Keynetics Shareholder Trust and Gary Lutin v. Keynetics Inc.

IN THE SUPREME COURT OF THE STATE OF DELAWARE

KEYNETICS SHAREHOLDER §
TRUST, §
a Delaware statutory and voting trust,§ No. 118, 2025
§
Defendant and Counterclaim § Court Below: Court of Chancery
Plaintiff Below, Appellant, § of the State of Delaware
§
and § C.A. No. 2022-0006
§
GARY LUTIN, §
a New York resident, §
§
Non-Party Below, Appellant, §
§
v. §
§
KEYNETICS INC., §
a Delaware corporation, §
§
Plaintiff and Counterclaim §
Defendant Below, Appellee. §
§
Submitted: October 15, 2025
Decided: October 20, 2025

Before SEITZ, Chief Justice; LEGROW and GRIFFITHS, Justices.

ORDER

The Court, having considered the briefs and the record below, rules as follows:

(1) This is an appeal from a Court of Chancery decision holding Keynetics

Shareholder Trust and its corporate trustee in contempt and imposing sanctions. The

court found that the Trust and its trustee repeatedly violated the court’s orders to stop

facilitating transfers of interests in Keynetics Inc. stock and the Trust that would
have jeopardized Keynetics’ S-corporation status. When lesser sanctions did not

compel compliance, the court ordered the Trust dissolved and imposed joint-and-

several liability for Keynetics’ fees and expenses among the Trust, its corporate

trustee, and the trustee’s controller.

(2) On appeal, the Trust and its corporate trustee’s chairman argue that the

court exceeded its discretion and made legal errors by imposing contempt sanctions

and ordering the Trust dissolved. The issues leading to the contempt finding were,

however, decided by the court’s un-appealed prior final orders and cannot be

revisited in this appeal. The sanctions were also well within the court’s discretion.

Accordingly, we will affirm the court’s judgment.

Facts

(3) Keynetics is a Delaware S-corporation.1 S-corporations do not pay

taxes. Instead, they pass income and losses through to stockholders, who recognize

the income and losses pro rata.2 An S-corporation’s stock may only be held by

“permissible” stockholders like individuals. Otherwise, it risks losing its pass-

1
App. to Opening Br. at A0591 [hereinafter A_] (Answer to Verified Complaint & Verified
Counterclaim at 42) [hereinafter Answer].
2
Keynetics, Inc. v. Keynetics S’holder Tr., 331 A.3d 202, 207 (Del. Ch. 2025)) [hereinafter Op. at
_].

2
through tax benefits.3 A corporation is not a permissible S-corporation stockholder.4

To protect its S-corporation status, Article 4.3 of Keynetics’ Certificate of

Incorporation – the “Charter Restriction” – allows it to issue Stop Transfer Notices

that prohibit transfers of its stock “reasonably likely” to affect its tax status.5

(4) The Trust is a Delaware voting trust which holds record title to

Keynetics stock.6 Voting trusts are only permissible S-corporation stockholders if

all beneficiaries are also permissible stockholders.7 Gary Lutin is the chairman of

the trustee corporation, Fair Value Investment, Inc.8 Lutin has communicated many

times with Keynetics’ representatives on behalf of the Trust and Trustee.9 The court

found that Lutin personally controls the Trust and the Trustee.10

3
26 U.S.C. §§ 1361(b)(1)(B), 1362(d)(4).
4
26 U.S.C. § 1361(b)(1).
5
A0077 (Amend. to Certificate of Incorporation of Keynetics Inc. at 3).
6
A0591 (Answer at 42).
7
26 U.S.C. § 1361(c)(2)(B)(iv).
8
A0605 (Jan. 19, 2019 Letter from Trust to Keynetics at 2) (Lutin identifying himself as Chairman
of the Trustee). Lutin joins this appeal because the court sanctioned him. Although the court also
sanctioned the Trustee, it did not appeal.
9
E.g., id. (letter from Trust to Keynetics, signed by Lutin).
10
Op. at 219 (“Lutin bears sole responsibility for the [Trust’s] actions. He is the sole decision-
maker for the Trustee and the [Trust].”).

3
(5) In 2017, the Trust acquired record title to its Keynetics stock when three

individuals – the Trust “Participants” – deposited their shares with the Trust.11 Later,

the Trust became bound by Keynetics’ Charter Restriction.12 In return for their

deposits, the Participants received beneficial ownership interests in the Trust through

instruments called Trust Certificates.13 The Trust Certificates correlate with the

number of Keynetics shares owned by the individuals.

(6) Five times in 2021, the Trustee notified Keynetics of agreements to

transfer beneficial interests in the Trust from the Participants to a buyer named John

Tully.14 Tully, however, refused to agree to the Charter Restriction.15 The Trust

argued that the restriction did not apply to a transfer of beneficial interests in the

Trust.16 Keynetics disagreed. It first issued Stop Transfer Notices and then filed a

Motion to Enforce the Charter Restriction, to prevent the transfer to Tully.17

(7) After a January 2023 hearing on the Motion, Tully agreed to the Charter

Restriction and obtained Trust Certificates. Keynetics and the Trust entered a

11
A0591 (Answer at 42).
12
A0593–94 (Answer at 44–45).
13
A0591 (Answer at 42).
14
A0594–99 (Answer at 45–50).
15
Op. at 208–09.
16
Id. at 209.
17
Id.

4
stipulated order and final judgment (“Final Judgment”). The Final Judgment stated

that “Trust Certificates, including the corresponding beneficial ownership interest in

Keynetics’ common stock held in record name by the Trust,” were bound by the

Charter Restriction.18 The judgment was not appealed.

(8) More transfer attempts followed. The Trustee notified Keynetics of an

October 2023 agreement for Tully to transfer his beneficial interest in the Trust to an

impermissible stockholder – the corporation Keynetics-Clickbank Investments, Inc.

(“Clickbank”).19 Lutin was Clickbank’s President.20 The Trustee offered Keynetics

an alternative to this transfer: Keynetics could buy the shares instead.21

(9) Keynetics refused to buy the stock and instead issued a Stop Transfer

Notice for the transfer agreement.22 The Trustee rejected the notice and claimed the

Charter Restriction and Final Judgment (together, “Transfer Restrictions”) did not

bar the transfer.23 That November, Keynetics filed a motion to enforce the Final

18
App. to Answering Br. at B002 [hereinafter B_] (Stipulated & Proposed Final Judgment at 2)
(emphasis added).
19
A0724–25 (Agreement for Assignment of Beneficial Ownership Interests).
20
A1040 (July 31, 2024 Letter from Fenwick to Lutin and Tully at 3) (“Mr. Lutin is both the
Chairman of the [Trustee] and the President of Keynetics-Clickbank Investments, Inc.”).
21
A0723 (Oct. 19, 2023 Notice of Offered Right of First Refusal).
22
A0734–36 (Oct. 30, 2023 Letter from Fenwick to Lutin).
23
A0738–40 (Email Exchange).

5
Judgment. Two weeks later, the court issued an Order to Show Cause to the Trust.24

The Trust never responded.25

(10) On January 5, 2024, the court entered a Supplemental Order and Final

Judgment (“Supplemental Judgment”) “clarifying” that the earlier stipulated Final

Judgment prohibited the transfer “of any interest in (i) the Trust, (ii) the Trust

Certificates, or (iii) the shares of Keynetics common stock held in record name by

the Trust” – unless permitted by the Transfer Restrictions.26 The Court also ordered

the Trust to pay all Keynetics’ legal fees and costs, totaling $117,450 (“First Fee

Award”).27 The Trust did not appeal the Supplemental Judgment.

(11) Undeterred, the Trust tried twice to transfer beneficial interests in the

Trust – these times, from a Participant to the Trust itself – for the stated purpose of

paying the First Fee Award.28 Again, Keynetics issued Stop Transfer Notices, and

then filed a Motion to Enforce the Final and Supplemental Judgments, as well as for

24
A0694 (Nov. 15, 2023 Mot. to Enforce & Mot. for Contempt at 1).
25
Op. at 210.
26
B030 (Supp. Ord. & Final Judgment at 4).
27
B031 (Supp. Ord. & Final Judgment at 5); B045–47 (Proposed Ord. Awarding Att’ys’ Fees; Ord.
Awarding Att’ys’ Fees).
28
A0835 (Agreement for Assignment of Beneficial Ownership Interests at 1); A0840 (Email
Exchange).

6
contempt.29 The Trust did not formally respond to a second Order to Show Cause,

but Lutin appeared at the hearing on the Motions.30 Afterwards, the court in the

“Second MTE Order”:

• [H]eld the [Trust] in contempt of the Final Judgment and First Fee Award;
• imposed [a] per diem fine on the [Trust] of $3,000 for each day it remained
in contempt;
• declared the transfers void ab initio;
• ordered the [Trust] not to proceed with the challenged transfers;
• awarded [Keynetics] its expenses (the “Second Fee Award”);
• found Lutin jointly and severally liable with the Trust for the Second Fee
Award;
• imposed a per diem fine on Lutin of $3,000 for each day the [Trust] is in
contempt of the Second Fee Award;
• held the [Trust] will be dissolved if it fails to pay either the First Fee Award
or the Second Fee Award within thirty days of the entry of the Second
Supplemental Judgment.31

The Second MTE Order became final on March 27, 2025 (belatedly, due to a filing

error).32

(12) Even this second round of sanctions, however, did not deter the Trust.

In July 2024, after the court issued its Second MTE Order, the Trustee sent yet

another agreement, this time to transfer beneficial ownership interests in Keynetics

29
A0854 (Email Exchange); B051 (April 29, 2024 Mot. to Enforce & Mot. for Contempt at 1).
30
B096 (June 26, 2024 Hearing on Mot. to Enforce & Mot. for Contempt at 2:7–9).
31
Op. at 211–12.
32
Id. at 213 (“Through inadvertent oversight, the court failed to enter an order approving the
amount sought.”).

7
stock (as opposed to in the Trust) from Tully to Clickbank.33 Shortly thereafter,

Keynetics issued another Stop Transfer Notice. The Trustee responded by claiming

the notice was invalid because the Transfer Restrictions did not apply to beneficial

interests in the stock.34 Keynetics filed a third Motion to Enforce.35

(13) The Trust, finally appearing in court, argued it was impossible to

comply with the previous orders to pay fees because it had no assets with which to

pay them.36 It asserted that, due to its status as a voting trust, it held only non-

transferable record title to the stock, and that the transferable beneficial interest was

held by the Participants and Tully. It claimed, therefore, it had no power to sell any

of the stock to pay the fees and was immune from any monetary sanction. 37

(14) The court was unconvinced. The Trust’s status as a voting trust, it

observed, made no difference: “The fact that the [Trust] holds [stock] for the benefit

of holders of beneficial interests does not matter, any more than the fact that a

corporation owns assets for the ultimate benefit of its stockholders.”38 What

33
A1016 (Agreement for Assignment of Beneficial Ownership Interests at 1).
34
A1042–45 (Email Exchange).
35
A0992 (Aug. 12, 2024 Mot. to Enforce).
36
A1091 (Nov. 22, 2024 Oral Argument on Mot. to Enforce & Mot. for Contempt at 31:16–22).
37
Id.; A1098 (Nov. 22, 2024 Oral Argument on Mot. to Enforce & Mot. for Contempt at 38:4–6).
38
Op. at 214.

8
mattered was that the Trust was a jural entity under Delaware law.39 And in any

event, the court held, the Trust’s governing document required the Trustee to pay any

contempt sanction.40 Finally, the court found that the Trust and its Trustee had shown

an ability to pay the debts, as they had employed several law firms.41 The court

therefore rejected an impossibility defense for the earlier-imposed sanctions.

(15) The court then issued new sanctions. It held that the most recent

transfer attempt, like the previous attempts, violated the Final and Supplemental

Judgments.42 Noting its lesser sanctions had proven ineffective, the court issued a

permanent injunction: (a) requiring the Trust to withdraw its consent to the latest

transfer agreement and not to recognize any similar assignment;43 (b) ordering the

Trust dissolved;44 (c) approving $109,793 for the Second Fee Award and awarded

Keynetics an undetermined Third Fee Award;45 (d) holding Lutin and the Trustee

39
Id.
40
Id. at 214–15.
41
Id. at 215.
42
Id.
43
Id. at 216.
44
Id. at 217–18.
45
Id. at 218.

9
jointly and severally liable with the Trust for the amounts due;46 and (e) barring each

from participating in any entity holding Keynetics stock.47

(16) The Trust and Lutin appeal from the court’s last order. They argue that

(a) all sanctions on the Trust are improper because the court conflated record

ownership with beneficial ownership, (b) the court erred as a matter of law and

exceeded its discretion by dissolving the Trust, and (c) the court exceeded its

discretion by sanctioning Lutin and the Trustee.

Standard of Review

(17) “A trial judge has broad discretion to impose sanctions for failure to

abide by its orders.”48 Its decision must be “just and reasonable,” and there must

have been “an element of willingness or conscious disregard” by the sanctioned

party.49 We review contempt sanctions to determine if the trial court exceeded its

46
Id. at 218–19.
47
Id.
48
Gallagher v. Long, 940 A.2d 945, 2007 WL 3262150, at *2 (Del. 2007) (TABLE) (affirming
Court of Chancery’s imposition of contempt sanctions for parties’ failure to make celebrity
memorabilia available for insurance-related inspection).
49
Id.

10
discretion, and review claimed errors of law de novo.50 We will uphold a trial court’s

factual findings unless they are clearly wrong.51

Analysis

(18) First, the Trust argues that the Court of Chancery erred by imposing

stop-transfer restrictions and sanctions on a legal entity that held only voting rights

to Keynetics’ stock. According to the Trust, because it controlled only the voting

power and not the beneficial interest in Keynetics stock, the Trust could not comply

with the court’s order to stop transferring beneficial interests in Keynetics’ stock.

(19) In its Final Judgment and Second MTE Order, however, the Court of

Chancery necessarily found that the Trust owned or controlled both the record and

beneficial ownership of the Keynetics stock held in trust.52 It prohibited the

defendants from causing “any transfer, assignment, or attempted transfer or

assignment of any interest in (i) the Voting Trust, (ii) the Trust Certificates, or (iii)

the shares of Keynetics common stock held in record name by the Voting Trust.”53

50
TransPerfect Global, Inc. v. Pincus, 278 A.3d 630, 645 (Del. 2022) (finding corporation in
contempt for filing separate action in Nevada and affirming Court of Chancery’s sanction awards).
51
In re Hurley, 257 A.3d 1012, 1017 (Del. 2021) (referring to standard as “clear error” and
applying contempt standards to affirm Superior Court’s sanctions for gag order violations).
52
See, e.g., A0756–58, 793 (Hearing on Cross-Mots. for Judgment on the Pleadings at 12:9–14:16,
49:20–22) (observing that the Trust owns Keynetics shares while the Trust Certificate owners hold
beneficial interests in the Trust).
53
B030 (Supp. Ord. & Final Judgment at 4) (emphasis added).

11
If the Trust disagreed with the court’s ruling, it could have appealed. Whether

correct or not, the court’s unappealed orders became final. The Trust is barred from

raising new arguments involving the same parties that could have been raised in the

earlier proceeding.54

(20) The Trust argues next that the court erred as a matter of law and

exceeded its discretion by ordering that the Trust be dissolved.55 Although “a

statutory trust shall have perpetual existence, and . . . may not be terminated or

revoked by a beneficial owner or other person except in accordance with the terms

of its governing instrument,”56 a court is not included in the list of individuals or

entities prohibited from terminating the trust. Thus, there is no statutory bar to

equitable dissolution of a statutory trust as a sanction for contempt.

(21) Under Court of Chancery Rule 70(b), the court can hold a party in

contempt who “fail[s] to obey a restraining or injunctive order, or to obey or to

perform any order.” It has broad discretion when choosing a remedy for contempt.57

54
Aveta v. Bengoa, 986 A.2d 1166, 1185–86 (Del. Ch. 2009) (quoting Hendry v. Hendry, 2006 WL
1565254, at *8 (Del. Ch. May 26, 2006) (in a contempt proceeding, res judicata applies to “‘all
claims that were litigated or which could have been litigated in the earlier proceeding.’”) (emphasis
added)).
55
Opening Br. at 26.
56
12 Del. C. § 3808(a).
57
Jagodzinski v. Silicon Valley Innovation Co., LLC, 2012 WL 593613, at *2 (Del. Ch. Feb. 14,
2012) (“This Court has broad discretion in formulating a remedy for violations of its orders.”)
(citing Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 176 (Del. 2002)).

12
Even though it must be exercised with great restraint, the court’s equitable power to

dissolve a trust for contempt, like its power to dissolve a solvent corporation, is

justified “upon a showing of gross mismanagement, positive misconduct by the

corporate officers, breach of trust, or extreme circumstances showing imminent

danger of great loss to the corporation which, otherwise, cannot be prevented.”58

(22) That showing has been made here. Lutin controlled the Trustee, which

controlled the Trust. Lutin controlled Clickbank. Multiple times, the court ordered

the Trust not to engage in transfer attempts. The Trust’s controller – Lutin, acting

for Clickbank – did so anyway, when he sought to have Clickbank – an

impermissible entity – take possession of Trust Certificates and Keynetics stock.

These attempts persisted even after the court specifically warned Lutin that any

further violations would result in the Trust’s dissolution.59 As the Court of Chancery

observed, orders “bind[] not only the named parties, but also ‘those identified with

them in interest, in “privity” with them, represented by them or subject to their

control.’”60 Parties in privity with the Trust – namely, Lutin and Clickbank – defied

58
Hall v. John S. Isaacs & Sons Farms, Inc., 163 A.2d 288, 293 (Del. Ch. 1960).
59
B096 (June 26, 2024 Hearing on Mot. to Enforce & Mot. for Contempt at 2:7–9).
60
Deutsch v. ZST Digital Networks, Inc., 2018 WL 3005822, at *10 (Del. Ch. June 14, 2018)
(quoting Regal Knitwear Co. v. N.L.R.B., 324 U.S. 9, 14 (1945)).

13
the court’s orders, even after being warned what consequences would follow. An

extreme remedy was warranted under the circumstances.

(23) Finally, the Trust and Lutin argue that the court exceeded its discretion

by imposing sanctions on Lutin and the Trustee. Although uncommon, “in

appropriate circumstances, an order can be enforced against non-parties.”61 These

are appropriate circumstances. Lutin controlled the Trust, the Trustee, and the

Clickbank corporation, each of which acted to further violations of court orders

which jeopardized Keynetics’ S-corporation status and resulted in needless

litigation. Imposing sanctions on Lutin and the Trustee was necessary to ensure

court orders were no longer defied through the “carrying out [of] prohibited acts

through [non-party] aiders and abettors . . . .”62 The court did not exceed its

discretion in sanctioning either Lutin or the Trustee.

(24) The Trust and Lutin concede that non-parties are subject to sanction,

but claim they are immune under 11 Del. C. § 3803(b). The statute limits personal

liability for trustees absent a clear waiver of that limitation in a trust document.63

Their argument fails, however, because the statute’s limitation of liability covers

61
Id. at *10 (citing CT. CH. R. 65, 70).
62
Id.
63
11 Del. C. § 3803(b).

14
monetary damages to another person, not a judicial order imposing contempt

sanctions.64

NOW, THEREFORE, IT IS HEREBY ORDERED that the judgment of the

Court of Chancery is AFFIRMED.

BY THE COURT:

/s/ Collins J. Seitz, Jr.
Chief Justice

64
STMicroelectronics N.V. v. Agere Sys., Inc., 2009 WL 1444405, at *3 (Del. Super. May 19, 2009)
(remarking in Rule 11 context that “[s]anctions and damages awards are qualitatively different”).

15