JOHN JOSEPH SMITH, IV, KENILWORTH VENTURES, LLC, JOHN JOSEPH SMITH, IV, as trustee of the JJS 2015 Trust, JOHN JOSEPH SMITH, IV, as trustee of the John J. Smith Revocable Trust, KENILWORTH DESIGN BUILD, LLC, Plaintiffs, v. THOMAS M. SCOTT, CA VENTURES, LLC, CAR TEAM HOLDINGS, LLC, CA STUDENT LIVING TEAM HOLDINGS, LLC, CA SENIOR, LLC, aka CA SENIOR LIFESTYLE, LLC, aka CA SENIOR LIVING, LLC, CA STUDENT LIVING TEAM MANAGER, LLC, CA STUDENT LIVING HOLDING COMPANY, LLC, CAV GLOBAL, LLC, CAV EUROPE HOLDING, LLC, CA INDUSTRIAL, LLC, CA DESIGN BUILD, LLC, CA SENIOR LIVING INVESTMENT MANAGEMENT, LLC, CASL INVESTMENT MANAGEMENT, LLC, CA RESIDENTIAL INVESTMENT MANAGEMENT, LLC, CA VENTURES HOLDING, LLC, CA STUDENT LIVING TEAM MANAGER, LLC, CA STUDENT LIVING OPERATING COMPANY, LLC, CA MANAGER, LLC, ANTHONY DiBIASE, CA VENTURES INVESTMENT MANAGEMENT, LLC, CAMPUS ACQUISITIONS MANAGEMENT, LLC, Defendants.
C.A. No. 2020-0263-JRS
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
April 23, 2021
SLIGHTS, Vice Chancellor
Date Submitted: April 15, 2021
David E. Wilks, Esquire and D. Charles Vavala, Esquire of Wilks Law, LLC, Wilmington, Delaware, and Douglas Albritton, Esquire of Actuate Law LLC, Chicago, Illinois, Attorneys for Plaintiffs.
Robert A. Penza, Esquire and Stephen J. Kraftschik, Esquire of Polsinelli PC, Wilmington, Delaware and Anthony C. Porcelli, Esquire and Scott M. Gilbert, Esquire of Polsinelli PC, Chicago, Illinois, Attorneys for Defendants.
SLIGHTS, Vice Chancellor
Plaintiffs’ Verified Complaint comprises seven counts.2 Count I seeks a declaratory judgment that Smith‘s termination was without cause and in bad faith, that his Vested Interests were not forfeited and that Defendants are required to repurсhase the Vested Interests at fair market value.3 Count II alleges breach of contract arising from Defendants’ breach of the CA Ventures LLC Agreements
Defendants have moved to dismiss most, but not all, counts of the Complaint. They seek dismissal of Counts I and II only to the extent Plaintiffs seek a judgment compelling Defendants to pay the fair market value of the Vested Interests.9 Defendants seek dismissal of all other counts for failure to state viable claims. The implied covenant claim fails, they say, because the conduct at issue is governed
As explained below, my ruling is a mixed bag. As for Defendants’ request that I dismiss Plaintiffs’ prayer for a buyout remedy, the request is premature. It is reasonably conceivable that the buyout remedy falls within the reasonable expectancy of the parties at the time of contracting. Likewise, the implied covenant claim survives because it is reasonably conceivable, as alleged, that Defendants manufactured bases to terminate Smith for cause in violation of the covenant of good faith that is implied within Smith‘s employment contract and the LLC Agreements. The conversion claim survives because, at least for now, it is reasonably conceivable that it is not duplicative of the breach of contract claim. Finally, Plaintiffs’ claim for violation of the Wage Act well pleads that Smith‘s Vested Interests can reasonably be considered “earned wages” and that the forfeiture of such interests, assuming the allegations in the Complaint are true, amounts tо an improper deduction from those wages.
Plaintiffs remaining claims must be dismissed. The breach of fiduciary duty claim fails because it is supplanted by the contractual standards of conduct set forth
I. BACKGROUND
I have drawn the facts from well-pled allegations in the Complaint and documents incorporated by reference or integral to that pleading.10 For purposes of the motion, I accept as true the Complaint‘s well-pled factual allegations and draw all reasonable inferences in Plaintiffs’ favor.11
A. Parties
Plaintiff, Smith, was an employee of Defendant, Scott, for nearly thirteen years, serving as an executive in connection with a number of ventures Scott owned and operated.12 He is a resident of the State of Illinois.13
Plaintiff, JJS 2015 Trust, is an Illinois trust, with Smith acting as sole trustee.16 Similar to Kenilworth Ventures, this entity held several of Smith‘s Vested Interests.17
Plaintiff, John J. Smith Revocable Trust (“JJS Revocable Trust“), is also an Illinois trust, with Smith acting as sole trustee.18 Again, this entity owned certain of Smith‘s Vested Interests.19
Defendant, Scott, founded and operates in some form each of the fifteen LLCs listed in Column 1 of the chart below.22 Like Smith, he is a resident of Illinois.23 As indicated, the chart lists each of the relevant CA Ventures Subsidiary LLCs, all of which are Delaware LLCs, and each individual or LLC that managed the LLC, as well as the corresponding Vested Interest that Smith either claims directly or through one of his wholly owned or controlled entities:
Remainder of Page Intentionally Left Blank
| Entity | Manager/Managing Member | Smith‘s Initial Ownership/Investment |
|---|---|---|
| CA Ventures, LLC24 | Thomas Scott | N/A |
| CAR Team Holdings, LLC25 | CA Ventures Holdings, LLC | JJS 2015 Trust: 200,000 units |
| CA Student Living Team Holding, LLC26 | CA Student Living Team Manager, LLC | JJS 2015 Trust and Smith individually: 220,000 units |
| CA Student Living Team LLC27 | CA Student Operating Company, LLC | Kenilworth Ventures: 17.021% profits interest |
| CA Senior, LLC28 | CA Senior Manager, LLC | Kenilworth Ventures: 12.15% membership interest plus an additional $160,000 investment |
| CA Student Living Holding Company, LLC29 | CA Manager, LLC | Kenilworth Ventures: 8.15% membership interest plus an additional $313,000 investment |
| CAV Global, LLC30 | Anthony DiBiase | Kenilworth Ventures: 5% membership interest |
| CAV Europe Holdings, LLC31 | CA Manager, LLC | (1) JJS Revocable Trust: 5% membership interest (2) Plaintiffs collectively: $100,000 investment |
| CA Industrial, LLC32 | CA Manager, LLC | (1) Kenilworth Ventures: 7.5% membership interest (2) Plaintiffs collectively: $100,000 investment |
| CA Design Build, LLC33 | CA Manager, LLC | Kenilworth Design: 15% profits interest |
| CA Senior Living Investment Management, LLC34 | CA Ventures Investment Management, LLC | JJS Revocable Trust: 5% profits interest |
| CASL Investment Management, LLC35 | CA Ventures Investment Management, LLC | (1) JJS Revocable Trust: 2.8% profits interest (2) JJS 2015 Trust: 7.2% profits interest |
| CA Residential Investment Management, LLC36 | CA Ventures Investment Management, LLC | JJS Revocable Trust: 5% profits interest |
| Campus Acquisitions Management, LLC37 | Thomas Scott | N/A |
| CA Manager, LLC38 | Thomas Scott | N/A |
Scott founded CA Ventures in the mid-2000s as a vehicle to acquire student-housing apartments.39 Smith became CA Ventures’ first executive-level employee in 2007, at a time when the company “had less than $75 million in assets under management, annual revenue of less than $2 million, approximately 15 property-management personnel, and had never completed a new construction real-estate development project.”40
Today, CA Ventures has more than 1,300 employees and 135 assets under management worth more than $10 billion. It operates as a vertically integrated management company with a variety of real estate asset classes, including student, senior, multi-family, office, hospitality and international development opportunities.41 Each of the Defendants is either an LLC controlled by CA Ventures or a manager of an LLC controlled by CA Ventures (many of the managers themselves, as standalone LLC entities, are likewise controlled by CA Ventures).42 Scott sits atop all of these entities as the controller of CA Ventures.43
Smith has a background in architecture and started at CA Ventures as a project manager overseeing CA Ventures’ first ground-up development.44 Throughout his thirteen-year stint at CA Ventures and the CA Ventures Subsidiary LLCs, Smith sourced, created and oversaw the execution of nearly $6 billion in real-estate assets.45 For example, from 2007 to 2010, Smith oversaw nearly $300 million in assets across college campuses; from 2010 to 2015, he oversaw the creation of new buildings totaling over $1.5 billion in value creation; and in 2012, he played an integral role in the sale of certain assets for $627 million, which allowed Scott to expand into new lines of business and diversify CA Ventures’ product offerings.46 In recognition of his prior successes, Scott promoted Smith to the position of Chief Operating Officer of CA Ventures in 2015, a role he occupied until 2017.47
His responsibilities over the years spread across all of CA Ventures’ various business lines, and as a result, he received equity interests and other forms of incentive compensation from several of the CA Ventures Subsidiary LLCs.48
D. Smith‘s Termination
During a meeting in early January 2020, Scott informed Smith that he would be moved into a different role where he would continue to help CA Student Living, CA Industrial and CA Design Build.52 At the end of this meeting, Scott requested that Smith agree to forfeit a majority of his Vested Interests for no payment.53
When Smith refused the demand, Scott threatened that if Smith did not agree to forfeit his Vested Interests, he would be terminated from all of his CA Ventures positions for “cause.”59 To sweeten the sour “forfeit for nothing” deal, Scott offered
After Smith again refused to hand over his Vested Interests, CA Ventures and Campus Acquisitions Management, LLC, through Scott, advised Smith, by letter dated January 13, 2020, that he was terminated for “cause” effective immediately.62 The letter explained that the termination followed Smith‘s “persistent performance deficiencies that have continued despite repeated discussions regarding the need for improvement with respect to these deficiencies.”63 By way of example, the letter cited Smith‘s “habitual failure to dedicate a sufficient portion of [his] business time to performing [his] job duties . . . ,” causing, among other harm, CA Ventures to “absorb[] over $30 million in project cost overruns” over the course of three years.64 Because he was being terminated for “cause,” Scott informed Smith that he would lose his Vested Interests in at least eleven different CA Ventures Subsidiary LLCs.65
Each of the twelve relevant CA Ventures Subsidiary LLCs is governed by an LLC agreement (the “LLC Agreements“). The Defendants in which Smith maintains he possesses Vested Interests are divided into three categories, Group 1, Group 2 and Group 3, based on differences in their respective LLC Agreements.66 Groups 1 and 2 are populated based on the “cause” definition that exists in each LLC Agreement. The LLC Agreements for the “Group 1 Defendants,” which include CASL Investment Management, LLC, CAV Europe Holdings, LLC, CA Senior Living Investment Management, LLC, CA Residential Investment Management, LLC, CA Design Build, LLC and CA Industrial, LLC, define “cause” (with minor deviations) as follows:
with respect to any Person (other than the Managing Member), termination of such Person‘s or such Person‘s Key Person‘s Engagement with CA and/or any of its Subsidiaries (such that there is no longer an employment or service type relationship with any of the foregoing entities) by CA as a direct result of (in CA‘s sole discretion) any one or more of the following: (a) such Person or its Key Person having been convicted or entered a guilty plea or a plea of nolo contendere with respect to: (i) any felony and/or (ii) any crime involving moral turpitude, including misappropriation, embezzlement and similar crimes which, in any case pursuant to this clause (a), (x) was committed during the Person‘s or such Person‘s Key Person‘s Engagement with CA and/or any of its Affiliates and (y) results in material harm to the business of CA or any of its Affiliates; (b) (other than in the case of the Bakaya Member or its Key Person) such Person
or its Key Person having violated any rule or regulation of any regulatory agency or self-regulatory agency; or (c) (other than in the case of the Bakaya Member or its Key Person) such Person or its Key Person having intentionally and deliberately engaged in dishonesty, willful misconduct, willful or gross neglect, bribery, fraud, misappropriation, embezzlement or misrepresentation of material facts with respect to such Person‘s or Key Person‘s employment giving rise to material harm to CA or any of its Subsidiaries.67
The LLC Agreements for the “Group 2 Defendants,” which include CAR Team Holdings, LLC, CA Student Living Team Holdings, LLC and CA Student Living Team, LLC, contain a more expansive definition of “cause“:
“Cause” means, with respect to any Person (other than the Managing Member), termination of such Person‘s or such Person‘s Key Person‘s Engagement with CASLOC and/or any of its Subsidiaries (such that there is no longer an employment or service type relationship with any of the foregoing entities) by CASLOC as a direct result of (in the Company‘s sole discretion) any one or more of the following: (a) such Person or its Key Person having been indicted on charges of, or convicted or entered a guilty plea or a plea of nolo contendere with respect to: (i) any felony and/or (ii) any crime involving moral
turpitude, including misappropriation, embezzlement and similar crimes (whether related to the such employment, engagement or otherwise); (b) such Person or its Key Person having violated any rule or regulation of any regulatory agency or self-regulatory agency; (c) such Person or its Key Person having intentionally and deliberately engaged in dishonesty, willful misconduct, willful or gross neglect, bribery, fraud, misappropriation, embezzlement or misrepresentation of material facts with respect to such Person‘s or Key Person‘s employment giving rise to material harm to CASLOC or any of its Affiliates; (d) such Person or its Key Person having repeatedly and habitually refused to devote substantially all of such Person‘s or such Person‘s Key Person‘s business time and efforts to CASLOC and its Affiliates following and in direct contravention of express instructions given by Managing Member in writing (it being agreed that service on charitable and similar boards of directors shall not constitute such a refusal as long as any such involvement does not materially interfere with the performance of such Person‘s or such Person‘s Key Person‘s duties and obligations to CASLOC and its Affiliates); (e) a material breach or violation by such Person or by such Person‘s Key Person of any confidentiality, non-competition, non-solicitation or other similar contractual obligation or agreement binding upon such Person or such Person‘s Key Person in favor of CASLOC and/or any of its Subsidiaries, on the one hand, and CASLOC and/or any of its Affiliates, on the other hand; and (f) breach by such Person, in their capacity as a Participating Member, of this Agreement.68
The other potentially relevant provision in each LLC Agreement for the Group 1 and Group 2 Defendants, apart from the definition of “cause,” is the forfeiture provision. Of the Group 1 Defendants, the LLC Agreements for CA Industrial, LLC and CA Design Build, LLC do not permit forfeiture of Vested Interests, but in the event of termination for “cause,” these LLC Agreements do
For the “Group 3 Defendants,” which include CA Senior, LLC, CA Student Living Holding Company, LLC and CAV Global, LLC, the LLC Agreements governing those entities either do not contain a forfeiture provision, as is the case for CA Student Living Holding Company and CAV Global, or have a for “cause” definition that requires a criminal conviction, as in the case of CA Senior.71
II. ANALYSIS
The standard for deciding a Motion to Dismiss under
all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are “well-pleaded” if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and (iv) dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.72
A. Breach of the Implied Covenant of Goоd Faith and Fair Dealing
Smith alleges that Defendants ginned up a for cause termination as a means to strip him of his Vested Interests and thereby breached the covenant of good faith and fair dealing (the “Covenant“) implied in both his oral at-will employment agreement and the LLC Agreements. According to Defendants, the Covenant claims fail because they rest on matters that are fully and expressly addressed by written contract.
“Under Delaware law, the implied covenant of good faith and fair dealing inheres in every contract.”73 To sustain a claim for a breach of the Covenant, “a complaint ‘must allege a specific implied contractual obligation, a breach of that obligation by the defendant, and resulting damage to the plaintiff.‘”74 The Covenant
While the Covenant plays an important role in the administration of cоntractual relationships, its application “involves a ‘cautious enterprise’—inferring contractual terms to handle developments or contractual gaps that the asserting party pleads neither party anticipated.”77 The courts of Delaware undertake this enterprise with great care to ensure they are not rewriting the parties’ written contract or restructuring what one party now believes to have been a bad deal.78
As noted, Plaintiffs assert a claim under the Covenant with respect to both the at-will employment agreement and LLC Agreements. I address each in turn.
The application of the Covenant is particularly delicate when an employee in an “at-will” employment relationship with his employer seeks to invoke the Covenant to state a claim for wrongful termination. In these instances, the court must be mindful of the “concern that the implied covenant could swallow the [employment-at-will] doctrine and effectively end at-will employment.”79
Recognizing the need to strike a balance between the laudable purpose of the Covenant and the limited rights of an at-will employee, in DuPont v. Pressman, our Supremе Court held that an employee may bring a claim for breach of the Covenant only when the employer engages in “an act or acts [] manifesting bad faith or unfair dealing achieved by deceit or misrepresentation in falsifying or manipulating a record to create fictitious grounds to terminate employment.”80 Even here, however, the Covenant must be invoked and enforced cautiously. Pressman makes clear that terminating an at-will employee “based solely on personal motivations,” including
This court’s recent decision in Sheehan v. AssuredPartners provides useful guidance, post Pressman, regarding the application of the Covenant to a claim of wrongful termination brought by an at-will employee.82 There, the plaintiffs were terminated for “cause,” resulting in cancellation of certain of their equity interests in the company.83 The court noted that while the employment agreements laid out the process by which employment could be terminated for “cause,” that process did not address (or excuse) instances where the termination was carried out in “bad faith.”84 The court then clarified that while the plaintiffs would have to “prove at trial thаt [defendant] exercised its discretion in bad faith,”85 in order “[t]o survive a motion to dismiss, [] the [plaintiffs] only must allege that the termination decision was motivated by an improper purpose.”86
Defendants argue that Smith’s oral at-will employment agreement is contextualized by the LLC Agreements, and those agreements clearly define the meaning and implications of a firing for “cause,” leaving no room for the Covenant to operate.88 For example, each of the Group 2 Defendants’ LLC Agreements includes six separate ways that an employee’s termination will be deemed for “cause,” including when the employee “repeatedly and habitually refused to devote substantially all of such Person’s . . . business time and efforts to [the LLC].”89 Yеt, notwithstanding similar provisions in the employment agreements at issue there, the
2. The LLC Agreements
The LLC Agreements do not plainly cover the forfeiture of Smith’s Vested Interests under the circumstances alleged in the Complaint. As mentioned, the Covenant is intended “to handle developments or contractual gaps that the asserting
This is where Defendants’ reliance on West v. Access Control Related Enterprises, LLC is misplaced.94 There, a severance agreement plainly provided for certain payments to be made if the employee was terminated without cause.95 Subsequently, the employee was purportedly terminated for cause, as defined in an equity award incentive agreement.96 The two agreements were linked in a manner that caused the court to conclude that the definition of “cause” in the equity award incentive agreement filled any gap that may have arguably existed in the severance
Here, as explained, none of the operative contracts explain what is to happen if a party fabricates a basis to fire for cause in order to trigger a forfeiture of Vested Interests.98 It is at least reasonably conceivable that Smith’s bad faith termination for cause, and the resulting forfeiture of Smith’s Vested Interests, would not violate a specific term оf the LLC Agreements, but would constitute breach of the Covenant. Accordingly, the claims survive dismissal.
B. Breach of Fiduciary Duty
Smith alleges he was owed fiduciary duties and those duties were breached when Defendants wrongfully cancelled his Vested Interests. In response, Defendants argue Plaintiffs’ fiduciary duty claim fails because it is waived by the plain language of the LLC Agreements.
The
“Drafters of a limited liability company agreement ‘must make their intent to eliminate fiduciary duties plain and unambiguous.’”102 This court has determined
In the sentence immediately preceding the express waiver of traditional fiduciary duties, the LLC Agreements provide that the managing member must act “(i) in accordance with this Agreement and the implied covenant of good faith and
The fact that a plaintiff styles a breach of a contractual standard of conduct as a breach of fiduciary duty in his complaint, as Plaintiffs have done here, is not, alone, fatal to the claim.112 What matters is whether Plaintiffs have well pled either gross negligence or fraud. They have not. The phrase “gross negligence” does not appear in the Complaint a single time, and Plaintiffs make no effort to plead that Defendants acted without due care. Indeed, the allegations are that Defendаnts knew exactly what they were doing when they manufactured a for cause termination to get at Smith’s Vested Interests.
There is also no well pled claim of fraud. While Plaintiffs appear to argue that the LLC Agreements’ reference to fraud as a contractual standard of conduct somehow lessens their burden to plead fraud with particularity,113 that argument
Because the LLC Agreements waive traditional fiduciary duties and supplant them with contractual standards of conduct, and Plaintiffs fail to well plead breaches of those contractual standards, their breach of fiduciary duty claim must be dismissed.115
C. Conversion
Plaintiffs allege Defendants’ seizure of the Vested Interests constitutes conversion. Defendants counter that the claim fails because it duplicates Plaintiffs’ breach of contract claim.
Conversion, a claim sounding in tort, is “any distinct act of dominion wrongfully exerted over the property of another, in denial of [the plaintiff’s] right,
If Plaintiffs fail to prove that Defendants breached the LLC Agreements by manufacturing a termination of Smith for cause, then they would also fail in proving that Plaintiffs’ Vested Interests were converted. To reiterate, if Smith was terminated for cause, the Vested Interests, by contract, were forfeited.119 If the termination for cause was manufactured as justification to take from Plaintiffs what was rightfully theirs, however, that would plausibly meet the elements of conversion—there would be an “act of dominion wrongfully exerted” over the Vested Interests “in denial of [Plaintiffs] rights.”120
D. The Illinois Wage Payment and Collection Act
Plaintiffs allege the manufactured forfeiture of the Vested Interests violates the Wage Act. Defendants disagree and move to dismiss this statutory claim.
1. Vested Interests As “Earned Wages” or “Final Compensation”
The Wage Act requires employers to “pay every employee all wages earned during the semi-monthly pay period.”127 “Wages” are defined “as any compensation owed an employee by an employer pursuant to an employment contract or agreement between the 2 parties.”128 Based on this definition, and as explained below, it is
In Kim v. Citigroup, the court determined that certain unvested stock awards were part of an employee’s compensation and qualified as “earned wages” where the agreement providing such awards clearly stated the stock awards were intended as compensation.130 Here, the Complaint well pleads the Vested Interests were part of Smith’s compensation package as an employee of the CA Ventures entities, in addition to other standard salary and benefits.131 For example, Smith was awarded certain PPU awards in CA Residential, LLC and CA Student Living Holding Company, LLC based on his performance at the CA Ventures entities.132 And, looking at each LLC Agreement, it is clear that Smith and his related entities, in fact, held the interests they purported to hold.133
2. The Improper “Deduction” Under the Wage Act
Plaintiffs allege that because the forfeiture of Smith’s Vested Interests constitutes a “deduction” from final compensation, and this particular deduction did not meet the statutory requirements, the forfeiture is a violation of the Wage Act. The Wage Act prohibits “deductions by employers from wages or final compensation” unless certain conditions are met.137 Those conditions are satisfied if “such deductions are (1) required by law; (2) to the benefit of the employee; (3) in response to a valid wage assignment or wage deduction order; or (4) made with the express written consent of the employee, given freely at the time the deduction is made.”138
In the context of restricted stock options, the court in Kim held that the employers’ decision to withhold the options should be deemed a proper deduction because it was in response “to a valid wage deduction order with plaintiff’s express written consent, which was voluntarily given.”139 Here, there is no indication that
The Court of Chancery is a court of “limited jurisdiction;” it maintains subject matter jurisdiction “only when (1) the complaint states a claim for relief that is equitable in character, (2) the complaint requests an equitable remedy when there is no adequate remedy at law or (3) Chancery is vested with jurisdiction by statute.”141 In addition to these settled bases for subject matter jurisdiction, to avoid piecemeal litigation, the so-called “clean-up doctrine” provides Chancery the discretion to exercise subject matter jurisdiction over a claim at law if the plaintiff has stated a bona fide claim over which Chancery has original subject matter jurisdiction.142 With respect to claims for defamation, however, “the Court of Chancery, in all instances, lacks subject matter jurisdiction to adjudicate the questions of whether a defendant made a false statement about the plaintiff and whether it did so with actual malice.”143 The rationale for this perspective was well stated by Vice Chancellor
To the extent the parties would have me exercise subject matter jurisdiction over Plaintiffs’ defamation claim under the “clean-up” doctrine, I decline to do so.146 The “clean-up” doctrine serves the important function of avoiding, when appropriate, piecemeal litigation, but the historical imрerative that a jury, not a judge, should evaluate whether a defendant’s statements are defamatory shines even brighter.147 Accordingly, I will dismiss Count VII of the Complaint subject to the
F. The Claims Against DiBiase
When a plaintiff asserts claims against multiple defendants, at a minimum, his complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief” as to each defendant.148 To plead a viable claim of breach of fiduciary duty, for example, Plaintiffs must allege “sufficiently detailed acts of wrongdoing to place [each] defendant on notice of what [that defendant] purportedly did wrong.”149
The Complaint names DiBiase as a defendant in Counts I–VI.150 The only allegation against DiBiase is that, in his role as manager of CAV Global, LLC, he was controlled by Scott and could not “make any ‘major decisions’ without the consent of Defendant Scott.”151 Alleging that a manager is “controlled” by a wrongdoer is a far cry from alleging that the manager, himself, has engaged in
G. The “Buyout” Remedy
As noted, among Plaintiffs’ prayers for relief is a request that the Court order Defendants to pay Plaintiffs the value of the purportedly forfeited Vested Interests. Defendants maintain that this relief does not exist in the Court’s remedial toolbox. According to Defendants, in the event Plaintiffs prevail on their claims at trial, the only remedy they can achieve is reinstatement of the Vested Interests. While I disagree with this proposition as relates to the conversion claim for reasons already explained,154 the proposition may hold true with respect to the contract-related claims (Counts I–III). Even so, in my view, while it is not certain that a “buyout”
“Contract damages are designed to place the injured party in an action for breach of contract in the same place as he would have been if the contract had been performed. Such damages should not act as a windfall.”156 “Historically, damages for breach of contract have been limited to the non-breaching parties’ expectation interest.”157 “Expectation damages are measured by the losses caused and gains prevented by defendant’s breach.”158
In support of their argument that Plaintiffs have no right to a forced buyout, Defendants cite Blaustein v. Lord Baltimore Capital Corp., where our Supreme Court held that a minority stockholder did not possess an inherent right to be bought
Defendants next argue that the Group 1 and Group 2 Defendants’ LLC Agreements expressly provide for what happens in the event of forfeiture. In the case of all Group 1 and 2 Defendants (except for CA Industrial, LLC and CA Design Build, LLC), if Smith was fired for “cause,” he forfeits his entire membership interests.160 As for CA Industrial and CA Design Build, their LLC Agreements provide only for the return of Smith’s capital contribution and nothing more.161 While Defendants correctly describe the state of the forfeiture provisions in each
H. Punitive Damages
The Complaint seeks an award of punitive damages in both Count V (Conversion) and Count VII (Defamation). The defamation claim will be dismissed for want of subject matter jurisdiction on the condition that Plaintiffs may pursue the
III. CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss Counts IV and VII,165 as well as all claims against DiBiase and all prayers for punitive damages, is GRANTED. Defendants’ Motion to Dismiss Counts III, V and VI, as well as the “fair value” remedy sought in Counts I–III, V and VI is DENIED.
IT IS SO ORDERED.