Issue No. 5 — September 7, 2026

Lead Matter

Leo Investments v. Tomales Bay — SPV governance: affirmed in part, fee award reversed (Del. July 10, 2026, Nos. 415 and 428, 2025)

A structure now common in late-stage venture — the special purpose vehicle — reached the Delaware Supreme Court this summer. A Chinese public company was admitted as a member of a Delaware SPV formed to purchase SpaceX shares (an entity named Tomales Bay Capital Anduril III) and was then removed after its public disclosure of the investment drew the portfolio company's objection. After trial (June 30, 2025), the Court of Chancery applied the business judgment rule to the removal decision and found no breach of loyalty or care, but found a breach of the duty of candor in the communications made in an unsuccessful effort to induce a voluntary withdrawal — awarding nominal damages of one dollar because no reliance or causally related harm was proven — and then awarded the plaintiff approximately $15.83 million in attorneys' fees. On July 10, 2026, the Supreme Court affirmed the business judgment treatment of the removal, the finding of no breach of loyalty or care, and the one-dollar nominal award for the intentionally misleading communications, which it characterized as a loyalty breach; it reversed the fee award, holding that fee-shifting was not warranted where the plaintiff prevailed only on a minor issue and proved neither causation nor damages. For SPV sponsors, the case maps the discretion managers retain over membership, the disclosure duty that discretion does not displace, and the limits of fee-shifting as a remedy for a nominal-damages win.

On The Docket

ATP Life Science Ventures — recognition, funding, and an appeal (Bankr. D. Del. No. 25-12177-LSS; D. Del. No. 1:26-cv-00495-JLH)

Following the developments covered in Issue No. 1, the contest now runs on two tracks. In the bankruptcy court, Judge Silverstein's July 30 order recognized the Cayman-appointed officeholders' authority to act for the fund, subject to the fund's Chapter 11 obligations and the continuing stay, and on August 27 the court entered a final order on the officeholders' third funding motion, authorizing additional use of specified funds for the portfolio companies, and adopted a modified cross-border protocol. Separately, Rigmora's appeal of the April 14 order denying dismissal of the Chapter 11 cases is before the U.S. District Court for the District of Delaware. Dr. Harrison has been reported as a bidder for portfolio companies within the Chapter 11 process. The recognition order did not resolve every management dispute, and no court has ruled on the underlying mismanagement allegations.

Yash Venture Holdings v. Moca Financial — a handshake deal, tested on appeal (7th Cir., Aug. 28, 2024, 116 F.4th 651)

A would-be investor alleged an oral agreement for a non-dilutable 15 percent interest in a payments startup in exchange for software development work — and lost on the claims addressed in the appeal. Applying Illinois law to contract formation, the Seventh Circuit held the complaint did not plausibly allege an enforceable contract, because there was no meeting of the minds on the non-dilution term, and the fiduciary claim failed at the threshold: absent a stock subscription agreement, the court did not need to decide whether promoters owe fiduciary duties to subscribers — a question, and the choice of governing law for it, that it expressly left open. The decision is a clean appellate statement of where informal founder-stage arrangements fail: not on fairness, but on formation.

Ruling In Focus

Frederick Hsu v. ODN Holding — redemption rights and the duty to the common (Del. Ch. 2017; post-trial 2020)

A leading decision on what happens when a redemption right comes due. A fund held preferred stock with a redemption right; the complaint alleged the company abandoned its growth strategy to accumulate cash for redemptions, and in 2017 the court declined to dismiss loyalty claims against the board, the fund, and its designees. The framework, drawn from the same line as Trados (Issue No. 3): where discretionary judgment is exercised, the board's duty is generally to prefer the interests of the common stockholders over the special contractual rights of the preferred, and preferred holders receive fiduciary protection only as to rights they share equally with the common. The case's limits matter too: after a ten-day trial, the court held on May 4, 2020 that the defendants proved the cash-accumulation strategy entirely fair and entered judgment for them. Redemption provisions are standard venture terms; this is a leading case on the board's position when one is invoked against a company that cannot easily pay — and on what proof of fairness looks like when the theory goes to trial.

Doctrine Watch

Cross-border fund disputes: recognized officeholders inside Chapter 11

The ATP proceedings show how a foreign domicile court's appointment of officeholders can be recognized by a U.S. bankruptcy court without displacing the Chapter 11 case: the July 30 recognition order gives the Cayman-appointed officeholders authority to act for the fund, but subject to the fund's duties as a debtor in possession and the continuing automatic stay, and the August 27 modified cross-border protocol supplies the coordination mechanism between the two courts. The result is a layered structure — Cayman law governing who speaks for the fund, U.S. bankruptcy law governing what the fund may do with estate property — with the funding of portfolio companies administered through the bankruptcy court under the officeholders' proposed framework. For sponsors of Cayman and other offshore fund structures with U.S. operations, the proceedings are a live demonstration that the choice of fund domicile is also a choice of forum architecture for the worst-case scenario. The Docket will track how the officeholders' authority operates within the protocol as it develops.

Also Tracking

Cloudflare — decision pending after the August 12 hearing (Issue No. 2) • TSVC — discovery (Issue No. 3) • Burgerville — the company's response (Issue No. 3) • Musk v. OpenAI — the request for an appealable judgment on the tried claims (Issue No. 4) • ATP — implementation of the recognition and funding orders under the cross-border protocol, and the district-court appeal (this issue).