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Gassis v. Corkery

Court of Chancery of Delaware

July 21, 2014

Bishop Macram Max Gassis, et al.
v.
Neil Corkery, et al.

Submitted: June 26, 2014

COURT OF CHANCERY COURTHOUSE 34 THE CIRCLE GEORGETOWN, DELAWARE 19947

David A. Dorey Elizabeth Sloan Blank Rome LLP

Elena C. Norman Timothy Jay Houseal Kathaleen St. J. McCormick Elizabeth S. Bradley Lakshmi A. Muthu Young Conaway Stargatt & Taylor LLP

Dear Counsel:

This is the latest installment of unfortunate litigation over control of a charitable corporation created to help the suffering people of Sudan. The Plaintiff is the former Chairman of the Board of Directors, and was removed as a director and member of the corporation effective September 21, 2013. The principal remaining issues involve allegations that the corporation used the Plaintiff's trademarked property—his name and likeness—to raise funds for its charitable purposes, after the Plaintiff was removed as Chairman and member of the corporation. According to the Plaintiff, that removal terminated the corporation's license to use his name and likeness. The Plaintiff, however, has not sued the corporation, but only certain board members as individuals. There are no allegations in the Amended Complaint which, if true, could sustain a claim that these individuals expropriated property of the Plaintiff for their own purposes, or that they took actions to cause the corporation to improperly exploit the Plaintiff's name and likeness. For that reason, the Plaintiff's various claims based on use of his trademarks must be dismissed.

I. Background

On May 28, 2014, I issued a Memorandum Opinion in this action resolving claims pursued by the Plaintiff, Bishop Macram Max Gassis, under 8 Del. C. § 225. In that proceeding, the Plaintiff disputed the validity of an action by the board of directors of Sudan Relief Fund, Inc. (the "Fund, " or the "Corporation"), formerly known as Bishop Gassis Sudan Relief Fund, Inc., purporting to remove him as a director of the Fund. Specifically, the Plaintiff contended that his removal violated certain provisions of the Fund's bylaws or was the product of breaches of fiduciary duty on the part of the board, and should be voided as a result. In my May 28 Memorandum Opinion, I rejected those arguments, finding that the board's business decision to remove the Plaintiff as a director neither violated the Fund's bylaws nor constituted a breach of fiduciary duty.

On April 21, 2014, the Defendants moved to dismiss all fourteen counts of the Plaintiff's First Amended Complaint. On May 7, 2014, at the conclusion of trial on the Plaintiff's Section 225 counts, I heard oral argument on that Motion. Upon resolving the Section 225 counts in my May 28 Memorandum Opinion, I requested that the parties inform me what remained of the Defendants' Motion to Dismiss. The parties submitted supplemental memoranda on June 25 and 26, 2014. The remainder of this Letter Opinion addresses the merits of the Defendants' Motion to Dismiss.

II. Analysis

In evaluating a motion to dismiss for failure to state a claim pursuant to Court of Chancery Rule 12(b)(6), this Court must "accept all well-pleaded factual allegations in the Complaint as true, accept even vague allegations in the Complaint as 'well-pleaded' if they provide the defendant notice of the claim, draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof."[1] The Plaintiff's First Amended Complaint alleges fourteen counts against the individual Defendants:[2] Count II for breach of fiduciary duty; Count III for entitlement to books and records under 8 Del. C. § 220; Count IV brought pursuant to 8 Del. C. § 225; Count V for misappropriation of the Plaintiff's name and likeness; Count VI for common law trademark infringement; Count VII for violation of the Delaware Deceptive Trade Practices Act; Count VIII for waste of corporate assets; Count IX for civil conspiracy; Count X for a declaration that the Plaintiff remains on the board of the Fund; Count XI for appointment of a receiver or custodian; Count XII for imposition of a constructive trust; Count XIII for appointment of a master to oversee an annual meeting; Count XIV for an injunction requiring the board to acknowledge the invalidity of the Plaintiff's removal; and Count XV for an injunction preventing the Fund from continuing to use the Plaintiff's name and likeness. The Defendants have moved to dismiss all fourteen counts of the Amended Complaint. The Plaintiff concedes that my May 28 Memorandum Opinion resolved Counts IV, IX, X, XIII, and XIV.[3]I address the remaining counts below.

1. Derivative and Section 220 Claims

The Defendants move to dismiss Count II for breach of fiduciary duty[4] and Count VIII for waste of corporate assets on the basis that the Plaintiff lacks standing to pursue derivative litigation on behalf of the Fund. As I determined in my May 28 Memorandum Opinion resolving the Section 225 claims, the Plaintiff is no longer a director—and consequently, no longer a member—of the Fund.[5] On August 24, 2013, the board validly adopted a resolution removing the Plaintiff as a director, effective September 21, 2013; on September 6, 2013, the Plaintiff initiated this action; and on September 21, he ceased to be a director and member. As our Supreme Court has explained, "[a] plaintiff who brings a derivative action on behalf of a corporation must remain a shareholder or member throughout the litigation, " and "[o]nce a plaintiff ceases to be a member or shareholder, he or she loses standing to maintain the lawsuit."[6] Because the Plaintiff is no longer a member of the Fund, he lacks standing to pursue Counts II and VIII on behalf of the Fund.[7]

For similar reasons, Count III, seeking access to books and records under 8 Del. C. § 220, must likewise be dismissed. The Plaintiff's 220 demand, appended to his Amended Complaint, sought documents for the purpose of "[i]nvestigating board misconduct and possible breaches of fiduciary duties;" "[d]etermining who the appropriate directors of the Corporation are;" "[i]nvestigating Director independence;" evaluating "[p]otential conflicts of interest;" and investigating certain other alleged wrongdoing committed by directors and officers of the Fund.[8] To the extent the Plaintiff's 220 action was viable when filed, [9] it has ceased to be so. Section 220 permits stockholders (or in the case of nonstock corporations, members) access to the books and records of a corporation for any "proper purpose;" Section 220 permits directors access to books and records "for a purpose reasonably related to the director's position as a director."[10] As noted above, the Plaintiff is no longer a member or director of the Fund, and as a result, lacks standing to pursue derivative litigation on behalf of the Fund. Further, as this Court has made clear, "only current directors have inspection rights" ...


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