Silverberg v. ATC Healthcare, Inc.
CA 2017-0242-JRS
| Del. Ch. | Dec 5, 2017Background
- Plaintiff Herbert Silverberg sought books and records under Del. C. § 220 from ATC Healthcare concerning board composition/independence, a 2015 stock option plan, and related‑party transactions with Travel Healthcare and entities tied to controlling shareholders.
- After trial, the Court granted inspection as to board composition/independence documents and the 2015 Stock Option Plan, but denied inspection of documents concerning related‑party transactions with Travel Healthcare and other insider‑linked entities.
- Silverberg moved for reargument under Court of Chancery Rule 59(f), arguing the Court misapprehended facts by overlooking a 2009 amendment to the Travel Healthcare agreement that, he contends, shows preferential treatment.
- The Court requires a “credible basis” to infer wrongdoing before ordering inspection of related‑party transactions; such a basis typically requires comparison to an arm’s‑length transaction or other indicia of unfairness or self‑dealing.
- The Court found Silverberg had not previously advanced the 2006–2009 intra‑party comparison at briefing or trial (thus the argument was waived) and, substantively, the proposed comparison of two insider agreements does not supply the arm’s‑length comparator or other evidence necessary to infer wrongdoing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Court misapprehended facts by failing to treat the 2009 amendment to Travel Healthcare’s agreement as evidence creating a credible basis to infer wrongdoing | Silverberg: the 2009 amendment made terms more favorable to the related party and, standing alone, supports an inference of wrongdoing | ATC: the amendment is an insider vs. insider contract change and does not show unfairness without an arm’s‑length comparator or other indicia | Denied — argument waived for not being raised at trial; on the merits, comparing two insider agreements does not establish a credible basis to infer wrongdoing |
| Whether inspection of all related‑party transaction documents is warranted | Silverberg: documents concerning related‑party deals should be producible given alleged favoritism | ATC: plaintiff failed to show unfairness or present comparable arm’s‑length terms or other evidence of self‑dealing | Denied — no credible basis shown to justify broad inspection of related‑party transactions |
| Whether a contractual amendment alone can create a credible basis to infer self‑dealing | Silverberg: the amendment alone reflects preferential treatment | ATC: a term change between insider contracts does not establish unfairness absent comparison to arm’s‑length terms or other misconduct evidence | Denied — amendment between insider agreements insufficient without additional comparable or corroborating evidence |
| Whether Rule 59(f) reargument is appropriate | Silverberg: Court misapplied facts/law, warrants reargument | ATC: reargument is merely rehash; no new record facts; waived arguments cannot be raised | Denied — plaintiff failed to show misapprehension and raised a new argument for the first time on reargument |
Key Cases Cited
- Miles, Inc. v. Cookson Am., Inc., 677 A.2d 505 (Del. Ch.) (motion for reargument requires showing the court misapprehended law or facts)