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Spiro v. Vions Technology Inc.

Court of Chancery of Delaware

March 24, 2014

ALAN J. SPIRO, Plaintiff,
v.
VIONS TECHNOLOGY INC., Defendant.

Submitted: December 16, 2013

Michael A. Weidinger, Esq., Kevin M. Capuzzi, Esq., Seton C. Mangine, Esq., PINCKNEY, WEIDINGER, URBAN & JOYCE, LLC, Wilmington, Delaware; Attorneys for Plaintiff, Alan J. Spiro.

David L. Finger, Esq., FINGER & SLANINA, LLC, Wilmington, Delaware; Attorney for Defendant, Vions Technology, Inc.

MEMORANDUM OPINION

PARSONS, Vice Chancellor.

This action arises from the plaintiff's attempt to recoup intellectual property rights that once belonged to a now-bankrupt corporation in which he was a shareholder.[1] The plaintiff, who also is a creditor of the corporation by virtue of certain loans he made and other loans assigned to him by other creditors of the corporation, alleges that the defendant is liable for fraudulent transfer, conversion, and unjust enrichment of the company's only asset—its intellectual property. In terms of relief, the plaintiff seeks, among other things, avoidance of the fraudulent transfer, an injunction against the defendant's further disposition of the intellectual property, the return to the plaintiff of certain intellectual property transferred to the defendant by the majority shareholder, and damages.

The defendant has moved to dismiss or stay the complaint in its entirety on the grounds that this Court lacks subject matter jurisdiction over the plaintiff's claims. Having considered the parties' briefs and heard argument on the motion, I conclude that the defendant's motion to dismiss or stay the proceedings should be denied.

I. BACKGROUND

A. The Parties

Nonparty Ionsep Corporation Inc. ("Ionsep" or the "Company") was a privately held Delaware corporation founded by Daniel J. Vaughan in 1984. Ionsep developed technology and other intellectual property involving chemical processes. On January 20, 2010, the plaintiff and other creditors commenced an involuntary bankruptcy proceeding against Ionsep under Chapter 7 of the United States Bankruptcy Code.

Plaintiff, Alan J. Spiro, was an Ionsep shareholder from 2008 until its bankruptcy in 2010. Spiro was the only shareholder not related to Vaughan. Between 1991 and 2008, Spiro loaned over $1.5 million to Ionsep, and currently holds liens against Ionsep for more than $300, 000.

Defendant, Vions Technology Inc. ("Vions"), is a privately held company incorporated under the laws of Delaware. Plaintiff contends that Vions is owned and controlled by Vaughan's relatives.

B. Facts[2]

1. Ionsep's business and Spiro's involvement with Ionsep

In 1984, Vaughan, a retired DuPont scientist, founded and incorporated Ionsep. Vaughan served as CEO and president of Ionsep until his death on April 2, 2009. All of Ionsep's other officers and directors were members of Vaughan's family (collectively, the "Principals"), and each of the Principals were Ionsep shareholders.

Ionsep's business was developing chemical-related processes for items such as chromium hypophosphite, manganese hypophosphite, hypophosphorous acid, and technology referred to as New Membrane Electrodialytic Technology, as well as various other processes and advancements. The various rights to this technology are referred to collectively in this Memorandum Opinion as the Intellectual Property or the "IP."

From November 1999 to November 2008, Spiro issued a series of promissory notes (the "Plaintiff's Notes") to Ionsep. The purpose of the Plaintiffs Notes, which were guaranteed by each of the Principals, was to finance Ionsep's operations, including the further development of the IP. Plaintiff issued these notes based on representations by the Principals that the funds would be used to develop Ionsep's commercial assets. In 2008, Spiro also became an Ionsep shareholder. He was the first, and remained the only, shareholder that was not related to Vaughan.

Between December 3, 1999 and December 16, 2006, Wilmington Trust Company ("WTC") issued a different series of secured promissory notes, guaranteed by each of the Principals, to finance Ionsep's operations and the development of the Intellectual Property (the "WTC Notes"). As of February 7, 2013, the WTC Notes totaled $2, 850, 000, and had an unpaid balance of $318, 837.78.[3] In addition to the guarantees, the WTC Notes also were secured by property of Ionsep. WTC assigned its rights under the WTC Notes to Spiro in June 2010. Both Plaintiff's and the WTC Notes (collectively, the "Notes") are currently in default.

2. Ionsep's intellectual property and license agreement

Spiro alleges in his complaint that Ionsep owned the IP. In letters to WTC[4] and at least one published brochure, Ionsep claimed its business consisted of researching, developing, and inventing various electrochemical processes, technologies, and products.[5] In these documents, Ionsep also asserted that it owned the related technology and intellectual property.

Unfortunately, the references to intellectual property in the complaint, various other submissions of both Spiro and Vions, and the key underlying documents are loose and imprecise. As a result, the arguments of the parties are often vague, confusing, and unhelpful. This problem is not unique to this case as demonstrated by a recent decision by the United States Court of Appeals for the Federal Circuit, Energy Recovery, Inc. v. Hauge, in which the appellate court was called upon to resolve the question of "what is intellectual property" within the meaning of the agreement at issue in that case.[6] In the hope of clarifying this Court's analysis of the current dispute, I begin by making a couple of points regarding the Court's understanding of the Intellectual Property at issue here. First, the IP implicates several different types of information or technology. Specifically, there is patented technology described and claimed in various patents, all of which apparently were issued in the name of Vaughan as one of the inventors. One question, but not the most significant question, relating to those patents is who "owns" them. Although Spiro's complaint suggests that Ionsep may own the patents, the documentary evidence indicates that Vaughan owned them at least initially, and then purported to transfer that ownership to Vions. The validity of that transfer is challenged by Spiro in his complaint, and the transfer raises several issues of fact and, perhaps, law. One fact question, for example, is who transferred the patents, Vaughan, individually, or Vaughan, in his capacity as an officer of Ionsep. The pertinent documents seem to support at least a colorable claim that it was Vaughan individually. As explained below, however, the answer ...


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