Delaware Business Litigation Report

Chancery Determines Divorcee Was One Share Short of Equal Ownership Needed To Avoid Removal from Leadership of Business Empire

Haart v. Scaglia, C.A. No. 2022-0145-MTZ (Del. Ch. Aug. 4, 2022)
In public, a high-powered couple presented themselves as equal owners of an operating company, of which the wife was also the CEO and a director. After marrying, the husband transferred fifty percent of the common stock of an umbrella holding company to his wife. He also transferred to her one share shy of equal ownership of preferred stock—leaving her with 49.9995957 percent of the preferred shares. After she realized this imbalance, the wife continued to insist they were equal owners. As their marriage deteriorated, the husband used his one-share majority to remove her from leadership at the holding company and the operating company, of which the holding company was the sole member and managing member. She brought claims in the Court of Chancery, alleging equal ownership and a corporate deadlock, seeking judicial dissolution.

The Court held that the former husband and wife never held equal ownership of the shares, and thus, there was not a deadlock and he was validly able to remove her from her leadership positions. Although the two had represented that they held equal ownership in financial statements, insurance forms, and investor presentations, only one document in the record indicated any actual transfer of preferred shares—the document that transferred one share shy of equal ownership. The Court found that their other restructuring agreements involved the corporate structure of the overall companies under the holding company, but not the actual transfer of shares in the holding company itself. Equitable defenses of ratification and acquiescence were unavailable, as she had not proven any agreement to evenly split the preferred shares or voting power. The doctrine of unclean hands was also inapplicable. However unscrupulous his conduct, the former husband was not the one to initiate the litigation and seek equitable relief from the Court, and moreover, the former wife’s own initial petition showed she had deceived her original counsel and the Court regarding her knowledge of the imbalance in preferred shares.

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