Thomas McKenna v. David Singer
11371-VCMR
| Del. Ch. | Jul 31, 2017Background
- David and Daniel Singer (Singers) own Robison Energy (SEG subsidiary); Thomas and Garrett McKenna (McKennas) proposed forming financing entities (REF; Green Energy Companies) to fund oil-to-gas conversions and joined as members but the ventures had little/no assets.
- Brean Capital introduced Westport, which offered term sheets to invest primarily in Robison Energy and to form a new investor vehicle; Westport’s term sheets allocated capital accounts based on asset contributions and did not grant capital accounts to the McKennas.
- Negotiations between the Singers, Westport, and the McKennas deteriorated: Westport and the Singers expected the McKennas to be employees (or to contribute assets for capital accounts); the McKennas sought equity/capital accounts and board seats.
- The Singers and Westport formed GEC Holdings and closed the deal on Westport’s terms without giving the McKennas capital accounts or employment agreements.
- The McKennas sued for breach of fiduciary duty, unjust enrichment, aiding and abetting, and conspiracy (derivatively on behalf of REF and Green Energy Companies). The Singers counterclaimed for fraudulent misrepresentation.
- At trial, the court found the McKennas made material misrepresentations about their experience, that REF/Green Energy Companies had no entitlement to the Westport opportunity, and ruled for defendants on all claims; the Singers’ fraud counterclaim also failed on damages/causation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs are entitled to equitable relief given their misrepresentations (unclean hands) | McKennas sought equitable remedies (share in GEC Holdings) based on duties formed when entities were created. | Singers argued the McKennas’ prior misrepresentations about experience infected the formation and bar equitable relief. | Court: McKennas have unclean hands; misrepresentations bore an immediate and necessary relation to the claims and bar equitable relief. |
| Whether the Westport investment was a corporate opportunity belonging to REF or Green Energy Companies | McKennas: Westport opportunity was the financing opportunity that belonged to the joint ventures and was misappropriated by the Singers. | Singers/Westport: Westport’s deal was primarily an investment in Robison Energy; REF/GEC had no interest/expectancy and were not financially able to exploit it. | Court: No breach — REF/GEC/ McKennas had no interest or expectancy in the Westport opportunity; core Westport terms made clear capital accounts required asset contributions. |
| Whether the Singers breached a duty to disclose or engaged in forbidden secret dealings with Westport | McKennas: Singers secretly negotiated with Westport and excluded the McKennas, breaching loyalty/disclosure duties. | Singers: Westport’s terms focused on Robison Energy; McKennas were aware they were not getting capital accounts and thus had no right to be included on those negotiation particulars. | Court: No breach — disclosure obligations satisfied; McKennas had fair notice and acted as negotiating counterparties rather than fiduciaries regarding the Westport deal. |
| Aiding and abetting / civil conspiracy and unjust enrichment claims arising from the alleged misappropriation | McKennas: Westport/GEC/SEG aided misappropriation and were unjustly enriched by McKennas’ contributions. | Defendants: No underlying fiduciary breach; any value provided to defendants was compensated ($20,000 invoice) and damages not proven. | Court: Claims fail — because underlying fiduciary breach not proven and unjust enrichment damages unproven. |
| Fraud counterclaim by Singers/SEG (fraudulent inducement) | Singers: McKennas misrepresented credentials and underwriting of Mount Hope; they relied to their detriment. | McKennas: Singers relied on Westport and did not justifiably rely on the alleged misrepresentations for the financing decisions. | Court: Counterclaim fails — misrepresentations proven but plaintiffs did not demonstrate justifiable reliance causing the monetary damages sought (Westport/Smith provided underwriting role; Mount Hope reliance was on Westport). |
| Fee shifting for bad-faith litigation conduct | McKennas sought fees; Singers reserved right to seek fees. | Parties argued the other engaged in unnecessary filings/delay. | Court: Denied fee shifting; no party’s litigation conduct met the bad-faith standard. |
Key Cases Cited
- Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939) (corporate opportunity rule and fiduciary duties)
- Broz v. Cellular Info. Sys., Inc., 673 A.2d 148 (Del. 1996) (articulation of corporate opportunity test)
- Thorpe by Castleman v. CERBCO, Inc., 676 A.2d 436 (Del. 1996) (applying corporate opportunity test where competing transactions are substitutes)
- Hollinger Int’l, Inc. v. Black, 844 A.2d 1022 (Del. Ch. 2004) (controlling stockholder concealed an asset sale opportunity; paradigmatic breach of disclosure/duty)
- Nakahara v. NS 1991 Am. Trust, 718 A.2d 518 (Del. Ch. 1998) (clean hands doctrine and equitable discretion)
- Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985) (duty of care standard for directors)