Telcom-SNI Investors v. Sorrento Networks

Annotate this Case

Download PDF

OCT-09-2001 TUE 02:13 PM CHANCERY COURT CHAMBERS FAX NO. 3027396179 Pa 02110 .--- COURT CHANCERY OF THE STATE OF DELAWARE OF 417 s.sbw Swer Dcwcn. DCLWMX 19901 TFIEWONC (302)739-A397 FACSIM .E (302) 739.6179 October 9, 2001 VIA FACSIMILE AND FIRST CLASS MAIL Collins J. Seitz, Jr., Esquire CONNOLLY BOVE LODGE $ XIUTZ, LLP 1220 Market Street P.O. Box 2207 Wilminglon, DE 19899-2207 Jon E. Abramczyk, Esquire MOKRIS, NICHOLS, ARSHT i. i &TUNNELL : 1201 North Market Street 1. r .~ I:: ! II> -; P.O. Box 1347 Wilmington, DE 19899-1347 I (, ,. .I -. Telcom-SNI Investors, L.L.C., et al. v, Sorrento Networks, Inc., et al. :; Re: !. ..> .._ - I , C.A. No. 19038-NC Submitted: October 1, 2001 Dear Counsel: Defendants, Sorrento Networks, Inc. ( Sorrento ), Xin Chcng and Jim Dixon, have moved, pursuant to Supreme Court Rule 42, for certification of an interlocutory appeal to the Supreme Court of that portion of this Court s Order of September 7, 2001 (the Order ), which prcIiminarily enjoined Defendants Cram issuing additional shares of Sorrenlo Class A Prcfcrred Stock without the prior approval of the holders OCT-09-2001 TUE 02:14 PM CHANCERY COURT CHAMBERS FAX NO. 3027396179 TeloomSNI Imestors, L.L.C., et al. v. Sorrento Networks, Inc., et cd. CA. No. 19038-NC October 9, 2001 Page 2 of n majorily of the Class A Preferred Stock. For the reasons that follow, I am granting the application. The Court concluded that Plaintiffs had demonstrated a reasonable probability of success on the merits of their claim that Sorrento s certificate of incorporation precluded Sorrento from issuing additional Series A Preferred Stock without their consent. Although the issue was addressed in the context of a preliminary injunction motion, it, nevertheless, was an evaluation of a matler of law, i.e., a reading of the language set forth in the cerlificate ot incorporation, In essence, two questions were evaluated: (i) was the applicable provision of the certificate of incorporation ambiguous and (ii) jf not, what was that unambiguous meaning? It may be that, wilh the more detailed consideration of the issues allowed at tht: time of final hearing, 1 will be persuaded that other means different, that the right of first offer constitutes the principal Tdcom-SAY hwesturu, ILK. v. Sorrenlo Networks, Im., Del. Cl]., C.A. No. 19038- NC, Koble, V.C. (Scpt, 7, 20111). Defendants do not seek certification of that portion of tlvz Order restricting the incurrence of additional indebtedness. P. 03/10 OCT-09-2001 TUE 02:14 PM CHANCERY COURT CHAMBERS FAX NO. 3027396179 P. 04/10 Tcbcotn-SNI Investors, l,.L. C.) et al. v. Sorrento Networks, hc,, et ~1. CA. No. 19038-NC October 9, 2001 Page 3 protection of the Class A Preferred shareholders against dilution, and that Plaintiffs did not negotiate an effective veto over Sorrento s ability to raise additional i unding through the issuance of additional. shares of Class A PreTerred. Thus, the Court s detcrrnination was not final, but that is the inherent nature of a preliminary injunction decision. However, interlocutory appeals of preliminary injunctions do occur, and appellate rcvicw may hc particularly appropriate for matters involvmg the construction of corporate charters. Furthermore, there are no other facts that may be dcvcloped, at least of which the Court is aware, that may be brought to bear on the issue of interpretation of the certificate language, as long as it is deemed to be unambiguous. Defendants assert that the Order should be certified for an interlocutory appeal under Supreme Cow& Rule 42(b) because the Order OCT-09-2001 TUE 02:14 PM CHANCERY COURT CHAMBERS FAX NO, 3027396179 I elcom-SAY Jnvcmm, L.L. C,, et al. cl. Sosr-ento Networks, Inc., et al, C.A, No. 19038-NC October 9, 2001 Page 4 tlelermined a substantial issue, the Order established a legal right, and review of the Order would serve consideralions of justiceB2 Z will now turn to a consideration of each of these factors. Sulqstantial Issue Two issues that may be considered substantial were resolved, for preliminary injunction purposes, by the Court: (i) that the protective provision of the cerlificate is not ambiguous and (ii) that it should be interpreted as supporting Plaintiffs contentions. Even though those conclusions were under the reasonable probability of success standard and, thus, not final resolutions, they reflect a determination of substantial issues because of the significance of the act of construing the corporale charter 2 Supreme Court Rule 42(b). Or the scvcral additional criteria set fobrlh in Supreme Court Kulc 42(b)(i)-(v), Defendants rely only upon, and the Court will only corklcr, t11c crikxion set fbrth in Rule 42(b)(v): A review OF the interlocutory order may tsrrninatc the litigation or may otherwise serve considerations of justice. Del cndants have not asserted that interlocutory review may terminate the litigation; thcp limit their arguments to the contention that inlerlocutory review will serve considerations of justice. P. 05110 OCT-09-2001 TUE 02:15 PM CHANCERY COURT CHAMBERS FAX NO. 3027396179 Telcom-SN/ Investot-s, L.L. C. I et nl. v. Sorwnto Networks, Inc., et 01. (2.14. No. 19038-NC 0ct01xr 9, 2001 Page 5 and because they are not premised upon an application of the law to facts which have only been preliminarily assessed. LegaI Rights The Order limits Sorrento s capacity to raise capital without the approval by the holders of a majority of the Class A Preferred Stock. The limitation of what, in general, is a critical legal right of a corporate entity constitutes the establishment of a legal right in Plaintiffs at the expense of Defendants. Qmsiderations of Justice 1;or purposes of determining whether interlocutory review is appropriate, considerations of justice under Supreme Court Rule 42(b)(v) iliclude whether such review would materially advance the litigation or protect a party from continuing and serious harm. Whether an interlocutory rcvicw will materially aid resolution of this matter is a subject of fair debate. If Defendants are successful in their appeal, other grounds for the preliminary injunction (or eventual success of P. 06/10 OCT-09-2001 TUE 02:15 PM CHANCERY COURT CHAMBERS Telcoml-SNI hestars, IL. C., PC FAX NO. 3027396179 al. v. Sortento Networks, 11x., et cd. C./I. No. 1903%NC October 9, 2001 Page 6 Plaintiffs) not yet considered by this Court will have to be addresscdQ3 On the other hand, if the Court was wrong in its assessment of Plaintiffs probability of success on the merits, a significant issue would then be resolved, as a matter of law, and the remaining litigation would be In addition, as noted above, the preliminary injunction carries with it the continuing consequence that Sorrento s ability to gather additional capital is impaired, Resolution of this question involving construction of the corporate charter as quickly as possible is obviously desirable. When the preliminary injunction was granted, I had hoped that the final hearing could be held within a few months. It appears now that the parties will not bc able to bring this matter to final hearing on that schedule. Thus, on balance, I conclude that an interlocutory review would serve considerations of justice. . ,..._._ _ . .,1.1-- 3 These other grounds include, Ibr example, alleged violation of 8 Del. C. 8 212 and Plaintiff s claim that the primary purpose for issuance of additional Series A Preferred Sk& ~a,< dilution of their inIercsts with an intent to dereat certain protective rights whkh they had negotiated. P. 07110 OCT-09-2001 TUE 02:15 PM CHANCERY COURT CHAMBERS FAX NO. 3027396179 C.A. No. 1903%NC October 9, 2001 Page 7 Accordingly, I am entering the enclosed Order certifying the interlocutory appeal. 3WN/cap Enc , c oc: Register in Chancery-N?-----U P. 08110

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.