publication
Originally published in ALM's Delaware Business Court Insider
In a recent decision, the Delaware Court of Chancery held that a founder’s repeated misrepresentations about how he allegedly acquired his shares justified dismissing his action under 8 Del. C. Section 225 with prejudice. See Govette v. Bongiovani, C.A. No. 2019-0139-NAC, 2025 WL 2926536 (Del. Ch. Oct. 15, 2025).
After a dispute arose over whether a founder could prove he validly owned shares of company stock, the founder filed this action, seeking confirmation that he owned a controlling interest in the nominal defendant corporation.
In his initial complaint, verified under oath per Court of Chancery Rule 3, the founder alleged that he acquired his shares for a payment made under a stock-purchase agreement. He also inconsistently averred that he also obtained his shares in exchange for cancellation of loans made to the company.
In his subsequent pleadings, he averred under oath (again inconsistently) that he acquired his shares via a board resolution, adopted when he was a sole director. He attached purported meeting minutes. A forensic expert opined, however, that the minutes were fabricated and backdated; they were prepared via software that did not exist yet when the meeting took place.
The court then held an evidentiary hearing, at which the founder again testified inconsistently, and admitted that various of his prior, sworn statements were untrue. The founder’s counsel admitted that his client violated Rule 3’s verification requirements and requested leniency.
The court found by “clear and convincing evidence” that the founder knowingly violated the court’s rules concerning verified pleadings. In the circumstances of the case, the court found that it did not suffice simply to find the founder not credible. Rather, the court reasoned, the founder’s “consistent and ongoing misrepresentations make this a more extreme case that demands a harsher sanction.”
The founder expressed remorse, claiming he acted under desperation after he realized he lacked appropriate records confirming his share ownership. The Court reasoned, however, as follows:
To some extent the court is sympathetic to the founder’s plight—founders who establish their companies on technical expertise may make mistakes due to inexperience with corporate formalities and bookkeeping. That possibility speaks to the wisdom of retaining corporate advisers and being forthright in any subsequent proceeding to sort out questions. It does not, however, justify falsifying documents or repeatedly lying to the court. Further, excusing the founder’s misconduct on such basis alone, under these facts, would have unacceptable negative policy ramifications for future proceedings.
Accordingly, the Court of Chancery ruled that dismissing the founder’s action with prejudice was the appropriate sanction in the circumstances.
