EFiled:Sep05201211:46AMEDT TransactionID46261695 CaseNo.7770VCP IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE ROBERT L. KING, Plaintiff, v.

. DAG SPE MANAGING MEMBER, INC., Defendant. ) ) ) ) ) ) ) ) )

Case No. 7770 VCP

DEFENDANT DAG SPE MANAGING MEMBER, INC.'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS THE COMPLAINT PURSUANT TO DELAWARE COURT OF CHANCERY RULE 12(b)(6)

/S/ Bernard G. Conaway Bernard G. Conaway, Esquire (DE No: 2856) CAMPBELL & LEVINE, LLC 800 North King Street, Ste 300 Wilmington, DE 19801 Tel: (302) 4261900 Fax: (302) 4269947 Attorneys for the Defendant DAG SPE Managing Member, Inc.

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TABLE OF CONTENTS TABLE OF AUTHORITIES......................................................................................................... ii I. II. INTRODUCTION................................................................................................................4 NATURE AND STAGE OF THE PROCEEDINGS..........................................................5

III. STATEMENT OF FACTS.....................................................................................................6 IV. ARGUMENT .........................................................................................................................8 A. ONLY A SITTING DIRECTOR IS ENTITLED TO INSPECT CORPORATE BOOKS AND RECORDS UNDER 8 DEL. C. 220 (d)...........................................8 1. 2. B. Standard of Review.............................................................................................8 The Plaintiff is Not a Sitting Director...............................................................8

THE PLAINTIFF IS NOT A DIRECTOR OF DAG AND IS NOT ENTITLED TO EXAMINE DAGS CORPORATE DOCUMENTS UNDER 8 DEL. C. 220 (d). ......................................................................................11 AS A MATTER OF LAW THE COMPLAINT SHOULD BE DISMISSED AS IT FAILS TO STATE A PROPER PURPOSE AS REQUIRED UNDER 8 DEL. C 220 .............................................................................................13

C.

V. CONCLUSION .....................................................................................................................18

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TABLE OF AUTHORITIES CASES PAGE(S) Beiser v. PMCSierra, Inc.,, 2009 WL 483321 (Del. Ch. 2009) ..................................................15 Everett v. Transnation Development Corp., 267 A.2d 627 (Del. Ch. 1970)...............................11 Farber v. Seiberling Rubber Co., 168 A.2d 310 (Del. Super. 1961)..............................................9 In re General Motors (Hughes) Shareholder Litigation, 897 A.2d 162 (Del. 2006)......................8 Grobow v. Perot, 539 A.2d 180 (Del. 1988).................................................................................10 Helmsman Mgmt. Services, Inc. v. A & S Consultants, Inc., 525 A.2d 160 (Del. Ch. 1987) ....................................................................................................................................9, 15 Holdgreiwe v. Nostalgia Network, Inc., 1993 WL 144604 (Del. Ch. 1993)..................................9 Intieri v. Avatex, 1998 WL 326608 (Del. Ch. 1998) .....................................................................9 Jacobson v. Dryson Acceptance Corp., 2002 WL 75473 (Del. Ch. 2002)....................................10 Kortum v. Webasto Sunroofs, Inc., 769 A.2d 113 (Del. Ch. 2000) .........................................9, 19 Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) ..................................................................8, 12 Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d 1163 (Del. Ch. 2002) ..............................8, 10 Security First Corp. v. United States Die Casting & Develop. Co., 687 A.2d 563 (Del. 1997) ..................................................................................................................................15, 16 Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026 (Del. 1996).....................................16 STATUTES AND RULES 8 DEL C. 220 ...................................................................................................................... passim Chancery Court Rule 12(b)(6) .................................................................................................5, 8 OTHER AUTHORITY Stephen A. Radin, The New Stage of Corporate Governance Litigation: Section 220 DemandsReprise, 28 CARDOZO L. REV. 1287 (2006).........................................................15

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I.

INTRODUCTION

This action was brought by the plaintiff, Robert King, against the defendant, DAG SPE Managing Member, Inc. (DAG) under 8 D EL. C. 220 (d). The sole count asserted in the complaint is the plaintiffs demand to inspect DAGs corporate books and records. Under the statute, a director has the right to examine the corporations books and records. The statute does not give any such right to a former director or any other person not performing the duties of the corporations director. As admitted in the complaint at paragraph 2 the plaintiff "has been never a shareholder." He further acknowledges that he is not a DAG director. Complaint at 36. Based upon both admissions, he is not entitled to inspect DAGs corporate books and records under 220. As the plaintiff further admits in paragraph 36 he was removed from the DAG board of directors on December 18, 2003. A true and accurate copy of the DAG Unanimous Written Consent of the Board of Directors, attached to the complaint as Exhibit I, evidences the plaintiffs removal and his replacement with another director. As demonstrated herein, nowhere in the complaint does the plaintiff ever allege that he is a now a director of DAG or that he was ever a director of DAG at any time after December 18, 2003. In other words, the plaintiff fails to make the threshold allegation that he is a current director of DAG who is entitled to inspect the corporate books and records. For the foregoing reasons and the reasons that follow, the plaintiffs claim should be dismissed.

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II. NATURE AND STAGE OF THE PROCEEDINGS On August 9, 2012 the plaintiff, Robert King, filed this action against the defendant, DAG SPE Managing Member, Inc. (DAG) to facilitate the plaintiffs demand to inspect DAGs corporate books and records pursuant to 8 D EL. C 220 (d). At paragraph 2 the plaintiff admits that he "has been never a shareholder." He further acknowledges that he is not a DAG director. Based upon both admissions, he is not entitled to inspect DAGs corporate books and records under 220. The complaint was served upon DAG's registered agent on August 13, 2012. This is the defendant's opening Memorandum of Law in Support of its Motion to Dismiss the Complaint Pursuant to Delaware C OURT OF CHANCERY RULE 12(b)(6).

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III.

STATEMENT OF FACTS

The complaint in this action consists of one count a demand by the plaintiff for the production of DAGs corporate books and records under 8 D EL. C. 220 (d).1 The complaint alleges, among other things, the following: DAG SPE Managing Member, INC. (DAG) is a Delaware corporation that serves as the managing member of DAG Realty, LLC. Complaint at 7, 8 appearing as Exhibit A hereto. DAG was organized pursuant to a Certificate of Incorporation filed with the Secretary of State of the State of Delaware on December 15, 2000. Complaint at 13. The plaintiff is a resident of the District of Columbia. Complaint at 3. He is identified in DAGs Certificate of Incorporation as one of four directors of DAGs board of directors. Complaint at 13. The other three directors, as reflected in Exhibit 5 of the complaint, are identified as Eyob Mamo, Tamrat Mamo, and Jerry Schaeffer. The plaintiff alleges that when the Certificate of Incorporation was filed, he was unaware that he was identified as an initial director of DAG. Complaint at 13. The plaintiff alleges that he first became aware that he was a member of the DAG board of directors on March 28, 2003 when Mr. Mamo asked him to execute an Action by Unanimous Consent of the Directors of DAG SPE Managing Member, Inc. (the Consent). The Consent authorized DAGs sale and acquisition of certain properties in Washington, D.C. Complaint at 26. The plaintiff concedes that he signed the Consent. Complaint at 26 see also, Exhibit F to the Complaint (reflecting the plaintiff's signature). citing to certain facts, DAG neither admits nor denies them. Rather, given the standard of review on a motion to dismiss, DAG merely recites the factual allegations as set out in the complaint by the plaintiff.
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The plaintiff goes on to allege that, after he signed the Consent, Mamo never mentioned anything to do with DAG to King again. Complaint at 27. The plaintiff maintains that the first time he became aware that he had been removed as a member of the DAG board of directors was on or about April 20, 2011. Complaint at 32. The plaintiff alleges that, in response to his demands, DAG produced a document titled Unanimous Written Consent of the Board of Directors executed on December 18, 2003 (the Removal Document). Complaint at 36. Attached to the complaint as Exhibit I is a true and correct copy of the Removal Document. That document reflects that it was filed with the Delaware Secretary of State on December 18, 2003. The Removal Document provides that the plaintiff, Robert King, is removed from his position as Independent Director on the Board of Directors of DAG: WHEREAS, by unanimous written consent of the stockholders of the Corporation [DAG SPE Managing Member, Inc.] dated as of the date hereof, Robert King is removed from his position as Independent Director on the Board of Directors of the Corporation (the Board) NOW THEREFORE, BE IT RESOLVED, that Goysaye Fekade is appointed to the Board as Independent Director effective as of December 18, 2003. Id. The Removal Document is signed by Eyob Mamo, Tamrat Mamo, and Gerald Schaeffer, the remaining directors of DAG. Id. Eyob Mamo, Tamrat Mamo, and Gerald Schaeffer are the sole stockholders of DAG. Complaint at 11 see also Exhibit D of the Complaint at 2.

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IV. A.

ARGUMENT

ONLY A SITTING DIRECTOR IS ENTITLED TO INSPECT CORPORATE BOOKS AND RECORDS UNDER 8 DEL. C. 220 (d) 1. Standard of Review Under COURT OF CHANCERY RULE 12(b)(6), the complaint must be dismissed for

failure to state a claim unless it alleges facts that establish each and every element of a claim upon which relief could be granted. Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d 1163, 1168 (Del. Chan. 2002) (quotation marks omitted, citations omitted). While the Court must accept as true all of the wellpleaded allegations of fact and draw reasonable inferences in the plaintiffs favor, the Court is not . . . required to accept as true conclusory allegations without specific supporting factual allegations. In re General Motors (Hughes) Shareholder Litigation, 897 A.2d 162, 168 (Del. 2006) (quotation marks omitted, citation omitted) (emphasis added). Moreover, the claim may be dismissed if allegations in the complaint or in exhibits incorporated in the complaint effectively negate the claim as a matter of law. Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001) (citations omitted). For the reasons set forth more fully below, pursuant to R ULE 12(b)(6), the plaintiff fails to state a claim under 8 D EL. C. 220(d) for the inspection of DAGs corporate documents and the complaint should be dismissed. 2. The Plaintiff is Not A Sitting Director Under Delaware law, a director of a Delaware corporation is entitled to inspect the corporate books and records for a purpose reasonably related to his position as a

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director. The Delaware Code states in relevant part: Any director shall have the right to examine the corporations stock ledger, list of its stockholders and its other books and records for a purpose reasonably related to the directors position as a director. 8 DEL. C. 220 (d). The directors right to inspect corporate books is correlative with his duty to protect and preserve the corporation. Henshaw v. American Cement Corp., 252 A.2d 125, 128 (Del. Ch. 1969). Where the director no longer has a duty to protect and preserve the corporation, he is no longer entitled to inspect the corporations books. Farber v. Seiberling Rubber Co., 168 A.2d 310, 312 (Del. Super. 1961). To make out a prima facie case under the statute, the plaintiff must show, among other things, that he is a director of the corporation. Henshaw supra, at 129 Holdgreiwe v. Nostalgia Network, Inc., 1993 WL 144604 at *3 (Del. Ch. 1993) (plaintiff makes out a prima facie case that he is entitled to inspect corporate documents when, among other things he shows that he is a director . . . ). The plaintiff shows that he is entitled to inspect corporate documents when he shows that he is a sitting director of the corporation. Kortum v. Webasto Sunroofs, Inc., 769 A.2d 113, 118 (Del. Ch. 2000) (a sitting director is entitled to unfettered access to the books and records of the corporation for which he sits . . . ) (emphasis added) Intieri v. Avatex, 1998 WL 326608 at *1 (Del. Ch. 1998) (a sitting director is entitled to unfettered access to the books and records of the corporation for which he sits . . . ). Once the director makes a 220 (d) demand that is refused, the director has made out a prima facie case that he is entitled to inspect the corporate books and records, and the burden shifts to the corporation to show why the director should not be permitted

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to exercise his rights under the statute. Kortum, supra, at 118 (citations omitted). The plain language of 220 (d) entitles only a current director to inspect corporate books. Delaware case law is clear: a plaintiff who is no longer a director or performing the duties of a director has no standing under 8 D EL. C. 220 (d) to demand the inspection of the corporate books and records. Jacobson v. Dryson Acceptance Corp., 2002 WL 75473 at *4 (Del. Ch. 2002). 2 The courts ruling in Jacobson is instructive. In Jacobson, the plaintiff, Greg Jacobson, was a director and shareholder of Dryson Acceptance Corp. (Dryson), a special purpose corporation that originated and held mortgage loans in order to sell them later at a discount. In April 1999, Jacobson left the corporation. On May 21, 1999, he was removed as a director of the corporation. A dispute subsequently arose as to certain sums that Jacobson claimed Dryson owed him. In December 1999, Jacobson filed suit asserting, among other things, a count demanding to inspect Drysons books and records under 8 DEL. C. 220 (d), premised on his status as a director of the corporation. Dryson, for its part, filed a motion for summary judgment seeking dismissal of all Jacobsons claims, including his claim under 220 (d). In ruling on Drysons motion for summary judgment, the court, found that Jacobson was removed as a director prior to commencing the lawsuit demanding to inspect the corporate documents. The court went on to find that, on the basis of his

Delaware courts have held that questions of standing can be properly considered on a motion to dismiss. Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d 1163, 1168 (Del. Ch. 2002), citing Grobow v. Perot, 539 A.2d 180, 187 & n. 6 (Del. 1988).
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removal prior to the commencement of the lawsuit, Jacobson lost his standing to pursue his claim under Section 220 (d). Id. at *4 (citing Everett v. Transnation Development Corp., 267 A.2d 627, 630 (Del. Ch. 1970)). For the same reasons that Jacobson's former director had no standing under 8 DEL. C. 220 (d) to demand an inspection of Drysons corporate books, the plaintiff in this action also has no standing under the statute to demand inspection of DAGs corporate books. B. THE PLAINTIFF IS NOT A DIRECTOR OF DAG AND IS NOT ENTITLED TO EXAMINE DAGS CORPORATE DOCUMENTS UNDER 8 DEL. C. 220 (d). In the instant action, the plaintiff fails to make out a prima facie case under 8 Del. C. 220 (d) that he is a DAG director entitled to inspect DAGs corporate records. On December 18, 2003, the plaintiff was removed as a member of the DAG board of directors. Complaint at Exhibit I (the Removal Document). At the same time, the remaining DAG directors replaced the plaintiff with another director, Mr. Feka. See, Complaint. at Exhibit I. As noted earlier, in Delaware a claim may be dismissed if allegations in the complaint or in exhibits incorporated in the complaint effectively negate the claim as a matter of law. Malpiede, supra, at 1083 (citations omitted). There can be no doubt that the Removal Document is an exhibit made part of the complaint. Nor can there be any doubt that the Removal Document effectively negate[s] the plaintiffs claim under the statute, as a matter of law. The plaintiff is not now a director of DAG, has not been a

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director of DAG since December 18, 2003, and is not entitled to inspect DAGs books and records under 8 Del. C. 220 (d). Moreover, the plaintiff does not challenge his removal as a DAG director or the validity of the Removal Document. 3 The plaintiff does not allege that he was improperly removed as a director, or that his removal did not comply with Delaware law. He does not allege that the directors/shareholders who signed the Removal Document were not authorized to remove him as a director or to appoint the new director. Nor does the plaintiff allege that any of the signatures on the Removal Document are not true signatures. He does not allege that the Removal Document fails to comply with Delaware law. The plaintiff does not allege that Mr. Feka was not appointed as the new, successor, replacement director. Most importantly, the plaintiff does not allege he is a current director of the corporation. Just as importantly, the Plaintiff concedes that he holds no stock in DAG. That is, he concedes that he is not a DAG stockholder. This admission in the complaint compels the conclusion that the plaintiff cannot, under any reading of the allegations, prevail. In other words, the plaintiff does not allege any supporting factual basis for any such allegations. In short, for the foregoing reasons, the plaintiff has failed, as a matter of law, to establish a prima facie claim that he is a DAG director with standing to inspect the DAG

Plaintiff only purports to reserve all rights with respect to the efficacy of the Removal Document and whether or not it complies with the Delaware General Corporate Law, Complaint. at 36.
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corporate books and records under 8 DEL. C 220 (d), and the complaint should be dismissed with prejudice.4 C. AS A MATTER OF LAW THE COMPLAINT SHOULD BE DISMISSED AS IT FAILS TO STATE A PROPER PURPOSE AS REQUIRED UNDER 8 DEL. C 220 Section 220 imposes few substantive burdens. Stating a "proper purpose" to support a books and records request is, however, a core burden of 220. Here the plaintiff describes his purpose as follows: (a) (b) (c) (d) to determine with certainty the period of time in which he served as a director of the Company to determine what corporate actions were taken during the period of time in which Mr. King served as a director of the Company to evaluate whether Mr. Kings signature was forged on any documents and to determine whether any personal or corporate liability may exist for any actions taken during the period of time in which Mr. King served as a director.

Complaint. at 34. To that end the plaintiff requested the following documents: 1. Copies of all documents evidencing corporate action by DAG SPE's directors, officers and/or shareholders, including but not limited to all unanimous written consents, for the period between its incorporation and December 2003 or the date on which Mr. King ceased serving as director, whichever is later.

The complaint contains no counts sounding tort or contract law nor does it contain any counts alleging statutory violations. The complaint contains no allegations of damages. Whatever other claims the plaintiff might have against DAG, if any, he does not assert them in this complaint. If plaintiff has other viable claims, he may well have a right to the discovery of some or all of the documents he seeks in connection with a lawsuit that pleads such claims. He does not, however, have a right to such documents as a former director of DAG under 8 D EL. C. 220 (d).
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2. Copies of all documents purportedly executed by Mr. King as DAG SPE's independent director and all records, including all correspondence, related thereto. 3. Copies of all minutes of any meetings of the Board of Directors for the period from the date of DAG SPE's incorporation and December 2003 or the date on which Mr. King ceased serving as director, whichever is later. 4. Copies of all correspondence, including, but not limited to notices of any meetings of the Board of Directors, sent to or received from Mr. King for the period from the date of DAG SPE's incorporation and December 2003 or the date on which he ceased serving as director, whichever is later. 5. Copies of DAG SPE's financial statements for the period between its incorporation and December 2003 or the date on which Mr. King ceased serving as director, whichever is later. 6. Copies of all agreements entered into by DAG SPE for the period between its incorporation and December 2003 or the date on which Mr. King ceased serving as director, whichever is later. 7. A list of all DAG SPE officers, directors and shareholders for the period between its incorporation and December 2003 or the date on which Mr. King ceased serving as director, whichever is later. 8. All documents, including correspondence, analysis and reports by any experts retained to conduct any analysis of any records executed by DAG SPE's directors, including, but not limited to analysis of any documents purportedly executed by Mr. King during his service as DAG SPE Independent Director. See Complaint at Exhibit H. The corresponding document request is breathtaking in its scope. It is all the more breathtaking considering the plaintiffs stated purpose, and his lack of stock ownership or status as a current member of the DAG board of directors. Section 220 requires more than a conclusory driven purpose to rummage

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through the corporation's drawers. Security First Corp. v. United States Die Casting & Develop. Co., 687 A.2d 563, 570 (Del. 1997) Helmsman Mgmt. Services, Inc. v. A & S Consultants, Inc., 525 A.2d 160, 16667 (Del. Ch. 1987). The Supreme Court of Delaware has held that a 220 demand must be targeted and circumscribed with rifled precision and must only seek books and records necessary and essential to the shareholders proper purpose. Court of Chancery decisions echo these requirements and hold that the shareholder making a Section 220 demand bears the burden of proving that the request is limited to books and records necessary and essential to the shareholders stated purpose. Stephen A. Radin, The New Stage of Corporate Governance Litigation: Section 220 DemandsReprise, 28 CARDOZO L. REV. 1287, 133637 (2006) (internal citations omitted). As the court stated in Beiser v. PMCSierra, Inc., At the pleading stage, however, a plaintiff must do more than merely state, in a conclusory manner, a generally accepted proper purpose. [A plaintiff] must state a reason for the purpose, i.e., what it will do with the information, or an end to which investigation may lead . . . Generally the end, in cases such as this, is to determine whether sufficient evidence exists to support a filing of a derivative lawsuit. Beiser v. PMCSierra, Inc., 2009 WL 483321 at *3 (Del. Ch. 2009). This burden may be satisfied by a credible showing, through documents, logic testimony or otherwise, that there are legitimate issues worthy of further inquiry. See Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1031 (Del. 1996). The plaintiffs articulated purpose, however, is nothing more than a hunt for information to determine whether any purported, unspecified improprieties have occurred. The complaint lacks any allegation, or even any insinuation, that more than nine years ago

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 the DAG engaged in conduct that implicated the plaintiff's fiduciary obligations, if any,5 as an independent director. That, however, is the plaintiffs predicate for this request. He makes no more than [a] mere statement of a purpose [without insinuating any] possible general mismanagement that would now entitle him to inspect DAGs corporate books and records under 220(d). Security First, supra at 579. What is also important here is what the plaintiff fails to allege. Specifically, he does not allege a breach fiduciary duties by anyone he does not allege corporate or director malfeasance he does not refer to thirdparty claims he does not reference stockholder claims or other litigation he does not allege, let alone intimate, anything that might be amiss. Without any credible evidence of possible mismanagement that would warrant further investigation of the matter the Plaintiff is not entitled to books and records under 220. Thomas & Betts supra, at 1031. Finally, and more troubling, however, is that plaintiff is neither a stockholder nor director. He is no different than any random person off the street. He has no current relationship, and he alleges no current relationship, with DAG. His former status as an independent director ended almost nine years ago. Hence, the traditional intellectual pillars (that is, his status as a shareholder or director, and a proper purpose) that support the right to review books and records are both missing. So too is the plaintiff's

It is worth noting here that, under the original Certificate of Incorporation that is attached as Exhibit A to the Complaint, an Independent Director "shall owe [no] fiduciary duty or other obligation to the initial stockholder(s) nor to any successive stockholder, and every stockholder, including initial stockholder(s) and each successive stockholder, shall be deemed to have consented to the foregoing by virtue of the stockholder's purchase of shares of capital stock of the Corporation . . ."
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need for those records. It follows then that absent either an investment interest or fiduciary responsibility, the plaintiff has no need, nor any right, to DAGs corporate books and records. As such there can be no "proper purpose" cognizable under either 220 or the common law. In sum, not only does the Plaintiff fail to state a proper purpose, because he is neither a shareholder nor a director of DAG, he cannot state any such proper purpose.

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III.

CONCLUSION

Based on the foregoing, the defendant, DAG SPE Managing Member, Inc., respectfully requests that the Court enter an order in a form substantially similar to the one proposed here and thereby dismiss the complaint and granting to the defendant such other relief as might be supported in equity, under the law, and by and the facts. Respectfully Submitted, /S/ Bernard G. Conaway Bernard G. Conaway, Esquire (DE No: 2856) CAMPBELL & LEVINE, LLC 800 North King Street, Ste 300 Wilmington, DE 19801 Tel: (302) 4261900 Fax: (302) 4269947 Attorneys for the Defendant DAG SPE Managing Member, Inc.

DATE: September 4, 2012

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