Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Flaa v. Montano

Court of Chancery of Delaware

October 4, 2013

MICKAEL FLAA, Plaintiff,
v.
DANIEL C. MONTANO, VIKTORIYA T. MONTANO, JOHN W. JACOBS, ERNEST C. MONTANO, ERNEST MONTANO III and JOONG KIB AIK, Defendants.

Submitted: August 26, 2013

Richard P. Rollo, of Richards, Layton & Finger, P.A.; Of Counsel: Barry F. Cannaday, of Dentons U.S. LLP, Attorneys for the Plaintiff.

David L. Finger of Finger & Slanina, LCC, Attorneys for the Defendants.

MEMORANDUM OPINION

GLASSCOCK, VICE CHANCELLOR

The Plaintiff brings the action before me under 8 Del. C. § 225. He seeks to confirm the removal of members of the board of CardioVascular BioTherapeutics, Inc. ("Cardio") by written stockholder consent, supposedly effective as of June 7, 2013.[1] The Defendants, directors purportedly displaced by the written stockholder consent (the "Consent Action"), challenge the validity of the consents (the "Vizier Consents") filed on behalf of shares held by Vizier Investment Capital Limited. The parties have filed cross-Motions for Summary Judgment on the validity of the Vizier Consents. Because I find that the Vizier Consents were invalidly executed, and because, without those shares counting in favor, the Consent Action fails, the Defendants' Motion for Summary Judgment must be granted.

This issue before me involves, at its core, a dispute between a formerly married couple, Defendant and former director Daniel C. Montano—the founder and CEO of Cardio—and Victoria "Vicki" Montano.[2] Daniel and Vicki own a large block of stock in Cardio, which is held in a Bahamian corporation, Vizier Investment Capital Limited ("Vizier"). Upon their divorce in 2001, Vicki was granted the right to receive the first $2, 000, 000 generated by any future sale of Vizier stock, and Daniel and Vicki each hold a 50% interest in proceeds above that amount. By written consent, the stockholders of Cardio purported to remove most of the Cardio directors—including Daniel—as part of a deal to infuse Cardio with needed cash. On June 7, 2013, Vicki voted all the Cardio shares held by Vizier in favor of the consent. It is that action that is challenged, and dispositive, here.

I. BACKGROUND

A. Cardio

Cardio is a Delaware corporation developing drug candidates for treating coronary artery disease, peripheral artery disease, venous ulcers, and diabetic foot ulcers. Prior to June 7, 2013, when approximately 62% of Cardio shares voted by stockholder written consent to remove the defendant directors, Cardio's board of directors consisted of Defendants Daniel Montano, Viktoriya ("Vika") Montano, John Jacobs, Ernest Montano, Ernest Montano III, and Joong Ki Baik, Plaintiff Mickael Flaa, and non-party Grant Gordon. Directors Daniel and Vika Montano are currently married. Ernest Montano is Daniel Montano's brother, and Ernest Montano III is Daniel Montano's nephew. Grant Gordon is married to Amy, a child of Daniel's first marriage to Vicki.

B. The Wallen Loans

Because the company has yet to develop a marketable drug, Cardio has been insolvent since 2006.[3] In need of capital to pay rent on office and storage space, patent filing fees, utility bills, employee wages, and other business-related expenses, Cardio entered into two agreements with Calvin Wallen in which the company issued $500, 000 and $1, 000, 000 in debt under a 2009 Subscription Agreement and Promissory Note and a 2010 Term Loan Facility and Promissory Note, respectively.[4] These loans were not secured by Cardio's assets, but were personally guaranteed by Daniel Montano.[5] Cardio defaulted on the loans, and in June 2012, Wallen sent Grant Gordon a letter requesting that, instead of instituting legal proceedings, the debt be converted to stock at $0.30 per share.[6] That request was denied.

As a result, on September 29, 2012, Wallen sought and obtained a default judgment in the Eighth Judicial District Court in Clark County, Nevada against Daniel for $2, 153, 507, reflecting the principle and interest on the loans that Daniel had personally guaranteed.[7] That court held a hearing on April 22, 2013 to determine whether Daniel had any assets to satisfy the debt.[8] At that hearing, Daniel Montano testified that his only assets were his joint interest in the Cardio stock held by Vizier, but that according to his divorce agreement with Vicki, "unless she gets two and a half million dollars, I don't have access to the [stock held by Vizier]."[9] Daniel also testified that he did not know where the Cardio stock certificates were located. At a subsequent hearing on May 13, 2013 to inquire into the status of those stock certificates, Daniel testified that he still did not know where the physical stock certificates were located, but he believed that Vicki had access to them and she was reluctant to cooperate in the litigation because "her two and a half million [was] in jeopardy."[10]

C. The Financing Proposal

Unable to collect on the default judgment, and seeking to recoup some of his investment, on January 15, 2013, Wallen sent a letter to Cardio's board of directors, explaining:

As you are aware, I have made numerous attempts to settle my debt while helping Cardio Vascular BioTherapeutics, Inc. (the "Company") to position itself for future success. Despite multiple attempts to contact Daniel C. Montano ("Montano") and the Board of Directors ("BOD") of the Company and resolve my situation, I have been ignored and passed off as a non-threat. Clearly my attempts to amicably work with the Company have been proven unsuccessful. I have thus been left no choice but to move forward in the manner set out in this letter.[11]

The letter included a financing proposal on behalf of himself, Clark Reinhard, and William Mullins ("WRM"). That proposal included an offer to purchase $3, 000, 000 in Cardio convertible notes by Clark Reinhard and Calvin Wallen; an offer to purchase $500, 000 in Cardio preferred stock by Calvin Wallen; and an offer to purchase an additional $5, 000, 000 in Cardio convertible notes by WDM Investments International, a group of accredited investors associated with Mullins.[12] The proposal was conditioned on the immediate resignation of Daniel Montano as CEO; the immediate resignation of all Cardio board members except Mickael Flaa and Grant Gordon; and the appointment of five new directors designated by WRM.[13] Unsurprisingly, the Cardio board rejected this proposal. Daniel claimed that, because Mullins "had made financial overtures in the past but seldom delivered, " the board could not be convinced that WRM would deliver unless WRM was willing to place the entire $8.5 million in escrow.[14]

D. Vizier

Vizier is a Bahamian company that was formed in 1998 for the sole purpose of holding the 30 million shares of Cardio jointly owned by Daniel and Vicki, who at that time were still married. Daniel's purpose in creating Vizier was to insulate the couple's shares from creditors.[15] Vizier was initially incorporated by Grant Gordon, and at an initial meeting for which no minutes could be produced, Gordon, Daniel, Vicki, and Ernest Montano were named as directors.[16] The Defendants claim that at that meeting the board resolved to vest Daniel, as President, with exclusive authority to vote Vizier's shares of Cardio, and that at subsequent board meetings, Daniel proceeded to vote Cardio proxies without objection from the other directors.[17] Cardio's Schedule 14A filing dated March 31, 2005 also states that "Mr. Montano has sole voting and investing power" over Vizier's shares of Cardio.[18] Vizier has no principal place of business, and no day-to-day operations: it exists only to hold Cardio stock.

The parties dispute who held officer positions in Vizier as of June 7, 2013, when Vicki voted the Vizier Consents. An undated Register of Officers provided by Grant Gordon identifies Daniel as President, Vicki as Vice President and director, Ernest Montano as Vice President and director, and Gordon as Chairman and Co-Secretary.[19] A recent Register of Officers dated August 12, 2013 identifies Daniel as President, Vicki as director, Ernest Montano as director, and Gordon as Co-Secretary.[20] The parties disagree as to whether Gordon remains a director of Vizier—Vicki asserts that he is still a director, while Daniel claims that he was removed "four or five years ago" as a result of not wanting to disclose his relationship with Vizier in Cardio's SEC filings.[21] However, the Defendants have ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.