C.A. No. 2018-0243-AGB
Del. Ch.Jun 4, 2019Background
- Goins, a former Coca-Cola employee, partnered with Taylor to acquire Coca‑Cola bottling franchises; Taylor formed holding and operating LLCs that ultimately owned the Florida territories.
- Taylor (through entities he controlled) granted Goins a Restricted Unit Agreement (RUA) for 1,235 Class B units with multiple vesting components (base, sales, gross profit, EBITDA, North/South expansion) and an express repurchase right at "Fair Market Value" to be determined in good faith by Holdings' Manager (Taylor).
- Goins alleged Taylor delayed documenting equity, changed vesting targets in October 2017, and terminated Goins in March 2018; Holdings repurchased vested units for $0 and forfeited unvested units.
- Goins sued in Florida; defendants filed this Delaware action and moved to dismiss Goins’ Delaware counterclaims. Goins amended counterclaims asserting breach of contract/RUA, breach of the implied covenant, unjust enrichment/quantum meruit, and fraud relating mainly to valuation/vesting and a withheld 2016 bonus.
- The Court considered whether (a) the RUA/LLC Agreement were breached or exercised in bad faith in valuing or vesting units, (b) implied‑covenant claims were viable for disputed vesting, and (c) extra‑contractual claims (unjust enrichment, quantum meruit, fraud) survived.
Issues
| Issue | Plaintiff's Argument (Taylor/Holdings) | Defendant's Argument (Goins) | Held |
|---|---|---|---|
| Whether Count I (breach of RUA/LLC) adequately pleads a contractual breach under the LLC Agreement | No specific LLC provision identified; Taylor not party to RUA | Holdings and Taylor acted in bad faith in valuing/repurchasing units for $0 | Dismissed in part: breach under LLC Agreement dismissed for lack of identified provision; RUA breach claim survives as to Holdings' bad‑faith valuation of repurchased units (not as to Taylor personally) |
| Whether RUA valuation at $0 states bad‑faith contractual claim | Manager exercised discretion properly; valuation was permitted | Allegations plausibly show conflict, use of improper metrics, timing motive, lack of supporting analysis — bad faith | Survives against Holdings: pleadings viewed in totality make bad faith reasonably conceivable; Taylor not personally liable under RUA |
| Whether implied covenant can be used to challenge determinations of vesting and timing | Express RUA terms govern; implied covenant cannot override explicit forfeiture/vesting dates | Manager’s discretionary determinations were exercised in bad faith (proration, 2016 metrics, 2017 target changes and timing) | Mixed: implied covenant claims survive as to discretionary vesting determinations for 2015 prorating, 2016 components, and 2017 sales/gross profit/EBITDA timing/metrics; fail as to express, date‑certain vesting (2017 base and expansion second‑anniversary vesting) and fail against Taylor personally |
| Whether unjust enrichment/quantum meruit/fraud claims tied to the forgone 2016 bonus survive | Bonus entitlement governed by Employment Agreement; statements were opinion/prediction | Taylor induced waiver by misrepresenting equity value and promising value | Dismissed: unjust enrichment and quantum meruit precluded by express employment contract; fraud insufficiently pleaded (vague opinion/prediction; timing and particularity defects) |
Key Cases Cited
- Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (motion to dismiss standards in Court of Chancery)
- Abry P'rs V, L.P. v. F & W Acq. LLC, 891 A.2d 1032 (Del. Ch. 2006) (fraud pleading particularity under Rule 9(b))
- Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview‑Oxbow Acq., LLC, 202 A.3d 482 (Del. 2019) (implied covenant applies when contract grants discretion that must be exercised in good faith)
- Wallace ex rel. Cencom Cable Income P'rs II, Inc. v. Wood, 752 A.2d 1175 (Del. Ch. 1999) (only parties to a contract may be sued for breach)
- Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006) (opinions/predictions generally not actionable fraud)
- Vichi v. Koninklijke Philips Electronics, N.V., 85 A.3d 725 (Del. Ch. 2014) (statements of opinion/prediction cannot support common law fraud)