In this decision, the Court of Chancery considered whether to appoint a custodian for Boston Technologies, Inc. (the “Company”) based on allegations of director and stockholder deadlock. The Court held that the petitioner was not entitled to have a custodian appointed because the respondent was entitled to specific performance of a contract that provided him with a greater number of shares of voting stock of the Company than petitioner held, which eliminated any claim of stockholder deadlock.
Petitioner Millien sought the appointment of a custodian for the Company pursuant to Section 226 of the Delaware General Corporation Law (the “DGCL”). Millien argued that the Company was deadlocked because he and Popescu, the only two directors and the holders of an equal stake in the Company’s equity, could not reach an agreement on any course of action for the Company. Popescu contended that no such deadlock existed at the Company because he should have voting control of the Company’s stock in accordance with an e-mail that he claimed constituted a binding agreement between himself and Millien. Popescu claimed that Millien had breached that agreement and that it should be specifically enforced. The Court of Chancery addressed Popescu’s contention that he was the majority holder of the Company’s voting stock and, therefore, that no deadlock could exist.
The Court first considered whether Popescu’s claims for breach and specific performance of the e-mail agreement should be governed by Delaware law (by reason of the internal affairs doctrine and the fact the Company is incorporated in Delaware) or the most significant relationship test under the Restatement (Second) of Conflicts of Laws. The Court explained that the e-mail agreement contained some provisions that could relate to internal corporate governance, suggesting that Delaware law should apply by reason of the internal affairs doctrine, and other terms suggesting that Massachusetts law should apply, as it was the forum otherwise having the most significant relationship. Ultimately, the Court determined it need not resolve the issue and, instead, chose to analyze Popescu’s breach of contract claim and request for specific performance under the law of the jurisdiction with the higher evidentiary standard for establishing a right to specific performance (in this case, Delaware).
Applying Delaware law, the Court concluded that Popescu established by clear and convincing evidence that the e-mail agreement reflected the essential and sufficiently definite terms agreed to by himself and Millien. The Court further concluded that Popescu established by clear and convincing evidence that he was entitled to specific performance of the e-mail agreement because damages were not an adequate remedy for Millien’s breach, which consisted of his refusal to provide voting control of the Company to Popescu. However, the Court, as a matter of equity, adjusted the specific performance remedy. The e-mail agreement provided that Popescu would hold an additional one percent of voting stock of the Company. Instead, the Court determined that the more equitable approach to implement the e-mail agreement was for Popescu to hold one more share of voting stock that Millien held. The Court reasoned that it might be economically inequitable to award Popescu more shares of stock than would be necessary to effect the intent of the e-mail agreement because, as the value of the Company increases, so too does the value of every share of Company stock. Thus, the Court ordered the Company to issue one additional share of voting stock to Popescu.
The full opinion is available here.