Rich v. Fuqi International Inc.
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SAM GLASSCOCK III
VICE CHANCELLOR
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
COURT OF CHANCERY COURTHOUSE
34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: June 10, 2013
Date Decided: June 12, 2013
John L. Reed
Scott Czerwonka
DLA Piper LLP (US)
919 N. Market Street, Suite 1500
Wilmington, DE 19801
Re:
Paul A. Fiorvanti, Jr.
Tanya E. Pino
Prickett, Jones & Elliott, P.A.
1310 N. King Street
Wilmington, DE 19801
Rich v. Fuqi International Inc.
Civil Action No. 5653-VCG
Dear Counsel:
This matter is a summary action by the Plaintiff seeking a longoverdue stockholders’ meeting of Fuqi International, Inc. (“Fuqi”). By Order of
June 1, 2012, I directed Fuqi to hold a stockholders’ meeting no later than
September 19, 2012. Fuqi failed to hold an annual meeting by that date. By Order
of October 10, 2012, I once again directed Fuqi to hold an annual meeting no later
than December 17, 2012. On October 22, 2012, Fuqi moved for entry of a partial
final judgment under Rule 54(b) or alternatively for certification for interlocutory
appeal. I denied that motion on November 5, 2012. On November 6, 2012, Fuqi
sought interlocutory appeal from the Supreme Court. The Supreme Court denied
that petition on November 9, 2012.
Fuqi then sought relief from my Orders from the United States District Court
for the District of Delaware, seeking “a declaration that Regulations 14A and 14C
promulgated by the Securities and Exchange Commission under Section 14 of the
Exchange Act preempt Section 211 of the Delaware General Corporation Law.”1
Fuqi sought injunctive relief, as well as a temporary restraining order, against my
Orders compelling Fuqi to hold its annual stockholder meeting.2 The District of
Delaware heard Fuqi’s motion for a temporary restraining order on an expedited
basis, and, in a ruling from the bench on November 16, 2012, denied Fuqi’s
motion.3 Fuqi then moved for a preliminary injunction, which was likewise denied
on December 17, 2012.4 Since that time, Plaintiff Rich has moved to hold Fuqi in
contempt of my Orders. On June 10, 2013, I held a hearing on a Rule to Show
Cause why Fuqi should not be held in contempt for breach of my order.
The Plaintiff points out that Fuqi has violated my order to hold a
stockholders’ meeting and has not suggested that it will ever comply. The Plaintiff
seeks recourse of monetary sanctions or appointment of a receiver to liquidate the
corporation.
Fuqi concedes that it has not complied with my order. It suggests that the
Board cannot do so without putting the corporation and its directors in legal
1
See Letter to Court from Fuqi Int’l, Inc. 1, Nov. 14, 2012.
Id.
3
In re Fuqi Int’l, Inc., Civil Action No. 12-1457-UNA, at 37:3-6 (D. Del. Nov. 16, 2012)
(TRANSCRIPT).
4
In re Fuqi Int’l Inc., 2012 WL 6589152, at * 3 (D. Del. Dec. 17, 2012).
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jeopardy, since it has not filed audited financial statements and therefore is
prohibited by federal law from going forward with a stockholders’ meeting. The
flaw in that syllogism is that Fuqi has failed to explain why it has not produced
audited financial statements for several years, nor has it suggested when, if ever, it
might do so.
It is clear that Fuqi is in contempt of my Orders and that a remedy is needed.
I am concerned that the coercive remedy suggested by the Plaintiffs, payment of a
significant daily fine, will only further damage the stockholders.
Likewise,
appointing a receiver to liquidate the corporation strikes me as draconian in light of
the serious but remediable violation of a Court Order here.
I find that the appropriate remedy here is appointment of a receiver, for a
limited basis. This is consistent with this Court’s opinion in Judy v. Preferred
Commication Systems, Inc.5 A receiver should be appointed with plenary authority
to ensure that the corporation holds a stockholders’ meeting within 90 days of this
Letter Opinion.
The receiver should (1) evaluate whether audited financials
sufficient to comply with SEC regulations can be filed; (2) if not, evaluate whether
an exemption should be sought from the SEC; and (3) explore any other
considerations pertinent to a holding of the stockholders’ meeting. The receiver
5
See Judy v. Preferred Commc’n Sys., Inc., C.A. No. 4662-CC, at 50-54 (Del. Ch. Dec. 4, 2009)
(TRANSCRIPT)(appointing a receiver to determine which stockholders were entitled to vote at
an annual meeting). See also Williams v. Calypso Wireless, Inc., 2012 WL 424880, at *6 (Del.
Ch. Feb. 8, 2012) (“The natural assignment for such a receiver would be to conduct the meeting
of stockholders and seat the newly elected board.”).
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shall be vested with authority sufficient to conduct this investigation.
The
stockholders’ meeting shall be held within 90 days of the date of this Opinion;
however, the receiver may seek modification of this timetable if doing so is in the
best interests of the corporation and its stockholders. The parties should confer
and provide a form of order consistent with this Letter Opinion. The parties should
agree on the identity of the receiver or inform me if they are unable to so agree. To
the extent that the foregoing requires an order to take effect, IT IS SO ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
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