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Longoria v. Somers

Court of Chancery of Delaware

May 28, 2019

JAMES LONGORIA, Petitioner,
v.
CHARLES SOMERS, AS TRUSTEE OF THE CHARLES SOMERS LIVING TRUST DATED NOVEMBER 2002, Respondent, and LC THERAPEUTICS, INC. Nominal Respondent.

          Date Submitted: May 10, 2019

          Brian M. Gottesman, David B. Anthony, BERGER HARRIS LLP, Wilmington, Delaware; Attorneys for Petitioner James Longoria.

          Donald J. Wolfe, Jr., Matthew E. Fischer, Tyler J. Leavengood, Callan R. Jackson, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; William R. Warne, Annie S. Amaral, DOWNEY BRAND LLP, Sacramento, California; Attorneys for Respondent Charles Somers, as Trustee of the Charles Somers Living Trust Dated November 2002.

          Donald F. Parsons, Jr., MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Receiver for LC Therapeutics, Inc.

          MEMORANDUM OPINION

          LASTER, V.C.

         The receiver for an insolvent corporation has incurred expenses and will need to incur additional expenses, but the corporation has no liquid assets, and it is unclear whether a sale of its other assets will generate enough funds to cover the costs of the receivership. The receiver has asked whether he can tax the interim expenses against the parties as costs and, if the winding up process fails to generate sufficient funds, tax any remaining expenses against the parties.

         The petitioner owns fifty percent of the corporation's shares, and the respondent owns the other fifty percent. The respondent has agreed to pay half of the costs of the receivership.

         The question presented is whether the court can tax the remaining costs of the receivership against the petitioner. Under venerable and still-controlling Delaware Supreme Court authority, the answer is yes. The receiver is granted authority to tax the petitioner with half of the expenses that he has incurred and will incur.

         I. FACTUAL BACKGROUND

         LC Therapeutics, Inc. (the "Company") was formed in 2013 to develop and exploit certain intellectual property (the "Patents"). The petitioner, James Longoria, owns 50% of its common stock and claims to be its sole director. He says he invented the Patents and contributed them to the Company. The respondent, Charles Somers, owns the other 50% of the Company's common stock, and he claims that he is also a director.[1] The parties agree that Somers has made significant capital contributions to the Company.

         The two principals deadlocked on various issues, including how to fund the Company. In March 2018, Longoria filed a petition for dissolution. In May, Longoria moved to approve a proposed plan of dissolution and to have himself appointed as trustee to oversee the winding up process. In July, the parties stipulated to a case schedule contemplating a trial in six months.

         In August 2018, Longoria pre-empted the trial schedule by moving for the adoption of an amended plan of dissolution that would have appointed Somers as trustee to carry it out. Dkt. 19. As justification, Longoria cited the need to preserve the Patents. Id. ¶ 19. In response, Somers did not dispute the existence of a deadlock or the need for dissolution, but he opposed Longoria's plan. Somers wanted a third-party receiver.

         After reviewing the papers, I held a teleconference with counsel during which I encouraged the parties to build on their areas of agreement. In a follow-up letter, I suggested two, non-exclusive paths that might help resolve the case.

One alternative would be for the court to appoint a special master whose task would be to value the patent portfolio. The cost of the special master's work would be taxed against the parties. The result of the special master's work would provide insight into whether appointing a third-party receiver is a viable option. I suspect that the cost of having a ...

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