Dengrong Zhou v. Long Deng and Mark Fang (iFresh, Inc., Nominal Defendant) ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DENGRONG ZHOU, )
)
Plaintiff/Counterclaim )
Defendant, )
)
v. ) C.A. No. 2021-0026-JRS
)
LONG DENG and MARK FANG, )
)
Defendants/Counterclaim )
Plaintiffs, )
)
and )
)
iFRESH, INC., a Delaware corporation, )
)
Nominal Defendant. )
ORDER DENYING DEFENDANTS/COUNTERCLAIM PLAINTIFFS’
MOTION FOR A STAY PENDING APPEAL AND MOTION TO
EXTEND STATUS QUO ORDER
WHEREAS, on January 12, 2021, Plaintiff, Dengrong Zhou, filed a
complaint under 8 Del. C. § 225 (“Section 225”), seeking a declaration regarding the
validity of a written consent signed by stockholders holding a majority of the shares
of iFresh, Inc. (“iFresh” or the “Company”) that purported to remove Defendants,
Long Deng and Mark Fang, from iFresh’s board of directors (the “Board”) and
appoint Qiang Ou and Jiandong Xu in their stead (the “Consent”);1
WHEREAS, on February 4, 2021, the Court entered a status quo order
(the “Status Quo Order”) that was to be effective during the pendency of the
litigation;2
WHEREAS, on April 6, 2022, the Court issued a Post-Trial Memorandum
Opinion (the “Opinion”) entering judgment for Plaintiff;3
WHEREAS, on May 3, 2022, Defendants filed an amended notice of appeal
from the Opinion with the Supreme Court of the State of Delaware;4
WHEREAS, on May 6, 2022, Defendants moved for a stay pending appeal
and to extend the Status Quo Order until a decision on the motion to stay is entered
(collectively, the “Motions”);5
1
Verified Compl. (D.I. 1).
2
D.I. 25.
3
Zhou v. Deng, 2022 WL 1024809 (Del. Ch. Apr. 6, 2022) (“Opinion”). The Opinion is
filed as D.I. 210. Pinpoint citations to page numbers refer to the Westlaw version of the
Opinion.
4
D.I. 216.
5
Defs./Countercl. and Third Party Claim Pls.’ Mot. for Stay Pending Appeal (“Mot.”)
(D.I. 218).
2
WHEREAS, on May 12, 2022, Plaintiff filed his opposition to the Motions;6
and
WHEREAS, on May 16, 2022, Defendants filed a reply in support of the
Motions;7
NOW THEREFORE, THE COURT FINDS AND ORDERS AS
FOLLOWS:
1. The Motions are DENIED.
2. Under Supreme Court Rule 32, this Court has discretion to grant a stay
of its judgment pending appeal.8 In exercising that discretion, the Court is guided
6
Pl. Dengrong Zhou’s Opp’n to Defs.’ Mot. for Stay Pending Appeal and for Extension of
the Status Quo Order (“Pl.’s Opp’n”) (D.I. 220).
7
Defs./Countercl. Pls.’ Reply in Supp. of Mot. for Stay Pending Appeal (“Defs.’ Reply”)
(D.I. 223). As Plaintiff correctly points out in his application to strike the Reply, the filing
was unauthorized and unsolicited. Letter to the Hon. Joseph R. Slights III, from Peter B.
Ladig (D.I. 224) at 1. This is consistent with a pattern Defendants have followed
throughout this litigation. See Opinion at *3 (“[A]fter full briefing on the motion [to
dismiss third-party counterclaims], without leave of Court, Defendants (as Third-Party
Plaintiffs) filed an Amended Third-Party Complaint just days before oral argument.”); id.(“A few weeks before trial, Defendants sprang another new pleading . . . .”); id. at *6
(“Against better judgment, the Court has indulged Defendants’ past attempts to inject
untimely new claims into this case . . . . Defendants’ ever-changing claims and theories of
liability conjure images of the arcade game ‘whack-o-mole,’ where every time Zhou bops
an argument or theory advanced by Defendants on the head, Defendants suddenly appear
somewhere else on the board with a new one.”). Ultimately, however, because the Reply
does not affect the outcome, I will deny Plaintiffs’ application to strike it.
8
Supr. Ct. R. 32(a) (“A stay or an injunction pending appeal may be granted or denied in
the discretion of the trial court, whose decision shall be reviewable by this Court.”).
3
by the so-called Kirpat factors.9 Those factors direct the Court to: (i) make a
preliminary assessment of the movant’s likelihood of success on appeal; (ii) assess
whether the movant will suffer irreparable harm if the stay is not granted; (iii) assess
whether any other interested party will suffer substantial harm if the stay is granted;
and (iv) consider whether the public interest will be served if the stay is granted.10
3. The Kirpat factors “are not a checklist; they are balanced with ‘all of
the equities involved in the case together.’”11 “Such a balancing of equities is
particularly complex when, as here, the interests at issue are not limited to an award
of money.”12
4. Because Kirpat directs the trial court to assess the strength of its own
reasoning and judgment, “the ‘likelihood of success on appeal’ prong cannot be
interpreted literally or in a vacuum.”13 Instead, “[i]f the other three factors strongly
9
Kirpat, Inc. v. Del. Alcoholic Beverage Control Comm’n, 741 A.2d 356, 357 (Del. 1998);
see also Klaassen v. Allegro Dev. Corp., 2013 WL 5967028, at *2 (Del. Ch. Nov. 7, 2013)
(“In Kirpat . . . , the Supreme Court identified four factors to guide a trial court when
exercising its discretion under Rule 32(a).”).
10
Kirpat, 741 A.3d at 357.
11
Klig v. Deloitte LLP, 2010 WL 3489735, at *11 (Del. Ch. Sept. 7, 2010) (citing Kirpat,
741 A.3d at 358).
12
Paine Webber Ltd. P’ship Litig., 1997 WL 118401, at *1 (Del. Ch. Mar. 4, 1997).
13
Kirpat, 741 A.3d at 358; see also id. (“Requiring a literal reading of the ‘likelihood of
success on appeal’ standard ‘would lead most probably to consistent denials of stay
motions, despite the immediate threat of substantial irreparable injury to the movant’
4
favor interim relief, then a court may exercise its discretion to reach an equitable
resolution by granting a stay if the petitioner has presented a serious legal question
that raises a ‘fair ground for litigation and thus more deliberative investigation.’”14
“With this guidance in mind, the court often considers [factors (ii) through (iv)]
before assessing whether the movant has presented a question that raises a fair
ground for review by our Supreme Court.”15
5. Under Kirpat factor (ii), Defendants argue they will suffer irreparable
harm if the stay is not granted because “the board composition remains disputed,
creating the risk of unauthorized and irreversible board action.”16 On one hand, in
the context of motions to stay judgments where control of a Delaware business entity
is at stake, this court has recognized that the “risk of unauthorized Board action . . .
supports finding a threat of irreparable harm.”17 On the other hand, loss of board
because the trial court would be required first to confess error in its ruling before it could
issue a stay.”) (quoting Evans v. Buchanan, 435 F. Supp. 832, 843 (D. Del. 1977)).
14
Id. (citing Wash. Metro. Area Transit Comm’n v. Holiday Tours, Inc., 559 F.2d 841, 844
(D.C. Cir. 1977)).
15
Rosenbaum v. CytoDyn Inc., 2021 WL 4890876, at *1 (Del. Ch. Oct. 20, 2021); see also
Klaassen, 2013 WL 5967028, at *2 (“Informed by Kirpat, this decision analyzes the
second, third, and fourth factors, then returns to the first.”).
16
Mot. at 3.
17
Klaassen, 2013 WL 5967028, at *3; see id. (“It is entirely possible that the Supreme
Court could reverse the Opinion and vacate the Final Order. . . . If [] unauthorized actions
could not be unwound or remedied, then irreparable injury would result.”).
5
control alone cannot constitute irreparable harm for purposes of Kirpat, as the party
seeking a stay “must point to some injury other than compliance with [the] Court’s
Order” to carry its burden under Kirpat.18 According to Defendants, irreparable
harm can be found in the fact that Plaintiff “intends to revamp company management
wholesale and has already appointed his own daughter as [] CEO.”19 Beyond this
conclusory contention, however, Defendants identify no other direct harm to
themselves or potential for destructive changes within iFresh that will indirectly
cause them harm. The fact that a party will replace management after prevailing on
a Section 225 claim does not, alone, threaten the replaced directors with irreparable
harm such that a stay is warranted.20 I am satisfied this factor weighs against a stay.
6. Under factor (iii) of Kirpat, Defendants argue that a stay will not cause
substantial harm to others because the stay will be brief given that “the appeal is
scheduled to be fully briefed by August[] 2022.”21 They also argue that the absence
of a stay will cause iFresh and its lender, KeyBank, harm because Defendant Deng
18
Lynch v. Gonzalez, 2020 WL 5648567, at *4 (Del. Ch. Sept. 22, 2020) (quoting
Jagodzinski v. Silicon Valley Innovation Co., LLC, 2011 WL 4823569, at *3 (Del. Ch.
Aug. 16, 2011)).
19
Mot. at 3–4; see Mot. Ex. B.
20
See Frankino v. Gleason, 1999 WL 1063071, at *1 (Del. Ch. Nov. 12, 1999)
(“[D]efendants claim that they will suffer irreparable harm if a stay is not granted because
[plaintiff] will alter the business plan they were implementing. This argument, obviously,
cuts both ways, as [plaintiff] would surely make the same claim if I grant the stay.”).
21
Mot. at 4; see Mot. Ex. C.
6
is no longer a director of iFresh or its CEO, and KeyBank “views Long Deng’s
involvement as critical to ensuring continuity and a smooth transition.”22 I am not
persuaded by either argument for several reasons. First, although the stay pending
appeal might be relatively brief, Defendants have already spent more than a year at
iFresh’s helm under the Status Quo Order, even though “there has never been a
dispute as to the facial validity of the [w]ritten [c]onsent” removing them.23 Any
further delay is unnecessary and deprives Plaintiff of the legal effect of the Consent
that the Court has now adjudicated to have been valid from the time of its delivery
to the Company. Second, while I acknowledge that KeyBank’s forbearance is
critical to iFresh’s continued operations,24 the status quo at iFresh is that a majority
of its stockholders have exercised their right to remove and replace members of the
Board (through a consent that indisputably is valid as a matter of form and as a matter
of law), and the Board has exercised its right to make changes in management.
22
Mot. Ex. H at 1; see generally id. (email from KeyBank’s counsel setting forth a term
sheet for forbearance, including that Deng is “reinstated as President of NYM and its
subsidiaries”). Defendants point to several other facts to illustrate Deng’s importance to
iFresh. First, iFresh’s SEC filings disclose that “iFresh’s success is substantially dependent
on the continued service of its senior management . . . and in particular Long Deng.”
Mot. Ex. D at 12. Second, “iFresh leases its primary wholesale and distribution facility
from ‘Dragon Development LLC,’ a company 50% controlled by Deng.” Id. Finally,
KeyBank has expressly stated that it is concerned about “who is now managing the day-
to-day operations.” Mot. Ex. H at 1.
23
Pl.’s Opp’n at 2.
24
See Mot. at 6; see also Mot. Exs. E–F.
7
Denial of the stay reinforces those rights and provides critical clarity to KeyBank
and all others who deal with iFresh at arms-length regarding “the current directors
and officers”25 of the Company and “who is now managing [its] day-to-day
operations.”26 Moreover, Defendants’ assertion of harm to KeyBank is overblown.
KeyBank is capable of negotiating forbearance terms to protect its interest and
neutralize any supposed harm resulting from Defendant Deng’s removal, as
illustrated by Defendants’ own exhibits.27
7. Factor (iv) of Kirpat asks the Court to determine whether the public
interest will be served if the Motions are granted. “Who controls the board of
directors, although ‘critically important to the litigants’ and other stakeholders,
implicates the ‘private interests of particular corporate constituencies,’ not the public
interest.”28 Even if some public interest is implicated here because of iFresh’s status
25
Mot. Ex. F.
26
Mot. Ex. H at 1.
27
See Mot. Ex. F (letter from KeyBank’s counsel requesting a meeting with new iFresh
leadership to “understand the general intentions of the current directors and officers” and
“to understand the . . . plans for repaying the obligations owed to KeyBank”); Mot. Ex. H
(email from KeyBank’s counsel discussing a term sheet “summarizing the terms and
conditions on which the bank would enter into a forbearance agreement with iFresh and its
subsidiaries,” including involvement from Defendant Deng (not as CEO or director)
“to ensur[e] continuity and a smooth transition”).
28
Rosenbaum, 2021 WL 4890876, at *3 (citing Klaassen, 2013 WL 5967028, at *3).
8
as a public company,29 it is counterbalanced by Delaware’s interest in “expeditiously
complet[ing] and effectuat[ing] § 225 actions.”30 This is particularly so here given
that Plaintiff has made at least a credible case that allowing Defendants to continue
leading iFresh is not in the best interests of its stakeholders.31 In all, this factor is, at
best, neutral for Defendants.
8. Based on the foregoing, I am satisfied that Kirpat factors (ii)–(iv) and
the balance of equities weigh in favor of denying the Motions. Our Supreme Court
has counseled that “[i]f [Kirpat factors (ii)–(iv)] strongly favor interim relief, then a
court may exercise its discretion to reach an equitable resolution by granting a stay
if the petitioner has presented a serious legal question that raises ‘fair ground for
litigation and thus for more deliberative investigation’”32 For the reasons just
29
See Mot. at 7 (arguing that stakeholder concerns “are even more acute . . . given that
iFresh is a public company”).
30
Frankino, 1999 WL 1063071, at *2.
31
See, e.g., Pl.’s Opp’n at 3 (“iFresh suffered under [Defendant Deng’s] stewardship,
defaulting multiple times on its main credit facility and ultimately losing its listing on the
NASDAQ main board. All the while Deng enriched himself and his wife by drawing
combined salaries of nearly $1M a year and engaging in a series of related party
transactions.”); id. (“The [NASDAQ] Panel cannot help but conclude that [iFresh’s
weakness in financial reporting] is a symptom of a larger problem within the Company,
namely that it has not taken its role as public company seriously . . . . Unfortunately, there
are multiple instances during the Company’s four-year listing that the Panel can point to in
support of this conclusion.”); id. (“Deng’s actions led to an SEC investigation.”); id. at 11
(“[W]hile iFresh has been spiraling, Deng kept taking excess compensation.”).
32
Kirpat, 741 A.2d at 358 (emphasis added) (citing Washington Metro, 559 F.2d at 844);
see also Rosenbaum, 2021 WL 4890876, at *4 (“Factor (i) cannot save Plaintiffs’ Motion
9
explained, the last three Kirpat factors do not favor granting the Motions. Nor am I
persuaded Defendants have raised legal questions worthy of serious appellate
review.
9. The Opinion did not break new legal ground or extend settled law.33
Nevertheless, Defendants argue they have identified two “serious legal question[s]
that raise[] a fair ground for appeal.”34 First, they argue the Court erred in not
applying New York’s “peculiar knowledge” exception to justifiable reliance in a
fraud claim.35 Second, they argue the Court erred when it found that Defendants
waived the argument that the Consent was invalid because Plaintiff aided and abetted
in Amy Xue’s (iFresh’s CFO) breach of her fiduciary duties in order to secure at
least some of the shares voted in the Consent.36 I address each in turn.
because ‘the other three factors’ do not ‘strongly favor interim relief,’ and granting the
Motion would not otherwise be an ‘equitable resolution.’”) (quoting Kirpat).
33
See, e.g., Zohar CDO 2003-1, LLC v. Patriarch P’rs, LLC, 2016 WL 6661932, at *1
(Del. Ch. Nov. 10, 2016) (ORDER) (denying motion to stay pending appeal in a contract
dispute because movant did not “present issues of first impression or pressing issues of
Delaware law for resolution” and the court’s judgment involved only “straightforward
issues of contract interpretation”).
34
Klaassen, 2013 WL 5967028, at *3.
35
Mot. at 8–11. “The ‘peculiar knowledge’ exception applies when a party takes
reasonable steps to verify its counterparty’s statements but is unable to do so because the
underlying information is impractically expensive to obtain or solely within the control of
the counterparty.” O.F.I Imports Inc. v. Gen. Elec. Cap. Corp., 2016 WL 5376208, at *6
(S.D.N.Y. Sept. 26, 2016).
36
Mot. at 11–13.
10
10. After reviewing the parties’ submissions and the relevant case law,
I remain satisfied that the Court correctly interpreted New York’s “peculiar
knowledge” exception. In the Opinion, the Court held that the exception
“is inapplicable here,” that “Defendants and iFresh are sophisticated parties who
were represented by counsel,” and that “[t]he peculiar-knowledge exception has
been rejected by courts when sophisticated parties could have negotiated contractual
protections for themselves.”37 Those holdings reflect a proper understanding and
application of the peculiar knowledge exception,38 especially in light of the Court’s
factual findings that the purported misrepresentations were rebutted by information
in public records readily accessible to Defendants and iFresh had they bothered to
37
Opinion at *13 n.122.
38
See, e.g., O.F.I. Imports, 2016 WL 5376208, at *6 (“[The peculiar knowledge] exception
is stringently applied when the contracting parties are sophisticated entities and does not
apply where the plaintiff had a low[-]cost alternative such as insisting that the written
contract terms reflect any oral undertaking on a deal-breaking issue.”) (collecting cases)
(internal quotation marks omitted); RAA Mgmt., LLC v. Savage Sports Hldgs., Inc., 45 A.3d
107, 115 (Del. 2012) (“[T]he peculiar-knowledge exception has been rejected by
[New York] courts in circumstances where sophisticated parties could have easily insisted
on contractual protections for themselves.”); Silver Point Cap. Fund, L.P. v. Riviera Res.,
Inc., 155 N.Y.S.3d 155, 156 (N.Y. App. Div. 2021) (“The ‘peculiar knowledge’ doctrine
does not apply; plaintiffs are sophisticated parties that were aware that they were not
provided with full information but nonetheless agreed to go forward with a transaction
without either demanding access to the omitted information or assurances in the form of
representations and warranties.”); HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 188–89,
195 (N.Y. App. Div. 2012) (“HSH could have uncovered any misrepresentation . . . through
the exercise of reasonable due diligence within the means of a financial institution of its
size and sophistication. . . . The principle that sophisticated parties have a duty to exercise
ordinary diligence . . . has particular application where, as here, the true nature of the risk
being assumed could have been ascertained from . . . publicly available information.”).
11
conduct even basic due diligence.39 Nevertheless, Defendants submit that the Court
erred because the peculiar knowledge exception “applies regardless of the level of
sophistication of the parties,”40 and, therefore, the Court’s holding to the contrary
39
Indeed, these factual findings undercut the initial premise that Plaintiff’s conviction and
participation in a pyramid scheme––at the heart of the alleged fraudulent
misrepresentation––was in the “peculiar knowledge” of Plaintiff in the first place.
See, e.g., HSH Nordbank, 95 A.D.3d at 196 (holding that data “derived from publicly
available market information” was “not peculiarly within UBS’s knowledge”);
Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 952 N.E.2d 995, 278–79
(N.Y. 2011) (“If the facts represented are not matters peculiarly within the party’s
knowledge, and the other party has the means available to him of knowing, by the exercise
of ordinary intelligence, the truth or the real quality of the subject of the representation,
he must make use of those means, or he will not be heard to complain that he was induced
to enter into the transaction by misrepresentations.”) (cleaned up) (quoting DDJ Mgmt.,
LLC v. Rhone Gp. L.L.C., 931 N.E.2d 87, 91 (N.Y. 2010)); see also Opinion at *12–13
(“Defendants could not have reasonably relied on Zhou’s messages to Deng because
Zhou’s conviction was a matter of public record. . . . The same is true for the other
supposed misrepresentations identified by Defendants. As representatives of a publicly
traded company, Defendants could have readily determined whether Ou and Zhou met the
requirements of Section 3(c) by exercising reasonable due diligence. Again, iFresh
performed no due diligence . . . .”).
40
TIAA Global Invs., LLC v. One Astoria Square LLC, 127 A.D.3d 75, 87 (N.Y. App. Div.
2015); see also Mot. at 9; Dandong v. Pinnacle Performance Ltd., 2011 WL 5170293,
at *14 (S.D.N.Y. 2011) (“[E]ven a sophisticated investor armed with a bevy of accountants,
financial advisors, and lawyers could not have known that [the plaintiff] would select
inherently risky underlying assets and short them.”), aff’d in part and remanded in part by
Lam Yeen Leng v. Pinnacle Performance Ltd., 474 F. App’x 810 (2d Cir. 2012);
LBBW Luxenburg S.A. v. Wells Fargo Sec. LLC, 10 F. Supp. 3d 504, 517–18
(S.D.N.Y. 2014) (“Internal proceedings and matters of intent can qualify as peculiar
knowledge even when they relate to matters of public record. . . . Where facts were
peculiarly within the knowledge of the defendants . . . the failure of the plaintiffs to
ascertain their truth by inspecting the public records is not fatal to their action. . . . Here,
the Defendants . . . had greater access to relevant facts . . . . [T]he peculiar knowledge
exception applies here because the defendant had access to nonpublic information
regarding the deteriorating credit quality of subprime mortgages.”). I note that each of
these cases involve a pleading-stage adjudication of a motion to dismiss, not a fact intensive
post-trial decision.
12
presents a “serious legal question on appeal.”41 But the Court’s determination that
the peculiar knowledge exception was inapplicable stemmed not only from the
(correct) legal observation that “[t]he peculiar-knowledge exception has been
rejected by courts when sophisticated parties could have negotiated contractual
protections for themselves,”42 but also from the Court’s factual findings regarding
the accessibility of information, lack of any meaningful diligence and the parties’
sophistication, among others.
11. In any event, even if the peculiar knowledge exception applied here, it
would not save Defendants’ case because “Defendants’ attempt to prove that the
shares voted in the Consent were obtained by . . . fraud or other wrongdoing failed
for want of adequate proof” on several levels.43 For instance, Defendants failed to
prove, by clear and convincing evidence, a material misstatement in the purchase
agreement whereby Plaintiff obtained his shares.44 And, regarding Plaintiff’s extra-
contractual statements, the Court noted that “it is difficult to see how Zhou’s
omissions or misleading statements . . . factually could support a fraud claim where
the contract contains a rather broad integration clause and Defendants made no
41
Defs.’ Reply at 2.
42
Opinion at *13 n.122.
43
Id. at *18.
44
Id. at *9–11.
13
attempt to prove why they would have agreed to that clause” if the parties had
reached understandings outside the purchase agreement.45 Finally, the Court
observed that “Zhou’s supposed extra-contractual denial of his association with the
pyramid scheme” did not “cause[] the transaction by which Zhou acquired his
shares . . . to be tainted by fraud to a degree that it is reasonable to conclude the
transaction would not have been consummated had the fraud been detected pre-
closing,” such that the Court could “justify a declaration that his attempt to vote his
iFresh shares was void.”46 Even if applicable, the peculiar knowledge exception
does not remedy these deeper flaws.47
12. Defendants also argue the Court erred in finding they waived any
argument that the Consent was somehow invalid as the product of a breach of
fiduciary duty by not timely raising the argument. They submit this case is
analogous to Bäcker v. Palisades Growth Capital II, L.P., where the Court held there
was no waiver of an argument raised post-trial that certain specific acts were
deceptive because the opposing party “had the opportunity to explore [such]
45
Id. at *12.
46
Id. (noting that the evidence supported a finding that iFresh was desperate to close the
challenged transactions).
47
There is more. The Court observed “a fundamental flaw in the assumption underlying
each of Defendants’ fraud theories—that a party seeking to buy a company’s stock has a
common law duty . . . to disclose when doing so that he ultimately intends to take control
of a company.” Id. at *9.
14
deception,” as it “was the subject of discovery requests and deposition testimony”
and discussed in a pretrial brief.48 But in Bäcker, the plaintiff had “consistently
argued that the Bäckers deceived their fellow directors by representing support for
the board’s original agenda while concealing a secret counter-agenda to seize control
of the company” and thus gave the opposing party “ample notice” of the theory.49
With that said, Bäcker explicitly recognized that this court “has rejected arguments
that a party failed to raise before trial on the basis that the opposing party may have
tried the case differently given notice of the new argument.”50 For all the reasons
Remainder of Page Intentionally Left Blank
48
Bäcker v. Palisades Growth Cap. II, L.P., 246 A.3d 81, 104 (Del. 2021); see also
Mot. at 12 (“Here, similarly, the parties undertook extensive discovery into how Zhou
directed Xue’s actions as iFresh’s CFO. . . . Furthermore, the same facts were briefed pre-
trial and tried . . . .”).
49
Bäcker, 246 A.3d at 103–04 (emphasis added).
50
Id. at 103.
15
stated in the Opinion, Defendants gave Plaintiff no such notice.51 As Plaintiff bluntly
observes, “[w]aiver is not a close call here.”52
13. As for the Status Quo Order, “extending” it at this point would be
problematic both practically and jurisdictionally. “[A status quo order] is a practical
instrument intended to operate in a practical manner”53 by “maintain[ing] stability”
in Section 225 disputes.54 Defendants’ delay in filing the Motions makes granting
them impractical. The Court issued the Opinion on April 6, 2022, and entered a final
order awarding costs on April 22, 2022.55 Yet Defendants offered no hint they would
51
Opinion at *7 (“The breach of fiduciary duty and aiding and abetting arguments were
not introduced as grounds to invalidate the Consent until after trial in Defendants’ post-
trial brief. That is too late to argue a new claim. Defendants’ pretrial brief mentions
Amy Xue’s involvement in this case in its recitation of the background facts. But neither
the Amended Counterclaim, the pretrial order not the pretrial briefing provided Zhou with
any indication that a breach of fiduciary duty or aiding and abetting claim was on the table
for trial. Indeed, the phrases ‘aiding and abetting’ and ‘fiduciary duty’ do not appear a
single time in the Amended Counterclaim, the pretrial order or the pretrial briefs.”)
(emphasis in original) (footnote and internal quotation marks omitted). As Plaintiff
observed in a post-trial brief, this theory may have sprouted from Defendant Deng’s
testimony, offered for the first time at trial, that Amy Xue was “engaging in criminal act
of violating her fiduciary duty.” Trial Tr. 309:7–9 (Deng); see Pl.’s Reply to Defs.’ Post-
Trial Br. (D.I. 203) at 15.
52
Pl.’s Opp’n at 10.
53
Frankino v. Nat’l Auto Credit, Inc., 1999 WL 959188, at *1 (Del. Ch. Sept. 29, 1999).
54
Cap. Link Fund I, LLC v. Cap. Point Mgmt., L.P., 2015 WL 7731766, at *3 (Del. Ch.
Nov. 25, 2015).
55
D.I. 210, 215.
16
seek to extend the Status Quo Order or stay the judgment until weeks later. In the
meantime, on April 27, 2022, the new iFresh Board met and, among other things,
removed Deng as CEO.56 Given the current makeup of Company leadership
following that meeting, what Defendants actually seek is reinstatement of the pre-
judgment status quo, not an extension of the current status quo.57 Granting the
Motions, at this stage, would “sow confusion” into iFresh’s ongoing negotiations
with KeyBank and its interactions with other arms-length parties.58 Indeed,
Defendants would have me declare that Deng was in, then out, and now back in.
That is unnecessary and, as stated, confusing.
14. Moreover, there is a serious question whether entering a new status quo
order when one currently is not in place would be appropriate given this Court’s
limited jurisdiction following the appeal of the action.59 In other words, given
56
See Mot. Exs. G–H.
57
Pl.’s Opp’n at 2, 4.
58
Id. at 5; see also Mot. Exs. F–H.
59
Whether I have jurisdiction to reinstate a now-ineffective pre-judgment status quo order,
with modifications no less, is unclear. Supreme Court Rule 32(a) gives this court limited
jurisdiction to address a motion to stay following the filing of an appeal and allows the
court to “impose such terms and conditions . . . as may appear appropriate in the
circumstances.” Supr. Ct. R. 32(a); see also In re UnitedHealth Gp. Inc. Section 220 Litig.,
2018 WL 2110958, at *1–3 (Del. Ch. Apr. 27, 2018) (ORDER) (granting conditional stay
to preserve status quo to enable the appellant to seek a longer stay from the Supreme Court);
B.F. Rich Co., Inc. v. Gray, 2006 WL 3872830, at *2 (Del. Ch. Dec. 15, 2006) (continuing
a protective order in response to a party’s motion to stay pending appeal). To be sure,
Court of Chancery Rule 62(c) allows this court, “in its discretion,” to “suspend, modify,
restore, or grant an injunction during the pendency of the appeal.” Ct. Ch. R. 62(c).
17
Defendants’ delay, I am particularly reluctant to grant the Motions, which would
involve entering new orders in a manner that potentially stretches the Court’s limited
post-appeal jurisdiction beyond its tolerance. And, for the reasons already
explained, Defendants have provided no persuasive reason to test that tolerance.
15. For all the foregoing reasons, the Motions must be DENIED.
DATED: May 23, 2022
/s/ Joseph R. Slights III
Vice Chancellor
But there is no injunction currently in place, as the temporary restraining (status quo) order
terminated with Opinion, and the status quo preserved by that Order no longer exists.
See Status Quo Order (D.I. 25) (setting forth the iFresh board of directors “[d]uring the
pendency of this litigation” and prohibiting certain actions “[p]ending the further decision
by the Court”); see also Lynch, 2020 WL 5648567, at *1 (“Paragraph 1 of the SQO permits
Lynch ‘and the current management under Lynch’ to serve as Belleville’s manager and
legal representative ‘during the pendency of the Litigation, or until otherwise directed by
the Court.’ When this Court enters its final judgment, this term will expire. . . . By its
terms, the entire SQO was to remain in full force and effect until this Court specifically
orders otherwise, such that it would terminate upon entry of a final judgment.”);
Eagle Force Hldgs., LLC v. Campbell, 235 A.3d 727, 744 (Del. 2020) (holding that a status
quo order did not remain in effect after the trial court’s post-trial final judgment when, by
its terms, it remained “in effect pending the conclusion of this action or further order of
this Court”).
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