Improper Pa. Notarization Leads Del. Court to Dismiss Director Dispute

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Bessenyei v. Vermillion Inc., Del. Ch., ,C.A. No. 7572-VCN, 11/16/12

  • Key Holding: The improper notarization of one of the plaintiff’s signatures leads the court to dismiss a lawsuit challenging the composition of the board of directors for a medical diagnostics firm.

  • Key Takeaway: The “troubling” conduct is sufficiently addressed by dismissal, and no attorneys’ fees and expenses will be awarded.

The Delaware Chancery Court Nov. 16 dismissed a suit over the slate of board candidates for medical diagnostics concern Vermillion Inc. (VRML) finding that the signatures of one of the plaintiffs had been improperly notarized by a Pennsylvania notary (Bessenyei v. Vermillion Inc., Del. Ch., ,C.A. No. 7572-VCN, 11/16/12).

Vice Chancellor John Noble said that court rules, “in an effort to assure truthfulness,” require verification of complaints, answers, and similar pleadings. “Failing to comply with this requirement is not some mere technicality; it undercuts the integrity of the judicial process,” the court declared.

Elimination of Board Seat
Plaintiffs Gyorgy Bessenyei and Robert Goggin III, shareholders of Delaware-incorporated Vermillion, filed this action against Vermillion and certain current and former directors. Vermillion’s board is composed of three separate classes of directors, each of which has staggered three year terms. Before May 15, there were seven director seats on the board-two Class I directors, three Class II directors, and two Class III directors.

At the 2012 annual meeting, the court said, it was expected that the two Class III seats would be up for election. In February, the plaintiffs nominated a slate of candidates for these two seats.

Shortly thereafter, the individual defendants amended Vermillion’s bylaws to reduce the size of the board from seven to six members, leaving only one Class III seat up for election.

The plaintiffs claimed that the individual defendants breached fiduciary duties by eliminating the board seat, the court recounted. It noted that the plaintiffs sought relief that would require Vermillion to allow shareholders to elect two directors at the annual meeting.

At issue is the legitimacy of three verifications purportedly executed by Bessenyei on various dates in 2012 for use in this litigation, the court advised.

Legal Assistant
The defendants alleged that each of the three verifications purportedly signed by Bessenyei was improperly notarized by Jennifer Bennett, a Pennsylvania notary public, and therefore are invalid as verifications.

More specifically, the defendants asserted that co-plaintiff Goggin--a Pennsylvania attorney who did not formally appear as an attorney in this matter--instructed Bennett, a legal assistant in his Pennsylvania law office, “to notarize these verifications even though Bennett did not personally witness Bessenyei sign the documents before her,” the court wrote.

The court dismissed the underlying suit, finding that “[n]o action short of dismissal is appropriate under these circumstances.”

“Under Pennsylvania law, Bessenyei’s failure to appear before Bennett at the time the notarizations took place renders the notarizations invalid. Bessenyei’s verifications are therefore also invalid under Court of Chancery Rule 3(aa),” the court determined.

The court said that Rule 3(aa) provides that all complaints and related pleadings be accompanied by a notarized verification from a qualified individual for each named plaintiff, one which attests to the correctness and truthfulness of the filing.

Any Discipline Left to Authorities
As to Bessenyei, the court said that he could perhaps have used other options, “but, instead, chose to have Bennett notarize the verifications in Philadelphia without his presence, rendering them invalid under both Pennsylvania and Delaware law.”

Meanwhile, the court said that although Bennett acted “contrary to her responsibilities as a Pennsylvania notary public in notarizing the three documents at issue,” it is “worth emphasizing that Bennett is employed by Goggin, a Pennsylvania attorney, and she has testified that she notarized the documents because Goggin directed her to do so.”

Any disciplinary action “is a matter for the Pennsylvania authorities,” the court wrote. Likewise, the court said that Goggin “acts individually as one of the Plaintiffs in this action. … Although Goggin’s conduct may have violated a slew of ethical rules under Pennsylvania law, any disciplinary action he may face is up to the Disciplinary Board of the Supreme Court of Pennsylvania.”

The court also remarked that with “the benefit of hindsight, there are steps that Delaware counsel, perhaps, should have or could have taken.” However, the “lack of record knowledge precludes the imposition of the sanction of dismissal on their account,” the court wrote.

In other rulings, the court rejected the defendants’ request for an award of attorneys’ fees and expenses. The court said that the “troubling conduct is adequately addressed by dismissal.” Further, the court remarked that dismissal “fully serves the purpose of protecting the integrity of the judicial process in future proceedings.”

Matt Neiderman, Gary W. Lipkin, and Benjamin A. Smyth, Duane Morris, Wilmington, Del. represented the plaintiffs.

James L. Holzman, J. Clayton Athey, Nichole M. Faries, and Kevin H. Davenport, Prickett, Jones & Elliott, Wilmington, Del., and Peter M. Stone, Edward Han, Janelle Sahouria, Paul Hastings LLP, Palo Alto, Calif. represented the defendants.

For a copy of the opinion, please see /uploadedfiles/BNA_V2/Images/From_BNA_V1/News/bess(1).pdf.

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