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Zutrau v. Jansing

Court of Chancery of Delaware

July 31, 2014

LEILANI ZUTRAU individually and on behalf of ICE SYSTEMS, INC., Plaintiff,
JOHN C. JANSING, Defendant, and ICE SYSTEMS, INC. Nominal Defendant.

Submitted: November 21, 2013.

Stephen B. Brauerman, Esq., Vanessa R. Tiradentes, Esq., Sara E. Bussiere, Esq., BAYARD, P.A., Wilmington, Delaware; Attorneys for Plaintiff Leilani Zutrau.

Kurt M. Heyman, Esq., Melissa N. Donimirski, Esq., PROCTOR HEYMAN LLP, Wilmington, Delaware; Attorneys for Defendant John C. Jansing.


PARSONS, Vice Chancellor.

This is an action by a former employee and minority stockholder of a private Delaware corporation specializing in proxy servicing against the president, sole director, and majority stockholder of that corporation. The defendant hired the plaintiff to start working for the company as a controller sometime in 2000 or 2001 and, in 2004, granted the plaintiff a minority equity interest in the company and promoted her to treasurer and, later, executive vice president. Beginning in 2004, the plaintiff and defendant were the sole stockholders of the company, which earns an average of $3 million in revenues per year. Due to differences in management philosophies, among other factors, the defendant fired the plaintiff in 2007.

In 2009, the plaintiff commenced litigation against the defendant in the state of New York, asserting direct claims challenging her termination and derivative claims challenging numerous actions taken by the defendant in the course of running the company. In 2011, the New York court dismissed the plaintiff's derivative claims without prejudice, holding that they would need to be brought in a separate action.

In 2012, the plaintiff commenced this action, effectively reasserting her derivative claims. Shortly thereafter, the defendant executed a reverse stock split in which he cashed out the plaintiff's shares. The plaintiff subsequently amended her complaint to add claims challenging the propriety of the reverse stock split, including direct claims for breach of fiduciary duty, violation of Section 155 of the Delaware General Corporation Law ("DGCL"), and equitable fraud.

Although the plaintiff is no longer a stockholder of the company, the defendant has expressly waived any objection to the plaintiff litigating her derivative claims for purposes of valuing her interest in the company at the time of the reverse stock split. Any derivative claims that were outstanding at the time of the reverse stock split, therefore, may be treated as corporate assets that should be accounted for when valuing the company.

This Opinion constitutes my post-trial findings of fact and conclusions of law in this matter. In terms of the merits, I begin my analysis with the plaintiff's claim for equitable fraud based on her allegation that the defendant promised her that she would remain a stockholder of the company and benefit from its success until it could be sold, at which time she would share pro rata in the resulting proceeds. Plaintiff failed to demonstrate a false representation in connection with that claim, however, because she adduced no evidence that the defendant's alleged promises were false when made. She therefore failed to prove a claim for equitable fraud.

The plaintiff's derivative claims seemingly challenge virtually every decision the defendant made and actions he took, no matter how picayune, in running the company after the plaintiff's termination. The plaintiff failed to prove many of her claims, but did demonstrate that the defendant breached his fiduciary duties to the company by paying himself excessive compensation, by charging certain personal expenses to his company-issued credit card, and by causing the company to pay interest on sums that he withdrew from its credit line for his own purposes.

I then turn to the plaintiff's claims that the defendant breached his fiduciary duties and violated Section 155 of the DGCL by effecting the reverse stock split. Initially, I reject the plaintiff's contention that the defendant effected the reverse stock split for the purpose of depriving her of derivative standing based on a failure of proof. I do hold, however, that the reverse stock split was implemented at an unfair price, in breach of Jansing's fiduciary duties and Section 155. I reach this conclusion because the valuation on which the defendant relied to value the plaintiff's shares did not take into account his pre-existing breaches of fiduciary duty and their impact on the fair value of the company. As a remedy, I award the plaintiff the fair value of her shares.

In that regard, I determine that two adjustments must be made to the valuation that the defendant used to estimate properly the company's fair value. First, the monetary value of the meritorious derivative claims that the company had against the defendant at the time of the reverse stock split should be treated as a non-operating corporate asset and added to the value of the company. Second, because the valuation relied on a discounted cash flow analysis, which, in turn, used the company's historical performance to project its future performance, a normalizing adjustment is required to the historical data to remove expenses incurred as a result of the defendant's excessive compensation during the relevant period, so that the future projections are not artificially suppressed as a result of that self dealing.

Finally, I consider a counterclaim asserted by the defendant in this action. The court presiding over the New York litigation ultimately issued a post-trial opinion in which it awarded the plaintiff $60, 307 for the amount remaining in her capital account at the company. The defendant argues that this award should be setoff from any amount he is held to owe the plaintiff in connection with the reverse stock split, because the baseline valuation of the plaintiff's shares for purposes of the reverse stock split already included the value remaining in her capital account. I reject this counterclaim as barred by collateral estoppel, because the same factual argument was made by the defendant to the New York court and ultimately was rejected by that court.


A. The Parties

Nominal Defendant, ICE Systems, Inc. ("ICE" or the "Company"), is a Delaware corporation that specializes in proxy services. It is one of only two companies in the United States that provides substantive third party proxy processing to trust institutions, such as banks, that hold shares on behalf of beneficial owners.

Defendant, John Jansing, is the President and sole director of ICE. Before the reverse stock split that is contested by the plaintiff in this action (the "Reverse Stock Split"), Jansing was the majority stockholder of ICE, holding 78% of the shares of the Company. He now purports to be ICE's sole stockholder.

Plaintiff, Leilani Zutrau, is a former ICE employee. Zutrau served as ICE's controller and, at various points during her tenure with the Company, held the position of ICE's Treasurer and oversaw the Company's sales and marketing functions. Before the Reverse Stock Split, Zutrau was a minority stockholder of ICE, holding 22% of the shares in the Company.

B. Facts

1. History and business of ICE

ICE was formed as an S corporation under the laws of New York in 1990. In its early years, ICE's principal business activity was providing ballot processing services to trade associations, unions, and public advocacy groups. Jansing acquired an interest in ICE in 1993, becoming one of four equal stockholders in the Company. Although each of the four stockholders initially were employed by ICE, the three stockholders other than Jansing left their positions with the Company in the mid-to-late nineties.[2] In that same time frame, ICE ceased providing ballot processing services, instead becoming active in the proxy services business. Consistent with that change in its business focus, ICE began operating under the name "Proxytrust."[3]

Since entering the proxy services segment, ICE's principal business activity has been providing proxy processing services to trust institutions, typically banks, that hold shares on behalf of individual beneficial owners.[4] ICE serves as an outsourcing solution for these institutions to print, distribute, and tabulate proxies in conjunction with corporate votes initiated by the issuing corporations, or issuers, for any shares that the bank is holding in trust.[5] Thus, ICE serves as an intermediary between beneficial owners of shares and publicly traded corporations, but its direct clients are the trust institutions or banks utilized by those beneficial owners. As of 2012, ICE was providing third-party proxy processing to 176 client banks in the United States. Those clients collectively represented over 850, 000 beneficial owners.[6] In any given year, ICE generally processes proxies from over 5, 000 corporations.[7]

ICE communicates with its bank and trust clients through "data feeds" established with several trust system providers. A "data feed" allows for a two-way transfer of electronic data between ICE and a trust system provider.[8] Trust system providers process data for banks, including beneficial share owner data that ICE needs to perform the work that it is contracted to do.[9] The data feeds are the lifeline of the Company. To serve its clients and process the data obtained from those feeds, ICE has developed proprietary information processing software.[10] ICE incurs costs to establish and maintain data feeds, but those feeds are of no use to ICE if it does not have bank or trust clients using the particular data feed.[11]

Although ICE's direct clients are trust institutions, issuers are required under securities regulations to reimburse those institutions for the costs of distributing proxies.[12]Thus, ICE ultimately is paid by the issuers. Because of this arrangement, many of the fees that ICE can charge its clients are regulated by the New York Stock Exchange ("NYSE") with oversight from the Securities Exchange Commission ("SEC").[13]

ICE is one of only two companies that provide third-party proxy processing to trust institutions holding shares on behalf of beneficial owners. The other company operating in that space, and ICE's only direct competitor, is Broadridge Financial Solutions, Inc. ("Broadridge"). [14] Broadridge, however, dominates the market. It is much larger than ICE, controls over 99% of the market in which ICE operates, and is an aggressive competitor.[15] Among other things, Broadridge provides a wider array of services than ICE does, including services outside of the proxy services sector. In addition, Broadridge offers various services to its clients for free in order to maintain or attract their proxy services business.[16] This has caused ICE to purchase similar services from third parties and offer them to its clients for free, including, for example, tax reporting services from Commerce Clearing House ("CCH").[17]

The proxy services market is highly saturated. Thus, there are very few new or unclaimed clients in the market. That means ICE and Broadridge effectively are engaged in a "zero sum game."[18]

2. Zutrau becomes involved with ICE

By 2000, Jansing was the President and sole Director of ICE. In its first ten year of operations, the Company had accumulated over $1 million in debt, which Jansing had guaranteed personally. In 1999, Jansing contracted to sell ICE and its assets to Anne O. Faulk and, Inc. for $1, 425, 000. The transaction never closed, however, and instead devolved into litigation.

Following the failed transaction, Jansing retained an individual named Morton Berger as a consultant to help organize the Company and assist with various finance, human resource, and general and administrative tasks. [19] In May of 2000, Berger enlisted Zutrau to help with some of the financial aspects of his consulting work for ICE.[20] Berger and Zutrau were acquainted because Berger served as a director of a company for which Zutrau previously had worked.[21] While she was working at ICE in a consultative capacity, Zutrau purportedly caught Berger engaging in certain financial improprieties, including improperly charging expenses to ICE. Subsequently, Jansing refused to do business with Berger.[22]

At ICE, Zutrau was tasked, among other things, with organizing financial records and managing the Company's accounts payable and accounts receivable.[23] She also had an assignment pertaining to SunGard, a trust systems provider that was ICE's largest business partner and source for client data. In June 2000, Sungard threatened to cancel a joint venture contract with ICE that involved revenue sharing between ICE and SunGard. Sungard had threatened cancellation based on ICE's delinquency in making the payments called for under the agreement.[24] Zutrau reviewed ICE's books and worked with Sungard to resolve those issues. In the course of doing so, Zutrau discovered that ICE actually had overpaid SunGard in the past.[25] Based on Zutrau's discovery, SunGard waived its claim against ICE for delinquent payments.[26]

Pleased with the work that Zutrau had done, Jansing made her a full-time job offer, essentially to serve as ICE's controller, which she accepted.[27] Zutrau formally was given the title "controller" sometime in 2002 or 2003.[28]

According to Zutrau, in the spring of 2001, after she had become a full-time ICE employee, Jansing also offered her equity in the Company.[29] Specifically, Zutrau alleges that Jansing told her that he needed the help of someone with her accounting and financial skills to turn the Company around and promised her an equity stake in ICE if she would commit herself to rehabilitating the Company until it became profitable and could be sold.[30] Jansing purportedly further represented to Zutrau that she would share in the proceeds of the eventual sale of the Company in accordance with the percentage of her equity ownership and that, until such a sale occurred, they both would benefit from their efforts in line with the success of the Company.[31]

Jansing acknowledges having conversations with Zutrau about the possibility of her obtaining equity in the Company, but maintains that they were informal and nonspecific. According to Jansing, Zutrau approached him about obtaining equity in the Company.[32] When she first broached the subject, he explained that granting her equity at that time would be difficult because of the Company's three other stockholders.[33]Jansing admits, however, that he thought Zutrau had done good work and told her that he would consider her request, stating something along the lines of "[i]f we can ever get around to it, I'll see what I can do."[34]

After her initial discussion with Jansing about equity, Zutrau worked hard to improve the operations of the Company. She continued to serve as its controller, in which role she, among other things, maintained and improved ICE's financial and accounting records, issued statements and invoices, and was responsible for the Company's accounts payable and receivable.[35] Before Zutrau started working at ICE, the Company had no reliable accounting system to track and collect receivables.[36] Zutrau researched software solutions to rectify that problem and discovered a software system called Sage, which was capable of managing ICE's receivables and interfacing with the Company's proprietary system. During Zutrau's employment at ICE, the Company purchased and installed the Sage software system, which it still uses today.[37] Zutrau also assisted in the Company's sales and marketing efforts by helping to produce professional marketing materials and by enrolling the Company in a number of industry conferences each year, some of which she attended personally.[38]

In addition to her work efforts, Zutrau loaned money to ICE on a number of occasions, even before she had acquired an equity interest.[39] Around the time Zutrau began working for ICE, the Company had maxed out its available credit lines.[40] Zutrau then periodically and voluntarily would make unsecured, interest free loans to the Company to help cover operating expenses. ICE repaid those loans when it had sufficient funds available.[41] In total, during her tenure at ICE, Zutrau loaned the Company approximately $400, 000, [42] but all of those loans were repaid.[43]

In early 2003, Jansing had discussions with another ICE employee, Jeff Berg, the Company's IT specialist, about the possibility of granting him equity.[44] Zutrau strongly opposed that possibility and wrote a lengthy letter to Jansing in February 2003 expressing her view that Berg was not as deserving as she was.[45] In the letter, Zutrau stated that Berg "put[s] in less time than me, and hasn't yet made a commitment to work above and beyond the normal work responsibilities."[46] The letter also noted that "although [Zutrau] gave without having a formal arrangement, " she had stuck to the parties' "original understanding" and had "been working for equity of some sort."[47] Ultimately, Berg chose not to accept any equity in the Company, instead opting to receive a higher salary.[48]

3. Zutrau becomes a stockholder of ICE

In late 2003, Zutrau followed up with Jansing about receiving stock in the Company. Jansing responded that he would grant her equity, but that the other three stockholders would need to be bought out for that to occur.[49] Jansing then retained corporate governance attorneys ("ICE's Counsel") on behalf of ICE to issue stock to Zutrau, buy out the three non-participating stockholders, and reorganize ICE.

Because there were still other stockholders in addition to Jansing, and to legitimize the transfer of stock to Zutrau, ICE's Counsel recommended that the Company adopt a Stock Incentive Plan (the "Plan") as a vehicle to grant Zutrau stock. The Plan was implemented in December 2003.[50] In April 2004, before any equity had been issued under the Plan, ICE's Counsel prepared a Restricted Stock Agreement ("RSA") to formalize the terms of the stock issuance to Zutrau.[51] Zutrau reviewed the RSA and discussed its terms with ICE's Counsel before it was executed on April 23, 2004. [52]

Pursuant to the RSA, Zutrau received 36 shares of common stock in ICE, which fully vested on May 22, 2004. Among other things, the RSA contained an integration clause, which stated that "[t]his Agreement together with the Plan contain the entire agreement and understanding of the parties relating to the subject matter hereof, and supersede[s] all prior agreements, understandings, representations, warranties and covenants of any kind between the parties with respect to this subject matter."[53]

On May 25, 2004, ICE was reorganized and reincorporated in Delaware, and the original ICE Systems, Inc., the New York S corporation ("ICE NY"), was dissolved. In connection with the reorganization, the three non-participating stockholders were bought out with funds lent to the Company by Zutrau.[54] Zutrau's recently issued shares in ICE NY were converted to a 22% equity stake in ICE, the newly formed Delaware S corporation. Following the reorganization, Jansing owned the remaining 78% of ICE's stock.

Around the time of the reorganization, Jansing reiterated his promise that, together, he and Zutrau would improve ICE so that it could be sold and they could share the resulting proceeds.[55] Zutrau further alleges that Jansing told her at that time that he did not want her to incur tax liabilities in connection with her equity ownership.[56]

4. ICE's operations after Zutrau became a stockholder

After the reorganization and issuance of stock to Zutrau, Jansing remained ICE's President and sole director.[57] On August 4, 2004, Jansing executed a Unanimous Written Consent (the "Consent"), as the sole director, that (1) abolished the Plan and (2) elected Zutrau to serve as ICE's Treasurer. Zutrau's responsibilities as Treasurer were similar to her responsibilities as ICE's controller and included overseeing ICE's books and records and making sure that they were kept in order.[58]

Both before and after the reorganization, ICE operated on a fairly informal basis. The Company had no written budget and did not have its books audited.[59] ICE also had no written policy regarding business or travel expenses, [60] which Jansing and certain other employees charged directly to Company credit cards.[61] Instead, ICE had an informal policy that employees should be mindful of their expenditures and generally avoid expensive meals and lodging.[62] Zutrau typically reviewed business expenses charged by Company employees as well as other payments made by the Company when she entered them into ICE's accounting system.[63] If Zutrau found any charges or payments that she considered to be inappropriate, such as charges or payments for personal or non-business expenses, she brought them to Jansing's attention.[64] In that regard, during her tenure at ICE, Zutrau prompted Jansing to reimburse ICE for a number of personal expenses he had charged to his Company credit card.[65] For his part, Jansing maintains that those expenses were negligible and amounted to no more than a few thousand dollars.[66]

Similarly, ICE lacked a formal policy on compensation.[67] Zutrau provided some input on that topic, [68] but Jansing made the ultimate determination regarding how much to pay employees, including himself and Zutrau, both in salary and bonuses.[69]

After becoming a stockholder, Zutrau continued to make periodic loans to the Company and, in addition, used her creditworthiness to benefit ICE on several occasions.

In December 2004, Jansing and Zutrau signed as co-guarantors on ICE's new five-year office lease, which commenced in early 2005.[70] In that same month, Zutrau signed for and co-guaranteed, with Jansing, an auto loan in the Company's name for a truck to be used by Jansing.[71] In February 2007, Zutrau obtained and, together with Jansing, co-guaranteed a $250, 000 business line of credit for ICE with Citibank, N.A. (the "Credit Line").[72] The funding made available to ICE from the Credit Line obviated the need for Zutrau to make personal loans to the Company.[73] In each of these instances, however, Zutrau's creditworthiness facilitated the Company's actions because Jansing had poor personal credit.[74]

In early 2005, Jansing hired an individual named Walter Lotspeich to serve as a "relationship manager."[75] In that sales and marketing role, Lotspeich was responsible both for maintaining ICE's existing business relationships and for attempting to establish new ones. Jansing previously had interacted with Lotspeich in various business settings, including as an employee of one of ICE's clients, and had developed a good working relationship with him.[76] Each party to this dispute alleges that the other party was concerned that Jansing and Lotspeich's pre-existing relationship would hinder Jansing's ability to supervise Lotspeich effectively, and insisted that Zutrau serve as his direct supervisor.[77] Regardless of who, in fact, proposed that arrangement, in February of 2005, Zutrau's job duties were expanded to include supervising Lotspeich and overseeing the sales and marketing functions of the Company. As part of that division of duties, Jansing and Zutrau agreed that Jansing would focus on the Company's internal operations.[78]Around that time, Zutrau also was given the title of "executive vice president."[79]

When Zutrau became more involved in the Company's marketing efforts, she helped organize an annual golf outing that ICE hosted for marketing purposes.[80] She also assisted in various giveaways and other marketing efforts, such as creating promotional ICE gear.[81] In 2005 and 2006, the Company added approximately eighty new clients and successfully negotiated contracts with additional business partners. Zutrau signed on a few additional clients herself, but Lotspeich primarily was responsible for making sales presentations to and signing new clients.[82] In early to mid-2007, ICE was pursuing several banks in an effort to switch them from Broadridge to ICE, including M&I, Investors Bank & Trust, U.S. Bank, LaSalle Bank, Mitsubishi Trust, and Mizuho Trust.[83]

Between 2000 and 2006, the Company had grown significantly larger and more successful. In 2000, ICE's gross revenues were $652, 000 and the Company had over $1 million in long term debt.[84] By 2006, gross revenues had risen to approximately $2.6 million and the Company had paid off nearly all of its long term debt.[85] Moreover, by the end of 2006, the Company had been profitable for two consecutive years.[86] As ICE grew more successful, Jansing's and Zutrau's compensation also increased. In 2000, Zutrau and Jansing were compensated at the annual rates of $75, 000 and $85, 000, respectively. By 2006, Zutrau and Jansing's base annual salaries had grown to $180, 000 and $200, 000.[87] Moreover, in that year, Zutrau and Jansing collectively received more than $1 million from ICE in total compensation, distributions, and benefits.

5. Companies express interest in acquiring ICE

Due to its success, ICE received expressions of interest from a few potential acquirers in 2006. In January of that year, Jansing and Zutrau met with the CEO and another senior executive from Institutional Shareholder Services ("ISS"), which specializes in providing proxy voting recommendations to trust institutions based on their preferred investment strategies.[88] Although the discussions were informal, the ISS executives expressed interest in the possibility of partnering with or acquiring ICE.[89]Jansing ultimately decided not to pursue a transaction with ISS, instead adopting a "wait and see" approach.[90]

In November 2006, ICE also received an expression of interest from Computershare Limited ("Computershare"), a multinational company that engaged in limited proxy distribution activities in the United States.[91] Computershare expressed interest in acquiring ICE so that it could leverage ICE's business and technology to expand its operations in the U.S. proxy services sector. From November 2006 through May 2007, Jansing and Zutrau participated in discussions with Computershare regarding a potential acquisition.[92] Contemporaneous notes taken by Zutrau as well as notes emailed to Jansing and Zutrau by a Computershare representative indicate that, at a meeting held in late February or early March of 2007, the parties discussed the possibility of Computershare acquiring all of the equity in ICE for up to $25 million in total consideration, consisting of $8 million in cash upfront with a potential $17 million earn" out.[93] Computershare never made a firm offer to acquire the Company, however, and discussions between ICE and Computershare terminated without a deal being reached.[94]

6. Zutrau is Terminated from ICE

Despite Zutrau's contributions to the Company, Jansing testified that a negative side of her involvement emerged in the 2004–2007 timeframe. According to Jansing, Zutrau did not get along well with the Company's other employees and had an abrasive management style that regularly brought her into conflict with the people under her.[95]For example, on one occasion, Zutrau insisted that Jansing write up an employee for insubordination, which he did, to his later regret.[96] The employee subsequently resigned because she felt Zutrau had targeted her unfairly.[97] Zutrau also had a tendency to micromanage the employees who reported to her. Ultimately, that caused Lotspeich to threaten to leave the Company, citing a desire for greater autonomy, among other things.[98]

Zutrau's management style also conflicted with that of Jansing, who gave priority to employee morale. Although Jansing had the final say, he and Zutrau clashed over a variety of issues such as whether certain employees should be required to clock in and out.[99] They also had disagreements regarding the salary and bonuses employees should receive, with Jansing generally wanting to pay employees more.[100] Zutrau's supervision of Lotspeich became another source of tension between her and Jansing. After Lotspeich was placed under Zutrau's supervision, she attempted to restrict any direct communication between Lotspeich and Jansing, apparently concerned that such communications would undermine her authority.[101] Indeed, if Zutrau discovered Lotspeich and Jansing communicating without her knowledge, even about non-work-related matters such as a sporting event, she became irate and proceeded to chastise one or both of them.[102]

By June of 2007, Jansing had concluded that Zutrau was a "toxic element in the office" and resolved to terminate her.[103] Shortly before that, Zutrau had been diagnosed with metastatic cancer, for which she was scheduled to go on medical leave sometime in mid-June.[104] Zutrau had postponed her medical leave until the end of June, however, to help prepare for an internal financial audit of the Company, which one of the Company's clients had requested.[105] Jansing was aware of Zutrau's diagnosis as well as her intention to take a medical leave of absence.[106]

On June 19, 2007, Jansing removed Zutrau's name and signatory power from all Company bank accounts, a credit card account, and a retirement benefits administration account, but left Zutrau's name as a co-guarantor on the Credit Line. On that same day, Jansing withdrew the full $250, 000 available on the Company's Credit Line and placed it in his personal Citibank account. Jansing testified that his banker at Citibank advised him to hold that amount in his personal account until a new credit line could be approved.[107] According to Zutrau, however, Jansing made it impossible, by doing so, for Zutrau to remove herself as a guarantor on the Credit Line.[108] The Company made the interest payments on the Credit Line after Jansing's withdrawal.

On June 20, 2007, Jansing officially terminated Zutrau without giving her any prior notice. Rather, when Zutrau arrived at the Company, she discovered that the locks had been changed.[109] Although she attempted to speak with Jansing over the phone, he did not take or return her call.[110] Instead, Jansing faxed Zutrau a formal termination letter sometime that day.[111] He also did not provide Zutrau with any severance pay and cancelled her healthcare coverage.[112]

On June 22, 2007, Jansing made a $271, 000 down payment, including closing costs, on a new home in Southampton, New York.[113] The amount of the down payment is similar to the amount Jansing withdrew from the Credit Line and placed into his Citibank account two days earlier, but Zutrau failed to prove that the two transactions were related. The funds for the down payment came from Jansing's personal bank account at United States Trust, not his Citibank account.[114] After he had withdrawn the funds from the Credit Line, Jansing maintained the balance in his Citibank account at approximately $250, 000, and at all times greater than $240, 000, until he used the funds in that account to repay the balance on the Credit Line on November 27, 2007.[115]

Citibank records subpoenaed by Zutrau indicate that Jansing did not apply for a new credit line with Citibank in or after June 2007.[116] Rather, Jansing applied for an extension of the existing Credit Line in October 2008.[117] Citibank approved that application in December 2008 and expanded the Credit Line to $500, 000. By that time, Zutrau had been removed as a co-guarantor.[118]

7. ICE's operations after Zutrau's termination

Following Zutrau's termination, Jansing hired Eric Henriksen to perform many of the day-to-day bookkeeping functions for which Zutrau had been responsible, including paying bills, tracking collections, and invoicing.[119] Jansing also began to rely on Maurice Kalaygian, Jansing's personal accountant, to serve as the Company's tax accountant.[120]Jansing did not appoint a replacement Treasurer.[121]

ICE encountered some accounting difficulties after Zutrau's termination. First, ICE experienced significant problems with the Sage accounting software it had been using. Among other things, those problems threatened the integrity of ICE's historical accounting data and prevented the Company from keeping its accounting records up-to-date.[122] ICE retained an outside computer consultant, Exeplex, to assess these problems and make recommendations for how to resolve them. Exeplex ultimately recommended that the Company take several actions, including catching up on previously released Sage upgrades, which it did.[123] The Company also paid for Henriksen to receive formal training in Sage.[124] In addition, the record shows that Zutrau had experienced difficulties with Sage during her time at ICE, due at least in part to ICE's failure regularly to update its software.[125]

Second, Jansing and Henriksen initially had trouble determining how to generate the Sungard revenue sharing reports. Zutrau previously had been responsible for that function and there were no written procedures in place as to how to generate the reports.[126] At one point, Henriksen asked Zutrau to help with the Sungard account. Zutrau offered to provide assistance, but only if she would be compensated. Jansing and Henriksen, with assistance from Exeplex, eventually resolved the issues related to Sungard independently.[127]

In most other respects, ICE's operations remained similar to how they had been before Zutrau's termination. As ICE's sole director, president, and majority stockholder, Jansing continued to have the authority to make all major decisions on behalf of the Company, including compensation and bonus decisions for himself and ICE's employees.[128] ICE continued to engage in various marketing activities begun while Zutrau was with ICE, such as the annual golf outing, and Lotspeich remained the primary driver behind the Company's direct sales efforts.[129] Although Lotspeich pursued the bank leads ICE had identified in the first half of 2007, his efforts did not produce any additional clients.[130] Certain of the targeted banks were acquired by other banks during that same timeframe.[131]

Following Zutrau's termination, ICE had further contact with Computershare and ISS. About a month after the termination, Hil sent Jansing an email referencing ongoing strategic discussions between Computershare and ICE and telling Jansing to "let me know if you need a buyer for the 20% equity position, " an apparent reference to Zutrau's minority stake.[132] Later, in March 2008, Zutrau approached Computershare to gauge their interest in acquiring her equity in ICE.[133] Computershare expressed some interest initially and took steps toward executing a non-disclosure agreement.[134] According to Zutrau, Computershare contacted Jansing at some point during their discussions and then abruptly ceased its discussions with her.[135] Shortly thereafter, Zutrau alleges that Jansing, through counsel, offered her $150, 000 for her shares in ICE.[136] Jansing denies ever making such an offer.[137]

In 2009, ISS again approached Jansing about acquiring ICE. After preliminary due diligence, ISS submitted a non-binding indication of interest in acquiring ICE for $2.5 million, with a maximum earnout potential of $4 million.[138] But ISS terminated those discussions after its parent company was acquired.[139]

In terms of overall performance, ICE has experienced slight growth since 2006, with gross revenues for the past several years averaging at or just under $3 million per year.[140] ICE's most profitable year on record was 2009, when revenues spiked due to certain non-recurring business and the Company became more current on its receivables resulting in a net profit of nearly $1 million.[141] From 2010 to 2012, the last year for which the parties provided financial information, ICE recorded an overall net loss of approximately $200, 000 and operated at a loss in two of those three years.[142]

The parties dispute the reasons for ICE's recent lack of profitability. Zutrau blames it on, among other things, mismanagement, wasteful spending, and overcompensation of Jansing and ICE employees, citing overall net increases in payroll, fringe benefit, and travel and entertainment expenses.[143] Jansing attributes the increases in ICE's payroll and fringe expenses to its expanded staff, which has grown by three or four employees since 2006 and currently stands at thirteen, [144] and to ever increasing healthcare costs.[145] Jansing also dismisses as insignificant the travel and entertainment expenses that Zutrau questions. Instead, he emphasizes that ICE's bottom line also has suffered due to increased competition from Broadridge, which has forced ICE to pay for and provide additional free services to its clients.[146]

In her complaint, Zutrau challenges, among other things, a wide array of the decisions Jansing made and actions he took in running the Company after her termination, claiming they constituted breaches of his fiduciary duties. To avoid unnecessary repetition, I defer until the analysis portion of this Opinion many of the other facts pertinent to the specific acts and decisions that Zutrau disputes.

8. The New York Action

In March of 2008, Zutrau sent a formal request to inspect books and records of ICE. Following Jansing's refusal to comply with that request, Zutrau commenced a books and records action against Jansing and the Company in the Supreme Court of the State of New York for the County of Suffolk (the "New York Court"). On August 1, 2008, the New York Court ordered Jansing to produce ICE's responsive books and records to Zutrau.[147]

In September 2009, Zutrau filed another complaint against Jansing and ICE with the New York Court, broadly asserting: (1) direct claims challenging her termination; and (2) derivative claims based on numerous actions taken by Jansing in the course of running the Company (the "New York Action").[148] One of the direct claims Zutrau brought against Jansing was for breach of an alleged oral agreement to employ her until the Company could be sold.

In October 2011, the New York Court issued an opinion on Jansing and ICE's motion for summary judgment.[149] In that opinion, the New York Court dismissed Zutrau's derivative claims without prejudice, holding that they needed to be brought in a separate action.[150] Zutrau later reasserted those derivative claims and others in this action. The New York Court also granted summary judgment in favor of Jansing on Zutrau's breach of contract claim, based on the integration clause in the RSA.[151]

The remaining claims in the New York Action were tried in July and September 2012. In its post-trial opinion, issued in March 2013, the New York Court entered judgment against Zutrau on all but one of her remaining claims.[152] The one claim on which the court ruled in Zutrau's favor was a claim for $60, 307 that remained in Zutrau's accumulated capital account at ICE.[153] In its opinion, the New York Court made several other findings and rulings that are relevant to this action, including that the bonuses Jansing received in the years following Zutrau's departure were not, as Zutrau claimed, disguised stockholder distributions as to which she was entitled to receive her pro rata share.[154] The New York Court further held that any challenges to the amounts of the bonuses themselves would need to be pursued as derivative claims in this action.[155] The court also held that a pro rata share of the stockholder distributions that ICE actually did make after Zutrau's termination had been credited properly to Zutrau's accumulated capital account. As a result, the Court awarded to Zutrau as damages the approximately $60, 307 that remained in that account.[156]

9. The Reverse Stock Split

In December 2011, after the New York Court had dismissed the derivative claims without prejudice and before the commencement of this action, Jansing retained Farrell Fritz, P.C. as counsel to advise him regarding how to accomplish a reverse stock split.[157]On January 13, 2012, Jansing, through counsel, engaged Duff & Phelps, LLC for the purpose of "estimating [the] Fair Value of 100 percent of the ...

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