PTO ¶ 32.
                                             9
approximately $30 million more “upon the successful reaching of milestones.”39 In

total, Trygg LLC and its successor (Trygg) invested over $45 million in IDT.40

         E.     The Trygg Dispute and Formation of IDS

         In 2014 or 2015, “a major disagreement” arose between Trygg LLC and IDT

over funding the development of additional products.41          From Trygg LLC’s

perspective, time had “run out” and it was “impossible” for Trygg LLC to justify

making any further investment in IDT because of the company’s lack of progress on

many fronts, including that IDT was not even “finished with development [of its]

two first products.”42

         Trygg LLC commenced arbitration proceedings against IDT, which the

parties settled in August 2016.43 The details of the arbitration are confidential, but

as a result of the settlement, IDT formed IDS into which Trygg LLC was merged,

with IDS as the surviving entity.44 In connection with the merger, Trygg LLC’s

members became members of IDS, IDT became the majority member of IDS, and

IDT contributed to IDS all of its intellectual property related to abuse-deterrent

39
     Tr. 816, 820 (Kramer).
40
     Tr. 817 (Kramer).
41
     Tr. 26 (Aigner); Tr. 159 (Bodd).
42
     Tr. 159 (Bodd).
43
     PTO ¶ 36; Tr. 30 (Aigner); JX 344.
44
     Tr. 26 (Aigner); PTO ¶ 36; JX 38.
                                          10
products.45      IDS thereafter assumed all pharmaceutical development efforts

previously undertaken by IDT.46 Also in connection with the merger, Trygg LLC

transferred to IDS the assets on its balance sheet associated with the Orangeburg

Facility and released IDT and its officers, including DiFalco and Shah, from any

claims arising out of or related to the letter agreement under which Trygg LLC had

funded the build-out of the Orangeburg Facility.47

         The management and ownership structures of IDT and IDS after the

settlement with Trygg LLC are depicted below based on their operative LLC

agreements at the time:48

45
  PTO ¶ 36. Trygg LLC’s members at the time consisted of Trygg, Acela Investments
LLC (affiliated with Aigner), Mininaste AS (affiliated with Bodd), Mario Family Partners,
LP (affiliated with Ernest Mario), and Wold-Olsen. PTO ¶¶ 33, 36.
46
     PTO ¶ 36.
47
     PTO ¶ 36; JX 344 § 1.2(b).
48
  The information for IDT comes from its Fourth Amended and Restated LLC Agreement
dated as of August 23, 2016. JX 39 § 5.2, Sched. 1. The IDT membership percentages are
calculated on a fully diluted basis, including non-voting profit interests. The information
for IDS comes from its Second Amended and Restated LLC Agreement dated as of
September 28, 2016. JX 44 § 5.02(a), Ex. A. The IDS membership figures are based on
common unit ownership. All membership figures are rounded to the nearest tenth.

                                            11
                                            IDT
 Managers                Members                               Percentage
 Aigner                  DiFalco and Shah (affiliated)         38.8
 DiFalco                 Aigner (affiliated)                   24.4
 Shah                    Others                                15.7
                         Mininaste AS (Bodd)                   6.0
                         Wold-Olsen                            6.0
                         Mario (affiliated)                    4.9
                         SC Transition (Leduc)                 4.2

                                             IDS
 Managers                Members                               Percentage
 Aigner                  IDT                                   71.9
 DiFalco                 Trygg                                 21.0
 Shah                    SC Transition (Leduc)                 4.2
 Leduc                   Mininaste AS (Bodd)                   1.0
                         Wold-Olsen                            1.0
                         Mario Family Partners, LP (Mario)     0.5
                         Acela Investments LLC (Aigner)        0.5

         F.     Continued Disputes over the Build-Out of the Orangeburg Facility

         The resolution reached with Trygg LLC over the Orangeburg Facility did not

end the disputes over that facility between Aigner and DiFalco and Shah. In mid-

2016, before the dispute with Trygg LLC was resolved, Aigner discovered that

Cerovene’s landlord at the Orangeburg               Facility was Corporate Drive

Properties\Medlantis, LLC (“Medlantis”), a New Jersey limited liability company

owned by DiFalco and Shah.49 This surprised Aigner, who thought that a third party

49
     PTO ¶ 35; JX 4 at 1; JX 20; Tr. 43 (Aigner).
                                              12
owned the facility.50 Aigner later learned that Empire Construction Management

Group, LLC, a company owned by DiFalco’s brother, had billed approximately $4.5

million in connection with the build-out of the Orangeburg Facility.51

         DiFalco oversaw the build-out of the Orangeburg Facility.52          The

arrangements for the build-out were informal. There was no contract governing the

build-out between Cerovene and Trygg LLC or IDT, or between Cerovene and

Empire.53        According to DiFalco, his brother (Salvatore) acted as a general

contractor on the project for “one or two years” and was paid $250,000 for his

work.54 When Salvatore’s role ended, the cash in Empire’s accounts was transferred

to a company DiFalco owned called International Innovative Technologies Group,

through which DiFalco completed the build-out project.55 DiFalco acknowledges he

“didn’t have the greatest accounting of everything” for the build-out of the

Orangeburg Facility, but insists that “millions of dollars” were saved on the

project.56

50
     Tr. 43 (Aigner).
51
     Tr. 44 (Aigner); JX 21 at 1.
52
     PTO ¶ 34.
53
     Tr. 683, 795 (DiFalco); DiFalco Dep. 34.
54
     DiFalco Dep. 26-28, 34-35; Tr. 795-96 (DiFalco).
55
     Tr. 796 (DiFalco); DiFalco Dep. 34.
56
     Tr. 796-800 (DiFalco); DiFalco Dep. 218.
                                                13
         To date, the Orangeburg Facility has never been used to manufacture product

for IDS.57 Cerovene owns another facility located in Valley Cottage, New York (the

“Valley Cottage Facility”), which was used to make test batches of MorphaBond

and RoxyBond during the NDA process and which currently manufactures

MorphaBond.58

         G.       Initial Attempts to Address Conflicts of Interest

         In the summer of 2016, in connection with making arrangements to

manufacture products, Aigner, DiFalco, and Shah discussed ways to handle conflicts

of interest arising from DiFalco and Shah’s ownership of Cerovene.59 On July 8,

2016, Robert F. Coyne, IDS’s outside counsel at the law firm of Gibbons, P.C.,

emailed Aigner, DiFalco, and Shah: (i) drafts of a resolution “authorizing [DiFalco

and Shah] to proceed with certain actions which involve a potential conflict of

interest,” including voting on a supply agreement with Cerovene that was being

negotiated and participating in the selection of future CMOs; and (ii) draft language

addressing conflicts of interest generally that was to be included in the operating

agreements for IDT and IDS.60 In general terms, the draft conflicts of interest

language for the operating agreements identified Hafid Touam as “an independent

57
     Tr. 35, 78, 106 (Aigner); Tr. 697-98 (DiFalco).
58
     Tr. 82-83 (Aigner); JX 68 at 11; Tr. 682 (DiFalco).
59
     See JX 14.
60
     JX 17 at 1, 4.
                                              14
party” who would vote for any manager who had a conflict of interest with respect

to certain transactions.61 Touam had worked with Aigner for many years dating back

to 1999 or 2000, and had known DiFalco and Shah for a similar length of time. 62

         On August 8, 2016, Coyne emailed Aigner, DiFalco, and Shah a draft of a

written consent for the members and managers of IDT to address past and current

conflicts of interest involving IDT and Cerovene.63 The draft written consent stated

that DiFalco and Shah own Cerovene, “have an ownership and/or leasehold interest”

in “buildings” being used for IDT’s operations, and have employed and will continue

to employ in connection with those buildings “companies in which family members

related to” DiFalco and Shah have an “ownership interest.”64        The draft also

contained a qualified waiver of claims against DiFalco and Shah relating to “any and

all” conflicts, but it was not executed.65

         On August 22, 2016, Aigner, DiFalco, and Shah executed a written consent

as managers of the newly formed IDS to implement a “transparency policy.”66 The

policy states that members and managers “engaged in business with the Company

61
     JX 17 at 1.
62
     Tr. 389-90 (Touam).
63
     JX 28.
64
     JX 28 at 10.
65
     JX 28 at 6-9.
66
     JX 37.
                                             15
shall provide full disclosure and transparency in regard to such affiliated transaction,

including supply chain issues and planning” and that “[a]ny potential conflict shall

be disclosed completely and immediately in writing with attention to the Board.”67

         H.        The IDS Agreement

         At the times relevant to this action, IDS has been governed by a Second

Amended and Restated Limited Liability Company Agreement dated September 28,

2016 (the “IDS Agreement”).68 The “full and entire management of the business

and affairs of” IDS is vested in a board of managers (as defined above, the

“Board”).69 The IDS Agreement provides that “[p]rior to an IPO, the Board shall

consist entirely of the individuals designated by the IDT Investors . . . , which

initially shall be Stefan Aigner, Ray DiFalco, Manish Shah and Gerard Leduc.”70

         The IDS Agreement contains several provisions critical to this case that

govern Board actions. Two provisions—one for actions taken at Board meetings

and another for Board actions taken by written consent—expressly provide that no

Board action shall be effective unless the action is approved by both (i) Aigner and

(ii) either DiFalco or Shah (the “Veto Rights”). For example, Section 5.03, which

governs actions taken at Board meetings, states as follows:

67
     JX 37 at 3.
68
     PTO ¶¶ 1, 37; JX 44.
69
     PTO ¶ 37; JX 44 § 5.01(a).
70
     JX 44 § 5.02(a).
                                          16
          A majority of the Managers then in office shall constitute a quorum for
          the transaction of business at any meeting, so long as such quorum shall
          include (a) Stefan Aigner and (b) at least one of Ray DiFalco or Manish
          Shah; provided that a quorum may only exist if proper notice of a
          meeting was provided in accordance with Section 5.07 (including to
          each Observer). Action of the Board shall be authorized by the vote of
          a majority of the Managers present at the time of the vote if there is a
          quorum, unless otherwise provided by this Agreement; provided,
          however, that such majority shall include the affirmative vote of (i)
          Stefan Aigner and (ii) at least one of Ray DiFalco or Manish Shah.71

The same requirement is included in a provision governing Board action taken by

written consent.72

          Section 5.14 provides that IDS’s managers “shall have fiduciary duties of

loyalty and care similar to that of directors of business corporations organized under

the Delaware General Corporation Law.”73               Section 5.14 further provides a

mechanism that was intended to address conflicts of interest. Specifically, Section

5.14(b)(ii) provides that an “Independent Representative” will exercise “voting,

consent or similar rights as a member of the Board with respect to any Affiliate

Transaction” in the place of an “Interested Manager,” meaning one who has “a

conflict of interest concerning an Affiliate Transaction.”

71
     Id. § 5.03 (emphasis added).
72
   Id. § 5.09 (“Any action required or permitted to be taken by the Board may be taken
without a meeting if a majority of the members of the Board, which majority shall include
(a) Stefan Aigner and (b) at least one of Ray DiFalco or Manish Shah, consent in writing
or by electronic transmission to the adoption of a resolution authorizing the action . . . .”)
(emphasis added).
73
     Id. § 5.14(a).
                                             17
          Section 5.14(b)(ii) names Touam as the initial Independent Representative for

DiFalco and Shah, and Kip Martin as the initial Independent Representative for

Aigner.74 Martin worked with Aigner early in his career and is currently the Vice

President of Finance and Business Development of IDS.75 The text of Section 5.14

is discussed in detail later in this opinion.

          Section 5.15 of the IDS Agreement provides that the Board may appoint

officers and names Aigner as the initial Chief Executive Officer and DiFalco as the

initial President.76 Section 5.15 further provides that the performance of the duties

of the CEO and President are not only subject to the control of the Board, but are

subject to the “advice and consent” of each other:

          The Chief Executive Officer of the Company shall, subject to the
          control of the Board, in general supervise and control the business and
          affairs of the corporation subject to the advice and consent of the
          President. The President shall have such powers and duties as usually
          pertain to such office. The President’s powers and duties shall be
          subject to the control of the Board and to the advice and consent of the
          Chief Executive Officer.77

In other words, the IDS Agreement contemplates a management structure in which

the CEO and President are essentially co-equal fiduciaries who must communicate

regularly and who share decision-making authority.

74
     Id. § 5.14(b)(ii).
75
     Tr. 461-63 (Martin).
76
     JX 44 § 5.15.
77
     Id. (emphasis added).
                                            18
          Finally, Section 5.16 of the IDS Agreement provides informational rights to

the Board observers—currently Kramer and Aiello. It states, in relevant part, that:

          The Company shall, within a reasonable period of time after learning
          of any material development affecting the Company’s or any of its
          direct or indirect Subsidiaries’ business and affairs, update each of the
          Observers regarding any such material development. The Company
          agrees to, and to cause management of its Subsidiaries to, consider in
          good faith the recommendations of the Observers on matters on which
          it is consulted, recognizing that the ultimate discretion with respect to
          all matters shall be retained by the Company and its Subsidiaries. 78

          I.       The IDT Agreement

          At the times relevant to this action, IDT has been governed by a Fourth

Amended and Restated Limited Liability Company Agreement dated August 23,

2016 (the “IDT Agreement”),79 which was entered into in connection with IDT’s

settlement with Trygg LLC. Section 5.1 of the IDT Agreement vests management

and control of IDT in a board of managers, which consisted of Aigner, DiFalco, and

Shah as of August 2016.80

          Important here, the IDT Agreement provides that, prior to a transaction

defined as the “Exchange,” which has not occurred,81 the managers of IDS cannot

be removed or replaced without the approval of the IDT board, including the specific

78
     Id. § 5.16.
79
     JX 39.
80
     Id. § 5.1, Sched. 2 (list of initial managers).
81
  The “Exchange” involves an exchange of certain securities in IDT following a “Qualified
Financing.” Id. §§ 4.4(a), 4.6(a), App. I-4-5.
                                                 19
approval of Aigner (as the “Series B Manager”) and either DiFalco or Shah (as the

“Founder Members”):

                Section 5.4. Major Actions. The Company shall not commit any
         of the following acts without, in addition to any other vote required by
         law or this Agreement, the written consent or affirmative vote of the
         Board (including, prior to the Exchange, the Series B Manager and
         either one of the Founder Members) followed by the affirmative vote
         of the Members pursuant to Section 4.7.

                                          *****

                      (w) any consent, vote, authorization ratification or
                approval by the Company with respect to its membership interest
                or rights in [IDS] related to or in connection with (i) any action
                described in Subsections (a) through (v) above, when undertaken
                or occurring at [IDS], mutatis mutandis; and (ii) the removal,
                replacement, or designation of the Company’s managers in [IDS]
                (the initial managers in [IDS] are Stefan Aigner, Ray DiFalco,
                and Manish Shah).82

         J.     The Patheon, Cerovene, and Daiichi Agreements

         In October 2016, the Board approved resolutions authorizing the Company to

enter into three agreements pertaining to the manufacture and supply of products.83

Under the first agreement, Patheon Pharmaceuticals Inc. was to provide

development, tech transfer, and CMO services to IDS (the “Patheon Agreement”).84

82
   Id. § 5.4(w); see also id. § 5.2(b)(i)(A) (designating Aigner as the initial Series B
Manager), App. I-2 (defining “Founder Members” to mean DiFalco and Shah). The same
form of approval is necessary to terminate or remove a manager of IDT. Id. § 5.4(r).
83
     JX 47; JX 49.
84
     JX 47; JX 46; Tr. 250-51 (Aigner).
                                            20
IDS ran into problems transferring technology to Patheon, which has not

manufactured any products for IDS to date.85

         The second agreement, dated October 12, 2016, is a Product Validation and

Supply Agreement with Cerovene (the “Cerovene Agreement”).86               Under the

Cerovene Agreement, Cerovene agreed to supply MorphaBond to IDS for a seven-

year period at predetermined prices.87

         The third agreement, dated October 21, 2016, is a licensing and supply

agreement with Daiichi Sankyo, Inc. (the “Daiichi Agreement”).88 Daiichi is an

international pharmaceutical company based in Japan with significant operations in

the United States.89 Under the Daiichi Agreement, IDS agreed to: (i) provide

MorphaBond to Daiichi in order for Daiichi to commercialize MorphaBond; and (ii)

“co-promote” MorphaBond and RoxyBond with Daiichi, which means to use a

“coordinated sales force” that is either “employed directly by” IDS or “through Third

Parties” to market the products.90 In exchange, Daiichi agreed to make royalty and

85
     Tr. 77-78 (Aigner); Tr. 611, 615 (Shah).
86
     PTO ¶ 38; JX 48.
87
     JX 48 at 7, 27, 44; Tr. 69 (Aigner).
88
     PTO ¶ 39; JX 51.
89
     Tr. 19, 32 (Aigner).
90
  JX 51 §§ 1.16, 7.1; PTO ¶ 39; Tr. 510-11 (Innaurato). Section 7.2(c) of the Daiichi
Agreement gives IDS the right to opt out of the co-promotion obligation upon 180 days’
written notice to Daiichi.
                                                21
milestone payments to IDS.91 Daiichi also agreed to reimburse IDS for the cost of

co-promotion.92 Significantly, the Daiichi Agreement made Daiichi “responsible for

making all material decisions with respect to the transfer of MorphaBond and

RoxyBond manufacturing to” another CMO “in consultation with” IDS if the

transfer to Patheon “is no longer commercially reasonable.”93

         DiFalco and/or Shah signed the resolutions adopting and approving the

Patheon, Cerovene, and Daiichi Agreements.94 Touam was not involved in these

transactions as the Independent Representative under Section 5.14 of the IDS

Agreement.95

         K.     The March 2017 Resolutions

         On March 30, 2017, Aigner emailed Coyne, DiFalco, Shah and others copies

of a series of written consents of the managers of IDS and, in one case, for IDT, to

approve certain actions.96         In the email, Aigner instructed Coyne to hold the

91
     JX 51 §§ 8.1-8.3.
92
     Id. § 7.2; see also Post-Trial Tr. 132-34 (Dkt. 140).
93
     JX 51 § 6.8(c).
94
     See JX 47 at 3; JX 49 at 3.
95
     Tr. 251 (Aigner); see JX 44 § 5.14(b).
96
  Tr. 83-84 (Aigner); JX 68; see also JX 71 (April 17 email with copies of consents with
additional signatures).
                                               22
resolutions “in escrow until I . . . notify you that they should be released” (the “March

2017 Resolutions”).97 Among other things, the written consents:

           Authorized distributions to each of the members of IDS;98

           Authorized employment agreements for certain IDS employees, including
            Aigner, Martin, Michael A. Innaurato (Chief of Commercial Operations),
            and Matthew Iverson (Vice President of Regulatory and Clinical
            Development), and bonus payments from IDS to Aigner, DiFalco, Shah,
            and others;99

           Acknowledged on behalf of IDS that DiFalco and Shah “diligently and
            efficiently supervised the construction of” improvements and
            infrastructure at the Orangeburg and Valley Cottage Facilities (the
            “Infrastructure”) and resolved to “adopt, ratify, and approve of the actions
            taken by [DiFalco and Shah] and adopt and approve of the transfer and sale
            of any and all right, title and interest in the Infrastructure to Cerovene in
            consideration for Cerovene’s forgiveness of” approximately $810,000 in
            payables IDS owed Cerovene (the “Infrastructure Resolution”);100

           Authorized and approved “the negotiation and execution of a Development
            Agreement by and between [IDS] and Cerovene” for the development of
            two new drugs;101 and

           Authorized IDT to make bonus payments to Martin, DiFalco, and Shah in
            the amount of $50,000 and to Aigner in the amount of $550,000, and to
            make additional bonus payments to approximately twenty Cerovene
            employees.102

97
     JX 68 at 1.
98
     Id. at 2.
99
     Id. at 6, 8, 10.
100
  Id. at 11-12. The final signature page for the Infrastructure Resolution was obtained on
April 18, 2017. See JX 71 at 11-12; JX 75 at 2.
101
      JX 68 at 16, 19.
102
      Id. at 20, 22-23.
                                            23
In addition to transferring the Infrastructure to Cerovene in exchange for forgiveness

of about $810,000 that IDS owed Cerovene and putting to rest Aigner’s grievance

with DiFalco and Shah over the build-out of the Orangeburg Facility, the

Infrastructure Resolution stood to benefit IDS by saving it approximately $500,000

per year in maintenance costs.103

         On April 24, 2017, Aigner sent Coyne an email stating: “Just a reminder –

the IDS resolutions were a package deal, and cannot be released yet until Trygg

sign[s] off on all resolutions.”104 Martin, an officer of IDS who is subordinate to and

has acted as a loyal supporter of Aigner, confirmed that the Infrastructure Resolution

was part of a package deal with the other resolutions listed above.105

         On May 2, 2017, Aigner sent Coyne an email purporting to “rescind” his

consent to the Infrastructure Resolution and directing him to “regard it [as] null and

void.”106 The email, which was not sent to DiFalco or Shah, states that Aigner was

rescinding his consent “[g]iven new information” without explaining what the

information was.107          When asked in deposition to explain what the “new

103
      Id. at 12; Tr. 267-68 (Aigner).
104
      JX 77 (emphasis added).
105
      Tr. 490 (Martin); see also Tr. 718 (DiFalco).
106
      JX 84; Tr. 93-94 (Aigner).
107
      JX 84.
                                              24
information” was, Aigner initially had no recollection and then refused to answer

further questions on the subject through invocation of the attorney-client privilege.108

         The court finds that the March 2017 Resolutions were a “package deal.”109

Nevertheless, Aigner implemented some of them—including the resolution

awarding him a $550,000 bonus—while refusing to implement the Infrastructure

Resolution.110 Aigner provided no credible justification for doing this. Adding

insult to injury, after Aigner caused IDS to renege on the Infrastructure Resolution,

IDS failed to pay the $810,000 in payables and $500,000 in annual maintenance

costs it owed Cerovene.111

         L.     Galephar Comes on the Scene

         By July 2017, Aigner began considering Galephar Pharmaceutical Research,

Inc., a pharmaceutical company based in Puerto Rico, as an alternative CMO to

Patheon because IDS “had no success with Patheon.”112 Aigner concealed from

DiFalco and Shah his exploration of Galephar as an alternative CMO. They only

108
      Aigner Dep. 334-35.
109
   Aigner equivocated at trial about whether the March 2017 Resolutions were a “package
deal.” See Tr. 275 (Aigner). His testimony on this point is not credible given, among other
evidence, Aigner’s own contemporaneous acknowledgement in writing that the March
2017 Resolutions were a “package deal.” See JX 84.
110
      Tr. 276 (Aigner).
111
      Tr. 268-69 (Aigner); Tr. 719-21 (DiFalco).
112
      Tr. 100-02 (Aigner); Tr. 400 (Touam).
                                              25
learned about it when Aaron Kramer, Trygg’s CEO and a Board observer, forwarded

to DiFalco an email Kramer received from Aigner on July 9, 2017, referencing a

term sheet for Galephar.113 Kramer forwarded the email to DiFalco because he

believed “it was obviously something that should have been intended for the Board

and the people involved in manufacturing and not just for me.”114

         Aigner was so upset with Kramer for bringing DiFalco and Shah into the loop

that he tried to enlist Lindsay Goldberg, one of Trygg’s joint venture partners, to

have Kramer removed as an observer on the Board.115 As discussed later in this

opinion, Aigner’s pursuit of Galephar became a significant point of controversy

between him and DiFalco and Shah that bears directly on the deadlock between the

parties with respect to which CMO IDS should recommend to Daiichi to

manufacture IDS’s products.

         M.     The July 2017 Board Meeting

         On July 14, 2017, IDS held a Board meeting at the New York offices of

Lindsay Goldberg in which all the Board members (Aigner, DiFalco, Shah, and

Leduc), Board observers (Kramer and Aiello), and Touam participated.116 The night

before the meeting, Aigner had sent Shah a “threatening letter,” which set “a very

113
      Tr. 726 (DiFalco); Tr. 843 (Kramer); JX 104.
114
      Tr. 844 (Kramer).
115
      JX 113; Tr. 846 (Kramer).
116
      JX 111 at 1.
                                             26
acrimonious tone” for the meeting.117 The parties had a “wide-ranging discussion”

that focused on their grievances with each other.118 Aiello introduced the agenda,

which began: “The Board, which controls the full and entire management of the

business and affairs of the Company, had become deadlocked.”119

            Aigner “indicated that Cerovene has failed to provide IDS with necessary

information and updates on the status of the manufacturing.”120 Shah expressed

frustration that IDS had failed to support Cerovene’s manufacturing efforts in

connection with the Daiichi Agreement and indicated that he may “resign from IDS

and take total control at Cerovene, while [DiFalco] focused solely on his roles at

IDS.”121 Shah then left the Board meeting “due to his extreme frustration.”122

            DiFalco “suggested that the Board composition be changed so as to break the

deadlock.”123 DiFalco:

            indicated that he needs four things for successful management of the
            product: 1) improved corporate governance, to be obtained by adding
            a Trygg representative to the Board, and putting Aaron Kramer in
            charge of the Company’s IPO efforts, 2) the [transfer of the
            Infrastructure at the Orangeburg Facility to Cerovene], 3) direct
            dealings with [Daiichi] (as opposed to dealing with [Daiichi] through

117
      Tr. 840 (Kramer); see JX 111 at 2.
118
      JX 111 at 1.
119
      Id.
120
      Id. at 2.
121
      Id. at 2-3.
122
      Id. at 3.
123
      Id.
                                             27
          IDS) for the completion of the manufacturing batches, and 4) a
          development program, aka a new manufacturing agreement, between
          IDS and Cerovene for the development of future products.124

DiFalco reiterated that “the Company’s corporate governance needs to be fixed” and

“offered to guarant[ee] a successful manufacture of the batches” by Cerovene if

Aigner agreed to a Board change.125 “No formal vote was taken on any topic.”126

          After DiFalco and Shah left the meeting, Kramer implored Aigner to give

DiFalco and Shah “what they’re asking for” and said that the money at stake in

Aigner’s disagreements with DiFalco and Shah was “peanuts compared to the value

of the Company.”127 Kramer credibly recounted Aigner’s response, as follows:

          And [Aigner’s] position was “No. We need to starve them. We need to
          keep them hungry. We need to, you know, wield this big stick, the threat
          of litigation, of bankrupting them, and we need to starve them by, you
          know, delaying payments and not giving them what they want. That’s
          the only way they’re going to behave.” And I think he used the term
          like you’re going to get ray-gunned, that I was naïve in believing that
          by offering the carrot rather than the stick, that there would be some
          resolution, that – he was very certain that these are rotten guys and
          they’re not able to manufacture the product.128

Kramer’s testimony about Aigner’s approach to dealing with DiFalco and Shah is

consistent with the court’s own assessment of his actions and motivations based on

124
      Id. at 4.
125
      Id. at 3-4.
126
      Id. at 6.
127
      Tr. 841-42 (Kramer).
128
      Tr. 842 (Kramer).
                                            28
the entirety of the record. As an example, the court finds from the weight of the

evidence that Aigner’s decision to renege on the Infrastructure Resolution was not

motivated by a desire to pursue what was in the best interest of IDS’s business, but

instead was motivated by Aigner’s personal desire to retain the ability to threaten

litigation against DiFalco and Shah concerning the Orangeburg Facility in order to

exert leverage over them as part of an overall scheme to manage the Company

unilaterally.

          N.        Events Preceding the September 2017 Board Meeting

          On August 22, 2017, DiFalco sent Aigner and others an email asking a series

of due diligence questions concerning the possibility of using Galephar as a CMO

for RoxyBond.129 The next day, in an apparent act of retaliation, Aigner had IDS’s

counsel circulate to the Board for consideration two written consents (the “August

2017 Consents”).130          The first one purported to authorize the transfer of

pharmaceutical manufacturing equipment from the Orangeburg Facility to

Galephar.131 The second one stated that Company “management other than [DiFalco

and Shah] shall have the discretion to exclude and instruct all Company employees,

advisors, and consultants to exclude [DiFalco and Shah] from communications

129
      JX 126.
130
      JX 128.
131
      Id. at 2-3.
                                           29
relating to Affiliate Transactions.”132 Touam signed both written consents later that

day as the Independent Representative for DiFalco and Shah.133

          On August 29, after speaking to DiFalco,134 Touam circulated to Aigner,

DiFalco, Shah, and others a revocation of his approval of the two written consents,

stating:

          When I signed the Consents, I did so with the incorrect understanding
          that the Consents would be protecting Ray DiFalco and Manish Shah.
          I now understand that the Consents took rights away from Ray DiFalco
          and Manish Shah and would exclude Ray DiFalco and Manish Shah
          from communications which I believe they are entitled to receive under
          the IDS Agreement. I thereby revoke my Consents, effective
          immediately.135

          On September 8, 2017, Aiello emailed Aigner a proposed settlement term

sheet intended “to resolve outstanding issues” in part by expanding the Board to five

members, including Kramer.136         On September 10, DiFalco emailed the IDS

managers, members, and observers an agenda for an upcoming Board meeting.137

The agenda contained a number of proposals, including to discuss possible

132
      Id. at 6.
133
      JX 129 at 1 (email from Touam at 10:09 pm on August 23, 2017).
134
      Tr. 410-11 (Touam).
135
      JX 135 at 2.
136
      JX 148 at 1-2.
137
      JX 149.
                                            30
manufacturing options for RoxyBond and to expand the Board to five managers with

no veto rights and simple majority rule.138

          On September 11, Aigner, Leduc, and Touam (as Independent Representative

for DiFalco and Shah) signed a resolution purporting to authorize IDS to retain the

law firm of Zuckerman Spaeder LLP to perform certain services (the “Zuckerman

Resolution”).139 The Zuckerman Resolution states, in relevant part, that:

          IDS has a commercial relationship with Cerovene, Inc., a manufacturer
          and developer of pharmaceutical products that is owned and managed
          by Ray DiFalco and Manish Shah, who also have ownership interests
          and managerial responsibilities at IDS. Zuckerman is being engaged to
          take reasonable and necessary steps to provide legal advice to IDS
          regarding any situation with respect to Cerovene that creates or could
          create a conflict of interest for IDS and to ensure in light of this business
          relationship a decision-making process at IDS that provides for
          appropriate, independent and arms-length decisions that will protect
          IDS’s interests and maximize shareholder value.140

          The Zuckerman Resolution was circulated to the Board on the evening of

September 11.141 Over the next two days, before a Board meeting scheduled for

September 15, DiFalco and Shah had a number of discussions with Touam

expressing their disappointment that he signed the Zuckerman Resolution without

138
      Id. at 2.
139
      PTO ¶ 40; JX 153.
140
      JX 153 at 1-2.
141
      Tr. 416-17 (Touam).
                                               31
speaking to them first and suggesting that he should resign as the Independent

Representative.142

          O.      The September 2017 Board Meeting

          On September 15, 2017, the Board met again at Lindsay Goldberg’s offices.143

Aigner, DiFalco, Shah, Touam, Kramer, Aiello, Martin, Tim Mergenthal (from

Lindsay Goldberg), Coyne, Robert Johnson (from Gibbons), Yehuda Buchweitz and

Adam Dickson (counsel for Trygg), and Aigner and DiFalco’s personal lawyers all

attended in person.144 Leduc, Wold-Olsen, Ola Snove (of Aker AS), Bodd, and Keith

James (IDS’s Controller) participated telephonically.145

          Kramer described the meeting as “a circus from the beginning to the end.”146

Aigner had invited attorneys from Zuckerman Spaeder to attend the meeting, but

Aiello prevented them from entering the premises.147 According to minutes of the

meeting, DiFalco explained that he had not approved retaining Zuckerman Spaeder

and Kramer added that “[Aigner] and [Leduc] have a prior relationship with

142
      Tr. 416-18 (Touam); Tr. 793-94 (DiFalco).
143
      JX 162.
144
      Id. at 1.
145
      Id.; Tr. 336-37 (Aigner); Tr. 850 (Kramer).
146
      Tr. 851 (Kramer).
147
      JX 162 at 2.
                                              32
Zuckerman Spaeder and therefore Zuckerman is not independent.”148 When an

attorney for Trygg (Buchweitz) asked “who retained Zuckerman Spaeder,” Aigner

replied that he, Leduc, and Touam retained the firm on behalf of the Board under

Section 5.14(b) of the IDS Agreement, to which Buchweitz responded that he

interpreted that provision to require that DiFalco and Shah “first determine that they

have a conflict and then disclose the facts concerning the conflicts of interest to the

Board in order to determine that there is an Affiliate Transaction.”149 Aigner asserted

“that conflicts of interest are the most important issue for the Company and are the

cause of the deadlock.”150

          During the course of the meeting, the Board voted on seven proposals:

          1. DiFalco, through his lawyer, proposed “that only Company Board
             members and Observers should be permitted to stay in the meeting
             as well as their legal counsel and Gibbons P.C., as Company
             counsel.”151

          2. DiFalco and Shah proposed “to expand the Company’s Board from
             four (4) members to five (5) members, with none of the members
             having veto rights.”152

148
   Id. In March 2018, a “revised” set of the minutes was prepared at the request of Aigner
and Martin because “they did not want detailed minutes of everyone’s grievances in the
record book.” JX 227; JX 230. The accuracy of the original minutes has not been
questioned.
149
      JX 162 at 2-3.
150
      Id. at 2.
151
      Id. at 3.
152
      Id. at 8.
                                           33
            3. DiFalco proposed “for the Board to instruct Company counsel to
               release the [Infrastructure Resolution] from escrow.”153

            4. Aigner and DiFalco made several competing proposals regarding
               Zuckerman Spaeder. Aigner proposed to let the firm join the
               meeting, that the Board investigate whether DiFalco and Shah have
               a conflict of interest “as it relates to Cerovene,” and “that the Board
               retain Zuckerman Spaeder . . . to advise the Board on conflicts of
               interest issues and process.” DiFalco proposed to “formally fire
               Zuckerman (whose retention is disputed).”154

            5. Aigner proposed to “send a delegation to the Galephar facility”
               including Shah and Touam to “make a determination of Galephar’s
               product development and manufacturing capabilities and report
               back to the Board in ten (10) days. Within that same time, the
               Company shall choose 2 or 3 other CMO’s to be evaluated as soon
               as possible.”155

            6. Someone proposed “[t]o remove the development equipment related
               to the manufacture of RoxyBond currently located at the
               [Orangeburg Facility] and [place it] in storage with a neutral
               party.”156

            7. DiFalco proposed “to combine [IDT] and [IDS] into one merged
               company.”157

153
      Id. at 9.
154
      Id. at 10-11.
155
      Id. at 12.
156
      Id.
157
      Id. at 13.
                                               34
Only the fifth and sixth proposals passed.158 Aigner vetoed the second, third, and

seventh resolutions, which were supported by the three other Board members:

DiFalco, Shah, and Leduc.159

          During the Board meeting, Kramer stated that Aigner had been “trying to use”

the Affiliate Transaction provision of Section 5.14(b) “to effectively push Mr. Shah

and Mr. DiFalco out of [the] decision-making” process.160 At some point during the

meeting, Aigner’s lawyer “said that [Aigner] would be willing to give up his veto

rights in certain circumstances and that they would give us a proposal in writing”

within a number of days, but Aigner never did so.161

          At the end of the September 15 Board meeting, Touam orally resigned as

Independent Representative.162 A few days later, on September 20, Touam wrote to

the Board, stating: “I no longer wish to serve as an Independent Representative as

that term is defined under Section 5.14(b)([ii]) of the IDS Operating Agreement. I

hereby rescind my signature on the IDS Board written consent of September 11 th

2017, engaging the Zuckerman law firm.”163

158
      Id. at 12-13.
159
      Id. at 9, 13-14.
160
      Tr. 852 (Kramer); JX 162 at 4.
161
      Tr. 854 (Kramer).
162
      Tr. 419 (Touam); JX 162 at 15.
163
      JX 163; Tr. 419 (Touam).
                                           35
          P.     Aigner Tries to Outflank DiFalco by Reaching Out to Shah

          After the September 2017 Board meeting, Aigner reached out to Shah

repeatedly in an effort to get Shah to take his side. It is not surprising that Aigner

focused on Shah.           A scientist by training, Shah displayed a calm and non-

confrontational demeanor at trial in sharp contrast to the combative attitude that

Aigner and DiFalco displayed. Aigner’s effort to appeal to Shah ultimately failed

and led Shah to resign from the Board and his position as Chief Science Officer.

          On October 23, 2017, Aigner’s counsel wrote to Shah’s counsel, requesting

that Shah meet with Aigner or his designee and without DiFalco in order “to discuss

a productive path forward.”164 The letter criticized “certain actions by or on behalf

of Ray DiFalco” and stated that “[i]f Mr. Shah is not forthcoming in response to this

letter he is likely to become the target of further investigation” and that the letter

may not be disclosed to Lindsay Goldberg or Trygg, IDS’s major investors.165 A

copy of the letter “was delivered by messenger” to Shah’s house during dinnertime

with his wife, which distressed Shah.166 Shah read the letter to mean that Aigner

164
      JX 184 at 2.
165
      Id. at 2, 5; Tr. 585-86 (Shah).
166
      Tr. 581 (Shah).
                                           36
would investigate and sue him unless he met with Aigner.167 Shah also asked Aigner

to stop making deliveries to his home, but Aigner “repeatedly kept doing it.”168

         In early November 2017, Shah and Aigner met in New York with their

lawyers.169 During the meeting, when the lawyers had left the room, Aigner

confirmed that his purpose for meeting with Shah was to get DiFalco out of the

Company.170 After the meeting, between Christmas and the New Year, Shah’s

lawyers worked to put together a “comprehensive” set of proposals “to take the

Company forward” that were sent to Aigner and his lawyers, but no progress was

made.171

         On May 15, 2018, Gibbons, IDS’s outside counsel, emailed the Board a “draft

IDS Resolution appointing Navin Advani as a replacement Independent

Representative for Manish Shah and re-appointing Hafid Touam as Independent

Representative for Ray DiFalco.”172 DiFalco responded the next day, saying “this is

the first time I am seeing [this] resolution,” “I find it rather disturbing that it is being

circulated without any review on my part,” and “I have NOT chosen Hafid to

167
      Tr. 580 (Shah).
168
      Tr. 581 (Shah).
169
      Tr. 583 (Shah).
170
      Tr. 584-85 (Shah).
171
      Tr. 586-87 (Shah).
172
      JX 254 at 2.
                                            37
represent me at this time.”173 On May 17, 2018, Aigner emailed IDS’s lawyers at

Gibbons, DiFalco, Shah, Touam, and Martin, stating: “At this point please cease all

activities on the release and other bundled resolutions. Currently there is no path

forward for a global solution.”174

          On May 30, 2018, Shah emailed Aigner, DiFalco, Leduc, Touam, and others

a series of proposed resolutions as “an honest effort to move IDS further.”175 The

main resolution was an “omnibus” resolution to approve six agreements including:

(i) consulting agreements between IDS and each of DiFalco and Shah; (ii) an

agreement between Galephar and IDS for Galephar to provide development and tech

transfer services to IDS; (iii) an amendment to the Cerovene Agreement providing,

among other things, that Cerovene “shall give priority to the manufacture of

MorphaBond”; (iv) a master development agreement for Cerovene to develop three

new drugs for IDS; and (v) a general release and purchase agreement between IDS

and Cerovene regarding the Orangeburg Facility.176 Aigner rejected Shah’s package

of proposals, which he thought should not be “bundled.”177

173
      Id. at 1.
174
      JX 255 at 1.
175
      JX 258 at 2.
176
      Id. at 1, 42, 65; Tr. 212-13 (Aigner).
177
      Tr. 220 (Aigner).
                                               38
         On June 26, 2018, Aigner sent an email addressed only to Shah with the

subject line, “Time to think carefully,” which stated:

         We are at a cross roads here. If you resign you are closing doors on
         potential solutions which in my opinion will leave no other path than
         litigation. If you want to avoid being part of it, a resignation from the
         IDS or IDT Board is the last thing you want to do. It is time to think
         carefully which side you want to be on and what you want your future
         to be . . . .178

Ignoring Shah’s prior request, Aigner had a copy of this email delivered to Shah’s

home.179

         On July 6, 2018, Shah’s lawyer contacted Aigner saying that if he did not

agree to the bundle of resolutions by the end of the day, Shah “would resign from

the Board.”180 After Aigner did not agree, Shah resigned as a manager of IDS and

IDT later that day in a letter addressed to “IDS/IDT Board and Members.”181 The

letter stated that Shah’s resignation “is contingent on Ray DiFalco retaining his ‘veto

power’ over Board action unless and until the corporate governance structure is

revised” and that he wanted to

         confirm that any individual appointed to replace me as a Manager of
         IDS does not fully step [into] my shoes, in the sense that he does not
         assume my authority under Section 5.03, and therefore that any future
         Board action requires the affirmative vote of Stefan and Ray (again,
         pending revision of that entire governance structure). I am delivering
178
      JX 271 at 1.
179
      Tr. 594 (Shah).
180
      Tr. 221-22 (Aigner).
181
      Tr. 222 (Aigner); JX 277.
                                            39
         a copy of this Resignation to Gibbons, corporate counsel for IDS,
         seeking their confirmation of this interpretation. If they disagree,
         please consider this Resignation voided and of no force or effect, and
         thereby rescinded.182

         Also on July 6, Aigner sent DiFalco and Shah a notice of dispute in

anticipation of filing this action, which listed as one of the “disputed issues” “Manish

Shah’s further breach of fiduciary duty in threatening to resign as a member of the

board of IDS and IDT if the other board members did not agree to provide certain

personal benefits to him, Ray DiFalco, and their affiliated companies.”183 The notice

arrived by messenger at Shah’s home “minutes” before Shah resigned.184 Aigner

filed this action a few weeks later, on July 27, 2018.185

         Q.     Post-Filing Events

         On August 16, 2018, in advance of a Board meeting scheduled for August 22,

Aigner circulated a presentation describing the current state of IDS.186           The

presentation stated that IDS’s year-to-date revenues from Daiichi through June 2018

were approximately $2.9 million, and that total expenses for the same period were

182
      JX 277.
183
      JX 280 at 1-2; Tr. 598-99 (Shah).
184
      Tr. 598-99 (Shah).
185
      Dkt. 1.
186
      JX 292.
                                          40
approximately $7.4 million.187 As of trial, IDS was expected to have a negative cash

flow of approximately $6 million for all of 2018.188 According to the presentation,

IDS’s cash balance by the fourth quarter of 2019 was projected to be approximately

$4.1 million and thus “IDS can only afford limited R&D activities until fund raising

can be completed.”189

          On August 23, 2018, the day after the Board meeting, DiFalco circulated an

email criticizing Aigner for unilaterally breaking the quorum for the meeting before

the Board could address “many of the pressing issues included on the agenda” and

stating that “[t]he company, as it stands now, is still operating without a board-

approved budget, and without board approval for many of the transactions in which

the company is engaged.”190 DiFalco also proposed a Board resolution to appoint

Arthur Bedrosian, a pharmaceutical company executive, as an Independent

Representative to fill the vacancy left by Touam’s resignation.191 The Board did not

act on this proposal even though Aigner’s original complaint in this action asserted

that “[t]he IDS Operating Agreement and Delaware law require DiFalco and Shah

187
   Id. at 30-31. IDS’s revenues to date have come from the Daiichi Agreement. See Tr.
306 (Aigner); Tr. 858 (Kramer).
188
      Tr. 499 (Martin).
189
      JX 292 at 34, 36.
190
      JX 297 at 1.
191
      Id. at 1, 6, 9-10.
                                          41
to nominate or approve an Independent Representative to” fill the vacancy created

by Touam’s resignation and sought injunctive relief directing them to do so.192

          On September 14, 2018, Aigner sent an email to the Board and various IDS

members with the subject line: “Hafid Touam reassuming his role as Independent

Representative for Ray.”193 Attached to the email was a signed statement from

Touam, which said: “I, Hafid Touam, hereby rescind my letter of resignation as

Independent Representative . . . and state that I am willing and able to resume my

service as an Independent Representative pursuant to Section 5.14 of the” IDS

Agreement.194 A written consent of the Board was drafted to reinstate Touam but it

was never approved.195

          On September 19, 2018, DiFalco filed counter- and third-party claims seeking

judicial dissolution of IDS, appointment of a liquidating trustee, and declaratory and

injunctive relief.196 On September 21, 2018, Aigner had a letter and a draft of an

amended complaint delivered to Shah’s house, once again by messenger.197 In the

manner of a bully, Aigner threatened that the litigation could affect Shah’s family:

192
      Tr. 351 (Aigner); Dkt. 1 ¶¶ 64-67.
193
      JX 313 at 1.
194
      Id. at 2.
195
      JX 311 at 1, 4; Tr. 358 (Aigner).
196
      Dkt. 17 ¶¶ 182-215.
197
      JX 320; Tr. 601 (Shah).
                                           42
          In my original complaint, I only brought limited claims for rulings on
          the agreement so the Company could move forward. It is unfortunate
          that the whole development is now where it is. I always had a feeling
          that you and I were trying to move IDS forward, but at this point
          [DiFalco’s] counterclaims push me to file an amendment . . . which
          could affect you and your family.

          The attached filing, which my lawyers shared with yours, will be filed
          Wednesday unless we find a solution before, which I know we could
          do, but appears unlikely given [DiFalco] and his lawyers’ responses to
          date. Please review it with your personal counsel.198

          On October 15, 2018, Shah resigned as an officer of IDT and IDS.199 On

November 3, 2018, Aigner emailed DiFalco what he described as “a duly enacted

resolution discharging Ray DiFalco as President of IDS effective today” that was

signed by Aigner, Leduc, and Touam.200

          On November 28, 2018, Aigner and Leduc signed a set of three written

consents for the IDS Board: (i) authorizing and approving a Master Development

Services Agreement with Galephar; (ii) stating that the Board, except DiFalco,

opposes dissolution of IDS; and (iii) purporting to elect Roelof Rongen as a manager

of IDS (the “November 2018 Resolutions”).201            Touam signed the first two

resolutions as well.202      Rongen is a former employee and “close friend” of

198
      JX 320 (emphasis added).
199
      PTO ¶ 22.
200
      JX 323 at 1, 4-5.
201
      JX 332 at 1, 5-6, 8.
202
      Id. at 3, 7.
                                           43
Aigner’s.203 The first resolution states that it shall be of no effect if it is determined

in this action that Touam is not a valid Independent Representative for DiFalco and

the third resolution references that the question of whether Rongen inherits Shah’s

voting rights under the IDS Agreement is an issue in this action.204

         On November 30, 2018, the FDA sent Daiichi a “Complete Response” letter

stating that the FDA “cannot approve” Daiichi’s NDA for RoxyBond, dated August

1, 2018, which “proposes [the] addition of” Galephar as a manufacturing site.205 The

letter also stated that “[d]uring a recent inspection of Galephar . . . , our field

investigator observed objectionable conditions at the facility,” and listed a number

of specific steps Daiichi should take to rectify the situation.206 At the time, DiFalco

had “never even seen” a Complete Response letter issued in connection with a tech

transfer.207

203
      Tr. 864 (Kramer).
204
      JX 332 at 2, 8.
205
   JX 338 at 4, 6. The FDA sends Complete Response letters “if the agency determines
that [it] will not approve the application . . . in its present form” for various reasons,
including that the “methods to be used in, and the facilities and controls used for, the
manufacture, processing, packing, or holding of the drug substance or the drug product are
inadequate to preserve its identity, strength, quality, purity, stability, and bioavailability.”
21 C.F.R. §§ 314.110, 314.125.
206
      JX 338 at 4-5.
207
    Tr. 777 (DiFalco). At Daiichi’s request, Cerovene has not been involved in the tech
transfer of RoxyBond to Galephar. Iverson Dep. 43. As of trial, Daiichi and IDS had been
working with another CMO called Catalent to manufacture RoxyBond, but the status of
that effort is unclear from the record. See Tr. 614-16 (Shah); Tr. 881 (Kramer).
                                              44
          After trial, on January 7, 2019, the FDA issued a second Complete Response

letter.208 The second letter is substantively the same as the first but concerns a

different (fifteen milligram) dosage of RoxyBond.209

II.       PROCEDURAL HISTORY

          After this action was filed on July 27, 2018, Aigner amended his complaint

three times, culminating in a third amended complaint filed on December 8, 2018

(the “Complaint”).210 On September 19, 2018, DiFalco and Shah filed an answer to

an earlier pleading and DiFalco filed three counterclaims and third-party claims

seeking       the    same      relief   against   Aigner   and   IDS,   respectively   (the

“Counterclaim”).211

          The Complaint asserts six claims: (1) breach of fiduciary duty for damages;

(2) fraud; (3) breach of contract; (4) declaratory relief; (5) a second claim for breach

of fiduciary duty; and (6) breach of the IDS Agreement and its transparency policy.

The Counterclaim asserts three claims for: (1) judicial dissolution of IDS under 6
Del. C. § 18-802; (2) appointment of a liquidating trustee under 6 Del. C. § 18-803;

and (3) declaratory and injunctive relief.

208
      Def.’s Reply Br. Ex. A (Dkt. 126).
209
      Id. at 1; JX 338 at 4.
210
      Dkt. 108.
211
      Dkt. 17.
                                                  45
         On November 13, 2018, the parties agreed to bifurcate their claims so that the

only claims to be tried initially would be Aigner’s claim for declaratory relief (the

fourth cause of action in the Complaint) and the three claims in DiFalco’s

Counterclaim.212 Although Aigner’s articulation of the declaratory relief he seeks

has shifted from time to time, his post-trial brief seeks four declarations along the

following lines, i.e., that:

         1. Section 5.14 of the IDS Agreement bars DiFalco from using his
            Veto Rights on the selection of CMOs or development partners;

         2. Touam validly rescinded his resignation as Independent
            Representative and is currently authorized to act as an Independent
            Representative under Section 5.14 of the IDS Agreement;

         3. The Zuckerman Resolution was validly approved and not revoked;
            and

         4. Rongen was validly elected as a manager of IDS and assumed
            Shah’s Veto Rights.213

212
      Dkt. 69 at 30; see also PTO ¶ 15.
213
    Pl.’s Opening Br. 38, 46, 50, 52 (Dkt. 135). The Complaint and the Pre-Trial Order
sought some additional or differently worded declarations. See, e.g., Compl. ¶ 138 (seeking
declaration “that individuals that are not managers (or Observers or Independent
Representatives, in the case of IDS) are not entitled to attend board meetings unless such
individuals are invited to attend by appropriate action of the board”); PTO ¶ 87 (seeking
declaration that “DiFalco is conflicted for purposes of Section 5.14 of the IDS Agreement
with respect to any decision by the Board relating to this litigation or his claim for
dissolution”); PTO ¶ 88 (seeking declaration “that only Managers and Observers may
attend meetings of the Board unless the Board votes to permit others to attend”). To the
extent any declaration sought in the Complaint or Pre-Trial Order was not addressed in
Aigner’s opening post-trial brief, such request for relief is waived. See Emerald P’rs v.
Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”).
                                            46
         On November 16, 2018, Aigner sought injunctive relief to require DiFalco

and Shah to provide documents to IDS’s auditor, BDO USA, LLP, concerning the

build-out of the Orangeburg Facility. According to Aigner, BDO had sought these

documents to complete its review of the financial statements of IDS and IDT for

2016 and 2017.214 On December 6, 2018, the court denied Aigner’s request for

injunctive relief, which was not the subject of any claim in Aigner’s pleading at the

time, but permitted him to amend his pleading to add such a claim in order to litigate

the issue at trial if he wished to do so.215

         On December 7, 2018, Daiichi filed a motion to intervene in this action.216

The motion was focused on protecting Daiichi’s interests if the court ordered

dissolution. Accordingly, the motion was placed in abeyance pending the court’s

ruling on whether IDS should be dissolved.217

         A three-day trial was held from December 10-12, 2018. Post-trial argument

and submissions were completed by March 15, 2018.

214
      Dkt. 53 at 1-2.
215
      Dkt. 115 at 46-56.
216
      Dkt. 107.
217
      Dkt. 130 at 140-42.
                                               47
III.        ANALYSIS

            Unless otherwise indicated below, the proponent of each claim has “the

burden of proving each element, including damages, of each” cause of action “by a

preponderance of the evidence.”218 “[P]roof by a preponderance of the evidence

means that something is more likely than not.”219 For purposes of the following

analysis, the court refers primarily to DiFalco, rather than to DiFalco and Shah, in

addressing issues of deadlock for simplicity and given Shah’s resignation as a

manager of IDS and IDT before trial.220

            The core issue in this case is whether it is reasonably practicable for IDS to

carry on its business in accordance with the IDS Agreement. Before analyzing this

issue, the court will address two declarations Aigner seeks in order to clarify the

current state of the governance of IDS: Aigner’s request for declarations (1) that

Touam is currently authorized to act as DiFalco’s Independent Representative under

Section 5.14 of the IDS Agreement on the theory that he validly rescinded his

resignation, and (2) that Rongen was validly elected as a manager of IDS and

assumed Shah’s voting rights under the IDS Agreement.

218
    Physiotherapy Corp. v. Moncure, 2018 WL 1256492, at *3 (Del. Ch. Mar. 12, 2018)
(citation and internal quotation marks omitted).
219
      Id.
220
      PTO ¶ 22; JX 277.
                                              48
         The issues addressed in this opinion all turn on the contractual interpretation

of provisions in the IDS Agreement, which is governed by Delaware law.221 The

court’s “task is to fulfill the parties’ shared expectations at the time they contracted,

but because Delaware adheres to an objective theory of contracts, the contract’s

construction should be that which would be understood by an objective, reasonable

third party.”222 “The contract must also be read as a whole, giving meaning to each

term and avoiding an interpretation that would render any term ‘mere

surplusage.’”223 “If a contract is unambiguous, extrinsic evidence may not be used

to interpret the intent of the parties, to vary the terms of the contract or to create an

ambiguity.”224 “A contract is not rendered ambiguous simply because the parties do

not agree upon its proper construction.”225 “If, after applying these canons of

contract interpretation, the contract is nonetheless reasonably susceptible [to] two or

more interpretations or may have two or more different meanings, then the contract

221
      JX 44 § 13.03.
222
    Leaf Invenergy Co. v. Invenergy Renewables LLC, 2019 WL 1965888, at *6 (Del. May
2, 2019) (internal quotation marks and alterations omitted).
223
   Sunline Commercial Carriers, Inc. v. CITGO Petroleum Corp., 2019 WL 1068183, at
*8 (Del. Mar. 7, 2019).
224
      Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
225
   Rhone-Poulenc Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del.
1992).
                                              49
is ambiguous and courts must resort to extrinsic evidence to determine the parties’

contractual intent.”226

         A.       Touam Ceased to Be an Independent Representative When He
                  Resigned from the Position in September 2017

         It is stipulated that (i) Touam was the person designated in Section 5.14 of the

IDS Agreement as the Independent Representative for DiFalco and Shah in

situations involving conflicts of interest, (ii) he orally resigned from this position on

September 15, 2017, and (iii) he confirmed his resignation in writing by letter dated

September 20, 2017.227 That letter stated: “I no longer wish to serve as an

Independent Representative as that term is defined under Section 5.14(b)([ii]) of the

IDS Operating Agreement.”228 The record thus reflects that Touam resigned from

his position as Independent Representative unconditionally as of September 15,

2017.229 Despite these established facts, Aigner advances essentially two arguments

for why the court should declare that Touam is currently authorized to act as the

Independent Representative for DiFalco under Section 5.14. Both arguments fail.

226
      Sunline, 2019 WL 1068183, at *8 (citation and internal quotation marks omitted).
227
      PTO ¶ 26.
228
      JX 163.
229
   See Rypac Packaging Mach. Inc. v. Coakley, 2000 WL 567895, at *5 (Del. Ch. May 1,
2000) (director and officer resigned as of date he told another officer he “was resigning,”
which was about two months before he submitted a formal resignation letter).
                                             50
         First, Aigner contends as a factual matter that DiFalco and Shah improperly

pressured Touam to resign so that the “only equitable result would be to put the

parties back in the position they were ex ante” by declaring that Touam shall be

DiFalco’s Independent Representative “so long as he is willing and able” to perform

that task.230 Aigner fails to identify any legal authority or specific provision of the

IDS Agreement to support this type of request. Putting that aside, the argument fails

because its factual premise is not supported by the record.

         It is correct, as Aigner points out, that Touam testified that he would not have

resigned in September 2017 if DiFalco and Shah had not asked him to do so.231 But

Touam also testified credibly that DiFalco and Shah never threatened or coerced him

into resigning and that he made the decision to resign because he did not want to

continue to be put in the middle of a “difficult situation” between Aigner, on the one

hand, and DiFalco and Shah, on the other hand—all of whom Touam had known for

many years and considered to be friends.232

         It is entirely understandable that Touam would reach this conclusion given the

evident animosity and lack of trust that pervaded the relationship between Aigner

and DiFalco and Shah in the months leading up to his resignation. In particular,

230
      Pl.’s Reply Br. 27 (Dkt. 128); Pl.’s Opening Br. 47.
231
      Tr. 419 (Touam).
232
   Tr. 438-40 (Touam); see also Touam Dep. 181-82, 185-86; Tr. 793-94 (DiFalco); Tr.
653 (Shah).
                                              51
Aigner had been asking Touam to approve written consents purporting to authorize

actions on behalf of DiFalco and Shah only to learn after the fact that they took

exception to them, and for legitimate reasons. Aigner employed this tactic in

connection with the August 2017 Consents, which caused Touam to revoke his

signature after realizing the consents took rights away from DiFalco and Shah,233

and in connection with the Zuckerman Resolution, where legitimate questions were

raised about Aigner and Leduc’s past relationship with the law firm. Based on the

preponderance of the evidence, including Touam’s testimony, the court finds that

Touam’s resignation in September 2017 was voluntary and that DiFalco and Shah

did not act in an improper manner with respect to Touam’s resignation that would

justify reinstating him as Independent Representative by equitable decree.234

         Second, Aigner contends that Touam resumed his position as an Independent

Representative on September 14, 2018, when he purported to rescind his resignation.

233
      JX 135 at 2.
234
    In Godden v. Franco, the court found that an “Independent Manager” provision in an
LLC agreement “envisions ongoing independence” and not just independence at the time
of election and that “the implied covenant of good faith and fair dealing would prohibit
either side from co-opting the Independent Manager after he was selected.” 2018 WL
3998431, at *16 (Del. Ch. Aug. 21, 2018). Here, although the evidence is too obscure to
support any definitive findings, it appears that Touam may have been offered opportunities
that could have affected his independence in the direction of both factions at various times.
See Tr. 411-13 (Touam); JX 147 at 1 (referencing potential employment opportunity for
Touam at Cerovene); Tr. 424-26 (Touam); JX 299 (discussing promise Aigner, DiFalco,
and Shah collectively made to pay Touam a $275,000 bonus if “Galephar delivers
RoxyBond before end of August 2018”).
                                             52
According to Aigner, this is because “there is no provision [in the IDS Agreement]

for Touam to resign permanently” and thus he “could be ‘unable or unwilling’ at one

point in time (e.g., ill or out of the country) but willing and able at other times” to

serve as an Independent Representative.235 In other words, as Aigner sees it, Touam

was free to oscillate in and out of the role of Independent Representative at will and

thus was free to return to the position when he purported to rescind his resignation

without even obtaining Board approval.          The fundamental flaw in this novel

argument is that it cannot be squared with the plain language of the IDS Agreement.

         Section 5.14(b)(ii) of the IDS Agreement states, in relevant part, that Touam

“shall” exercise DiFalco’s voting rights when DiFalco is an Interested Manager and

that “[i]n the event” that “Touam is unwilling or unable to serve as an Independent

Representative, the Board shall appoint a replacement.”236 The italicized language

supports the conclusion that, upon indicating an unwillingness to serve, 237 Touam

relinquished and could not unilaterally resume the position of Independent

Representative because, in that circumstance, the Board is obligated to appoint a

235
      Pl.’s Opening Br. 46.
236
      JX 44 § 5.14(b)(ii).
237
   Indicating an unwillingness to serve is substantively the same as resigning in my view.
For this reason, I disagree with Aigner’s bizarre suggestion that the IDS Agreement does
not permit “Touam to resign permanently” based on the fact that Sections 5.11 and 5.12
permit a manager to “resign at any time” and be replaced by the remaining members of the
Board. See Pl.’s Opening Br. 46-47.
                                           53
replacement. This interpretation is bolstered by the absence of any language in the

IDS Agreement (i) suggesting that an Independent Representative could resume that

role after a period of unwillingness to serve or (ii) making conditional the tenure of

a “replacement” so as to provide an opening for an Independent Representative to

resume the position automatically if he wished to do so.

         In short, it would make no sense for the IDS Agreement to require that the

Board “appoint a replacement” without qualification after an Independent

Representative indicates he is unwilling or unable to serve if, as Aigner contends,

the intent of the provision was to allow the Independent Representative to pop in and

out of the position of his own accord. Rather, Section 5.14 plainly contemplates a

binary situation, i.e., either the Independent Representative occupies the position and

thus is available to vote for an Interested Manager when necessary or, if he becomes

unwilling or unable to serve, he is out of the position and a replacement is to be put

in his place. The provision is equally unequivocal that Board action is necessary to

fill a vacancy after an Independent Representative becomes unwilling or unable to

serve.

         Notably, Aigner, DiFalco, and Shah each recognized—before and after this

litigation began in July 2018—that this is how Section 5.14 was intended to operate

because they both attempted to fill the Independent Representative position that

Touam vacated in 2017 through Board action. On May 15, 2018, IDS’s counsel

                                          54
circulated a draft resolution to reappoint Touam as Independent Representative for

DiFalco and Shah.238 On September 7, 2018, about one week before Touam

purported to rescind his resignation, Aigner circulated a written consent of the Board

to “approve of the reappointment of Hafid Touam to serve as the Independent

Representative” in order to authorize an amendment of the Cerovene Agreement.239

Similarly, on September 15, 2018, a day after Touam purported to rescind his

resignation, Aigner circulated a draft resolution of the Board to “acknowledge that

Hafid Touam shall resume his service as Independent [Representative] pursuant to

Section 5.14 of the [IDS] Agreement.”240 If Aigner believed that the IDS Agreement

permitted Touam to resume his role as Independent Representative unilaterally,

circulating these resolutions would have been unnecessary.

         For his part, DiFalco twice attempted to fill the vacancy created by Touam’s

resignation as Independent Representative through Board action. The first attempt

was on October 23, 2017, when DiFalco asked the Board to approve Navin Advani

to replace Touam as the Independent Representative for himself and Shah under

238
      JX 254 at 2.
239
     JX 307 at 2-3. This was Aigner’s second line of attack to fill the vacancy created by
Touam’s resignation. As noted above, Aigner’s initial complaint sought injunctive relief
requiring “DiFalco and Shah to nominate or approve an Independent Representative” to
fill the vacancy. Dkt. 1 ¶¶ 64-67.
240
      JX 310 at 2; JX 311 at 1-2.
                                           55
Section 5.14.241 The second attempt was on August 23, 2018, when DiFalco

circulated a written consent of the Board to appoint Arthur Bedrosian as Touam’s

replacement under Section 5.14.242 Finally, Shah sought to reappoint Touam as the

Independent Representative through Board action, albeit for the sole purpose of

authorizing certain resolutions in May 2018 that Shah proposed in an effort to

resolve the disputes with Aigner.243

         In sum, even if Section 5.14(b)(ii) were ambiguous, which it is not in the

court’s opinion, the parties’ course of conduct demonstrates their shared

understanding that Board action is necessary to fill a vacancy of the Independent

Representative position and that a person who resigned from that position cannot

unilaterally reinstate himself by purporting to rescind his resignation.244

                                       *****

         For the reasons explained above, under the plain language of Section 5.14,

Touam has had no authority to serve as an Independent Representative since

September 15, 2017, when he unequivocally expressed his unwillingness to serve in

that role. Three consequences flow from this ruling. First, Aigner’s request for a

241
      JX 185.
242
      JX 297 at 6.
243
      JX 258 at 97.
244
   See In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (“When construing
ambiguous contractual provisions, Delaware courts are permitted to consider the parties’
course of dealing.”).
                                          56
declaration that Touam is currently authorized to serve as an Independent

Representative must be denied. Second, the November 3, 2018 written consent

terminating DiFalco as President, which Touam purported to sign as an Independent

Representative on behalf of DiFalco, is invalid.245 Third, the November 28, 2018

written consent approving a Master Development Services Agreement with

Galephar, which was conditioned on the court determining that Touam was

authorized to act on behalf of DiFalco, is of no force or effect by its own terms.246

         B.     Rongen Was Not Validly Elected as a Manager of IDS and Would
                Not Have Assumed Shah’s Voting Rights Even if He Were

         Aigner requests a declaration that “Rongen should be confirmed as a manager

of IDS with Shah’s voting rights.”247 This request implicates two questions: (1) was

Rongen validly elected as a manager of IDS and, if so, (2) would Rongen have

assumed Shah’s voting rights? For the following reasons, the answer to both

questions is no.

                1.       Rongen Was Not Validly Elected as a Manager of IDS

         The facts relevant to determining Rongen’s status are straightforward and not

in dispute. On July 6, 2018, Shah resigned as a manager of IDS (as well as IDT),

creating a vacancy on the Board, which then consisted of three managers: Aigner,

245
      See JX 323.
246
      See JX 332 at 2.
247
      Pl.’s Opening Br. 52.
                                           57
DiFalco, and Leduc.248 On or about November 28, 2018, Aigner and Leduc signed

a written consent of the Board purporting to elect Rongen as a manager of IDS

“effective immediately” (the “Rongen Consent”).249 The Rongen Consent further

stated that “the question whether Mr. Roelof Rongen as a Manager will have voting

rights identical to Manish Shah will be resolved in” this action.250 Whether Rongen

was validly elected to the Board is a pure legal question that implicates several

provisions in the IDS and IDT Agreements.

          First, Section 5.12 of the IDS Agreement, which addresses Board vacancies,

provides as follows:

          Any vacancy in the Board, including one created by an increase in the
          number of Managers, may be filled by (a) election at a meeting of the
          Members called for that purpose by the affirmative vote of the Members
          holding a majority of the aggregate number of outstanding Common
          Units at such time or (b) the affirmative vote of a majority of the
          remaining Managers (though less than a quorum of the Managers).251

Subsection (a) of this provision is irrelevant because Rongen’s putative appointment

was not implemented by a vote of IDS’s members but instead was implemented by

a vote of managers acting by written consent under subsection (b).

248
      PTO ¶ 22; JX 277.
249
      JX 332 at 8-10.
250
      Id. at 8.
251
      JX 44 § 5.12.
                                           58
          Second, Section 5.02(a) of the IDS Agreement states that “[p]rior to an IPO,

the Board shall consist entirely of the individuals designated by the IDT Investors,

acting together . . . , which initially shall be Stefan Aigner, Ray DiFalco, Manish

Shah, and Gerard Leduc.”252 Section 5.11 contains a parallel provision. It states that

the managers of IDS “may only be removed and replaced by the IDT Investors then

holding Common Units.”253 Importantly, as of the date of the Rongen Consent,

Section 5.4(w) of the IDT Agreement prohibited “any consent, vote, authorization

ratification or approval by [IDT] with respect to its membership interest or rights in

[IDS] related to or in connection with . . . the removal, replacement, or designation

of [IDT’s] managers in [IDS]” without “the written consent or affirmative vote of”

both Aigner and DiFalco.254

          Third, as discussed above, Sections 5.03 and 5.09 of the IDS Agreement

contain Veto Rights that, subject to the conflict of interest provision in Section 5.14,

permit Aigner and DiFalco to veto any action of the Board.

          DiFalco argues that the interplay of these provisions renders the Rongen

Consent invalid for two independent reasons. The court agrees for the reasons

explained next.

252
      Id. § 5.02(a). The term “IDT Investors” means IDT and IDT Royalty, LLC. Id. at 5.
253
      Id. § 5.11.
254
      JX 39 § 5.4(w).
                                            59
      DiFalco’s lead argument is that the Rongen Consent violated Section 5.02(a)

of the IDS Agreement because IDT never designated Rongen to serve on the IDS

Board and IDT could not do so because DiFalco’s approval would have been

necessary for IDT to take that action. Aigner does not dispute that Section 5.02(a)

means that before an IPO of IDS, which has not occurred, the IDS Board must

consist of individuals acceptable to IDT, the 72% owner of IDS. Nor does Aigner

dispute that DiFalco had the authority under Section 5.4(w) of the IDT Agreement

to veto Rongen as a designee to the IDS Board.

      Aigner’s only substantive response to the legal effect of Section 5.02(a) is

that, “[t]o the extent Sections 5.02 and 5.12 conflict, settled rules of contract

interpretation require that the court prefer specific provisions over more general

ones.”255 Under Delaware law, “the specific provision ordinarily qualifies the

meaning of the general one” only “where specific and general provisions

conflict.”256 In this case, however, there is no conflict. Section 5.12(b) permits the

255
    Pl.’s Reply Br. 28 (internal quotation marks and alterations omitted). Aigner argues in
the alternative that Sections 5.02(a) and 5.12 “can be harmonized” by reading Section
5.02(a) “to apply to removal and replacement [of] managers pursuant to Section 5.11 . . .
but not necessarily to filling the vacancy of [a] manager that has resigned under Section
5.12.” Id. at 29. As noted above, Section 5.11 provides that “[a]ny Manager may resign
at any time” and that prior to an IPO, “the Managers may only be removed and replaced
by the IDT Investors then holding Common Units.” JX 44 § 5.11. Aigner offers no logical
reason why Section 5.02(a) should be applied differently depending on how the vacancy
was created (i.e., resignation versus removal) and the court sees none.
256
   DCV Hldgs., Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (“Specific language
in a contract controls over general language, and where specific and general provisions
                                            60
remaining managers to fill a vacancy on the Board notwithstanding the potential lack

of a quorum (subject to Aigner and DiFalco’s Veto Rights, as discussed next) while

Section 5.02(a) is a qualification provision that limits the pool of potential candidates

before an IPO to individuals acceptable to IDT. Consistent with foundational

principles of contract interpretation, this construction harmonizes and gives meaning

to both provisions at issue, obviating any need to prefer one over the other.257

         DiFalco next argues that the Rongen Consent violated his Veto Rights in

Sections 5.03 and 5.09, which require DiFalco’s approval for any action of the

Board. Section 5.03 states, in relevant part, that

         [a]ction of the Board shall be authorized by the vote of a majority of
         the Managers present at the time of the vote if there is a quorum, unless
         otherwise provided by this Agreement; provided, however, that such
         majority shall include the affirmative vote of (i) Stefan Aigner and (ii)
         at least one of Ray DiFalco or Manish Shah.258

conflict, the specific provision ordinarily qualifies the meaning of the general one.”)
(emphasis added) (affirming trial court’s holding that specific-over-the-general rule
applied where the two relevant provisions conflicted such that the application of one
“would render [the other] meaningless”); see also Sonitrol Hldg. Co. v. Marceau
Investissements, 607 A.2d 1177, 1184 (Del. 1992) (stating that “where there is an
inconsistency between general provisions and specific provisions, the specific provisions
ordinarily qualify the meaning of the general provisions”) (quoting Stasch v. Underwater
Works, Inc., 158 A.2d 809, 812 (Del. Super. Ct. 1960)); Katell v. Morgan Stanley Gp., Inc.,
1993 WL 205033, at *4 (Del. Ch. June 8, 1993) (same); Restatement (First) of Contracts
§ 236(c) (“Where there is an inconsistency between general provisions and specific
provisions, the specific provisions ordinarily qualify the meaning of the general
provisions.”) (emphasis added).
257
   See Sunline, 2019 WL 1068183, at *8 (“The contract must also be read as a whole,
giving meaning to each term and avoiding an interpretation that would render any term
‘mere surplusage.’”).
258
      JX 44 § 5.03.
                                            61
Focusing on the phrase italicized above, Aigner counters that “Section 5.12

‘otherwise provides’ an alternative voting mechanism that differs from the voting

mechanism set forth in Section 5.03.”259 This argument misconstrues the use of the

phrase “otherwise provided” in Section 5.03. That phrase plainly modifies the

immediately preceding text that requires as a default rule a quorum to take Board

action at a meeting.

         The fallacy in Aigner’s argument also is borne out by the fact that the phrase

“otherwise provided” does not even appear in Section 5.09, which applies the same

Veto Rights to action taken by written consent. No logical reason has been advanced

why Section 5.12 would provide an “alternative voting mechanism” for a Board

action taken at a meeting as opposed to (and as was attempted here with the Rongen

Consent) a Board action taken by written consent.

         “When interpreting a contract,” Delaware courts “will give priority to the

parties’ intentions as reflected in the four corners of the agreement, construing the

agreement as a whole and giving effect to all its provisions.”260 Here, Sections 5.03,

5.09, and 5.12 are easily harmonized. Sections 5.03 and 5.09 afford specific

individuals special Veto Rights for any Board action while Section 5.12 simply

259
      Pl.’s Opening Br. 53.
260
      Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014) (internal quotation marks omitted).
                                             62
provides that for one particular Board action—filling a vacancy in the Board—the

Board “may” act by the “affirmative vote of a majority of the remaining Managers”

even in the absence of a quorum without disturbing the Veto Rights. Given that all

three provisions are given effect through this construction without curtailing the

unbounded nature of the Veto Rights, and given the absence of any reference

whatsoever to the Veto Rights in Section 5.12, it would be unreasonable in my

opinion to read into Section 5.12 a sub silentio exception to the Veto Rights

expressly set forth in Sections 5.03 and 5.09.

                2.     Rongen Would Not Have Assumed Shah’s Voting Rights
                       Even if He Had Been Validly Appointed as a Manager

         Having concluded that Rongen was not validly elected as a manager of IDS,

it is not necessary to decide whether he would have assumed Shah’s voting rights

had he been validly elected. In the interest of providing the litigants additional

guidance to assess their options going forward, however, the court will reach this

issue.

         In my opinion, Rongen would not have assumed Shah’s voting rights even if

he had been validly appointed to the Board. Sections 5.03 and 5.09 confer the Veto

Rights on Aigner, DiFalco, and Shah by name without stating or suggesting that

those rights could be assumed by their successors as managers.261 It is entirely

261
      See JX 44 §§ 5.03, 5.09.
                                         63
logical that these rights were intended to be personal to these specific individuals

given their status as the founders of the business. Indeed, the IDS Agreement

distinguishes between the “Managers” as a whole and the three founders. Section

5.02 of the IDS Agreement provides that the IDS Board “initially” shall consist of

four managers and adds as the fourth manager a person (Leduc) who—unlike

Aigner, DiFalco, and Shah—was not a founder and does not have Veto Rights. The

provision of Veto Rights to Aigner, DiFalco, and Shah by name in Sections 5.03 and

5.09, while not providing such rights to Leduc or to the founders’ successors as

managers elsewhere in the IDS Agreement, demonstrates that new managers of IDS

were not intended to share in the special rights assigned to the founders personally.

      Aigner cites no language in the IDS Agreement suggesting that the Veto

Rights conferred on the founders by name were intended to pass on to their

replacements. Given that it was foreseeable when the IDS Agreement was signed

that managers could resign, die, or become incapacitated, it would have been easy

for the drafters to include such language, but they did not. Bereft of any textual

support for his position, Aigner resorts to arguing that he “bargained for” a voting

structure that left him “an option” not to have to deal solely with DiFalco because

he “viewed Shah as more reasonable.”262 Aigner’s subjective views about what he

262
   Pl.’s Opening Br. 54-55; Pl.’s Reply Br. 31. Relying on the text of the IDT Agreement,
Aigner also argues that “the way the IDS Agreement abandons the ‘Founder Member’
concept and declines to give DiFalco and Shah the right to approve the replacement of the
                                           64
believes he did or did not bargain for, however, are not relevant to interpreting the

text of the IDS Agreement under Delaware’s objective theory of contracts.263

         Finally, Aigner argues that holding that the Veto Rights pass to Shah’s

replacement is “necessary to allow the Board to function.”264 This misses the point.

By creating Veto Rights and assigning them to named individuals, the parties created

the possibility that the Board might deadlock and cease to function if those

individuals cannot agree on important decisions. The “policy” of the Delaware

Limited Liability Company Act is “to give the maximum effect to the principle of

freedom of contract.”265 Unfortunately, as this case shows, that freedom allows

parties to adopt contractual arrangements that do not work, particularly when the

principals do not trust each other and do not get along.

other managers of IDS” is probative of “what each party ‘bargained for.’” Pl.’s Reply Br.
31. Apart from the fact that I have concluded that the Veto Rights do apply to the filling
of a Board vacancy, as discussed above, this extrinsic evidence is irrelevant because I do
not find the IDS Agreement to be ambiguous with respect to the personal nature of the
Veto Rights. See Eagle Indus., 702 A.2d at 1232 (“If a contract is unambiguous, extrinsic
evidence may not be used to interpret the intent of the parties, to vary the terms of the
contract or to create an ambiguity.”).
263
   See, e.g., Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (“Delaware
adheres to the ‘objective’ theory of contracts, i.e. a contract’s construction should be that
which would be understood by an objective, reasonable third party.”) (internal quotation
marks omitted and emphasis added).
264
      Pl.’s Opening Br. 55; see Pl.’s Reply Br. 31.
265
      6 Del. C. § 18-1101(b).
                                               65
         C.     Judicial Dissolution Is Warranted in This Case Because It Is Not
                Reasonably Practicable to Carry on the Business of IDS in
                Conformity with the IDS Agreement

         The court next addresses DiFalco’s counterclaim for dissolution.        The

Delaware LLC Act provides that “[o]n application by or for a member or manager

the Court of Chancery may decree dissolution of a limited liability company

whenever it is not reasonably practicable to carry on the business in conformity with

a limited liability company agreement.”266         The IDS Agreement expressly

incorporates this provision. It states that IDS “shall be dissolved and its affairs

wound up upon . . . the entry of a decree of judicial dissolution with respect to the

Company under Section 18-802 of the Delaware Act.”267 DiFalco is a manager of

IDS and in that capacity has advanced a claim for dissolution.268 Thus, the only

question before the court is whether it is “reasonably practicable” for IDS “to carry

on [its] business” in conformity with the IDS Agreement.

         “The ‘not reasonably practicable’ standard does not require a petitioner to

show that the purpose of the limited liability company has been completely

frustrated.”269 “The text of § 18-802 does not specify what a court must consider in

266
      6 Del. C. § 18-802.
267
      JX 44 § 10.02(c).
268
      PTO ¶ 21; Dkt. 17 ¶ 184.
269
   In re: GR BURGR, LLC, 2017 WL 3669511, at *5 (Del. Ch. Aug. 25, 2017) (internal
quotation marks omitted).
                                          66
evaluating the ‘reasonably practicable’ standard, but several convincing factual

scenarios have pervaded the case law: (1) the members’ vote is deadlocked at the

Board level; (2) the operating agreement gives no means of navigating around the

deadlock; and (3) due to the financial condition of the company, there is effectively

no business to operate.”270 None of these factors is “individually dispositive; nor

must they all exist for a court to find it no longer reasonably practicable for a

business to continue operating.”271

            With respect to deadlock, “when an LLC agreement requires that there be

agreement between two managers for business decisions to be made, those two

managers are deadlocked over serious issues, and the LLC agreement provides no

alternative basis for resolving the deadlock, it is not reasonably practicable to

continue to carry on the LLC business in conformity with [its] limited liability

company agreement.”272 Ultimately, if the “deadlock cannot be remedied through a

legal mechanism set forth within the four corners of the operating agreement,

dissolution becomes the only remedy available as a matter of law.”273

270
   Fisk Ventures, LLC v. Segal, 2009 WL 73957, at *4 (Del. Ch. Jan. 13, 2009) (Chandler,
C.).
271
      Id.
272
   Vila v. BVWebTies LLC, 2010 WL 3866098, at *7 (Del. Ch. Oct. 1, 2010) (internal
quotation marks omitted and emphasis removed) (Strine, V.C.).
273
      Fisk Ventures, 2009 WL 73957, at *7.
                                             67
      The court will analyze whether it is reasonably practicable for IDS to carry on

its business in accordance with the IDS Agreement in two parts: first, by examining

whether the Board is deadlocked over important issues, and second, by examining

whether the IDS Agreement provides a mechanism for resolving the deadlock.274

These issues are addressed in turn below.

             1.    The IDS Board Is Deadlocked on Numerous Important
                   Issues

      As explained in detail above, the relationship between Aigner, on the one

hand, and DiFalco and Shah, on the other hand, has been turbulent and defined by

distrust and animosity for at least two years. An early episode occurred in May 2017,

when Aigner reneged on implementing the Infrastructure Resolution, which was

intended to put to rest any controversy over the Orangeburg Facility as part of a

“package deal” of resolutions. As explained previously, Aigner took this action

while implementing other resolutions in the package beneficial to him in order to

preserve his ability to threaten litigation over the Orangeburg Facility as leverage

over DiFalco and Shah.

      In July 2017, tensions increased when DiFalco learned from Trygg’s CEO

(Kramer) that Aigner secretly was exploring using Galephar as a CMO. After

DiFalco found out, Aigner sought to remove Kramer as a Board observer in advance

274
   See, e.g., Vila, 2010 WL 3866098, at *6-8 (analyzing deadlock, then whether the
agreement contained a solution); Fisk Ventures, 2009 WL 73957, at *4-5 (same).
                                         68
of an acrimonious Board meeting held later that month, during which Aigner

confessed to Kramer his plan “to starve” DiFalco and Shah to make them “behave”

when Kramer questioned Aigner’s refusal to compromise with DiFalco and Shah.275

         Over the following months, Aigner obtained Touam’s approval of the August

2017 Consents and the Zuckerman Resolution hurriedly before DiFalco or Shah

could have any say on those matters. When these tactics did not achieve their

intended result, Aigner tried to outflank DiFalco by appealing to Shah, DiFalco’s

longtime friend and business partner, to take Aigner’s side. These efforts became

confrontational and led to Shah’s resignation in July 2018 as a manager of the

Company he co-founded—an act of apparent frustration and desperation in dealing

with Aigner. Aigner then filed suit and, while this litigation was pending, attempted

to install Rongen as a manager, to resurrect Touam as an Independent

Representative, and to have Touam sign a resolution without any advance notice to

DiFalco to conditionally approve a product development agreement with Galephar.

         Underlying the rupture in their relationship, Aigner, DiFalco, and Shah have

been at loggerheads over issues of fundamental importance to the Company and its

future. Three examples of significant deadlocks between the two sides follow.276

275
      Tr. 842 (Kramer).
276
    In the context of a dissolution claim, “deadlock” means disagreement and discord
between the parties. See Vila, 2010 WL 3866098, at *7 (citing as evidence of “deadlock”
the fact that the managers “are unable to agree” on several important issues); Fisk Ventures,
2009 WL 73957, at *4 (discussing the parties’ “long history of disagreement and discord”
                                             69
      First, Aigner and DiFalco fundamentally disagree over who IDS should

partner with to develop new products. This is perhaps the most pressing issue facing

the Company. Aigner believes that Galephar would be a suitable development

partner and enlisted Touam’s assistance just weeks before trial to approve a new

agreement with Galephar for it to provide development and tech transfer services to

IDS for two new products.277 On the other hand, DiFalco and Shah have articulated

ostensibly legitimate concerns about using Galephar (both as a CMO and as a

development partner), namely Galephar’s: (i) location in Puerto Rico, which poses

logistical issues; (ii) lack of understanding of aspects of the manufacturing process

for IDS’s products and deficiencies in its equipment; (iii) willingness to sell its

facility to IDS, which DiFalco perceives to be Galephar’s real agenda; (iv)

unwillingness to include a non-compete provision in an agreement with IDS; and (v)

failure to successfully manufacture RoxyBond.278 DiFalco also is understandably

in analyzing whether “deadlock” exists); see also Meyer Nat. Foods LLC v. Duff, 2015 WL
3746283, at *3 (Del. Ch. June 4, 2015) (“Deadlock refers to the inability to make decisions
. . . .”).
277
   JX 332 at 1, 3; see JX 258 at 54, 59. As noted above, the resolution purporting to
approve the agreement with Galephar was expressly made conditional on the court
determining that Touam validly rescinded his resignation as Independent Representative.
JX 332 at 2.
278
   Tr. 727-35, 775-78 (DiFalco). Kramer also expressed serious concerns about partnering
with Galephar due to the extreme damage inflicted on Puerto Rico by Hurricane Maria in
September 2017. JX 170; see JX 169.
                                            70
concerned about Aigner’s secrecy regarding his communications with Galephar.279

         Second, Aigner and DiFalco disagree about which CMO to recommend to

Daiichi. From Aigner’s perspective, Galephar is an attractive option for a CMO

because it: (i) has experience with a unique ingredient used in IDS’s products; (ii)

represented that it could complete a tech transfer for RoxyBond without any

assistance from Cerovene; and (iii) indicated that it was willing to sell its

manufacturing facility to IDS “down the road.”280 DiFalco, on the other hand, has

opposed Galephar as a CMO for the reasons explained above. The second Complete

Response letter received after trial from the FDA raises additional questions about

Galephar’s suitability to manufacture RoxyBond, consistent with DiFalco’s

concerns. The disagreement is consequential because of its obvious importance to

the commercial success of IDS’s only two FDA-approved products.

         Aigner asserts that “there is no current disagreement as to CMOs” because

“the Board approved Patheon, Galephar and Catalent.”281          That assertion is

misleading. Under the Daiichi Agreement, Daiichi is “responsible for making all

material decisions with respect to the transfer of MorphaBond and RoxyBond

manufacturing to” another CMO if Patheon is unable to act as the CMO, and to do

279
      See Tr. 726 (DiFalco).
280
      Tr. 102-03 (Aigner).
281
      Pl.’s Opening Br. 56 n.20.
                                         71
so “in consultation with” IDS.282 Patheon has never successfully manufactured

either product.283 Currently, only MorphaBond is being manufactured, and only by

Cerovene, which does not have the capacity of CMOs like Patheon or Catalent.284

Thus, the question of which CMO to recommend to Daiichi remains open for both

products—that is, which CMO to recommend for RoxyBond to commence

commercial manufacturing of that product, and which to recommend for

MorphaBond for any additional capacity needed beyond what Cerovene can provide.

         Third, Aigner and DiFalco disagree over the strategic vision for the Company,

in particular whether IDS should expend resources to employ its own sales

representatives to market its products. Aigner envisions IDS as an integrated

pharmaceutical company with its own in-house sales force, which he thinks will

deliver better margins than hiring an outside firm.285                DiFalco has opposed

developing an in-house sales force because he believes that is not the Company’s

“sweet spot” and that IDS’s priority should be drug development.286 The sales force

282
      JX 51 § 6.8(c).
283
      Tr. 611, 614-15 (Shah).
284
      Tr. 549, 599-600 (Shah).
285
      Tr. 18 (Aigner).
286
   Tr. 764 (DiFalco); JX 187 at 1 (stating in an email to Aigner and others regarding the
sales force issue that “the ability to rely upon a seasoned [Daiichi] sales force that [Daiichi]
will train and provide all of the necessary experience and information seems vastly
preferable to me”).
                                              72
issue not only has long term consequences, but directly impacts the current financial

condition of the Company. In the first half of 2018, IDS spent about as much on

sales and marketing as it did on manufacturing and research and development

combined as the Company aggressively hired sales representatives at Aigner’s

direction.287

         Aigner contends that the disagreement regarding the sales force is a “trumped-

up fiction” and a “red herring” because the Daiichi Agreement “requires [IDS] to

retain a sales force” and because “DiFalco never presented the issue to the Board for

a vote and, if he did, he would be in the minority.”288 The court disagrees. As to the

first contention, the Daiichi Agreement does require IDS to “co-promote” the

products “using a coordinated sales force of” sales representatives, but the

representatives may be “employed directly by” IDS or hired “through Third Parties,”

which are defined as “any legal person, entity or organization other than” IDS,

Daiichi, or their affiliates.289

         As to the second contention, Aigner has it backwards. The problem is not that

DiFalco would not get his way if he sought Board approval to fire employees. The

287
    JX 292 at 7 (noting that “44 IDS Specialty Sales Representatives” had been hired and
trained “since March 2018 thru June/July” of 2018), 31 (showing expenses of $2,477,134
for sales and marketing and $2,535,134 for manufacturing and research and development).
288
      Pl.’s Opening Br. 57-59.
289
   JX 51 §§ 1.16, 1.68, 7.1. The agreement also gives IDS the right to opt out of the co-
promotion obligation altogether upon 180 days’ written notice to Daiichi. Id. § 7.2(c).
                                           73
problem is that Aigner did not obtain DiFalco’s approval to make the strategic

decision to hire a sales force in the first place. To be more specific, there is no

indication in the record that the Board ever affirmatively approved hiring a sales

force, a proposal DiFalco would have been within his rights to block using his Veto

Rights, or that Aigner ever obtained DiFalco’s consent under Section 5.15 to hire a

sales force acting in his capacity as CEO.290

                                          *****

       In sum, the current state of play at the Company is that the Board consists of

three managers (Aigner, DiFalco, and Leduc), two of whom (Aigner and DiFalco)

disagree vehemently on issues critical to the Company’s management and business

strategy. Those same two individuals have Veto Rights that apply by default to any

action of the Board and consent rights that apply to officer-level decisions. If that

were the end of the analysis, dissolution of the Company would be a foregone

conclusion.291 Thus, the only question that remains is whether the conflicts of

290
    Citing an October 2017 email exchange (JX 187), Aigner contends that “DiFalco
ultimately never objected to an internal salesforce.” Pl.’s Reply Br. 36. To repeat, Section
5.15 provides that the CEO shall “in general supervise and control the business and affairs
of the corporation subject to the advice and consent of the President.” JX 44 § 5.15. Fairly
read, the October 2017 email exchange reflects a discussion of alternatives and cannot
legitimately be construed as unqualified consent by DiFalco to employ an internal sales
force.
291
   See, e.g., Vila, 2010 WL 3866098, at *1 (granting dissolution of LLC because of
deadlock between two owners who controlled equal 49% stakes with the remaining 2%
held by a trust that took no position in the dispute); Haley v. Talcott, 864 A.2d 86, 89 (Del.
                                             74
interest provision in Section 5.14 provides a viable mechanism to make it reasonably

practicable to carry on the business of the Company. That issue is addressed next.

             2.     Section 5.14(b) Does Not Provide a Workable Mechanism to
                    Resolve the Deadlock

      As with all things in this case, Aigner and DiFalco sharply disagree over the

meaning of Section 5.14(b) and whether it provides a workable mechanism to

resolve the parties’ fundamental disagreements concerning the management of IDS

and its business strategy. Aigner contends that the provision can work and that the

Company’s current dysfunction will be resolved if the court grants his request for a

categorical declaration that Section 5.14(b) bars DiFalco from using his Veto Rights

on the selection of CMOs or development partners. DiFalco contends that the

provision does not work and that Aigner has misused the provision as a weapon to

marginalize DiFalco’s role in managing the Company. For the reasons explained

next, the court concludes that Section 5.14(b) does not provide a workable

mechanism to resolve the deadlock between Aigner and DiFalco so as to make it

reasonably practicable to carry on the business of IDS in conformity with the IDS

Agreement.

Ch. 2004) (Strine, V.C.) (granting dissolution of LLC because petitioner “demonstrated an
indisputable deadlock between the two 50% members of the LLC”).
                                           75
         Section 5.14(b) states, in relevant part, that IDS “shall not take any action

pertaining to the rights and obligations of [IDS] relating to an Affiliate Transaction,

other than in accordance with the paragraphs below:”

                       (i) Any Manager with a conflict of interest concerning an
                Affiliate Transaction (an “Interested Manager”) shall disclose
                the conflict of interest to the Board and shall describe all material
                facts concerning the Affiliate Transaction and the conflict of
                interest that are known to the Interested Manager.

                      (ii) In case Stefan Aigner is the Interested Manager, the
                voting, consent or similar rights as a member of the Board with
                respect to any Affiliate Transaction shall be exercised by Kip
                Martin, as an independent party (an “Independent
                Representative”), whether at a meeting of the Board or by written
                consent. In case Ray DiFalco or Manish Shah is the Interested
                Manager, the voting, consent or similar rights as a member of the
                Board with respect to any Affiliate Transaction shall be exercised
                by Hafid Touam, as an Independent Representative, whether at a
                meeting of the Board or by written consent. In the event Kip
                Martin or Hafid Touam is unwilling or unable to serve as an
                Independent Representative, the Board shall appoint a
                replacement Independent Representative.292

Subsection (b)(i) is referred to, at times, as the “Disclosure Requirement.” The term

“Affiliate Transaction” is defined in Section 5.14(b) broadly to encompass not only

actual arrangements involving a manager, but transactions that “could impact” an

arrangement involving a manager:

         An “Affiliate Transaction” shall mean: (i) an arrangement for goods,
         services or space by and between the Company and a Manager or any
         Affiliate of a Manager, (ii) a Company transaction which could impact

292
      JX 44 § 5.14(b).
                                             76
       an arrangement with an Affiliate in which a Manager has a direct or
       indirect personal or financial interest, (iii) any business dealing,
       undertaking, contract, agreement, lease or other arrangement where a
       Manager has a conflict of interest, including any arrangement for
       goods, services or space, or (iv) a transaction that could impact other
       Affiliate Transactions which the Company entered into or is
       contemplating entering into.293

       As an initial matter, because of Touam’s resignation, no Independent

Representative is currently in place to vote for DiFalco on matters to which Section

5.14(b) might apply. Board action would be required to name a replacement, and

there is every reason to believe that Aigner and DiFalco would deadlock on this

decision as well. Indeed, all of their efforts to date to appoint a new Independent

Representative to replace Touam have failed. For this reason alone, Section 5.14(b)

fails to provide a workable mechanism to break the deadlock between Aigner and

DiFalco. But even if a new Independent Representative for DiFalco were in place—

for example, if the court were to appoint one—Section 5.14(b) would fail to provide

a workable solution to the deadlock in my opinion.

       Trial of this action exposed two aspects of Section 5.14(b) that appear to be

the root cause of the problems with its application. First, Section 5.14(b) does not

specifically address who decides when the Independent Representative must step in

293
   Id. (emphasis added). The term “Affiliate” is defined as “any other Person that, directly
or indirectly, Controls, is under common Control with or is Controlled by such Person.”
Id. § 1.01. “Person” means both individuals and business entities and “Control” is “the
power to direct or cause the direction of the management and policies of such Person.” Id.
                                            77
to vote for an Interested Manager. Second, the scope of the provision is inherently

vague and ambiguous. These two issues are addressed, in turn, below.

          On the first issue, DiFalco contends that “Section 5.14(b) is not an automatic

recusal provision . . . but rather a procedural safeguard designed to protect a

conflicted Manager from potential liability for duty of loyalty breaches.”294

According to DiFalco, the provision is not triggered unless a manager steps forward

to acknowledge that he has a “conflict of interest concerning an Affiliate

Transaction.”295 Put differently, DiFalco argues that satisfaction of the Disclosure

Requirement in subsection (b)(i) is a precondition to the ability of an Independent

Representative to vote under subsection (b)(ii).

          For his part, Aigner observes that “the term ‘Interested Manager’ is defined

as a Manager with a conflict of interest concerning an Affiliate Transaction, not a

Manager with a conflict who also discloses his interest in the transaction.”296 Aigner

thus argues that “determining whether a Manager is an Interested Manager is an

objective standard, not dependent on whether the Manager discloses that interest.”297

And, although he does not say so explicitly, Aigner’s past conduct demonstrates that

he believes that if he determines in his own mind that DiFalco is an Interested

294
      Def.’s Opening Br. 56 (Dkt. 122).
295
      JX 44 § 5.14(b)(i).
296
      Pl.’s Opening Br. 44 (emphasis in original).
297
      Id. at 44-45.
                                              78
Manager with respect to some matter, he may immediately proceed to invoke the

Independent Representative provision unilaterally.

         In my opinion, DiFalco’s interpretation accords with the text and structure of

Section 5.14(b) and provides the only reasonable interpretation on the “who decides”

question. I begin with the text. Section 5.14(b) states, in the sentence immediately

preceding subsections (b)(i) and (b)(ii), that the “Company shall not take any action

pertaining to the rights and obligations of the Company relating to an Affiliate

Transaction, other than in accordance with the paragraphs below.”298 This sentence

indicates that the Company cannot take any action regarding an Affiliate Transaction

unless both subsections (b)(i) and (b)(ii) are followed. In other words, the plain

language of Section 5.14(b) supports the conclusion that disclosure by the Interested

Manager—which is the only obligation set forth in subsection (b)(i)—is required in

order to utilize the Independent Representative to vote on a Board matter under

subsection (b)(ii).

         The structure of Section 5.14(b) confirms this interpretation. The Disclosure

Requirement in subsection (b)(i) appears before the Independent Representative

provision in subsection (b)(ii), and logically should be satisfied before the

Independent Representative provision is triggered. This sequence makes sense

298
      JX 44 § 5.14(b) (emphasis added).
                                           79
because the other Board members would need to know about the facts and

circumstances concerning a conflict of interest before they would know to use the

Independent Representative provision.        It also serves the salutary purpose of

permitting the Independent Representative (and other Board members) to consider

the Interested Manager’s disclosure of “all material facts concerning the Affiliate

Transaction and the conflict of interest that are known to the Interested Manager” in

order to vote in a fully informed manner.299

          The fundamental problem with Aigner’s interpretation is that, by letting any

manager unilaterally invoke the Independent Representative provision in subsection

(b)(ii), it reads the Disclosure Requirement out of Section 5.14(b). Thus, as a textual

matter, Aigner’s interpretation is unreasonable because it violates the basic principle

that “a contract should be interpreted in such a way as to not render any of its

provisions illusory or meaningless.”300 Furthermore, as a practical matter, Aigner’s

interpretation is problematic because it provides opportunities for mischief by

permitting someone to circumvent the Veto Rights set forth in Sections 5.03 and

5.09 of the IDS Agreement.

          Consider, for example, when Aigner took it upon himself in August 2017 to

obtain Touam’s signature on a written consent to effectively allow Aigner to

299
      Id. § 5.14(b)(i).
300
      Sonitrol, 607 A.2d at 1183.
                                           80
“exclude” DiFalco and Shah “from communications relating to Affiliate

Transactions” as an apparent act of retaliation after DiFalco asked due diligence

questions about using Galephar as a CMO for RoxyBond.301 By invoking Section

5.14(b) unilaterally, Aigner circumvented DiFalco’s Veto Rights in an effort to

rewrite his contractual informational rights as a manager and President of IDS and

to curtail his common law informational rights as a fiduciary of the Company.302

The court can discern no justification for this action.

         On the other side of the ledger, an obvious challenge to applying Section

5.14(b) under DiFalco’s interpretation is that its utility depends on the good faith of

the manager to identify a conflict of interest. If one manager believes another

manager failed to make a required disclosure, judicial relief is available to provide a

remedy,303 although it is not difficult to imagine scenarios where the Company’s

301
      JX 129 at 2, 4.
302
    The IDS Agreement provides that the “Managers shall have fiduciary duties of loyalty
and care similar to that of directors of business corporations organized under the Delaware
General Corporation Law.” JX 44 § 5.14(a). Under Delaware law, a “director’s right to
information is essentially unfettered in nature” and presumptively includes “equal access
to board information.” Kalisman v. Friedman, 2013 WL 1668205, at *3 (Del. Ch. Apr. 17,
2013) (internal quotation marks omitted); Moore Bus. Forms, Inc. v. Cordant Hldgs. Corp.,
1996 WL 307444, at *5 (Del. Ch. June 4, 1996) (internal quotation marks omitted).
303
    Aigner cites Mobile Communications Corp. of America v. MCI Communications Corp.,
1985 WL 11574, at *4 (Del. Ch. Aug. 27, 1985), which holds that “[t]he ‘prevention
doctrine’ provides that a party may not escape contractual liability by reliance upon the
failure of a condition precedent where the party wrongfully prevented performance of that
condition precedent.” Consistent with this holding, DiFalco and Shah expressly
acknowledge that they could face liability for failing to make a disclosure required under
Section 5.14(b)(i). See Def.’s Opening Br. 60 n.213; Def.’s Reply Br. 26-27.
                                            81
governance could become paralyzed if that were its only recourse. That said, the

presumption that managers will act in good faith in complying with their obligations

in Section 5.14(b) is supported by the plain text and structure of the provision, and

Aigner has not identified a single occasion when DiFalco or Shah failed to make a

disclosure he believes should have been made under Section 5.14(b)(i) of the IDS

Agreement since that agreement became effective.304

         When pressed at post-trial argument on the source of Aigner’s putative

authority to decide when the Independent Representative should vote, his counsel

advanced a brand new argument that Touam is the one who gets to decide.305 There

are many problems with that suggestion, including that (i) no text in the IDS

Agreement supports this interpretation, (ii) there is no indication in the record that

this is how Section 5.14(b) actually has been implemented, (iii) having the

Independent Representative decide when to vote does not negate the Disclosure

Requirement in subsection (b)(i), and (iv) having the Independent Representative

decide without the benefit of the disclosure from a putatively Interested Manager

would be a recipe for uninformed decision-making.306

304
   Aigner takes issue with DiFalco’s failure to disclose “various related-party transactions
in connection with the Orangeburg Facility build-out.” Pl.’s Reply Br. 17. That conduct,
however, predated implementation of the IDS Agreement.
305
      Post-Trial Tr. 49.
306
   In support of the “Touam should decide” argument, Aigner’s counsel pointed to an
unsigned draft of a joint written consent of the members and managers of IDT Royalty,
LLC from August 2016 that apparently was acceptable to DiFalco and Shah. Post-Trial
                                            82
          In short, of the two interpretations of Section 5.14(b) the parties have

proffered on the question of who decides when the Independent Representative

provision is triggered, DiFalco’s interpretation is the only textually reasonable one.

This conclusion has an important consequence, which is that the Independent

Representative provision cannot be applied—and thus DiFalco’s Veto Rights remain

intact—unless and until DiFalco discloses to the Board that he has “a conflict of

interest concerning an Affiliate Transaction.”307 Because that process was not

followed when Aigner unilaterally obtained signatures for the Zuckerman

Resolution, that action was invalid.308

          The second interpretative issue with Section 5.14(b) concerns the scope of the

provision. Subsection (b)(i) defines an “Interested Manager” as a manager “with a

conflict of interest concerning an Affiliate Transaction.”309 The term “conflict of

interest” is not defined in Section 5.14(b) or anywhere else in the IDS Agreement.

Tr. 78-81. It states, with respect to supply chain issues, that “[s]hould Hafid Touam
determine in his sole judgment that the Founding Members [i.e., DiFalco and Shah] do not
appear to be acting in good faith towards [IDT Royalty, LLC], the Founding Members shall
recuse themselves from a vote and Hafid Touam shall cast their votes.” JX 28 at 4. This
language never made its way into the IDS Agreement and thus is irrelevant.
307
      JX 44 § 5.14(b)(i).
308
   See supra Section I.N. The Zuckerman Resolution is invalid for the independent reason
that DiFalco was not provided notice of the proposed action at least two business days
before the written consent was signed. See JX 44 § 5.09 (requiring that notice of a proposed
action by written consent be “delivered to each Manager and Observer at least two (2)
Business Days prior to such action”).
309
      Id. § 5.14(b)(i).
                                            83
As discussed previously, Section 5.14(b) defines the term “Affiliate Transaction” in

four subparts, two of which appear to encompass potential conflicts of interest, i.e.,

those that “could impact” certain arrangements or other transactions.310

          Focusing on the definition of “Interested Manager,” Aigner contends that the

phrase “conflict of interest concerning an Affiliate Transaction” simply means that

the manager “has an interest in the Affiliate Transaction.”311 But this construction

gives no independent meaning to the term “conflict of interest” as used in that

definition. One way to give the term “conflict of interest” independent meaning for

purposes of defining what constitutes an “Interested Manager” is to construe the term

to apply only to “actual” conflicts of interest.

          The distinction between “actual” and “potential” conflicts of interest is

important under Delaware law. It has been used to demarcate when a fiduciary

wearing two hats can be liable for acting disloyally.312 Relatedly, in the context of

interested director transactions, only “sufficiently material” interests can rebut the

business judgment rule presumption, the determination of which is a “fact-

dominated question.”313 Notably, one of the four subparts of the definition of

310
      Id. § 5.14(b).
311
      Post-Trial Tr. 66-67.
312
   See Cooke v. Oolie, 2000 WL 710199, at *12-13 (Del. Ch. May 24, 2000) (Chandler,
C.) (holding that plaintiffs failed to rebut presumption of business judgment rule where
they had only identified “a potential conflict of interest” as opposed to “an actual conflict”).
313
      Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 364 (Del. 1993).
                                              84
“Affiliate Transaction” refers to “where a Manager has a conflict of interest,”

suggesting that this narrower meaning of the term may have been intended for

purposes of Section 5.14(b).314 The court, however, cannot discern from the four

corners of the contract whether this meaning was intended or whether “conflict of

interest” was intended to mean any potential conflict of interest. In other words, the

definition of the term “Interested Manager” is facially ambiguous.

         The drafting history of Section 5.14(b) shows that Aigner sought to broaden

the provision to cover potential conflicts of interest by adding the phrase “could

impact” in various drafts, but it is unclear whether the ultimate provision reflects a

shared intention on that point. As the drafting history shows, it was suggested at one

point that the term “conflict of interest” be defined to include the “could impact”

language, but that definition ultimately was dropped and the undefined term was

used instead to qualify the term “Affiliate Transaction” when defining the term

“Interested Manager”:

              The first draft of Section 5.14(b) defined “Conflict of Interest”
               as when a manager “has a direct or indirect personal or financial
               interest in a transaction or other matter involving the Company,”
               and defined “Affiliate Transaction” simply as “any arrangement
               for goods, services or space by and between the Company and a
               Manager or any Affiliate of a Manager.”315 It omitted the “could
               impact” language altogether.

314
      JX 44 § 5.14(b).
315
      JX 17 at 1.
                                           85
              The second iteration, which appears to have come from the
               Aigner side of the table, formally defined the term “Conflict of
               Interest,” providing that one exists with respect to a transaction
               if the “transaction could impact other agreements the company
               might have entered into or is contemplating entering . . . which
               is an Affiliate Transaction.”316

              The third iteration dropped the formal definition of “Conflict of
               Interest,” using the undefined term “conflict of interest” instead,
               but it introduced the “could impact” language in two parts of an
               expanded, four-part definition of Affiliate Transaction and
               defined an “Interested Manager” as simply a manager “with a
               conflict of interest.”317

              The fourth iteration, which became the operative version of
               Section 5.14(b), changed the definition of Interested Manager to
               a manager “with a conflict of interest concerning an Affiliate
               Transaction.”318

In sum, the court cannot discern from the plain language of Section 5.14(b) or its

drafting history whether the shared intention of the parties was that a manager would

be an “Interested Manager” only if he had an actual conflict of interest or if he had

either an actual or potential conflict of interest. Equally problematic, the court

cannot discern what the outer boundary of the latter concept would be even if that

was the shared intention given the inherent vagueness of the term “could impact.”

316
      JX 29 (emphasis added).
317
      JX 30 at 1.
318
      JX 36 at 1, 28-29.
                                            86
The bottom line is that the scope of Section 5.14(b) is inherently vague and

ambiguous.

         What is clear from the record in this case is that the ambiguity and vagueness

inherent in the scope of Section 5.14(b), combined with the fact that the provision is

silent on who decides when the Independent Representative provision is triggered,

has allowed Aigner to use Section 5.14(b) improperly to circumvent DiFalco’s Veto

Rights and to marginalize his managerial role in the Company. Consider the parties’

dispute over the selection of a CMO for RoxyBond.

         DiFalco testified credibly that “Cerovene is not involved in making

RoxyBond,” “we never said we were going to make it,” and “[w]e don’t want to

make it.”319 Cerovene also does not have the capacity or equipment to make

RoxyBond.320 Despite these facts, Aigner has excluded DiFalco from any decision-

making role in the selection of a CMO for RoxyBond and asks the court for a

categorical, forward-looking declaration that Section 5.14(b) bars DiFalco from

using his Veto Rights on the selection of any CMOs as well as development partners.

In essence, Aigner’s position appears to be that, so long as DiFalco owns an interest

319
      Tr. 752-53 (DiFalco).
320
   Tr. 549 (Shah) (explaining that Cerovene’s current production capacity is limited to
making “small batches” of MorphaBond); Tr. 735-36 (DiFalco) (explaining that “coating
equipment . . . integral to the production of RoxyBond and MorphaBond” was removed
from the Orangeburg Facility).
                                           87
in Cerovene and it is theoretically possible that he could change his mind about

having Cerovene make RoxyBond, DiFalco should be disqualified from having any

say on the important business issue of what CMO to recommend to Daiichi.321 This

seemingly limitless interpretation of the scope of Section 5.14(b) defies common

sense and demonstrates the unworkability of the provision.322

         In Vila v. BVWebTies LLC, Chief Justice Strine, writing as Vice Chancellor,

commented that “this court has rejected the notion that one co-equal fiduciary may

ignore the entity’s governing agreement and declare himself the sole ‘decider.’” 323

After finding that the manager of an LLC with a duty to cooperate with a co-equal

manager had “unilaterally arrogated to himself decisionmaking authority over” the

321
    See Post-Trial Tr. 175 (arguing that DiFalco retained a conflict of interest on the
selection of a CMO for RoxyBond even after equipment necessary for its production was
moved out of the Orangeburg Facility because “the equipment can be put back in”).
322
   Lest there be any doubt, the court rejects Aigner’s request for a categorical declaration
that Section 5.14(b) bars DiFalco from using his Veto Rights on the selection of CMOs or
development partners. Apart from the fact that such a declaration would not be warranted
based on the facts as of the time of trial, it would be imprudent to grant what amounts to
an advisory opinion about hypothetical conflicts of interest that may exist in the future, the
resolution of which would necessarily depend on the specific facts and circumstances at
the time. See KLM Royal Dutch Airlines v. Checchi, 698 A.2d 380, 382 (Del. Ch. 1997)
(“Advisory opinions ill-serve the judicial branch and the public by expending resources to
decide issues that may never come to pass. More importantly, the judiciary’s role in the
lawmaking process is an interstitial one, carried out by the application of legislative
enactments and common law principles to concrete factual circumstances that have
created real and present controversies. An action seeking declaratory relief is not exempt
from these requirements and must present the court with an actual controversy that is ripe
for judicial decision. The dispute between the parties, therefore, must be actual, not
hypothetical.”) (emphasis added).
323
      2010 WL 3866098, at *8.
                                             88
company, the court ordered judicial dissolution based on its conclusion that “it is not

reasonably practicable for the LLC to operate consistently with its operating

agreement.”324 The same conclusion is compelled here.

       To summarize, the IDS Agreement is structured to require Aigner and DiFalco

to obtain each other’s “advice and consent” in fulfilling their duties as CEO and

President, respectively, and—now that Shah has resigned as a manager—provides

each of them with the presumptive right to veto any Board action. In other words,

the operating agreement affords Aigner and DiFalco co-equal rights to manage the

Company. As a factual matter, the past two years of their relationship demonstrates

that Aigner and DiFalco do not trust each other, do not get along, and are deadlocked

on issues critical to the Company. And, for the reasons discussed above, Section

5.14(b) provides no workable solution to these problems. To the contrary, by acting

unilaterally to invoke the Independent Representative provision, and by exploiting

the inherently ambiguous and vague scope of that provision in the process, Aigner

has arrogated to himself virtually unfettered control over the Company’s

management in contravention of the governance structure contemplated in the IDS

Agreement.      Given this reality, the court concludes that it is not reasonably

324
    Id. at *1, *6; see also Haley, 864 A.2d at 91, 96, 98 (holding that it was “not reasonably
practicable for the LLC to continue to carry on business in conformity with the LLC
Agreement” where one co-equal manager had “forbid[]” the other “to enter the premises”
of the business and argued “that the LLC can and does continue to function” under his sole
management).
                                             89
practicable to carry on the business of the Company in conformity with the IDS

Agreement. The only remaining question is one of remedy, which is addressed next.

                3.        Judicial Dissolution of IDS Is Warranted

         Section 10.02(c) of the IDS Agreement provides that IDS “shall be dissolved

and its affairs wound up upon . . . the entry of a decree of judicial dissolution . . .

under Section 18-802 of the Delaware Act.”325               Although dissolution “is a

discretionary remedy” under that statute,326 this court routinely exercises its

discretion to dissolve LLCs when the statutory standard is met. 327 Section 18-803

of the Delaware LLC Act further provides that the court may appoint a liquidating

trustee upon dissolution of an LLC for “cause shown.”

         In a footnote, Aigner argues that, “[i]f the Court enters any relief, it should be

similar to the limited relief awarded in Kleinberg v. Aharon.”328 In that case, the

court declined to order the sale of a deadlocked company and instead appointed a

custodian with the power to vote as a tie-breaking director under Section 226 of the

325
      JX 44 § 10.02(c).
326
      Meyer Nat. Foods, 2015 WL 3746283, at *3.
327
   See, e.g., GR BURGR, 2017 WL 3669511, at *1; Meyer Nat. Foods, 2015 WL 3746283,
at *5-6; In re Shawe & Elting LLC, 2015 WL 4874733, at *1 (Del. Ch. Aug. 13, 2015);
Vila, 2010 WL 3866098, at *1, *14; Fisk Ventures, 2009 WL 73957, at *1; In re Silver
Leaf, L.L.C., 2005 WL 2045641, at *11 (Del. Ch. Aug. 18, 2005); Haley, 864 A.2d at 98.
328
      Pl.’s Opening Br. 60 n.22.
                                             90
Delaware General Corporation Law.329 The court declines to follow that course here

and finds that cause has been shown to appoint a liquidating trustee under Section

18-803 of the Delaware LLC Act for essentially three reasons.

         First, unlike the entity at issue in Kleinberg, IDS is a Delaware limited liability

company.        Limited liability companies have been described as “creatures of

contract”330 in reference to the policy of the Delaware LLC Act “to give the

maximum effect to the principle of freedom of contract and to the enforceability of

limited liability company agreements.”331 In this case, the IDS Agreement does not

contain a buy-sell provision or any other provision prescribing a solution for

deadlock where the mechanism in Section 5.14(b) has proven unworkable. And, as

a former Chancellor once said, the court “is in no position to redraft the LLC

Agreement for these sophisticated and well-represented parties.”332

         Second, the dispute between Aigner and DiFalco (as well as Shah before his

resignation) extends back more than two years during which all of their attempts to

fix the Company’s governance problems have failed.               Aigner single-handedly

defeated one of those attempts over eighteen months ago when he vetoed a resolution

to expand the Board from four to five members without veto rights even though the

329
      2017 WL 568342, at *1, *15 (Del. Ch. Feb. 13, 2017).
330
      TravelCenters of Am., LLC v. Brog, 2008 WL 1746987, at *1 (Del. Ch. Apr. 3, 2008).
331
      6 Del. C. § 18-1101(b).
332
      Fisk Ventures, 2009 WL 73957, at *7.
                                             91
proposal was supported by Leduc,333 whose independence Aigner has repeatedly

touted. The court has no confidence that a reprise of that proposal in the form of a

custodian with the power to vote as a tie-breaking manager would work now,

particularly given the deep-seated distrust and animosity between the principals that

now exists as well as the evidence of Aigner’s repeated designs to marginalize

DiFalco’s managerial role in the Company.

         Third, by all accounts, time is of the essence.       The FDA approved

MorphaBond in November 2015, but only limited quantities of that product have

been made since.334 The FDA approved RoxyBond in April 2017, but that product

has never been manufactured on a commercial scale.335 The Company has not

created any new products since its formation, has not entered into a product

development agreement, and has no obvious source of financing for the $10 to $15

million necessary to obtain FDA approval for a new drug. As Bodd and DiFalco

both testified, the window of opportunity for the Company is rapidly closing because

its patents are expiring.336

          Under these circumstances, the court concludes that dissolution of the

Company is the best and only realistic option to force the parties to find a solution

333
      JX 162 at 8-9.
334
      Tr. 155 (Bodd); Tr. 549 (Shah); JX 292 at 7.
335
      Tr. 155 (Bodd); Tr. 535 (Innaurato); Tr. 615 (Shah).
336
      Tr. 184 (Bodd); Tr. 764-65 (DiFalco).
                                              92
where they have failed before, or, if they cannot, to yield value for them by selling

the Company’s assets. Accordingly, the court will declare the Company to be

dissolved and appoint a liquidating trustee to wind up its affairs.

         D.     The Issues Concerning BDO

         Shortly before trial, Aigner amended his pleading to add two claims that relate

to DiFalco’s alleged failure to provide documents to BDO concerning the build-out

of the Orangeburg Facility: (1) a fifth cause of action for breach of fiduciary duty

seeking declaratory and injunctive relief as well as damages; and (2) a sixth cause

of action for breach of the IDS Agreement and its transparency policy seeking

declaratory relief and damages.337 These claims exceed the scope of the type of

claim that the court intended to permit Aigner to add to his complaint for purposes

of the trial at the conclusion of the hearing held on Aigner’s motion for injunctive

relief on December 6, 2018. To be more specific, the court only had in mind an

amendment to add a claim focused on resolving whether DiFalco should be required

to provide certain information to BDO. During trial, little attention was paid to that

issue, and no testimony was provided from a BDO witness.

         Given these circumstances, with one exception, the court will not take any

action with respect to the fifth and sixth causes of action in the Complaint, which are

337
      Dkt. 108 ¶¶ 139-56.
                                           93
the subject of a motion to dismiss.338 The exception is that the liquidating trustee to

be appointed in this action will be authorized to address any issues concerning

BDO’s need, if any, for information concerning the Orangeburg Facility.

IV.      CONCLUSION

         For the reasons explained above, judgment is entered in favor of DiFalco and

Shah, as the case may be, and against Aigner with respect to (i) the fourth cause of

action in the Complaint, (ii) the first two claims in the Counterclaim, and (iii) the

third claim in the Counterclaim insofar as it seeks a declaration that Touam is not

currently a validly appointed Independent Representative under Section 5.14 of the

IDS Agreement.

         The parties are directed to confer to see if they can agree on a liquidating

trustee and, if no such agreement can be reached after five business days, each side

is directed to file with the court within five business days thereafter the names of

two proposed liquidating trustees (with their qualifications) who are willing to

accept the assignment. The parties are further directed to confer and to submit to the

court an implementing order consistent with this decision within five business days.

         IT IS SO ORDERED.

338
      Dkt. 118.
                                          94