Jorgl v. Aim ImmunoTech Inc.

CourtCourt of Chancery of Delaware
PartiesJONATHAN THOMAS JORGL, Plaintiff, v. AIM IMMUNOTECH INC., THOMAS K. EQUELS, WILLIAM MITCHELL, and STEWART APPELROUTH, Defendants.
Docket NumberC. A. 2022-0669-LWW
Decision Date28 October 2022

Date Submitted: October 6, 2022.

Jeffrey J. Lyons, BAKER &HOSTETLER LLP, Wilmington Delaware; Teresa Goody Guillen, BAKER &HOSTETLER LLP Washington, D.C.; Marco Molina, BAKER &HOSTETLER LLP Costa Mesa, California; Counsel for Plaintiff Jonathan Thomas Jorgl.

Michael A. Pittenger, William R. Denny, Matthew F. Davis, Nicholas D. Mozal, Laura G. Readinger, Carson R. Bartlett, &Shelby M. Thornton, POTTER ANDERSON &CORROON LLP, Wilmington, Delaware; Counsel for Defendants AIM ImmunoTech Inc., Thomas K. Equels, William Mitchell, and Stewart Appelrouth.

MEMORANDUM OPINION

WILL, Vice Chancellor.

The plaintiff in this matter, Jonathan Thomas Jorgl, has been a stockholder of AIM ImmunoTech, Inc. since June 27, 2022. Jorgl first learned of AIM just days before buying stock when his surfing buddy Michael Rice, who desired a seat on AIM's board, asked Jorgl to buy shares for the purpose of nominating him. Jorgl bought about $800 worth of AIM stock and transferred the shares into his name of record with the guidance of Rice, Rice's former colleague Robert Chioini who also wished to be a board candidate, and Chioini's business associate Michael Xirinachs. None of Rice, Chioini, or Xirinachs were AIM stockholders.

On July 8, Jorgl (working with Rice, Chioini, and counsel) submitted a notice to AIM that proposed the nominations of Rice and Chioini to AIM's board of directors. The board suspected that Jorgl's nomination was not submitted out of the blue given that another stockholder, Walter Lautz, had tried to nominate Chioini in April.

The board deduced that Lautz had been working on behalf of stockholder Franz Tudor, who had been vexing AIM since 2020 with threatening emails and interference with AIM's business contacts. Tudor's actions had led AIM to seek injunctive relief against him in Florida and to send cease-and-desist letters requesting that Tudor comply with federal securities laws. The quick succession and commonalities between the failed Lautz nomination and the Jorgl nomination prompted the board to investigate.

After reviewing information showing that Rice and Chioini also had ties to Tudor, the board came to believe that Jorgl's notice omitted to mention arrangements or understandings with an undisclosed group. Such disclosure was required by AIM's advance notice bylaw. The board voted to reject Jorgl's notice and to commence litigation against Jorgl, Chioini, Rice, Tudor, and others for potential violations of federal securities laws.

Jorgl responded by filing litigation in this court, seeking a preliminary mandatory injunction requiring the board to accept his nomination and include his nominees on a universal proxy card. Despite Jorgl's insistence that no discovery was necessary to prove his claim, expedited discovery ensued. That discovery indicated that a web of individuals had worked together to bring Jorgl's nomination forward.

The facts read like a game of telephone. Tudor, desiring to take control of the board, asked Lautz to nominate Chioini (and another individual). When Lautz failed, Tudor, Chioini, and Xirinachs regrouped to find another stockholder to be the public face of their effort. Chioini asked Rice to run alongside him, and Rice asked Jorgl to become a stockholder. Jorgl then bought shares and transferred them into record name with the help of Xirinachs. Rice promised Jorgl he would not be on the hook for any expenses, and Jorgl submitted his nomination notice to AIM. Xirinachs and Chioini then formally engaged counsel and Xirinachs officially agreed to provide funding.

Other than describing a potential agreement for Chioini and Rice to reimburse certain costs, Jorgl did not mention any arrangements or understandings with Tudor or Xirinachs in his nomination notice. Jorgl argues that his notice was compliant because he knew nothing about the involvement of Tudor or Xirinachs at the time he submitted it. Maybe so. But the evidence put forward by the defendants indicates that Jorgl's notice was-at best-misleading.

Jorgl also asserts that the board's rejection of his notice was inequitable, requiring this court to step in. He argues that the board sought to entrench itself at the expense of his rights as a stockholder. The limited record before me, however, suggests that the directors concluded a clandestine plan was afoot. I cannot say that they were wrong or that they acted unreasonably.

At bottom, there are myriad factual disputes that make the imposition of mandatory relief impossible. Without the benefit of a trial, I cannot resolve these questions of fact. And-in light of the evidence presented by the defendants-I certainly cannot find that Jorgl is entitled to a judgment as a matter of law.

Jorgl's motion for a preliminary mandatory injunction is therefore denied.

I. FACTUAL BACKGROUND

This background is drawn from the undisputed facts in the plaintiff's Verified Complaint and the record developed in connection with the plaintiff's motion for a preliminary injunction.[1] The record includes over 100 exhibits and the deposition testimony of 12 witnesses.[2] Based on the current record, the following facts are those that I conclude are likely to be found after trial.[3]

A. AIM and Its Board

AIM ImmunoTech, Inc. ("AIM" or the "Company") is an immuno-pharma company focused on the research and development of therapeutics to treat cancers, immune disorders, and viral diseases.[4] Its common stock is publicly traded on the NYSE American exchange.[5] AIM has three directors: defendants Thomas Equels, Dr. William Mitchell, and Stewart Appelrouth.[6] In 2015, AIM's board of directors (the "Board") was composed of its then-Chief Executive Officer Dr. William Carter, Peter Rodino, Iraj Kiani, Equels, and Mitchell. In February 2016, the Board removed Carter from his position as CEO, and Carter resigned from the Board.[7] The remaining directors resolved to appoint Equels (a lawyer by training) as CEO and Mitchell (an academic with experience overseeing clinical trials) as Chairman.[8]

In June 2016, Kiani resigned from the Board, leaving Equels, Mitchell, and Rodino as its sole members.[9] Rodino then resigned from the Board to become AIM's General Counsel.[10] Appelrouth, who had previously performed accounting and investigatory services for AIM, was nominated and elected as the third Board member at the 2016 annual stockholder meeting.[11]

The Board has been composed of Equels, Mitchell, and Appelrouth ever since. They have been reelected in unopposed elections each year through the present.[12]At AIM's 2021 annual meeting, the incumbent directors received slight majorities "for" their unopposed reelection bids, with each director receiving about 79% support excluding abstains.[13]

B. Tudor's Outreach

Franz Tudor is an AIM stockholder who made himself known to AIM and its directors in 2020. At first, Tudor sought to become AIM's business development consultant.[14] AIM's executives felt it would be problematic for Tudor to serve in that role after learning that Tudor had been "convicted of insider trading."[15] In 2009, Tudor pleaded guilty to securities fraud and conspiracy to commit securities fraud. He was enjoined from, among other things, engaging in certain activities related to "penny stocks."[16]

After AIM declined to offer Tudor a consulting role, a "barrage of activity" followed.[17] For example, Tudor reached out to AIM's business contacts and to a lobbyist who then purportedly contacted the FDA.[18] These interactions prompted AIM to send a cease-and-desist letter to Tudor.[19]

In February 2021, AIM commenced litigation against Tudor in Florida state court, seeking injunctive relief. On August 13, 2021, the Florida court entered a stipulated injunction indefinitely enjoining Tudor from contacting AIM's business relations.[20] Tudor subsequently contacted AIM's financial advisor and its investor relations firm.[21] At times, Tudor has made varying representations about his own stockholder status and claimed that he represents stockholders holding more than one million shares of AIM stock.[22]

AIM stockholder Todd Deutsch-who had worked with Tudor at Galleon Group[23]-also engaged in outreach to AIM and its investor relations consultant to express his concerns with and criticisms of the company. In a May 2022 email, Deutsch represented to AIM that he owned about 2 million shares of AIM stock.[24]In June, he wrote that he owned 4.9% of AIM and "5 plus times the amount of stock" owned by Equels.[25] Deutsch was communicating with Tudor, and Ted Kellner- another AIM stockholder-about AIM during this time.[26]

C. The Lautz Nomination

In late 2021, Walter Lautz, who also claimed to be a "significant shareholder of AIM," emailed Equels and AIM's investor relations firm, critiquing the company's performance and telling Equels to "[s]tep up or get out."[27] Lautz had been introduced to Tudor in late 2020. By December 2021, they were communicating about AIM's performance and the need to have an "activist . . . come in" and to "oust[]" the Board.[28] In April 2022, Lautz and Tudor discussed the possibility of Lautz nominating two candidates for the AIM Board. Tudor set out to find potential nominees.[29]Tudor contacted Robert Chioini, who he had known since 2011 or 2012 when Tudor had worked as "a business development consultant for [Chioini]" with Rockwell Medical Technologies, Inc.[30] Chioini was a founder of Rockwell Medical and served as its CEO until he was terminated in 2018.[31] Tudor also reached out to his friend Daniel Ring about serving as...

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