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Basho Technologies Holdco B, LLC v. Georgetown Basho Investors, LLC

Court of Chancery of Delaware

July 6, 2018

BASHO TECHNOLOGIES HOLDCO B, LLC, BASHO TECHNOLOGIES HOLDCO C, LLC, BASHO TECHNOLOGIES HOLDCO E, LLC, HUNOBY ENTERPRISES, LLC, and EARL P. GALLEHER, III, individually and derivatively on behalf of Basho Technologies, Inc., Plaintiffs,
v.
GEORGETOWN BASHO INVESTORS, LLC, a Delaware limited liability company, NEWPORT BEACH INVESTORS, LLC, a Delaware limited liability company, CHESTER C. DAVENPORT, ROBERT L. REISLEY, JONATHAN FOTOS, ATSUSHI YAMANAKA, and ADAM J. WRAY, Defendants, and BASHO TECHNOLOGIES, INC., a Delaware corporation, Nominal Defendant.

          Submitted Date: April 9, 2018

          R. Montgomery Donaldson, Robert A. Penza, POLSINELLI PC, Wilmington, Delaware; Robert V. Spake, POLSINELLI PC, Kansas City, Missouri; Attorneys for Plaintiffs.

          Barry M. Klayman, COZEN O'CONNOR, Wilmington, Delaware; Lezlie Madden, COZEN O'CONNOR, Philadelphia, Pennsylvania; Attorneys for Defendants.

          MEMORANDUM OPINION

          LASTER, V.C.

          Nominal defendant Basho Technologies, Inc. ("Basho" or the "Company") was a promising, early-stage technology company. In 2010, defendant Georgetown Basho Investors, LLC ("Georgetown") invested in Basho. Defendant Chester Davenport controlled Georgetown and served as its President and Managing Member. Davenport joined the Company's board of directors (the "Board").

         Over the next three years, Georgetown led or co-led a series of preferred stock financings for Basho. Through them, Georgetown gained blocking rights that enabled it to control Basho's access to capital. As Davenport recognized and emphasized repeatedly, the blocking rights gave Georgetown effective control over the Company when the Company was on the verge of running out of money.

         In 2013, after maneuvering the Company into a positon of maximum financial distress, Georgetown and Davenport forced through a Series G financing round that was highly favorable to Georgetown and unfair to Basho and its other investors. The Series G round also gave Georgetown hard control.

         After achieving hard control, Georgetown added defendant Jonathan Fotos, a Georgetown employee, to the Board. Davenport, Fotos, and their allies on the Board took steps to consolidate their control, including by creating an Executive Committee through which Davenport and another Georgetown representative ran the Company. They caused Basho to engage in self-dealing transactions, and they turned down sources of capital that would have undermined their control. Three outside directors left the Board, as did the CEO, other senior managers, and key employees.

          Davenport hoped to sell Basho and channel the bulk of the proceeds to Georgetown through its preferred stock holdings. Davenport thought that other investors would eagerly participate in the Series G financing that Georgetown had extracted, thereby providing the Company with necessary financing. Instead, investors viewed Georgetown's oppressive actions as a red flag and questioned Basho's ability to succeed. Georgetown was not able to generate any significant outside funding for Basho, nor was it able to achieve a sale.

         Basho never recovered. In 2016, Basho entered receivership and was liquidated. Its equity was worthless.

         The plaintiffs are former holders of common and preferred stock issued by Basho. They filed suit, claiming that various combinations of defendants breached their fiduciary duties, aided and abetted breaches of duty by other defendants, or committed other wrongs. During the course of the litigation, the plaintiffs' focus narrowed to a claim for breach of fiduciary duty against Georgetown, Davenport, and Fotos.

         The plaintiffs proved at trial that Georgetown and Davenport exercised effective control over Basho in connection with the Series G financing. As a result, Georgetown and Davenport had the burden of proving that the terms of the Series G financing were entirely fair. They failed to carry that burden. As a remedy for the injury inflicted by the Series G financing, this decision holds Georgetown and Davenport jointly and severally liable for compensatory damages of $17, 490, 650, plus pre- and post-judgment interest calculated at the legal rate, compounded quarterly, and running from January 23, 2013, to the date of payment, with the rate of interest fluctuating with changes in the legal rate.

          The plaintiffs proved at trial that after the Series G financing, Georgetown and Davenport continued to control Basho. They further proved that Georgetown, Davenport, and Fotos caused Basho to engage in self-dealing transactions and took other self-interested actions. The defendants did not make any meaningful effort at trial to prove that their actions were entirely fair. They bore the burden of proof on this issue, which they failed to meet.

         The plaintiffs did not seek transaction-specific damages awards for the actions that the defendants took after the Series G financing. Instead, the plaintiffs sought a damages award equal to the difference between the value of their shares after the Series G financing and the value at the time of trial, which is zero. The plaintiffs convinced me that on the facts presented, that award is warranted. As a remedy for their actions after the Series G round, this decision holds Georgetown, Davenport, and Fotos jointly and severally liable for damages in the amount of $2, 778, 228, plus post-judgment interest calculated at the legal rate, compounded quarterly, and running from the date of judgment until the date of payment, with the rate of interest fluctuating with changes in the legal rate.

         I. FACTUAL BACKGROUND

         Trial took place over four days. The parties submitted 866 joint exhibits, lodged twelve depositions, and presented live testimony from four fact witnesses and one expert. The parties made the court's task more difficult by submitting exhibits that were not in chronological order. The exhibits also included many imaged emails that appeared in (at best) six-point font.

          To facilitate fact-finding, courts evaluate evidence against a burden of proof. For this case, the appropriate standard of proof was straightforward: a preponderance of the evidence.[1] The question of who bore it was complex.

         For the breach of fiduciary duty claim, the plaintiff bore the burden of proving that Georgetown owed fiduciary duties in connection with the Series G financing. With the plaintiff having carried that burden, Georgetown and Davenport bore the burden of proving that the Series G financing was entirely fair.[2] The defendants bore the burden of proof on their affirmative defense of acquiescence. The plaintiffs bore the burden of proof on remedial issues. The same structure governed the analysis of Georgetown, Davenport, and Fotos' actions after the Series G financing. Within this framework, the following facts were proven by a preponderance of the evidence.

         A. Basho's Early Stages

         In 2008, plaintiff Earl Galleher and a colleague co-founded Basho.[3] Galleher became President, CEO, and Chairman of the Board.

          Galleher raised a Series A round of financing based on a business plan for a web-based sales product. When that plan failed to generate results, Galleher re-focused Basho on developing a distributed database product.[4]

         Galleher tried unsuccessfully to raise venture capital to fund the database product.[5]In February 2009, Galleher personally led a Series B round. He bought shares in his own name, as he had in the Series A round, and he also formed an investor group that invested through plaintiff Basho Technologies Holdco B, LLC.[6]

         In August 2010, Basho needed more money, and Galleher led a Series C round.[7]Once again he bought shares in his own name and formed an investor group that invested through plaintiff Basho Technologies Holdco C, LLC.[8] Plaintiff Hunoby Enterprises, LLC also owns common stock in Basho and invested in the Series A, B, and C rounds.[9]

          B. Georgetown Invests In Basho.

         By early 2011, Basho needed additional funding.[10] Galleher met with Don Rippert, the chief technology officer at Accenture PLC.[11] Rippert liked Basho's technology, but Accenture passed on the investment.

         By chance, Rippert met Davenport and mentioned Basho.[12] Davenport was a lawyer who had worked in various roles, including as a name partner in a law firm, as chairman of a publicly traded corporation, and as assistant secretary in the U.S. Department of Transportation.[13] Davenport had formed non-party Georgetown Partners LLC in 1987 as a vehicle for private equity investments.[14]

         Rippert put Davenport in touch with Galleher, [15] who pitched him on an investment.[16] Davenport had Fotos research Basho and its industry.[17] They thought Georgetown could generate quick and outsized profits by investing in Basho and selling it within two years.[18] Davenport agreed to have Georgetown lead a Series D round.

         The Series D round closed in February 2011.[19] The full amount of the Series D round was $5 million.[20] Georgetown invested approximately $2 million, and Davenport joined the Board.[21] At that point, the Board comprised Galleher, Davenport, Dr. Eric Brewer, Anthony Thornley, and Jorn Larsen. Brewer was a tenured computer science professor at the University of California at Berkeley.[22] Thornley had served as President and COO of Qualcomm Inc. and as a director of Callaway Golf Company.[23] Larsen was a representative of a Danish venture capital firm that participated in the Series D round.[24]

         During the quarter that immediately followed Georgetown's investment, Basho's performance suffered.[25] Galleher agreed with the other directors that it was time for him to step aside as CEO. Galleher recruited Rippert to replace him in that role.

          In July 2011, Rippert took over as CEO of Basho.[26] Galleher remained Chairman of the Board. To recruit Rippert, Galleher and Davenport agreed to provide the Company with additional funding by investing $5 million in a Series E round, which they split evenly.[27]Galleher led an investor group that invested in the round through plaintiff Basho Technologies Holdco E, LLC.[28]

         C. The Series F Round

         By early 2012, it was clear that Basho would need more funding before achieving profitability. Davenport announced that he would take charge of the fundraising efforts. Galleher supported Davenport. After the Series E round, Galleher had exhausted his own resources, and he was ready to let Davenport take the lead on fundraising.[29]

         Davenport proposed to have Georgetown invest $10 million in a Series F round at a pre-money valuation for Basho of $75 million. Rippert, Brewer, and others opposed the term sheet because they believed that it would give Georgetown majority control.[30] At the time, Galleher trusted Davenport, and he was frustrated that the Board would not accept Georgetown's proposal.[31] Meanwhile, Rippert solicited an investment from IDC Frontier Inc. ("IDCF"), a large Japanese website-hosting company that was one of Basho's customers.[32] IDCF wanted to invest to "strengthen a mutual technical cooperation and collaboration."[33]

         In June 2012, Basho completed a modified Series F round that avoided giving Georgetown majority control by including IDCF and reducing Georgetown's participation. IDCF invested $6.1 million and received the right to designate a member of the Board. The relevant designee for purposes of this decision is Atsushi Yamanaka, who joined the Board in February 2013.[34] Georgetown invested $5 million and received an option to invest another $5 million.[35] Georgetown also received the right to designate a second director in addition to Davenport.[36] Georgetown designated defendant Robert Reisley, an associate and confidante of Davenport's who was a member and officer of Georgetown. Reisley also was the president and co-founder of Evergreen Capital Advisors, Inc., a consulting firm that had advised Georgetown on its investment in Basho.[37]

          The shares of preferred stock sold in the Series F round carried blocking rights. Among other things, without the consent of holders of a majority of the outstanding Series F shares, Basho could not

either directly or indirectly by amendment, merger, consolidation or otherwise, . . . issue any class of stock having any right, preference, or priority superior to or pari passu with the Series F Preferred Stock, or amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation in a manner that changes the powers, preferences, or special rights of the Series F Preferred Stock so as to affect them adversely, which does not so affect the entire class of Preferred Stock.[38]

         As the holder of a majority of the Series F preferred stock, Georgetown controlled the blocking right.

         Davenport wanted to "sell the Company in early 2013."[39] He believed that the Series F round gave Georgetown negative control over Basho because Georgetown could prevent the Company from engaging in an extraordinary transaction or raising outside funding without Georgetown's consent.[40] As a result, the Series F financing had put Georgetown "in the position of being the sole life line of the Company for money until 2013."[41]Davenport expected that Basho would need additional capital and would ask Georgetown to exercise its option to invest another $5 million. At that point, Georgetown could block the Company from obtaining another deal, insist on receiving full control in return for exercising its option, and then force a near-term sale.[42] In any sale, Davenport believed that Georgetown's preferred stock would give it "the largest share of the proceeds."[43]

         Davenport urged his team at Georgetown to "think about the best way to plot our exit."[44] For assistance, Davenport reached out to Cowen & Co., an investment bank that had a longstanding relationship with Georgetown and where Davenport had personal connections to the head of the firm.[45]

         Shortly thereafter, Davenport told Galleher that he wanted to "exit Basho in an expedited manner" and that "[t]he only issue is how much money can we get . . . and how quickly."[46] He claimed that based on the low end of a valuation range that Cowen had given him, Galleher should receive at least $21 million in a sale.[47] At trial, Galleher testified that he "didn't care" about the money, but decided to support Davenport because the "guy who controls the company [was] telling me he wants to sell the company."[48]

         Rippert, by contrast, did not want to sell the Company. He thought that he had been hired to grow the Company. Davenport began plotting ways to neutralize Rippert and ensure that if Rippert did not support a sale, he at least would not be able to interfere.[49]

         D. Georgetown Blocks Other Investments.

         Consistent with his expressed desire to "force a near term exit that Georgetown control[s], "[50] Davenport tried to position himself as the point person for any efforts to raise capital. He argued that this would enable Rippert to concentrate on Basho's operations.[51] In reality, Davenport wanted to avoid any financing that would impede Georgetown's control.

         Rippert, however, continued to look for alternative sources of financing that would enable the Company to achieve its business plan. In September 2012, Rippert secured an executed term sheet from Updata Venture Partners, a technology-focused venture capital firm. The term sheet contemplated Updata leading a Series F-1 investment round with a $10 million investment at a pre-money valuation of $71 million.[52] The transaction would have deprived Georgetown of some of its blocking rights, so Davenport viewed it as a "non-starter."[53] As an alternative to the Updata term sheet, Georgetown proposed to provide Basho with a loan of $5 million at an interest rate of 5% per annum, payable annually, and convertible at Georgetown's option.[54]

         During a meeting on October 10, 2012, the Board discussed the Updata term sheet and the Georgetown loan.[55] Proceeding with the Updata proposal required approval by holders of a majority of the Series F preferred stock; Davenport announced that Georgetown would not consent. The Board resolved to terminate discussions with Updata and enter into negotiations with Georgetown over the loan.[56] To make the terms of the loan less unattractive when compared to the Updata term sheet, Georgetown nominally increased the total authorized borrowings to $7.5 million, with Georgetown providing $5 million and allowing for the additional $2.5 million to be provided by either Georgetown or other preferred investors. Georgetown also increased the interest rate to 7.5% per annum, payable quarterly. [57] The loan was convertible into Series F preferred stock and came with warrants to purchase 500, 000 shares of Series F preferred stock at $1.515 per share as compensation for providing the loan commitment.[58] Georgetown insisted as a condition to extending the loan that the Company retain Cowen as its financial advisor.[59]

         Shortly after the October meeting, Rippert received a term sheet from Tokyo Electron Devices Ltd., which was one of the Company's customers.[60] The term sheet contemplated an investment of $3.75 million at a pre-money valuation of $81.5 million, but Tokyo Electron was primarily interested in receiving commercial commitments, including a reseller discount.[61] Rippert argued that the Tokyo Electron investment was superior to the Georgetown loan.[62] When Davenport heard about the term sheet from Tokyo Electron, he crowed in an email to the Georgetown team that Rippert "knows that with our blocking rights we control Basho. Therefore, everything he does is geared toward taking those rights. Nice try but we outflanked him months ago."[63]

         Davenport wanted the Company to accept Georgetown's loan offer, decline the Tokyo Electron investment, and enter into a reseller agreement with Tokyo Electron. Galleher told Rippert not to pursue the Tokyo Electron investment unless he could convince Davenport to support it.[64]

         Knowing that Davenport wanted to sell the Company, Galleher proposed to hire Greg Collins as a consultant to help prepare Basho for a sale. Collins had decades of experience providing M&A-focused advisory services in the technology sector and had held senior roles at large companies where he had led and executed acquisitions.[65] Collins had joined the Board in May 2012.[66]

          Galleher worried that Rippert would leave if Basho hired Collins and that his departure would hurt the sale process. Davenport dismissed his concerns.[67] Davenport told Galleher that they needed "to be prepared to take whatever action is necessary to protect our financial interest" and that Rippert "does not understand what I will do to protect our interest and how his 30 year career and net worth will be put in grave jeopardy."[68]

         As Galleher feared, Rippert resigned after Basho hired Collins. During a meeting on October 29, 2012, the Board accepted Rippert's resignation, appointed Collins to the positions of President and CEO, and authorized Basho to enter into a loan agreement with Georgetown.[69] Everyone understood that draws under the loan would be "[a]vailable to the Company at $1.5 million monthly."[70]

         E. The Georgetown Loan

         In November and December 2012, Reisley and Collins negotiated the documentation for the Georgetown loan. Just before the start of the negotiations, at Georgetown's request, Basho entered into a consulting agreement with Reisley's company, Evergreen Capital.[71] Basho committed to pay Evergreen Capital a fee of $15, 000 per month in return for advice about raising money and selling the company.[72] Despite being paid by Basho, Reisley reported directly to Davenport.[73]

         Basho also formally engaged Cowen.[74] The engagement letter covered both selling the Company and raising financing. By this point, Davenport already had been consulting with Cowen for three months.[75]

         During a meeting on December 16, 2012, the Board approved the terms of the Georgetown loan, which were subsequently memorialized in a Senior Secured Convertible Note Purchase Agreement (the "Loan Agreement").[76] The agreement authorized maximum borrowings of $7.5 million. Basho could draw up to $1.5 million per month by making a loan request, which Georgetown committed to fund within fifteen days.[77]

         With the loan in place, Davenport no longer worried about the Tokyo Electron investment undermining Georgetown's control. At the same meeting that the Board approved the Loan Agreement, the Board approved an investment of $3.75 million from Tokyo Electron on terms comparable to the terms of the Series F preferred stock.[78] The Company and Tokyo Electron also entered into a distributor agreement.[79]

         F. Cowen Tries To Sell The Company.

         During the first quarter of 2013, Cowen searched for a buyer for the Company. Davenport decided that Georgetown "need[ed] to drive this process," and Fotos agreed that Collins and other members of management would not be willing to give a buyer "the really hard sell."[80] Davenport began restricting calls with Cowen to Georgetown personnel only.[81]Reisley told Cowen to interact only with Georgetown personnel and not to call Collins without getting approval from Georgetown.[82] Davenport made it clear that he wanted to freeze out Collins and Galleher.[83]

         In May 2013, Cowen's ability to perform its engagement was briefly hampered when the firm fired its M&A team.[84] Evidencing Cowen's loyalty to Georgetown, Cowen promptly notified Reisley of this development and only told Collins later, after getting Georgetown's permission.[85] Collins confronted Davenport about being cut out of the sale process, but Davenport ignored him. Davenport told Reisley that the management team needed to understand that he was in charge: "Decisions will be made that they don't like and I will take full responsibility for making those decisions . . . . I want [the management team] to understand that we are in a full pivot and if they do not produce what we need to exit we will be ruthless."[86]

         Davenport spoke with his contacts at Cowen about the departure of the M&A team. To remedy matters, Chris McCabe, the co-head of investment banking at Cowen, and Setch Subudhayangkul, a managing director with almost two decades of M&A experience, took over the Basho account. Basho was a small engagement, and Cowen's prompt staffing of the matter with these senior professionals evidenced the firm's loyalty to Georgetown. The new team performed competently, but the sale process failed to generate any results.[87]

         G. Georgetown Fails To Provide Funding Under The Loan Agreement.

         When the Board approved the Loan Agreement between Georgetown and Basho, the Board and management understood that Basho could draw on the loan at a rate of $1.5 million per month to fund the Company's needs for operating capital. Georgetown was obligated to fund Basho's requests within fifteen business days. Georgetown only fulfilled the first draw request per the Loan Agreement's contractual terms:

• On April 11, 2013, Basho made its first draw request. Georgetown funded the request on May 2.
• On May 23, 2013, Basho made its second draw request. Georgetown did not fund the request until July 11.
• On July 11, 2013, Basho made its third draw request. Georgetown did not fund the request until September 4.
• On September 9, 2013, Basho made its fourth draw request. Georgetown funded $600, 000 on October 22 and funded the remaining $900, 000 on November 4.[88]

         Davenport personally decided to delay funding the draws under the Loan Agreement as a way "to force Management to cooperate with [Georgetown]."[89]

          Rather than complying with Georgetown's contractual obligations, Davenport told Basho's CFO, Marisa Linardos, that Georgetown would evaluate Basho's funding needs on a monthly basis and provide funds at its discretion.[90] This diktat resulted in Linardos meeting with Reisley to justify the uses of the funds that comprised each draw request. If Reisely disagreed, Georgetown would not fund.[91] Georgetown's micromanagement of Basho's operations caused Basho to miss its third and fourth quarter forecasts.[92]

         H. Georgetown Controls The Fundraising Process.

         Beginning in May 2013, Davenport instructed Cowen to broaden its efforts to include raising a Series G round. Just as he had cut Collins and Galleher out of the sale process, he also maneuvered to cut them out of the fundraising process. In an email to Reisley, he explained the plan:

I will call Earl [Galleher] tomorrow as a preemptive tactic. Since Cowen has agreed to get our approval on all matters related to the Private Placement prior to any discussion with Management, the following is how we will proceed[.]
1. Cowen will work with Greg [Collins] to give him the impression that he is leading the decision making Process
2. We will avoid giving the impression in any way that we are contacting or meeting with Cowen independent of what Greg thinks he is doing.
3. Greg is leading the process as CEO and we are available if he feels he needs our input on anything.
4. Cowen's contact for all matters related to the Private Placement will be Greg . . . .[93]

         Put simply, Davenport and Reisley misled a fellow director (Galleher) and the Company's CEO (Collins) to achieve Georgetown's goals.

         On June 5, 2013, Davenport sent an email to Reisley in which he explained that if they could not sell the Company, then they would bring in a new investor to solidify their control over Basho:

We will work with Cowen to find an investor who will take Earl [Galleher] off of the payroll. Next we will find an investor that will work with us to get control of the BOD. Together with the new investor we will fire Greg [Collins] and find a real growth focus[ed] CEO. Cowen will work with us to help accomplish our goal[.] They know that Earl and Greg are hostile to them which is good for us. We will welcome Earl and Greg to the realities of Wall Street. Let the fun begin[.][94]

         On June 6, Davenport gave Galleher "a harsh and vile tongue lashing" to make it "clear that the nature of the relationship had changed."[95]

         Collins perceived that Davenport was trying to cut him out of the fundraising process and attempted to exert his authority as CEO. In an email dated June 16, 2013, Collins instructed the Cowen team to let [him] know immediately of any communications between any of [the Cowen team] and any of Basho's investors or Board members. To be clear, I expect no communication one on one, given the preferential treatment provided to certain investors earlier in the process. Continuation of that approach could prejudice other Board members against our process- something I'd like to avoid.[96]

         On June 17, as Collins had expected, Reisley asked Cowen to give Georgetown a contact list for potential investors.[97] Cowen gave the information to Georgetown.[98]

         By August 15, 2013, Cowen had reached out to eighty-four financial and strategic investors, held meetings with seventeen investors, and executed non-disclosure agreements with sixteen investors.[99] When the process came to a conclusion in September, only one investor-Battery Ventures-submitted an expression of interest.[100] By early October, Battery Ventures had dropped out because Basho was too far along in the growth cycle, faced significant competition, and lacked a sufficiently mature and predictable market.[101]

          Under its budget, Basho expected to need more funding by the end of the year. With few options left, Cowen reached out to Norvell Miller, the Managing Director of Southeast Venture Partners.[102] Galleher had identified Southeast as a possible investor and met with Miller in August, but Miller had deferred engaging in any discussions while he completed other deals.[103] Miller also told Galleher that Southeast's preliminary research on Basho "had raised a yellow flag about [its] possible involvement with Mr. Davenport" because of his history of litigation and lack of experience with technology companies.[104] After engaging in October, Miller spoke with Collins and told him that Southeast only would invest if they could establish "a working relationship" with Davenport.[105] Collins relayed the information to Davenport and suggested that he and Miller speak with each other directly.[106]

         Miller told Davenport that Southeast was prepared to consider an investment at a pre-money valuation of $100 million. Davenport responded that Georgetown was about to submit its own term sheet and that Southeast should consider participating in that investment. Miller explained that Southeast could act more quickly by submitting a term sheet of its own, but Davenport reiterated that Southeast should consider Georgetown's term sheet first.[107] Davenport did not want to compete with Southeast. He wanted to be able to extract advantageous terms from the Company and recognized that he could best achieve that goal if Georgetown was the Company's only option. He hoped Southeast would be happy to ride Georgetown's coattails and invest on the advantageous terms that Georgetown could extract if the Company lacked alternatives.

         To reduce the risk that Southeast might compete, Davenport tried to slow down Southeast's ability to prepare its own term sheet. On November 2, 2013, Davenport told Miller that Reisley was in charge of drafting Georgetown's term sheet and that the two should speak.[108] Miller scheduled a call with Reisley, but Reisley skipped it without ever following up or explaining why.[109]

         Also during October 2013, Georgetown met with NewSpring Capital, another venture capital firm.[110] NewSpring proposed a framework for a joint investment, but Reisley found it unacceptable because it was "too attractive to the new investors and not sufficiently attractive to us."[111] Davenport worried that the investment would prevent Georgetown from achieving "total positive control" over Basho.[112] When Reisley told NewSpring that Georgetown was submitting a term sheet without them, NewSpring withdrew.[113]

         1. Georgetown's Series G Term Sheet

         On November 4, 2013, Georgetown sent Basho a term sheet for the Series Ground.[114] It contemplated a total investment of $20 million at a pre-money valuation of $75 million. Georgetown committed to invest $10.025 million, but only $2.575 million was new money; the other $7.45 million would come from converting the amounts due under the Loan Agreement. If Georgetown could find other investors to fill out the round, then the Company would receive a total of $12.55 million in new money.[115]

         The terms of the Series G preferred stock were onerous: a liquidation preference equal to three times invested capital, a cumulative dividend of 8%, the ability to convert the preferred stock into super-voting common stock that carried ten votes per share, the right to designate five out of the seven members of the Board, and extensive blocking rights. In addition, Georgetown would designate counsel to document the deal, Basho would pay all of the expenses related to the deal, and Basho would extend Evergreen Capital's consulting agreement until Georgetown elected otherwise.[116]

         Georgetown demanded an answer by November 7, 2013-72 hours later.[117] Collins asked Georgetown for additional time to evaluate the proposal; Georgetown refused.[118] On the evening of November 6, the Board met to discuss the term sheet.[119] Reisley and Davenport insisted on being present for the discussions, although they agreed to abstain from any vote.[120] The Board countered by establishing a committee whose members were Galleher, Collins, and Thornley and empowering the committee to consider the investment.[121] After deliberating in committee, they decided that the term sheet was too one-sided and should be rejected.[122]

         Rather than negotiating, Georgetown applied more pressure. Davenport threatened to stop providing any funding under the Loan Agreement by claiming that Basho had suffered a material adverse change.[123] He also told Collins that he should not expect any funding from Southeast and that Georgetown's deal would only get worse if the Company did not accept it.[124]

         At this point, Collins concluded that the Company "had no path forward but to proceed with approval of the term sheet."[125] On November 7, 2013, the committee changed its position and recommended that management be authorized to negotiate definitive transaction documents with Georgetown.[126] The Board followed the committee's recommendation.[127]

         2. Southeast Submits A Competing Term Sheet.

         On November 10, 2013, Collins forwarded Georgetown's term sheet to Miller in hopes of securing a better offer. Miller indicated that Southeast's partners were prepared invest $15 million, subject to due diligence and an agreement on terms.[128] The next day, Miller spoke with Davenport. A string of pejorative texts that Davenport sent to Reisley indicates that Davenport had no intention of cooperating with Miller.[129] The following day, Miller told Galleher and Collins that he was "getting mixed signals from everyone."[130]

         On Thursday, November 14, 2013, Miller told Davenport that Southeast was considering investing between $8 and $15 million.[131] Galleher proposed to delay any deal with Georgetown until after Southeast made its proposal.[132] On Friday, November 15, Davenport told Collins that Basho needed to sign Georgetown's deal by Wednesday, November 20, or he would sue Collins personally.[133] Davenport also threatened to sue Galleher personally.[134] Meanwhile, Georgetown stopped providing any additional funding under the Loan Agreement. Reisley told Linardos to conserve cash by stretching out vendor payments.[135] Collins became so frustrated that he tendered his resignation on November 19, but withdrew it after Galleher and Thornley asked to him reconsider.[136]

          On November 21, 2013, Southeast sent a term sheet to Collins.[137] Southeast proposed investing $12.5 million in cash plus a commitment to invest another $10 million if the Board determined that additional funding was required. Southeast would receive preferred stock carrying a liquidation preference equal to two times invested capital. The post-investment Board would have nine seats: holders of the Series G preferred stock would designate five seats (with Southeast designating two of the five), holders of the Series A-F preferred stock would designate one seat; and the remaining seats would be reserved for Basho's CEO, Galleher, and one outside director selected by a majority of the other directors. The preferred stock would accrue a 5% cumulative dividend that would be paid out only upon sale or liquidation.[138]

         Cowen immediately recognized that Southeast's term sheet was superior to Georgetown's proposal.[139] At trial, Davenport conceded this point.[140]

         That night, Collins sent Southeast's term sheet to Davenport and the other directors.[141] Brewer reacted positively.[142] Galleher felt that Basho needed a bridge loan if Georgetown refused to continue funding under the Loan Agreement, but that if Southeast added that feature, then the Board would likely accept Southeast's proposal.[143]

         Davenport was unimpressed with Southeast's offer. He emailed his team: "This is their Hail Mary Play? Let's play along with them until time runs out."[144]

         As Davenport's email suggested, he recognized that if he could delay a potential deal with Southeast and create uncertainty about its ability to close, then the Company would find itself desperate for money. At that point, Georgetown would be the Company's only option. Consistent with this plan, Davenport and Reisley spent the next two months communicating a series of conflicting and confusing positions to Southeast and the Company. At times, superficially, they expressed support for a Southeast deal. Meanwhile, they would ignore requests for information, decline to respond to substantive proposals, and otherwise adopt passive-aggressive stances. At other times, Davenport and Reisley would be openly hostile and aggressive towards Southeast or critical of Company management.[145]

         Internal dynamics at Southeast further complicated matters and helped Davenport and Reisley achieve their aims. Southeast was not an investment fund with committed capital. Instead, it was a pledge fund with a stable of investors. Southeast presented transactions to its investors on a deal-by-deal basis, and each investor decided whether or not to participate.[146] Two of Miller's significant investors were Rutherford Seydel and Tom Noonan. For the Basho investment, Noonan's involvement was particularly important because of his experience with technology companies.[147]

         During the discussions about Basho, the complexities of both sides' internal structures meant that neither side could speak with one voice. Instead, the multiple players produced awkward, complex, and confusing interactions involving varying combinations of Miller, Noonan, Seydel, Collins, Galleher, Davenport, Reisley, and other members of the Board. Matters became even more complicated because Miller was not able to discuss the deal in detail with Noonan until late December 2013.[148]

         For Davenport and Reisley, the chaotic situation perfectly suited their goal of delay. They could say different things to different people, appear supportive in some communications and antagonistic in others, and generally run out the clock while claiming all along that they were trying to cooperate.

          3. The Southeast Deal Falls Apart.

         On November 22, 2013, Miller told Cowen that his partners had verbally committed to the deal.[149] Miller also thought the request for a bridge loan would be approved.[150] In an email to his partners, Miller credited Georgetown's greed with creating an attractive opportunity:

We have been negotiating a term sheet with management and Cowen, after the Davenport Group (the current largest investor) put in a term sheet that was so pun[i]tive that management will likely quit. We are the beneficiary of that term sheet, as we only had to move modestly to the right to be perceived as the "white knight". Steve Rakes, my dour partner, calls this the best deal he has seen in his career, and is planning to personally participate.[151]

         In reality, Miller did not yet have commitments from Noonan and Seydel, who were his key investors for the Basho transaction.

         During a meeting on November 22, 2013, the Board instructed Cowen to work with Southeast on the details of transaction.[152] Davenport and Reisley abstained from the vote.[153]That evening, Davenport texted Thornley and accused Galleher of "actively working to delay the approval process" for Georgetown's deal.[154] He told Thornley that Basho "will be insolvent" and "this could end badly" unless Basho closed its financing promptly.[155] After talking with Thornley, Davenport reported to his team at Georgetown:

I had a "come to Jesus" call with Thornley. I told him I was I [sic] tired of him taking sides with [Collins] and [Galleher] and their attacks on us. I resented what he did today and if he did it again I will treat him as an enemy. He believed everything that they said and believed nothing I said. I [y]elled at him for two minutes and would not let him say anything. I told him I use[d] to respect him but not any longer. I told him that all of this was personal and all we respect is business. I told him that we want total control and the best interest of [Basho] would be served when [Collins] leaves [Basho] and was happy he resigned. He has missed every BOD approved budget and more importantly the BOD he gave the banker when they asked him to give them a Budget that he was sure he would make [sic]. We had money at stake and he has nothing. I am upset with him and do not feel he can be trusted. THE END.[156]

         When asked whether Thornley would support Georgetown, Davenport responded, "If we put this last $4M in I want total control and do not care what his attitude. If I do not like his attitude or actions I want the power to crush him."[157]

         Despite his actual views, Davenport feigned willingness to support Southeast's term sheet.[158] He had Cowen propose that Basho close on Georgetown's investment first, then Georgetown would roll its investment into Southeast's when Southeast was ready to close in January.[159] The idea that Georgetown voluntarily would give up its superior security in order to roll into Southeast's weaker security was not credible, and Galleher understandably rejected the idea.[160]

         On November 26, 2013, Miller submitted a revised term sheet in which he agreed to changes requested by Georgetown and Co wen.[161] Miller expected Basho to accept the deal.[162] He also believed that Georgetown had agreed to continue to fund its commitments under the Loan Agreement so that Southeast would not have to provide bridge financing.[163]Davenport likewise told Basho that he would not let the Company run out of funds.[164]

         Three hours later, Davenport bluntly rejected Southeast's term sheet, stating: "[W]e think that this approach is not productive, therefore we do not have any comments on the draft term sheet."[165] Miller decided "to go pencils down" rather than entering a "hostile environment."[166] Davenport blamed Miller, accusing Southeast of lacking the capital to fund the deal and claiming that Miller had failed to consider that Basho would have to pay off its loan from Georgetown in December 2014.[167] The first accusation had a germ of truth in light of Southeast's structure, but Miller had never hidden that fact and had represented that his investors would fund the deal. The second accusation came out of the blue, because the discussions had always contemplated Georgetown rolling the debt owed under the Loan Agreement into the equity raise. Miller told Collins that Davenport had never mentioned this point before.[168] Davenport's unprofessional communication echoed Reisley's treatment of Southeast, which Miller described as "obstinate, and non-responsive" to the point that Southeast would "never speak to him again."[169]

         Less than a week later, on December 1, 2013, Davenport changed his tune once more. This time, he told Cowen that Georgetown would either let Southeast lead a standalone deal or work with Southeast on a combined deal.[170] Davenport also committed to fulfill Georgetown's commitments under the Loan Agreement and requested a face-to-face meeting with Galleher to clear the air.[171] When the two met, Davenport told Galleher that if Southeast could deliver a term sheet that worked for the Company, Georgetown would support it.[172]

          With Davenport continuing to sound supportive, [173] Miller re-engaged and sent a revised term sheet to Basho on December 6, 2013.[174] It contemplated an investment of $27.5 million at a pre-money valuation of $75 million, plus the possibility of an additional investment of $10 million. It incorporated a $1.5 million bridge loan to fund Basho's immediate cash needs.[175] Collins believed that Miller's principal investors, Noonan and Seydel, had committed to the deal.[176] In reality, they still had not yet agreed to fund the transaction.[177]

         On December 9, 2013, the Board approved the terms of Southeast's proposal with Davenport and Reisley abstaining.[178] Although he outwardly remained supportive, Davenport secretly continued to plot ways of disrupting the negotiations with Southeast. In an email dated December 16, 2013, Davenport told Reisley:

With respect to Basho and [Southeast] my new thought is that we should wait to resolve (or raise) any of our demands until it is too late for the Company and [Southeast] to do a deal with anyone else and the Company is running out of cash.
My thinking is that we can play [Galleher's] game. After the BOD approves the definitive agreement and everyone thinks the deal is a go we should approve only if we get everything we want.
[Galleher] and [Collins] will be emotionally attached and on the verge of what they will see as a victory for them.
We will win this game of poker[.][179]

         Galleher correctly perceived at the time that Davenport was purposefully sending conflicting messages and claiming to be supportive while in fact being non-cooperative.[180]

         By late December 2013, Southeast was still not ready to close. It turned out that Miller had not yet been able to convince Noonan to support the transaction. To gain more time, Miller offered to provide $1 million of bridge financing.[181] Miller later increased that amount to $1.5 million.[182]

         On December 31, 2013, Noonan sent Miller a list of seven objections to the deal.[183]He concluded, "I like the technology, I like the market opportunity, but continue to have anxiety about a series G financing, with Chester, under these terms."[184] After sending the email, Noonan could not be reached for several days.[185]

         By January 8, 2014, no significant progress had been made. Galleher wrote to Davenport, noting that "the bridge financing is in some form of limbo" and that Basho was "fast approaching the date of no more money in the company."[186] He asked Davenport to submit a proposal that would:

1.Prevent the company from running out of money.
2.Establishing a deal that all investors (including [Georgetown]) could live with and feel ok about.
3.Ensure there is not a management exodus from the company[.]
4. Provide for a condition wherein management has the runway to actually build the business vs. being ever focused on our cash run out date.
5. Be something that could attract the strategic investors whom we want to quickly bring into the company.[187]

         This was the scenario that Davenport had sought to create. Knowing that the Company was desperate, Davenport did not budge from Georgetown's original Series G term sheet.

         On January 10, 2014, Basho sent Davenport a counterproposal.[188] It contemplated a Series G round in which Georgetown would invest a total of $10 million, consisting of $2.5 million in new money and the conversion of $7.5 million advanced under the Loan Agreement. The counterproposal anticipated another $12.5 million from a combination of Southeast and other investors.[189] The term sheet was aspirational, because neither Southeast nor any other investors were committed.[190]

         That same day, Collins met with Noonan and Seydel and their advisors.[191] He reported to Galleher and Davenport that Noonan and Seydel were "prepared to proceed with a bridge and Series G financing," but "under materially different terms than outlined in the current documents."[192] Collins outlined the main points, which included:

a) Substantial reduction if not elimination of all non-Series G liquidation preference.
b) Retention of a fully participating 2X series G liquidation preference[.]
c) Series G protection provisions voting threshold shall be increased to require approval of the holders of the Notes[.]
d) Currently outstanding convertible debt held by Georgetown will convert into Series F Preferred Stock at the Series F original purchase price prior to the Series G financing and on a pre-money basis [.]
e) Board must be reduced to no more than 5 directors, constitution tbd.[193]

          Galleher thought the deal was attractive and the only way for Basho to move forward. To facilitate the deal, Galleher offered to give up his right to have any representation on the Board.[194] Davenport thought that Southeast was simply trying to re-trade the deal at the last minute to get better terms.[195]

         Davenport and Seydel spoke by telephone on January 12 and 13, 2014.[196] In an effort to establish a positive working relationship, Seydel invited Davenport to be his guest at two social events; Davenport did not attend either.[197] Davenport also spoke by telephone with Noonan on January 13. During the call, Davenport made it clear that (i) he was not happy with the performance of Basho management, (ii) Georgetown only would invest more money if it achieved hard control, (iii) he would not subordinate Georgetown's debt under the Loan Agreement, and (iv) he would not reduce Georgetown's liquidation preference.[198] The call gave Noonan serious doubts about the investment, but he remained undecided.[199]

          After the call, Davenport spoke with Galleher and told him (falsely) that he and Noonan had not talked about investment terms.[200] Galleher then did some digging on his own. On January 14, 2014, Galleher had a heated exchange with Davenport. He then emailed his fellow directors and told them that Noonan had not completed the bridge financing because of concern about Georgetown as an investor.[201] Davenport called Galleher's comments "libelous."[202] Galleher asked for a Board meeting to discuss the matter. Later that day, Davenport and Galleher had a conversation in which Davenport reversed position again and committed to work with Seydel and Noonan to support a bridge financing. Galleher postponed the Board meeting in hopes that a deal with Southeast would finally work out.[203]

         After conferring with his team at Georgetown, Davenport relayed a revised proposal to Galleher. Galleher's notes memorialized the terms:

1. Chester is willing to extend the current Note agreement of $7.5m to approx. $8m to address immediate cash needs. He would fund the $500, 000 deficit on Monday, Jan 20. He said if the needs were a little higher, her would be willing to do that… so let's say up to $650k or so.
2. At close of round, Basho pays off $7.5 million (now say $8m to $8.250m from immediate cash needs advance) note with funds raised through G round.
3. He would request that his $13m passive investment be treated fairly, like all early investors investments and not be wiped out.
4. He would release all blocking rights.
5. He would retain his 2 BOD seats.
6. He would cooperate with our efforts to bring in Noonan and

         [Seydel].[204]

         Davenport claimed that he could convince Noonan and Seydel to accept these terms.[205] I do not believe that Davenport had any intention of proceeding with a deal on these terms. I think he was stringing out the negotiations to increase the pressure on the Company.

         On January 17, 2014, Miller reported that Noonan would not participate in the financing.[206] With Noonan out, the Southeast proposal fell through.

         After hearing the news, Collins resigned from all of his positions with the Company.[207] Galleher did not believe that the Company could make its next payroll.[208]Davenport had maneuvered the Company into a position of maximum crisis.

         I. The Series G Round Closes.

         At 10:40 pm on January 17, 2014, Reisley sent the Board a revised proposal for the Series G round and demanded an answer by January 18, 2014 at 6:00 pm-19 hours and 20 minutes later.[209] Galleher replied with questions that he believed Georgetown should answer.[210] Georgetown ignored them.

         The revised proposal increased the size of the total round from $20 million to $25 million. Georgetown still committed to fund only $10 million, and only $2.5 million was new money; Georgetown's remaining $7.5 million continued to come from the conversion of amounts due under the Loan Agreement.[211] No other investors had been lined up to participate. In light of Davenport's persistent criticisms about Southeast being a pledge fund, this aspect of Georgetown's proposal carried considerable irony: Georgetown did not have the investors to back its proposal either. And unlike Southeast, which would have lined up its investors before closing and funded the total round, Georgetown's deal would close first, then Georgetown would go out into the market to try to find more investors.[212]

         Georgetown had modified other aspects of its proposal. The Series G security remained participating preferred stock that earned a cumulative dividend of 8% per annum. The shares remained convertible into a new class of common stock carrying ten votes per share. Georgetown still controlled a majority of the post-transaction Board, although now with the right to designate four out of seven seats rather than five out of seven. The main changes were in the liquidation preference. Rather than three times invested capital, the shares carried a preference equal to two times invested capital. Evidencing Georgetown's eagerness for a near-term sale, the preference would decline to one times invested capital if a liquidating event generating less than $75 million in aggregate value for all equity holders occurred in 2014. Georgetown demanded irrevocable proxies from Galleher and IDCF that it could vote in favor of the deal.[213]

         During a meeting on January 18, 2014, the Board accepted Georgetown's proposal.[214] Brewer did not participate.[215] Davenport and Reisley voted in favor of their proposal. Thornley said he approved it because he felt that the Company had no other options.[216] Ross and Yamanaka went along. Galleher also voted in favor, but only after expressing a lengthy list of objections. He later submitted his objections in writing and instructed that they be filed with the minutes.[217]

         On January 23, 2013, Georgetown sent transaction documents to Basho and insisted that they be approved and executed within two hours.[218] Rather than approve the documents, Brewer resigned from the Board.[219] The Board convened without Brewer and approved the documents.[220]

         The initial closing took place that same day, resulting in the issuance of Series G preferred stock to Georgetown (the "Series G Financing").[221] As a result of the issuance, Georgetown gained control over a majority of Basho's outstanding voting power, giving Georgetown mathematical control at the stockholder level. Georgetown also gained the right to appoint a majority of the members of the Board.

         On January 24, 2013, the Board met again. At the outset of the meeting, Georgetown designated Fotos as a director.[222] Collins and Brewer had resigned, and although the record is unclear on this point, Ross also left the Board. Adding Fotos resulted in a Board comprising Davenport, Reisley, Fotos, Thornley, Yamanaka, and Galleher. Davenport knew he controlled Reisley and Fotos and expected to control the CEO when that position was filled.[223] Davenport had verbally bludgeoned Thornley to the point where he assented to Georgetown's wishes;[224] he would resign in a matter of weeks.[225] Yamanaka remained a director, but he was based in Japan and saw his role as a liaison for IDCF.[226] He routinely went along with whatever the Board did. Only Galleher continued to question Georgetown's actions. If Galleher could have rallied Thornley and Yamanaka, which I do not believe was possible, the three of them at most could have created a temporary deadlock until Georgetown appointed a fourth director.

         During the meeting, Davenport introduced a series of resolutions that the Board had never seen or discussed.[227] In quick succession, the Board approved the following actions:

• A resolution removing Galleher as Chairman of the Board and appointing Davenport as Chairman. Davenport then renamed this position "Executive Chairman."
• A resolution appointing Davenport, Reisley, and the future CEO as members of the Executive Committee. The resolution empowered the Executive Committee to exercise "all the powers and authority of the Board in the management of the business and affairs of the Company."
• A resolution appointing Davenport, Reisley, and Thornley as members of the Audit Committee.
• A resolution appointing Davenport, Reisley, and Yamanaka as members of the Compensation Committee.
• A resolution eliminating all committees of the Board except the Executive Committee, the Audit Committee, and the Compensation Committee.[228]
• A resolution engaging a Georgetown affiliate to provide financial and management consulting services to Basho for $200, 000 per year.[229]

         In each case, the directors approved the resolutions with Galleher abstaining.[230]

         On March, 19, 2014, Thornley resigned from the Board.[231] He was the fourth director to leave the Board since Georgetown's final proposal for the Series G Financing, and many senior officers and line employees had left as well.[232] Galleher sent an email to his fellow directors complaining about the situation. The Executive Committee responded by terminating a consulting agreement between Galleher and the Company that paid him $200, 000 per year.[233]

          Between January 17 and March 10, 2014, the Company lacked a CEO. The vacancy left Davenport and Reisley as the sole members of the Executive Committee.[234] They used their status to run the Company without consulting with or advising the other directors.[235]They took particular delight in freezing out Galleher.[236] They also fired Latham & Watkins LLP, the Company's longstanding outside counsel.[237]

         On March 10, 2014, without any input from any of the other directors, Davenport and Reisley hired Adam Wray to serve as Basho's CEO.[238] The plaintiffs proved at trial that although Wray had experience working at technology companies, including as a CEO, he was underqualified for the job, and Davenport an Reisley paid him what was more-likely-than-not an above-market salary given his background and experience.[239]

         After Wray joined the Company and became a director, the Board comprised Davenport, Reisley, Fotos, Wray, Yamanaka, and Galleher. Although Georgetown controlled the first four directors, [240] Davenport and Reisley continued using the Executive Committee to run the show. The Executive Committee did not hold formal meetings or prepare minutes; its members just acted.[241] With the Executive Committee handling everything, the Board did not convene a formal meeting for months.[242] During this period, Wray worked with Georgetown to phase out much of Basho's legacy management team.[243]Basho continued to need money. When the Series G Financing closed, Georgetown had only provided Basho with $2.5 million in new money. Georgetown thought it would be able to find other investors who would buy Series G shares and provide the remaining $15 million. But Georgetown had little success. Many of the investors lost interest after speaking with Davenport and looking at the Company.[244] By mid-March 2014, Georgetown had managed to raise only $67, 500 from other investors.[245]

         J. A Series Of Insider Transactions

         The balance of 2014 witnessed a series of insider transactions. On April 15, 2014, the Executive Committee amended Basho's consulting agreement with Evergreen Capital to extend it indefinitely, subject to termination on thirty-days' notice. To compensate Evergreen Capital for the remainder of 2014, Evergreen Capital would receive 102, 040 shares of Series G preferred stock plus nine monthly payments of $3, 888.88 in cash. In future years, the agreement would revert to a payment of $15, 000 per month.[246]

         On April 23, 2014, the Executive Committee approved a $650, 000 loan from Georgetown, payable on demand.[247] The loan would bear interest at 5% per annum, but the rate would increase to 7% if the Company failed to pay on demand. The outstanding balance could be converted into Series G shares at any time or rolled into equity in the next financing round.[248]

         Georgetown was still having difficulty filling out the Series G round, so the Executive Committee hired PGP Capital Advisors, LLC.[249] They did not have much success either. Among other things, investors balked at Georgetown's insistence on vetting every investor before they could speak with management.[250] With his options dwindling, Davenport emailed Seydel to invite him to participate, but Seydel did not respond.[251]

          On June 27, 2014, the Executive Committee approved a loan of $1.5 million from defendant Newport Beach Investors, LLC ("Newport"), an entity that Davenport controlled.[252] The terms of the loan paralleled Georgetown's loan in April 2014.[253]

         As of mid-July 2014, no one other than Davenport, his affiliates, and a handful of existing investors in Georgetown had invested in the Series G round. On August 22, the Executive Committee approved another loan from Newport in the amount of $250, 000.[254]On September 12, the Executive Committee approved yet another loan from Newport in the amount of $400, 000.[255] The terms were the same as the June loan.

         In late September 2014, after Galleher indicated that he would file a lawsuit seeking books and records, Reisley began reaching out to other members of the Board about ratifying the actions taken by the Executive Committee.[256] On October 24, the Board met for the first time since January.[257] During the meeting, the Board ratified the employment agreements for Wray and another senior officer, as well as certain employee retention agreements and stock option issuances.[258] In December 2014, the Executive Committee acted by written consent to grant approvals required for the loans from Georgetown and Newport and to authorize another $2 million in loans.[259] Then on January 22, 2015, the Board met again and approved a laundry list of actions the Executive Committee had taken during the preceding year. During a meeting on January 26, the Board approved minutes for all of the meetings that had taken place between August 2013 and October 2014. The Board also ratified all of the transactions between Newport and Georgetown.[260] Galleher abstained from each vote, and he voted against ratifying the hiring of Wray.[261]

         K. A False Hope

         In early 2015, Basho showed some signs of success. It achieved the best quarter in its history, closed several million-dollar deals, and its full year bookings for the prior year had increased by 25%.[262] Davenport even thought that IBM might buy Basho.[263]

         In February 2015, the Business Development Corporation of America ("BDCA") submitted a term sheet for a $10 million loan plus a $2 million investment in the Series G round, pending remaining diligence.[264] BDCA had started looking at Basho as part of Basho's fundraising efforts during the previous summer.[265] Georgetown saw this as a big opportunity, and Reisley instructed management to cooperate fully.[266] On March 9, the BDCA investment closed.[267] Basho used a portion of the proceeds to pay off the loans from Newport.[268]

         On March 26, 2015, FTV Capital proposed to lead an investment round of $45 million at a pre-money valuation of $130 million.[269] Davenport caused Georgetown to block the investment because he believed it would be highly dilutive to Georgetown's equity position. Davenport instead tried to use the term sheet to generate a deal with IBM.[270]

         Unfortunately, Basho experienced another downturn.[271] Investors were growing restless and demanding tangible results.[272] As of June 2015, Basho had approximately $5.3 million on hand with a burn rate of $1.5 million per month, and BDCA had communicated that it would not refinance its loan.[273] Management tried to adjust Basho's strategy, [274] but the Company's performance continued to decline.[275]

         Georgetown continued to look for outside capital, but opportunities were slim, and the terms were only getting worse. In November 2015, JMI Equity proposed to lead a $25 million Series H round, which could be increased to $30 million at the investors' option, but at a pre-money enterprise value of $40 million. Under the term sheet, all of the prior series of preferred stock-Series A through G-would be converted into common stock. JMI also demanded a significant role in Basho's governance.[276] Management supported the deal.[277] It ultimately fell through, [278] forcing Basho to accept another loan from Georgetown.[279]

         On December 11, 2015, Galleher resigned from the Board. On December 14, he filed this lawsuit.[280]

          L. Receivership

         In February 2016, Davenport and Kenneth Clark, a former business partner of Davenport's, invested $6 million in Basho through KEC Capital, LLC. Each contributed $2.5 million in cash, and Georgetown also converted $1 million of Basho's indebtedness. In return, they received shares of Series H preferred stock.[281]

         In September 2016, Basho defaulted on its loan from BDCA.[282] Davenport blamed Wray and the management team.[283] Rather than immediately foreclosing, BDCA tried to work with Basho.[284] BDCA and Basho continued negotiations, and Davenport made a last ditch effort to sell the Company's intellectual property to Amazon.com, Inc.[285] The deal never came to fruition.[286]

         By May 2017, Basho had ceased operations as a going concern. In July 2017, BDCA obtained an order from a court in the State of Washington that placed Basho into receivership.[287] As part of the liquidation, the receiver sold any claims that Basho might have against the defendants to the plaintiffs.[288]

         II. LEGAL ANALYSIS

         By the time of post-trial briefing and argument, the plaintiffs had narrowed their claims to the assertion that Georgetown, Davenport, and Fotos breached their fiduciary duties. At one time, questions about the distinction between direct and derivative claims might have loomed large, but as part of Basho's receivership, the plaintiffs purchased all of Basho's derivative claims. All other claims have been dismissed[289] or waived.[290]

         The plaintiffs' claim for breach of fiduciary duty covers two time periods. First, the plaintiffs contend that Georgetown and Davenport breached their duties by forcing the Company to accept the onerous Series G Financing. They claim that the closing of the Series G Financing inflicted serious harm on the Company and damaged the value of the plaintiffs' shares.

         Second, the plaintiffs contend that after the Series G Financing, Georgetown, Davenport, and Fotos breached their fiduciary duties by managing the Company to serve Georgetown's interests, rather than the interests of the Company and its stockholders as a whole. During this period, Georgetown and Davenport controlled the Company at both the stockholder and Board levels. After forming a majority of a three-member Executive Committee, Davenport and Reisley ran the Company without input or oversight from any other directors. During this authoritarian reign, Georgetown and its representatives caused the Company to enter into a series of self-dealing transactions and continued to refuse third-party capital that could dilute their control. The plaintiffs contend that after the Company had been weakened by the onerous Series G Financing, the actions of Georgetown and its representatives damaged the Company further, leading to its eventual liquidation.

         A claim for breach of fiduciary duty is an equitable tort.[291] The basic elements of a common law tort claim are well known: The plaintiff must prove existence of a duty, a breach of that duty, injury, and a causal connection between the breach and injury that is sufficient to warrant a remedy, such as compensatory damages. Similar concepts frame the analysis of an equitable claim for breach of fiduciary duty, although decisions have tailored these concepts to the equitable setting involving a relationship of trust and confidence between the fiduciary and the cestui que trust.[292]

          The equitable tort for breach of fiduciary duty has only two formal elements: (i) the existence of a fiduciary duty and (ii) a breach of that duty.[293] The first element closely resembles the corresponding aspect of a common law tort claim: the plaintiff must prove by a preponderance of the evidence that the defendant was a fiduciary and owed duties to the plaintiff. The second element departs from the common law model in significant respects. For the traditional common law tort, the court analyzes the question of breach using the standard of conduct that the defendant was expected to follow.[294] For the equitable tort, the court evaluates the question of breach through the lens of one of several possible standards of review.[295] "In each manifestation, the standard of review is more forgiving of [defendant fiduciaries] and more onerous for [the] plaintiffs than the standard of conduct."[296]

         If the governing standard of review is the business judgment rule, then the plaintiff bears the initial burden of proving that the defendant breached her duty of loyalty or her duty of care, thereby rebutting one of the business judgment rule's presumptions and triggering further review of the decision under the entire fairness test.[297] It is possible, however, that the plaintiff will not always bear the burden of proving breach. When the governing standard of review is entire fairness, either because the plaintiff has made the necessary showing to rebut the business judgment rule or for other reasons, then the defendant fiduciaries bear the burden of proof to show that they in fact acted in a manner that was entirely fair to their beneficiaries.[298] By making this showing, the defendant can establish that no breach of duty in fact occurred, even if the defendant committed errors or engaged in improprieties along the way.[299]

         Although a claim for breach of fiduciary duty has only two formal elements, a plaintiff will not be awarded a meaningful remedy without additional showings that parallel the other elements of a traditional common law tort claim. One is a showing of harm to the beneficiary or, alternatively, the wrongful taking of a benefit by the fiduciary.[300] Another is showing that a sufficiently convincing causal linkage exists between the breach of duty and the remedy sought that makes the remedy an apt means of addressing the breach.[301] A court may award nominal damages if a breach existed but does not warrant a meaningful remedy.[302]

         These concepts frame the analysis of the claims in this case. Although a case like this one potentially raises many knotty legal questions, the parties painted in broad strokes. This decision represents my best attempt to appropriately analyze this matter consistent with the parties' presentations and the record they created.

         A. The Series G Financing

         The plaintiffs contend that Georgetown and Davenport breached their fiduciary duties in connection with the Series G Financing. The plaintiffs satisfied all the requirements necessary to receive a meaningful remedy for the injury inflicted by the Series G Financing.

         1. Fiduciary Status

         The first question is whether the plaintiffs proved that Georgetown and Davenport owed fiduciary duties in connection with the Series G Financing. They did.

         For Davenport, the answer is easy. He was a director of Basho and owed fiduciaries duties in that capacity.

         For Georgetown, the analysis is more difficult. Georgetown was a stockholder, and that status alone does not give rise to fiduciary duties. Instead, stockholders are the beneficiaries of the fiduciary duties owed by the corporation's directors and officers. But identifying Georgetown as a stockholder does not end the analysis, because "Delaware law imposes fiduciary duties on those who effectively control a corporation."[303] If a defendant wields control over a corporation, then the defendant takes on fiduciary duties, even if the defendant is a stockholder who otherwise would not owe duties in that capacity.

         One means of establishing that a defendant wields control sufficient to impose fiduciary duties is for the plaintiff to show that the defendant has the ability to exercise a majority of the corporation's voting power.[304] Before the Series G Financing, Georgetown did not exercise a majority of Basho's voting power, so it did not control Basho under this standard.

         A defendant without majority voting power can be found to owe fiduciary duties if the plaintiff proves that the defendant in fact "exercises control over the business and affairs of the corporation."[305] "The requisite degree of control can be shown to exist generally or with regard to the particular transaction that is being challenged."[306]

         To show that the requisite degree of control exists generally, a plaintiff may establish that a defendant or group of defendants exercised sufficient influence "that they, as a practical matter, are no differently situated than if they had majority voting control."[307]One means of doing so is to show that the defendant, "as a practical matter, possesses a combination of stock voting power and managerial authority that enables him to control the corporation, if he so wishes."[308] For purposes of their challenge to the Series G Financing, the plaintiffs do not seek to show that Georgetown exercised control pervasively over Basho's business and affairs.

         As noted above, a plaintiff also may prove that a defendant exercised actual control over the corporation with respect to a particular transaction or decision. In this way, a defendant

that does not, as a general matter, exercise actual control over a corporation's business and affairs or over the corporation's board of directors, but does, in fact, exercise actual control over the board of directors during the course of a particular transaction, can assume fiduciary duties for purposes of that transaction.[309]

         For this purpose, a showing of "pervasive control over the corporation's actions is not required."[310] Rather, the plaintiff must establish that the defendant exercised "actual control with regard to the particular transaction that is being challenged."[311] "[T]he potential ability to exercise control is not sufficient."[312]

          It is impossible to identify or foresee all of the possible sources of influence that could contribute to a finding of actual control over a particular decision. Examples include, but are not limited, to: (i) relationships with particular directors that compromise their disinterestedness or independence, [313] (ii) relationships with key managers or advisors who play a critical role in presenting options, providing information, and making recommendations, [314] (iii) the exercise of contractual rights to channel the corporation into a particular outcome by blocking or restricting other paths, [315] and (iv) the existence of commercial relationships that provide the defendant with leverage over the corporation, such as status as a key customer or supplier.[316] Lending relationships can be particularly potent sources of influence, [317] to the point where courts have recognized a claim for lender liability when a lender exercises influence over a company that goes "beyond the domain of the usual money lender" and, while doing so, acts negligently or in bad faith.[318]

         Broader indicia of effective control also play a role in evaluating whether a defendant exercised actual control over a decision. Examples of broader indicia include ownership of a significant equity stake (albeit less than a majority), [319] the right to designate directors (albeit less than a majority), [320] decisional rules in governing documents that enhance the power of a minority stockholder or board-level positon, [321] and the ability to exercise outsized influence in the board room, such as through high-status roles like CEO, Chairman, or founder.[322]

         Invariably, the facts and circumstances surrounding the particular transaction will loom large. Probative evidence can include statements by participants or other contemporaneous evidence indicating that a defendant was in fact exercising control over a decision. A court also can consider whether the defendant insisted on a particular course of action, whether there were indications of resistance or second thoughts from other fiduciaries, and whether the defendant's efforts to get its way extended beyond ordinary advocacy to encompass aggressive, threatening, disruptive, or punitive behavior.[323]

         Rarely (if ever) will any one source of influence or indication of control, standing alone, be sufficient to make the necessary showing.[324] A finding of control after trial, like a reasonable inference of control at the pleading stage, typically results when a confluence of multiple sources combines in a fact-specific manner to produce a particular result.[325]

          The plaintiffs proved at trial that Georgetown exercised effective control over Basho for purposes of the decision to consummate the Series G Financing. Georgetown exercised effective control as a result of a combination of factors:

• Georgetown's use of its contractual rights to channel the Company into a position where it had no options other than to accept Georgetown's terms.
• Davenport and Reisley's efforts, taken on Georgetown's behalf, to spread misinformation about Georgetown's intentions and the status of negotiations.
• 0Davenport's interference with Collins and other members of management.
• Davenport's influence over Cowen, which Davenport used to manipulate the fundraising process.
• Georgetown's insistence on the Series G Financing, supported by Davenport and Reisley's threats and combative behavior.

         Supporting these transaction-specific considerations are general indicia of control, including Georgetown's status as a significant stockholder and its ability to designate two Board seats. Although this decision discusses the transaction-specific considerations individually, the finding of actual control rests on the totality of the facts and circumstances, considered in the aggregate.

         a. Georgetown's Use Of Its Contractual Rights

         During the period leading up to the Series G Financing, Georgetown used its contractual rights to cut off the Company's access to other sources of financing. During the same period, Georgetown failed to comply with its obligations to provide financing under the Loan Agreement, first by delaying when it funded draws, then by threatening to cut off financing altogether. By using its contract rights, Georgetown maneuvered the Company into a position of maximum financial distress where it had no options other than to accept the Series G Financing.

         As Davenport recognized after closing the Series F round, Georgetown's status as the holder of a majority of the Series F preferred stock gave it the ability to block the Company from raising capital through equity financings. He observed that the power to exercise the blocking right put Georgetown "in the position of being the sole life line of the Company for money."[326]

         For a profitable company that can finance its own business plan out of working capital, or for a company that has access to multiple sources of financing, including debt, the ability to block equity raises might not contribute significantly to a finding of control. Basho, however, was a cash-burning, asset-light company that could not borrow and that required regular rounds of equity financing to build out its business. For a company like Basho, the parties that control its access to cash "sit on the company's lifeline, with the ability to turn it on or off."[327] When cash is like oxygen, self-interested steps to choke off the air supply provide a strong indicator of control.

          Davenport understood the power that Georgetown possessed, and he recognized that by limiting the Company's access to other sources of capital, the Company would reach a position where it could not refuse Georgetown's terms. To that end, Davenport used Georgetown's rights on several occasions to block alternative transactions. He vetoed an attractive term sheet that Rippert had obtained from Updata because it threatened Georgetown's control of Basho.[328] Instead, he proposed that Basho and Georgetown enter into the Loan Agreement.[329] That alternative enhanced Georgetown's control by forcing Basho to request monthly draws and giving Georgetown rights as a lender, including priority over the equity for amounts that Georgetown loaned Basho.

          During the same period, Davenport sent Rippert an email reminding him that any term sheet had to be "acceptable to [Georgetown]."[330] He characterized this email as "my way of reminding [Rippert] that the ultimate decision as to whether the Company accepts any new investor is [Georgetown's] to make. I do not think he understands how difficult we will be until we get everything we want."[331] Shortly after that, Georgetown blocked an attractive term sheet that Rippert had obtained from Tokyo Electron, recognizing that it would alleviate some of the pressure on Basho to borrow funds under the Loan Agreement.[332] When Davenport heard about the Tokyo Electron term sheet, he exulted to his Georgetown colleagues that Rippert "knows that with our blocking rights we control Basho. Therefore, everything he does is geared toward taking those rights. Nice try but we outflanked him months ago."[333] Davenport only permitted the Tokyo Electron investment after the Company agreed to enter into the Loan Agreement.[334]

         Georgetown next blocked an investment from NewSpring because it was "too attractive to the new investors and not sufficiently attractive to us."[335] Davenport had Reisley contact NewSpring on a Friday afternoon to tell them that Georgetown would be submitting a term sheet of its own that following Monday. Georgetown told NewSpring that in any deal, "we [Georgetown] have to have total positive control."[336] NewSpring walked away.[337]

         Most consequentially, Georgetown used its blocking rights to prevent the Company from securing an investment from Southeast. After Collins secured a term sheet from Southeast, Davenport told his team that Georgetown would "play along with them until time runs out."[338] Davenport proceeded to string along both the Company and Southeast, sometimes acting receptive towards a deal, at other times acting hostile. During the process, he reiterated to his team that Georgetown would "wait to resolve (or raise) any of our demands until it is too late for the Company and [Southeast] to do a deal with anyone else and the Company is running out of cash."[339] In late November, Davenport bluntly rejected Southeast's term sheet, stating: "[W]e think that this approach is not productive, therefore we do not have any comments on the draft term sheet."[340] Later, when Noonan tried to work out the final terms of a deal, Davenport told him that Georgetown would not consent to any transaction that subordinated its debt or reduced its liquidation preferences.[341] After realizing that Georgetown would only permit Southeast to tag along as a passive investor, Noonan understandably declined to proceed, and the Southeast deal died.

         While Georgetown interfered with the Southeast deal, Georgetown also increased the financial pressure on the Company, first by delaying draws under the Loan Agreement and later threatening to cut funds off altogether. Davenport personally decided to use the draws under the Loan Agreement as a way "to force Management to cooperate with [Georgetown]."[342] Davenport then threatened to stop providing any financing under the Loan Agreement, claiming that Basho had suffered a material adverse change because it was running out of cash.[343] Later that month, rather than funding the Loan Agreement per its contractual terms, Reisley told Company management that they should conserve cash by stretching out vendor payments.[344] Although Davenport had Georgetown's lawyer back him up on his interpretation of the Loan Agreement, I do not believe that the interpretation was advanced in good faith. It was advanced to squeeze the Company.[345]

         By exercising its contract rights in this fashion, Georgetown forced the Company into a financial crisis. By the time Southeast withdrew, the Company had no other alternatives. Galleher asked Davenport to make a fair proposal. Instead, Georgetown resubmitted its proposal for the Series G Financing and demanded an answer in less than 20 hours. With Georgetown and Davenport having cut off all exits, the Board was forced to accept it.[346]

         b. Davenport and Reisley's Spreading of Misinformation

         During the period leading up to the Series G Financing, Davenport and Reisley acted on Georgetown's behalf by spreading misinformation, making threats, and engaging in combative behavior. Beginning in May 2013, Davenport instructed Cowen to begin contacting investors about a Series G round. He instructed Cowen to obtain Georgetown's approval for "all matters related to the Private Placement prior to any discussion with Management, "[347] while at the same time Davenport, Reisley, and Cowen would give Collins (the CEO) and Galleher (the Chairman) the impression that Collins and Cowen were leading the process without Georgetown's involvement.[348] Between themselves, Davenport and Reisley discussed using the capital raise to "get control of the [Board]" so they could get rid of Collins and Galleher.[349]

         Davenport and Reisley continued their program of misinformation after Southeast appeared on the scene. They started out by giving Southeast the run-around. Davenport told Miller during a call that Southeast should wait until Georgetown had submitted a term sheet for an investment.[350] He also told Miller that Reisley was handling the transaction and that Miller should talk to him.[351] But when Miller scheduled a call with Reisley, Reisley skipped the call with no notice or excuse.[352] After that initial non-interaction, Reisley continued being belligerent and unprofessional in his dealings with Southeast. Miller later described Reisley as 'obstinate, and non-responsive" and told Collins that Southeast would "never speak with [Reisley] again."[353]

         In November 2013, after Georgetown submitted an onerous term sheet for the Series G Financing, Southeast submitted a clearly superior term sheet of its own. Davenport alternated between acting receptive and hostile. Davenport described himself as "play[ing] along . . . until time runs out." [354] Consistent with this plan, Davenport and Reisley communicated a series of conflicting and confusing positions, sometimes expressing support for a Southeast deal and other times being hostile or adopting a passive-aggressive stance. At one point, Davenport told Miller that he could not talk to Company management.[355] When Miller later submitted a term sheet that Davenport had seemed likely to accept, Davenport rejected it out of hand without providing any comments.[356] In December and January 2013, the principal investors in Southeast, Seydel and Noonan, tried to work directly with Davenport to strike a deal. Davenport turned down multiple invitations to meet with them.[357] After Davenport finally did speak with Noonan, he told Galleher (falsely) that he and Noonan had not discussed investment terms.[358]

         By spreading misinformation and engaging in combative behavior, Davenport and Reisley helped Georgetown channel the Company into a positon where it had no alternatives other than to accept the Series G Financing. Collins and the other members of management, Galleher and the other directors, and Southeast could not make progress towards a transaction in the face of Davenport and Reisley's actions.

         c. Interference With Management

         Georgetown also exerted control over management through Davenport's presence on the Board and interactions with management. If a member of management did not support Georgetown's interests, then Davenport would subvert them, threaten them, or get rid of them. After the Company entered into the Loan Agreement and Georgetown became its primary source of operating capital, Davenport used the monthly draw process as an additional means of controlling management.

          The fates of two Basho CEOs illustrate how Georgetown treated management. Davenport originally invested in Basho after speaking with Rippert, and he later supported Galleher's decision to hand over the CEO reins to Rippert.[359] But after Rippert began trying to raise alternative sources of capital that would reduce Georgetown's influence, Davenport decided that Rippert needed to go. Davenport told Galleher that Rippert did not understand "how his 30 year career and net worth will be put in grave jeopardy."[360] At the time, Galleher supported Davenport, and they brought on Collins as a consultant. As Galleher and Davenport had anticipated, Rippert viewed this move as a "constructive termination" and resigned.[361]

         Collins' time at Basho followed a similar arc. Originally, Davenport supported his candidacy, expecting him to use his M&A experience to achieve a quick sale. But once Collins proved to have opinions of his own, Davenport began threatening to fire him, sue him, or both.[362] Davenport also made negative comments about Collins in meetings with investors.[363] The situation grew so dire that Collins resigned in the middle of the negotiations with Southeast, stating:

I can't do my job (and won't try) with the continuation of the threats of legal liability or job retention or intimidation to act in one way or the other. My actions, and [Basho's] actions, are fully in compliance with good governance and excellent communication. The threats aren't productive, and constitute duress and reason for my departure for good reason. I don't mean to be so blunt - but that's the case.[364]

Galleher and Thornley convinced Collins to reconsider at the time. Collins ultimately resigned when the Southeast deal fell through.

         Once Georgetown became Basho's primary source of financing under the Loan Agreement, Davenport used access to cash to bring management to heel. Davenport told Reisley, "I intend to use [the loan funding] to force Management to cooperate with us on the EB5 documentation and other matters we need them to do. Any questions let me know."[365] Davenport then instructed Linardos, the Company's CFO, to provide Reisley with a monthly budget and financial statements before Davenport would release any funding under the Loan Agreement.[366] Georgetown did not have the right under the Loan Agreement to micromanage the Company's finances in this fashion.[367] Georgetown and Davenport engaged in these practices to dominate management.

          d. Influence Over Cowen

         Georgetown also used its relationship with Cowen to control the Company. As a threshold matter, Davenport strong-armed Basho into hiring Cowen.[368] Davenport then shut management out of the sale process, instructing Cowen that Georgetown "need[ed] to drive this process" and that involving management, except when absolutely necessary, "will not result in getting the best price for Basho."[369] Reisley later instructed Cowen only to interface with Georgetown and not with Basho's management.[370] When Collins and Galleher found out and objected, Davenport temporarily cut off communication with them:

I want these guys to understand that they do not have free access to me. Decisions will be made that they don't like and I will take full responsibility for making those decisions . . . . I want these guys to understand that we are in a full pivot and if they do not produce what we need to exit we will be ruthless.[371]

          When Georgetown and Cowen re-focused on raising capital, Davenport decided decide it was better to mislead Collins and Galleher into thinking they were part of the sales process, while Georgetown worked with Cowen behind their backs.[372] Davenport planned to

work with Cowen to find an investor who will take Earl [Galleher] off of the payroll. Next we will find an investor that will work with us to get control of the BOD. Together with the new investor we will fire Greg [Collins] and find a real growth focus CEO. Cowen will work with us to help accomplish our goal[.] They know that Earl and Greg are hostile to them which is good for us. We will welcome Earl and Greg to the realities of Wall Street. Let the fun begin[.][373]

         After Collins perceived what Davenport was doing, he tried to assert his authority as CEO by instructing Cowen to inform him immediately about all communications with Board members and investors.[374] The competing instructions from Davenport and Collins put Cowen in a bind.[375] Cowen's solution was to communicate separately with Georgetown and Basho management so that Cowen could appear to be doing what each of them wanted.[376]

          This decision need not and does not consider whether Cowen engaged in any culpable conduct. For present purposes, Georgetown's interactions with Cowen provide additional evidence of how Georgetown supplanted the Company's management team during the lead-up to the Series G Financing.

         e. Insistence On The Series G Financing

         Finally, Georgetown insisted on the Series G Financing, refused to negotiate or answer questions, and threatened Basho's directors and officers with dire consequences if they did not accept it. In November 2013, Georgetown proposed the onerous terms of the Series G Financing and demanded an answer within 72 hours.[377] Collins asked for more time, but Georgetown refused.[378] When a committee of the Board initially rejected Georgetown's Series G term sheet as too onerous, Davenport threatened to stop funding the Loan Agreement by claiming that Basho had suffered a material adverse change.[379] He also told Collins that Georgetown's deal would only get worse if the Company did not accept it.[380] These threats caused the Board to change its position and authorize the negotiation of definitive documents for a transaction with Georgetown.[381]

          Rather than simply going along, Collins continued pursuing an investment from Southeast. When the Company secured a superior term sheet from Southeast, Davenport told Collins that Basho needed to sign Georgetown's deal within five days or he would sue Collins personally.[382] Davenport also threatened to sue Galleher personally.[383] Later than month, Davenport told Thornley that Basho "will be insolvent" and "this could end badly" unless Basho accepted Georgetown's terms.[384] During a call, he "[y]elled at [Thornley] for two minutes and would not let him say anything."[385] He also told Thornley that he was "upset with him and do not feel he can be trusted."[386] After this call, Thornley supported Georgetown.

         In January 2014, Galleher asked Georgetown to make a fair proposal.[387] Davenport refused to budge from the Series G term sheet. Within two weeks, Collins had resigned, and Galleher feared that the Company could not make its next payroll.[388] At this point, Reisley sent a revised Series G proposal that gave Georgetown full control of the Company at the stockholder and Board-levels in return for only $2.5 million in new money. He demanded an answer by January 18, 2014 at 6:00 pm-19 hours and 20 minutes later.[389]Galleher replied with a list of questions that he believed Georgetown should answer.[390]Georgetown ignored the questions and insisted that the Company take its deal. With no other options or alternatives, the Company accepted it. Thornley voted in favor because he felt that the Company had no other options.[391] Galleher voted in favor, but only after expressing a lengthy list of objections.[392] Within three months, six senior officers and directors had resigned from the Board, including Collins, Brewer, and Thornley.[393]

         f. Georgetown's Fiduciary Status

         Taken as a whole, the plaintiffs proved by a preponderance of the evidence that Georgetown exercised actual control over the Company in connection with the Series G Financing. Georgetown's actual control did not arise from any single factor, but rather from a confluence of multiple sources of influence. These factors included its contractual rights, which enabled Georgetown to block other financing alternatives, limit the Company's access to capital, and force it into a position of maximum financial distress. They also included the coordinated actions of its representatives, Davenport and Reisley, who spread misinformation, made threats, and engaged in combative behavior. Georgetown also used Cowen to serve its goals. By creating a situation in which the Company had no other alternatives and no more money, Georgetown forced the Company to accept its deal. Because Georgetown exercised actual control over the Company for purposes of the Series G Financing, Georgetown became a fiduciary for purposes of evaluating that transaction.

         2. Breach

         The next question is whether Georgetown and Davenport breached their fiduciary duties in connection with the Series G Financing. To determine whether a corporate fiduciary has breached its duties, a court examines the fiduciary's conduct through the lens of a standard of review.[394] "When a transaction involving self-dealing by a controlling shareholder is challenged, the applicable standard of judicial review is entire fairness, with the defendants having the burden of persuasion."[395]

         Once entire fairness applies, the defendants must establish "to the court's satisfaction that the transaction was the product of both fair dealing and fair price."[396] "Not even an honest belief that the transaction was entirely fair will be sufficient to establish entire fairness. Rather, the transaction itself must be objectively fair, independent of the board's beliefs."[397]

         Although entire fairness is Delaware's most onerous standard of review, "[a] determination that a transaction must be subjected to an entire fairness analysis is not an implication of liability."[398] While the reverberations of isolated plaintiffs' victories continue to echo in the collective consciousness, scholarly research establishes that only exceptional entire fairness cases result in meaningful damages awards.[399]

          "The concept of fairness has two basic aspects: fair dealing and fair price."[400]Although the two aspects may be examined separately, they are not separate elements of a two-part test. "[T]he test for fairness is not a bifurcated one as between fair dealing and price. All aspects of the issue must be examined as a whole since the question is one of entire fairness."[401]

         The fair dealing aspect of the unitary entire fairness test "embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained."[402] The various dimensions of fair dealing can interact and elide such that a particular instance of unfair dealing affects multiple phases of the process. This is often the case when a controller engages in an act of unfair dealing that it subsequently fails to disclose. In those situations, the act both provides evidence of unfairness in its own right and gives rise to an additional instance of unfairness in the form of a disclosure violation.[403]

          The fair price aspect of the entire fairness test "relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock."[404] The fair price aspect calls for the same basic economic inquiry as the fair value standard under the appraisal statute.[405] The two standards differ, however, in that the appraisal statute requires that the court determine a point estimate for fair value measured in dollars and cents.[406] The fair price aspect of the entire fairness test, by contrast, is not in itself a remedial calculation. The entire fairness test is a standard of review that is applied to identify a fiduciary breach.[407] "For purposes of ...


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