Case Title: Urdan v. WR Capital Partners, LLC

Citation: 

Docket Number: 

State: delaware

Court: Delaware Supreme Court

Date: 2020-12-08T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
JONATHAN URDAN, an individual 
and WILLIAM WOODWARD, an 
individual,  
 
                   Plaintiffs Below,  
                   Appellants, 
 
         v. 
 
WR CAPITAL PARTNERS, LLC, a 
Delaware limited liability company, 
WR E3 HOLDINGS, LLC, a 
Delaware limited liability company, 
HENRI TALERMAN, an individual, 
and FRANK W. WALSH III, an 
individual, 
 
                    Defendants Below, 
                    Appellees, 
 
          and 
 
ENERGY EFFICIENT EQUITY, 
INC., a Delaware corporation, 
 
                    Nominal  
                    Defendant Below.                        
 
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No. 423, 2019 
 
 
Court Below – Court of Chancery 
of the State of Delaware 
 
           
C.A. No. 2018-0343 
Submitted: September 30, 2020 
Decided: 
December 8, 2020 
 
Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, and MONTGOMERY-
REEVES, Justices, and RENNIE, Judge, constituting the Court en Banc. 
 
 
Upon appeal from the Court of Chancery.  AFFIRMED. 
                                           
 Sitting by designation under Del. Const. art. IV, § 12. 
 
 
 
 
Elena C. Norman, Esquire, Benjamin M. Potts, Esquire, YOUNG CONAWAY 
STARGATT & TAYLOR, LLP, Wilmington, Delaware; Louis R. Miller, Esquire, 
Daniel S. Miller, Esquire, Jeffery B. White, Esquire (argued), MILLER 
BARONDESS, LLP, Los Angeles, California; Attorneys for Appellants Jonathan 
Urdan and William Woodward. 
 
Kenneth J. Nachbar, Esquire (argued), Alexandra M. Cumings, Esquire, MORRIS, 
NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Attorneys for 
Appellees WR Capital Partners, LLC, WR E3 Holdings, LLC, Henri Talerman, and 
Frank E. Walsh III. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SEITZ, Chief Justice:
3 
 
The plaintiffs now appellants were two of three founding owners, investors, 
and directors of Energy Efficient Equity, Inc. (“E3” or the “Corporation”), a 
Delaware corporation operating in the property-assessed, clean-energy financing 
industry.  After a series of financing transactions with WR Capital Partners, LLC 
(“WR Capital”), the plaintiffs filed suit in the Court of Chancery against WR Capital 
and its representatives.  Among other claims, the plaintiffs alleged that the 
defendants breached their fiduciary duties and were unjustly enriched when they 
negotiated and approved the financing transactions that allowed them to take control 
of E3 from the founders. 
During the litigation, the plaintiffs entered into a settlement agreement and 
two stock repurchase agreements (the “Settlement Agreement” and the “Stock 
Repurchase Agreements”).  The plaintiffs settled with some of the defendants in 
exchange for payments and the sale of the plaintiffs’ stock to E3.  The Settlement 
Agreement contained a release, but carved out claims that the plaintiffs wanted to 
continue to pursue against the non-settling WR Capital and its representatives.  An 
inconsistency between the agreements arose, however, because the Stock 
Repurchase Agreements transferred “all of Seller’s right, title, and interest” in E3 
stock while only the Settlement Agreement contained a carve out for claims against 
the non-settling defendants (the “Release Carve Out”).     
4 
 
After the partial settlement, the Court of Chancery granted the defendants’ 
motion to dismiss.  Relevant to this appeal, the Court of Chancery found that the 
plaintiffs could not import the Settlement Agreement’s Release Carve Out into the 
Stock Repurchase Agreements; the plaintiffs lost standing to pursue their direct 
breach of fiduciary duty claims when they sold their E3 stock; and the plaintiffs’ 
unjust enrichment claims were duplicative of their breach of fiduciary duty claims 
and traveled with the sale of E3 stock.   
On appeal, the plaintiffs argue that the Court of Chancery should have found 
that the Stock Repurchase Agreements incorporate by reference the Settlement 
Agreement.  If that is the case, the plaintiffs claim they can preserve their claims 
against the remaining defendants.  If that argument fails, the plaintiffs fall back on 
the argument that their breach of fiduciary duty claims were personal and did not 
attach to the stock sold as part of the settlement.  Finally, they argue that the unjust 
enrichment claims are independent of the breach of fiduciary duty claims.    
We affirm the Court of Chancery’s judgment.  While the plaintiffs have an 
argument that the parties intended to treat the three agreements as a unitary 
transaction through incorporation by reference, that argument does not get them 
home.  The Settlement Agreement’s Release Carve Out conflicts with the complete 
transfer of all right, title, and interest in the plaintiffs’ E3 stock under the Stock 
Repurchase Agreements.  In the event of a conflict, the Stock Repurchase 
5 
 
Agreements plainly state that their terms control.  The plaintiffs’ remaining claims 
were also part of the rights accompanying the E3 stock sale, meaning the plaintiffs 
no longer had standing to bring these claims.  Finally, like the plaintiffs’ breach of 
fiduciary duty claims, the unjust enrichment claim traveled with the E3 stock when 
repurchased by E3.          
I. 
A. 
According to the allegations in the complaint, in 2014, Jonathan Urdan and 
non-party Kevin Kurka co-founded E3.1  E3 operates as a financial intermediary in 
the nascent property-assessed, clean-energy (“PACE”) financing industry.2  Urdan 
acted as E3’s president and Chief Financial Officer.  Kurka was its Chief Executive 
Officer.  William Woodward was the first outside investor (Urdan and Woodward 
are referred to as the “plaintiffs”).   
                                           
1 We take the essential facts from the Court of Chancery’s opinion in Urdan v. WR Capital 
Partners, LLC, C.A. No. 2018-0343-JTL, 2019 WL 3891720 (Del. Ch. Aug. 19, 2019). 
2 As explained by the Court of Chancery, 
 
In a PACE financing arrangement, a financial intermediary like the Company 
partners with a local municipality to loan homeowners money for energy-saving 
improvements, and the homeowners repay the loans through additional tax 
assessments added to their property tax bills.  The municipality authorizes the 
financial intermediary to assess the value of the improvements and collect the 
property taxes.  The municipality also authorizes the financial intermediary to issue 
bonds backed by the property tax assessments.  The financial intermediary uses 
proceeds from the bond issuances to fund the loans to homeowners. 
 
Id. at *1. 
6 
 
Urdan, Kurka, and Woodward were all members of E3’s board of directors 
(the “Board”) and owned 100% of its equity.  Defendant WR Capital Partners, LLC, 
is a private equity fund based in Morristown, New Jersey.  Defendants Henri 
Talerman and Frank E. Walsh III manage WR Capital (the “WR Capital 
Defendants”). 
In early 2016, Talerman and Walsh approached Urdan, Kurka, and Woodward 
about investing in E3.  They eventually agreed on a financing arrangement (the 
“2016 Financing”).  The 2016 Financing included a loan agreement (the “Loan 
Agreement”) for a $5 million revolving credit line between E3 and WR Capital’s 
wholly-owned subsidiary, WR E3 Holdings, LLC (“WR Sub”).  E3 could only draw 
on the credit line in increments of at least $100,000.  Interest accrued at 10% per 
year.  In exchange, Urdan, Kurka, and Woodward gave WR Capital a first priority 
security interest in their E3 equity interest. 
Under the Loan Agreement E3 could not raise outside capital or enter into 
significant corporate transactions without WR Sub’s prior written consent.  WR Sub 
could also immediately call the extended credit if any enumerated “Events of 
Default” occur, which included either Urdan or Kurka being terminated for cause.  
E3 issued a warrant to WR Sub authorizing the purchase of up to 2,307,000 shares 
of E3 stock at $0.01 per share, exercisable in proportion to the amount drawn on the 
credit facility.  In total, the warrant would represent 31% of E3’s fully diluted equity. 
7 
 
The Loan Agreement also included an option whereby WR Sub could, in its 
sole discretion, increase the credit facility by up to $3 million.  If fully exercised, the 
option would entitle WR Sub to an additional 379,034 shares—bringing the total 
number of shares available under the warrant to 34% of the Corporation’s fully 
diluted equity.  Further, WR Sub paid $500,000 to purchase 301,979 shares of Series 
B Preferred stock—reflecting a $1.65 per share purchase price—which was 
convertible into common stock.  Finally, the 2016 Financing expanded the Board to 
five seats.  WR Sub appointed Talerman and Walsh to the new Board seats.   
In 2016, one of E3’s wholly-owned subsidiaries borrowed $75 million from 
Oaktree Capital Management.  The loan was secured by all of E3’s assets and a 
pledge of all of the plaintiffs’ and WR Sub’s E3 stock.  Beginning in early 2017, 
WR Capital issued “New Governance and Operating Procedures” specifying how 
Kurka—the Corporation’s CEO—had to conduct business.3  WR Capital refused to 
approve any draws under the Loan Agreement until Kurka agreed to the procedures.  
Thereafter, WR Capital terminated Kurka for cause.  This effectively permitted WR 
Capital to block any Board action.  The following month, WR Capital hired Bradley 
D. Knyal as CEO.  WR Capital negotiated Knyal’s employment terms without Board 
                                           
3 Id. at *3. 
8 
 
involvement and installed Knyal as CEO without complying with the Corporation’s 
bylaws.   
At this time, WR Capital represented one-half of E3’s Board, exercised 
control of the day-to-day operations through Knyal, and remained E3’s sole source 
of cash.  WR Capital could reject requests for third-party financing and use its 
governance rights to block the Corporation from pursuing strategic alternatives.   
By mid-2017, Talerman claimed E3 was short on cash, risked missing payroll, 
and faced the prospect of bankruptcy.  Although WR Capital could, under the 2016 
Financing, extend E3 $3 million in credit in exchange for warrants to purchase 
379,034 shares, instead WR Capital offered a new $3 million revolving credit line 
in exchange for warrants for 8,524,478 shares (the “2017 Financing”) and the right 
to fill three Board seats.   
The 2017 Financing valued the Corporation at $4 million.  Months later, after 
taking control of E3, WR Capital would seek new financing at a proposed value of 
$30-50 million.  Around this time, a prospective third-party investor also proposed 
a $60 million valuation.  Instead of negotiating the financing terms, Talerman 
threatened that WR Sub would declare an Event of Default for Kurka’s termination, 
accelerate all debt obligations, and exercise the right to levy all of the plaintiffs’ 
equity if the plaintiffs did not capitulate.  The plaintiffs were forced to agree to the 
2017 Financing. 
9 
 
 Following the closing of the 2017 Financing, WR Capital fired E3’s 
longstanding outside counsel and notified Urdan that his employment would end on 
May 31, 2018.  WR Capital caused E3 to enter into another round of financing (the 
“2018 Financing”) that WR Capital sponsored.  Oaktree and Knyal could participate 
as co-sponsors.  In exchange for incremental credit of $2.5 million, the sponsors 
received more E3 stock (the “2018 Capital Raise”). 
B. 
The plaintiffs filed an eight-count lawsuit in May 2018.  Two counts are 
pertinent here: breach of fiduciary duty claims against WR Capital, WR Sub, 
Talerman, and Walsh for the 2017 Financing, 2018 Financing, and the 2018 Capital 
Raise (Count I), and unjust enrichment against the same defendants for the 2017 
Financing (Count VII).  While the lawsuit was pending, E3 recapitalized by bringing 
in another investment fund.  The new capital raise led to a partial settlement of the 
litigation through three agreements—a Settlement Agreement and Release, and two 
Stock Repurchase Agreements.  The two Stock Repurchase Agreements are 
substantively identical.   
In the Settlement Agreement, the plaintiffs released their claims against Knyal 
and E3, but carved out from the release the claims that they raised against the WR 
Capital Defendants.  Like the Settlement Agreement, the Stock Repurchase 
10 
 
Agreements were integrated agreements, but did not contain a carve out.  Instead, 
the plaintiffs sold “all of Seller’s right, title and interest” in their stock to E3.     
After the parties signed the three agreements, the Court of Chancery granted 
the WR Capital Defendants’ motion to dismiss all counts of the complaint.  Because 
the plaintiffs have only appealed the dismissal of Count I for breach of fiduciary 
duty and Count VII for unjust enrichment, we will focus on those claims.  The Court 
of Chancery held that, under the Stock Repurchase Agreements, the plaintiffs no 
longer had standing to bring those claims once they transferred “all . . . right, title, 
and interest” in their stock to E3 through the Stock Repurchase Agreements.4  As 
the court found, the plaintiffs’ fiduciary duty and unjust enrichment claims followed 
the E3 stock with the sale to E3.  Further, the court held that the plaintiffs could not 
import the Settlement Agreement’s Release Carve Out into the Stock Repurchase 
Agreements because the Settlement Agreement was not incorporated by reference 
into those agreements.  And, according to the court, even if they did, the Stock 
Repurchase Agreements and their complete transfer of rights trumped the 
inconsistency created by the reservation of rights in the Release Carve Out.  The 
court also dismissed the unjust enrichment claim because it was duplicative of the 
dismissed breach of fiduciary duty claims and also traveled with the sale of the 
plaintiffs’ E3 stock. 
                                           
4 App. to Opening Br. at A507 (Stock Repurchase Agreement § 1.01). 
11 
 
II. 
On appeal, the plaintiffs argue that the Court of Chancery erred in three 
respects.  First, the court should have found that the Settlement Agreement’s Release 
Carve Out was incorporated by reference in the Stock Repurchase Agreements, 
meaning that the fiduciary duty and unjust enrichment claims were carved out of the 
plaintiffs’ transfer of all “right, title, and interest” in their stock sold to E3.  As they 
argue, the court failed to give sufficient weight to references to the Settlement 
Agreement in the recitals and substantive provisions of the Stock Repurchase 
Agreements.  Second, regardless of the lack of the Release Carve Out in the Stock 
Repurchase Agreements, their breach of fiduciary duty and unjust enrichment claims 
were direct, not derivative, and thus were personal to the plaintiffs and did not travel 
with the E3 stock sale.  Finally, the plaintiffs contend that the court should not have 
dismissed their unjust enrichment claim because the claim was independent of their 
breach of fiduciary duty claims.     
We review questions of law, including contract interpretation, de novo.5  
Likewise, “[w]e review rulings on motions to dismiss pursuant to Rule 12(b)(6) . . . 
de novo.”6 
 
                                           
5 Salamone v. Gorman, 106 A.3d 354, 367 (Del. 2014).   
6 Ramirez v. Murdick, 948 A.2d 395, 399 (Del. 2008). 
12 
 
A. 
Under the Stock Repurchase Agreements, the plaintiffs sold all “right, title, 
and interest” in their E3 stock “subject to the terms and conditions” of those 
agreements.7  The Stock Repurchase Agreements did not reserve any claims against 
the WR Capital Defendants.  In the Settlement Agreement the parties agreed to a 
broad release, but carved out claims they wanted to continue to pursue against the 
WR Capital Defendants: 
Nothing in this [Settlement] Agreement shall affect any claims any of 
the Delaware Plaintiffs may have against any of the WR Parties or the 
defenses or counterclaims that any of the WR Parties may have to the 
claims of the Delaware Plaintiffs.  Nothing in the releases contemplated 
by this Agreement shall release any claims that any of the Delaware 
Plaintiffs has asserted or may assert against any of the WR Parties, 
whether derivative or otherwise . . . .8   
 
The plaintiffs argue for incorporation by reference of the Settlement 
Agreement and its Release Carve Out into the Stock Repurchase Agreements.  
Because the Stock Repurchase Agreements did not expressly incorporate the 
Settlement Agreement by reference, the first question on appeal is whether we 
should imply incorporation by reference.  The Court of Chancery found to the 
contrary, and held that mere reference to the Settlement Agreement in the Stock 
Repurchase Agreements was insufficient to support incorporation by reference.   
                                           
7 App. to Opening Br. at A507 (Stock Repurchase Agreement § 1.01). 
8 Id. at A494 (Settlement Agreement § 10). 
13 
 
The background of the overall settlement lends some support for 
incorporation by reference.  To state the obvious, the plaintiffs wanted to settle with 
some defendants but preserve their claims against the non-settling WR Capital 
Defendants.  Otherwise, they would have agreed to dismiss the litigation against all 
of the defendants as part of the settlement.  The three agreements were also executed 
together, by the same parties, and as part of the plaintiffs’ sale of E3 stock.    
Further, the Stock Repurchase Agreements contain provisions that might 
imply an intent to treat the three agreements as a unitary transaction.  While mere 
reference to related contracts in a larger transaction is typically insufficient to prove 
incorporation by reference,9 the Stock Repurchase Agreements contain several 
references that might lead to this result.  In the fourth recital, the parties 
acknowledged that they were “concurrently” with the Stock Repurchase Agreements 
entering into the Settlement Agreement releasing certain claims.10  In Section 8.06 
of the Stock Repurchase Agreements, the parties referred to all three agreements, 
and characterized them as one agreement:   
This Agreement, the Settlement Agreement, the [other Repurchase] 
Agreement and the documents to be delivered hereunder and 
thereunder constitute the sole and entire agreement of the parties to this 
Agreement with respect to the subject matter contained herein, and 
supersede all prior and contemporaneous understandings and 
agreements, both written and oral, with respect to such subject matter.11   
                                           
9 Town of Cheswold v. Cent. Del. Bus. Park, 188 A.3d 810, 819 (Del. 2018). 
10 App. to Opening Br. at A507 (Stock Repurchase Agreement). 
11 Id. at A516–17 (Stock Repurchase Agreement § 8.06).   
14 
 
In any event, while the plaintiffs have offered some support for incorporation 
by reference, we must still interpret the contracts as written and not as hoped for by 
litigation-driven arguments.12  Even if the Stock Repurchase Agreements 
incorporate the Settlement Agreement by reference, the Stock Repurchase 
Agreements’ conflict resolution provisions defeat the plaintiffs’ claims.      
As noted earlier, the Stock Repurchase Agreements provide that the plaintiffs 
sold all “right, title, and interest” in their stock to E3.  We assume for now that all 
“right, title, and interest” in E3 stock includes the rights to claims that the plaintiffs 
wanted to continue to assert against the WR Capital Defendants.  The Settlement 
Agreement’s Release Carve Out—where the plaintiffs carved out from the 
Settlement Agreement the claims against the WR Capital Defendants—conflicts 
with the transfer of all “right, title, and interest” in E3 stock under the Stock 
Repurchase Agreements.  When a conflict in terms occurs, Section 8.06 of the Stock 
Repurchase Agreements expressly provides that inconsistencies are resolved in 
favor of the terms in the Stock Repurchase Agreements.13  In other words, the 
                                           
12 Heartland Payment Sys., LLC v. InTEAM Assocs., LLC, 171 A.3d 544, 557 (Del. 2017) 
(explaining that even if the background of the transaction supports a particular interpretation, we 
must review “the transaction agreements to decide whether the arguments developed during 
litigation are supported by the specific language of the transaction agreements”). 
13 App. to Opening Br. at A517 (Stock Repurchase Agreement § 8.06); see Karish v. SI Int’l, Inc., 
2002 WL 1402303, at *3 (Del. Ch. June 24, 2002) (explaining when “[t]he documents themselves 
provide the solution [in the event of conflict]” then “[t]his provision has clear application to the 
potential for conflict” by having primacy over the other agreements).  Like the Court of Chancery, 
the parties have assumed on appeal that the conflict resolution provision in the Stock Repurchase 
15 
 
Release Carve Out yields to the transfer of all of plaintiffs’ “right, title, and interest” 
in the E3 stock.  
The plaintiffs argue that the lead-in language to Section 1.01 of the Stock 
Repurchase Agreements—the sale of all “right, title, and interest” of E3 stock is 
“subject to the terms and conditions set forth herein”—means that if the Settlement 
Agreement Release Carve Out is incorporated by reference, it becomes one of the 
“terms and conditions set forth herein.”  We think this argument stretches the 
incorporation by reference doctrine too far.  The word “herein” refers to the Stock 
Repurchase Agreements’ terms, not the Settlement Agreement.14  And the Release 
Carve Out is limited to the release in the Settlement Agreement.  This is consistent 
with other limitations stated in the Settlement Agreement, whose terms apply only 
to the Settlement Agreement.15   
The plaintiffs also argue that failing to harmonize the Settlement Agreement’s 
Release Carve Out and the Stock Repurchase Agreements renders the Release Carve 
                                           
Agreements applies to conflicts between the Settlement Agreement and the Stock Repurchase 
Agreements.     
14 See App. to Opening Br. at A516 (Stock Repurchase Agreement § 8.06) (distinguishing between 
documents delivered “hereunder” from those delivered “thereunder”).    
15 See id. at A489 (Settlement Agreement) (“WHEREAS, the Parties have determined to resolve 
the claims against certain Parties, while preserving claims against other Parties . . . all on the terms 
set forth herein . . . .”); id. at A489–90 (Settlement Agreement § 1) (“The closing under this 
[Settlement] Agreement . . . is dependent upon closings under both the [Stock Repurchase 
Agreements] taking place.  Accordingly, the provisions set forth in Sections 3-11 of this 
[Settlement] Agreement shall be effective upon the closing under the [Stock] Repurchase 
Agreements.”); id. at A490 (Settlement Agreement § 2) (“As conditions to this [Settlement] 
Agreement, (i) Jonathan Urdan . . . [and] (ii) the Woodward Parties shall sell to [E3] all of their 
interests in common stock of [E3] and Series A Preferred Stock of [E3] . . . .”).  
16 
 
Out surplusage.  Rendering terms surplusage is not preferred.16  But the hard reality 
here is that the three agreements do not fit together.  We will not torture or twist 
words or imply terms to make square pegs fit into round holes.17  And unlike other 
cases where surplusage might be avoided, the parties in the Stock Repurchase 
Agreements specifically contracted for what happens in the event of conflict.  The 
parties agreed that the Stock Repurchase Agreements’ terms control.    
Thus, we agree with the Court of Chancery that even if the Release Carve Out 
is incorporated by reference in the Stock Repurchase Agreements, it yields to the 
transfer of the plaintiffs’ entire “right, title, and interest” in their E3 stock.  As we 
discuss next, along with the sale of all “right, title, and interest” in E3 stock went the 
claims against the remaining WR Capital Defendants.18       
B. 
As noted earlier, to this point we have assumed that the sale of the plaintiffs’ 
“right, title, and interest” in E3 stock included the right to assert the claims against 
the WR Capital Defendants.  The plaintiffs concede that with the E3 stock sale they 
                                           
16 See, e.g., Sonitrol Hldg. Co. v. Marceau Investissements, 607 A.2d 1177, 1183 (Del. 1992) 
(“Under general principles of contract law, a contract should be interpreted in such a way as to not 
render any of its provisions illusory or meaningless.”). 
17 See Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 
1992) (“Absent some ambiguity, Delaware courts will not destroy or twist policy language under 
the guise of construing it.”). 
18 For the first time on appeal the plaintiffs have argued that ambiguity exists and we should reverse 
to allow the Court of Chancery to consider extrinsic evidence of the parties’ intent.  The ambiguity 
argument was not raised below and is therefore waived.  Supr. Ct. R. 8.   
17 
 
lost standing to pursue derivative claims.  But they argue that their breach of 
fiduciary duty claims for economic dilution are direct claims.  If this is so, they 
contend, their direct claims were personal and did not follow the E3 stock sale.  We 
agree with the Court of Chancery, however, that their economic dilution claims, 
whether direct, derivative, or both, followed the E3 stock sale and the plaintiffs could 
no longer pursue those claims.      
In general, “a purchaser of a certificated or uncertificated security acquires all 
rights in the security that the transferor had or had power to transfer.”19  “The phrase 
‘all rights in the security’ can be understood as distinguishing between personal 
rights of the holder, on the one hand, and rights that inhere in the security itself, on 
the other.”20  The rights in the security are rights “arising from the relationship 
among stockholder, stock and the company.”21  Rights that are personal to the 
security holder, however, do not travel with the sale of a security.22  The distinction 
between rights in the security and personal rights is best illustrated by examples.  A 
corporate charter violation claim travels with a stock sale because the injury “is to 
                                           
19 6 Del. C. § 8-302(a). 
20 In re Sunstates Corp. S’holder Litig., 2001 WL 432447, at *3 (Del. Ch. Apr. 18, 2001). 
21 I.A.T.S.E. Local No. One Pension Fund v. Gen. Elec. Co., 2016 WL 7100493, at *5 (Del. Ch. 
Dec. 6, 2016). 
22 In re Activision Blizzard, Inc. S’holder Litig., 124 A.3d 1025, 1050 (Del. Ch. 2015) (“When a 
share of stock is sold, the property rights associated with the shares, including any claim for breach 
of those rights and the ability to benefit from any recovery or other remedy, travel with the 
shares.”).   
18 
 
the stock and not the holder.”23  A “claim relating to the fairness of the then-proposed 
transaction passed to [the] purchaser, who enjoyed the benefits of the settlement.”24  
And a challenge to executive compensation awards that violated the terms of a 
stockholder-approved compensation arrangement travels with the stock.25  The 
common thread running through these claims is the close relationship between the 
stock and the claims asserted.  The rights are more than just incidental to the 
ownership of stock.      
In contrast, personal claims do not depend on the relationship between the 
stockholder and the corporation or the existence of an underlying security.  As the 
Vice Chancellor explained in In re Activision Blizzard, Inc. Stockholder Litigation:   
Quintessential examples of personal claims would include a contract 
claim for breach of an agreement to purchase or sell shares or a tort 
claim for fraud in connection with the purchase or sale of shares.  One 
major distinction between these types of claims and the Delaware 
corporate law claims discussed previously is that for the personal 
claims, the nature of the underlying property does not matter.  The 
property happens to be shares, but the cause of action is not a property 
right carried by the shares, nor does it arise out of the relationship 
between the stockholder and the corporation.  For the breach of contract 
claim, the cause of action arises out of the contract between the buyer 
and the seller.  For the fraud claim, the cause of action arises out of the 
false representations made by the buyer or seller on which the 
counterparty relied to her detriment, suffering causally related damages 
                                           
23 Schultz v. Ginsburg, 965 A.2d 661, 667 (Del. 2009). 
24 In re Prodigy Commc’ns Corp. S’holders Litig., 2002 WL 1767543, at *4 (Del. Ch. July 26, 
2002). 
25 See Noerr v. Greenwood, 2002 WL 31720734, at *4 (Del. Ch. Nov. 22, 2002). 
19 
 
as a consequence.  The underlying property could just as easily be land 
or a car.26 
 
Here, the plaintiffs essentially claim that the WR Capital Defendants breached 
their fiduciary duties by approving financing transactions that diluted the plaintiffs’ 
equity interest in E3.  A breach of fiduciary duty claim for dilution is not a wrong 
personal to the stockholder.  It arises from “the relationship among stockholder, 
stock and the company.”27  Whether described as direct, derivative, or both, the 
dilution claims were not personal to the plaintiffs and traveled with the sale of their 
E3 stock.   
The plaintiffs rely on our decision in Shultz v. Ginsburg.28  In Shultz, we 
affirmed the Court of Chancery’s holding that shareholders who divested their stock 
prior to the close of a transaction, but held their interest when the transaction was 
approved, could share in the proceeds of the settlement.29  When referring to an 
admission made by one of the parties, we characterized a dilution claim as personal 
to the stockholder:   
As a matter of law, a Charter Violation claim transfers to a later 
purchaser because the injury is to the stock and not the holder. 
Therefore, under a Charter Violation claim, the Buyer would suffer the 
injury.  Conversely, and as Ginsberg admitted, the Economic Dilution 
claim was personal.  Thus, under an Economic Dilution claim, the claim 
                                           
26 In re Activision, 124 A.3d at 1056. 
27 I.A.T.S.E., 2016 WL 7100493, at *5. 
28 965 A.2d 661 (Del. 2009). 
29 Id. at 667. 
20 
 
for damage suffered would remain with the Seller and not transfer to 
the Buyer.30 
 
The language from our Schultz opinion has caused some confusion in later 
cases.31  The Court of Chancery has respectfully attempted to distinguish Schultz, 
but a plain reading of the decision shows that the admission it relied upon is 
inconsistent with the nature of a dilution claim.  Thus, we overrule that part of the 
decision and clarify that dilution claims, whether direct, derivative, or a combination 
of the two, are not claims personal to the stockholder.   
The plaintiffs raise two other arguments to support their contention that their 
breach of fiduciary duty claims are personal.  First, the plaintiffs argue that their 
fiduciary duty claims “are even more clearly personal than the claims in Schultz 
because the breaches were committed by a controller against a shareholder 
minority.”32  In support, the plaintiffs cite cases holding that “claims for breach of 
fiduciary duty that arise from a controller’s breach of duty against a minority are 
more personal in nature because the harm suffered by the minority is different than 
the harm suffered by the corporation.”33  This argument confuses the personal nature 
of a claim with whether a claim is direct or derivative.  While we have recognized 
                                           
30 Id. at 667–68 (footnote omitted). 
31 See In re Activision, 124 A.3d at 1055; In re Celera Corp. S’holder Litig., 2012 WL 1020471, 
at *14 & n.83 (Del. Ch. Mar. 23, 2012), aff’d in part, rev’d in part on other grounds, 59 A.3d 418 
(Del.  2012).  
32 Opening Br. at 39. 
33 Id. at 40. 
21 
 
in unique circumstances dilution might give rise to dual-natured claims,34 whether a 
claim is personal depends on whether the claim is properly viewed as a property 
right inherent in the stock as opposed to a wrong that belongs personally to the 
former stockholder. 
Second, the plaintiffs note that their shares were not sold into a market, but 
rather back to E3, which “is closely-held” and has “no public ‘market’ [to] reflect[] 
the value of [the plaintiffs’] shares in light of pending or prospective lawsuits.”35  It 
is true that some dilution claims have been considered personal because in select 
situations—such as a coerced sale to avoid dilution or a squeeze-out merger that 
involuntarily separates the stockholder from its stock and dilutes that stockholder in 
the process—the stock itself either ceases to exist or is not essential to the wrong.36  
In other words, the harm is to the stockholder, not the stock itself.  Here, however, 
the plaintiffs are not like a stockholder coerced to sell stock to avoid dilution in 
public markets or frozen out of the corporation by operation of a transaction.37  The 
                                           
34 See El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1262 (Del. 2016) (“In 
unique circumstances, this Court has recognized that some claims can be dual-natured—that is, 
both direct and derivative.”).   
35 Reply Br. at 18. 
36 See I.A.T.S.E., 2016 WL 7100493, at *6 (“Unlike Activision, the Plaintiff did not choose to sell 
its [company] stock, and nothing in the record indicates that the market into which the Plaintiff 
sold its new GE Preferred valued the potential breach-of-duty claim in the price of the stock.”); 
see also In re Sunstates, 2001 WL 432447, at *3 n.11 (“The legal rights of the parties are well 
enough understood to be reflected in the way the markets deal with the trading of shares as to 
which a dividend has been declared . . . . The buyer knows this and pays a price that reflects that 
fact.”). 
37 The Court of Chancery made the same distinction.  See Urdan, 2019 WL 3891720, at *11 (“If 
the plaintiffs had been deprived of their shares by merger, then that distinction would matter, 
22 
 
plaintiffs could have held onto their shares and maintained their lawsuit, or by 
agreement transferred less than the entire bundle of rights that are part of the 
securities sold.  Instead, when the plaintiffs voluntarily relinquished those shares, 
absent an agreement to the contrary, the plaintiffs “sever[ed] their economic 
relationship with the corporation during the litigation.”38  With the sale of E3 stock 
went the rights to continue to pursue dilution claims. 
C. 
In the plaintiffs’ complaint, they sought damages for unjust enrichment “[a]s 
an alternative theory of recovery” for breach of fiduciary duty, fraudulent 
inducement, and fraudulent concealment.39  Specifically, the plaintiffs alleged that 
“WR Capital expressly represented that it would take up to 379,034 more warrants 
upon exercising the $3 million option to increase its credit facility to E3” as 
memorialized in the May 2016 lending transaction.40  By exploiting its control and 
leveraging the Corporation’s need for capital, “WR Capital amended the deal terms, 
demanding and receiving 8,524,478 warrants for extending $3 million in credit to 
                                           
because the plaintiffs could challenge the transaction that deprived them involuntarily of their 
property rights.  But in this case, the plaintiffs sold their shares voluntarily.”).   
38 In re Triarc Cos., Inc. Class & Deriv. Litig., 791 A.2d 872, 879 (Del. Ch. 2001); In re Prodigy, 
2002 WL 1767543, at *4 (holding that sale of “shares in the marketplace” “severed [the] economic 
relationship with [the company]” and thus, “the claim relating to fairness of the then-proposed 
transaction passed to [the] purchaser, who enjoyed the benefits of the settlement”). 
39 App. to Opening Br. at A062–63 (Compl. ¶¶ 149–50). 
40 Id. at A063 (Compl. ¶ 151). 
23 
 
E3.”41  This, the plaintiffs claim, “unjustly enriched WR Capital” at the plaintiffs’ 
expense and WR Capital leveraged threat of an Event of Default under the loan 
agreement to coerce the plaintiffs to accept the demand.42  Accordingly, “WR 
Capital’s actions deprived [the plaintiffs] of their rights and caused injury to them . 
. . . [and] unlawfully diluted [the plaintiffs] and unjustly enriched WR Capital.”43 
The Court of Chancery found that the plaintiffs’ unjust enrichment claims 
were “the same theory that the plaintiffs seek to litigate through their claims for 
breach of fiduciary duty and breach of contract.”44  According to the court, where 
either theory has a parallel, duplicative unjust enrichment claim, “it is typically 
dismissed in favor of the . . . more settled doctrine” the court found that “permitting 
the [unjust enrichment] theory to proceed would upset the settled outcomes 
generated by the established legal frameworks.”45  The court also held that the unjust 
enrichment claim depended on the plaintiffs’ stockholder status, whether derivative 
or direct, because the detriment affected E3 or the plaintiffs’ stock.  Thus, the 
plaintiffs forfeited not only derivative standing, but also “gave up their ability to 
assert a direct claim for dilution when they sold their shares, [and] they likewise 
gave up a parallel claim for unjust enrichment based on harm to their shares.”46 
                                           
41 Id. (Compl. ¶ 152). 
42 Id. 
43 Id. (Compl. ¶ 153). 
44 Urdan, 2019 WL 3891720, at *20. 
45 Id.   
46 Id. at *21. 
24 
 
On appeal, the plaintiffs argue that their unjust enrichment claims should 
survive because they could pursue their breach of fiduciary duty claims.  That is no 
longer the case.  The plaintiffs have also run head on into established law that an 
unjust enrichment claim should be dismissed if it duplicates a breach of fiduciary 
duty claim.47  To get around this roadblock, the plaintiffs argue that their unjust 
enrichment claim is not dependent on a breach of the Loan Agreement.  Instead, it 
centers on improper threats and coercion that forced them to agree to the new 2017 
Financing.  Thus, “[t]he contract itself is not necessarily the measure of [the] 
plaintiff’s right where the claim is premised on an allegation that the contract arose 
from wrongdoing (such as breach of fiduciary duty or fraud) or mistake and the 
[defendant] has been unjustly enriched by the benefits flowing from the contract.”48  
Stated differently, the plaintiffs allege “it is the [contract], itself, that is the unjust 
enrichment.”49    
We need not wrestle with their nuanced pleading argument because the Court 
of Chancery’s alternative holding provides a straightforward path to affirm dismissal 
of the claim.  Like the plaintiffs’ breach of fiduciary duty claims, their unjust 
enrichment claims arise from their stock ownership and its relationship to E3.  We 
                                           
47 Gamco Asset Mgmt. Inc. v. iHeartMedia Inc., 2016 WL 6892802, at *19 (Del. Ch. Nov. 23, 
2016), aff’d, 172 A.3d 884 (Del. 2017) (TABLE). 
48 RCS Creditor Tr. v. Schorsch, 2018 WL 1640169, at *7 (Del. Ch. Apr. 5, 2018) (alteration in 
original) (citation omitted). 
49 Id. (alteration in original) (quoting McPadden v. Sidhu, 964 A.2d 1262, 1276 (Del. Ch. 2008)). 
25 
 
agree with the Court of Chancery that, “[j]ust as they gave up their ability to assert 
a direct claim for dilution when they sold their shares, they likewise gave up a 
parallel claim for unjust enrichment based on harm to their shares.”50   
III. 
The judgment of the Court of Chancery is affirmed.  
 
                                           
50 Urdan, 2019 WL 3891720, at *21.