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Sinchareonkul v. Fahnemann

Court of Chancery of Delaware

January 22, 2015

VEERASITH SINCHAREONKUL, Plaintiff,
v.
THOMAS FAHNEMANN, RICHARD EHRENFELDNER, GERHARD KLINGENBRUNNER, and CLEMENS EICHLER, Defendants.

Submitted: January 20, 2015

A. Thompson Bayliss, Steven C. Hough, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Attorneys for Plaintiff.

Samuel A. Nolen, Kevin M. Gallagher, Matthew D. Perri, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Attorneys for Defendants.

MEMORANDUM OPINION

LASTER, Vice Chancellor.

The plaintiff is a director of non-party Sempermed USA, Inc. ("SUSA" or the "Company"), a Delaware corporation. He seeks declaratory judgments invalidating two bylaws that confer disproportionate voting power on the defendants, who are also directors of the Company. He seeks a third declaratory judgment invalidating a resolution adopted by the defendants through the exercise of their disproportionate voting powers. He has moved to schedule an expedited hearing on an application for a preliminary injunction, which he asks to be heard before February 10, 2015. Although the plaintiff has stated a colorable claim, he has not identified a sufficient threat of irreparable harm to warrant an immediate injunction hearing. Instead, good cause exists for a two-day trial in approximately 90-120 days so that a final decree can be entered.

I. FACTUAL BACKGROUND

The operative facts are drawn from the complaint and the documents it incorporates by reference. "In assessing a motion to expedite, the Court need not-and, indeed, should not-make factual findings. It is, instead, guided by the well-pled, verified allegations of the Complaint." Shocking Techs., Inc. v. Michael, 2012 WL 165561, at *1 (Del. Ch. Jan. 10, 2012). At this procedural stage, the plaintiff receives the benefit of all reasonably conceivable inferences.[1] Certain seemingly non-controversial background facts have been drawn from a declaration provided by defendant Clemens Eichler.

A. The Company

Semperit Technische Produkte Gesellschaft m. b. H. ("Semperit"), Sri Trang Agro-Industry Public Co., Ltd. ("Sri Trang"), and Siam Sempermed Corporation Ltd. ("Siam Sempermed") agreed to form the Company in 1998 for the purposes of manufacturing latex surgical gloves and then distributing and selling them in the United States market. Each of the stockholders brought business expertise to the venture. Semperit is a world-wide manufacturer, producer, and distributor of specialized rubber-based products. Its medical products include a wide range of examination, protective, and surgical gloves, which it distributes under several brands, including the SEMPERMED trademark. Sri Trang has experience sourcing field latex and manufacturing latex concentrate and other rubber products. Siam Sempermed manufactures latex gloves.

To document their business relationship, Semperit, Sri Tang, and Siam Sempermed entered into a Joint Venture Agreement dated April 30, 1998 (the "JV Agreement" or "JVA"). The JV Agreement called for SUSA's formation as a Delaware corporation. It contemplated that SUSA would have an eight member board of directors (the "Board"), evenly split between nominees of Semperit and Sri Trang. JVA § 6.1. To avoid deadlock, it provided as follows:

The chairman of the board of directors shall be elected out of the four (4) directors nominated by Semperit and shall have a casting vote. Therefore, if no majority can be obtained within the board of directors on any such issue or resolution, the chairman of the board of directors shall have a second vote. However, the chairman of the board of directors shall have no casting (tie breaking vote) vote in the matters described in Article 6.4 (7), (9) and

(18) hereof.[2] Embracing the language of the provision, this decision refers to the tiebreaking vote allocated to the chairman as the "Casting Vote."

The JV Agreement acknowledged that the Company would have a certificate of incorporation and bylaws, but provided that "[i]n the event that any conflict or discrepancy arises between such Certificate of Incorporation and this Agreement, the provisions of the latter [i.e., the JV Agreement] shall prevail and the Certificate of Incorporation shall be promptly amended accordingly." JVA § 3.2. The JV Agreement also provided for mandatory arbitration of any disputes between the parties:

Any dispute between the parties under and in connection with this Agreement shall be decided by three arbitrators appointed under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris. The place of Arbitration shall be Zürich, Switzerland, the language of the arbitration proceeding shall be English. Documentary evidence may be submitted in a different language, unless the arbitration tribunal requests the submitting party to submit a translation thereof. The arbitral award shall determine the liability of the parties as to the costs of the arbitration, including reasonable attorneys, [sic] fees incurred by the parties. Judgment upon the award may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and for an order of enforcement, as the case may be.

JVA § 20.2.

SUSA's certificate of incorporation (the "Charter") and its bylaws implemented the JV Agreement's governance scheme imperfectly. Under the Charter, SUSA's authorized capitalization consists of 4, 000 shares of common stock divided into three series: 2, 000 shares of Series A common stock, 1, 000 shares of Series B common stock, and 1, 000 shares of Series C common stock. Siam Sempermed owns the Series A common stock, Sri Trang owns the Series B common stock, and Semperit owns the Series C common stock. As contemplated by the JV Agreement, the Charter fixes the number of directors at eight, with four elected by the holders of the Series B common stock and four elected by the holders of the Series C common stock. Charter Arts. FOURTH C.3 and SEVENTH. For simplicity, this decision refers to the directors elected by the holders of the Series B common stock as the "Sri Trang Directors" and the directors elected by the holders of the Series C common stock as the "Semperit Directors."

The Charter does not provide for the chairman to be designated from among Semperit Directors, nor does it grant the chairman the Casting Vote. These provisions appear in the bylaws. Article III, § 11 of the bylaws states:

Chairman of the Board. The chairman of the board shall be elected by the board from among the four (4) directors elected by [Semperit]. The chairman thus elected shall cast the deciding vote in the event of a deadlock of the board of directors in respect of any issue submitted to the board or that ...

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