Three fiduciaries of a now-shuttered Pacific states restaurant chain and its affiliates must face a claim in Delaware that they breached or aided breaches of fiduciary duties to the venture's Oregon-based affiliate, brought by an investor that pumped $18 million into the business, a vice chancellor ruled on Wednesday.

Vice Chancellor Bonnie W. David retained one of four counts in the Delaware Court of Chancery complaint brought by investor MGG SPV Duck LP in February. The suit alleged management failures and conflicted moves that directed the $18 million — described as originally intended only for Oregon operations of Shari's Restaurant — to Washington state and California affiliates and activities instead.

Vice Chancellor David found that, after the suit was filed in early 2023, MGG "gained access" to financial documents of the restaurant's parent company Gather Holdings Group LLC showing that those named "had been drawing on [a] commingled account to pay expenses of the non-Oregon business. The debits were allegedly partially recorded as credits on the Oregon balance sheets, but without any actual transfer of cash to balance" the account.

"It is reasonably conceivable that the subsidiary's officers breached their duty of loyalty by causing the corporation to 'loan' funds to GHG's other business lines, without security or any expectation that such funds could ever be repaid, in order to further the personal interests of GHG's chief executive officer — who personally guaranteed loans to those other businesses that otherwise would have gone unpaid," the vice chancellor said.

MGG intended the $18 million for Oregon operations of GHG's Shari's Restaurant Group Inc. and Shari's Management Corp., the complaint said. The funds were invested through preferred stock in one of GHG's Oregon-side subsidiaries and loaned to another of the company's indirect affiliates.

Behind the investor's preference for Oregon operations, the vice chancellor wrote, were "attractive" features that included a "potentially lucrative state-licensed video lottery gaming" operation there.

At the center of the complaint was Samuel Borgese, a South Carolina resident and holder of nearly all interests in GHG and the former CEO of Shari's Restaurant Group and Management Corp., along with those two companies' Chief Financial Officer Daniel Smith, and Leslie Crook, the president of Shari's Management Corp.

An amended version of the complaint that produced the decision Wednesday alleged that Borgese "limit[ed] expenditures of capital on vitally needed maintenance" at the Restaurant Group and Management Corp. affiliates so that he could instead use those funds to pay expenses for the non-Oregon business, including "a term loan and receivables financing [that] Borgese made and personally guaranteed."

The lone surviving count alleged that Borgese breached his fiduciary duties as an officer and "de facto manager" of the two affiliates, as did Crook, accused of breaching duties as an officer of Shari's Management Corp.

Allegations in the complaint, the vice chancellor found, support a reasonably conceivable inference that Borgese committed self-dealing by transferring funds out of the corporation to avoid personal liability, and that Crook and Smith acted at his behest, supporting a claim for breach of the duty of loyalty.

Two of the dismissed counts were blocked by provisions in a GHG agreement limiting the personal liability of those named, while the third count that was tossed alleged breaches of the implied covenant of good faith and fair dealing,

MGG is represented by John L. William and Brian C. Crawford of The Williams Law Firm PA, and Nicholas J. Rosenberg and Joshua Gardner of Gardner & Rosenberg PC.

Borgese, Smith, Crook and GHG are represented by Andrew D. Kinsey and Matthew Fox of Benesch Friedlander Coplan & Aronoff LLP.

The case is MGG SPV Duck LP, directly and derivatively, on behalf of Shari's Restaurant Group Inc. and Shari's Management Corporation v. Samuel Borgese et al., case number 2025-0196, in the Court of Chancery of the State of Delaware.