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Maxtena, Inc. v. Marks

United States District Court, Fourth Circuit

November 7, 2013



DEBORAH K. CHASANOW, District Judge.

Once again, numerous motions are pending and ready for review in this dispute. The following motions will be addressed in this Memorandum Opinion: (1) the motion for partial judgment on the pleadings filed by Defendant Jeremy Marks (ECF No. 192); and (2) the motion filed by Defendant seeking to strike Answer and Other Defenses of Maxtena, Inc. to Counterclaim (ECF No. 225).[1] The issues have been fully briefed, and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the motion for partial judgment on the pleadings will be denied. The motion to strike Answer and Other Defenses of Maxtena, Inc. to Counterclaim will be granted.

I. Background

In light of the many Memorandum Opinions that have been issued previously ( e.g., ECF Nos. 32, 136, 162), some familiarity with the tangled procedural history of this case will be presumed. Maxtena, Inc. ("Maxtena") filed suit against Marks on April 13, 2011. Following an unsuccessful motion to dismiss for lack of personal jurisdiction by Marks, the parties agreed to engage in an initial period of "financial and valuation" discovery, ostensibly "[i]n an effort to facilitate settlement discussions." (ECF No. 40, at 1). Ultimately, however, this initial period of valuation discovery accomplished little in the way of conciliation. If anything, the dozens of disputes that arose during valuation discovery served to heighten the animosity and mistrust between the parties and their counsel.

Following an unsuccessful mediation before Judge Schulze, the parties began merits-based discovery, which has led to a fresh round of disputes over both the proper scope of discovery and the legal bona fides of each party's claims. To resolve the current set of motions, a brief review of the allegations and claims asserted in the operative pleadings is warranted.

A. Maxtena's Second Amended Complaint

Maxtena alleges the following facts in its second amended complaint. (ECF No. 199). Maxtena is an antenna company specializing in "phased array technology" that was incorporated in 2007 under Virginia law. On May 18, 2007, Maxtena and its three founders entered into a "Shareholders Agreement." (ECF No. 192-6). As relevant to the pending motions, the Shareholders Agreement contains the following provisions. First, the Shareholders Agreement defines "Corporation" as "Maxtena, Inc., a Virginia corporation" and "Shareholders" as "Stanislav Licul, Warren Stutzman and Jeremy Marks." ( Id. at 1). The term "Shares" is defined as "all issued and outstanding shares of the Corporation's capital stock, including any such shares issued by the Corporation in the future pursuant to any subscription, option, conversion right, bonus plan or similar grant or arrangement, dividend, stock split, reverse stock split, merger, share exchange, recapitalization, reorganization, or other transaction." ( Id. § 1(c)).

The Shareholders Agreement identifies three purposes for the document: (1) "to restrict the transfer of the Shares"; (2) "to permit certain Transfers... of the Shares in order to promote the orderly succession of the ownership and management of the Corporation"; and (3) "to ensure the continuity of the ownership and management of the Corporation." ( Id., Recitals § B). To that end, the Shareholders Agreement includes a number of provisions regarding when and how Shareholders can sell, exchange, pledge, gift, bequeath, attach, or otherwise transfer Shares. ( See generally id. §§ 2-6). In Section 5, the Shareholders Agreement provides that if a Shareholder's "employment with the Corporation ceases for any reason whatsoever, the Corporation shall have the right, but not the obligation, to purchase some portion or all of such Shareholder's Shares." Additionally, the contract states that "[i]n the event of a termination of a Shareholder's employment by the Corporation for Cause, the Purchase Price shall be equal to One Hundred Dollars ($100)." ( Id. § 6(c)) ("the $100-Buyback Provision"). "Cause" is defined as "(i) an act or acts of dishonesty, theft or embezzlement on the Shareholder's part which are intended to or do result in either the Shareholder's personal enrichment or material adverse [e]ffect upon the Corporation's assets, business, prospects or reputation, or (ii) commission of a felony." ( Id. ).

Sections 13 and 14 of the Shareholders Agreement provide:

13. Term. The term of this Agreement shall be from the date hereof until the acquisition of substantially all the assets of the Corporation or all the outstanding Shares (whether by merger, share exchange or otherwise) resulting in the Shareholders receiving cash or cash equivalents or Shares listed on the NASDAQ National Market System, over-the-counter market or traded on a national exchange, provided that such acquisition is approved by a vote of the Shareholders pursuant to Section 7. A Shareholder who no longer holds any Shares shall not be entitled to any further rights, nor be subject to any further obligations, under the terms of this Agreement, provided that such Shareholder has not violated this Agreement in obtaining such status, and provided further that this Agreement shall remain in full force and effect as to all other Shareholders until it shall cease to be in effect in accordance with this Section 11.
14. Binding Effect; Entire Agreement; Counterparts. This Agreement shall be binding and inure to the benefit of the parties hereto, their successors, heirs, distributes, legatees, personal representatives or assigns. This Agreement constitutes the entire agreement among the parties respecting the subject matter hereof and supersedes all prior agreements, discussions, negotiations and conversations regarding such subject matter....

(ECF No. 192-6 §§ 13 & 14). Section 17 states that "[t]his Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia in effect as of the date hereof, without reference to the choice of law principles thereof." ( Id. § 17).

In the summer of 2009, Maxtena began work on a marine-based phased array antenna system for a client located in Germantown, Maryland. (ECF No. 199 ¶ 16). Marks, who at the time served as the Chief Technology Officer of the company, acted as the lead engineer for this time-sensitive project. Maxtena alleges that Marks became increasingly absent and unresponsive during late 2009 and into early 2010 because he was instead devoting his time and energy to other commercial opportunities. ( Id. ¶¶ 27-28). Marks allegedly shared highly confidential and proprietary information belonging to Maxtena with a third party, including certain schematic drawings associated with the marine-based antenna system. Marks also purportedly incorporated an entity known as "Elevation Semiconductor" in January 2010, which he intended to function as a direct competitor to Maxtena. ( Id. ¶ 31).

On January 29, 2010, Maxtena held a board of directors meeting to discuss the possibility of reorganizing from a Virginia corporation to a Delaware corporation. ( Id. ¶ 32). Marks attended the meeting but allegedly did not disclose either the incorporation of Elevation Semiconductor or his sharing of confidential information with a third party. Near the end of the January 29 meeting, Marks made a motion to reincorporate Maxtena in Delaware. ( Id. ¶¶ 32-33).

Throughout the spring of 2010, Marks and his associates allegedly began to develop business for Elevation Semiconductor. Maxtena, meanwhile, continued work on the marine-based antenna project for its Germantown-based client and also prepared to reorganize under Delaware law. On May 5, 2010, the Virginia corporation known as Maxtena ("Maxtena-Virginia") merged with its parent corporation, the Delaware corporation known as Maxtena ("Maxtena-Delaware"). ( Id. ¶ 39). Marks approved the merger is his capacity as both a director of Maxtena-Virginia and Maxtena-Delaware. The document titled "Agreement and Plan of Reorganization" (the "Merger Plan") provides, in relevant part, as follows:

1.1 Merger. In accordance with the provisions of this Agreement, the Virginia Stock Corporation Act ("the Virginia Act ") and the Delaware General Corporation law ("the DGCL "), Maxtena-VA will be merged with and into Maxtena-DE (the " Merger "), the separate existence of Maxtena-VA will cease and Maxtena-DE will be, and is sometimes referred to in this Agreement as, the " Surviving Entity, " and the name of the Surviving Entity will remain unchanged.
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the separate existence of Maxtena-VA will cease and Maxtena-DE, as the Surviving Entity, (i) will continue to possess all of its assets, rights, powers and property as constituted immediately prior to the Effective Date of the Merger, (ii) will be subject to all actions previously taken by it and by Maxtena-VA, (iii) will succeed, without other transfer, to all of the assets, rights, powers and property of Maxtena-VA in the manner more fully set forth in Section 259 of the DGCL and Section 13.1-721 of the Virginia Act, (iv) will continue to be subject to all of the debts, liabilities and obligations of Maxtena-DE as constituted immediately prior to the Effective Date of the Merger, and (v) will succeed, without other transfer, to all of the debts, liabilities and obligations of Maxtena-VA in the same manner as if Maxtena-DE had itself incurred them, all as more fully provided under the applicable provisions of the DGCL and the Virginia Act.
2.1 Certificate of Incorporation. The Certificate of Incorporation of Maxtena-DE as in effect immediately prior to the Effective Date of the Merger will continue in full force and effect as the Certificate of Incorporation of the Surviving Entity until duly ...

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