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Crothall v. Zimmerman

Supreme Court of Delaware

June 9, 2014

KATHERINE D. CROTHALL, et al., Defendants-Below, Appellants, Cross-Appellees,
v.
ROBERT ZIMMERMAN, Plaintiff-Below, Appellee, and ADHEZION BIOMEDICAL, LLC, a Delaware limited liability company, Nominal Defendant-Below, Appellant, Cross-Appellee, and THE WILLIFORD FIRM, LLC and EVAN O. WILLIFORD, Intervenors-Below, Appellees, Cross-Appellants

Submitted May 28, 2014.

Case Closed June 25, 2014.

Court Below: Court of Chancery in the State of Delaware, in and for New Castle County. C.A. No.6001-VCP.

Richard A. Barkasy, Esquire, Schnader Harrison Segal & Lewis LLP, Wilmington, Delaware, Attorney for Defendants, Appellants, Cross-Appellees.

David J. Margules, Esquire, Ballard Spahr LLP, Wilmington, Delaware, Attorney for Nominal Defendant, Appellant, Cross-Appellee.

Evan O. Williford, Esquire, The Williford Firm LLC, Wilmington, Delaware, Attorney for Intervenors, Appellees, Cross-Appellants.

Before STRINE, Chief Justice, HOLLAND, and RIDGELY, Justices.

OPINION

Page 734

STRINE, Chief Justice:

This is an unusual appeal that arises from what was once a derivative suit in the Court of Chancery. The derivative plaintiff in this case was Robert Zimmerman, a common unitholder of Adhezion Biomedical, LLC (" Adhezion" ), who was also the co-founder, former CEO, and a former director of Adhezion. Zimmerman brought suit against the directors of Adhezion and two Adhezion investors -- Liberty Advisors, Inc. and Originate Ventures, LLC -- whom he alleged controlled Adhezion (the " Adhezion Defendants" ). Zimmerman challenged certain financing transactions and associated unit issuances by Adhezion on the grounds that (i) the financing transactions were substantively unfair and thus violated the directors' fiduciary and contractual duties, and (ii) the unit issuances were not made in conformity with Adhezion's Operating Agreement because the units issued had not been authorized by an amendment to the Operating Agreement approved by Adhezion's common unitholders, voting as a separate class. After a trial, the Court of Chancery issued an opinion rejecting Zimmerman's substantive claims that the unit issuances were in any way unfair to Adhezion, but holding that Zimmerman was correct that the Operating Agreement had been violated because the units were issued without an amendment approved by a separate vote of the

Page 735

common unitholders authorizing the units.[1] Because the breach of the Operating Agreement caused no damage, the Court of Chancery awarded only nominal damages of one dollar.[2]

Before the parties were able to reach an agreement on the appropriate form of final judgment, Zimmerman informed his counsel that he was abandoning the lawsuit and was no longer pursuing his claims. Based on that information, Zimmerman's counsel filed a motion to withdraw as counsel for Zimmerman and to intervene in the case for the purpose of securing attorney's fees for the work he had performed in the litigation.[3] Zimmerman then sold all of his Adhezion units for personal gain, which deprived Zimmerman of standing to continue in the fiduciary status he had undertaken as a derivative plaintiff, and the Adhezion Defendants filed a motion to dismiss the litigation in its entirety.[4] Because Zimmerman lacked standing and no other plaintiff expressed any interest in pursuing the case, the Court of Chancery granted the Adhezion Defendants' motion to dismiss the case.[5] Therefore, no final judgment from which the Adhezion Defendants could have appealed was ever entered on the one claim that the Court of Chancery found had merit. But, in an odd development, Zimmerman's former counsel was still granted leave to intervene, over the Adhezion Defendants' opposition, to pursue an argument that he should be paid attorney's fees for creating a corporate benefit.[6]

The Court of Chancery awarded Zimmerman's former counsel $300,000 in attorney's fees, which constitutes nearly a full recovery for all of his work in ...


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