Fisk Ventures, LLC v. Segal, Inc., C.A.No. 3017-CC (May 15, 2009), read opinion here.

Prior Chancery Court decisions in this case have been summarized on this blog here.

Kevin Brady, a well respected Delaware litigator, provides us with the benefit of his following review of this case.

 Court Permits Stay Pending Appeal without Bond

On May 15, 2009, Chancellor Chandler granted defendant’s motion for a stay pending appeal of an Order dissolving Genitrix LLC and liquidating its assets; and he waived the requirement that the defendant post a bond pending the outcome of the appeal. 

The Court did not provide any details as to why the LLC was being dissolved and its assets liquidated, (but prior decisions at the link above provide more background facts to this case). The Court, instead, focused on the legal basis for stay and Chancery Court Rule 62(d), which provides that stays pending appeal and cost bonds shall be governed by Supreme Court Rule 32(a) which gives the Court the discretion to grant or deny such application, and by Article IV, Section 24 of the Constitution of the State of Delaware. Section 24 states that there “shall be no stay of proceedings in the court below unless the appellant shall give sufficient security to be approved by the court below or by a judge of the Supreme Court.”

Supreme Court’s four-factor test in Kirpat Favors Stay

Turning next to the Supreme Court’s four-factor test in Kirpat, Inc. v. Del. Alcoholic Beverage Control Comm’n., 741 A.2d 356, 357-58 (Del. 1998), Chancellor Chandler noted that he had to consider: (1) a preliminary assessment of likelihood of success on the merits of the appeal; (2) whether the petitioner will suffer irreparable injury if the stay is not granted; (3) whether any other interested party will suffer substantial harm if the stay is granted; and (4) whether the public interest will be harmed if the stay is granted. While the Supreme Court in Kirpat stated that the Court must balance “all of the equities involved in the case together,” it also noted that if the last three factors “strongly favor interim relief, then a court may exercise its discretion to reach an equitable resolution by granting a stay.”

In analyzing the factors, Chancellor Chandler found that the weight of the last three factors “tips in favor of granting the stay….” With respect to Factor 2, the Chancellor found that that irreparable harm existed in that his Order “mandates dissolution of Genitrix and the selling of its assets” and that once that dissolution is complete, “it is difficult (and costly) to unwind these transactions and as a result Segal and Genitrix will suffer a significant and perhaps unrecoverable loss:” With respect to Factor 3, he found that the stay would inflict substantial harm to other parties in that “ (1) the managing directors of Genitrix are hopelessly deadlocked to the point that Genitrix cannot undertake a significant action, (2) the dissolution and liquidation process will take a substantial amount of time, and (3) the condition of Genitrix is static and will not further deteriorate with delay, there is little economic harm that will be suffered by petitioner by granting the stay.” Finally, with respect to Factor 4, the Court found no evidence of any harm to the public interest if a stay was granted.”

No Bond Required

While the Court found that the “primary purpose of a bond is to protect the appellee from losing the benefit of the judgment through the delay or ultimate non-performance by appellant, [s]ince Genitrix’s assets and business affairs are currently being managed by a liquidating receiver and since there is little economic harm that could befall petitioner by delay, [the Court] conclude[d] that the purpose for requiring the bond in this case does not apply.”