Palisades Growth Capital II, L.P. v. Bäcker

2020 WL 1503218 (2020)

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Palisades Growth Capital II, L.P. v. Bäcker

Delaware Chancery Court
2020 WL 1503218 (2020)

KD

Facts

Under QLess Inc.’s charter, Alex Bäcker (defendant), the company’s chief executive officer (CEO), had the right to appoint two directors. Palisades Growth Capital II, L.P. (Palisades) (plaintiff) and Altos Hybrid 2 L.P. (Altos) each had the right to appoint one director. Under a voting agreement, the parties had the right to jointly appoint one additional director. If Alex was terminated as the company’s CEO, the voting agreement provided for the creation of a new CEO director position to be filled by Alex’s replacement. Alex appointed himself and his father, Ricardo Bäcker (defendant), as directors. Palisades appointed Jeff Anderson. Alto designated Hodong Nam. Ivan Markman served as the independent director. Alex was terminated as CEO, and Kevin Grauman was hired as his replacement. Under the voting agreement, Grauman was to fill the newly created CEO director position. Alex and Ricardo (the Bäckers) acted as if they agreed with Grauman’s appointment. For example, Alex added Grauman to an email thread regarding board business and notified the other recipients, stating that Grauman was included assuming that the board included him, which Alex requested that it did. Ricardo responded that the message looked good to him. Nam then resigned from the board, and Alto nominated Paul D’Addario in his place. QLess’s counsel erroneously advised Alto that a board vote would be required to confirm D’Addario’s appointment. To that end, a telephone meeting was scheduled for November 15, 2019. Before that date, Markman also resigned, leaving only the Bäckers and Anderson on the board. Alex then conspired with Ricardo to take over the company. At the meeting, Alex announced that he had a two to one majority and demanded that D’Addario and Grauman disconnect. With Ricardo’s support, Alex fired Grauman and appointed himself CEO. Alex then acceded to the newly created CEO seat and appointed Patricio Cuestra to fill Alex’s newly vacant board position. Palisades sued the Bäckers, challenging the propriety of their conduct leading up to and at the November 15 meeting. The Bäckers argued that their conduct was proper because it was authorized by QLess’s governing documents.

Rule of Law

Issue

Holding and Reasoning (Slights, J.)

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