Stream TV Networks, Inc. (Stream), a company developing and commercializing technology allowing viewers to watch 3D content without 3D glasses, had been suffering financial difficulties. To extinguish its secured debt, Stream entered into an Omnibus Agreement with its shareholders and two of its secured creditors, Hawk and SLS Holdings VI (SLS). Per the Omnibus Agreement, Stream would transfer its assets to a new entity formed by SLS and Hawk, SeeCubic. SLS and Hawk would then cancel Stream’s debt. The Stream assets included common stock from Technovative, a separate company. SeeCubic served as SLS and Hawk’s designee.
Litigation over the validity of the Omnibus Agreement ensued, with the Delaware Supreme Court ultimately declaring that the Omnibus Agreement invalid because a majority of Class B common stock holders did not approve it. By the time of that opinion, Stream’s assets had been transferred to SeeCubic, so the Delaware Court of Chancery issued a judgment ordering SeeCubic to transfer legal title of the Stream assets back to Stream and forbidding anyone from interfering with those assets until they had been restored to Stream. Hawk intervened, seeking to confirm that secured creditors still had rights to the Stream assets. The court denied Hawk’s motion, stating that the secured creditors had to wait to exercise their rights after SeeCubic returned the Stream Assets to Stream.
Subsequently, in a series of transactions over approximately 90 minutes, SeeCubic, Hawk and a Technoactive director, Shad E. Stastney, worked to ensure Hawk’s control specifically over the Technoactive shares at issue. Stream filed an emergency motion alleging that SeeCubic, Hawk, and Stastney had acted in concert to circumvent the court’s order that Stream gain control over the shares. SeeCubic argued that it had transferred the Technoactive shares to Stream, and therefore had fulfilled the court’s post-remand order.
The court found that even though Stream briefly had possession of the Technoactive shares, SeeCubic, Hawk, and Stastney clearly had worked together to ensure that the Technoactive shares would end up with Hawk. The court pointed to the “choreographed sequence of events” and complex legalese sent between the parties as evidence that Hawk, SeeCubic, and Stastney had planned and coordinated amongst themselves to avoid the court’s post-remand order.
Finding SeeCubic, Hawk, and Stastney in contempt, the court used its discretion under Court of Chancery Rule 70(a) to divest Hawk of its ownership of the Technoactive shares and to vest ownership of said shares with Stream. The court acknowledged that this was an unprecedented remedy, but considered it a fair and equitable result. The court also issued a ten-day injunction against SeeCubic, Hawk, Stastney, and anyone else working with them, barring them taking any action to interfere with Stream’s ownership of the Technoactive shares.
Court of Chancery Rule 70(a) had never been used to address the ownership of shares. Confronted with extraordinary facts, however, the court felt that “extraordinary facts will call for extraordinary remedies,” and that divesting ownership of the shares was necessary to effectuate the court’s original judgment. This case, while extreme, serves as a warning that courts will use their discretion to direct equitable remedies as they deem appropriate.
Authored by Ryan Philp, Allison Wuertz, and Shannon Zhang.
