Document: Levinhar, et al. v. MDG Medical, Inc. et al., C.A. No. 4301-VCS, Strine, V.C. (Del. Ch. Nov. 24, 2009)

Plaintiffs, the founders and former directors of MDG Medical, brought an action under Section 225 of the DGCL asserting that their ouster from the MDG board was wrongful.  As a result of various capital infusions, the Plaintiff founders had sold shares sufficient to shift majority control to the new investors, but were entitled under a stockholders agreement to appoint two board members.  The new investors, in connection with a new round of funding, used their voting control to amend the MDG certificate of incorporation to eliminate the right of the founders to appoint the two board members.  The new investors then, however, rescinded the challenged certificate amendment and instead approved a merger of MDG into a successor corporation which did not provide the founders with the right to appoint two board members.  The founders settled their Section 225 action for attorneys’ fees and then brought this action for breach of the stockholders agreement and breach of fiduciary duty based on a claim that the merger wrongfully deprived them of their rights under the stockholders agreement.  The Court granted defendants motion for judgment on the pleadings on the grounds of res judicata in that the claims could and should have been pursued in the settled Section 225 suit.