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Nguyen v. View, Inc.

Court of Chancery of Delaware

July 26, 2017

Nguyen
v.
View, Inc.

          Date Submitted: June 30, 2017

          Theodore A. Kittila, Esquire Greenhill Law Group, LLC

          R. Judson Scaggs, Jr., Esquire Morris, Nichols, Arsht & Tunnell LLP

         Dear Counsel:

         In the fall of 2009, Defendant, View, Inc., pursued a round of Series B preferred stock financing. In connection with that financing, View sought the consent of Plaintiff, Paul Nguyen, then-owner of a majority of View's common stock. Nguyen initially consented to the Series B Financing as consideration for settling various claims he had brought against View. The Settlement Agreement allowed Nguyen a seven-day revocation period pursuant to which he reserved the right to withdraw his consent to the Settlement Agreement, including to the Series B Financing. Nguyen exercised that right and timely revoked his consent. Unbeknownst to him, however, View had already closed the Series B Financing. Thereafter, View contested Nguyen's right to revoke his consent and argued that it had validly closed the Series B Financing during the seven-day revocation period.

         The parties submitted the dispute regarding the validity of Nguyen's alleged revocation of consent to binding arbitration and agreed that the arbitrator would also decide the related issue of whether the Series B Financing was valid. While the arbitration was pending, View proceeded to close additional rounds of financing totaling approximately $500 million. On December 18, 2015, the arbitrator ruled that Nguyen's revocation of his consent to the Settlement Agreement was valid and, therefore, that the closing of the Series B Financing was "void and invalid." In early 2016, View attempted to right its capital structure through a series of ratifications of various charter amendments and other corporate acts, including the now-void Series B Financing, pursuant to 8 Del. C. § 204.

         The operative Amended Verified Complaint filed by Nguyen alleges that View's attempts to ratify the various rounds of financing are improper and seeks a declaration of invalidity under 8 Del. C. § 205. View moved to dismiss the Complaint under Court of Chancery Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The Court denied the motion to dismiss by opinion and order dated June 6, 2017 (the "Opinion"), upon concluding that Nguyen had pled facts that supported a reasonable inference that the Series B Financing was void and that the attempts to repair the void acts under Section 204 were invalid.[1] View has moved for reargument under Court of Chancery Rule 59(f). For the reasons that follow, that motion is denied.

         As noted in the Opinion, Defendant's motion to dismiss raised the "gating issue" of whether the corporate acts that View purportedly ratified in early 2016 were eligible for ratification under Section 204.[2] Specifically, the threshold question, which was a matter of first impression, was whether a corporate act that the majority of shareholders entitled to vote thereon deliberately declined to authorize could retroactively be authorized.[3] To answer this question, I turned to the plain language of the statute as well as relevant legislative history.[4] Due to Nguyen's revocation of his consent, View did not have the power to take the defective corporate act "at the time such act was purportedly taken, " as required by the statute.[5]I determined that Nguyen's deliberate decision as majority stockholder to revoke his consent to the Series B Financing was not the type of "failure of authorization" that Section 204 contemplates as subject to later ratification. Nguyen's deliberate revocation was, instead, a classic example of a majority stockholder exercising its franchise to vote "no" on a corporate proposal.[6] Under these circumstances, I determined that Nguyen had pled facts supporting his claims for declaratory judgment that the 2016 ratifications were not a valid deployment of Section 204, and denied the motion to dismiss.[7]

         The Court will deny a motion for reargument "unless the Court has overlooked a decision or principle of law that would have a controlling effect or the Court has misapprehended the law or the facts so that the outcome of the decision would be affected."[8] Where a motion for reargument "merely rehashes arguments already made by the parties and considered by the Court when reaching the decision from which reargument is sought, the motion must be denied."[9]

         View moves for reargument on the grounds that: (1) the Opinion misunderstood the nature of a corporation's power to take and then correct a defective corporate act under Section 204; and (2) the Opinion impermissibly carves out "rejected" acts from ratification under Section 204.[10] I address these arguments in turn.

         First, View argues that the Opinion misapprehended Section 204 when it determined that the "power to act" referenced in the statute means that the corporation must have the ability to take an act sought to be ratified at the time of the defective corporate act.[11] Rather, Defendant argues, the defective corporate act must be only a "type of act that corporations are authorized to take" and that corporations need not have had the "actual ability to take the act."[12] View has made this argument previously, notably in its supplemental briefing provided to the Court on the "gating issue."[13] In that submission, View argued that each act that it purported to ratify constituted a "defective corporate act" taken and then corrected "within its power as a Delaware corporation."[14]

         View's argument was acknowledged by the Court[15] but then rejected because "Section 204 makes clear that the defective corporate acts that a corporation purports to ratify must be within the corporation's power 'at the time such act was purportedly taken.'"[16] The Court looked at the operative reality of the Company when the Series B Financing purportedly closed, namely that the majority common stockholder had not yet given his definitive and binding consent to the transaction. When Nguyen withdrew his consent, as was his right, and the arbitrator then determined that the properly withdrawn consent rendered the Series B Financing void, the ruling confirmed that View did not have the "power" to undertake the Series B Financing at the time it closed.[17] View's rehash of previously advanced arguments has done nothing to change that result.

         View cites to In re Xencor, Inc., [18] for the proposition that this court has previously sanctioned ratification of the same sort of failure of authorization that occurred here.[19] In Xencor, this court approved a settlement agreement involving ratification of a certificate of incorporation under Section 205 where the certificate was filed without a required class vote.[20] That scenario, however, is patently distinct from this case, where Nguyen, the majority common stockholder, considered and then deliberately rejected the Series B Financing.[21]

         The argument that View possessed the "power" under Section 204 to ratify the void Series B Financing was previously advanced, considered and rejected. That View disagrees with that ...


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