Overwell Harvest, Limited v. Widerhorn et al

Filing 246

OPINION AND ORDER. For the reasons stated in the accompanying Opinion and Order, the Court affirms its summary judgment ruling and denies Trading Technologies' motion for reconsideration 235 . Signed by the Honorable Sara L. Ellis on 3/23/2022. Mailed notice(rj, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
OVERWELL HARVEST LIMITED, a British )
Virgin Islands company, individually and
)
derivatively on behalf of Neurensic, Inc.
)
)
Plaintiff,
)
)
v.
)
)
DAVID WIDERHORN, PAUL GIEDRAITIS, )
and TRADING TECHNOLOGIES
)
INTERNATIONAL, INC.
)
)
Defendants.
)

No. 17 C 6086
Judge Sara L. Ellis

OPINION AND ORDER
Overwell Harvest Limited (“Overwell”) brought this lawsuit, individually and
derivatively in its capacity as a Neurensic, Inc. (“Neurensic”) shareholder, against Neurensic’s
Chief Executive Officer, David Widerhorn, and its Chief Operating Officer, Paul Giedraitis, to
ensure the sale of Neurensic was lawful, and after the sale, to assert various breach of fiduciary
duty claims against Widerhorn and Giedraitis. 1 After the sale of Neurensic to Trading
Technologies International, Inc. (“Trading Technologies”), Overwell added Trading
Technologies to the lawsuit, alleging it aided and abetted certain of Widerhorn and Giedraitis’
breaches. On November 21, 2021, the Court denied Overwell and Trading Technologies’ crossmotions for summary judgment, finding that questions of material fact exist with respect to each
element of Overwell’s aiding and abetting claim against Trading Technologies. Doc. 233.

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Widerhorn filed for bankruptcy on December 15, 2017, automatically staying the proceedings against
him, and on October 25, 2021, the Court approved a settlement agreement between Overwell and
Giedraitis.

Trading Technologies now asks the Court to reconsider its decision. Because Trading
Technologies fails to present newly discovered evidence or point to evidence in the record that
clearly establishes a manifest error of law or fact, the Court denies its motion for reconsideration.
BACKGROUND
Neurensic was a Delaware start-up corporation founded by Widerhorn, Giedraitis, and
two others in 2015. Overwell was one of Neurensic’s shareholders and its largest investor,
investing a total of $3.5 million in the company from December 2015 to August 2016.
Widerhorn was the only shareholder that held more Neurensic stock than Overwell. But
Overwell held a seat on Neurensic’s Board of Directors and certain preferred stock options that
entitled it to the first $8 million owed to Neurensic’s shareholders from any sale of Neurensic or
its assets. By October 2016, Neurensic’s financial status was dire and Widerhorn indicated that
without immediate funding, Neurensic would need to file for bankruptcy. Accordingly,
Widerhorn and Giedraitis began discussions with potential acquirers, including Trading
Technologies.
By August 2017, Neurensic was insolvent and Trading Technologies was the only
remaining potential acquirer. On August 22, 2017, Overwell filed this lawsuit against Widerhorn
and Giedraitis and an application for a temporary restraining order (“TRO”) to stop the sale of
Neurensic to Trading Technologies. On September 7, the Court ordered that Widerhorn and
Giedraitis “take no action with respect to the sale of [Neurensic’s] assets unless and until the
Board satisfies all applicable requirements of Delaware law and the Bylaws of Neurensic.” Doc.
19 at 1. One week later, a majority of Neurensic’s Board (Widerhorn and Giedraitis) voted to
approve the sale of Neurensic to Trading Technologies. The next day, as required by

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Neurensic’s bylaws and the Court’s order, Widerhorn provided notice of the sale to Neurensic’s
shareholders and scheduled a final shareholder meeting to vote on the sale on October 5, 2017.
Ultimately, on October 5, Neurensic’s shareholders voted to approve the sale and on
October 6, Neurensic sold its assets to Trading Technologies for $400,000 in cash with the
possibility for true-up and earn-out payments. However, prior to the final shareholder vote,
Trading Technologies hired Neurensic employees and took possession of certain Neurensic
assets and confidential information. In March 2018, Overwell amended its complaint against
Widerhorn and Giedraitis, alleging they breached their fiduciary duties to Neurensic’s
shareholders in managing the company and in connection with the sale of Neurensic’s assets. In
June 2018, Overwell added Trading Technologies to the lawsuit, alleging it aided and abetted
Widerhorn and Giedraitis in certain breaches by facilitating the transfer of Neurensic confidential
information, assets, and employees to Trading Technologies prior to the sale. After the close of
discovery, Trading Technologies and Overwell filed cross-motions for summary judgment. On
November 21, 2021, the Court denied the parties’ cross-motions. Doc. 233. Subsequently, on
November 24, Trading Technologies filed a motion for reconsideration.
LEGAL STANDARD
Under Federal Rule of Civil Procedure 54(b), the Court has the inherent authority to
reconsider its interlocutory orders because such orders “may be revised at any time before the
entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.” Fed. R.
Civ. P. 54(b); see also Galvan v. Norberg, 678 F.3d 581, 587 (7th Cir. 2012). The standards for
motions for reconsideration under Rule 54(b) are largely the same as those under Rule 59(e).
See Siemens Transformadores S.A. de C.V. v. Soo Line R.R. Co., No. 10 C 3750, 2012 WL
1938848, at *1 (N.D. Ill. May 29, 2012) (collecting cases). Motions for reconsideration serve a
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limited purpose and are only appropriate if “the movant presents newly discovered evidence that
was not available at the time of [summary judgment], points to evidence in the record that clearly
establishes a manifest error of law or fact, or if the Court previously misunderstood a party’s
arguments.” Starr Indem. & Liab. Co. v. YRC, Inc., No. 15-cv-6902, 2018 WL 905523, at *2
(N.D. Ill. Feb. 15, 2018).
ANAYLSIS
Overwell brings one claim against Trading Technologies: aiding and abetting a breach of
a fiduciary duty. To prove the claim, Overwell must show: (1) “the existence of a fiduciary
relationship” between Neurensic’s shareholders and Widerhorn and Giedraitis (2) “a breach of
the fiduciary’s [(Widerhorn and Giedraitis’)] duty,” (3) “knowing participation in that breach” by
Trading Technologies, and (4) “damages proximately caused by the breach.” Malpiede v.
Townson, 780 A.2d 1075, 1096 (Del. 2001). In its motion for summary judgment, Trading
Technologies argued that the business judgment rule protects Widerhorn and Giedraitis’
decisions and thus, no breach occurred, entitling Trading Technologies to summary judgment in
its favor. However, the Court found that a question of fact exists as to whether the business
judgment rule applies in this case and thus, summary judgment is inappropriate. Doc. 233 at 21.
Trading Technologies now argues that the Court should reconsider its application of the business
judgment rule because “the Court misapprehended” the appropriate summary judgment standard.
Doc. 235 at 1.
“The business judgment rule is a presumption that in making a business decision . . . the
directors of a corporation acted on an informed basis, in good faith and in the honest belief that
the action taken was in the best interests of the company.” Lowinger v. Oberhelman, 924 F.3d
360, 366 (7th Cir. 2019) (alteration in original) (citation omitted). The Court found that a juror
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could reasonably infer from the record that “Widerhorn and Giedraitis acted with a purpose other
than advancing the best interests of Neurensic by allowing the pre-sale transfers” and thus,
whether the business judgment rule protects their decisions is a question for the trier of fact.
Doc. 233 at 21. Trading Technologies does not contest that a director fails to act in good faith
when acting with a purpose other than advancing the best interests of the corporation. See In re
Walt Disney Co. Derivative Litig., 906 A.2d 27, 67 (Del. 2006) (“A failure to act in good faith
may be shown, for instance, where the fiduciary intentionally acts with a purpose other than that
of advancing the best interests of the corporation.” (citation omitted)). But Trading
Technologies contends that, at the summary judgment stage, to rebut the business judgment rule
on bad faith grounds, a plaintiff must produce evidence showing that “the director had an
improper motive” and that “the director’s acts were so egregious or irrational that they must have
been taken in bad faith.” Doc. 235 at 2. Trading Technologies argues that the Court failed to
apply this standard and as a result, inappropriately denied Trading Technologies’ motion.
Under Delaware law, the business judgment rule does not “shield a director who did not
act in good faith.” In re Fleming Packaging Corp., 370 B.R. 774, 784 (C.D. Ill. 2007). In other
words, “[a] plaintiff can rebut the rule by showing that the fiduciaries ‘in reaching [their]
challenged decision, violated any one of [the] triad of fiduciary duties: due care, loyalty, or good
faith.’” In re W.J. Bradley Mortg. Cap., LLC, 598 B.R. 150, 164 (D. Del. 2019) (alterations in
original) (citation omitted). Therefore, although the Court must first presume that Widerhorn
and Giedraitis acted in good faith, Lowinger, 924 F.3d at 366, under Rule 56(a), if a juror can
reasonably infer from the record that they failed to act in good faith when facilitating the pre-sale
transfers, then the Court must find that a genuine issue of material fact exists regarding whether
the business judgment rule protects their decisions, Grant v. Trs. of Ind. Univ., 870 F.3d 562, 568

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(7th Cir. 2017); see also Zimmerman v. Crothall, No. 6001, 2012 WL 707238, at *5 (Del. Ch.
Mar. 5, 2012) (“To avoid the application of business judgment deference [on summary
judgment], the burden lies with the plaintiff ‘to establish a genuine issue of material fact as to
whether the directors were independent, disinterested, informed, or acting in good faith.’”
(citation omitted)). “[F]ailure to act in good faith often is not easily categorized” under
Delaware law. In re Novell, Inc. S’holder Litig., No. 6032, 2014 WL 6686785, at *7 (Del. Ch.
Nov. 25, 2014). But it “may be shown . . . where the fiduciary intentionally acts with a purpose
other than that of advancing the best interests of the corporation.” Walt Disney, 906 A.2d at 67
(citation omitted).
As the Court explained, based on the record, a juror could reasonably infer that the
following actions constituted a misuse of confidential information or an otherwise wrongful act:
Jay Biondo’s access to and use of Neurensic’s data, software, and email to work with Neurensic
clients 2 while employed by Trading Technologies; the pre-sale transfer of certain Neurensic
assets and confidential information to Trading Technologies; and the pre-sale hire of Morgan
Trinkaus and Eric Eckstrand. Thus, a question of fact exists as to whether Widerhorn and
Giedraitis intentionally acted with a purpose other than advancing the best interests of Neurensic
when allowing Trading Technologies, a competitor, access to and use of its confidential
information. See Beard Rsch., Inc. v. Kates, 8 A.3d 573, 601–02 (Del. Ch. 2010) (finding that
misusing confidential information is one way a fiduciary can “plac[e] himself in a position
antagonistic to his principal”); Triton Constr. Co. v. E. Shore Elec. Servs., Inc., No. 3290, 2009

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The Court acknowledges that it mistakenly wrote “employees” instead of “clients” in one sentence in its
summary judgment opinion. See Doc. 233 at 17 (“Therefore, a genuine issue of material fact exists as to
whether Biondo’s access to and use of Neurensic data, software, and email to work with Neurensic
employees while employed by Trading Technologies constituted a misuse of Neurensic’s confidential
information of which Widerhorn and Giedraitis approved.”).

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WL 1387115, at *15 (Del. Ch. May 18, 2009) (noting director has “a duty not to use or
communicate confidential information of the [corporation] for the [director’s] own purposes or
those of a third party”). Accordingly, a jury must decide whether Widerhorn and Giedraitis
acted in good faith and whether the business judgment rule protects their decisions.
Trading Technologies argues that there is no evidence that Widerhorn and Giedraitis
“acted out of self-interest or purposefully abandoned Neurensic’s interests in favor of some other
agenda” when facilitating the pre-sale transfers and therefore, Overwell fails to rebut the
presumption of good faith. Doc. 235 at 9. However, as explained above, one could reasonably
infer from the record that Widerhorn and Giedraitis intentionally acted with a purpose other than
advancing the best interests of Neurensic by facilitating the transfers of confidential information,
assets, and employees to a competitor. Trading Technologies relies on Chen v. HowardAnderson in arguing that disclosing confidential information to a competitor is not enough to
create a genuine issue of fact regarding whether directors acted in good faith. 87 A.3d 648, 685
(Del. Ch. 2014) (granting director summary judgment where he favored one bidder throughout
the sales process and shared confidential information with his favored bidder, who was also a
competitor). However, the allegations in Chen differ from those present here and therefore, the
appropriate standard of review and analysis differ as well.
In Chen, the plaintiffs alleged that the directors “acted unreasonably by favoring [one
bidder] and failing to develop or pursue other alternatives that could have generated higher value
for the stockholders” during a merger, id. at 673; in other words, they alleged that the directors
breached their Revlon duties, see In re BioClinica, Inc. S’holder Litig., No. 8272, 2013 WL
5631233, at *6 (Del. Ch. Oct. 16, 2013) (noting Revlon duties arise “[w]hen directors engage in
efforts to sell a company” and require “that their goal must be to maximize the value of the

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company”). Therefore, the Chen court found that the evidence, which indicated that the director
favored one bidder, in part by sharing confidential information about “boardroom dynamics”
with them during the bidding process, “d[id] not support any inference other than an effort to
achieve a transaction that he believed would maximize the value of his funds’ holdings, thereby
maximizing value for all common stockholders.” 87 A.3d at 685. Here, Overwell alleges that
Trading Technologies aided and abetted Widerhorn and Giedraitis in the transfer of certain
Neurensic confidential information, assets, and employees to Trading Technologies prior to the
final shareholder vote, which caused harm to Neurensic’s shareholders by making the sale to
Trading Technologies a fait accompli. Thus, the Court interprets the alleged breaches aided and
abetted by Trading Technologies as misusing confidential information in violation of Widerhorn
and Giedraitis’ duty to act in good faith, not mismanaging the sale process in violation of their
Revlon duties. In this context, one could reasonably infer that Widerhorn and Giedraitis failed to
act in the best interests of Neurensic by transferring confidential information, assets, and
employees to a competitor when the company was on the verge of bankruptcy and in the midst of
negotiating an acquisition. As a result, Chen is not on point. 3

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Trading Technologies also relies on In re Novell, Inc. Shareholder Litigation, which states, “[t]o survive
the motion for summary judgment, given the circumstances of this case, Plaintiffs must support their
claims not only with evidence showing that the Board’s actions were unreasonable but also with evidence
that the board members were motivated by some improper purpose that makes their conduct culpable.”
2014 WL 6686785, at *8. However, again, the allegations in Novell differ from those present here and
thus, the appropriate standard and analysis differ. In Novell, the plaintiffs also “allege[d] that director
Defendants acted in bad faith by treating bidders differently [during a merger and patent sale] for reasons
other than pursuit of the best interests of the corporation and its stockholders” in violation of Revlon, id. at
*1, but the court found that the evidence regarding the directors’ differential treatment of bidders
“stemmed from a decision” that “would maximize value for shareholders” and accordingly granted
summary judgment to the directors, id. at *8. Here, Overwell alleges that Trading Technologies aided
and abetted Widerhorn and Giedraitis’ misuse of confidential information, not their alleged
mismanagement of the bidding process, and a juror could reasonably infer from the record that Widerhorn
and Giedraitis intentionally acted with a purpose other than advancing the best interests of Neurensic
when doing so.

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Further, it is not dispositive that Overwell has failed to specify which improper motive
Widerhorn and Giedraitis acted upon when deciding to facilitate the transfers or to show that
Widerhorn and Giedraitis did not stand to gain a financial benefit from the transfers. See In re
Answers Corp. S’holders Litig., No. 6170, 2014 WL 463163, at *10 (Del. Ch. Feb. 3, 2014)
(“[A] plaintiff’s inability to explain a Board’s motivation to act in bad faith may also be relevant
in analyzing bad faith claims.” (emphasis added)); Chen, 87 A.3d at 684 (“[A] range of human
motivations . . . can inspire fiduciaries and their advisors to be less than faithful to their
contextual duty to pursue the best value for the company’s stockholders. Greed is not the only
human emotion that can pull one from the path of propriety; so might hatred, lust, envy, revenge,
. . . shame or pride. Indeed any human emotion may cause a director to place his own interests,
preferences or appetites before the welfare of the corporation.” (alterations in original) (citations
omitted)). Instead, as Trading Technologies acknowledges, “[t]he dispositive issue raised herein
is whether [Overwell] has presented sufficient evidence to create a genuine issue of fact as to
whether Widerhorn and Giedraitis decided to allow the transfers out of some impure, improper
motive.” Doc. 235 at 9 (emphasis added). As explained, Overwell has done just that.
Trading Technologies further argues that even if Overwell presented evidence that
Widerhorn and Giedraitis acted with an improper motive, “a claim of bad faith fails as a matter
of law if the evidence shows that the challenged decisions can be attributed to any rational
business purpose.” Id. at 12. However, Trading Technologies misapprehends the summary
judgment standard. At this stage, Overwell must only present evidence sufficient to create a
question of fact as to whether Widerhorn and Giedraitis acted in good faith when making the
decisions. See Hay Grp. Mgmt., Inc. v. Schneider, 965 F.3d 244, 251 (3d Cir. 2020) (“A party
moving for summary judgment must demonstrate that there is no genuine dispute of material

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fact. Under the business judgment rule, such a dispute includes whether [the director] ‘breached
[his] fiduciary duty of care or of loyalty or acted in bad faith.’” (citations omitted)); Zimmerman,
2012 WL 707238, at *5 (“To avoid the application of business judgment deference [on summary
judgment], the burden lies with the plaintiff ‘to establish a genuine issue of material fact as to
whether the directors were independent, disinterested, informed, or acting in good faith.’”
(citation omitted)). Showing that their decisions were irrational is merely one way to do so. See
McDowell v. Bracken, 794 F. App’x 910, 915–16 (11th Cir. 2019) (“To overcome [the business
judgment rule] presumption here, [plaintiff] must show that the Board’s actions were not taken in
good faith—such as by showing that a decision was ‘so far beyond the bounds of reasonable
judgment that it seems essentially inexplicable on any ground other than bad faith.’” (emphasis
added) (citation omitted)); Chen, 87 A.3d at 684 (“Yet under the business judgment rule,
Delaware’s most director-friendly test, a plaintiff can plead (and later prove) bad faith by
showing that a decision lacked any rationally conceivable basis, which permits a court to infer an
improper motive and a breach of the duty of loyalty.” (emphasis added)); Zimmerman, 2012 WL
707238, at *5 (“Because this burden requires the plaintiff to show ‘that the directors’ decision
was either wholly-irrational or motivated by self-interest or bad faith on the part of the directors
approving the transaction,’ it is often a difficult hurdle to overcome.” (emphasis added) (citation
omitted)). Regardless, a reasonable juror could conclude that Widerhorn and Giedraitis’ decision
to facilitate the transfer of confidential information, assets, and employees to a competitor when
the company was on the verge of bankruptcy “was ‘so far beyond the bounds of reasonable
judgment that it seems essentially inexplicable on any ground other than bad faith.’” McDowell,
794 F. App’x at 916 (citation omitted). Thus, granting summary judgment in favor of Trading
Technologies is not supported by the record or appropriate legal standard used by this Court.

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CONCLUSION
For the foregoing reasons, the Court affirms its summary judgment ruling and denies
Trading Technologies’ motion for reconsideration [235].

Dated: March 23, 2022

______________________
SARA L. ELLIS
United States District Judge

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