Court Opinion

ID: 4538033
Source: CourtListenerOpinion
Date Created: 2020-06-01 16:03:02.352495+00
Date Added: 2024-06-11T12:42:31.408082
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

  WILLIAM PATRICK SHEEHAN )
  and MARK JOSEPH SHEEHAN, )
                           )
             Plaintiffs,   )
       v.                  )                C.A. No. 2019-0333-AML
                           )
  ASSUREDPARTNERS, INC.,   )
  ASSUREDPARTNERS OF       )
  VIRGINIA, LLC, DOLPHIN   )
  HOLDCO, L.P., DOLPHIN    )
  INVESTMENT, L.P., and    )
  DOLPHIN GP, INC.,        )
                           )
             Defendants.   )

                         Submitted: February 21, 2020
                            Decided: May 29, 2020

                          MEMORANDUM OPINION
Upon Defendants’ Motion to Dismiss: Granted in Part, Denied in Part
Attorneys and Law Firms
Martin S. Lessner, Esquire, Lauren Dunkle Fortunato, Esquire, and Kevin P. Rickert,
Esquire, of YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington,
Delaware, Attorneys for Plaintiffs William Patrick Sheehan and Mark Joseph
Sheehan.
Gregory P. Williams, Esquire, Blake Rohrbacher, Esquire, Matthew D. Perri,
Esquire, and Kevin M. Regan, Esquire, of RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware, Joseph G. Santoro, Esquire, and Roger W. Feicht, Esquire,
of GUNSTER, West Palm Beach, Florida, Attorneys for Defendants
AssuredPartners, Inc., AssuredPartners of Virginia, LLC, Dolphin Holdco, L.P.,
Dolphin Investment, L.P., and Dolphin GP, Inc.

LEGROW, J
      In December 2014, the founders of an insurance agency, Sheehan Insurance

Service, Inc., sold their company to buyer pursuant to an asset purchase agreement.

To complete this transaction, the founders also entered into an earn-out agreement,

employment agreements calling for the founders’ continued employment with the

company, a limited partnership agreement, and an equity incentive plan with buyer.

To incentivize performance at the newly acquired company, buyer offered

management employees of Sheehan Insurance Service, Inc. the opportunity to invest

in buyer by becoming limited partners of buyer’s ultimate parent company at the top

of a waterfall of subsidiaries. This offer included the right to purchase Class A-2

Interests and eligibility to be awarded Class B Profits Interests in buyer’s ultimate

parent company.

      On February 12, 2019, buyer terminated the founders’ employment,

classifying the termination as “for cause.” Thereafter, buyer’s parent company

informed the founders that it was repurchasing their Class A-2 Interests for cost and

cancelling their Class B Profits Interests. The founders initiated this action against

buyer and several other related corporate entities, including the parent company,

alleging non-compliance with the earn-out agreement, employment agreement,

limited partnership agreement, and equity incentive plan.

      Defendants have moved to dismiss all counts for failure to state a claim. For

the reasons that follow, I dismiss several of the founders’ claims under Rule

                                          1
12(b)(6).   The founders’ claims for breach of contract, breach of the implied

covenant of good faith and fair dealing, and declaratory judgment survive under the

minimal pleading standard applicable to a motion to dismiss.

              FACTUAL AND PROCEDURAL BACKGROUND

      Unless otherwise noted, the following facts are drawn from the first amended

complaint (the “Amended Complaint”) and the documents it incorporates by

reference. In December 2014, Plaintiffs William Patrick Sheehan (“Pat”) 1 and Mark

Joseph Sheehan (“Mark” and together with Pat, the “Sheehans”) sold their insurance

agency, Sheehan Insurance Service, Inc. (“Sheehan Insurance”), to Defendants

AssuredPartners of Virginia, LLC (“AP Virginia”) and AssuredPartners, Inc. (“AP

Inc.” and together with AP Virginia, “AssuredPartners”). 2 In connection with the

sale, the Sheehans and AP Virginia signed employment agreements (the

“Employment Agreements”).3 According to the Sheehans, AP Virginia and AP Inc.

both are bound to the Employment Agreements signed by AP Virginia. 4 The

Sheehans continued to work for the business until their termination in February

1
  The Court uses the founders’ first names for clarity. No disrespect is intended.
2
  Am. Compl. ¶ 2.
3
   See APA, Schedule 4.20, Pat Employment Agreement (hereinafter, “Pat Employment
Agreement”); APA, Schedule 4.20, Mark Employment Agreement (hereinafter, “Mark
Employment Agreement” and together with the Pat Employment Agreement, “Employment
Agreements”).
4
  Id. ¶ 73.

                                         2
2019.5 Plaintiffs aver the AssuredPartners entities “operate as a single entity under

the control of [AP Inc.]”6

A. The AssuredPartners Entities

       AP Inc. is a parent corporation of AP Virginia.7 AP Inc. owns non-party

AssuredPartners Capital, Inc., which in turn owns AP Virginia. 8 Defendant Dolphin

Holdco, L.P. (“Dolphin Holdco”) owns and controls the AssuredPartners entities at

the top of a waterfall of subsidiaries. 9 Specifically, Dolphin Holdco wholly owns

Dolphin Topco, Inc. (“Dolphin Topco”), which wholly owns Dolphin Midco, Inc.,

which wholly owns AP Inc.10 Dolphin GP, Inc. (“Dolphin GP”) serves as the general

partner of Dolphin Holdco. 11 Dolphin Investment, L.P. (“Dolphin Investment”) is

the majority limited partner of Dolphin Holdco. 12 The Dolphin Holdco Limited

Partnership Agreement (“Dolphin Holdco LPA”) refers to Dolphin Investment as

the “Apax Limited Partner.”13

       Non-parties Apax VIII-AIV A L.P. and Apax VIII-AIV B L.P. (together,

“Apax VIII”) control AssuredPartners through their ownership and control of

5
  Id. ¶ 2.
6
  Id. ¶ 73.
7
  Id. ¶ 134.
8
  Id. ¶¶ 55-56. At the time of the Sheehans’ employment with AssuredPartners, AP Virginia was
known as Dawson MidAtlantic, LLC.8 For clarity, the Court refers to the buyer as AP Virginia
throughout this opinion.
9
  Id. ¶¶ 28, 53.
10
   Id. ¶ 28.
11
   Id. ¶ 29.
12
   Id. ¶ 26.
13
   Id.

                                             3
Dolphin Holdco.14 Apax VIII owns and controls both Dolphin GP and Apax Limited

Partner.15 Non-party GTCR (AP) Investors LP (“GTCR”) is a Delaware limited

partnership and a private equity fund. 16 Apax VIII sold its majority interest in

AssuredPartners to GTCR shortly after the Sheehans’ termination. 17

B. The APA

       Through the APA, substantially all of Sheehan Insurance’s assets were sold

to AP Virginia.18 The APA provided for an Earn-Out Period lasting from December

1, 2014 through November 30, 2016.19 Within 90 days of the end of the Earn-Out

Period, AP Virginia was required to calculate an Earn-Out Amount and deliver to

Sheehan Insurance an Earn-Out Statement setting forth a calculation of the Earn-Out

Amount with reasonable supporting documentation. 20

C. The Employment Agreements

       The Employment Agreements are comprised of two separate agreements for

Pat and Mark. 21 Pat and AP Virginia signed Pat’s employment agreement, whereby,

Pat accepted the position of President of AssuredPartners’ Haymarket, Virginia

14
   Id. ¶ 25.
15
   Id.
16
   Id. ¶ 106.
17
   Id.
18
   Id. ¶ 71.
19
   Id. ¶ 72; Exhibit 2 (hereinafter, “APA”) §§ 1.19, 1.54.
20
   Am. Compl. ¶ 72; APA §2.06(c).
21
   Am. Compl. ¶ 74.

                                                 4
operations. 22   Pat’s employment agreement sets forth his specific duties and

obligations in his role as an officer:

       During the Employment Period, Employee shall serve as President of
       the Haymarket, Virginia operations of the Company and shall have the
       normal duties and responsibilities associated with such position, and
       such other duties and responsibilities as reasonably directed by [Tim
       Riley,] the President of the Company, subject in each case to the power
       of the board of directors of the Company to expand, limit or otherwise
       alter such duties, responsibilities, positions and authority and to
       otherwise override actions of officers. 23

       Mark similarly signed an employment agreement with AP Virginia that

substantially was the same as Pat’s.24 Mark accepted the position of insurance

producer. 25 Mark’s employment agreement sets forth the following duties and

obligations:

       During the Employment Period, Employee shall serve as an insurance
       producer of the Company and shall have the normal duties and
       responsibilities associated with such position, and such other duties and
       responsibilities as reasonably directed by [Tim Riley,] the President of
       the Company, subject in each case to the power of the board of directors
       of the Company to expand, limit or otherwise alter such duties,
       responsibilities, positions and authority and to otherwise override
       actions of officers. 26

22
   See Pat Employment Agreement § 1.3.
23
   Am. Compl. ¶ 74.
24
   See id. ¶ 75; Mark Employment Agreement § 1.3.
25
   Id.
26
   Id.

                                             5
The Employment Agreements permitted the Sheehans’ employment to be terminated

two ways: “with or without Cause.”27 Section 1.4.2 of the Employment Agreements

sets forth seven grounds for a termination “with cause”:

       (i) a violation by Employee of any of the terms of this Agreement or
      of any written policy of the Company provided or made available to
      Employee (excluding any immaterial violation that does not actually
      harm the Company); (ii) frequent unexplained absence or other
      malfeasance by Employee; (iii) refusal or material failure by Employee
      to perform the services reasonably required of Employee by the
      Company; (iv) the commission by Employee of a felony or an act of
      moral turpitude; (v) a failure to observe policies and/or standards
      (excluding any immaterial failure that does not actually harm or
      potentially harm the Company), or a failure to observe applicable laws,
      in each case regarding employment practices (including
      nondiscrimination and sexual harassment policies); (vi) loss or
      suspension of Employee’s license to write insurance in the
      Commonwealth of Virginia; and/or (vii) conduct which could
      reasonably be expected to bring the Company or any of its affiliates
      into public disgrace or disrepute.28

      The Employment Agreements also prohibit either party from disparaging the

other during or after the employment term.29        In addition, the Employment

Agreements contain a non-solicitation and non-interference provision that restricts

the Sheehans from soliciting AssuredPartners’ clients or employees for two years

after their employment ends.30 Finally, the Employment Agreements contain an

27
   Employment Agreements § 1.2.
28
   Id. § 1.4.2.
29
   Am. Compl. ¶ 76; Employment Agreements § 6.
30
   Am. Compl. ¶ 77; Employment Agreements § 3.

                                           6
attorneys’ fee clause that allows a party prevailing in litigation to recover its fees

from the other side.31

D. The Dolphin Holdco LPA

      In connection with the sale of Sheehan Insurance to AP Virginia, Mark and

Pat were offered––and accepted––the opportunity to purchase Class A-2 Interests in

Dolphin Holdco.32 These A-2 interests made the Sheehans “Management Limited

Partners” in Dolphin Holdco. 33 According to Plaintiffs, both AssuredPartners and

the Dolphin Holdco LPA made clear that the only way for Management Limited

Partners to profit from their investment was through the exercise of contractual rights

to sell their limited partnership interests when Apax Limited Partner sold its interests

in Dolphin Holdco or Apax VIII sold its interests in Apax Limited Partner. 34 In a

March 28, 2017 email, the Sheehans were informed:

      You will not have access to this investment until APAX Partners (our
      private equity sponsor) exits its investment in Parent, which is an
      uncertain time frame. Although no exit timeframe can be estimated or
      guaranteed, APAX Partners often holds investments for five years or
      longer. Thus any investment you make in Parent will be illiquid and
      likely unavailable to you for multiple years. 35

31
   Am. Compl. ¶ 78; Employment Agreements § 18.
32
   Am. Compl. ¶ 6.
33
   Id. ¶ 4.
34
   Id. ¶ 39.
35
   Id.

                                           7
The Management Limited Partners’ only opportunity to liquidate their interests was

through (i) exercise of Tag-Along Rights, or (ii) forced sale through Apax Limited

Partner’s Drag-Along Rights.36

              1. The Tag-Along Rights

       Under the Dolphin Holdco LPA, if Apax Limited Partner received an offer to

sell its interests in Dolphin Holdco, or if Apax VIII received an offer to sell its

interests in Apax Limited Partner, Apax Limited Partner was required to negotiate

with the potential acquirer to also purchase, on the same terms and conditions, the

Management Limited Partners’ interests.37 Section 4.2 of the LPA provides:

       The Apax Limited Partner (the Selling Limited Partner”) shall not sell
       or otherwise Transfer all or any number of its Class A-1 Units (other
       than to a Permitted Transferee or pursuant to a Required Sale or Initial
       Public Offering, or as contemplated by Section 4.6(a)) unless the terms
       and conditions of such Transfer include an offer, on the same economic
       terms and conditions as the offer by the proposed third party transferee
       to the Selling Limited Partner, to each of the other Limited Partners
       who is not the Selling Limited Partner or the proposed third party
       transferee (if such purchaser is a Limited Partner) (collectively, the
       “Tag Offerees”), to include at the option of each Tag Offeree, in the
       sale or other Transfer to the third party transferee, a number of Class
       A-2 Units owned by each Tag Offeree determined in accordance with
       this Section 4.2.38

       If the potential acquirer was not willing to increase its offer to purchase all the

interests being offered by Apax Limited Partner or Apax VIII, Apax Limited Partner

36
   Id.
37
   Id. ¶ 40.
38
   Am. Compl. Ex. 1 (hereinafter, “Dolphin Holdco LPA”) § 4.2(a).

                                              8
was required to decrease the number of interests it had offered.39 Specifically,

Section 4.2(c) of the Dolphin Holdco LPA provides:

      If the proposed third party transferee is unwilling to purchase all of the
      Class A Units proposed to be Transferred by the Selling Limited Partner
      and all exercising Tag Offerees [] then the Selling Limited Partner and
      each exercising Tag Offeree shall reduce, on a pro rata basis based on
      their respective Sharing Percentages, the Pro Rata Share of the Class A
      Units that each otherwise would have sold so as to permit the Selling
      Limited Partner and each exercising Tag Offeree to sell the amount of
      Class A Units that the proposed third party transferee is willing to
      purchase.40

Since the Tag-Along Rights were the primary benefit of the Dolphin Holdco LPA

for Management Limited Partners, Apax Limited Partner was required to provide

adequate notice to Management Limited Partners of a potential transaction that

triggered the Tag-Along Rights. 41 As part of a sale of their limited partnership

interests, Management Limited Partners also could convert their Class B Profits

Interests into Class A-2 Interests.42

             2. The Drag-Along Rights

      The Dolphin Holdco LPA also granted the Apax Limited Partner Drag-Along

Rights, that is the right to force Management Limited Partners to sell their limited

39
   Am. Compl. ¶ 40.
40
   Dolphin Holdco LPA § 4.2(c).
41
   Am. Compl. ¶ 41; Dolphin Holdco LPA § 4.2(b).
42
   Am. Compl. ¶ 42.

                                            9
partnership interests.43       The Dolphin Holdco, L.P. Confidential Information

Memorandum provides:

       [I]f [Apax Limited Partner] requires the holders of vested Profits
       Interests to transfer such units in a ‘drag-along’ transaction or a ‘tag-
       along’ transaction or, in certain circumstances, in connection with an
       initial public offering, such holders may elect to convert, subject to
       certain conditions, their vested Profits Interest Units into the equivalent
       value of Class A-2 Units, based upon a hypothetical liquidation of the
       Partnership at the time you elect to convert such Profits Interest Units,
       as further described in the New Partnership Agreement. 44

       In the event of a sale caused by Apax Limited Partner’s exercise of its Drag-

Along Rights, the Management Limited Partners also could convert their vested

Class B Profits Interests into Class A-2 Interests.45

E. Equity Incentive Plan

       The Class A-2 Interests and Class B Profits Interests were governed by the

Dolphin Holdco LPA and its related Dolphin Holdco, L.P. Equity Incentive Plan

(the “Equity Incentive Plan”).46

       Under the Equity Incentive Plan, termination of a Management Limited

Partner’s employment triggered certain rights held by Dolphin Holdco and the Apax

Limited Partner. 47 For example, within six months of termination, Dolphin Holdco

and Apax Limited Partner could repurchase the Management Limited Partner’s

43
   Am. Compl ¶ 43.
44
   Dolphin Holdco, L.P. Confidential Info. Mem. at 30.
45
   Dolphin Holdco LPA § 4.1(f).
46
   Am. Compl. Ex. 3 (hereinafter, “Equity Incentive Plan”) § 9(q).
47
   Am. Compl. ¶ 44.

                                               10
interests.48 The consideration received by the terminated Management Limited

Partner depended on whether the termination was “for cause” or without cause. 49

       The Equity Incentive Plan defines “cause” differently from the Employment

Agreements. Under the Equity Incentive Plan, “cause” means:

       i. The Participant’s gross negligence or Participant’s continuing failure
       to perform his or her duties and obligations for the Employer or any of
       its subsidiaries in any material respect or willful failure to follow lawful
       directions of the Board, other than due to illness or incapacity or other
       company-approved absences (including vacation);

       ii. Conduct causing the Employer or any of its subsidiaries material
       economic harm or substantial public disgrace;

       iii. Conviction of, indictment, or plea of ‘guilty’ or ‘no contest’ to, a
       felony or crime of moral turpitude;

       iv. Willful misconduct, fraud or embezzlement, by Participant
       involving the Employer or any of its subsidiaries, or any theft,
       misrepresentation or dishonesty by Participant involving the Employer
       or any of its subsidiaries intended to result in personal enrichment of
       Participant;

       v. Unauthorized use or disclosure of proprietary information of the
       Employer or any of its subsidiaries, which use or disclosure causes
       material harm to the Employer; or

       vi. Participant’s material violation of any material policies of the
       Employer or any of its subsidiaries which have been communicated to
       the Participant, or any violation of any Restrictive Covenants. 50

48
   Dolphin Holdco, L.P. Confidential Info. Mem. at 26; Equity Incentive Plan § 7.
49
   Am. Compl. ¶ 46.
50
   Equity Incentive Plan § 2.

                                               11
       Section 6 of the Equity Incentive Plan described how the general partner may

cause Units to be issued, transferred or sold.51 Section 6(c) provides:

       Except as otherwise provided in an Award Agreement, if a Participant’s
       Employment is terminated, (i) the Award Agreement shall terminate as
       to all Class B Profits Interest Units covered by the Award which remain
       unvested and such Class B Profits Interest Units shall be forfeited
       without consideration, as set forth in the Award Agreement and (ii) all
       Units issued, transferred or sold to such Participant will be subject to
       repurchase provisions set forth in the Plan and/or the applicable Award
       Agreement. The General Partner may, however, provide for complete
       or partial exceptions to this requirement as it deems appropriate in its
       sole discretion. 52

       Section 7 of the Equity Incentive Plan discussed Dolphin Holdco’s or Apax

Limited Partner’s rights to repurchase units after the Management Limited Partner

was terminated.53 Regardless of termination for or without cause, the Management

Limited Partner would receive consideration in exchange for its Class A-2 Interests,

but the amount of consideration could vary drastically.54 If a Management Limited

Partner’s employment with AssuredPartners was terminated without cause, Dolphin

Holdco or Apax Limited Partner only could repurchase the Management Limited

Partner’s Class A-2 Interests and Class B Profits Interests for Fair Market Value, as

defined by the Dolphin Holdco LPA.55               If, however, a Management Limited

51
   Id. § 6.
52
   Id. § 6(c).
53
   Id. § 7.
54
   Am. Compl. ¶ 48.
55
   Id. ¶ 49. The Dolphin Holdco LPA defines Fair Market Value as “the fair market value per
Limited Partnership Unit as determined by the GP Board in good faith based upon the amount such
Limited Partnership Unit would have received in the event of a hypothetical third party arm’s

                                              12
Partner’s employment with AssuredPartners was terminated “for cause,” Dolphin

Holdco or Apax Limited Partner could repurchase the Management Limited

Partner’s Class A-2 Interests for the lesser of: (i) the Fair Market Value of those

Interests, or (ii) the amount paid by the Management Limited Partner to acquire the

Interests.56 Additionally, any vested or unvested Class B Profits Interests previously

awarded to the Management Limited Partner were forfeited and cancelled without

consideration. 57

F. The Sheehans’ termination and unit repurchase
       After the APA’s Earn-Out Period, the completion of several multiple internal

and external audits by AssuredPartners, and nearly four years of successful

employment, AssuredPartners raised “concerns” about Sheehan Insurance’s pre-

closing liabilities and certain Earn-Out Period record-keeping.58 AssuredPartners

first surfaced those concerns in October 2018, four months before AssuredPartners

agreed to enter a $5 billion transaction with GTCR on February 20, 2019.59

According to the Sheehans, the GTCR transaction created a windfall for its

Management Limited Partners when the merger closed on May 13, 2019. 60

length sale of the assets and liabilities of the Partnership on such date based on such factors as the
GP Board considers relevant and in which the net proceeds of such sale were distributed to the
Partners pursuant to Section 7.1 of this [LPA].” Dolphin Holdco LPA, Ex. A.
56
   Am. Compl. ¶ 50.
57
   Equity Incentive Plan § 6(d).
58
   Am. Compl. ¶¶ 82-83, 106, 108.
59
   Id.
60
   Id. ¶¶ 106, 108, 112.

                                                 13
       Between October and December 2018, AssuredPartners requested financial

information regarding the Earn-Out Period, and the Sheehans attempted to meet

those demands.61 The Sheehans, however, aver they had no access to records in

AssuredPartners’ possession, having delivered all Sheehan Insurance’s books and

records pursuant to the APA.62      AssuredPartners eventually sent a letter on

December 13, 2018, demanding Pat pay $4.7 million to AssuredPartners within eight

days.63   Pat did not make that payment. The letter also alleged Pat intentionally

violated certain sections of the APA, including: (1) “certain carrier direct bill

commission revenue continued to be deposited into at least one Sheehan Insurance

bank account and was not forwarded to the Company” in violation of Section 6.04;

(2) “some funds sent to this account were used to pay agency operating expenses

but were not properly journaled in the financial records that [Pat] provided to the

Company”; and (3) “payments were made to Mr. Lee in direct contravention of

specific instructions provided to [Pat] and Mark Sheehan not to make such

payments, and were in violation of Section 6.11 of the Purchase Agreement.”64

       The Sheehans were terminated for cause by way of two letters on February

12, 2019.65 At the time of their termination, Pat held 2,539,399.67 Class B Profits

61
   Id. ¶¶ 83-85.
62
   Id. ¶ 85.
63
   Id. ¶ 87.
64
   Am. Compl. Ex. 7 at 2.
65
   See Am. Compl. ¶ 94.

                                        14
Interests and Mark held 1,316,377.04 Class B Profits Interests. 66 The termination

letters refer to the Sheehans allegedly breaching various obligations.67 Specifically,

the termination letter addressed to Pat states “as detailed in a December 13, 2018

letter to [Pat], the company” believes “certain financial and accounting

irregularities” demonstrate “that [Pat] violated [his] fiduciary duties and obligations

to the company in connection with the transaction and [his] subsequent

employment.”68 The termination letter addressed to Mark states that “the company”

believes “certain financial and accounting irregularities” demonstrate “that [Mark]

breached [his] fiduciary duties and obligations to the company in connection with

the transaction and [his] subsequent employment.”69 Each termination letter further

states that the “actions appear to have been knowingly done and intentionally

concealed from the company.”70

       In accordance with the Equity Incentive Plan, Dolphin Holdco (i) cancelled

the Sheehans’ Class B Profits Interests and (ii) repurchased Plaintiffs’ Class A-2

Interests at the Sheehans’ “cost to acquire” them. 71 Under Section 3.4 of the Dolphin

Holdco LPA, “[a] Partner shall automatically cease to be a Partner upon Transfer of

66
   Id. ¶ 37.
67
   Id. ¶ 95.
68
   Am. Compl. Ex. 8.
69
   Id.
70
   Id.
71
   See Am. Compl. ¶ 104.

                                          15
all of such Partner’s Interest.”72          The Sheehans accordingly ceased to be

Management Limited Partners of Dolphin Holdco on February 19, 2019, when their

limited partnership interests were cancelled and repurchased. 73

F. GTCR’s acquisition of AssuredPartners

       On February 20, 2019, GTCR (AP) Holdings LP (“GTCR”), GTCR (AP)

Merger Sub Inc., Dolphin Holdco, and Dolphin Topco executed an Agreement and

Plan of Merger (the “Merger Agreement”) memorializing their transaction (the

“GTCR Transaction”).74         The GTCR Transaction publicly was disclosed the

following day, along with the information that it was “set to close in the second

quarter of 2019.”75 By way of the GTCR Merger Agreement, Dolphin Holdco’s sole

asset, AssuredPartners, was sold to GTCR through the sale of Dolphin Holdco’s

wholly owned subsidiary, Dolphin TopCo. The surviving entity became a subsidiary

of GTCR called Dolphin TopCo.76

       Pursuant to the terms of the GTCR Merger Agreement, as consideration for

selling AssuredPartners to GTCR, Dolphin Holdco received $2,762,000,000 in

cash,77 and some of Dolphin Holdco’s interest holders received interests in GTCR

72
   APA § 3.4.
73
   Am. Compl. ¶ 104.
74
   Id. ¶ 109; Ex. 4 (hereinafter, GTCR Merger Agreement).
75
   Am. Compl. ¶ 106; Ex. 10.
76
   GTCR Merger Agreement § 2.1.
77
   GTCR Merger Agreement § 7.18; Am. Compl. ¶ 111.

                                             16
via the issuance of Rollover Shares. 78 The GTCR Transaction closed on May 13,

2019, when a certificate of merger was filed with Delaware’s Secretary of State. 79

      On February 19, 2019, AP Virginia initiated an action against the Sheehans

and others in the Complex Commercial Litigation Division of the Superior Court

(the “Superior Court Action”). 80 The Superior Court Action relates to the events that

purportedly prompted the Sheehans’ termination, specifically their alleged fraud

during the sale of Sheehan Insurance and post-closing payments that purportedly

violated the APA.81 On May 3, 2019, the Sheehans initiated this action in the Court

of Chancery against AssuredPartners, Dolphin Holdco, Dolphin Investment, and

Dolphin GP (collectively, “Defendants”), alleging breaches of their Employment

Agreements (the “Court of Chancery Action”). Defendants filed a motion to dismiss

the Sheehans’ original complaint on May 28, 2019.

      On October 4, 2019, the Sheehans filed their Amended Complaint, which is

the subject of this memorandum opinion. By order dated June 13, 2019, the

Delaware Supreme Court designated this judge to sit by designation in the Court of

Chancery Action, so that one judicial officer could resolve the parties’ overlapping

and related disputes.

78
   GTCR Merger Agreement § 7.17; Am. Compl. ¶ 111.
79
   Regan Aff. Ex. C.
80
   Captioned AssuredPartners of Virginia, LLC v. Sheehan et al., C.A. No. N19C-02-175-AML
CCLD. Trans. ID 62982751.
81
   See id.

                                           17
       The second amended complaint was filed in the Superior Court Action on

October 15, 2019 (the “Superior Court Complaint”).82                      The Superior Court

Complaint is incorporated by reference and integral to the Amended Complaint in

the Court of Chancery Action because the Superior Court Complaint is referenced

in the Amended Complaint and forms the basis of the Sheehans’ claims in Count IX

concerning damage to their reputation. 83

       On November 12, 2019, Defendants moved to dismiss the Sheehans’

Amended Complaint. This Court simultaneously heard arguments on motions to

dismiss in the Court of Chancery Action and the Superior Court Action (the

“February 10, 2020 Hearing”). The Court took the motions to dismiss under

advisement after the hearing.

G. The Parties’ Contentions

       The Amended Complaint advances several claims for breach of contract, with

the Sheehans requesting relief in the form of damages, specific performance, and

declaratory judgment. Count I alleges a claim for breach of the Employment

82
  Trans. ID 64318186.
83
   See, e.g., Am. Compl. ¶ 102 (alleging that the Superior Court Complaint “includes numerous
defamatory statements about the Sheehans”), ¶ 194 (alleging that “allegations in the Superior Court
Complaint . . . damaged the Sheehans’ reputation, goodwill, and standing in the mid-Atlantic
insurance community and breached Section 6 of the Employment Agreements”); see also Wal-
Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that, on a motion to
dismiss, the Court may consider documents that are “incorporated by reference” or “integral” to
the complaint). The Court also may take judicial notice of filings in the Superior Court. See, e.g.,
D.R.E. 202(d)(1)(C); In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162 (Del. 2006);
Beiser v. PMC-Sierra, Inc., 2009 WL 483321, at *1 n.2 (Del. Ch. Feb. 26, 2009) (stating Court
has taken judicial notice of, and is drawing on, facts from docket in parallel federal action).

                                                18
Agreements against AP Virginia and AP Inc. and seeks a declaration that for

purposes of the Equity Incentive Plan and their ownership in Dolphin Holdco, the

Sheehans “were not terminated pursuant to their Employment Agreements.”84 Count

II similarly alleges a claim for breach of the implied covenant of good faith and fair

dealing against AP Virginia and AP Inc. and seeks relief similar to Count I. Count

III seeks a declaration that the Class A-2 Interests’ repurchase and Class B Profit

Interests’ cancellation were improper and ineffective and that the Sheehans therefore

never ceased to be Management Limited Partners in Dolphin Holdco. Count IV

alleges Apax Limited Partner breached Section 4.2 of the Dolphin Holdco LPA and

seeks specific performance in the form of an order requiring Apax Limited Partner

to allow the Sheehans to exercise their Tag-Along Rights in the GTCR Transaction.

Count V alleges Dolphin Holdco breached the Equity Incentive Plan and seeks

damages.       Count VI alleges Dolphin Holdco converted the Sheehans’ limited

partnership interests and seeks an order rescinding the improper cancellation of their

Class B Profits Interests and the improper repurchase of the Class A-2 Interests.

         Counts VII and VIII seek damages for breach of contract and are asserted in

the alternative if the Court concludes the Sheehans are not Management Limited

Partners in Dolphin Holdco. Count VII alleges Dolphin Holdco breached Section 7

of the Equity Incentive Plan by failing to pay the Sheehans fair market value for their

84
     Am. Compl. ¶ 132.

                                          19
interests. Count VIII alleges Dolphin GP breached Section 2.9 of the Dolphin

Holdco LPA by failing to determine in good faith the fair market value of the

Sheehans’ interests.

      Count IX alleges AP Virginia and AP Inc. breached Section 6 of the

Employment Agreements and seeks damages for the harm to the Sheehans’

reputation. Lastly, Count X alleges the Employment Agreements’ non-solicitation

and non-interference provision is not enforceable and seeks relief in the form of a

declaratory judgment against AP Inc. and AP Virginia.

      Summarizing their arguments generally, Defendants contend (1) the Amended

Complaint fails to state any claim against them; (2) the absolute litigation privilege

bars Count IX’s claim for breach of the Employment Agreements’ non-

disparagement clause; (3) the Sheehans may not be released from the Employment

Agreements’ non-solicitation and non-interference provision as alleged in Count X;

and (4) Counts I, II, IX, and X must be dismissed as to AP Inc. because that entity

did not sign the employment agreements.

                                    ANALYSIS

      On a motion to dismiss, the Court must determine whether the “plaintiff ‘may

recover under any reasonably conceivable set of circumstances susceptible of

                                         20
proof.’”85 “If [the plaintiff] may recover, the motion must be denied.”86 A court

may grant the motion if “it appears to a reasonable certainty that under no state of

facts which could be proved to support the claim asserted would plaintiff be entitled

to relief.”87 When applying this standard, the Court will accept as true all non-

conclusory, well-pleaded allegations.88 In addition, “a trial court must draw all

reasonable factual inferences in favor of the party opposing the motion.”89

A. Counts I, II, IX, and X are dismissed against AP Inc.

       Defendants argue Counts I, II, IX and X should be dismissed because AP Inc.

cannot be bound by the Employment Agreements since it was not a signatory to the

agreements. Under Delaware law, “the ordinary rule is that only the formal parties

to a contract are bound by its terms.”90

       It is undisputed that the Sheehans and AP Virginia’s predecessor are the only

signatories to the Employment Agreements.91 Plaintiffs contend that the use of the

85
   Central Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 537 (Del. 2011)
(citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del.2002)).
86
   Holmes v. D'Elia, 2015 WL 8480150, at *2 (Del. Dec. 8, 2015) (quoting Spence v. Funk, 396
A.2d 967, 968 (Del. 1978)).
87
   Deuley v. DynCorp Int'l, Inc., 2010 WL 704895, at *3 (Del. Super. Feb. 26, 2010) (citing Parlin
v. DynCorp Int'l, Inc., 2009 WL 3636756, at *1 (Del. Super. Sept. 30, 2009) (quoting Spence, 396
A.2d at 968)), aff'd, 8 A.3d 1156 (Del. 2010).
88
   Fish Eng'g Corp. v. Hutchinson, 162 A.2d 722, 724 (Del. 1960) (citing Danby v. Osteopathic
Hosp. Ass'n of Del., 101 A.2d 308, 315 (Del. Ch. 1953), aff'd, 104 A.2d 903 (Del. 1954)); Nero v.
Littleton, 1998 WL 229526, at *3 (Del. Ch. Apr. 30, 1998).
89
   Pfeffer v. Redstone, 965 A.2d 676, 683 (Del. 2009).
90
   Alliance Data Sys. Corp. v. Blackstone Capital P’rs V L.P., 963 A.2d 746, 760-61 (Del. Ch.
2009) (Strine, V.C.) (emphasis added) (finding that only the signatories to the agreement were
bound by its terms), aff’d, 976 A.2d 170 (Del. 2009).
91
   Employment Agreements at 10.

                                               21
word “Company” in the Employment Agreements’ preamble makes AP Inc. a liable

party. The agreements’ unambiguous language compels the opposite conclusion.

Specifically, the preamble provides that the agreements are “entered into between

[AP Virginia], a Virginia limited liability company, with its principal place of

business in Lake Mary, Florida . . . and [the Sheehans].” 92 Although the term

“Company” is defined in the agreement to include AP Virginia’s “affiliates,

subsidiaries, parent companies, successors, and assigns” this definition does not

transform these entities into parties to the Employment Agreements. Only the

parties that signed the Employment Agreements had obligations thereunder.93

Accordingly, the claims against AP Inc. in Counts I, II, IX, and X are dismissed.

B. Count I of the Amended Complaint adequately pleads a breach of contract
claim, but only as to a declaration of whether the Sheehans were terminated for
“cause.”

       Count I alleges AP Virginia breached the Employment Agreements by

terminating the Sheehans “for cause” without a contractual basis to do so.94 The

Sheehans seek a remedy in the form of a declaration that for purposes of the Equity

Incentive Plan and the ownership of their interests in Dolphin Holdco, the Sheehans

never were terminated.95 Defendants argue that Count I for breach of contract should

be dismissed because (1) the Sheehans’ actions constituted “Cause” as defined in the

92
   Id. at 1.
93
   See Alliance, 963 A.2d at 760-61.
94
   Am. Compl. ¶¶ 126-132.
95
   Id. ¶ 132.

                                        22
Employment Agreements; and (2) the Sheehans’ termination was valid and final,

whether they were terminated for cause or without cause. A court may grant a

motion to dismiss based on contractual language, but “only if the contractual

language is unambiguous—meaning, the language is susceptible of only one

reasonable interpretation.” 96

       In support of their argument, Defendants refer to Section 1.4.2 of the

Employment Agreements and the termination letters. Section 1.4.2 defines “Cause”

to include, in relevant part:

       (i) a violation by Employee of any of the terms of this Agreement or of
       any written policy of the Company provided or made available to
       Employee (excluding any immaterial violation that does not actually
       harm the Company); (ii) frequent unexplained absence or other
       malfeasance by Employee; . . . (v) a failure to observe policies and/or
       standards (excluding any immaterial failure that does not actually harm
       or potentially harm the Company), or a failure to observe applicable
       laws, in each case regarding employment practices (including
       nondiscrimination and sexual harassment policies); . . . and/or (vii)
       conduct which could reasonably be expected to bring the Company or
       any of its affiliates into public disgrace or disrepute. 97

The Sheehans’ termination letters stated that the Sheehans “engaged in conduct that

violates [their] fiduciary duties and obligations to the company in connection with

the transaction and [their] subsequent employment. These actions appear to have

been knowingly done and intentionally concealed from the company.” 98                   The

96
   Fortis Advisors LLC v. Stora Enso AB, 2018 WL 3814929, at *3 (Del. Ch. Aug. 10, 2018).
97
   Regan Aff. Exs. A-B § 1.4.2.
98
   Am. Compl. Ex. 8.

                                             23
termination letters note that the allegations were “detailed in a December 13, 2018

letter.”99

       Although the termination letters purport to state a valid basis for terminating

the Sheehans for cause, at this stage in the litigation the Court must “accept all well-

pleaded factual allegations as true” and “draw all reasonable inferences in favor of

the non-moving party.”100 The Court cannot conclude on the basis of the termination

letters that the Sheehans “could not recover under any reasonably conceivable set of

circumstances susceptible of proof.”101               The Sheehans have pleaded that

“AssuredPartners purposefully manufactured “cause” for the termination “in order

to oust the Sheehans from Dolphin Holdco and deprive the Sheehans from receiving

any benefit in connection with the GTCR[.]” 102 If the Sheehans can prove these

allegations at trial, they may prevail on their breach of contract claim.

       Defendants are correct, however, that the Sheehans’ termination was valid and

final, whether or not they were terminated for “cause.” Delaware emphasizes the

importance of affording parties the benefit of their bargain when interpreting

99
   Id.
100
    Central Mortg., 27 A.3d at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del.
2002)) (“The pleading standards governing the motion to dismiss stage of a proceeding in
Delaware, however, are minimal. When considering a defendant's motion to dismiss, a trial court
should accept all well-pleaded factual allegations in the Complaint as true, accept even vague
allegations in the Complaint as ‘well-pleaded’ if they provide the defendant notice of the claim,
draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff
could not recover under any reasonably conceivable set of circumstances susceptible of proof.”).
101
    Id.
102
    Am. Compl. ¶ 97.

                                               24
agreements.103 Under the contract’s plain meaning, the Court cannot adopt the

Sheehans’ argument that they were not terminated at all if there was not “cause” for

the termination under the Employment Agreements.104

       AP Virginia and the Sheehans entered into at-will employment agreements

that expressly disclaimed any obligation of continued employment,105 and AP

Virginia therefore did not owe the Sheehans a duty to continue their employment.

Indeed, “[s]ince an assurance of continued employment is antithetical to at-will

employment, no legally cognizable harm arises solely from the termination itself.” 106

Rather, the contractual duties AP Virginia allegedly breached were the obligations

owed to the Sheehans post-termination.107                 AP Virginia’s post-termination

obligations to the Sheehans depended on the classification of the termination as “for

cause” or “without cause.”108 The issue to resolved in this litigation is whether the

Sheehans actually were terminated “without cause” pursuant to the Employment

Agreements and thereby denied the benefits associated with a “without cause”

103
    SLMSoft.Com, Inc. v. Cross Country Bank, 2003 WL 1769770, at *11 (Del. Super. Apr. 2,
2003).
104
    See Goggin v. National Union Fire Ins. Co. of Pittsburgh, 2018 WL 6266195, at *4 (Del. Super.
Nov. 30, 2018).
105
    Employment Agreements § 10 (“Employee’s employment with the Company is, and shall at all
times be, ‘at will’, and nothing in this Agreement implies any obligation of continued employment
of Employee by the Company.”); see also E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d
436, 443 (Del. 1996) (“The presumption of at-will employment is a fixture of American law, and
continues to be followed in Delaware and in the vast majority of jurisdictions.”).
106
    Pressman, 679 A.2d at 444.
107
    Am. Compl. ¶¶ 46, 48.
108
    Id. ¶ 46.

                                               25
classification. Given the Employment Agreements’ plain terms, I cannot draw a

reasonable inference to the effect that the Sheehans never were terminated in the first

place. Accordingly, Count I may proceed on the grounds that the Sheehans may be

entitled to a remedy in the form of a declaration that they were not actually

terminated “for cause.” Such a declaration would be consistent with the relief sought

in the Amended Complaint that the “Sheehans were not terminated pursuant to the

Employment Agreements.”109

C. Count II of the Amended Complaint adequately pleads a breach of the
implied covenant.

       Defendants argue the implied covenant claim fails because the Sheehans do

not identify a gap that an implied term might fill. To sufficiently plead breach of the

implied covenant of good faith and fair dealing, a complaint “must allege a specific

implied contractual obligation, a breach of that obligation by the defendant, and

resulting damage to the plaintiff.” 110 Under Delaware law, the implied covenant

inheres in all contracts and exists to fill contractual gaps that neither party

anticipated.111 The covenant of good faith and fair dealing “embodies the law's

expectation that ‘each party to a contract will act with good faith toward the other

109
    Id. ¶ 132; see also Clemente v. Greyhound Corp., 155 A.2d 316, 323 (Del. Super. 1959) (In the
discussion of appropriate relief in a declaratory judgment case, the Court stated “generally the
relief prayed in the complaint will not control the ultimate relief that may be warranted”).
110
    Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009) (quoting Fitzgerald v.
Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998)).
111
    Dieckman v. Regency GP, LP, 155 A.3d 358, 367 (Del. 2017).

                                               26
with respect to the subject matter of the contract.’”112 The covenant protects an

agreement’s spirit against underhanded tactics that deny a party the fruits of its

bargain.113 In the context of employment-at-will, “Courts have been reluctant to

recognize a broad application of the [implied c]ovenant out of a concern that the

[implied c]ovenant could thereby swallow the [employment-at-will d]octrine and

effectively end at-will employment.”114 Still, a violation of the implied covenant

may result from “an act or acts of the employer manifesting bad faith or unfair

dealing achieved by deceit or misrepresentation in falsifying or manipulating a

record to create fictitious grounds to terminate employment.”115

       The Employment Agreements lay out two types of terminations and a process

applicable to each. The Amended Complaint identifies a possible gap, specifically

that a termination will not be done in “bad faith.”116 The Amended Complaint

alleges the parties reasonably expected at the time they entered the Employment

Agreements that AP Virginia would not terminate the Sheehans in bad faith. 117 To

prove that AP Virginia failed to exercise its discretion in good faith, and thus

breached this implied covenant, the Sheehans must prove at trial that AP Virginia

112
    Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1032 (Del. Ch. 2006).
113
    Marshall v. Priceline.com Inc., 2006 WL 3175318, at *4 (Del. Super. Oct. 31, 2006) (citing
Kelly v. McKesson HBOC, Inc., 2002 WL 88939, at *10 (Del. Super. Jan. 17, 2002)).
114
    Pressman, 679 A.2d at 442.
115
    Id. at 444.
116
    Am. Compl. ¶ 137.
117
    Id. ¶¶ 137-139.

                                             27
exercised its discretion in bad faith.118 To survive a motion to dismiss, however, the

Sheehans only must allege that the termination decision was motivated by an

improper purpose.119 In MHS Capital LLC v. Goggin, the Court of Chancery

determined that “a plaintiff need not plead knowledge or state of mind with

particularity, because ‘any attempt to require specificity in pleading a condition of

mind would be unworkable and undesirable.’ The purpose of Rule 9(b) is to provide

the defendant with “detail sufficient to apprise [her] of the basis for the claim.” 120

       The Amended Complaint’s allegation that AP Virginia terminated the

Sheehans “in order to steal [their] Class B Profits Interests for zero consideration

and to pay nothing more than cost for the Sheehans’ Class A-2 Interests” adequately

pleads that “the defendant’s conduct [was] driven by an improper purpose.”121

Moreover, whether the Sheehans are entitled to damages distinct from their contract

claim must await determination at a later stage. Count II’s allegations are sufficient,

at this stage of the proceedings, to allow the Sheehans’ claim to proceed.

D. Count III of the Amended Complaint is duplicative of other claims.

       Defendants argue that Count III should be dismissed because the Sheehans

essentially are requesting relief identical to Counts I and II. In response, the

118
    Amirsaleh v. Bd. of Trade of City of New York, Inc., 2009 WL 3756700, at *5 (Del. Ch. Nov.
9, 2009).
119
    Id.
120
    MHS Capital LLC v. Goggin, 2018 WL 2149718, at *9 (Del. Ch. May 10, 2018).
121
    Am. Compl. ¶ 15.

                                             28
Sheehans allege that Count III seeks the logical conclusion set up by the premises of

Counts I and II: because the Sheehans’ termination was not performed in good faith

and was ineffective pursuant to the employment agreement, “the repurchase of the

Sheehans’ Class A-2 Interests and the cancellation of the Sheehans’ Class B Profit

Interests were improper and ineffective and . . . the Sheehans never ceased to be

holders of interests in Dolphin Holdco.”122

       Count III does not assert a claim or seek relief distinct from Counts I and II.

Moreover, Count III also fails in that it relies on the Court finding that the Sheehans

still would be Management Limited Partners under the Employment Agreements if

there was no “cause” for their termination. The Sheehans’ attempt to be restored to

their former status as Management Limited Partners of Holdco ignores the express

provisions of the Equity Incentive Plan and the Dolphin Holdco LPA.123

Accordingly, Count III is dismissed.

E. Count IV fails to state a claim for breach of the Dolphin Holdco LPA.
       The basis of Count IV arises out of the sale of Dolphin Topco (the “Topco

Transaction”) by Dolphin Holdco to a GTCR affiliate. Apax Limited Partner is

Dolphin Holdco’s majority limited partner. 124 Although Apax Limited Partner is not

122
    Am. Compl. ¶ 153.
123
    Equity Incentive Plan § 7; Dolphin Holdco LPA § 3.4 (“A Partner shall automatically cease to
be a Partner upon Transfer of all of such Partner’s Interest in accordance with this Agreement.”).
124
    Am. Compl. ¶ 26. The entity’s name actually is Dolphin Investment, but this Opinion adopts
the terminology used in the Amended Complaint.

                                               29
a party to the Merger Agreement, the Sheehans nevertheless contend that it

“transferred its interests in Dolphin Holdco in exchange for the GTCR Transaction

consideration.”125 The Amended Complaint alleges that Apax Limited Partner had

an obligation under Section 4.2 of the Dolphin Holdco LPA to cause GTCR “to offer

to the Sheehans the opportunity to transfer their partnership interests on the same

economic terms as those offered to Apax Limited Partner or Apax VIII[,]” meaning

they should have had the opportunity to “receive[] interests in GTCR, via the

issuance of Rollover Shares.”126 Section 7.17 of the GTCR Merger Agreement

allowed Dolphin Holdco shareholders to rollover their equity into GTCR.127 Under

Section 7.17, Dolphin Holdco shareholders could exchange their equity and were

entitled to receive up to “95% of the amount of Merger Consideration that such

Rollover Equityholder would be entitled to if [Dolphin Holdco] distributed the

Merger Consideration . . . to its equityholders in accordance with its governing

documents[.]”128     The Amended Complaint alleges that Apax Limited Partner

breached its obligation when it did not cause the Sheehans to be offered that

opportunity.129

125
    Id. ¶ 158.
126
    Id. ¶¶ 111, 159; GTCR Merger Agreement § 7.17.
127
    GTCR Merger Agreement § 7.17.
128
    Id.
129
    Am. Compl. ¶ 160.

                                            30
          Defendants argue that Count IV fails to state a claim because (1) the Sheehans

held no equity in Dolphin Holdco at the time of the GTCR Transaction, (2) the

GTCR Transaction did not implicate Section 4.2 of the Dolphin Holdco LPA

because there was no “transfer” triggering Section 4.2, and (3) the Sheehans are not

entitled to specific performance.

          As to their first argument, Defendants are correct that the Sheehans did not

hold equity when the GTCR Transaction closed because they were terminated before

that date, regardless of whether they were terminated “with cause” or “without

cause.” The GTCR Transaction was not signed until after the Sheehans had ceased

to be limited partners. 130 By the time Apax Limited Partner’s obligations regarding

the GTCR Transaction could have arisen, Plaintiffs’ limited partnership interests

already had been repurchased and cancelled. Plaintiffs therefore had no rights under

the Dolphin Holdco LPA by the time of the GTCR Transaction.

          Moreover, even if the Sheehans did retain rights under the Dolphin Holdco

LPA, Defendants are correct that the transaction did not implicate Section 4.2.

Under any reasonable interpretation of Section 4.2 of the Dolphin Holdco LPA or

Section 7.17 of the Merger Agreement, the Tag-Along Rights were not triggered.

          Section 4.2(a) of the Dolphin Holdco LPA provides:

          The Apax Limited Partner (the Selling Limited Partner) shall not sell
          or otherwise Transfer all or any number of its Class A-1 Units (other

130
      Id. ¶¶ 104, 106.

                                            31
       than to a Permitted Transferee or pursuant to a Required Sale or Initial
       Public Offering, or as contemplated by Section 4.6(a)) unless the terms
       and conditions of such Transfer include an offer, on the same economic
       terms and conditions as the offer by the proposed third party transferee
       to the Selling Limited Partner, to each of the other Limited Partners
       who is not the Selling Limited Partner or the proposed third party
       transferee (if such purchaser is a Limited Partner) (collectively, the
       “Tag Offerees”), to include at the option of each Tag Offeree, in the
       sale or other Transfer to the third party transferee, a number of Class
       A-2 Units owned by each Tag Offeree determined in accordance with
       this Section 4.2.131

       To summarize, Section 4.2 affords the limited partners certain Tag-Along

Rights—but only when Apax Limited Partner is “sell[ing] or otherwise Transfer[ing]

all or any number of its Class A-1 Units.”132 The GTCR Transaction did not involve

a transfer of Apax Limited Partner’s Class A-1 Units.

       As the Merger Agreement itself provides, the GTCR Transaction involved

Dolphin Holdco selling its wholly owned subsidiary, Dolphin Topco.133                  The

Plaintiffs point to Borealis Power Hldgs. Inc. v. Hunt Strategic Utility Investment,

L.L.C. as support for their contention that a transfer of the A-2 stockholders’ interest

in Dolphin L.P. effectively occurred through the Topco Transaction.134                 The

Sheehans contend that the Dolphin Topco sale occurring “two levels below” Dolphin

Holdco in the corporate chain was the “same thing” as the sale in Borealis where the

131
    Dolphin Holdco LPA § 4.2(a).
132
    Id.
133
    See GTCR Merger Agreement.
134
    See Letter dated Feb. 7, 2020 to The Honorable Abigail M. LeGrow from Martin S. Lessner,
Esq. enclosing an opinion that Chancery Plaintiffs may rely on during February 10, 2020 oral
argument.

                                            32
Court of Chancery held that a sale of interests “two levels up” the chain of two

wholly owned entities fit the broad definition of “Transfer” in an investor rights

agreement.135 As an initial matter, the Sheehan’s reliance on Borealis is misplaced

because Borealis’ reasoning applies to whether a sale two levels up the corporate

chain is a transfer of a subsidiary’s interest, the reverse of the factual scenario before

this Court.

       More importantly, however, the Delaware Supreme Court recently reversed

the Court of Chancery’s decision in Borealis.136 And, the Delaware Supreme

Court’s decision in Borealis supports the conclusion that the GTCR Transaction did

not trigger the Tag-Along Rights. In Borealis, the Supreme Court held that a right

of first refusal triggered by a “Minority Member’s” transfer of its LLC Units was

not implicated by the sale of an interest in the Minority Member itself.137 The right

of first refusal depended on a Minority Member transferring its units in the LLC,

which did not occur when one of the Minority Member’s owners sold its interest in

the Minority Member. The “subject” of the right of first refusal, i.e. the “Minority

Member,” controlled the analysis.138 Similarly, the subject of Section 4.2––Apax

135
    See 2020 WL 363670 at *14-15 (Del. Ch. Jan. 22. 2020); see also Transcript of Motions held
on 2-10-20 before The Honorable Abigail M. LeGrow, Trans. 65555751, at 156:19-157:18;
136
    2020 WL 2630929 (Del. May 22, 2020).
137
    Id. at *6.
138
    Id.

                                             33
Limited Partner––is important. Apax Limited Partner did not sell its Class A-1 Units

in the GTCR Transaction, and Section 4.2 therefore does not apply.

F. Counts V and VII fail to state a claim that Dolphin GP and Dolphin Holdco
breached any obligation under the Equity Incentive Plan.

       Count V does not allege that Dolphin GP breached any contractual obligation

it owed the Sheehans. The Sheehans allege "Dolphin GP has the duty to make any

decision related to employment for purposes of the Equity Incentive Plan in good

faith. (Equity Incentive Plan §§ 2, 9(n).)"139 The Sheehans contend Dolphin GP

breached Sections 2 and 9 of the Equity Incentive Plan by determining in bad faith

that the Sheehans were terminated for cause. Section 2 defines “Employment” and

“termination of employment” and provides, among other things, that “All

determinations regarding employment and service (for purposes of administering the

[Equity Incentive Plan] or any Award Agreement) shall be made by [Dolphin GP]

in its sole discretion.”140 Section 9(n) states that any reference to “a sole discretion

scope of [Dolphin GP’s] authority shall mean that such discretion shall be exercised

in good faith.”141 Section 2 and Section 9(n) alone do not establish that Dolphin GP

has any right or obligation to make a determination regarding whether an employee

was terminated with or without cause. Section 2’s requirement for Dolphin GP to

make its determinations in its sole discretion only applies where the Equity Incentive

139
    Am. Compl. ¶¶ 167-68. Those allegations are sufficient to state a claim under Delaware law.
140
    Equity Incentive Plan § 2.
141
    Id. § 9(n).

                                              34
Plan has specified Dolphin GP has the ability to make such a determination. Count

V fails to identify any such contractual obligation or discretion applicable to this

case and therefore fails to state a claim. 142

       Count VII similarly does not allege that Dolphin Holdco breached any

contractual obligation it owed the Sheehans. Count VII alleges Dolphin Holdco

breached Section 7 of the Equity Incentive Plan by failing to repurchase the

Sheehans’ interests at Fair Market Value. But, Sections 7(b) and 7(c), which are the

provisions of the Equity Incentive Plan under which Units would be repurchased, do

not require Dolphin Holdco to make any determination about the merits of Plaintiffs’

termination. Sections 7(b)(ii) and 7(c)(ii) apply automatically “[i]n the event of a

termination of a Participant’s Employment . . . by the Employer for Cause.” 143

Because the “Employer” (AP Virginia) terminated the Sheehans for cause, Dolphin

Holdco was required to pay for Plaintiffs’ Class A-2 Interests “the lesser of (x) Fair

Market Value and (y) the Participant’s cost to acquire such Class A-2 Unit[s].”144

The same calculus applies to Class B Profits Interests.145 Like their claims in Count

V, the Sheehans do not explain how Sections 7(b)(ii) and 7(c)(ii) afford Dolphin

Holdco any discretion once it receives notice of a “for cause” termination by an

142
    But, see Count VIII, infra.
143
    Id. §§ 7(b)(ii), (c)(ii).
144
    Id. § 7(c)(ii).
145
    See id. § 7(b)(ii)).

                                            35
employer. Count VII fails to identify a contractual obligation and therefore fails to

state a claim.

G. Count VI states a conversion claim, but it is duplicative of the breach of
contract claims.

       The Sheehans’ conversion claim against Dolphin Holdco seeks restoration of

their Class B Profits Interests and Class A-2 Interests.146 Defendants argue this claim

is barred because it is duplicative of the Sheehans’ claims for breach of contract

related to the wrongful cancellation and repurchase of the interests. Plaintiffs’ breach

of contract claims against Holdco seek monetary compensation for those same

interests.147 “Under Delaware law, a plaintiff bringing a claim based entirely upon

a breach of the terms of a contract generally must sue in contract, and not in tort.” 148

        Defendants are correct that the Sheehans’ contractual claims against Dolphin

Holdco seek monetary compensation for those same interests.149 It is well settled

under Delaware law that a plaintiff cannot bring a claim of conversion arising solely

out of a breach of contract claim. 150 Count VI therefore is dismissed.

146
    See Am. Compl. ¶ 174.
147
    See id. ¶ 181.
148
    See West v. Access Control Related Enters., LLC, 2019 WL 2385863, at *4 (Del. Super. Ct.
June 5, 2019) (citation omitted) (dismissing conversion claim as duplicative); Kuroda v. SPJS
Hldgs., Inc., 971 A.2d 872, 889 (Del. Ch. Apr. 15, 2009) (ruling that “the complaint fails to state
a claim for conversion because the claim is duplicative of Kuroda’s breach of contract claim”); see
also Data Mgmt. Internationalé, Inc. v. Saraga, 2007 WL 2142848, at *3 (Del. Super. July 25,
2007) (ruling that plaintiff only may bring a conversion claim alongside a contract claim where
the plaintiff alleges the defendant breached a tort duty independent of any obligations imposed by
the contract).
149
    See Am. Compl. ¶ 181.
150
    See West, 2019 WL 2385863 at *4-5.

                                                36
H. Count VIII states a claim against Dolphin GP for breaching Section 2.9 of
the Dolphin Holdco LPA.

       Count VIII alleges Dolphin GP breached Section 2.9 of the Dolphin Holdco

LPA by making a value determination in bad faith. Specifically, Plaintiffs

challenged Dolphin GP’s determination that the fair market value of the Sheehans’

interests was the amount the Sheehans originally paid for them rather than the

amount other limited partners of Dolphin Holdco received in the GTCR

Transaction. 151 Defendants argue that Count VIII fails because Dolphin GP was not

required to make any determination under the Equity Incentive Plan.

       As stated above, the Court finds that the Sheehans may be able to prove that

they were terminated “without cause” and were entitled to the corresponding Equity

Incentive Plan benefits. Count VIII therefore presents two contractual issues. First,

is Dolphin GP’s value determination discretionary under Section 6? Second, does

any such discretion allow Dolphin GP to make a final determination as to what

Equity Incentive Plan benefits an employee may receive upon termination?

       Section 6 of the Equity Incentive Plan details that, generally, a Participant

Employee’s “Units will be issued, transferred or sold pursuant to an Award

Agreement.”152 In its sole discretion, the General Partner “may establish conditions

under which vesting or restrictions on Units”153 lapse over a period of time and also

151
    Am. Compl. ¶¶ 185-186.
152
    Equity Incentive Plan § 6(a).
153
    Id.

                                         37
may determine “the number and type of Units to be issued, transferred or sold and

the restrictions applicable to Such Units.”154 Upon an employee’s termination,

however, that employee’s Award Agreement also terminates, along with any

unvested interest, and the Equity Incentive Plan’s repurchase provisions apply as to

that terminated employee’s vested interests.155 Specifically, Section 6(c) of the

Equity Incentive Plan provides:

       Except as otherwise provided in an Award Agreement, if a Participant’s
       Employment is terminated, (i) the Award Agreement shall terminate as
       to all Class B Profits Interest Units covered by the Award which remain
       unvested and such Class B Profits Interest Units shall be forfeited
       without consideration, as set forth in the Award Agreement and (ii) all
       Units issued, transferred or sold to such Participant will be subject to
       repurchase provisions set forth in the [Equity Incentive Plan] and/or the
       applicable Award Agreement. The General Partner may, however,
       provide for complete or partial exceptions to this requirement as it
       deems appropriate in its sole discretion.156

       Critically, the General Partner’s “sole discretion” standard is implicated in

Section 6(c) with regard to the terminated employee’s vested interests. The “sole

discretion” standard in Section 2.9 of the Dolphin Holdco LPA provides that, “[w]ith

respect to any matters provided hereunder as to which Limited Partner’s rights are

determined based upon the value of its Units or otherwise, the GP Board shall make

such determination of value in good faith and, if applicable, in accordance with the

154
    Id. § 6(b).
155
    Id. § 6(c)
156
    Id. (emphasis added).

                                          38
definition of ‘Fair Market Value.’”157 Therefore, Dolphin GP has a duty to exercise

its discretion to make exceptions under Section 6(c) in good faith. Through the

granting of complete or partial exceptions, Dolphin GP may alter an employee’s

rights under the Equity Incentive Plan’s repurchase provisions. Count VIII alleges

Dolphin GP exercised its discretion in bad faith and in order to deprive the Sheehans

of the value of their interests. Under Rule 12’s minimal pleading standards, Count

VIII states a claim for breach of contract.

I. Count IX is dismissed because the absolute litigation privilege applies to the
Defendants’ alleged statements.

       Count IX alleges that AP Virginia breached Section 6 of the Employment

Agreements by making allegations in “the Superior Court Complaint that damaged

the Sheehans’ reputation, goodwill, and standing in the mid-Atlantic insurance

community.”158 Section 6 of the Employment Agreements provides that AP Inc. and

AP Virginia are obligated to “refrain from all conduct, verbal or otherwise, that

disparages or damages or could reasonably be expected to disparage or damage the

reputation, goodwill or standing in the community of the [Sheehans] … and their

respective affiliates or employees.”159 The Sheehans owe a reciprocal obligation to

the Company. Defendants argue that Count IX should be dismissed because it is

barred by the absolute litigation privilege.

157
    Am. Compl. ¶ 186; Dolphin Holdco LPA §2.9. See also Equity Incentive Plan §9(n).
158
    Id. ¶ 194.
159
    Employment Agreements § 6.

                                             39
       The absolute litigation privilege “affords a complete defense [to the tort of

defamation] irrespective of accuracy or malice.” 160          This privilege is absolute

because “the interest in encouraging a litigant's unqualified candor as it facilitates

the search for truth is deemed so compelling that the privilege attaches even where

the statements are offered maliciously or with knowledge of their falsity.”161 In

Delaware, there is no “sham litigation” exception to the absolution litigation

privilege defense.162 Derogatory statements made in the course of judicial

proceedings are privileged, “regardless of the tort theory by which the plaintiff seeks

to impose liability.”163

       Although no Delaware court directly has addressed this issue, the policy

underlying the absolute litigation privilege compels the conclusion that it applies to

claims arising in contract as well as in tort. In Ritchie CT Opps, LLC v. Huizenga

Managers Fund, LLC, the plaintiff sought injunctive relief to prevent the defendant

from making statements in the course of litigation that allegedly violated the non-

disparagement clause of their subscription agreement.164 The Court of Chancery

rejected the plaintiff’s claim, finding that “the absolute litigation privilege, and the

160
    Ritchie CT Opps, LLC v. Huizenga Managers Fund, LLC, 2019 WL 2319284, at *12-13 (Del.
Ch. 2019) (quoting Short v. News-Journal Co., 212 A.2d 718, 720 (Del. 1965)).
161
    Barker v. Haung, 610 A.2d at 1345 (quoting Nix v. Sawyer, 466 A.2d 407, 411 (Del. Super.
1983)).
162
    Id.
163
    Ritchie, 2019 WL 2319284, at *13 (quoting Barker, 610 A.2d at 1345).
164
    Id.

                                            40
public interests behind it, prevent equity from specifically enforcing, prospectively,

the contractual non-disparagement clause in the context of litigation.”165 Although

the Court of Chancery refrained from answering definitively whether a party

disparaged in litigation could seek damages under a contractual non-disparagement

clause, it noted that a number of other states have applied the absolute litigation

privilege to breach of contract actions where such application furthers the policies

underlying the privilege.166 The extension of the absolute litigation privilege to

contractual damages claims would further the same policies touched upon in Ritchie.

The Court of Chancery explained:

       Far from vindicating contractual rights, such a use of equity would, in
       fact, render contract rights effectively unenforceable. That is, if a
       breaching party can prevent its counterparty, via injunction, from
       making “disparaging” statements in litigation alleging the breach, then
       the counterparty would be unable to enforce the contract because it
       could not effectively prosecute, or even prosecute at all… By extension,
       the absolute litigation privilege prohibits (at least) the equitable
       prohibition of litigation-related utterances, under the rubric of a
       contractual non-disparagement clause. Such an injunction would
       impermissibly chill the pursuit of justice via litigation, no less so than
       permitting analog tort claims in the litigation context. 167

Plaintiffs’ claim for contractual damages raises the same concerns of potentially

chilling litigation. Moreover, the application of the non-disparagement clause to

165
    Id.
166
    Id. at *13 (citing Rain v. Rolls-Royce Corp., 626 F.3d 372, 377 (7th Cir. 2010); Kelly v.
Golden, 352 F.3d 344, 350 (8th Cir. 2003); Wentland v. Wass, 25 Cal. Rptr. 3d 109, 114 (Cal. Ct.
App. 2005)).
167
    Ritchie, 2019 WL 2319284, at *14.

                                              41
statements in litigation has potentially never-ending implications. First, since the

obligation is reciprocal, Defendants likely will assert their own counterclaims if

permitted to do so. Second, each subsequent similar statement during the litigation

theoretically could spawn a new claim or additional damages. Trial inevitably would

devolve into a sideshow regarding the veracity and effect of each challenged

statement.    In short, applying the absolute litigation privilege to a contractual

damages claim furthers its purpose and policies.              Accordingly, Count IX is

dismissed.

J. Count X states a claim for relief from the Employment Agreements’
obligations.

       Count X seeks a declaration that because Counts I and II amount to material

breaches of the Employment Agreements, the Sheehans should be excused from

performing their post-termination non-solicitation and non-interference obligations.

       As stated above, Counts I and II adequately are pleaded against AP Virginia.

These counts allege that AP Virginia deprived the Sheehans of the benefit of the

Employment Agreements and that AP Virginia breached this provision in bad faith.

Moreover, the alleged breach itself is “one which touches the fundamental purpose

of the contract and defeats the object of the parties in entering into the contract.” 168

168
   Medicalgorithmics S.A. v. AMI Monitoring, Inc., 2016 WL 4401038, at *24 (Del. Ch. Aug. 18,
2016).

                                             42
Count X therefore survives because the Sheehans could prove there was a material

breach of the Employment Agreements.

                                CONCLUSION

      For the foregoing reasons, the Motion to Dismiss is GRANTED as to Counts

III, IV, V, VI, VII, and IX, and DENIED as to Counts I, II, VIII, and X. IT IS SO

ORDERED.

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