EFiled: Aug 15 2016 06:11PM EDT Transaction ID 59426930 Case No. 12660- IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE JAY MICHAEL BIEDERMAN, Plaintiff, v. DOMO, INC., a Delaware corporation, Defendant. ) ) ) ) ) ) ) ) C.A. No. VERIFIED COMPLAINT FOR INSPECTION OF BOOKS AND RECORDS PURSUANT TO 8 Del. C. 220 Plaintiff Jay Michael Biederman ( Plaintiff or Mr. Biederman ), by and through his undersigned counsel, upon knowledge as to himself and his own actions, and upon information and belief as to all other matters, files this Verified Complaint for Inspection of Books and Records Pursuant to 8 Del. C. 220 against Defendant Domo, Inc., a Delaware corporation ( Domo or the Company ), alleging as follows: NATURE OF ACTION 1. This is an action pursuant to 8 Del. C. 220 ( Section 220 ) to compel Domo to make certain books and records available for inspection by Plaintiff in his capacity as a stockholder of the Company. 2. As described in more detail below, Domo has engaged in a strategy of first outright refusing to produce books and records of the Company, and then purporting to offer inspection but only if Plaintiff agrees to have imposed on him an
overly burdensome and onerous confidentiality agreement which would force him to surrender certain key rights as a stockholder of the Company in exchange for receiving any documents. 3. Additionally, after Plaintiff asserted his rights to inspect books and records of the Company and a Wall Street Journal article focused on Plaintiff s effort to utilize Section 220, the Company sought to muzzle Plaintiff by filing an arbitration demand and suing Plaintiff in a Utah State Court on claims of disparagement and defamation. 4. Plaintiff seeks relief under Section 220, including attorney s fees and costs related to his efforts to date to enforce his rights under Section 220 and to defend himself with respect to the retaliatory litigation. THE PARTIES 5. Plaintiff Jay Michael Biederman is a stockholder of record of 64,166 shares of Class B Common Stock of the Company as evidenced by (1) Stock Certificate No. CB-254 (10,000 shares issued on January 14, 2015) (Ex. A), and (2) Stock Certificate No. CB-281 (54,166 shares issued on June 26, 2015) (Ex. B). Biederman was a former employee of the Company. 6. Defendant Domo, Inc. is a company incorporated under the laws of the State of Delaware with its principal place of business in Salt Lake City, Utah. The Company is a software development company that has focused on, among other 2
things, business intelligence solutions for enterprises of various sizes. According to recent reports in the media, the Company has been valued at approximately $2 billion in recent financing rounds. The Company s registered agent is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. JURISDICTION 7. This Court has subject matter jurisdiction under Section 220 which vests this Court with exclusive jurisdiction for disputes related to demands to inspect books and records of Delaware corporations. See 8 Del. C. 220(c) ( The Court of Chancery is hereby vested with exclusive jurisdiction to determine whether or not the person seeking inspection is entitled to the inspection sought. ). Additionally, this Court has jurisdiction pursuant to 10 Del. C. 341, which gives the Court of Chancery jurisdiction to hear and determine all matters and causes in equity. 8. Personal jurisdiction is proper in this Court because the Company is organized under the laws of the State of Delaware. FACTUAL ALLEGATIONS A. Biederman s Purchase of Class B Common Stock. 9. Plaintiff Jay Biederman was a former employee with Domo in Salt Lake City, Utah from August 2011 to February 2015. Biederman was recruited from his former employer Adobe Systems Inc. directly by Domo s CEO Josh James. Mr. 3
James and Mr. Biederman had been acquaintances in high school. Additionally, Mr. Biederman and Mr. James had worked together at Omniture Inc. and Adobe Systems Inc. 10. When Mr. Biederman was being recruited by Mr. James, Mr. James promised Mr. Biederman an equity stake in Domo specifically, 2/3 of one tenth of one percent of the Company according to Mr. James. After Mr. Biederman was employed by the Company, Biederman was offered equity in the Company. Specifically, Mr. Biederman was granted 70,000 stock options to purchase Class B Common Stock of the Company pursuant to the Domo, Inc. 2011 Equity Incentive Plan (the Incentive Plan ), upon the vesting of those options. 11. From Mr. Biederman s receipt of the stock options, he had questions regarding the number of outstanding shares of stock and the value of the stock. Additionally, Biederman wanted to know if he had truly been granted 2/3 of one tenth of one percent of the Company as had been promised by Mr. James. He also was aware that he would be paying taxes on the fair market value of the stock, as established by Domo, when he exercised his options. However, he was unable to obtain any information regarding this, or any information regarding the value of the Company s stock. 12. As of January 2015, 64,166 of Mr. Biederman s 70,000 options had vested under the Incentive Plan. On or about January 14, 2015, Mr. Biederman 4
purchased 10,000 shares of Class B Common Stock, at a total price $3,200.00. 13. Immediately following Mr. Biederman s purchase of the Common Stock, Biederman continued his request for information from the Company in order to help him value his shares. Biederman continued to meet with resistance from Domo s executives who refused to provide any information. 14. On or about February 4, 2015, only a few days after Mr. Biederman purchased his stock and sought information, Mr. Biederman was terminated by Domo. As part of his termination from the Company, Biederman entered into a Separation Agreement and Release (the Separation Agreement ). Despite Mr. Biederman s termination from the Company, he still maintained the 54,166 stock options that had vested and that had not been exercised. On or about June 24, 2015, Mr. Biederman purchased 54,166 shares of Class B Common Stock, the balance of his vested options, at a total price of $17,332.12. B. Biederman Continues His Effort to Seek Information from Domo. 15. Biederman remained concerned about the valuation of his shares of Common Stock, and continued to seek information. On or about January 2, 2016, Biederman reached out to a Domo executive, Mr. John Golightly, a member of Domo s finance team who had handled stockholder relations, stating: Hi John, 5
I would like to get a copy of the annual report and all the other financial details I am entitled to as a shareholder. If there is an annual shareholder meeting, I would like to be invited. Best, Jay Biederman Ex. C (email chain) at p. 5. 16. Three days later on January 5, 2016, email, Ms. Karen Moran, the Company s Vice President of Investor Relations & Treasury sent an email introducing herself, stating, At the current time we aren t providing annual reports or distributing financial information to shareholders. We also haven t hosted any annual shareholder meetings, although we plan to do at some point in the future. Once we commence with those activities we will make sure you are included. See Ex. C at p. 4. 17. Mr. Biederman responded back to Ms. Moran the same day, As I understand it, as a shareholder I am entitled to basic financial information about the company by law. Would you agree? If not, would you please explain? Ex. C at p. 4. Ms. Moran replied, copying the Company s Secretary and General Counsel Dan Stevenson, Esq.: Hi Jay, Since Domo is a privately held company, shareholders are not entitled to financial information as a matter of law. If there is a particular law or right that you re thinking of, I d be glad to take your question to our general counsel, but unlike publicly traded companies, private 6
companies are not obligated to disclose financial information to shareholders. Karen Moran VP Investor Relations & Treasury Id. (emphasis added). 18. After receiving Ms. Moran s email, Mr. Biederman responded back on January 7, 2016, noting to Ms. Moran that his stock certificate stated that he could obtain certain information. Biederman wrote: Hi Karen, My stock certificate states a statement of all the rights, preferences, privileges and restrictions granted to or imposed upon respective classes and or series of share of stock of the corporation and upon the holders thereof may be obtained by any stockholder upon request and without charge, at the principal office of the corporation, and the corporation will furnish any stockholder upon request, and without charge a copy of such request Would you please email me the statement of all the rights, preferences, privileges and restriction granted to or imposed upon all of the respective classes and or series of share of stock of the corporation? Ex. C at p. 3. Ms. Moran responded back that she would check with the legal team and revert back with a response as soon as I am able to. Id. 19. After waiting six days and having received no response from the Company, Mr. Biederman repeated his request for the information on January 13, 2016. See Ex. C. at p. 2. Mr. Biederman asked that Domo follow up with their counsel regarding Domo s position on whether or not Domo is required by the laws 7
of the State of Delaware to provide corporate financial documentation to a shareholder upon request as I am interested in obtaining this information if it is my right. Id. 20. The following day, Ms. Moran, again copying the Company s General Counsel, Mr. Stevenson, responded by sending a copy of Domo s Amended and Restated Certificate of Incorporation, a certificate of amendment (from July 2015), and copies of Mr. Biederman s stock option exercise agreements that Mr. Biederman had himself sent the Company. See Ex. C at p. 2. However, the Company refused to send the requested financial information. Ms. Moran stated: With regard to financial information, Domo does not provide financial information to common shareholders. Here s a link to more information on this point: http:// www.inc.com/encyclopedia/sec disclosure laws and regulations.html Companies that are privately owned are not required by law to disclose detailed financial and operating information in most instances. They enjoy wide latitude in deciding what types of information to make available to the public. Small businesses and other enterprises that are privately owned may shield information from public knowledge and determine for themselves who needs to know specific types of information. Id. (emphasis added). C. Biederman Issues a Formal Demand Under Section 220. 21. On February 3, 2016, Mr. Biederman sent a formal demand pursuant to Section 220 to Domo (the Demand ) (Ex. D). In the Demand, Mr. Biederman made clear that his purpose for his demand was to enable [him] to value [his] holdings in 8
Domo Common Stock, which potentially makes up a significant portion of [his] net worth. The Demand was made under oath and otherwise complied with all statutory requirements under Section 220. 22. Despite Mr. Biederman s compliance with Section 220, the Company continued its stonewalling. After one month of not receiving anything other than a statement from the Company s General Counsel that the Company was evaluating [Biederman s] request and will be in touch soon (see Ex. E at p. 3), Biederman emailed the General Counsel, Mr. Stevenson, on March 4, 2016, demanding the production of financials. 23. Rather than producing documents, Mr. Stevenson responded four days later claiming that he was not certain that he understood what Mr. Biederman was looking for. See Ex. E at p. 3. Biederman responded back on March 9, 2016: I have stated clearly what I am looking for in the affidavit. Please send the documents immediately and I will contact you if they are inadequate. Id. Thereafter, Mr. Stevenson replied on March 9, Before any information is shared, we ll need to have an NDA [non-disclosure agreement]. My questions relate to your stated purpose and what you re asking for. Let me know when you have a few minutes to talk. Id. at 2. 9
24. No documents were forthcoming and no NDA was forwarded. Recognizing that the Company was continuing to stall, Mr. Biederman emailed Mr. Stevenson again on March 22, 2016: Dan, Please send NDA via email. As I m sure you understand, all communications need to be in email, not over the phone. My request and intent can be clarified no further than what is stated in the affidavit, nor does it need be by law. Regards, Jay Biederman Id. The Company did not respond to this email. 25. On April 2, 2016, Mr. Biederman sent a follow-up email to Mr. Stevenson stating that he had not received the documents he had requested or the NDA. See Ex. E at 2 (concluding I must assume at this point that you are refusing to provide them. ). Rather than producing documents, the General Counsel responded: When you separated from Domo you signed a separation agreement. A copy of this agreement is attached for your reference. You were paid a $36,000 in [sic] severance under the terms of the agreement. As part of the agreement, you made several commitments to Domo, including a covenant in Section 8(a) not to disparage the Company or one or more of its employees or shareholders in any manner likely to be harmful to them or their business, business reputation or personal reputation It has come to my attention that you have breached this contractual obligation on multiple occasions [sic]. Domo reserves all of its rights to enforce the separation agreement, recover the severance amounts paid, and any other damages it is entitled to recover. 10
Id. at 1. After threatening Biederman with a claim of breach, Stevenson wrote with respect to Biederman s demand: With regard to your request, there is significant doubt about the purpose you ve cited. Just as important to Domo, your disregard for previous contractual commitments raises real concerns about entering into an NDA with you and entrusting you with sensitive information. Id. This was Mr. Biederman s last email exchange with the Company. D. The Wall Street Journal Runs an Article and Domo Files Suit. 26. On May 24, 2016, The Wall Street Journal ran an article entitled Startup Employees Invoke Obscure Law to Open Up Books written by Rolfe Winker. See Ex. F (the WSJ Article ). In the article, Mr. Winkler highlighted Biederman s own efforts to obtain financial information regarding his ownership of stock: For more than a year, Jay Biederman has pestered Domo Inc. for its financial statements. The former manager wants to estimate how much his tens of thousands of shares in the tech startup are worth. Domo, whose software analyzes corporate data, has rejected those requests, he said, keeping its financial records under wraps like most privately held startups. But the law may be on Mr. Biederman s side. He recently discovered section 220 of Delaware s corporate law, which can compel locally incorporated companies such as Domo to open up their books to shareholders. The law, little known in Silicon Valley, is a potentially valuable tool for thousands of tech workers who received stock awards to join fast-growing startups, as well as other small investors, who now question their shares worth. 11
Id. at pp. 1-2. The WSJ Article concluded: Id. at p. 5. Mr. Biederman, who last year exercised his options at 32 cents a share, said the company has asked him to sign a nondisclosure agreement before sharing financial information. He says Domo has yet to send it to him. A Domo spokeswoman declined to comment. 27. Eight days after the WSJ Article ran, Domo filed a Complaint in Utah State Court (the Utah Complaint ) seeking injunctive relief and damages for alleged defamation and breaches of Biederman s Separation Agreement and a Company Proprietary Information, Invention Assignment, Non-Competition and Arbitration Agreement. See Ex. G (Utah Complaint and exhibits thereto). 1 Additionally, Domo filed an AAA Demand for Arbitration (the AAA Demand ) against Biederman on June 2, 2016, seeking nearly $300,000.00 in damages on the 1 The Utah Complaint contains a number of baseless allegations related to Biederman s re-posting of articles concerning bad behavior at start-up companies on his Facebook page. See Ex. G (Utah Complaint) at 14. The Utah Complaint alleges that because the reposted articles discuss a frat house culture at certain start-ups, Biederman s post by inference casts Domo in a negative light and injured its reputation among prospective employees. Id. 14(a) and (b). Additionally, because Biederman reposted an article entitled Time for adult supervision at Domo? Domo alleges that Biederman is, by implication, suggesting that Domo is both deceptive and over-valued. Id. at 14(c). The Utah Complaint also pulls comments out of context (see id. at 14(d)) and falsely alleges that Biederman contributed to a Business Insider article which was entitled Insiders tell us that Domo, the $2 billion startup that out of nowhere, is full of hype. Id. at 14(f). 12
same day as the Utah Complaint. (Collectively, the Utah State Court and AAA proceedings will be referred to herein as the Utah Litigation. ) E. Domo s Purported Negotiation of an NDA. 28. Shortly after receiving notice of Domo s claims against, Mr. Biederman, through undersigned counsel, contacted Domo s counsel in Salt Lake City on June 9, 2016. Biederman s counsel stated that the timing of the Utah Litigation was obviously tied to both the WSJ Article and the effort of Biederman to enforce his rights as a stockholder pursuant to Section 220, and that Biederman would be seeking relief under Section 220 for the failure to allow inspection. Additionally, Biederman s counsel raised additional concerns, including the failure of Domo to hold an annual meeting and other concerns regarding his rights as a stockholder. 29. Domo s Utah counsel remained non-committal regarding whether he was aware of the WSJ Article and disclaimed knowledge of the demand for inspection. However, the day after the call with Domo s Utah counsel, Biederman s counsel was advised that Wilson Sonsini Goodrich & Rosati ( Wilson Sonsini ) would be handling all issues regarding the books and records inspection. 30. During the first call between Wilson Sonsini and Biederman s counsel on or about June 24, 2016, Wilson Sonsini promised that documents would be produced to Biederman, but that such production would be subject to a standard 13
NDA. However, the standard NDA in Domo s view was an NDA that would include a liquidated damages provision assessable against Biederman if he in any way breached the NDA. 31. Biederman s counsel immediately responded that an NDA with a liquidated damages provision was a complete non-starter and was by definition not a standard NDA. Biederman s counsel advised that if an NDA with a liquidated damages provision was sent over for review, Biederman would not sign it but would instead seek relief under Section 220. 32. On June 29, 2016, Wilson Sonsini sent its first draft of the NDA to Biederman s counsel. While the draft did not include a liquidated damages provision, it included a number of overly broad and onerous provisions, including: Provisions which shifted attorney s fees solely in favor of the Company in any action to enforce the terms of the NDA if the Company was successful in obtaining some form of relief ; Provisions which sought to have Biederman concede that the Utah Litigation did not arise or relate to Biederman s demand for inspection under Section 220; Provisions which described [p]rohibited usage as any other usage of the documents effectively placing the risk of breach on Biederman for an open-ended and undefined use; Provisions which acknowledged that even though Biederman was seeking to value his shares, Biederman would not be able to show the financial documents to anyone other than his Delaware counsel; and 14
Provisions which gave the Company rights to audit Biederman to determine whether documents had been shared and with whom they had been shared. 33. Perhaps most troubling was the fact that the confidentiality restrictions were so tight as to inhibit Plaintiff from potentially filing a claim to protect or enforce his rights as a stockholder even if on the face of the documents produced as part of the Section 220 inspection a claim emerged. The NDA had the effect of depriving Biederman of his rights as a stockholder. 34. Following a mark-up of the NDA by Biederman which sought to strike several of these provisions, and another revision by Domo which reinserted them, counsel held a meet and confer on July 19, 2016. During the meet and confer, Biederman s counsel stated, among other things, that while an NDA could be used to protect the confidentiality of the documents, it could not be used to prevent a party from filing a claim if the documents produced as a result of Section 220 production gave rise to the claim. For example, if the documents produced showed, for example, fraud, a party could not be inhibited from bringing a claim based on what was learned. 35. Domo refused to agree, claiming instead that because the Demand had focused on valuation of the stock, Biederman would need to broaden his Demand i.e., start-over if he received documents which gave rise to a claim. 15
36. Domo also raised concerns that Biederman was seeking to use the Section 220 as a means of discovery in the Utah Litigation. This was despite the fact that Domo had initiated the Utah Litigation. Domo insisted that Biederman would need to keep any documents received as part of the Section 220 demand out of the hands of his Utah counsel. 37. However, Biederman raised the issue that he needed the ability to communicate freely with his Utah counsel in support of his defense of truth to the alleged defamation/disparagement claims. Since Biederman was alleged to have damaged Domo by reposting articles concerning the value of the Company being hype, what Biederman learned as part of his review of valuation documents through the Section 220 inspection tied directly into his truth defense. 38. Domo also raised concerns regarding Biederman s striking of the onesided attorney s fee provision. Biederman s counsel advised that he was not willing to toss out the American rule in favor of Domo, a purportedly $2 billion company with a multi-million litigation budget who could bankrupt Biederman. 39. The parties agreed that Biederman would revise the Domo draft in an effort to work through the differences. A revised draft was sent to Wilson Sonsini on July 28, 2016. See Ex. H (email from Kittila to Sorrels). The draft NDA represented Biederman s best attempt at bridging the gap between the parties and receiving the documents he had been demanding for months. 16
40. Unfortunately, on August 2, 2016, Wilson Sonsini sent a further revised draft stating that it would not agree to key revisions in Biederman s draft of the NDA. See Ex. I (email from Sorrels to Kittila). While a concession was finally made on the attorney s fee provision, Domo continued (among other things) to refuse to allow Biederman to use the documents that he obtained in any action or potential action to defend or enforce Stockholder s rights as a stockholder of the Company even though Biederman agreed that he would take appropriate steps to maintain the confidentiality of any such filing or potential filing. Id. at redline pp. 3-4. 41. Domo s only solution to the issue was that Biederman would need to start over with the demand process something that would lead to only further delay and obfuscation of the issues involved. 42. Biederman remains plainly concerned that the abuses that he has suffered to date the outright refusal to provide information, the attempted imposition of onerous restrictions, the filing of baseless litigation resulting as a result of seeking to enforce his rights as stockholder will only continue unless there is Court intervention. At bottom, Biederman has not received any Company financials despite his right under Section 220. 17
F. Domo s Bad Faith Justifies an Award of Attorney s Fees. 43. The refusal of Domo to produce documents and the conduct at issue by Domo has been in bad faith. For months, Domo s officers refused to provide information, even in the face of direct authority under Delaware law providing a basis for the inspection of books and records. 44. Domo s own General Counsel, a purportedly practicing attorney sitting at the helm of a Delaware corporation, was made aware of the representations of a company officer that common stockholders were not entitled to financial information. Despite the obligation to respond within five business days, Domo s General Counsel, an officer of the Company, allowed months to pass without any information being provided. 45. In the face of a perfected demand for inspection, Domo s General Counsel began to raise issues of defamation, disparagement, and breach of various agreements in an effort to dissuade Biederman to forego his inspection demand. Thereafter, Domo filed the Utah Litigation as a direct result of Biederman exercising his rights as a stockholder of the Company. Additionally, the Utah Litigation was filed to muzzle Biederman after the WSJ Article was printed describing his issues with Domo and his exercise of his statutory rights as a stockholder of the Company. 18
46. Following intervention of Delaware counsel, Domo promised to produce documents, but then sought to apply an overbroad and onerous NDA that would effectively deprive Biederman of his ability to protect his rights as a stockholder. 47. The behavior by Domo and its officers to date have been completely contrary to Delaware public policy and have cost Biederman thousands in attorney s fees in seeking to defend his right as a stockholder. Domo s conduct is in bad faith and should result in a reversal of attorney s fees in favor of Biederman. Domo cannot justify its conduct under the law or in equity and is contrary to Delaware public policy. 48. Plaintiff has no adequate remedy at law. COUNT I (Inspection of Books and Records Under 8 Del. C. 220) 49. Plaintiff repeats and realleges paragraphs 1 through 48 of the Verified Complaint as if fully set forth herein. 50. Plaintiff, a stockholder of record of the Company, has delivered the Demand to inspect books and records of the Company. Plaintiff has fully complied with the provisions of Section 220 respecting the form and manner of the Demand. Plaintiff has further stated a proper purpose for his Demand and limited his Demand to materials that are essential for accomplishing such purposes. 19
51. The Company has outright refused to produce the requested books and records. After agreeing to produce the requested books and records after months of demands, the Company has said that it will only produce the information subject to an unreasonable and onerous confidentiality agreement. Thereafter, despite the best efforts of Plaintiff to negotiate a reasonable NDA, the Company has refused to agree. 52. As such, the Company has failed to comply with its duties under Section 220. 53. Plaintiff has no adequate remedy at law. PRAYER FOR RELIEF WHEREFORE, Plaintiff respectfully requests that the Court enter an Order: (a) (b) granting judgment in favor of Plaintiff and against the Company; summarily ordering the Company to provide to Plaintiff the requested books and records, including the books and records of the Company pursuant to Section 220; (c) making a finding of bad faith and/or awarding Plaintiff his costs and expenses incurred in bringing and prosecuting this action and defending himself in the Utah Litigation (as a result of the Section 220 Demand), including his attorneys fees; (d) maintaining jurisdiction over the parties related to Plaintiff s exercise of his inspection rights; and 20
(e) awarding such other and further relief as may be just and equitable in the circumstances. Dated: August 15, 2016 GREENHILL LAW GROUP, LLC /s/ Theodore A. Kittila Theodore A. Kittila (DE Bar No. 3963) 1000 N. West Street, Suite 1200 Wilmington, Delaware 19801 Phone: (302) 414-0510 x700 Fax: (302) 595-9346 Email: ted@greenhilllaw.com Counsel for Jay Michael Biederman 21