Court Opinion

ID: 9407472
Source: CourtListenerOpinion
Date Created: 2023-07-07 15:04:26.576677+00
Date Added: 2024-06-11T17:20:38.673977
License: Public Domain

SUPERIOR COURT
                                     OF THE
                               STATE OF DELAWARE
PAUL R. WALLACE                                                     LEONARD L. WILLIAMS JUSTICE CENTER
     JUDGE                                                              500 N. KING STREET, SUITE 10400
                                                                         WILMINGTON, DELAWARE 19801
                                                                                (302) 255-0660

                              Date Submitted: June 7, 2023
                               Date Decided: July 7, 2023

Ryan P. Newell, Esquire                            Kaan Ekiner, Esquire
Emily V. Burton, Esquire                           COZEN O’CONNOR, P.C.
Tanner C. Jameson, Esquire                         1201 North Market Street, Suite 1001
YOUNG CONAWAY STARGATT                             Wilmington, Delaware 19801
& TAYLOR, LLP
100 North King Street                              Mitchell J. Edlund, Esquire
Wilmington, Delaware 19801                         Corey T. Hickman, Esquire
                                                   COZEN O’CONNOR P.C.
                                                   123 North Wacker Drive, Suite 1800
                                                   Chicago, Illinois 60606

RE: Jencap Group, LLC et al. v. James E. Adams et al.
    C.A. No. N22C-12-212 PRW CCLD
    Defendants’ Motion to Dismiss

Dear Counsel:
       The Court provides this Letter Opinion and Order in lieu of a more formal

writing1 to resolve the Adams Parties’ Motion to Dismiss the Complaint (D.I. 6). For

the reasons explained below, the Rule 12(b)(6) Motion is GRANTED.

                                       THE PARTIES

       Plaintiff Jencap Group, LLC is a Delaware LLC with its principal place of

1
    The Court crafts this somewhat abbreviated decision keeping in mind the parties’ full
understanding of and familiarity with the factual background and operative agreements mentioned
herein.
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
July 7, 2023
Page 2 of 12

business in New York, New York.2 Jencap is the successor by merger to JenCap,

Inc.3 and is a “holding company for various managing general agencies and

wholesale brokerage companies, including” Jencap Insurance Services, Inc.

(“JCIS”).4

        Plaintiff JCIS is a Georgia corporation with its principal place of business in

Atlanta, Georgia.5 JCIS is the successor by merger to MJ Kelly of Arkansas, Inc.

(“MJ Kelly”).6        JCIS is a managing general agency and wholesale brokerage

company.7

        James E. Adams is a former shareholder of MJ Kelly and MJ Kelly Company

(the “MJ Entities”) and is a citizen of Missouri.8 Jon S. Adams is a former

shareholder of the MJ Entities and is a citizen of Arkansas.9 Paul D. Adams is a

former shareholder of the MJ Entities and is a citizen of Missouri.10              The

Paul D. Adams Revocable Trust (together with James E. Adams, Jon S. Adams, and

2
     Compl. ¶ 8 (D.I. 1).
3
     Id. at 1.
4
     Id. ¶ 8.
5
     Id. ¶ 9.
6
     Id.
7
     Id.
8
     Id. ¶ 10.
9
     Id. ¶ 11.
10
     Id. ¶ 12.
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
July 7, 2023
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Paul D. Adams, the “Adams Parties”), through the citizenship of its beneficiary and

trustee, is a citizen of Missouri.11

                            THE STOCK PURCHASE AGREEMENT

        On September 15, 2016, Jencap and the Adams Parties entered into a Stock

Purchase Agreement (“SPA”) by which Jencap acquired the MJ Entities from the

Adams Parties.12 The Adams Parties agreed to indemnify and hold Jencap and its

affiliates harmless against certain claims and liabilities.13

        Specifically, SPA Section 7.2 states:

        The Selling Stockholders (collectively, the “Seller Indemnifying
        Parties”) shall jointly and severally indemnify the Buyer Parties and
        save and hold each of them harmless against and pay on behalf of or
        reimburse such Buyer Parties for any Losses which any such Buyer
        Party may suffer, sustain or become subject to, as a result of, in
        connection with, relating or incidental to or by virtue of . . . (iii) any
        Liability of the Seller Entities not reflected on the Estimated Closing
        Balance Sheet or included in Final Net Working Capital, . . . (v) any
        acts or omissions by the Seller Entities’ employees, agents and
        contractors which arise out of the conduct of their professional
        activities as Producers that occurred prior to the Closing excluding,
        however, any claim or matter relating to (A) any Material Contract or

11
     Id. ¶ 13.
12
     Id. ¶¶ 17-18.
13
     Id. ¶ 19
         Under the clear terms of the Agreement, the Adams Parties agreed to indemnify
         and hold Jencap and its affiliates, including MJ Kelly, harmless against all claims
         asserted against them for the acts or omissions of MJ Kelly’s employees arising out
         of their conduct as insurance producers that occurred prior to the Closing Date, as
         well as for the liabilities maintained by the Adams Parties under the Agreement.
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
July 7, 2023
Page 4 of 12

        other agreement or commitment entered into in the Ordinary Course of
        Business, or (B) any Liability of any Seller Entity reflected on the
        Estimated Closing Balance Sheet or included in Final Net Working
        Capital.”14

        In addition, the SPA limits the period for bringing certain claims. As relevant

here, SPA Section 7.1(c) provides in pertinent part:

        “[t]he representations and warranties in this Agreement and the
        Schedules attached hereto . . . shall survive the Closing as follows: . . .
        (c) all . . . representations and warranties [not specified in (a) and (b)]
        shall terminate on the date that is twenty four (24) months after the
        Closing Date; provided that any representation, warranty or covenant
        in respect of which indemnity may be sought under Section 7.2, and the
        indemnity with respect thereto, shall survive the time at which it would
        otherwise terminate pursuant to this Section 7.1 if notice of actual
        breach thereof giving rise to such right or alleged right of indemnity
        shall have been given to the party against whom such indemnity may
        be sought prior to the time that such representation or warranty would
        otherwise terminate pursuant to this Section 7.1.15

                THE ADAMS PARTIES’ PURPORTED BREACH OF THE SPA

        On November 23, 2021, Jencap demanded the Adams Parties indemnify and

hold Jencap and MJ Kelly harmless against all claims asserted against them with

respect to the “Heritage Litigation.”16 That litigation concerned a “commercial

14
     Reply Br., Ex. 1 (“SPA”) § 7.2(a) (D.I. 11).
15
     Id. § 7.1 (underlining in original).
16
     Compl. ¶ 30
         By letter dated November 23, 2021, and pursuant to Article VII of the Agreement,
         Jencap first demanded that the Adams Parties, jointly and severally, indemnify and
         hold Jencap and its affiliate MJ Kelly harmless against all claims asserted against
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
July 7, 2023
Page 5 of 12

property policy placed by MJ Kelly’s employees and issued by Penn-Star Insurance

Company (“Penn-Star”) to Heritage . . . prior to the Closing Date, and makes

allegations of misconduct relating to the MJ Kelly employees’ cancellation of the

Policy.”17

       The Adams Parties refused to indemnify and hold Jencap and its affiliates

harmless, thus purportedly breaching the SPA.18

                             PROCEDURAL BACKGROUND

       Jencap filed its Complaint seeking one declaratory judgment and alleging two

breaches: Count I asks for a declaration under the SPA that the Adams Parties are

required to indemnify and hold harmless Jencap and its affiliates; Count II (Jencap

against the Adams Parties) charges a breach of the SPA for failure to indemnify and

hold harmless Jencap and its affiliates; and Count III (JCIS against just James E.

Adams) alleges a breach of a General Agency Agreement (“GAA”) for failure to

        them by Heritage in connection with the placement of the Penn-Star Policy,
        including, without limitation, the claims asserted against each of them in the State
        Court Litigation and the Federal Court Litigation. Jencap also sought
        reimbursement of the attorneys’ fees that Jencap and MJ Kelly have incurred in the
        Heritage Litigation.
On June 15, 2022, Jencap separately demanded the Adams Parties “indemnify and hold Jencap
and MJ Kelly harmless from all damages arising out of the Penn-Star Claim, including
reimbursement of Jencap’s attorneys’ fees.” Id. ¶ 32.
17
    Id. ¶ 3.
18
    Id. ¶ 7.
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C.A. No. N22C-12-212 PRW CCLD
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indemnify and hold harmless Jencap and its affiliates.19

        The Adams Parties moved to dismiss the Complaint under Superior Court

Civil Rule 12(b)(6).20

        The Court heard oral argument on the motion.21 At argument, JCIS conceded

that Count III failed to state a claim. So, the Court need only address Counts I and

II here.

                                THE PARTIES’ CONTENTIONS

        The Adams Parties say that Counts I and II should be dismissed because the

claims are barred by a contract-defined limitations period for bringing them and

because they, the Adams Parties, are not obligated to indemnify Jencap and its

affiliates for the Heritage Litigation.22

        Jencap says its claims are not time-barred because its indemnification claims

challenge the SPA’s covenants and agreements—not its representations and

warranties—and thus its claims are not subject to the shortened limitations period.23

Second, Jencap says the Heritage Litigation is not a liability reflected on the

19
     Id. ¶¶ 35-50.
20
     Mot. to Dismiss at 11 (D.I. 6).
21
     D.I. 18.
22
     Mot. to Dismiss at 12-18.
23
     Pls.’ Answering Br. at 18-21 (D.I. 9).
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
July 7, 2023
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Estimated Closing Balance Sheet or included in the Final Net Working Capital, and

is an act “that arose out of those employees’ activities as insurance producers and

that occurred prior to Jencap’s purchase of MJ Kelly,”24 meaning the Adams Parties

have a duty to indemnify.

                                STANDARD OF REVIEW

      “Under Superior Court Civil Rule 12(b)(6), the legal issue to be decided is,

whether a plaintiff may recover under any reasonably conceivable set of

circumstances susceptible of proof under the complaint.”25 Under that Rule, the

Court will:

      (1) accept all well pleaded factual allegations as true, (2) accept even
      vague allegations as “well pleaded” if they give the opposing party
      notice of the claim, (3) draw all reasonable inferences in favor of the
      non-moving party, and (4) not dismiss the claims unless the plaintiff
      would not be entitled to recover under any reasonably conceivable set
      of circumstances.26

      “If any reasonable conception can be formulated to allow Plaintiffs’ recovery,

the motion must be denied.”27 Indeed, “[d]ismissal is warranted [only] where the

24
   Id. at 1, 12-18.
25
   Vinton v. Grayson, 189 A.3d 695, 700 (Del. Super. Ct. 2018) (quoting Super. Ct. Civ. R.
12(b)(6)).
26
   Id. (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535
(Del. 2011)).
27
   Id. (citing Cent. Mortg. Co., 27 A.3d at 535).
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
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plaintiff has failed to plead facts supporting an element of the claim, or that under

no reasonable interpretation of the facts alleged could the complaint state a claim for

which relief might be granted.”28 In addition, a time-limitations defense may be

decided at the Rule 12(b)(6) stage.29

                            COUNTS I AND II ARE TIME-BARRED

       Under SPA Section 7.1(c), Jencap had two years from the SPA’s Closing Date

(September 15, 2016) to provide notice of a claim for breach of a representation or

warranty.30 Because Jencap waited until November 23, 2021, its claims are barred

by the two-year contract-defined limitations period for bringing such.31

       SPA Section 7.1(c) provides, in relevant part, that representations and

warranties made in Article V (Representations and Warranties of the Seller Parties)

28
    Hedenberg v. Raber, 2004 WL 2191164, at *1 (Del. Super. Ct. Aug. 20, 2004).
29
    Gadow v. Parker, 865 A.2d 515, 519 (Del. 2005) (“The Superior Court Civil Rules expressly
permit a defendant to raise the defense of limitations in a motion to dismiss or in a first responsive
pleading to the complaint.” (citations omitted)).
30
    SPA § 7.1(c).
31
    Compl. ¶ 30
       By letter dated November 23, 2021, and pursuant to Article VII of the Agreement,
       Jencap first demanded that the Adams Parties, jointly and severally, indemnify and
       hold Jencap and its affiliate MJ Kelly harmless against all claims asserted against
       them by Heritage in connection with the placement of the Penn-Star Policy,
       including, without limitation, the claims asserted against each of them in the State
       Court Litigation and the Federal Court Litigation. Jencap also sought
       reimbursement of the attorneys’ fees that Jencap and MJ Kelly have incurred in the
       Heritage Litigation.
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
July 7, 2023
Page 9 of 12

terminate two years after the Closing Date.32 Section 14 of Article V, and the

corresponding Schedule 5.14, lists all open E&O claims, including the Heritage

Litigation.33

       SPA Section 7.2(a)(iii) says the Adams Parties need not indemnify Jencap for

“any Liability of the Seller Entities not reflected on the Estimated Closing Balance

Sheet or included in Final Net Working Capital.”34 While the parties quibble over

which document is the “Estimated Closing Balance Sheet” contemplated by the

SPA, the Final Net Working Capital is given a precise definition in SPA Exhibit C

(Revenue and Working Capital Methodology sheet). Specifically:

       Net Working Capital shall include (i) a $25,000 liability for the Seller
       Entities’ anticipated insurance deductible payment for pending E&O
       claims; the foregoing shall in no way limit the Seller Entities’ liability
       for such claims, (ii) the accrued and unpaid amounts due for the Tail
       Policies for the Coverage Period, and (iii) the amount due Western
       Heritage.35

       Jencap first protests that the $25,000 amount listed in the Revenue and

Working Capital Methodology sheet “does not reflect the ‘Liability’ for the Heritage

Litigation or any other claim, but rather only reflects a $25,000 total anticipated

32
   SPA § 7.1(c).
33
   SPA Schedule 5.14 No. 4 (Heritage Hospitality – PAV0070513 – Effective Date 10/6/2015).
34
   SPA § 7.2(a)(iii).
35
   SPA, Ex. C (“Revenue and Working Capital Methodology”). SPA § 2.2(c)(i) states that Final
Net Working Capital is determined by Exhibit C. SPA § 2.2(c)(i).
Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
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deductible payment for all E&O claims.”36 And second, Jencap points out the

Revenue and Working Capital Methodology sheet specifically notes that “the

foregoing shall in no way limit the Seller Entities’ liability for such claims,” and

“does not reflect or limit the ‘Liability’ in any way.”37 Neither argument rescues

Jencap’s claims.

        Jencap confuses “Liability” with total amount due. But that’s not how the

SPA reads. SPA Exhibit A defines Liability as:

        [A]ny liability, debt, obligation, commitment, deficiency, interest, Tax,
        penalty, fine, demand, judgment, cause of action or other loss
        (including incidental, consequential and punitive damages and
        Liabilities based upon multiple of profits and loss profits and interest,
        penalties, loss of benefit), cost or expense of any kind or nature
        whatsoever, whether asserted or unasserted, absolute, or contingent,
        known or unknown, accrued or unaccrued, liquidated or unliquidated,
        and whether due or to become due and regardless of when asserted.38

SPA Section 7.2(a)(iii) obligates the Adams Parties to indemnify “any Liability”

“not . . . included in Final Net Working Capital.”39 And Final Net Working Capital

“include[s]” a sum for the Adams Parties’ “anticipated insurance deductible payment

for pending E&O claims.”40 That is enough. While far from the total liability, the

36
     Answering Br. at 14 (emphasis in original).
37
     Id. at 14-15.
38
     SPA, Ex. A (definitions) at A-5.
39
     SPA § 7.2(a)(iii).
40
     SPA, Ex. C.
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Heritage Litigation deductible is included in Final Net Working Capital and is thus

a Liability.

       But, says Jencap, because the Revenue and Working Capital Methodology

sheet states “the foregoing shall in no way limit the Seller Entities’ liability for such

claims,” the $25,000 amount listed “does not reflect or limit the ‘Liability’ in any

way” or the Heritage Litigation.41

       Jencap asks the Court to read the Revenue and Working Capital Methodology

sheet statement that the $25,000 amount “in no way limit[s] . . . liability” to mean

the Heritage Litigation is not “included in Final Net Working Capital.”42 But the

fact that the “Net Working Capital shall include (i) a $25,000 liability for the Seller

Entities’ anticipated insurance deductible payment for pending E&O claims” and

that this provision “shall in no way limit the Seller Entities’ liability for such claims”

does not mean that the Heritage Litigation is not included in the calculation. 43 At

most, it means the Seller Entities’ liability is not limited to the $25,000 deductible—

41
   Answering Br. at 14-15. SPA § 7.2(a)(iii) uses the term “included” in reference to the Final
Net Working Capital and “reflected” is used in reference to the Estimated Closing Balance Sheet.
SPA § 7.2(a)(iii).
42
   See Answering Br. at 14-15.
43
   SPA, Ex. C.
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it does not operate to bar inclusion of the Heritage Litigation from the Final Net

Working Capital.44

                                         CONCLUSION

       While Jencap tries to frame this litigation otherwise—it says it brought

“covenant-breach” claims—in reality, Jencap is challenging the SPA representations

and warranties. Those challenges were limited to a bargained-for and defined two-

year limitations period that expired in September 2018. Because Jencap waited until

November 23, 2021, to make its demands,45 those claims are time-barred.

       Accordingly, the Adams Parties’ Motion to Dismiss the Complaint under Rule

12(b)(6) is GRANTED.

       IT IS SO ORDERED.

                                                            _______________________
                                                            Paul R. Wallace, Judge
cc: All Counsel via File and Serve

44
    In re Solera Ins. Coverage Appeals, 240 A.3d 1121, 1131 (Del. 2020) (“Delaware courts will
not ‘destroy or twist’ the words of a clear and unambiguous insurance contract.” (citation
omitted)); Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del.
1992) (“Courts will not torture contractual terms to impart ambiguity where ordinary meaning
leaves no room for uncertainty.” (citation omitted)); see Sycamore P’rs Mgmt., L.P. v. Endurance
Am. Ins. Co., 2021 WL 4130631, at *19 (Del. Super. Ct. Sept. 10, 2021) (when addressing an
undefined word or term in a contract, the Court accepts what it “most naturally means” in the given
context).
45
    Compl. ¶ 30.