Court Opinion

ID: 4161381
Source: CourtListenerOpinion
Date Created: 2017-04-19 15:05:57.387463+00
Date Added: 2024-06-11T09:36:37.921975
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

BW PIEZO HOLDINGS LLC, PIEZO )
INVESTMENT HOLDINGS, LLC, and )
CHANNEL TECHNOLOGIES GROUP, )
LLC                           )
                              )
               Plaintiffs,    ) C.A. No. N16C-08-214 RRC
                              )
    v.                        )
                              )
RALPH L. PHILLIPS             )
                              )
               Defendant.     )

                           Submitted: January 25, 2017
                             Decided: April 18, 2017

 On Defendant‘s Motion to Dismiss, or in the Alternative to Stay, Plaintiffs‘ First
          Amended Complaint. MOTION TO STAY GRANTED.

                                    ORDER
Michael F. Bonkowski, Esquire and Nicholas J. Brannick, Esquire, Cole Schotz
P.C., Wilmington, Delaware; and Jonathan C. Wilson, Esquire and James T.
McBride, Esquire, Littler Mendelson, PC, Dallas, Texas, Attorneys for Plaintiffs.

Joseph J. Bellew, Esquire, and Keith L. Kleinman, Esquire, Cozen O‘Connor,
Wilmington, Delaware, Attorneys for Defendants.

COOCH, R.J.

      This 18th day of April, 2017, upon consideration of Defendant‘s Motion to
Dismiss, or in the Alternative to Stay, Plaintiffs‘ First Amended Complaint, it
appears to the Court that:
                             I. FACTS AND PROCEDURAL HISTORY

         1.    This breach of contract dispute arises out of employment, lending, and
               investment relationships between Defendant Ralph L. Phillips and
               Plaintiffs BW Piezo Holdings LLC (―BW Piezo‖), Piezo Investment
               Holdings, LLC (―Piezo Investment Holdings‖), and Channel
               Technologies Group, LLC (―Channel‖). Plaintiffs have filed this action
               against Defendant to ―seek enforcement and recovery of damages and
               attorneys‘ fees from Defendant for his breach of [a] Promissory Note,
               Pledge Agreement, and Severance Agreement and General Release, and
               for a declaration of the Parties‘ rights under [Piezo Investment
               Holdings‘] Limited Liability Company Agreement and Mirror Unit
               Grant Agreements issued to Defendant.‖1

         2.    In accordance with the Court‘s order, the parties have submitted the
               following joint stipulation of facts and procedural history pertinent to
               Defendant‘s Motion to Dismiss or in the Alternative to Stay Plaintiff‘s
               First Amended Complaint:

                    A. December 29, 2011 – [Piezo Investment Holdings,] LLC
                    Operating Agreement [executed].

                    B. June 13, 2013 – Employment Agreement executed between
                    Channel and Phillips, including reference to Phillips‘ opportunity
                    to invest in Channel. Phillips begins work.

                    C. As of October 11, 2013:
                       1. Promissory Note executed between [BW Piezo] and Phillips.
                       2. Mirror Unit Grant Agreement executed between [Piezo
                       Investment Holdings] and Phillips.
                       3. Pledge Agreement executed between [BW Piezo] and
                       Phillips.

                    D. October 11, 2013 – Effective date of Joinder Agreement
                    whereby Phillips‘ agrees to be bound by terms of [Piezo
                    Investment Holdings] Operating Agreement.
1
    First Am. Compl. at 1.
E. October 14, 2013, September 30, 2014, December 31, 2014,
August 31, 2015 – Additional Mirror Unit Grant Agreements
executed between [Piezo Investment Holdings] and Phillips.

F. January 18, 2016 – Phillips‘ employment with Channel is
terminated.

G. February 12, 2016 – Severance Agreement and General Release
executed by Phillips.

H. April 20, 2016 – Notice of Default by [BW Piezo] to Phillips
under Promissory Note and Pledge Agreement.

I. August 26, 2016 – Delaware Plaintiff [BW Piezo]‘s Original
Complaint against Phillips filed with this [] Court.

J. September 8, 2016 – Delaware Defendant Phillips‘ Complaint
filed against [Piezo Investment Holdings], [BW Piezo,] and
Channel in Superior Court of the State of California.

K. September 12, 2016 and September 13, 2016 – California
Defendants [Piezo Investment Holdings], [BW Piezo] and Channel
served with California Complaint.

L. September 13, 2016 – Delaware Plaintiff [BW Piezo]'s counsel
advises Phillips' counsel that Delaware Original Complaint had
been filed August 26, 2016.

M. September 23, 2016 – Delaware Plaintiffs [BW Piezo], [Piezo
Investment Holdings] and Channel‘s First Amended Complaint
against Defendant Phillips filed with this [] Court.

N. October 11, 2016 – Delaware Defendant Phillips counsel enters
appearance in Delaware action.

O. October 12, 2016 – California Defendants [Piezo Investment
Holdings], [BW Piezo] and Channel file Demurrer to Phillips‘
Complaint based on asserted release in Severance Agreement and
General Release.
                 P. October 14, 2016 – California Defendant Channel files Chapter
                 11 Petition.

                 Q. November 14, 2016 – Delaware Defendant Phillips files Motion
                 to Dismiss or Stay Delaware action.

                 R. November 16, 2016 – California Court overrules Demurrer of
                 Defendants [Piezo Investment Holdings] and [BW Piezo].

                 S. November 28, 2016 – California Defendants [Piezo Investment
                 Holdings], [BW Piezo] file Answer in California action.

                 T. January 11, 2017 – California Court continues Court
                 Management Conference until March 1, 2017 in light of hearing on
                 Delaware Defendant‘s Motion to Dismiss in Delaware and pending
                 this Court‘s ruling.2

      3.    In addition to the timeline jointly provided by the parties, the Court
            finds that three agreements must be considered in deciding this motion.
            First is Defendant‘s employment agreement with Channel (the
            ―Employment Agreement‖). Under that agreement, Defendant agreed
            to be Channel‘s president and chief executive officer in exchange for
            compensation and benefits. In the Employment Agreement, Defendant
            was also given the right to invest $500,000 in Channel, with a right to
            borrow $250,000 from BW Piezo. The Employment Agreement
            provides in pertinent part:

                 5. Equity Compensation: . . . Employee will have the opportunity
                 to invest up to $500,000 in [Channel]. [BW Piezo] will lend
                 Employee up to 50% of the purchase price of this equity, secured
                 only by the equity, and repayable on sale or with 50% of any bonus
                 above target. All of the matters set forth in this Section 5 are
                 subject to the more detailed terms of (and the execution of) the

2
  Joint Stipulation of Procedural History, Undisputed Facts, and the Parties‘ Summary
Statements of Contentions at 16 [hereinafter ―Joint Stipulation of Procedural History and
Undisputed Facts‖]. The Court has not been advised of what transpired at the March 1, 2017
Court Management Conference in California.
                  form grant agreement and other documents applicable to these
                  equity issuances.

                  ...

                  27. Choice of Law: All questions concerning the construction,
                  validity, and interpretation of this Agreement will be governed by
                  the law of the State of California as applied to contracts made and
                  to be performed entirely within California. Employee hereby
                  irrevocably consents to the exclusive jurisdiction and venue of the
                  state and federal courts located in Santa Barbara, California in
                  connection with any action relating to this Agreement. Employee
                  agrees not to, and hereby waives any right to, bring any action
                  relating to this agreement in a state or federal court in any other
                  venue.3

       4.    Defendant acted on this right and borrowed $250,000 from BW Piezo
             pursuant to a Promissory Note and Pledge Agreement. The Promissory
             Note, however, contained the following non-exclusive forum selection
             clause:

                  14. Governing Law and Jurisdiction: This Note is and will be
                  deemed to have been made and delivered in the State of Delaware
                  and in all respects will be governed and construed in accordance
                  with the laws of that State. Maker and Payee (by acceptance
                  hereof) each hereby irrevocably consent to the non-exclusive
                  jurisdiction of the state and federal courts located in the State of
                  Delaware in any and all actions and proceedings whether arising
                  hereunder or under any other agreement or undertaking.4

             The Pledge Agreement executed by Defendant and BW Piezo contains
             virtually identical language, providing that the parties consent to the
             ―non-exclusive jurisdiction of the state and federal courts located in the
             State of Delaware.‖5 At oral argument on this motion, counsel for all
             the parties advised that each did not know why an exclusive forum

3
  First Am. Compl., Ex. 7, at 1, 6 (emphasis added).
4
  First Am. Compl., Ex. 1, at 3-4 (emphasis added).
5
  First Am. Compl., Ex. 2, at 3.
     selection clause favoring California was used in the Employment
     Agreement, but non-exclusive forum selection clauses favoring
     Delaware were included in the other agreements. Counsel further
     advised that they were not the attorneys who had drafted or negotiated
     the various agreements that included different forum selection clauses.

5.   BW Piezo filed its original Complaint in the Delaware Superior Court
     on August 26, 2016. In its original Complaint, BW Piezo alleged one
     count of breach of contact pertaining to the Promissory Note.

6.   On September 8, 2016, Defendant filed a complaint against all
     Plaintiffs currently in this case in the Superior Court of California. In
     that action, Defendant alleges that Plaintiffs made misrepresentations
     regarding the financial well being of Channel, which Defendant relied
     on in entering into the Employment Agreement, Promissory Note, and
     Pledge Agreement. In his prayer for relief, Defendant requests a
     judgment that the Promissory Note, Pledge Agreement, and agreements
     granting him equity in Channel are rescinded, and that Plaintiffs pay
     Defendant monetary damages.

7.   On September 23, 2016, BW Piezo filed its First Amended Complaint,
     adding Piezo Investment Holdings and Channel as plaintiffs.
     Additionally, Plaintiffs‘ First Amended Complaint asserted two new
     claims. First, Plaintiffs‘ First Amended Complaint claimed that
     Defendant breached the Severance Agreement and General Release.
     Second, Plaintiffs‘ First Amended Complaint requested a declaratory
     judgment that Defendant breached the Severance Agreement and
     General Release by filing suit against Plaintiffs in California, that the
     termination of Defendant‘s employment constituted a default under the
     Promissory Note and Pledge Agreement, that Defendant had
     represented in the grant agreements that he had all material information
     needed to decide whether to invest in Channel, and that he has no right
     to withdraw or demand a return of his capital contribution in Channel
     pursuant to Piezo Investment Holdings‘ Limited Liability Company
     Agreement.
                             II. PARTIES’ CONTENTIONS

       8.    Defendant has moved for dismissal under Superior Court Civil Rule
             12(b)(3) on grounds of improper venue. In support of his Motion to
             Dismiss, Defendant argues that the exclusive forum selection clause in
             the Employment Agreement requires that this action be brought in a
             California court. Defendant argues that all of Plaintiffs‘ claims ―relate
             directly to the Employment Agreement and are subject to its exclusive
             California forum selection clause.‖ Defendant further argues that ―the
             entire Amended Delaware Complaint relates to [Defendant‘s]
             employment relationship with Channel and the Employment
             Agreement.‖6

       9.    Alternatively, Defendant asserts that this action should be stayed,
             arguing that the California action was the first-filed action. Relying on
             McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co.,7
             Defendant contends that although the Delaware action was filed before
             the California action, the September 23, 2016 amendment of Plaintiffs‘
             Delaware complaint ―asserted new and independent claims and added
             additional parties that cannot relate back to the [filing date of the] Initial
             Delaware Complaint.‖8         Accordingly, Defendant asserts in the
             alternative that ―the Delaware action should . . . be stayed pending an
             adjudication of the more comprehensive California action.‖9

       10. Plaintiffs argue that this action should not be dismissed, as the
           Employment Agreement‘s exclusive forum selection clause does not
           apply to these claims arising from the Promissory Note and Settlement
           Agreement and General Release. In support of their position, Plaintiffs
           contend that ―[Defendant‘s] argument fails as it ignores well-
           established contract law and the parties‘ agreement in the subsequently

6
  Def.‘s Mot. to Dismiss or in the Alternative to Stay Pls.‘ First Am. Complaint at 13.
7
  263 A.2d 281, 283 (1970).
8
  Id. at 18.
9
  Joint Stipulation of Procedural History and Undisputed Facts at 16.
             executed agreements at the center of this case which clearly provide[]
             that the Parties agreed venue and jurisdiction was proper in
             Delaware.‖10

       11. Additionally, Plaintiffs argue that the Delaware action should not be
           stayed, asserting that the First Amended Complaint relates back to the
           date that BW Piezo filed its complaint. Plaintiffs claim that the ―First
           Amended Complaint clearly relates back to the first-filed complaint, as
           they both ‗arise from a common nucleus of operative facts‘—that is, if
           the claims ‗rely on and arise from the same factual foundation‘ and,
           therefore, the amended complaint should be considered filed as of the
           date of the original complaint.‖11

       12. The Court concludes that a stay is the most appropriate step to be taken
           at this time, pending a resolution of the California litigation.
           Accordingly, the Court does not reach Defendant‘s Motion to Dismiss.

                                     III. DISCUSSION

      Given the Litigation Pending in California Regarding the Validity of the
     Employment Agreement, This Court Grants Defendant’s Motion to Stay This
                                     Litigation

       13. ―Delaware Courts generally give effect to the terms of private
           agreements to resolve disputes in a designated judicial forum out of
           respect for the parties‘ contractual designation.‖12 ―Forum selection
           clauses are presumptively valid and should be specifically enforced
           unless the resisting party clearly shows that enforcement would be
           unreasonable and unjust, or that the clause is invalid for such reasons as

10
    Pls.‘ Resp. to Def.‘s Mot. to Dismiss or in the Alternative to Stay Pls.‘ First Am. Compl. At
11.
11
   Id. at 15.
12
    Loveman v. Nusmile, Inc., 2009 WL 847655, at *3 (Del. Super. Mar. 31, 2009) (internal
quotations omitted).
            fraud and overreaching.‖13 ―Where the action is filed in a proper venue
            but the contract contains a forums election clause, the Court should
            decline to proceed where the parties agreed that litigation should be
            conducted in another forum.‖14 ―The question [of whether to grant a
            stay of the proceedings] is addressed to the sound discretion of the trial
            court and is to be determined in light of all the facts and circumstances
            and in the interest of expeditious and economic administration of
            justice.‖

       14. At least one Delaware court has stayed an action where the resolution
           of that action depended on the interpretation of an instrument in which
           the parties agreed to exclusive venue in a foreign jurisdiction. In RWI
           Acquisition LLC v. Todd, the Delaware Court of Chancery was called
           upon to determine the parties‘ obligations under, among others, an
           employment agreement and a stock purchase agreement with exclusive
           forum selection clauses in favor of New Mexico state and federal
           courts.15 In RWI Acquisition LLC, the Delaware declaratory judgment
           action was filed by the Delaware plaintiff, but a New Mexico action
           was then filed by the Delaware defendant as plaintiff. In its decision,
           the Court of Chancery had to determine whether the defendant‘s
           employment was terminated for cause, thereby triggering the plaintiff‘s
           ―Call Right,‖16 and effectively forfeiting the defendant‘s equity interest
           in the plaintiff‘s affiliate.17 However, such a determination required an

13
   Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1146 (Del. 2010) (internal quotations omitted).
14
   Double Z Enters., Inc. v. Gen. Mktg. Corp., 2000 WL 970718, at *2 (Del. Super. June 1,
2000).
15
   RWI Acquisition LLC v. Todd, 2012 WL 1955279 (Del. Ch. May 30, 2012).
16
   The employment agreement in RWI Acquisition LLC defined the ―Call Right‖ as
            [N]otwithstanding anything contained in the Members Agreement, . . . [if
            Todd's] employment with [RWI (N.M.)] is terminated by [RWI (N.M.)] for
            Cause (as defined in [the Employment Agreement]) . . . the [Restricted] Units
            shall upon such termination of employment be forfeited and transferred back
            to [RWI (Del.)] without payment of any consideration by [RWI (Del.)].
Id. at *6.
17
   Id. at *4. The RWI Acquisition LLC Court noted that Plaintiff‘s declaratory judgment action
asserted that
            there is an actual controversy between the parties regarding: (i) whether
            Ronny Todd‘s membership interest in RWI (Del.) had been repurchased;
             interpretation of the employment agreement, which the agreement
             expressly provided could only be done by state and federal courts in
             New Mexico. Accordingly, the Court of Chancery stayed the action
             pending the resolution of that issue in the New Mexico courts.

       15. Additionally, the Delaware Court of Chancery has recognized that
           disputes arising out of related agreements are generally best resolved by
           the same court. In Ashall Homes Ltd. v. ROK Entertainment Group, the
           Court of Chancery held that

                  bifurcating [a] dispute—so as to send claims arising from [one
                  agreement] to the English courts, but to keep claims arising from [a
                  separate but related agreement] here in this court—would result in
                  obvious inefficiencies and confusion. Those inefficiencies and the
                  potential for injustice are serious enough that long-standing
                  doctrines, such as res judicata and the Delaware Supreme Court‘s
                  McWane doctrine, have been developed to minimize claims
                  splitting.18

       16. The facts of RWI Acquisition LLC are similar to those in this case. As
           in RWI Acquisition, this was the first case filed, followed by the filing
           of a case in another jurisdiction.          Similarly, in this case, a
           determination of whether Defendant breached the Pledge Agreement
           and Promissory Note, or the Severance Agreement and General
           Release, requires a resolution of the California action which will
           determine whether the Employment Agreement is valid.19 These
           agreements were all executed based on the premise that Defendant was
           an employee of Channel. Therefore, since the Promissory Note, Pledge

           (ii) whether Ronny Todd has any remaining equity interest in RWI (Del.)
           or any right in such interest; and (iii) whether RWI (Del.) owes Ronny
           Todd any money in connection with the repurchase of Ronny Todd‘s
           membership interest in RWI (Del.).‖
Id. at *5.
18
   992 A.2d 1239, 1251 (Del. Ch. 2010).
19
   At oral argument, Plaintiffs‘ counsel conceded that a claim directly related to the Employment
Agreement would have to be brought in California pursuant to the Employment Agreement‘s
forum selection clause.
            Agreement, and Severance Agreement and General Release each
            depend on the valid employment of Defendant, the validity of those
            agreements depends on whether the Employment Agreement itself was
            validly executed. Additionally, should the California action resolve in
            Defendant rescinding the Promissory Note, Pledge Agreement,
            Employment Agreement, and investment agreements, it may render
            issues in the Delaware litigation moot.20 Accordingly, a stay of this
            action pending the resolution of the California action is the appropriate
            step to be taken at this stage in the proceedings.21

                                   IV. CONCLUSION

    Therefore, Defendant‘s alternative Motion to Stay Plaintiff‘s First Amended
Complaint is GRANTED.

       IT IS SO ORDERED.

                                                           /s/Richard R. Cooch
                                                           Richard R. Cooch, R.J.

cc: Prothonotary

20
   The Court expresses no view on the merits of any party‘s claims in the California action.
21
   The Court notes that Defendant‘s reliance on McWane is inapposite, as McWane applies only
to cases in which the first-filed case was in a foreign jurisdiction. Lisa, S.A. v. Mayorga, 993
A.2d 1042, 1047 (Del. 2010) (providing that only ―where the Delaware action is not the first
filed‖ will the McWane doctrine apply).