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Litigation: Delaware Court of Chancery dismisses case because of improper notarizations

The court ruled the plaintiffs’ Delaware counsel was ultimately responsible for the faulty documents

You would think lawyers would know better by now, but on November 16, 2012, in Bessenyei v. Vermillion Inc., the Delaware Court of Chancery (Vice Chancellor John W. Noble) held that improper notarizations justified dismissal of the party whose signature was improperly notarized.

Plaintiffs Gyorgy Bessenyei and Robert S. Goggin, III sued Vermillion Inc. and certain of its current and former directors because Vermillion reduced the number of seats on its board of directors, which plaintiffs alleged breached the directors’ fiduciary duties. Vermillion moved to dismiss the action because the pleadings contained an improperly notarized signature. Vermillion also sought an award of attorneys’ fees. The court granted Vermillion’s motion to dismiss. Because the dismissal fully remedied the wrong, the court denied the motion for attorneys’ fees.

In May 2012, Vermillion’s board had two out of seven seats up for election. Bessenyei, along with other stockholders in Vermillion, nominated candidates to fill the two seats. Prior to voting, Vermillion amended its bylaws to reduce the size of the board from seven to six members, leaving only one seat up for election. Plaintiffs alleged that the elimination of the board seat was a breach of fiduciary duty.

Vermillion moved to dismiss under Chancery Court Rule 41(b) because Bessenyei’s signatures on three pleading verification forms were improperly notarized. Bessenyei was not present in front of the notary, and in fact, was not even in the U.S. when the notarizations were obtained.  Vermillion argued:

  1. That because Bessenyei was not present before the notary when these notarizations took place, the notarizations were invalid
  2.  If these notarizations were invalid, their use as verifications for the purposes of Delaware law and the Court of Chancery Rules was likewise invalid
  3. Plaintiffs’ Delaware counsel had apparent knowledge that the verifications were invalid, yet nonetheless caused them to be filed improperly with the court

Under Rule 41(b), a defendant may move for dismissal of an action or claim for failure of the plaintiff to comply with the court rules or any order of the court. The court held that “the harsh sanction of dismissal” under Rule 41(b) is proper “when a party knowingly misleads a court of equity in order to secure an unfair tactical advantage.” Moreover, Rule 3(aa) states that where a pleading requires verification, the party pleading must obtain verification under oath or affirmation. Here, the court found that plaintiffs’ actions gave them an unfair tactical advantage because improperly notarized pleadings defraud the court.

The court found that plaintiffs’ Delaware counsel is ultimately responsible for the documents filed with court and served on Vermillion. The court reasoned that “Delaware counsel should have paid more attention to the notarizations, given Bessenyei’s frequent travel.” Also, the court determined that plaintiffs’ Delaware counsel should have known of the improper notarizations because Bessenyei mentioned, via email, that he solved the “notary problem.” The court found the mere mention of a notary problem should have sparked plaintiffs’ Delaware counsel’s curiosity and caused him to inquire about the problem. But no inquiry occurred. Furthermore, Delaware counsel spoke with Bessenyei knowing he was in three different countries. The court held that plaintiffs’ Delaware counsel should have known about or inquired into the notarization problem.

In the end, the court did not issue sanctions against Delaware counsel because the court said “the focus should be on the improper notarization of Bessenyei’s signature.” As a consequence, the court dismissed Bessenyei as a plaintiff. The other plaintiff, Goggin, is a Pennsylvania lawyer and is the one who directed the notary to improperly notarize Bessenyei’s signature. Not surprisingly, he too was dismissed.

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John Reed

John Reed is a partner the Delaware office of DLA Piper, where he concentrates his practice on corporate litigation and counseling. He can be contacted...

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