This post was prepared by Frank Reynolds, who has been following Delaware corporate law, and writing about it for various legal publications, for over 30 years.
The Delaware Court of Chancery recently dismissed the remaining defendants from a lawsuit that Wanu Water Inc.’s founder filed against directors and shareholders who allegedly conspired to seize control, finding a boardroom rival’s opposition to his management decisions did not constitute disloyalty or a civil conspiracy in O’Gara, et al. v. Coleman, et al., No. 2018-0708-KSJM, memorandum opinion (Del. Ch. Feb. 14, 2020).
In her Feb. 14 opinion, Vice Chancellor Kathaleen St. J. McCormick granted the dismissal motion filed by ex-Wanu director Sheldon Coleman and two foreign companies through which he held stock in the Delaware-chartered nutrient-infused water bottler based in California.
Not “reasonably conceivable”
The complaint fails to plead facts making it “reasonably conceivable” that Wanu President and controlling shareholder Todd O’Gara could show Coleman breached his fiduciary duty, damaged company’s business or libeled O’Gara in a failed 2018 ouster attempt, the Vice Chancellor said.
And since he failed to plead the existence of a civil conspiracy to benefit Coleman and his allies to the detriment of the public Wanu shareholders, O’Gara may not rely on the conspiracy theory to establish jurisdiction over Coleman’s non-Delaware defendant business entities, she said.
O’Gara founded Wanu in 2010 and stepped down from his CEO position in 2014 while remaining its President, Chairman-of-the Board and, through 2017 voting agreements, the controlling shareholder.
Lawsuits that O’Gara filed in Delaware, Texas and North Carolina sprang from the directors’ March 2018 removal of his successor CEO, Steve Dollase, who, one month later, supported by two shareholders, blamed O’Gara for inhibiting his job performance.
According to the vice chancellor’s opinion, when Dollase claimed he had discovered evidence of O’Gara’s several hundred thousand unauthorized stock shares and excessive spending, the directors authorized an independent counsel investigation in May.
A confidential July report to the board found that Dollase’s allegations were partly motivated by his dislike of O’Gara’s management style and personality, and that Dollase was generally not well-liked as a leader, whose management style created office tension.
The following month, another set of allegations by the Dollase faction — questioning O’Gara’s education and qualifications — resulted in a second independent investigation and report that was unable to confirm some of O’Gara’s degrees.
Need to investigate revenue sources
Meanwhile, Wanu was in “dire need of cash,” by August 2018, but while Coleman and other directors proposed an issue of convertible notes at a $0.40 per-share price, O’Gara opposed it, claiming it radically undervalued the company and provided Coleman with discount-priced stock that would dilute his controlling share, the court said.
In addition, Coleman and three allies on the board demanded that O’Gara drop numerous potential claims against Wanu and disclose alleged misrepresentations he had made concerning his education; but O’Gara refused and the financing was not approved.
In late August 2018, the boardroom battle culminated with the Coleman faction’s call for O’Gara to “step aside from all operations at Wanu, relinquish his seat on the board and agree to waive his right to elect five of the seven members of the board.”
O’Gara refused, and, when he learned of a special directors meeting scheduled of August 27, “regarding corporate governance,” he took the preemptive step of removing and replacing Coleman, Sergio Pedreiro and Linn Evans on the board by written consent.
Coleman, through his Green Lantern L.P. and Green Lantern Ventures LLC entities, allegedly continued his campaign as a stockholder, allied with investor activists Jay Brinkley and Greg Hunter, writing letters to shareholders calling out O’Gara’s “potential alleged misuse of shareholder capital,” and asking them to seek his ouster.
That prompted O’Gara’s September 28, 2018 Chancery Court complaint that at one point, included four opposing directors, but in April 2019, he stipulated to dismiss directors Pedreiro, Evans and Adrian Leuenberger and his Swiss company, Lion Consulting Gmbh.
In response to Coleman and his Green Lantern entities’ motion to dismiss for failure to state a claim and lack of personal jurisdiction respectively, the vice chancellor found no “reasonably conceivable” set of circumstances that would allow O’Gara to recover.
No conspiracy or jurisdiction
She found no support for O’Gara’s claim that Coleman or Green Lantern “engaged in a conspiracy with the other directors, Hunter and Brinkley or Dollase” because he failed to plead facts supporting:
- The existence of a confederation or combination of two or more people,
- Commission of an unlawful act in furtherance of a conspiracy and
- Actual damage caused to the company
Criticism of O’Gara and demands for him to step aside do not qualify as a conspiracy, especially when they are couched as concerns for the company’s fiscal future, Vice Chancellor McCormick wrote.
She dismissed the complaint, finding it failed to state a claim for:
- Breach of fiduciary duty — because it lacked proof that Coleman acted disloyally or harbored self-interest adverse to Wanu’s best interests.
- Tortious interference — because there was no business opportunity, contract or agreement for him to interfere with and no specific damages alleged.
- Libel — because O’Gara became a “limited purpose public figure” by taking a corporate office and entering into a public controversy, so he must prove the statements about him were false and were made with actual malice, and he fails to plead both adequately.
- Jurisdiction over non-Delaware defendants — because “under the conspiracy theory of jurisdiction, a plaintiff must plead facts demonstrating the existence of a conspiracy” and since O’Gara fails to do this regarding Coleman or Green Lantern there is no basis for jurisdiction or even jurisdictional discovery.