Portnoy v. Cryo-Cell International, Inc.

OPINION

This case involves a challenge to the results of a contested corporate election. *46 Cryo-Cell International, Inc. (“Cryo-Cell” or the “Company”) is a small public company that has struggled to succeed. By early 2007, several of its large stockholders were considering mounting a proxy contest to replace the board.

One of those stockholders, Andrew Fili-powski, used management’s fear of replacement to strike a deal for himself to be included in the management slate for the 2007 annual meeting. Another stockholder, plaintiff David Portnoy, filed a dissident slate (the “Portnoy Slate”).

Going into the week of the annual meeting, Cryo-Cell’s chief executive officer, defendant Mercedes Walton, was desperate because, in her words, “the current board and management [were] losing by huge margins.” 1 Aside from actually asking the FBI to intervene in the proxy contest on the side of management, Walton ginned up a plan with Filipowski to win the proxy contest. That plan involved Walton acting as a “matchmaker” by finding stockholders willing to sell their shares to Filipowski. In exchange for this alliance, Walton promised Filipowski that if their “Management Slate” prevailed, Cryo-Cell’s board would, using their power as corporate directors, expand the board to add another seat that Filipowski’s designee would fill. That designee was a subordinate who had within the recent past resolved an SEC insider trading investigation by agreeing to disgorge trading profits and to be jointly liable for trading profits made by his tippees. This plan was not disclosed to the Cryo-Cell stockholders, who did not realize that if they voted for management, they would in fact be electing a seven, not six member board, with two, not one, Fili-powski representatives.

In an effort to secure another key bloc of votes, Walton used a combination of threats (the ending of cooperation on key projects) and inducements (the long-sought but never before granted removal of a restrictive legend) to secure the vote of Saneron CCEL Therapeutics Inc. That leverage was enhanced by the fact that Cryo-Cell owned 38% of Saneron’s shares and that Saneron depended on Cryo-Cell’s laboratory space to conduct many of its own operations. Notwithstanding that, Saneron had gone into the week before the meeting undecided about how to vote. Walton “locked up” Saneron only after employing these persuasive strategies involving the threatened withholding and actual granting of concessions on the part of Cryo-Cell as a corporation. 2

Even after employing these methods, Walton and her board went into the day of the annual meeting fearing defeat. They had rented the meeting room from the 11 a.m. start time only until 1 p.m. But Walton did not want to close the polls and count the vote when the scheduled presentations at the meeting were over. So she had members of her management team make long, unscheduled presentations to give her side more time to gather votes and ensure that they had locked in two key blocs. She overruled motions to close the polls.

Even after the filibusters, Walton still harbored doubt that the Management Slate would prevail if the vote was counted and the meeting was concluded. So, at around 2 p.m., Walton declared a very late lunch break, supposedly in response to a request made much earlier.

In fact, Walton desired the break so that she would have more time to seek votes and so that she could confirm that the *47 major blockholders had switched their votes to favor the Management Slate. Only after confirming the switches did Walton resume the meeting at approximately 4:45 p.m., declare the polls closed, and have the vote counted.

The post-meeting vote count resulted in the Management Slate squeaking out a victory by an extremely small margin. Immediately after that, Walton began preparing to add Filipowski’s designee to the Cryo-Cell board. Only after this challenge was brought to the election by Port-noy did that process slow down, and only for the obvious reason that the litigation was brought.

In this opinion, I decline Portnoy’s request to declare his side the victor in the election process. But I do agree with him that the election results were tainted by inequitable behavior by Walton and her allies and must be set aside. In particular, I conclude that the Cryo-Cell stockholders cast their votes in ignorance of material facts regarding the promise made to Fili-powski regarding a second board seat and the pressure that Walton was exerting on Saneron — both of which involved the use by Walton of corporate resources and fiduciary authority motivated by the desire to protect herself from the risk of losing her corporate offices.

Rather than seating a board for the Cryo-Cell stockholders, I believe the more appropriate remedy to be a requirement that Cryo-Cell have another election at a special meeting to be held promptly. Because the stockholders should not be required to bear extra expense because of management’s misconduct, the Management Slate will be required to fund their own re-election campaign and to pay any costs incurred by the Company to hold the special meeting, including the cost of a special master to preside over the meeting.

I. Factual Background

A. Cryo-Cell’s Business

Cryo-Cell is a Delaware corporation with its primary business being the eryo-preservation of umbilical cord stem cells of its clients for possible later medical use by their family members. Cryo-Cell was founded in 1989 by Dan Richard. Richard’s resignation from his positions as CEO and Chairman of Cryo-Cell in 2002 signaled the beginning of a troublesome period for the Company. In 2003, Cryo-Cell incurred a net loss of $7.5 million on $7.5 million in revenues, the Company’s stock was delisted from NASDAQ, the Company went through three different audit firms, and the Company was the defendant in several lawsuits. 3 During that same time period, Mercedes Walton, who had served as a Cryo-Cell director since 2000, began to play a dominant role at the Company. She replaced Richard as Chairman after he left in 2002 and was later appointed as Cryo-Cell’s interim CEO in 2003 after the CEO who succeeded Richard resigned. In 2005, Walton was appointed as CEO on a non-interim basis.

Although Cryo-Cell’s current situation is not as dim as it was in 2003, it continues to struggle as a company. In 2006, Cryo-Cell incurred a net loss of $2.8 million on $17 million in revenue. It again lost money in 2007. Moreover, Cryo-Cell, which was the first company to enter the now fragmented cord blood industry, is losing market share to its competitors. According to the Company, however, its future prospects look brighter, at least in part based on the launch of a new product fine, C’elle. C’elle, which was launched on November 1, 2007, is Cryo-Cell’s proprietary *48 menstrual stem cell collection and storage service.

Before the 2007 annual meeting, Cryo-Cell’s board of directors had five directors. Those directors join Cryo-Cell as the defendants in this action. Walton, Cryo-Cell’s Chairman and CEO, was the lone inside director. The outside directors were Gaby W. Goubran, Jadish Sheth, Anthony P. Finch, and Scott Christian. Walton, Sheth, and Christian were used to working together — they were directors together at Norstan, Inc., a Minnesota telecommunications company, before it was acquired by Black Box Corporation in 2005. 4 Other than the options that they held as compensation for their service at Cryo-Cell, the directors did not own large equity positions in Cryo-Cell. 5

B. Stockholder Discontent With Cryo-Cell

By late 2006, Cryo-Cell’s stockholders were unhappy with the Company’s performance. That discontent was amplified when Cryo-Cell’s board of directors amended the Company’s bylaws in December 2006 (the “Bylaw Amendments”). The Bylaw Amendments imposed additional requirements on stockholders seeking to bring business before the board or nominate directors, restricted stockholders’ ability to call special meetings of stockholders, limited the ability of stockholders to act by written consent, and purported to place a supermajority requirement on the stockholders’ ability to amend the new bylaw provisions. 6

The first group of stockholders to communicate its unhappiness with Cryo-Cell’s performance and the Bylaw Amendments to Cryo-Cell’s board in writing was the “Filipowski Group.” The Filipowski Group, a collection of Cryo-Cell stockholders who owned approximately 6% of the Company at that time, is composed of Silk-Road Equity, the private investment firm of Andrew Filipowski, a wealthy entrepreneur, and Matthew Roszak; Filipowski and Roszak individually; and the Andrew J. Filipowski Revocable Trust (the “Fili-powski Trust”). Filipowski is the top dog at SilkRoad. Roszak is his key subordinate.

In its January 9, 2007 letter, the Fili-powski Group wrote that the Bylaw Amendments were “a way for existing management to entrench itself and to perpetuate its role with the Company and the economic benefits that go along with that.” 7 In addition, the letter “questioned] the sincerity and ability of the current directors to provide leadership and support stockholders’ interests.” 8 The letter threatened legal action against the board and stated that the Filipowski Group was “considering proposing a slate of directors to replace” the current board. 9 In concluding the letter, the Filipowski Group noted that it was available to meet with the board to discuss its concerns. Filipowski and Roszak would meet with Walton in February 2007 — more on that meeting later.

The Filipowski Group was not the only stockholder group to express its negative *49 reaction to the Bylaw Amendments. The “Portnoy Group” 10 — a group of affiliated stockholders led by David Portnoy that owned approximately 12% of Cryo-Cell at that time — filed a Schedule 13 D/A on January 31, 2007, voicing its dissatisfaction with management and the Bylaw Amendments. 11 The Portnoy Group letter, similar to the Filipowski Group letter, indicated the possibility of litigation over the Bylaw Amendments and other issues and expressed a willingness to have further discussions with the Cryo-Cell board. Cryo-Cell, however, did not respond to that invitation because Walton had concluded that Portnoy “was not a reasonable person to deal with.” 12 Walton formed this opinion of Portnoy based on a meeting in 2004, just after Portnoy became an investor in Cryo-Cell, as well as from subsequent telephone calls.

The Filipowski Group and the Portnoy Group were not acting entirely independently of one another — they were sharing their concerns about Cryo-Cell during late 2006 and early 2007. 13 In fact, Filipowski would later claim that the content of the Filipowski Group’s letter criticizing Cryo-Cell’s management was primarily the result of input from Portnoy. 14 The communication between the Filipowski and Port-noy Groups would continue, but they would ultimately align on opposite sides of the ensuing proxy contest.

C. The Portnoy Group Decides To Wage A Proxy Contest

After receiving no response from Cryo-Cell to its January letter expressing disappointment with the Company’s results and the Bylaw Amendments, the Portnoy Group decided to solicit proxies to elect its own slate of directors at the upcoming Cryo-Cell annual meeting. In hope of putting together a competitive slate and garnering support from another large stockholder, Portnoy had discussions with the Filipowski Group about combining forces. Specifically, Portnoy and Roszak exchanged emails in the week before the deadline for filing a proxy statement in advance of the Cryo-Cell annual meeting. 15 Roszak suggested that the Filipowski Group put up two directors and the Port-noy Group put up two directors with the fifth director being either Walton or a mutually acceptable candidate. Portnoy responded that the Portnoy Group would only offer one board seat to Filipowski and only if the Filipowski Group paid a portion of the proxy solicitation costs and agreed to vote its shares in favor of the Portnoy Group slate.

The Filipowski Group never responded to the Portnoy Group’s proposal for two reasons. One was that Filipowski had doubts about the experience, qualifications, and intentions of the proposed members of the Portnoy Group slate. The Filipowski Group was especially concerned about the proposed board member that the Filipow- *50 ski Group believed that the Portnoy Group intended to have serve as CEO. 16

The Filipowski Group’s concerns about the Portnoy Group’s slate were not irrational. The slate ultimately proposed by the Portnoy Group on March 26, 2007 was David Portnoy, Mark Portnoy, Craig Fleishman, M.D., Harold Berger, and Scott Martin (the “Portnoy Slate”). 17 Later, when Cryo-Cell expanded its slate, John Yin was added to the Portnoy Slate. 18 No members of the Portnoy Slate had ever served as a director of a public company. 19 Moreover, none of the members of the Portnoy Slate had any experience in the stem cell industry. David Portnoy and his brother, Mark Portnoy, the individuals primarily responsible for making the strategic decisions for the Portnoy Group, are private investors. Fleishman is a cardiologist. Berger is Mark Portnoy’s accountant. Yin is the CEO of a privately held technology company in which David Port-noy is a major investor. Martin, the proposed board member that the Filipowski Group believed would be installed as CEO, 20 had the most relevant experience managing an operating company, having served as CEO of a very large HVAC company with revenues and profits far in excess of Cryo-Cell’s. But that corporation was in a very different industry and was not a public company. The Portnoy Slate’s lack of expertise in the stem cell industry and inexperience with public companies and proxy contests was evident in the vague business plan they ultimately presented in their proxy statement, which consisted of generic statements about eliminating unnecessary costs and considering strategic alternatives to increase stockholder value. 21

But even more than Filipowski’s doubts about Portnoy’s proposed slate, another more important reason inspired Filipowski to eschew an alliance with Portnoy: He was cutting his own deal with Cryo-Cell management that would give him the influence he sought.

D. The Filipowski Group Joins Forces With Management

Turned off by Portnoy, the Filipowski Group decided to consider supporting Cryo-Cell’s management in the proxy contest but subject to a very important condition — which was that Filipowski get a seat at the board table.

The Filipowski Group and Cryo-Cell’s management began to form this alliance at a February 2007 meeting held at Cryo-Cell’s headquarters. At that meeting, held in response to the Filipowski Group’s January letter, Filipowski and his chief aide, Roszak, discussed their concerns about Cryo-Cell with Walton, Jill Taymans, Cryo-Cell’s Vice President of Finance, and other members of Cryo-Cell’s management team. Walton characterized it as “a very positive meeting.” 22 The Filipowski Group was also pleased with the meeting. Filipowski described his view of management after the meeting as follows: “I felt that they were very much on top of their business, knew where the future of the business lay, and were very much anxious to pursue what I thought was a very logical appropriate strategy.” 23 Filipowski’s *51 take on the appropriate strategy for Cryo-Cell — focusing on upgrading their services to collect and store additional types of stem cells — differed materially from what Filipowski understood the Portnoy Group’s strategy to be — focusing only on collecting and storing stem cells from cord blood. 24

Despite the positive tone of the February meeting, the Filipowski Group did not immediately join forces with management. Instead, the Filipowski Group continued discussions with the Portnoy Group about a possible joint slate into late March. 25 At the same time that the Filipowski Group was considering the Portnoy Group’s offer of a position on its slate for Filipowski, the Filipowski Group was negotiating with Walton about a separate slate. Early in the negotiations, Roszak suggested a Fili-powski Group slate that would include four new outside directors plus Walton as the management representative. 26 In the board meeting held the week after Ros-zak’s suggestion of a separate Filipowski Slate, Walton informed the board of her discussions with the Filipowski Group. 27 The board’s response was to consider whether anyone from the Filipowski Group should be invited to join the Management Slate. The board assigned Walton to continue discussions with Roszak. The day of that board meeting Walton emailed Ros-zak the board’s required profile for new board members: “we’re looking for a combination of healthcare and business background (preferably women’s healthcare); stem cell industry (huge plus); P & L; public company board experience; marquee recognition in their field. The board is unanimous in our belief that this profile is a requisite.” 28 During the discussions over adding board members, Roszak provided Walton with the names and profiles of several board candidates. Ultimately, however, the negotiations between the Fi-lipowski Group and Walton centered on increasing the size of the board of directors by one seat effective the date of the annual meeting and adding Filipowski to the Management Slate to fill that seat. This focus on Filipowski was somewhat of a reversal for the board because, as defendant Christian admitted at trial, Filipowski did not fit the board’s required profile. 29

In mid-April, once the board was focused on the tactical utility of adding Fili-powski to the Management Slate, it followed its normal protocol for considering a new board member. Cryo-Cell had Fili-powski sign a confidentiality agreement and fill out the usual directors and officers and director independence and committee compliance questionnaires. 30 Cryo-Cell also had a private investigator perform a background investigation on Filipowski. 31 On May 21, 2007, the corporate governance committee of Cryo-Cell’s board met to discuss the procedures that would be used to evaluate Filipowski’s candidacy and determine whether to add him as a nominee on the Management Slate. At that meeting, Walton emphasized the importance of the decision and the need for an expeditious decision so that Filipowski could be included in the proxy statement in advance of the annual meeting. Walton also told the committee members that “although initially Mr. Filipowski had proposed the names of other nominees, he had *52 subsequently confirmed that his agreement to support management’s slate was conditioned on his nomination to the Board.” 32 The committee members proceeded on to discuss “the possible results of a proxy contest, with or without Mr. Filipowski’s support.” 33

In addition to its conversations about the proxy contest, the committee discussed Filipowski’s qualifications and reputation. Cryo-Cell considered Filipowski an interesting candidate for its board for several reasons. Filipowski had extensive entrepreneurial experience, having founded and developed several technology companies, including one that sold for nearly $4 billion. 34 Filipowski had served as chairman of the Wake Forest Institute for Regenerative Medicine and was knowledgeable and passionate about the stem-cell industry. 35 Moreover, Filipowski’s ability to represent the perspective of a large shareholder was attractive. 36 Filipowski’s background, however, was not without blemish. The committee members were concerned about litigation and bankruptcies involving the companies with which Filipowski was previously associated. 37 In addition, the committee was concerned about an SEC investigation of Roszak for insider trading in

Blue Rhino Corporation stock. That SEC investigation involved whether Roszak had traded on and tipped others about nonpublic information that Roszak garnered from Filipowski, who was a director of Blue Rhino. 38 The resolution of that investigation resulted in Roszak entering into a consent decree with the SEC whereby he (without admitting liability) disgorged the profits from his own trades in Blue Rhino’s shares, accepted joint and several liability for disgorgement of the profits of his tip-pees for them trading in Blue Rhino shares, and paid a civil penalty. 39

In light of the committee’s concerns about Filipowski and its desire to add Fili-powski to the Management Slate if those concerns could be allayed, the committee set up a conference call with Filipowski. The conference call involved a detailed discussion of Filipowski’s prior activities and what he could contribute to the board. 40 The committee satisfied itself that there were not any criminal or ethical problems with Filipowski’s prior business dealings and that the SEC’s investigation and imposition of agreed sanctions against Roszak for insider trading and tipping violations of Rule 10b-5 did not implicate Filipowski in *53 any wrongdoing. 41 The committee then decided that a face-to-face meeting with Filipowski would be beneficial before making a final determination on his candidacy.

On May 24, 2007, Gaby Goubran, the chair of the committee, flew in from Europe and met with Filipowski. Goubran had a positive meeting with Filipowski, and after he reported the results of the meeting to the committee later that day, the committee unanimously approved Fili-powski’s candidacy. 42 The following day the entire Cryo-Cell board approved the expansion of the board and Filipowski’s inclusion on the Management Slate, subject to the negotiation of a suitable standstill and voting agreement with Fili-powski. 43 Thus, the Management Slate of directors that Cryo-Cell would put forth for election at the annual meeting would include the five incumbent directors and Filipowski.

The contemplated standstill and voting agreement between Filipowski and the Company (the “Voting Agreement”) was executed and filed with the SEC on June 4, 2007. 44 The Voting Agreement stated that Cryo-Cell would expand the board by one seat, effective at the date of the 2007 annual meeting, and that it would include Filipowski as the nominee for that seat on the Management Slate. In return, Fili-powski, Roszak, and the Filipowski Trust agreed to vote any shares they controlled in favor of the Management Slate. In addition, they agreed to standstill on various matters until after the 2008 annual meeting.

Despite the (non-credible) insistence of defendant Scott Christian, one of Cryo-Cell’s outside directors, that Filipowski’s nomination “[h]ad nothing to do with the proxy contest,” 45 Filipowski was clearly added to the Management Slate to increase the odds that the Management Slate would prevail in the upcoming proxy contest. As Walton explained to the Director of the Wake Forest Institute for Regenerative Medicine, Filipowski and the incumbent directors on the Management Slate were “very strange bedfellows indeed.” 46 Immediately after the public disclosure of the agreement with Filipowski, Walton underscored the connection between the proxy contest and adding Fili-powski to the Management Slate by emailing the following message board post to Taymans, Cryo-CeU’s counsel, and its proxy solicitor with the comment that she hoped the author was “right on the money”: “No Greater Coup ... Could Possibly have been accomplished!!! [Filipowski] joining the board ‘lays to waste’ considerable efforts and monies squandered on the ‘overthrow5 ... Game, Set, Match? ? Me thinks so. JMHFO.” 47

I also find that as Walton told the committee on May 21, 2007, Filipowski would not have supported the Management Slate unless he was a candidate on that Slate. Absent the board’s willingness to include him, Filipowski almost certainly would have bargained with Portnoy over the shape of a unified insurgent slate and cast his lot with the outsiders.

E. The Proxy Contest Begins

On June 8, 2007, Cryo-Cell filed its definitive proxy statement which indicated *54 the Cryo-Cell annual meeting would be held on July 16. 48 Although the Cryo-Cell 2007 annual meeting had been scheduled for June 28, the meeting was delayed until July 16 because, among other things, both sides were late in getting out their definitive proxy statements. The Cryo-Cell board delayed the meeting “to allow more time for both sides to get their proxy materials out and allow shareholders to conscientiously consider each side’s positions.” 49

The Portnoy Group filed its definitive proxy statement on June 13, 2007. 50 After that filing, both sides began a vigorous proxy solicitation process. Both sides hired experienced proxy solicitors to help with election tactics and call stockholders to solicit votes. In addition, both sides sent several fight letters to Cryo-Cell’s stockholders, detailing why those stockholders should return their proxy card instead of their opponent’s proxy card.

Both sides also attempted to personally solicit Cryo-Cell’s largest stockholders. Ki Yong Choi, the president of a San Francisco hotel operations and management company, was one of those stockholders. Choi was the beneficial owner of approximately 3% of Cryo-Cell’s shares at the beginning of the proxy contest. Walton solicited Choi over the phone on June 18, 2007. Walton described the call as “delightfully uplifting” and Choi as “most supportive,” indicating that Choi “asked for assistance in buying more shares.” 51 In early July, Mark Portnoy traveled to San Francisco to solicit Choi’s vote. According to Mark Portnoy, that meeting “went ok ... [b]ut [Choi] wants to be the one in control.” 52 Although Choi’s allegiance appeared up for grabs to Mark Portnoy, Choi would later join Filipowski in siding with management.

F. Cryo-Cell’s Plan To Come From Behind And Win The Election

As the July 16 annual meeting approached, the status of the early vote became clear — the Portnoy Group held a big lead over the Management Slate. Of Cryo-Cell’s 11,669,629 million shares outstanding, the July 12, 2007 vote report from Cryo-Cell’s proxy solicitor showed 4,106,441 shares voting for the Portnoy Slate compared to only 2,098,579 shares voting for the Management Slate. 53 Walton was rendered desperate and, frankly, irrational at this state of affairs.

I do not say this lightly, but it is undisputed that Walton sought to have the Federal Bureau of Investigation intervene in the proxy fight. She emailed the July 12 vote report to an FBI agent who was investigating (at her instance) whether Dan Richard had stolen Cryo-Cell client data and explained that the vote report showed that “the current board and management are losing by huge margins.” 54 Walton then requested that “[i]f there is any evidence that Dan Richard was involved in corporate theft of CCEL client’s [sic] data; and is in turn corroborating with Portnoy to get control of CCEL, the SEC Enforcement Division must be notified immediately.... We are running out of time, literally.” 55

*55 On a somewhat more traditional front, Walton developed a two-prong strategy to overcome the vote deficit. The first prong was to intensify the campaigning efforts. 56 The second prong was for Walton to act as a “matchmaker” by putting prospective sellers of shares in touch with “shareholders with significant financial resources [who] had expressed to management their opposition to the Portnoy Group’s attempt to take over control of the Company.” 57 Those shareholders were Filipowski and Choi. 58 The prospective sellers “were only those who had either not voted or had already voted but voted for the Portnoy slate.” 59 Walton disclosed her plan to the Cryo-Cell board at a July 12, 2007 telephone meeting. She asked the board to postpone the annual meeting a few days to allow her matchmaking plan time to take effect, but counsel advised the board that the meeting could not be postponed. 60 The board members did, however, “generally express[] their support for taking valid actions that would increase the likelihood that management’s slate of directors would be elected.” 61

Walton formulated her matchmaking plan in the days before the July 12 board meeting based on discussions she had with Filipowski and his operative Roszak. Those discussions centered on the Filipow-ski Group buying additional Cryo-Cell shares to vote them in favor of the Management Slate. 62 Filipowski explained that he “wanted to accumulate as many shares as possible in order to be able to vote [his] opinion on how the company should proceed.” 63 But the Filipowski Group wanted concessions in return for buying more Cryo-Cell shares. Roszak demanded two things on Filipowski’s behalf: (1) that management, the incumbent directors, and the Company use their own resources to purchase additional Cryo-Cell shares, and (2) that the Filipowski Group be given additional board seats beyond the seat that would be held by Filipowski if the Management Slate prevailed. 64 As to the first request for participation in buying additional shares, Walton’s response was an “emphatic ‘no way.’ ” 65 Her response to the request for additional board representation was much warmer, and, I find, signaled very clearly that the answer would be yes. 66 That is, I find that Walton made clear that Filipowski would get a second board seat if the share buying plan resulted in a Management Slate victory.

The difficulty for Walton and Roszak was how to deal with Choi. They wanted him to buy more shares and support the Management Slate but not to give him board seats. So Walton played coy with Choi. Therefore, Walton called Choi the night of the board meeting to discuss and *56 confirm the matchmaking plan. 67 Choi, according to Cryo-Cell’s proxy solicitor, requested two board seats and Walton indicated to Choi that although she could not grant his request, the board would consider it. 68

After confirming Choi’s participation in her plan, Walton emailed the Filipowski Group to let them know that “[t]he board has a proposed strategy on turning the plurality in our favor — some aspects include what you and Flip proposed earlier this week; but other elements have been added as well.” 69 Those other elements were the addition of Choi to the buying effort. 70 When Roszak responded “[l]ove the energy here and sounds like a plan,” Walton told him that “ ‘[w]e will either find a way, or make one.’” 71 The following morning, Friday, July 13, 2007, Walton held a conference call with the Filipowski Group to further discuss the matchmaking plan. That same day, Walton ensured that those involved in the matchmaking plan— the Filipowski Group and Choi and his broker, Chris Kovarik — had each other’s contact information and the contact information for Cryo-Cell’s executives, its proxy solicitor, and its counsel. More importantly, Walton made sure that Choi and Filipowski had the contact information for the large Cryo-Cell stockholders who had either voted for the Portnoy slate or were undecided. Three of those large stockholders would turn out to be particularly important to the election — Lewis Asset Management, Saneron, and Apollo Capital.

G. The Lewis Shares

Lewis Asset Management owned approximately one million shares of Cryo-Cell stock during the time leading up to the Cryo-Cell annual meeting — almost 9% of the shares outstanding. 72 Before July 14, 2007, the Saturday before the Cryo-Cell annual meeting, the proxy for the Lewis shares had been submitted in favor of the Portnoy Slate. The vote attached to the Lewis shares would change, however, after Choi entered an agreement to purchase the Lewis shares with a proxy attached on July 14. Walton, who had brokered the deal by putting Kovarik in touch with Lewis Asset Management, would later be surprised by how those votes would change. On Monday, July 16, only hours before the annual meeting, Walton would find out that Choi had submitted the proxies for the Lewis shares and the other shares he owned in favor of the Management Slate, but withheld proxies on three of the directors. 73 That turn of events would have later consequences.

H. The Saneron Shares

Saneron is a research firm with a focus on cellular therapy. Cryo-Cell owns 38% of Saneron and Saneron owns 253,800 shares of Cryo-Cell (about 2% of the outstanding shares). Cryo-Cell and Saneron are involved in many collaborative projects. 74 In addition, Saneron uses Cryo-Cell’s clinical lab and regulated manufacturing facility, which Saneron needs to get into clinical trials. 75

*57 Despite the close relationship between Cryo-Cell and Saneron, Walton was concerned about how Saneron would vote its shares in the proxy contest. 76 This concern was the result of Saneron not voting its shares in favor of the Management Slate early in the proxy contest and a “weird” conversation that Taymans had with Nicole Kuzmin-Nichols, Saneron’s Vice President of Business Development, on June 18 when she asked about how Saneron was going to vote its shares. 77 Walton’s immediate response was to forward Taymans’ email to Dr. Julie Allick-son, Cryo-Cell’s Vice President of Research and Development and Laboratory Operations, instructing her that “we can not move forward with any agreements with Saneron until this matter is positively closed.” 78

Walton’s concerns and frustration grew with time. She repeatedly tried without success to contact Dr. Paul Sanberg, San-eron’s Chairman and co-founder, about Saneron’s vote and still had no proxy card from Saneron. Therefore, on June 27, Walton instructed Allickson to “pause communication with [Saneron] on the project until this matter is positively addressed.” 79 Although Walton claimed that her emails about withholding cooperation from Saner-on were only internal emails, the silence on the joint projects combined with the requests for Saneron to submit its vote in favor of the Management Slate sent a clear message to Saneron — its vote in favor of the Management Slate was required if it wanted to continue working with Cryo-Cell. This signal’s strength was undoubtedly enhanced by Cryo-Cell’s ownership of 38% of Saneron.

In addition to withholding its cooperation on joint projects, Cryo-Cell had another means to coerce Saneron’s vote — the restrictive legend on Saneron’s Cryo-Cell shares. That restrictive legend stated that the shares could not be sold without a registration statement or “an opinion of company counsel that such registration was not required.” 80 Saneron had been requesting a counsel opinion authorizing removal of the restriction since January 2005. 81 Cryo-Cell had stonewalled, never agreeing to Saneron’s request. Although the defendants now contend that Saneron was not interested in a counsel opinion from Cryo-Cell removing the restriction because it did not need that action to sell, Saneron’s and Cryo-Cell’s actions belie that. 82 During the discussions Saneron had with Cryo-Cell about how it would *58 vote in the proxy contest, Saneron’s desire to have the restrictive legend removed was an important and frequently discussed topic. For example, removal of the restrictive legend was discussed in a June 27, 2007 email from Kuzmin-Nichols to Taymans 83 and at Saneron’s own annual meeting on July 12. 84

Despite Saneron’s requests, Cryo-Cell withheld the counsel opinion lifting the restrictive legend. Instead, Walton, discouraged that Sanberg had not returned her numerous phone calls, attempted to arrange for Choi and Filipowski to purchase the Saneron shares. 85 On July 14, even after she learned that Choi had acquired the Lewis shares, Walton still was concerned about the Saneron shares. She explained her concern in an email to Ros-zak: ‘Without Saneron we are at risk. No news this a[.]m[.] on Saneron — working every angle with [Kovarik, Choi’s broker] to get to [Sanberg].” 86 On July 15, Walton learned that the efforts by Filipowski and Choi to purchase the Saneron shares had fallen through. 87 In response, she called Sanberg and offered what Saneron had sought from Cryo-Cell for the previous several years, the counsel opinion removing the restriction on Saneron’s shares. Walton had Cryo-Cell’s counsel draft and fax the opinion letter to Saneron that Sunday. 88 That counsel opinion, which was also faxed to Cryo-Cell’s transfer agent, informed the transfer agent that Cryo-Cell had no objection to the transfer agent reissuing a stock certificate to Saneron without the restrictive legend. 89 In return, Walton demanded that Saneron vote its shares immediately rather than follow its prior plan of voting the shares at the annual meeting. 90 Kuzmin-Nichols made a special trip into Saneron’s office that Sunday afternoon just to vote the shares. 91 After Kuzmin-Nichols voted the Saneron shares, Walton emailed Filipowski that “we just locked up Saneron.” 92

The parties dispute whether Saneron’s vote was improperly influenced by Walton. I have no difficulty in finding that Saner-on’s vote was influenced by Cryo-Cell’s decision to withhold both cooperation on the companies’ joint projects and the counsel opinion lifting the restriction on Saner-on’s shares. The defendants argue that Saneron was never going to vote for the Portnoy Slate because Sanberg was unimpressed by the Portnoy Slate. In this as in other respects, the defendant’s disparagement of the Portnoy Slate casts a mirrored reflection of ineptitude on the Management Slate because it is very clear that Walton, whose board controlled 38% of Saneron, genuinely feared that Saneron would vote for the Portnoy Slate. Walton’s fear that Saneron would not go her way was supported by Saneron’s own expressed desire to wait until the meeting day to make its final decision. Sanberg claims to have favored the Management Slate because Portnoy did not know anything about Saneron when he called to solicit Sanberg and because the Portnoy Slate did not include any scientists. 93 *59 Those after-the-fact explanations are contrary to Saneron’s desire to wait until the annual meeting to vote its shares and are at odds with Walton’s clear discomfort over Saneron’s refusal to commit to vote for her slate.

In concluding that Saneron’s voting decision was influenced by Walton’s combination of threats and inducements, I acknowledge that Sanberg, Kuzmin-Nichols, and Bernard Skerkowski of Saneron have testified otherwise. 94 But that is, of course, unsurprising. Cryo-Cell owns 38% of Saneron and it is not to be expected that its executives would suggest that Saneron’s vote was in essence paid for by a removal of a restrictive legend and the necessity of obtaining Cryo-Cell management’s cooperation in projects vital to San-eron. The objective facts, in my view, support the conclusion that Saneron did not commit to vote for the Management Slate until the counsel opinion authorizing the removal of the restrictive legend was issued and after it was made clear that if Saneron voted no and the Management Slate won, the likelihood of future strategic relations between the companies would have been rendered much more doubtful.

I. The Apollo Shares

During the time leading up to the Cryo-Cell annual meeting, Apollo Capital owned approximately 323,000 shares of Cryo-Cell stock (almost 3% of the shares outstanding). Kyle Krueger, Apollo’s decision maker with respect to the Cryo-Cell shares, was the subject of an intense lobbying effort in the days preceding the annual meeting. On July 13, Walton and Taymans had an hour-long discussion with Krueger in an attempt to convince him to vote in favor of the Management Slate. 95 As part of that discussion, Krueger asked Walton to have Filipowski contact him. Walton arranged for Filipowski to speak with Krueger that Friday afternoon, and after that conversation Krueger voted his shares in favor of the Management Slate. 96

The following day, Saturday, July 14, Krueger emailed Portnoy to let him know that he had decided to vote for the Management Slate. 97 Portnoy, who had been in contact with Krueger since February, did not give up on soliciting Krueger’s vote. He emailed Krueger asking him to reassess his vote and consider calling some of Cryo-Cell’s former employees to find out more about “the reality of the situation” at Cryo-Cell. 98 Portnoy also contacted Susan Archibald, a former Cryo-Cell employee with whom he had been in contact since February, and asked her to call Krueger. Archibald called Krueger on Sunday, July 15, and answered the questions Krueger had about Cryo-Cell. 99 After Archibald spoke to Krueger, Krueger changed Apollo’s vote to favor the Portnoy Group. 100

J. The Annual Meeting

The Management Slate was greeted with surprising and unpleasant news on the morning of July 16, the day of the annual meeting. Walton learned that the Apollo shares that she thought had been voted in favor of the Management Slate had flipped in favor of the Portnoy Slate. She and Roszak then chang