Court Opinion

ID: 4361504
Source: CourtListenerOpinion
Date Created: 2019-01-24 15:06:41.060609+00
Date Added: 2024-06-11T14:48:18.789666
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

JOHN R. TOEDTMAN,
Plaintiff,
C.A. No. Nl7C-08-210 RRC

V.

TURNPOINT MEDICAL DEVICES,
INC.,

Defendant.

Submitted: October 30, 2018
Decided: January 23, 2019

On Plaintiff John R. Toedtman’s Cross-Motion for Summary Judgment.
GRANTED IN PART.

On Defendant TurnPoint Medical Devices, Inc.’s Cross-Motion for Summary
Judgment. DENIED.

MEMORANDUM OPINION

Theodore A. Kittila, Esquire, and J ames G. McMillan, III, Esquire, Halloran Farl405 A.2d 679, 680 (Del. 1970).
11 See Super. Ct. Civ. R. 56(e); see also th`llips v. Del. Power & Light C0., 216 A.2d 281, 285
(Del. 1966).
12 Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995) (citing Matsushita Elec. lna'us. Co., Ltd. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986)).
13 Merrill v. Crothall-American, Inc., 606 A.2d 96, 99-100 (Del. 1992).

12

for decision on the merits based on the record submitted with the motions.”14 “When
opposing parties make cross-motions for summary judgment, neither party's motion
will be granted unless no genuine issue of material fact exists and one of the parties
is entitled to judgment as a matter of law.”15 “[l]mmaterial factual disputes will not
preclude summary judgment.”16 The parties in this case have stipulated that there are
no disputes of facts material to the disposition of the cross-motions for summary
judgment The Court now proceeds to “a decision of the merits [of the case] based
on the record submitted with the motions.”17

V. DISCUSSION

On December 10, 2014, the Board of Directors of TurnPoint passed a
Unanimous Written Consent (the “December 2014 Consent”). The December 2014
Consent authorized “management” and “proper officers” of TurnPoint to negotiate
with enumerated persons, which included Plaintiff, for the purposes of entering into
employment agreements Based on the Board’s resolution, TurnPoint’s Chief
Financial Officer, and Secretary of the Board, Joerg Klaube undertook the duty to
negotiate and enter into an employment agreement with Plaintiff.18 There is no
disagreement that Klaube constituted a “proper officer” and part of management
permitted to negotiate employment contracts on behalf of TurnPoint. After
discussions between Plaintiff and Klaube, an employment agreement was finalized
between Plaintiff and TurnPoint. Klaube signed on behalf of TumPoint.19 There is
no dispute that the preceding factual scenario occurred. The dispute before the Court
is the legal effect that specific process has on the validity of the employment
agreement

A. 8 Del. C. § l44(a) does not invalidate the employment agreement,

TurnPoint argues that the employment agreement was voidable as a matter of
law under 8 Del. C. § l44(a). By invoking § l44(a), TurnPoint seeks to invalidate

 

14 Super. Ct. Civ. R. 56(h).
15 Emmons v. Hartfora' Under'writers lns. Co., 697 A.2d 742, 745 (Del. 1997)
16 Brzoska, 668 A.2d at 1635 (citing State Farm Mut. Auto. Co. v. Mundorf, 659 A.2d 215, 217
(Del. 1995)).
17 Super. Ct. Civ. R. 56(h).
18 Joerg Klaube served as the Chief Financial Officer and Secretary of TurnPoint from 2013 to
2017. Joint Stipulation, at 17 1137.
19 1a at 54
13

the transaction based on the involvement of one self-interested director, Plaintiff.
TurnPoint views § l44(a) as the sole basis for avoiding per se voidability.

Upon its codification, Section 144 represented the shift away from the
common law rule that interested director transactions were voidable solely because
an interested director was involved.20 The intent of § 144 was to provide “safe
harbors” for interested director transactions, to prevent the transaction from being
void or voidable solely because an interested director was involved.21 lt would be
incorrect to say that § 144 offered the exclusive means of validating interested
director transactions22 Section 144 “merely removes an ‘interested director’ cloud
when its terms are met and provides against invalidation of an agreement ‘solely’
because such a director or officer is involved.”23 Therefore, contrary to Turnpoint’s
assertions, failing to land within a safe harbor does not in and of itself invalidate the
transaction. lf the transaction does not fall into a safe harbor, the Court will still
consider the intrinsic fairness of the transaction to determine its validity.24

Section l44(a) can provide greater protection for a transaction in three ways.
First, the transaction may be approved by a majority of disinterested directors.25
Second, the transaction may be approved by a majority of disinterested
shareholders26 Third, the transaction may be shown as entirely fair to the
corporation at the time it was authorized by interested directors or shareholders27
Upon approval by disinterested directors under § 144(a)(1),28 or approval by
disinterested shareholders under § l44(a)(2),29 the Court will review the interested
transaction under the business judgment rule. The business judgment rule “is as
presumption that in making a business decision, the directors of a corporation acted
on an informed basis, in good faith and in the honest belief that the action taken was

 

20 See Marciano v. Nakash, 535 A.2d 400, 403 (Del. 1987).
21 8 Del. C. § 144(3).
22 Marciano, 535 A.2d at 404.
23 Fliegler v. Lawrence, 361 A.2d 218, 222 (Del. 1976).
24 Marciano, 535 A.2d at 404.
25 8 Del. C. § 144(a)(l).
26 8 Del. C. § i44(a)(2).
27 8 Del. C. § 144(3)(3).
28 Benihana of T okyo, Inc. v. Benihana, Inc. , 906 A.2d 114, 120 (Del. 2006) (hereinafter Benihcma-
II); see Cumming on Behalf of New Sem`or lnvestment Group, Inc. v. Edens, 2018 WL 992877, at
*20 nn.222-223 (Del. Ch. Feb. 20, 2018); In re Wheelabrator Technologies, Inc. Sharehola’ers
Litigation, 663 A.2d 1194, 1200 (Del. Ch. 1995).
29 Espinoza v. Zuckerberg, 124 A.3d 47, 63 (Del. Ch. 2015) (quoting In re Wheelabrator, 663 A.2d
at 1203).
14

in the best interest of the company.”30 When “neither shareholder ratification or
disinterested director approval” can be obtained, the “intrinsic faimess” standard
governs an analysis under § 144(a)(3).31 “The concept of fairness has two basic
aspects: fair dealing and fair price.”32 When applying § 144 (a)(3) the Court will not
“sanction unfairness” and, importantly, will not invalidate faimess.33

1. The transaction falls within the § 144(a)(1) safe harbor because the Board
properly delegated its authority to negotiate and enter into employment
agreements to management, and management in turn effectuated that
delegation

Section 144(a)(1) of the Delaware General Corporate Law provides a safe
harbor for interested director transactions if the “material facts as to the director's or
officer's relationship or interest and as to the contract or transaction are disclosed or
are known to the board of directors or the committee, and the board or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors[.]”34 Therefore, the Court is tasked with
identifying the disinterested directors, identifying what facts were disclosed or
known to them, and identifying what affirmative actions they took to authorize or
ratify the contract.

After TurnPoint’s founding, the initial Board consisted of Plaintiff and George
Boyajian35 Boyajian left his position as a director in September 2015.36 Afterwards,
and at the time Plaintiff’ s employment agreement was finalized on November 10,
2015, TumPoint’s Board consisted of Plaintiff and Christopher York.37 Douglas
Hulse became a director in December 2015.38 Jerry Ruddle became a director in
2017.39 Plaintiff is the interested director in this matter, for it is his employment
agreement at issue. At varying times, the disinterested directors included Boyajian,

 

30 Benihana-Il, 906 A.2d at 120 (quoting Amnson v. Lewis, 473 A.2d 805, 812 (Del. 1984)).
31 Citron v. E.I. Du Pont de Nemours & CO., 584 A.2d 490, 500 (Del. 1990) (citing Marciano, 535
A.2d at 405 n.3).
32 Wemberger v. UOP, lnc., 457 A.2d 701, 711 (Del. 1983).
33 Marcian@, 535 A.2d at 405.
34 8 Del. C. § 144(a)(1). “Under § 144(a)(1), a ratifying disinterested director vote has the same
procedural effect as a ratifying disinterested shareholder vote under § 144(a)(2).” ln re
Wheelabrator, 663 A.2d at 1205 n.8.
35 Joint Stipulation, at 17 1139.
36 Pla.’s Opening Br., at 4.
37 Joint Stipulation, at 17 1140.
33 Id. at 12 1125, 17 1136.
39 Ia’. at 17 1138
15

York, Hulse, and Ruddle. These disinterested directors did not directly participate in
the negotiation of Plaintist employment agreement They delegated that power to
management

Delaware boards of directors have the power to delegate certain duties to
committees, subcommittees, or other officers as they see fit40 This authority to
delegate is not unlimited Directors may not delegate duties which lie “at the heart
of the management of the corporation.”41 Consequently, the Court cannot sanction
delegations that remove “from directors in a very substantial way their duty to use
their own best judgment on management matters.”42 lt must be understood, however,
that a Board is not expected to “fully immerse itself in the daily complexities of
corporate operation.”43 This is recognized by 8 Del. C. § 141(a), which states the
business and affairs of a Delaware Corporation are managed “by or under the
direction” of its board.44 ln selecting which matters to be directly involved with, and
which it will delegate, “a board’s decisions in those areas are entitled to equal
consideration as exercises of business judgment.”45 Importantly, one of the
responsibilities that Delaware courts have permitted to be delegated, and commonly
is delegated, is the setting of executive compensation and severance plans.46

ln the instant matter, Boyajian, a disinterested director, signed and approved
the December 2014 Unanimous Written Consent The Consent served as an express
delegation of the Board’s power to negotiate and enter into employment agreements
to “management” and further resolved to have the “proper officers” effectuate that
delegation47 Such a delegation was proper under Delaware law because a
disinterested director authorized this delegation and an independent officer acted on

 

411 8 Del. C. § 141(a).
41 Grimes v. Donald, 673 A.2d 1207, 1214 (Del. 1996) (citing Chapm v. Benwood, 402 A.2d 1205,
1210 (Del. Ch. 1979)); Sample v. Morgan, 914 A.2d 647, 671 n77 (Del. Ch. 2007) (citing
Quicktum Design Systems, Inc. v. Shapiro, 721 A.2d 1281, 1292 (Del. 1998)).
43 Abercrombie v. Davies, 123 A.2d 893, 899 (Del. Ch. 1952)_.
43 Schoonejongen v. Curtiss~Wright Corp., 143 F.3d 120, 127 (3rd Cir. 1998) (citing 8 Del. C. §
141(c)).
44 8 Del. C. § 141(a) (emphasis added); see Rosenblatt v. Getty Oil Co., 493 A.2d 929, 943 (Del.
1985).
45 Rosenblatt, 493 A.2d at 943 (citing Aronson, 473 A.2d at 813).
46 See In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 54 (Del. 2006); see also Goclina v.
Resinall lntern, Inc., 677 F.Supp.2d 560, 569 (D. Conn. 2009); Schoonejongen, 143 F.3d at 127;
Grimes, 673 A.2d at 1215.
47 Joint Stipulation, at 3 1110. The December 2014 Consent directed “management of the Company
[to] negotiate, and enter into, employment agreements with John Toedtman, George Boyajian and
Jerry Ruddle to serve as officers of the Company.” Id.

16

behalf of the company to enter into the employment agreement 48 This delegation
did not preclude the Board or any directors from “exercising their statutory powers
and fillfilling their fiduciary duties.”49 Nothing in the consent served to limit the
directors’ ability to involve themselves in the negotiation process or to override
management’s decisions on the Board’s behalf. The directors did not remove
themselves in a substantial way from their corporate duties which would warrant
interference by this Court

The Board’s decision to delegate is entitled to consideration as an exercise of
business judgment There is no dispute that Klaube, as Chief Financial Officer, was
both part of management and a proper officer as contemplated by the December
2014 Consent50 lt appears to the Court that Klaube was in a unique position within
TurnPoint and had specialized knowledge regarding TumPoint’s finances which
would allow him to negotiate employment agreements effectively. The Court will
not replace the Board’s collective wisdom and business judgment with the Court’s
own judgment As the Board properly delegated its authority to enter into
employment agreements, and the delegation was properly effectuated, Plaintiff’s
employment agreement falls within the § 144(a)(1) safe harbor. Therefore, the
employment agreement was not voidable, and TurnPoint’s attempted invalidation of
the agreement fails. Plaintiff may enforce the severance provisions of the
employment agreement

The employment agreement defines severance as “equal to 12 months’ Base
Salary payable in accordance with the Company’s regular payroll schedule and
certain other benefits[.]”51 The employment agreement further provides that Plaintiff
is entitled to severance payments if he is terminated without cause.52 lt is undisputed
that TurnPoint terminated Plaintiff without cause.53 Plaintiff’ s determination that he
is owed $250,900 under the severance provision is undisputed As such, the Court
finds that Plaintiff is entitled to a judgment in the amount of 8250,900.

 

43 See 117 re Walt Disney, 906 A.2d at 54.

49 Grzmes, 673 A.2d at 1214.
50 Klaube was both Secretary of the Company and Chief Financial Officer from 2013-2017. Joint

Stipulation, at 17 1137. TurnPoint’s bylaws state that the Secretary’s powers and duties include
those “as may from time to time be assigned to him or her by the Board[.]” TurnPoint’s Bylaws,
Pla.’s Reply Br., Ex. AA, at 10. Therefore, TurnPoint’s bylaws, as well as Delaware law, permit
the Board’s delegation of power in the December 2014 Consent
51 Joint Stipulation, at 11 1120; see Employment Agreement, at 8 §10(b) _ Severance.
53 See Employment Agreement, at 8 §(c)(iii) - Effects of Termination.
53 Joint Stipulation, at 15 1132.

17

2. The transaction falls within the § 144(a)(3) safe harbor because it was a
product of both fair dealing and fair price.54

Although the transaction falls within the § 144(a)(1) safe harbor, the Court
will address the intrinsic fairness of the transaction as well. The burden is on the
interested director to prove entire fairness under § l44(a)(3).55 The “entire fairness
standard is exacting and requires judicial scrutiny regarding both ‘fair dealing’ and
‘fair price.”’56 Fair dealing focuses upon the conduct of the corporate fiduciaries in
effectuating the transaction, “such as its initiation, structure, and negotiation.”57 Fair
price “relates to the economic and financial considerations of the [contract],
including all relevant factors [such as] assets, market value, earnings, [or] future
prospects[.]”58 The purpose of the analysis is to disavow unfairness and to sanction
faimess.

As to fair dealing, deposition testimony indicated that employment
agreements “would have been normal,” were “good corporate practice,” and were a
“natural assumption” in corporate governance.59 lt would appear that the company
was in a situation in which employment contracts with its executives was necessary.
To initiate contract discussions, the Board, which included disinterested director
Boyajian, expressly delegated its authority to negotiate employment agreements to
management and proper officers. As discussed above, the parties do not dispute that
Klaube was a proper officer under the Board’s delegation of authority. Again,
Klaube’s role as Chief Financial Officer gave him specialized knowledge regarding
TurnPoint’s finances. lt seems reasonable and fair for the company’s CFO to
represent the company in contract negotiations with the future CEO.

 

54 Neither party has alleged or demonstrated that there was disinterested shareholder approval of
the employment agreement, and therefore § 144(a)(2) is inapplicable
55 Unitrin, lnc. v. American Gen. Corp., 651 A.2d 1361, 1372 (Del. 1995); In re Activision
Blizzara', Inc. Stockhola'er Litig., 124 A.3d 1025, 1063 n.26 (Del. Ch. 2015) (citing Neponist Inv.
Co. v. Abramson, 405 A.2d 97, 100 (Del. 1979)). To survive careful scrutiny by the Court, Plaintiff
bears the “burden of establishing the entire fairness of the transaction[.]” Mills Acquisition Co. v.
Macml`llan, Inc., 559 A.2d 1261, 1279 (Del. 1989).
56 Unitrin, 651 A.2d at 1371 n.7. “Because the effect of the proper invocation of the business
judgment rule is so powerful and the standard of entire fairness so exacting, the determination of
the appropriate standard of judicial review frequently is determinative of the outcome of [the]
litigation.” Ia’. at 1371 (citing Mills Acquisition, 559 A.2d at 1279).
57 Mills Acquisition, 559 A.2d at 1279; see also Kahn v. Lynch Commc'n Sys., lnc., 638 A.2d 1110,
1115 (Del. 1994); Cumming, 2018 WL 992877, at *24.
58 Americas Mining Corp. v. Theriault, 51 A.3d 1213, 1239 (Del. 2012) (citing Weinberger, 457
A.2d at 711).
59 Joint Stipulation, at 12 1125.

1 8

The negotiation and structure of the agreement appear to be fair as well.
Klaube explained that Ruddle’s employment contract served as the template for both
Plaintiff"s and Klaube’s own employment agreements60 Other officers’ contracts
contained severance provisions as well.61 Plaintiff “reviewed the changes [f`rom the
templates] with [Klaube] in [Klaube’s] capacity as a company officer. [Klaube] was
aware that [Plaintiff’ s1 salary change had been approved by the board[.]”62 lt should
be noted that this negotiation process appears to be very similar to the process
between Ruddle and Plaintiff, in which Ruddle provided Plaintiff with “the
boilerplate of the employment agreement” and then “negotiated final terms” of
Ruddle’s employment agreement from that starting point.63

There is no indication that Plaintiff hid the existence of the employment
agreement or otherwise acted in bad faith. At the time the agreement was finalized
on November 10, 2015, the Board consisted of York and Plaintiff.64 That same day,
the Board passed a Unanimous Written Consent (the “November 2015 Consent”).
The November 2015 Consent does not directly reference Plaintiff’ s employment
agreement, but it authorized an increase in Plaintiff5 s salary to 8240,000, which
matched the terms of his employment agreement; a striking coincidence65
Thereafter, the agreement was discussed numerous times in TurnPoint’s public SEC
filings. On August 11, 2016, TurnPoint filed an S-l/A Registration Statement with
the SEC.66 The S-l/A expressly stated that the “Company has employment
agreements with its chief executive officer [Plaintiff] and other key executives.”67
An electronic copy of Plaintiff’s employment agreement was filed an exhibit to the
S- l/A.68 The S- 1/A was signed by Plaintiff, Klaube, and York.69 A second document

 

60 Ia'. at 6 1117. Ruddle’s employment contract was based on a template of boilerplate language
provided by the TurnPoint’s outside counsel. Id. at 4 1111. For Ruddle’s contract, Toedtman
negotiated on behalf of TurnPoint
611a'. at 15 1133.
62 Id. 315 1115
63 ld. 3141111.
44 161 314_5, 1112_13.
65 The November 2015 Consent provided “that the base salary of John Toedtman, Chairman and
Chief Executive Officer of the Company, be increased to $240,000 per year, effective October 1,
2015, payable in accordance with applicable company policy.” Joint Stipulation, at 4 1112.
66 Plaintiff was the “chief drafter” of the S-l/A. Ia’. at 8 1119.
67 Ia’. at 8 1120.
68 Ia'. at 6-7 1118. The particular copy of Plaintiff` s employment agreement filed with the S-l/A
appeared to be signed by Plaintiff on his own behalf and on behalf of the company. This was unlike
the original employment agreement, which was signed by Klaube on behalf of the company.
Klaube explained at his deposition that this was an error that resulted from the PDF to Word
Document conversion See id. at 7 1118.
39 161 319 1120.

19

Amendment No. 2 to the S-l/A, was filed on February 10, 2017, which contained an
amendment to the employment agreement, attached as an exhibit to the filing.70 The
amended agreement stated that Plaintiff and TurnPoint “reconfirm[ed] and
ratif[ied]” the terms of the Plaintiff’s November 10, 2015, employment agreement,
save one deleted sentence.71 This amendment was signed by Plaintiff and Klaube.72
Lastly, there was Amendment No. 3 of the S-l/A, filed on May 15, 2017, five days
after Plaintiff"s termination Amendment No. 3 added language to the S-l/A which
discussed the existence of severance clauses within the various executive
employment agreements Amendment No. 3 was signed by Plaintiff, Klaube, York,
and Hulse.73 The SEC filings were “provided to the board” and the Board members’
signatures are present in the proper locations in the proper format.74

Despite the presence of his signature on the S-l/A and Amendment No. 3,
York could not “recall ever signing any of the S-l documents.”75 After several
clarifying questions during his deposition York maintained ignorance as to the
reason his signature was present.76 York claimed that the first time he saw Plaintiff’s
employment agreement was after Plaintist termination despite the presence of his
signature on the SEC filings.77 Hulse also maintained that the first time he saw
Plaintiff’ s employment agreement was after Plaintiff` s termination despite the
presence of his electronic signature on Amendment No. 3 of the S-l/A.78 Despite
their equivocations, it is undisputed that York and Hulse, at the very least, authorized
other officers to place their signature on the SEC filings for approval purposes.79
Without further evidence to the contrary, the Court will presume that York and Hulse

 

70 Id. at 11 1122.

31 ld.

72 Id.

73 Ia'. at 16 1133.

74 Id. at 6 1116. The SEC requires that signatures “must be in typed form rather than manual forrnat.”

Signatures, 17 C.F.R. § 232.302 (2018).

75 Joint Stipulation, at 10 1121.

76 York stated, “Well, l believe there was a board authorization to grant officers of the company

the ability to file the S-1. So l’m assuming they used my signature based on that authorization[.]”

Id. “l didn’t specifically sign each S-l and amendment[.]” Ia'.

77 Ia'. at 14 1130. York’s claim is belied by the fact that he emailed Plaintiff on May 7, 2017, prior

to Plaintiff’s termination to inform Plaintiff that the employment agreement was void Ia'. at 15

1131. lt appears to the Court that the email exchange implies that York was aware of the

employment agreement and its terms prior to Plaintiff’ s termination

78 Joint Stipulation, at 13 1127. Hulse’s claim is likewise contradicted by the presence of the pre-

termination email, which he was copied on Ia'. at 15 1131.

79 See id. at 10 1121. SEC Regulation S-T “assumes that electronic signatures have been ‘executed,

adopted or authorized as a signature’ by the person whose signature is transmitted electronically.”

111 re Piranha, Inc., 297 B.R. 78, 81-82 (N.D. Tex. June 20, 2003) (quoting 17 C.F.R. § 232.302).
20

approved their respective signatures to be placed on the SEC filings lt does not
appear to the Court that Plaintiff made any attempt to hide the employment
agreement ln any event, the parties have agreed that there are no genuine issues of
material facts in this regard Even a cursory reading of the SEC filings would have
discovered the employment agreement

As to fair price, the Board authorized the raise of Plaintiff5s salary to match
the agreed upon salary and severence in the employment agreement The Court will
not question York’s valid exercise of business judgment in approving the salary. To
argue unfair price, TurnPoint claims that the company was in dire financial condition
when Plaintiff was terminated Such a claim is irrelevant, and, in any event, is not a
genuine issue of material fact Under § 144(a)(3), the Court is concerned with the
fairness of the transaction “as of the time it is authorized, approved or
authorized[.]”86 There is no evidence that the company was in a dire financial
situation at the time the employment agreement was finalized and Plaintiff’ s salary
raised

The Court finds that the employment agreement was intrinsically fair. The
Board authorized contract negotiations with several executives, including Plaintiff,
and Plaintiff s agreement was based on a common template The Chief Financial
Officer discussed changes made to the agreement with Plaintiff, reviewed the final
agreement, and signed on behalf of TumPoint, per the Board’s authorization
Plaintiff undertook no effort to obscure his employment agreement, and instead
provided copies of the agreement to the Board and publically filed the agreement
with the SEC. Plaintiff’s salary was ratified by the Board, and other executives had
severance clauses in their agreements There is nothing manifestly unfair about the
agreement which would render it void. This Court will not invalidate the fairness of
the transaction Therefore, the relevant provisions of the agreement are valid and
enforceable

B. Plaintiij is also entitled to recover under the doctrine of promissory estoppel

The Court will also address Plaintiff’s first alternative theory of recovery to
further illustrate the intrinsic fairness of the employment agreement Plaintiff argues
in the alternative that the doctrine of promissory estoppel permits him to recover.
The primary purpose of the promissory estoppel doctrine is to prevent injustice.81
Under Delaware law a claim for promissory estoppel requires a plaintiff to prove

 

80 8 Del. C. § 144(a)(3).
81 Lord v. Souder, 748 A.2d 393, 398-99 (Del. 2000) (citing Chrysler Corp. v. Quimby, 144 A.2d
123, 133 (Del. 1958)); Ramone v. Lang, 2006 WL 905347, at *14 (Del. Ch. Apr. 3, 2006).

21

that: “(i) a promise was made; (ii) it was the reasonable expectation of the promisor
to induce action or forbearance on the part of the promisee; (iii) the promisee
reasonably relied on the promise and took action to his detriment; and (iv) such
promise is binding because injustice can be avoided only by enforcement of the
promise.”82 The doctrine is designed to protect the legitimate expectations of
parties.83

First, the negotiations and the finalized employment agreement constituted
TurnPoint’s promise to Plaintiff. The December 2014 Consent authorized
management of TurnPoint to negotiate employment agreements with Plaintiff and
other executives As discussed above, Klaube was part of management who were
authorized to negotiate on behalf of TumPoint. Klaube negotiated the employment
agreement with Plaintiff. Klaube signed on behalf of the company. The employment
agreement, and all its provisions, served as the promise by TurnPoint to Plaintiff.

Second, as to expectation it seems counterintuitive for the Court to rule that
TurnPoint could not reasonably expect that its promise would induce Plaintiff’s
actions, especially in light of TumPoint’s acknowledgment that there are no genuine
issues of fact as to this issue According to the December 2014 Consent, the
agreement was entered into expressly to induce Plaintiff “to serve as [an] officer[]
of the Company[.]”84 TurnPoint entered into employment agreements with the other
executives as well. There can be no other logical holding than TurnPoint intended to
induce Plaintiff to remain as CEO.

Third, it appears to the Court that Plaintiff` s reliance on the promise was
reasonable The Board authorized and directed management to enter into these types
of agreements Contracts of this nature are routine for corporate govemance.85
Ruddle’s previously negotiated contract served as the template for Plaintiff5 s and
Klaube’s Plaintiff provided a copy of the employment agreement to the members of
the Board with the S-l/A filing, and heard no objections from other directors The
Board also agreed to raise Plaintiff’s salary. All of these factors give weight to the
reasonability of Plaintist reliance on the promise The Court does not see any
evidence to suggest that Plaintiff’s reliance on the employment agreement was
unreasonable, especially in light of the parties’ acknowledgment that there are no
genuine disputes of material fact

 

32 Lord, 748 A.2d 31399.
83 Ramone, 2006 WL 905347, at *14.
84 Joint Stipulation, at 3 1110.
33 Id. at 12 1125
22

The final consideration is whether injustice may be prevented only by
enforcing the promise The employment agreement was entered into pursuant to a
Board consent The Board approved Plaintiff5s salary raise to match the agreement
Plaintiff thereafter distributed the employment agreement to other directors, and
heard no objection Plaintiff publically filed the agreement with the SEC. Turnpoint
offered Plaintiff a safety net, and promised to pay “‘ [s]everance’ equal to 12 months’
Base Salary payable in accordance with the Company’s regular payroll schedule and
certain other benefits if Toedtman is terminated ‘without Cause[.]”’86 ln return
for that safety net, Plaintiff remained on as CEO of TurnPoint for several years ln
theory, the severance clause would protect Plaintiff in the event of “termination
without Cause.”87 When just such a termination occurred, TurnPoint immediately
sought to invalidate the valid agreement to avoid its contractual obligation after-the-
fact.88 ln this situation justice requires that the promised benefits must be

recoverable by Plaintiff.

Plaintiff established each of the factors necessary to satisfy a claim for
recovery under promissory estoppel. The provisions of the employment agreement
relating to termination severance, and related benefits are enforceable, and Plaintiff
can recover pursuant to those provisions in the amount of $250,900. Because the
Court finds that the Plaintiff established the alternative theory of recovery under
promissory estoppel, and that the employment agreement was not voidable pursuant
to § l44(a), the Court does not feel it is necessary to address Plaintiff’s other
alternative theories of recovery.

C. Plaintiij has not demonstrated Defendant acted in bad faith which would
warrant an award of attorneys ’ fees

Plaintiff seeks recovery of attomeys’ fees, expert fees, and costs in connection
with this matter based on Defendant’s alleged “bad faith[.]”89 Plaintiff argues that
Defendant’s conduct, which forced Plaintiff to incur “tens of thousands of dollars in
attorneys’ fees, expert fees, and costs and delaying payment of severance to a former
employee[,]” amount to bad faith.90 ln further support of the bad faith argument,
Plaintiff alleges that Defendant’s factual arguments contradicted undisputed
evidence to the contrary, and Defendant’s legal arguments contradicted case law.91

 

46 Id. at 11 1124.
37 Id.
33 ld. at 15 1131~32.
39 Id. at 19 1146.
90 Pla.’s Reply Br., at 6.
91 See id.
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Plaintiff acknowledges that there are no genuine disputes of fact which are material
to a disposition of this issue

Under the American Rule, generally followed by Delaware courts, “each party
is normally obliged to pay only his or her own attorneys' fees, whatever the outcome
of the litigation.”92 As such, courts are typically wary of awarding attorney fees to
litigants without a showing of exceptional circumstances One of the exceptional
circumstances is the bad faith exception93 As the Delaware Supreme Court has
observed, “there is no single definition of bad faith conduct.”94 Courts have routinely
found bad faith where the parties “have unnecessarily prolonged or delayed
litigation falsified records or knowingly asserted frivolous claims”95 The exception
does not apply “to conduct that gives rise to the substantive claim itself.96 However,
the Court may consider pre-litigation conduct for the purpose of determining
whether the defendant thereafter defended the action in bad faith.97

Plaintiff has not provided the Court enough evidence to support a finding of
bad faith. There is no indication of falsified records, false testimony, unnecessary
delays, or frivolously asserted claims While Defendant’s conduct may have, at
times, caused frustration for Plaintiff, it does not rise to the level of egregiousness
required to obtain a reward under Delaware law. As to TurnPoint’s legal argument
challenging the validity of Plaintiff’s employment agreement, any deficiencies
amount to a misapplication of Delaware corporate law. Such a mistaken belief in the
correctness of one’s argument does not make the claims so frivolous as to warrant
an award of attorneys’ fees Without more direct evidence of bad faith misconduct
the Court will not award attomeys’ fees under the bad faith exception

 

92 Jonston v. Arbitrium (Cayman Islands) Handels AG, 720 A.2d 542, 545 (Del. 1998).
93 Id. “The United States Supreme Court has used the bad faith exception to the American Rule to
uphold the award of attorneys fees.” Id. (citing Chambers v. NASCO, Inc., 501 U.S. 32, 57 (1991)).
The Delaware Supreme Court has also used the bad faith conduct of a party as a valid exception
See Brice v. State ofDelaware, Dept. of Correction, 704 A.2d 1176, 1179 (Del. 1998).
94 Arbim'um, 720 A.2d at 546.
95 ld. at 546 nn.25-27; see Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980) (finding that
attorneys' fees could be awarded as sanctions under rule relating to failure to comply with
discovery); U.S. Indus., Inc. v. Touche Ross & Co., 854 F.2d 1223, 1243 (10th Cir. 1988) (finding
no bad faith because there was insufficient proof that documents in question were falsified).
96 Arbitrium, 720 A.2d at 546; see Shimman v. Int’l Union ofOperating Eng ’rs Local ]8, 744 F.2d
1226, 1230 (6th Cir. 1984), cert. denied 469 U.S. 1215 (1985) (stating that courts should take care
to distinguish between the defendants bad faith in maintaining the action from the acts that gave
rise to the action).
97 See Arbitrium, 720 A.2d at 546 (“The Court of Chancery found that the conduct of the
Defendants rose to the level of bad faith because they had no valid defense and knew it.”).

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D. T he Superior Court lacks jurisdiction to determine a claim for indemnification
under TurnPoint ’s bylaws or under Title 8 of the Delaware Code.

Plaintiff cannot seek indemnification under the provisions of TurnPoint’s
bylaws through an action in Superior Court Title 8, Section 145(k) vests the Court
of Chancery with “exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this section or under any
bylaw, agreement vote of stockholders or disinterested directors, or otherwise.”98
By stating that a particular court has exclusive jurisdiction over a particular action
“the General Assembly makes clear which of Delaware trial courts will handle the
identified matter[.]”99 The Court will note that the parties did not address the
applicability or non-applicability of 8 Del. C. § 145(k) in the briefs or at oral
argument but the language of § 145(k) is clear. Plaintiff’ s action for indemnification
is a matter that may heard and determined solely by the Court of Chancery. This
Court lacks jurisdiction Therefore, Plaintiff’ s instant action for indemnification will
be dismissed

CONCLUSION

The Court’s decision on this matter has been premised on the procedural
posture created by the parties’ filing of cross-motions for summary judgment
pursuant to Superior Court Rule of Civil Procedure 56(h). Therefore, based on a
review of the record under that procedural posture, and for the foregoing reasons,
Plaintiff’ s Cross-Motion for Summary Judgment is GRANTED IN PART.
Plaintiff5 s claim for indemnification under TurnPoint’s bylaws is DISMISSED.
Defendant’s Cross-Motion for Summary Judgment is DENIED. The effect of the
Court’s ruling on these cross-motions for summary judgment is a ruling on the merits
of the case in favor of Plaintiff. Judgment is ordered in the amount of $250,900.

IT IS SO ORDERED.

win/wit

Richard R. Cooch, R.J.

cc: Prothonotary

 

98 8 Del. C. § 145(k).
99 IMO Daniel Kloiber Dynasty Trust, 98 A.3d 924, 938 (Del. Ch. 2014).
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