Well Thrive Ltd. v. Semileds Corp.
| Decision Date | 30 November 2020 |
| Docket Number | C.A. No. 17-794 (MN) |
| Parties | WELL THRIVE LTD., Plaintiff, v. SEMILEDS CORPORATION, Defendant. |
| Court | U.S. District Court — District of Delaware |
David S. Eagle, Sean M. Brennecke, KLEHR HARRISON HARVEY BRANZBURG LLP, Wilmington, DE; Robert D. Weber, SHEPPARD, MULLIN, RICHTER & HAMPTON LLP, Los Angeles, CA - Attorneys for Plaintiff
Henry E. Gallagher, Jr., Lauren P. DeLuca, CONNOLLY GALLAGHER LLP, Wilmington, DE; Dan Woods, MUSICK, PEELER & GARRETT LLP, Los Angeles, CA - Attorneys for Defendant
November 30, 2020
Wilmington, Delaware
This case arises from a dispute between Plaintiff Well Thrive Ltd ("Well Thrive") and Defendant SemiLEDs Corporation ("SemiLEDs") over a $500,000 deposit paid in connection with a securities purchase agreement ("the Purchase Agreement"). The Court presided over a two-day bench trial on March 2 and 3, 2020. (D.I. 71 (3/2 Tr.); D.I. 72 (3/3 Tr.)). After trial, the parties submitted proposed findings of fact and post-trial briefs. (See D.I. 75, 76, 77, 78, 79 & 80). This opinion constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.
Well Thrive is the assignee of the Purchase Agreement to buy securities from SemiLEDs. Well Thrive paid SemiLEDs a $500,000 deposit toward the purchase of a $1,615,000 convertible promissory note ("the Note"). Ultimately, Well Thrive did not pay the remaining $1,115,000 due on the Note and demanded a return of its $500,000 deposit. SemiLEDs refused to return the $500,000 deposit, asserting that it could be retained as liquidated damages.
Well Thrive filed its Complaint on June 21, 2017, asserting claims for declaratory judgment and unjust enrichment in connection with SemiLEDs retention of the $500,000 deposit. SemiLEDs filed its Answer on August 11, 2017. (D.I. 9). SemiLEDs filed its Amended Answer on December 10, 2019. (D.I. 60).
This section contains the Court's findings of fact on disputes raised by the parties during trial, as well as uncontested facts to which the parties have stipulated. Certain findings of fact are also provided in connection with the Court's discussion of its conclusions of law. (See infra § IV).
1. Well Thrive is a Samoa corporation that is used as an investment vehicle by Chang Sheng-Chun ("Mr. Chang").1 (D.I. 62, Stipulated Fact No. 1). Well Thrive has no employees and its only director throughout its existence has been Mr. Chang. (D.I. 71 (3/2 Tr.) at 30).
2. SemiLEDs is a Delaware corporation with its principal place of business in Taiwan. (D.I. 62, Stipulated Fact No. 3). SemiLEDs manufactures LED lighting products, which it sells throughout the world. (D.I. 71 (3/2 Tr.) at 192-194).
3. Mr. Chang testified at trial. Mr. Chang is a citizen and resident of Taiwan. (D.I. 62, Stipulated Fact No. 2). Mr. Chang speaks "a little" English, but cannot fully read English. (D.I. 71 (3/2 Tr.) at 29). Mr. Chang has operated Well Thrive as an investment vehicle for approximately ten years. (Id. at 30).
4. Daniel Shih testified by deposition. Mr. Shih is the son of Mr. Chang's longtime friend. On occasion, Mr. Shih advises Mr. Chang about investments. (D.I. 71 (3/2 Tr.) at 31).
5. Christopher Lee testified at trial. Mr. Lee is the Chief Financial Officer of SemiLEDs, and has served in that position since 2014. (D.I. 62, Stipulated Fact No. 6).
6. Trung Doan testified at trial. Mr. Doan is the Chairman and Chief Executive Officer of SemiLEDs, and has served in those positions since 2005. (D.I. 62, Stipulated Fact No. 5; D.I. 71 (3/2 Tr.) at 160-161).
7. Peter Chiou testified by deposition. In 2014, Mr. Chiou co-founded a company called Aircom Pacific with Jan Lin and Mr. Shih. (D.I. 72 (3/3 Tr.) at 58).
8. Christopher Prince testified by deposition. Mr. Prince is a partner at Lesnick Prince & Pappas. Mr. Prince filed this case on behalf of Well Thrive. (D.I. 1; D.I. 72 (3/3 Tr.) at 116-118). He represented Well Thrive in this matter until he withdrew as counsel in March of 2018. (See D.I. 26).
9. Mr. Chang, through Well Thrive, invested in Aircom Pacific when it was founded in 2014, and he remains an investor today. (D.I. 71 (3/2/ Tr.) at 33-34; D.I. 62, Stipulated Fact No. 7).
10. In 2016, Aircom Pacific desired to become a public company in the United States by acquiring and merging into a publicly-listed company. (D.I. 62, p. 4, Stipulated Fact No. 8).
11. SemiLEDs was identified as a potential target for a merger with Aircom Pacific. (D.I. 62, Stipulated Fact No. 9).
12. Mr. Chiou and Mr. Shih spoke with SemiLEDs' CFO, Mr. Lee, about a merger between Aircom Pacific and SemiLEDs. (D.I. 71 (3/2 Tr.) at 115-117, 121).
13. In May of 2016, Mr. Lee sent an offer letter to Mr. Chiou and Mr. Shih. (JTX 8). The letter set forth terms for a proposed merger of SemiLEDs into Aircom Pacific, including the following: (a) SemiLEDs would sell 577,000 shares of its stock at $5.00 per share, totaling $2,885,000, to be paid in two installments; and (b) SemiLEDs would subsequently borrow $1,615,000, evidenced by a 0% convertible promissory note. (Id.). That letter was not signed.
14. Thereafter, in July of 2016, Mr. Doan sent Mr. Lin (of Aircom Pacific) a letter of intent for the merger, which Mr. Lin signed. (JTX 9; D.I. 62, Stipulated Fact No. 10). The letter of intent was nonbinding. (JTX 9 at 3).
15. During discussions about the merger, in June of 2016, SemiLEDs and Aircom Pacific signed a separate document - the Purchase Agreement. (JTX 1). Mr. Chiou signed the Purchase Agreement on behalf of Aircom Pacific. (Id.).
16. On August 4, 2016, Mr. Chiou assigned all of his rights, title and interest in the Purchase Agreement to Well Thrive, pursuant to an Assignment and Assumption of Purchase Agreement that was executed by Mr. Chiou, Mr. Chang and SemiLEDs' Chairman, Mr. Doan. (JTX 2; D.I. 62, Stipulated Fact No. 13).2 SemiLEDs consented to the assignment of the Purchase Agreement from Mr. Chiou to Well Thrive. (D.I. 62, Stipulated Fact No. 14).
17. The Purchase Agreement contemplated the purchase of 577,000 shares of SemiLEDs common stock, in two installments, at a total price of $2,885,000. (JTX 1; D.I. 62, Stipulated Fact No. 16). These terms were the same as those in the May 2016 offer letter from SemiLEDs about the proposed merger. (See JTX 8; D.I. 71 (3/2 Tr.) at 128-130).
18. Well Thrive paid $2,885,000 to purchase the 577,000 of SemiLEDs common stock by August 15, 2016 and the stock was delivered by SemiLEDs to Well Thrive. Payment for and delivery of the common stock is not in dispute in this case. (D.I. 62, Stipulated Fact No. 17; D.I. 71 (3/2 Tr.) at 139, 181).
19. Additionally, under the terms of the Purchase Agreement, Well Thrive agreed to loan SemiLEDs $1,615,000, interest free. Specifically, Well Thrive agreed to purchase at the Note Closing (defined below) and SemiLEDs agreed to sell and issue to Well Thrive the Note in theamount of $1,615,000. . These terms were also the same as those in the May 2016 offer letter from SemiLEDs. (See JTX 8; D.I. 71 (3/2 Tr.) at 128-129).
20. The amount payable on the Note would be due "on the earlier of (i) September 29, 2017 and (ii) the occurrence of an Event of Default." .
21. Pursuant to the terms of the Purchase Agreement, SemiLEDs could repay the loan either in cash or an equivalent amount of the company's stock. (D.I. 71 (3/2 Tr.) at 135).
22. In August 2016, Well Thrive, and several persons related to Well Thrive, sent payments to SemiLEDs towards the Promissory Note. Mr. Chang, on behalf of Well Thrive, wired $500,000 on August 16, 2016. (D.I. 71 (3/2 Tr.) at 40-41; JTX 5). The others submitted $600,000. (D.I. 71 (3/2 Tr.) at 42).
23. On August 30, 2016, SemiLEDs returned the $600,000 sent by those other than Well Thrive. (D.I. 71 (3/2 Tr.) at 42; D.I. 72 (3/3 Tr.) at 7-8). SemiLEDs did not return the $500,000 that Well Thrive had wired. (D.I. 71 (3/2 Tr.) at 42, 182-184; D.I. 72 (3/3 Tr.) at 7-8).3
24. The Purchase Agreement has a number of provisions relevant to this matter:
Section 1.3 defines the "Note Closing Date" as September 29, 2016. That section in full states:
1.3 Note Closing; Delivery. The date on which the closing of such purchase and sale of the Note occurs (the "Note Closing") is hereinafter referred to as the "Note Closing Date" and will be on or before September 29, 2016, the date that is ninety (90) days after the date of this Agreement. The Note Closing will be deemed to occur at the offices of Orrick, Herrington & Sutcliffe, LLP, 405 Howard Street, San Francisco, California 94105, when (A) this Agreement and the Note have been executed and delivered by the Company and the Investor, (B) each of the conditions to the Note Closing described in Section 5 of this Agreement has been satisfied or waived as specified therein and (C) full payment of the purchase price for the Note(the "Note Purchase Price") has been made by the Investor to the Company by wire transfer of immediately available funds against physical delivery by the Company of a duly executed Note in the name of the Investor as is set forth on the signature page hereto.
Section 5 provides the "Conditions to Closing." (JTX 1). Section 5.1 contains the "Conditions to Investor's Obligations at the Closings" and states:
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