In August 2018, the parties entered into an agreement in which Dr. Goldberg surrendered his preferred shares in MT’s parent entity Navidea. In exchange for surrendering his shares, Dr. Goldenberg was to receive a 5 percent stake in, and voting control of, MT. This transaction was part of a plan to create independence between MT and its parent. That independence, the parties hoped, would make MT more attractive to investors.
After the parties entered into the August agreement, they began efforts to negotiate definitive implementing agreements. However, as the court noted, the negotiations stalled, and “Dr. Goldberg became inpatient.” Instead of exercising his legal rights to enforce the August agreement, Dr. Goldberg formed a new entity named M1M2 Therapeutics, Inc. (M1M2), transferred MT’s primary asset to M1M2, granted himself a 5 percent stake in M1M2, and gave himself voting control of M1M2. Dr. Goldberg engaged in these transactions with M1M2 without any notice to Navidea or other MT stakeholders and with virtually no expert legal or financial advice. MT alleged that Dr. Goldberg’s actions (the Challenged Transactions), among other things, breached fiduciary duties.
In a post-trial opinion, the Court of Chancery agreed that Dr. Goldberg had breached his fiduciary duties to MT – a point the court noted was “not hotly disputed.” The court ruled that since Dr. Goldberg stood on both sides of the Challenged Transactions, the “entire fairness” standard of review was appropriate. The entire fairness standard of review meant that Dr. Goldberg had the burden of demonstrating that the Challenged Transactions resulted from fair dealing and fair price. Dr. Goldberg proved neither.
Regarding the fair dealing, the court held that Dr. Goldberg took unilateral action without alerting the other members of MT’s Board of his transfer of MT’s primary asset.
Regarding the fair price, the court rejected Dr. Goldberg’s claim that the Challenged Transactions mirrored the parties’ agreements. The court found that Dr. Goldberg had transferred MT’s primary asset to an entity controlled by Dr. Goldberg, with no consideration from Dr. Goldberg or to MT for that transfer. In short, the court explained, “Dr. Goldberg attempted to take for himself that which belonged to [MT]. In doing so, he breached his duty of loyalty to [MT] stockholders.”
Notwithstanding Dr. Goldberg’s breach of the duty of loyalty, the court declined to award anything other than $1 in nominal damages. The court observed that the Challenged Transactions were unwound quickly after they were discovered. So MT suffered no cognizable damage. The court also declined to shift attorneys’ fees in favor of MT because, although wrong, Dr. Goldberg’s actions were not so egregious as to invoke the bad faith exception to the American Rule.