345 A.3d 537
Del. Ch.2025Background
- Four friends (Ramirez, Foley, Pho, Bertain) founded Session Corp.; each initially received 2,000,000 shares (25% each). Ramirez worked full time as CEO; others were part‑time and contributed cash.
- By 2021 Ramirez, supported by Pho, sought to restructure equity to reflect her operational role and to attract investors; mediation produced a Mediation Agreement reallocating ownership (Ramirez 26.5%, Pho 24.5%, Foley and Bertain 19.5% each) plus a 10% option pool.
- Foley and Bertain understood the deal to include a promised Founders Agreement with minority protections; that agreement was never finalized despite drafts and follow‑up.
- In late 2021–Jan 2022 the parties signed Stock Cancellation and Stock Restriction documents (purporting to cancel 50,000 shares each and re‑vest shares with repurchase rights). Ramirez executed a written consent in Jan 2022 purporting to act as sole director though all four were directors.
- In October 2022 Ramirez terminated Foley and Bertain as employees and the company redeemed their (unvested) shares for $19.50 each. Foley and Bertain sued for conversion, fraud, and breach of fiduciary duty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants converted Foley and Bertain’s shares | Ramirez, Pho, and Session wrongfully exercised cancellation/repurchase without board authorization, depriving plaintiffs of their property | Actions were authorized by mediation, prior consents, or CEO authority; documents valid | Held for plaintiffs: no valid board action authorized the Stock Cancellation, Stock Restriction, or redemption; conversion proven; rescission ordered |
| Whether statements about need for restructuring and fundraising were fraudulent | Plaintiffs say statements were false/made to induce concessions (including a promised Founders Agreement) | Ramirez and Pho contend statements were opinions or sincerely held beliefs and that Founders Agreement was intended but deprioritized | Held for defendants: plaintiffs failed to prove actionable fraud; restructuring/need were opinions held in good faith; promissory fraud not proven |
| Whether Ramirez and Pho breached fiduciary duties to plaintiffs (as stockholders/directors) | Plaintiffs claim duty to disclose special facts and honest dealing as fellow directors was breached (e.g., secret planning, failure to finalize Founders Agreement, firing without notice) | Defendants argue plaintiffs were fellow directors with access to information; special facts doctrine inapplicable; CEO had authority to fire employees; no duty owed to employees | Held for defendants: fiduciary‑duty claims fail—no deliberate misinformation, special facts doctrine does not apply, termination was within CEO authority and protected by business judgment rule |
| Appropriate remedy for conversion: money damages v. rescission | Plaintiffs seek fair market value (~$2.4M) as damages | Defendants argue valuation is speculative; rescission or other relief appropriate | Held: damages too speculative for valuation of early startup; court orders rescission restoring plaintiffs’ shares and repayment of $19.50 with interest; plaintiffs awarded discovery expenses related to motion to compel |
Key Cases Cited
- STAAR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1991) (formalities for stock issuance and corporate action are strictly required)
- McGowan v. Ferro, 859 A.2d 1012 (Del. Ch. 2004) (conversion defined as wrongful dominion over another’s property)
- Lank v. Steiner, 224 A.2d 242 (Del. 1966) (special facts doctrine for director transactions with outside stockholders)
- Stone v. Ritter, 911 A.2d 362 (Del. 2006) (directors’ duties of care and loyalty and duty of disclosure principles)
- Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) (standard on director conflicts and evaluation of self‑interested corporate action)
- Applied Energetics, Inc. v. Farley, 239 A.3d 409 (Del. Ch. 2020) (written consents and requirements for proper board action)