Walsh v. Buchholz
- David Doty
- 0:19-cv-01856
- U.S. District Court · District of Minnesota
- 14
In Walsh v. Buchholz, Judge Doty denied defendants’ summary-judgment motions, granted plaintiffs’ partial motion in part, and denied expert-exclusion motions.
The certified class of Apollonia common-unit holders, the individual plaintiffs, and the defendants remain affected because the core fiduciary-duty and aiding-and-abetting claims were not resolved and may proceed to trial. SR Merger Sub, LLC, was dismissed by agreement.
What happened
Walsh v. Buchholz is a class action brought by Apollonia unit holders over Apollonia’s merger with St. Renatus. Plaintiffs claimed that Apollonia’s board members breached their duties and that St. Renatus-related defendants helped them do so.
The court found many factual disputes that a trial must resolve. It ruled that plaintiffs could use their damages evidence, that certain plaintiffs had standing, and that the merger would be evaluated under the entire-fairness standard rather than the business-judgment rule. It also rejected the argument that expert testimony was required to prove the alleged breach.
Judge David S. Doty denied both groups of defendants’ summary-judgment motions, granted plaintiffs’ partial summary-judgment motion in part, and denied the motions to exclude plaintiffs’ experts without prejudice to objections at trial. The court also dismissed SR Merger Sub, LLC, by agreement of the parties.
The detailed version
- Walsh v. Buchholz · No. 0:19-cv-01856
- David Doty
- May 11, 2023
Background
This putative class action concerns the merger of Apollonia, LLC, and St. Renatus, LLC. Apollonia held patent rights related to Kovanaze, a nasal-spray dental anesthetic, and had transferred those rights to St. Renatus in exchange for a 10% royalty on qualifying product sales. Apollonia’s remaining asset was its right to receive those royalties.
Plaintiffs held common units in Apollonia. They alleged that St. Renatus sought to acquire Apollonia to eliminate the royalty obligation and that defendants used threats, undisclosed cooperation, false or incomplete information, and self-dealing to obtain approval of the merger. Apollonia unit holders approved the merger in April 2019 in exchange for newly issued St. Renatus units.
The amended complaint alleged that the Apollonia Defendants breached fiduciary duties and that the St. Renatus Defendants aided and abetted that breach. Plaintiffs sought declaratory relief, rescission of the merger agreement, damages, a constructive trust, and attorney’s fees and costs. The court had previously certified a class consisting of all holders of Apollonia common units at the time of the acquisition and appointed Peter Murphy and Frank Baca as class representatives.
Summary-Judgment Rulings
The court held that numerous genuine disputes of material fact prevented summary judgment on the core issues: whether the Apollonia Defendants breached their fiduciary duties and whether the St. Renatus Defendants aided and abetted that alleged breach. Summary judgment is a ruling without a trial that is appropriate only when no material facts are genuinely disputed and the law entitles the moving party to judgment.
On damages, defendants argued that plaintiffs’ expert, Matthew Morris, had not valued the Apollonia units themselves at the time of the merger. The court rejected that argument. Because the Kovanaze product was the single asset underlying the companies, the court found that its value was highly relevant to the value of the Apollonia units. Morris was not required to provide a definitive value for the units, and a jury could determine damages using his evidence and other trial testimony if liability were established.
The St. Renatus Defendants argued that Frank Baca and Gregory and Patricia Ketchum lacked standing because companies they owned, rather than the individuals directly, held the Apollonia units. The court rejected that argument, finding that Baca and the Ketchums were beneficial owners through their ownership interests in the businesses that held the units. The court stated that any financial injury to those businesses also injured their owners under the circumstances presented.
The court also ruled that the business-judgment rule did not apply to these breach-of-fiduciary-duty claims. The business-judgment rule generally protects directors from claims that they made unprofitable business decisions. The court held that the alleged conflicts of interest required defendants to establish the merger’s “entire fairness”—both fair dealing and a fair price. Plaintiffs’ motion for partial summary judgment was granted in part on this issue.
The court did not rule as a matter of law that the Apollonia Defendants could not use a ratification defense. That defense would require them to show, among other things, that plaintiffs had complete knowledge of the material facts and knowingly and voluntarily approved the merger. Because factual disputes remained about whether plaintiffs received all material information, including information about possible conflicts of interest, the court declined to foreclose the defense.
Expert Testimony
The St. Renatus Defendants argued that plaintiffs needed an expert witness to prove the alleged breach of fiduciary duty. The court rejected that argument, explaining that the cited cases did not establish a general expert-testimony requirement. The court concluded that a jury could evaluate whether defendants’ conduct conflicted with their fiduciary obligations based on the evidence presented at trial.
Defendants also sought to exclude plaintiffs’ experts John Herman, Matthew Morris, and Daniel Morrissey under Federal Rule of Evidence 702. The court found that the experts were sufficiently qualified and reliable and that their testimony would help the jury. It denied the exclusion motions, while allowing defendants to challenge the factual basis and scope of the opinions through cross-examination and appropriate objections at trial.
Disposition
Judge David S. Doty ordered that:
- The Apollonia Defendants’ motion for summary judgment was denied.
- Their motions to exclude John Herman’s and Matthew Morris’s testimony were denied without prejudice, subject to appropriate objections at trial.
- Plaintiffs’ motion for partial summary judgment was granted in part as described above.
- The St. Renatus Defendants’ motion to exclude expert testimony was denied without prejudice, subject to appropriate objections at trial.
- The St. Renatus Defendants’ motion for summary judgment was denied.
- SR Merger Sub, LLC, was dismissed from the case by agreement of the parties.
Read the full 14-page opinion on CourtListener, the free public archive maintained by the Free Law Project.