Segal v. Genitrix, LLC

Biotechnology startup Genitrix, LLC (defendant) was a Delaware limited-liability company (LLC) formed by Fisk Johnson (defendant) and Andrew Segal (plaintiff). Segal transferred intellectual property to the company in exchange for an equity interest. Johnson and Fisk Ventures, LLC (Fisk), a company owned by Johnson and Stephen Rose (defendant), took equity interests in exchange for providing funding. Genitrix, which was structured like a corporation, had a five-person board of directors with Segal as the CEO, Johnson and Rose as directors, plus one additional director appointed by Segal and one appointed by Johnson. Genitrix’s operating agreement stated that management powers were vested in Genitrix’s board but that those management powers were expressly delegated to Segal, who was to serve as Genitrix’s president. The company only ever had four employees in addition to Segal, and Segal was responsible for all day-to-day operational tasks, including payroll. Johnson and Rose never worked for the company. They were only ever board members and investors. Genitrix’s operating agreement specified that investors did not have any agency authority and thus could not act on Genitrix’s behalf. By 2006, Genitrix was in financial difficulty and struggling to make payroll. In January 2007, Segal stopped taking his salary in an attempt to alleviate financial strain. He notified the board of that decision some months later. Nevertheless, Genitrix eventually ran out of money, and its board deadlocked over how to proceed. Rose, acting on behalf of Fisk, Genitrix’s largest shareholder, petitioned for judicial dissolution of Genitrix. Segal strongly opposed. Segal sued Johnson and Rose, alleging that under Delaware’s Wage Act, they were personally liable for Segal’s unpaid wages from 2007 to 2009. Johnson and Rose argued that they were not liable because they were neither officers of Genitrix nor agents having management of the company. The trial-court jury held in Segal’s favor. Johnson and Rose appealed.