On January 1, 2024, Justice Masley of the New York County Commercial Division issued a decision in Mule v. Sillerman, 2024 NY Slip Op. 30002(U), analyzing an entrenchment claim under Delaware law, explaining:
While the court is procedurally precluded from assessing the viability of plaintiff’s purported entrenchment claim, it should be clear to the parties by now that the court would be unlikely to sustain such a claim as currently pied. A plaintiff bears a heavy
burden to successfully assert entrenchment, but plaintiff has not satisfied that burden. Corporate fiduciaries may not utilize corporate machinery for the purpose of perpetuating themselves in office. A successful claim of entrenchment requires plaintiffs to prove that the defendant directors engaged in action which had the effect of protecting their tenure and that the action was motivated primarily or solely for the purpose of achieving that effect. Where a board’s actions are shown to have been taken for the purpose of entrenchment, they may not be permitted to stand. The fact that a plan has an entrenchment effect, however, does not mean that the board’s primary or sole purpose was entrenchment..In the ASC, plaintiff alleges that the purpose of the Exchange Agreement was to mitigate the potentially negative impact on Sillerman’s controlling equity stake, from the Company’s acquisition of Rant, Inc., private placement of debentures, and the issuance of shares to retire debt owed by the Company to MGT Sports, Inc. in connection with the purchase of MGT Sports. However, the Exchange Agreement’s stated purpose was in furtherance of the Company’s plan to (i) remain listed on the NASDAQ Global Market, and (ii) upon consummation, improve its balance sheet and capital structure. In the ASC, plaintiff rejects the Exchange Agreement’s stated purpose in favor of an entrenchment theory that requires an inference that the primary or sole purpose of the Exchange Agreement instead was to maintain Sillerman’s controlling interest. In support, plaintiff alleges that such a result would have meant that Sillerman would no longer control the Company. Since this inference is not supported by allegations of fact in the ASC, and it is inconsistent with the events that followed-maintaining the Company’s NASDAQ listing and public offering on March 1, 2017 — the court would dismiss the complaint without prejudice.
(Internal quotations and citations omitted).