Wednesday, October 5, 2022
Nevada Business Court Makes Lawyer Who "happened to wander into the courtroom today" Co-CEO of Public Company
When I teach business law and corporations, I teach that a corporation's "board of directors has full control over the affairs of the corporation." If a dispute breaks out between the CEO of a corporation and the board of directors, the board's view controls because the board is ultimately in charge of the corporation's affairs. Of course, there may be room for questioning whether a valid board meeting occurred or the composition of the board for some reason, but the basic point that the board of directors gets to make these decisions struck me as largely settled law.
But you never know exactly what courts will do when a dispute ends up before them. This brings me to the governance dispute that broke out at Vinco Ventures, Inc. (NASDAQ: BBIG). According to its most recent 10-K, Vinco's business involved "digital media and content technologies." As of April, "[f]ive directors comprise[d] [Vinco's] board of directors: Lisa King, Roderick Vanderbilt, Elliot Goldstein, Michael J. DiStasio and Philip A. McFillin." King served as the CEO and Vanderbilt served as chair of the board. An 8-K filed on July 8th, stated that Theodore Farnsworth was appointed as co-CEO and made a member of the board of directors. The securities filing contain a good number of 8-Ks and announcements including other director changes and a notice of delisting from NASDAQ. I'm not certain how reliable the 8-Ks are because the Nevada complaint in the governance dispute alleged that 8-Ks have been filed containing "materially incorrect and misleading information."
Nonetheless, according to an 8-K filed on September 30th, the company recently settled litigation resulting in, among other things, that "Ross Miller is the sole CEO and shall run the Company under the oversight of the Company’s Board of Directors, with Lisa King and Rod Vanderbilt remaining as directors." Mr. Miller is a Nevada politician, former Secretary of State, and the son of former Nevada Governor Bob Miller. His Wikipedia page has yet to be updated to reflect his new role as the CEO of a public company.
How exactly did Mr. Miller become the CEO of Vinco? I'm still trying to puzzle that out. Many of the court records are available online.
In the interest of keeping this blog length, let's start with a business court order entered on August 19th. By way of factual findings, the Court stated that "The Parties disagree regarding the propriety of certain Board Meetings wherein persons were either selected or removed as Chief Executive Officer (“CEO”). Plaintiff contends that John Colucci has been selected as CEO and Defendants contend that Lisa King, Ted Farnsworth or both are the duly-elected CEO."
I would have approached this situation by sorting out the valid board of directors and allowing them to make the decision. That isn't what happened here.
The Court recognized both John Colucci and Lisa King as "co-CEOs of Vinco Ventures pending further order of the court." As Colucci and King apparently opposed each other, the Court stated that it believed that "it is in the best interest of Vinco Ventures to have an interim, neutral, and independent third co-CEO." It then appointed "an interim, neutral, and independent party—former Secretary of State of Nevada, Ross Miller, Esq.—to serve as a third co-CEO of Vinco Ventures pending further order of the Court." The Court then admonished all three co-CEOs "to make a good faith effort to work together in the best interests of Vinco Ventures."
How did Mr. Miller get picked for this role? A transcript of the relatively brief hearing reveals that the idea was pitched to the Court by one of Farnsworth's attorneys. As the attorney explained it "my proposal is going to be that Mr. Colucci, Lisa King, and then, a third-party, who just happened to wander in the courtroom today, because he was a witness in the case next door, Mr. Ross Miller, be appointed as co-CEO." The attorney then revealed that he had "vetted Mr. Miller. He said he'll do it. He used to be the Secretary of State of Nevada. If you remember, his father was the governor for 10 years not even 8, but 10 years. And he does do corporate law. And he says he's interested in it. So we're going to propose him as the co-CEO."
From the transcript, I gather that the Court thought this structure preferable to appointing a receiver. The Court stated that it knew "the receiver word, you know, it has a negative connotation."
Mr. Miller became one of three co-CEOs on August 19th and then pursuant to a settlement agreement entered into on September 28th became the sole CEO of Vinco. The day before on September 27, the SEC brought an enforcement action against Theodore Farnsworth alleging that he and others "intentionally and repeatedly made misstatements" in securities filings for a different public company.
One of the purported benefits of the Delaware Chancery Court is its predictable application of law and rich body of case law addressing questions.
Nevada offers an alternative. It's possible for a court here to appoint a lawyer who happens to wander into a courtroom as the co-CEO of a public company.