Reed Smith Client Alerts

In a recent post-trial decision from the Delaware Court of Chancery, Simple Global, Inc. v. Banasik, C.A. No. 2018-0809-PAF (Del. Ch. June 24, 2021), the court concluded that a former director’s challenge to his removal under Section 225 of the Delaware General Corporation Law was time-barred by laches, where the former director failed to challenge the removal for eight months.

Relevant case background

Simple Global, Inc. (the Company) is a logistics business for e-commerce that was formed by Darius Banasik (Banasik) and co-founder Jongik Justin Kim (Justin). The Company was incorporated as a Delaware corporation in 2012. On the date of its incorporation, and at all times thereafter, the Company had five million authorized shares of common stock. 

Banasik and Justin were the Company’s original directors. At the Company’s first board meeting, Banasik was elected as president, and Justin as secretary, chief financial officer, and treasurer. The original board meeting minutes state that the board authorized the issuance of 4,280,500 shares to Banasik and 719,500 shares to Justin. Based upon that issuance, Banasik owned 85.61 percent of the Company’s equity and Justin owned 14.39 percent of the equity. 

There is no evidence that any stock certificates were ever issued, and the Company did not maintain a stock ledger. The original board minutes contained a signature line for Justin as secretary, but it was unsigned; there was a separate signature page attached to those minutes containing the signatures of Banasik and Justin as having accepted their officer appointments. The original stockholder meeting minutes, signed by Justin, depict the same shareholdings and ownership percentages as the original board meeting minutes.

In 2013, Banasik and Justin’s brother (James) entered into a personal loan contract (the PLC) under which Banasik borrowed $50,000 interest free, and James had the right to request approximately 830,000 shares of Banasik’s stock as repayment. The PLC included representations about the Company’s then current equity ownership and ownership that would result from repayment of the loan with stock that were inconsistent with the equity ownership reported in the Company’s 2012 and 2013 minutes ‒ stating that two million shares were authorized and that Banasik owned 1,219,280 shares, with a stated ownership percentage of 61 percent.

According to the minutes of the Company’s annual stockholder meeting one year later in March 2014, James owned approximately 3.3 million shares (66.09 percent), Banasik owned 975,911 shares (19.52 percent), and Justin owned 719,580 shares (14.39 percent). The minutes indicate that Banasik was present at the meeting, and state that 3,304,509 shares of Banasik’s stock were transferred to James by converting the PLC loan amount of $50,000 to shares in the Company. Banasik denied that any board or stockholder meeting occurred on that date in March 2014 (but the documentary evidence, including emails from Banasik, suggest otherwise).

At a special meeting of stockholders in June 2018, Banasik was removed as an officer of the Company, and at an annual stockholder meeting in July 2018, two stockholders voted to remove Banasik from his role as a director of the Company. Banasik did not contest his removal as an officer, and he did not contest his removal as a director until filing his counterclaim in the lawsuit at hand.

On November 7, 2018, the Company filed suit against Banasik for breach of fiduciary duties, conversion, and waste of corporate assets. On April 1, 2019, Banasik filed a counterclaim challenging his removal under Section 225 of the Delaware General Corporation Law (DGCL) and third-party claims against James and Justin. The Company moved to dismiss Banasik’s counterclaim and third-party claims. The Court granted the motion as to the third-party claims, and the court severed the Section 225 claim from the rest of the case and conducted the trial on that claim.