Aaron Leon v. Patrick Orlando

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
LORI W. WILL LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
June 5, 2024

David L. Finger, Esquire Matthew D. Perri, Esquire
Finger & Slanina, LLC Daniel E. Kaprow, Esquire
One Commerce Center Elizabeth J. Freud, Esquire
1201 North Orange Street Alfred P. Dillione, Esquire
Wilmington, Delaware 19801 Rae Ra, Esquire
Richards, Layton & Finger, P.A.
920 North King Street
Wilmington, Delaware 19801

RE: Aaron Leon, et al. v. Patrick Orlando,
C.A. No. 2024-0311-LWW

Dear Counsel:

I write regarding a security to correspond with aspects of the operative status

quo order. A bond is necessary because the defendants are restricted from

transferring certain shares and may suffer losses. This decision details the value,

timing, and securitization of the bond. The defendants will be free to trade or sell

their shares if the bond described below is not timely posted.

I. BACKGROUND

This action under 6 Del. C. § 18-110 concerns the rightful manager of

nominal defendant ARC Global Investments II LLC.1 ARC was formed as the

sponsor of special purpose acquisition company Digital World Acquisition Corp.

1
Verified Compl. Pursuant to 6 Del. C. § 18-110 (Dkt. 1) (“Compl.”).
C.A. No. 2024-0311-LWW
June 5, 2024
Page 2 of 9

(“DWAC”), which completed a business combination with Trump Media &

Technology Group Corp. (“TMTG”).2 Defendant Patrick Orlando purportedly is

or was the managing member and/or manager of ARC.3 The plaintiffs are

members of ARC who insist that they removed Orlando from these roles through a

March 22, 2024 written consent.4

On April 11, 2024, I entered a Status Quo Order resolving cross-motions

filed by the parties.5 A key dispute in the motions concerned whether the

defendants should be restricted from transferring TMTG securities ARC would

receive in connection with its ownership of DWAC securities. The Status Quo

Order stated that:

Neither ARC nor Orlando shall transfer, attempt to transfer, or direct
any other person or entity to transfer any [TMTG] securities issued to
ARC (including shares, warrants, and units), which are currently in
book entry form with Odyssey Transfer and Trust Company (the
“ARC Securities”), to any entity or person; provided that ARC and/or
Orlando may transfer ARC Securities only insofar as such transfer is
necessary to comply with existing contractual obligations and/or
operate ARC’s business in the ordinary course, after providing
Plaintiffs with two business days advance notice of the transfer along

2
Id. ¶¶ 2, 26.
3
See id. ¶ 4.
4
Compl. Ex. 4.
5
Status Quo Order (Dkt. 24).
C.A. No. 2024-0311-LWW
June 5, 2024
Page 3 of 9

with an explanation of the corresponding obligation. Plaintiffs may
seek relief as to the specific transfer as appropriate.6

This restriction was narrower than that proposed by the plaintiffs.7

The parties did not address the need for a bond in their cross-motions for a

status quo order. But on April 8, the defendants observed that preventing ARC

from transferring its TMTG shares could lead to financial loss.8 I requested

submissions on the propriety of a bond.9 I also filed a letter posing questions about

the amount of shares that could be transferred in the ordinary course under the

Status Quo Order and the bond value needed to cover potential losses.10

The case has taken procedural side roads since then and, for a time, ordering

a bond seemed needless when a settlement was purportedly reached.11 The hearing

at which my questions on the bond were to be addressed was canceled at the

parties’ request.12 But the plaintiffs went on to dismiss their original counsel and

eschew any settlement.13 They insisted on pressing forward with their claims and

6
Id. ¶ 3.
7
See Pls.’ Reply in Further Supp. of their Mot. for Status Quo Order and Opp’n to Defs.’
Cross-mot. (Dkt. 14) ¶¶ 6-7; id. Ex. 2 ¶ 3.
8
Dkt. 23.
9
Dkt. 25.
10
Dkt. 47.
11
See Dkt. 50.
12
Dkt. 49.
13
See Dkts. 52, 53.
C.A. No. 2024-0311-LWW
June 5, 2024
Page 4 of 9

argued that the Status Quo Order should remain in place pending the resolution of

this control dispute. The bond issue became live once again.

On May 21, I filed a letter requesting the information I had previously

sought about the scope and amount of a bond.14 A status conference to discuss the

matter was held on May 23. The plaintiffs were represented by new counsel who

argued that a bond was unnecessary. The defendants’ counsel provided a rough

estimate of the shares that could be transferred under the terms of the Status Quo

Order, among other matters. I took the issue under advisement, subject to the

parties meeting and conferring on the number of shares that could be transferred in

the ordinary course.

On May 24, the plaintiffs filed a “Notice of Plaintiffs’ Objection to Proposed

Transfer of Shares.”15 Broadly speaking, the plaintiffs asked that they be given

written notice of and allowed to review transfers that the defendants purport to

make in the ordinary course. The next day, the defendants expressed concern

about allowing the plaintiffs to delay necessary transactions.16 At this point, I

considered the matter submitted for decision.

14
Dkt. 66.
15
Dkt. 90.
16
Dkt. 91.
C.A. No. 2024-0311-LWW
June 5, 2024
Page 5 of 9

II. ANALYSIS

Under Court of Chancery Rule 65(c), no injunctive relief “shall issue except

upon the giving of security by the applicant, in such sum as the Court deems

proper, for the payment of such costs and damages as may be incurred or suffered

by any party who is found to have been wrongfully enjoined or restrained.”17 The

value of a bond acts as a cap on the damages recoverable by a wrongfully enjoined

party. The party “has no recourse other than the security,” and “[a] party that is

wrongfully enjoined may recover damages resulting from the injunction, but that

recovery is limited to the amount of the bond.”18

The defendants must support their request for a security with “facts of record

or . . . some realistic as opposed to a yet-unproven legal theory from which

damages could flow to [them].”19 They have done so. ARC stands to receive more

than 2.14 million TMTG shares, excluding those issued in connection with DWAC

founder shares that are the subject of a separate litigation and are subject to a

lockup until September.20 The Status Quo Order restricts the transfer of some of

these shares. If the TMTG stock price declines while the Status Quo Order

17
Ct. Ch. R. 65(c).
18
Guzzetta v. Serv. Corp. of Westover Hills, 7 A.3d 467, 469-70 (Del. 2010).
19
Id. (quoting Petty v. Penntech Papers, Inc., 1975 WL 7481, at *1 (Del. Ch. Sept. 24,
1975)).
20
See Dkt. 31 Ex. B; see also Orlando Aff. (Dkt. 31) ¶ 2.
C.A. No. 2024-0311-LWW
June 5, 2024
Page 6 of 9

remains in effect, ARC may suffer losses. ARC’s recovery—should the Status

Quo Order have been improvidently entered—will be limited to the value of any

bond. A bond is therefore warranted.

At present, ARC has yet to receive registered, transferable shares.21 This

delay in registration may be related to the permanent suspension of TMTG’s

auditor after the registration statement was filed with the Securities and Exchange

Commission.22 It is unknown when the shares will be registered, but ARC fairly

contends that it risks losses if the Status Quo Order prevents it from selling or

transferring its shares once registration occurs.23 To protect ARC, the plaintiffs

must enter a bond within one business day of the earlier of: (1) the registration

statement being approved by the SEC, or (2) TMTG’s new audited financials being

accepted by the SEC.24

The bond should correspond to 1,541,440 TMTG shares held in ARC’s

name.25 These shares were received in connection with private placement

21
See Defs.’ May 17 Letter Regarding Pls.’ Position on the Status Quo Order (Dkt. 65) 3.
22
Id.
23
Id. at 3-4.
24
The latter date reflects a rational assumption that the registration statement may be
approved soon after the audited financials are accepted.
25
As I noted during the May 23 hearing, I am willing to consider an additional bond that
covers the TMTG shares associated with ARC’s founder shares if this case remains
unresolved when the lockup expires.
C.A. No. 2024-0311-LWW
June 5, 2024
Page 7 of 9

warrants, are not subject to a lockup, and would be freely transferable absent the

Status Quo Order. The total excludes certain shares that ARC’s counsel represents

will be sold for ordinary course expenses, including to satisfy matured notes. To

address the plaintiffs’ transparency concerns, the defendants must give the

plaintiffs two business days’ notice of the amount and obligation at issue for

ordinary course sales or transfers.

The amount of the bond is trickier. “[T]he court should ‘err on the high

side’ in setting the bond.”26 At the same time, TMTG’s stock price is volatile. It is

difficult to say whether the bond should be based on the date the case was filed, the

Status Quo Order was entered, or of this decision. Worse, it is impossible to

estimate ARC’s potential losses based on TMTG’s stock price in several months’

time when this case is resolved. The fairest measure of the bond is to base it on

TMTG’s closing stock price the trading day before the bond becomes

26
Guzzetta, 7 A.3d at 470.
C.A. No. 2024-0311-LWW
June 5, 2024
Page 8 of 9

due (i.e., the trading day before the approval of either ARC’s registration statement

or its audited financials, whichever comes first). For example, if the stock price

closes at $30 per share the day before the bond is triggered, the plaintiffs would be

obligated to post a bond of $46,243,200 within one business day of the triggering

event. The plaintiffs should immediately begin preparing to post the bond and

carefully monitor the stock price.

Given the likely size of the bond and that the plaintiffs are individuals, I am

mindful that the bond may create an obstacle to pursuing this case.27 In the

exercise of my discretion, I conclude that the plaintiffs must post security

representing 10% of the bond amount. To use the above hypothetical, security of

$4,624,320 would be required.

III. CONCLUSION

The plaintiffs must post a partially secured bond, as outlined above, based

on the closing price of TMTG stock the trading day before ARC’s registration

statement or its audited financials are approved, whichever comes first. The bond

is due within one business day of the earlier of those events. If the plaintiffs fail to

27
Cf. Gimbel v. Signal Cos., Inc., 316 A.2d 619 (Del. 1974) (dissolving an injunction
where the plaintiff could not post a security).
C.A. No. 2024-0311-LWW
June 5, 2024
Page 9 of 9

timely post the requisite bond, paragraph 3 of the Status Quo Order will be

ineffective in accordance with Rule 65(c) until they do so.

IT IS SO ORDERED.

Sincerely yours,

/s/ Lori W. Will

Lori W. Will
Vice Chancellor