Aequitas Solutions, Inc. v. Anderson, et al., C.A. No. 7249-ML (September 28, 2012).
Whether a Section 225 action fails to state a claim where plaintiff was not seeking relief against the defendant in his individual capacity and the defendant did not purport to be a director, officer or shareholder of the target company.
Answer: No. Motion for judgment on the pleadings denied.
This is a statutory proceeding pursuant to 8 Del. C. § 225 where plaintiff Aequitas Solutions, Inc. is seeking a judicial declaration that the director plaintiffs elected to the board of C Innovation, Inc. were validly elected and constitute the entirety of C Innovation’s board of directors. Aequitas acquired 100 shares of C Innovation stock, which Aequitas contended constituted all of the duly authorized, issued, and outstanding shares of C Innovation. Aequitas then removed the existing board of directors and filled the resulting vacancies by electing three new board members who in turn appointed new officers to manage C Innovation. Aequitas alleged that Anderson and Loyd have refused to recognize the Aequitas directors, have interfered with efforts of Aequitas’s directors and officers to manage the company, and continue to assert that they control Aequitas and its assets. Defendant Loyd argued that Aequitas’s complaint did not state a cause of action against him, because Aequitas did not allege that Loyd is a director, officer, or shareholder of C Innovation, and did not seek any substantive relief against Loyd in his individual capacity. In response, Aequitas argued that Loyd has asserted “direct or indirect control” over C Innovation, and that it therefore properly named Loyd as a defendant in this action.
The Court noted that a Section 225 proceeding is not an in personam action but rather an in rem proceeding, where the defendants are before the court, not individually, but rather as respondents being invited to litigate their claims to the res (here, the disputed corporate office) or forever be barred from doing so. Thus by filing this action, Aequitas invited Loyd to litigate any claim he may have to the corporate office.” In denyng the motion, the Court found that “Loyd’s actions in refusing to recognize the Aequitas Directors, in inserting himself in C Innovation’s relationships with its customers, and in hiring counsel to represent C Innovation, as alleged in the complaint, fairly supports Aequitas’s allegation that Mr. Loyd has asserted control over the corporation.”