Urdan v. WR Capital Partners, LLC, 244 A.3d 668

Background

E3 (Energy Efficient Equity) was co‑founded by Jonathan Urdan and Kevin Kurka; Urdan and investor William Woodward were directors and majority equity holders. WR Capital (and managers Talerman and Walsh) provided successive financings that imposed governance controls and pledged founders’ equity as collateral.
The 2016 financing gave WR Capital warrants, board seats, and restrictions; later financings in 2017–2018 expanded WR’s economic stake and control and materially diluted the founders’ interests.
Plaintiffs sued for breach of fiduciary duty (Count I) and unjust enrichment (Count VII) related to the 2017 financing and related transactions.
Litigation resolved by three simultaneous agreements: a Settlement Agreement (with an express carve‑out preserving claims against WR Capital) and two Stock Repurchase Agreements under which plaintiffs sold “all of Seller’s right, title and interest” in their E3 stock to the company (no carve‑out in the repurchase agreements).
Court of Chancery dismissed plaintiffs’ remaining claims, holding (1) the repurchase transferred the rights that included the asserted claims, (2) the Settlement Agreement’s carve‑out could not be imported into the Stock Repurchase Agreements (and, in any event, the repurchase agreements’ conflict provision controlled), and (3) unjust enrichment claims were duplicative and also traveled with the stock sale. The Delaware Supreme Court affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Stock Repurchase Agreements incorporated the Settlement Agreement (and its carve‑out) by reference	Stock Repurchase Agreements reference the Settlement Agreement in recitals and §8.06; parties intended a unitary transaction so the carve‑out should apply	References are insufficient to incorporate; even if incorporated, the repurchase agreements’ conflict clause controls	Mere references do not compel incorporation; even if incorporated, the Stock Repurchase Agreements’ express conflict‑resolution clause gives primacy to the repurchase terms, so the carve‑out yields
Whether plaintiffs’ breach‑of‑fiduciary‑duty (dilution/economic) claims are personal/direct and survive sale of stock	The claims are personal to the sellers (not the stock) and thus did not travel with the shares sold back to E3	Dilution claims arise from the relationship among shareholder, stock, and company and thus are rights in the security that travel with resale	Held that dilution claims are not personal; they inhered in the stock and traveled with the sale, so plaintiffs lost standing
Whether unjust enrichment claim is independent and survives dismissal of fiduciary claims	Unjust enrichment alleges coercion and wrongful conduct that produced an unjust benefit independent of contract or fiduciary counts	The unjust enrichment theory duplicates the fiduciary/contract claims and depends on shareholder status; it also traveled with the stock sale	Dismissed: unjust enrichment is duplicative or parallel and, like the fiduciary claims, traveled with the sold shares
Whether ambiguity existed warranting extrinsic evidence on incorporation	Plaintiffs: ambiguity exists; trial court should consider extrinsic evidence	Defendants: ambiguity not preserved below; argument waived	Court declined to consider new ambiguity argument as waived; affirmation on the contract text and conflict clause

Key Cases Cited

Salamone v. Gorman, 106 A.3d 354 (Del. 2014) (contract interpretation reviewed de novo)
Ramirez v. Murdick, 948 A.2d 395 (Del. 2008) (Rule 12(b)(6) dismissals reviewed de novo)
Town of Cheswold v. Central Del. Bus. Park, 188 A.3d 810 (Del. 2018) (mere reference to related documents is typically insufficient for incorporation by reference)
Heartland Payment Sys., LLC v. InTEAM Assocs., LLC, 171 A.3d 544 (Del. 2017) (interpret contracts as written; background facts cannot override clear contract language)
In re Activision Blizzard, Inc. Stockholder Litigation, 124 A.3d 1025 (Del. Ch. 2015) (property rights associated with shares travel with those shares upon sale)
Schultz v. Ginsburg, 965 A.2d 661 (Del. 2009) (earlier characterization of economic‑dilution claims as personal was clarified/limited by later authority)
El Paso Pipeline GP Co. v. Brinckerhoff, 152 A.3d 1248 (Del. 2016) (recognition that some claims can be dual‑natured—both direct and derivative—in unique circumstances)
Sonitrol Holding Co. v. Marceau Investissements, 607 A.2d 1177 (Del. 1992) (contracts should be interpreted to avoid rendering provisions meaningless)
Rhone‑Poulenc Basic Chems. Co. v. American Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) (courts will not twist language to create ambiguity where none exists)
In re Triarc Cos., Inc. Class & Deriv. Litig., 791 A.2d 872 (Del. Ch. 2001) (sale of shares severs the seller’s economic relationship with the corporation; claims tied to the shares travel with the shares)
McPadden v. Sidhu, 964 A.2d 1262 (Del. Ch. 2008) (unjust enrichment may be available where a contract is alleged to have arisen from wrongdoing, but duplicative unjust enrichment claims are disfavored)