Opinion ID: 2982727
Heading Depth: 3
Heading Rank: 2

Heading: Conversion & Unjust Enrichment Claims

Text: Penn next challenges the district court’s grant of judgment as a matter of law to Prosper on Penn’s conversion and unjust enrichment claims. The parties agree that Delaware law, under which they formed BIGresearch, governs both of Penn’s claims.
The district court granted judgment as a matter of law on Penn’s conversion claim, finding that the claim could not proceed to the jury “as a result of the failure of evidence with regard to the . . . value of the specific assets” at the time of the alleged conversion. (R. 303-1, Trial Tr. at 191.) - 11 - Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. Penn contends that the district court’s ruling “was utterly irreconcilable with [Penn’s] theory of recovery . . . throughout the entire case,” which was “that BIGresearch had value as a going concern that was separate and substantially greater than any particular aggregate of individual assets.” (Penn’s Br. at 56.) Penn asserts that it presented evidence showing that Prosper “took all of BIGresearch . . . [and] continu[ed] to operate the entirety of the same business—albeit under a new entity and without Penn, [and so] the measure of damages for [Prosper’s] conversion was the value of BIGresearch as a whole.” (Id. at 56–57.) In support, Penn directs the court to testimony by Penn’s principal member that BIGresearch would have been worth $13.9 million if Prosper had sold the company as a “going concern” in 2009, thus entitling Penn to its share of that sales price. Although the district court earlier ruled that the question of “[w]hether the ‘going concern’ value is a proper measure of [Penn’s] damages is an issue for the jury to resolve at trial” (R. 254, Summ. J. Order at 4, ID 12975), it reversed course after hearing all the evidence because it recognized that Penn’s “going concern” theory failed to distinguish between the value of tangible, convertible assets and intangible, nonconvertible assets (see R. 303-1, Trial Tr. at 191). Under Delaware law, one cannot convert intangible assets unless “the intangible property relations are merged into a document,” such as a plan, design, or specification. Res. Ventures, Inc. v. Res. Mgmt. Int’l, Inc., 42 F. Supp. 2d 423, 439 (D. Del. 1999). Nor will the tort “lie to enforce a claim for the payment of money . . . [except] where there is an obligation to return the identical money delivered by the plaintiff to the defendant.” Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 890 (Del. Ch. 2009) (internal citations and punctuation omitted). Penn’s valuation of BIGresearch as a “going concern” admittedly incorporated intangible, nonconvertible assets such as BIGresearch’s “business model, customer base, - 12 - Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. employees, and name.” (Penn’s Br. at 56.) And Penn offered no means for the jury to disentangle tangible and intangible assets in its valuation of BIGresearch as a “going concern.” As the district court pointed out, BIGresearch’s value as a “going concern” was only relevant “as a comparison to any asset valuation” in determining “whether or not that asset valuation [was] reasonable.” (R. 303-1, Trial Tr. at 193.) Penn’s failure to present evidence of the value of individual, tangible assets rendered BIGresearch’s “going concern” value a meaningless benchmark with respect to its conversion claim. Penn failed to adduce evidence of cognizable damages because Prosper could not, as a matter of law, steal BIGresearch as a “going concern.” We therefore AFFIRM the district court’s grant of judgment as a matter of law on Penn’s conversion claim.
Penn also argues that the district court erred in granting judgment as a matter of law to Prosper on Penn’s unjust enrichment claim. But even if Penn is correct, the error ultimately proved harmless. Cf. Snyder v. Ag Trucking, Inc., 57 F.3d 484, 491 (6th Cir. 1995) (holding harmless an erroneous grant of judgment on willfulness because jury found against plaintiff on the underlying claim). Delaware defines “[u]njust enrichment [as] the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience.” Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010) (citation and internal quotation marks omitted). Prosper argues that Penn predicated its unjust enrichment claim on the same wrongful conduct underpinning its breach of fiduciary duty claim. Prosper reasons, therefore, that Penn’s failure to convince the jury that Prosper breached its fiduciary duties also dooms Penn’s unjust enrichment claim. - 13 - Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. We agree. Penn’s breach of fiduciary duty and unjust enrichment claims require Penn to prove the same set of facts. The complaint asserts unjust enrichment on the ground that Prosper “and Others have acted in concert to deprive [BIGresearch] and thereby its member Penn from benefitting from the business opportunities, trade secrets, clients, assets, funds, documents, records, metadata and information of [BIGresearch].” (R. 2, Compl. ¶ 138.) A few paragraphs later, Penn complains that Prosper and others “breached their fiduciary duties to Plaintiffs and engaged in self-dealing by willfully and wrongfully . . . [d]iverting [intellectual property] as well as its sales and revenues from [BIGresearch] to Prosper, . . . [and t]ransferring the confidential trade secrets, clients and business opportunities of [BIGresearch] to Prosper.” (Id. at ¶ 148.g–h.) In short, “[t]he theory of liability for [Penn’s] unjust enrichment claim is that the members of [Prosper] improperly enriched themselves at the expense of [BIGresearch’s] minority stockholders. The exact same theory, . . . couched in fiduciary duty terms, forms the basis of [Penn’s] fiduciary duty claim against [Prosper].” Frank v. Elgamal, No. 6120-VCN, 2014 WL 957550, at  (Del. Ch. Mar. 10, 2014); see also In re Nine Sys. Corp. S’holders Litig., No. 3940-VCN, 2014 WL 4383127, at  (Del. Ch. Sept. 4, 2014) (holding the plaintiffs’ breach of fiduciary duty and unjust enrichment claims duplicative under similar circumstances); cf. McPadden v. Sidhu, 964 A.2d 1262, 1276 (Del. Ch. 2008) (explaining that even if the claims were duplicative, the plaintiff could elect its remedy if it prevailed). Because Penn’s unjust enrichment claim rises and falls with its breach of fiduciary duty claim, and—as discussed in the following sections—Penn fails to persuade us that the jury reached its verdict on the basis of improperly admitted evidence, we AFFIRM the district court’s judgment with respect to Penn’s unjust enrichment claim. - 14 - Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al.