Court Opinion

ID: 6319469
Source: CourtListenerOpinion
Date Created: 2022-03-02 20:03:19.44207+00
Date Added: 2024-06-11T09:01:16.027412
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

    VERDANTUS ADVISORS, LLC,                   )
                                               )
                Plaintiff/                     )
                Counterclaim-Defendant,        )
                                               )
         v.                                    )   C.A. No. 2020-0194-KSJM
                                               )
    PARKER INFRASTRUCTURE                      )
    PARTNERS, LLC,                             )
                                               )
                Defendant/                     )
                Counterclaim-Plaintiff,        )
                                               )
    THE JEFFREY A. PARKER TRUST,               )
    THE CARL P. FEINBERG REVOCABLE             )
    TRUST, JEFFREY A. PARKER, and              )
    CARL P. FEINBERG,                          )
                                               )
                Counterclaim-Plaintiffs,       )
                                               )
         v.                                    )
                                               )
    MICHAEL G. PHILLIPS,                       )
                                               )
                Counterclaim-Defendant.        )

      ORDER RESOLVING PARTIAL MOTION TO DISMISS COUNTERCLAIMS1

        1.      Verdantus Advisors LLC (“Verdantus”) is a member of Parker Infrastructure

Partners, LLC (the “Company”). The Parker Infrastructure LLC Agreement (the “LLC

Agreement”) governs the relationship between the Company and its four members:

Verdantus; The Jeffrey A. Parker Trust (the “Parker Trust”); The Carl P. Feinberg

1
  The facts are drawn from the Verified Amended Counterclaim and documents it
incorporates by reference. C.A. No. 2020-0194-KSJM, Docket (“Dkt.”) 61, Verified Am.
Counterclaim (“Am. Countercl.”).
Revocable Trust (the “Feinberg Trust”); and Beverly Scott and Associates, LLC. Jeffrey

Parker, Carl Feinberg, and Beverly Scott are the Company’s Managers.

      2.     In July 2017, Verdantus entered into a Consultant Agreement with the

Company. Verdantus is owned by Michael G. Phillips, who was a Manager of the Company

until he was removed in November 2019. After Phillips was removed, the Company failed

to make payments to Verdantus under the Consultant Agreement. Verdantus filed suit

against the Company, the Parker Trust, and the Feinberg Trust.

      3.     In response, the Company stipulated to judgment against it as to Count I for

breach of the Consultant Agreement. The other defendants moved to dismiss the remaining

claims, Counts II through IV, and the court granted that motion by an Order dated October

8, 2020.2

      4.     On October 20, 2020, the Company, Feinberg, the Feinberg Trust, Parker

Infrastructure, and the Parker Trust (collectively, “Counterclaim-Plaintiffs”) filed

counterclaims against Verdantus and Phillips (together, “Counterclaim-Defendants”) for

fee-shifting under the LLC Agreement. Counterclaim-Plaintiffs amended their pleading on

April 21, 2021. As amended, the Counterclaims include three Counts:

      •      In Counterclaim I, against both Verdantus and Phillips, Counterclaim-
             Plaintiffs seek fees incurred in connection with their successful motion to
             dismiss Counts II through V pursuant to a fee-shifting provision of the LLC
             Agreement.

2
 Verdantus Advisors, LLC v. Parker Infrastructure P’rs, LLC, 2020 WL 5951368 (Del.
Ch. Oct. 8, 2020).

                                           2
         •      In Counterclaim II, against Verdantus, Counterclaim-Plaintiffs seek a
                declaration that they are entitled to fees incurred in connection with
                defending Count I.

         •      In Counterclaim III, against Verdantus and Phillips, Counterclaim-Plaintiffs
                seek to pierce the corporate veil to hold Phillips liable for any judgment
                obtained against Verdantus in Counterclaims I and II.3

         5.     On April 27, 2021, Phillips moved to dismiss Counterclaim I and both

Phillips and Verdantus moved to dismiss Counterclaim III under Court of Chancery Rule

12(b)(6).4 The motion was fully briefed on June 24, 2021, and the court held oral argument

on January 14, 2022.5

         6.     “[T]he governing pleading standard in Delaware to survive a motion to

dismiss is reasonable ‘conceivability.’”6 On a Rule 12(b)(6) motion, the court accepts “all

well-pleaded factual allegations in the Complaint as true, [and] accept[s] even vague

allegations in the Complaint as ‘well-pleaded’ if they provide the defendant notice of the

claim.”7 The court “is not, however, required to accept as true conclusory allegations

without specific supporting factual allegations.”8       The court draws “all reasonable

3
 Although both Verdantus and Phillips are named as defendants in Counterclaim III, Am.
Countercl. ¶¶ 26–42, Counterclaim-Plaintiffs clarified during oral argument that the veil-
piercing claim is asserted against Phillips. Dkt. 75 (“Oral Arg. Tr.”) 18:12–24.
4
    Dkt. 62; Dkt. 65 at 10.
5
    Oral Arg. Tr.
6
 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del.
2011).
7
    Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
8
 In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (internal
quotation marks omitted).

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inferences in favor of the plaintiff, and den[ies] the motion unless the plaintiff could not

recover under any reasonably conceivable set of circumstances susceptible of proof.”9

         7.     Phillips is not a party to the LLC Agreement at issue in Counterclaim I, and

Counterclaim-Plaintiffs concede that they do not seek to hold Phillips liable under contract

theories.10 Their only theory of liability against Phillips is Counterclaim III for veil-

piercing. Because Counterclaim I as to Phillips rises and falls with Counterclaim III, this

analysis addresses Counterclaim III only.

         8.     Veil piercing is a tough thing to plead and a tougher thing to get, and for good

reason.11 Delaware is in the business of forming entities, and so “Delaware public policy

does not lightly disregard the[ir] separate legal existence[.]”12 The factors a court considers

when determining whether to pierce the corporate veil are “(1) whether the company was

adequately capitalized for the undertaking; (2) whether the company was solvent;

9
    Cent. Mortg., 27 A.3d at 536 (citing Savor, 812 A.2d at 896–97).
 Oral Arg. Tr. 17:23–24 (“Count I as it pertains to Phillips is dependent on the success of
10

Count III”).
11
   See eCommerce Indus., Inc. v. MWA Intel., Inc., 2013 WL 5621678, at *27 (Del. Ch.
Sept. 30, 2013, revised, Oct. 4, 2013) (“This Court will disregard the corporate form only
in the ‘exceptional case.’” (citation omitted)); Case Fin., Inc. v. Alden, 2009 WL 2581873,
at *4 (Del. Ch. Aug. 21, 2009) (“This Court will disregard the corporate form only in the
‘exceptional case.’” (citation omitted)); Sprint Nextel Corp. v. iPCS, Inc., 2008 WL
2737409, at *11 (Del. Ch. July 14, 2008) (“It is only the exceptional case where a court
will disregard the corporate form . . . .” (quoting Sears, Roebuck & Co. v. Sears plc, 744 F.
Supp. 1297, 1305 (D. Del. 1990))).
12
   Doberstein v. G-P Indus., Inc., 2015 WL 6606484, at *4 (Del. Ch. Oct. 30, 2015)
(internal quotation marks omitted); see also Wallace v. Wood, 752 A.2d 1175, 1183 (Del.
Ch. 1999) (“Persuading a Delaware court to disregard the corporate entity is a difficult
task.” (quoting Harco Nat’l Ins. Co. v. Green Farms, Inc., 1989 WL 110537, at *4 (Del.
Ch. Sept. 19, 1989)).

                                                4
(3) whether corporate formalities were observed; (4) whether the dominant shareholder

siphoned company funds; and (5) whether, in general, the company simply functioned as a

façade for the dominant shareholder.”13 Courts have also required a veil-piercing claim to

demonstrate “an overall element of injustice or unfairness.”14

         9.      Counterclaim-Plaintiffs do not come close to adequately alleging a claim for

veil-piercing.     Counterclaim-Plaintiffs argue that veil-piercing is appropriate because

Phillips is the sole owner of Verdantus and that he observed few if any corporate

formalities. But that allegation could be said of most single-member LLCs, particularly

given the few statutorily mandated formalities imposed on those entities. This is not the

exceptionally rare stuff of veil-piercing.

         10.     Counterclaim-Plaintiffs also argue that Verdantus is inadequately capitalized,

and that Phillips has siphoned funds from Verdantus. The main allegations supporting this

theory are that Verdantus “has never maintained any reserves or operating capital”15 and

that “Verdantus was . . . unable to pay its obligations, including . . . its obligations owed

13
     Doberstein, 2015 WL 6606484, at *4 (internal quotation marks omitted).
14
  Id. (internal quotation marks and citations omitted); see also U.S. v. Golden Acres, Inc.,
702 F. Supp. 1097, 1104 (D. Del. 1988) (noting that “no single factor could justify a
decision to disregard the corporate entity, but . . . some combination of them [is] required,
and . . . an overall element of injustice or unfairness must always be present”) (citation
omitted); see also In re Sunstates Corp. S’holder Litig., 788 A.2d 530, 534 (Del. Ch. 2001)
(noting that “to pierce the corporate veil based on an agency or ‘alter ego’ theory, ‘the
corporation must be a sham and exist for no other purpose than as a vehicle for fraud’”
(quoting Wallace, 752 A.2d at 1184)).
15
     Am. Countercl. ¶ 30.

                                                5
pursuant to the LLC Agreement, or even its own attorneys’ fees.”16            But none of

Counterclaim-Plaintiffs’ allegations suggest that Verdantus funneled monies up to Phillips

in an effort to avoid payment on a possible future judgment awarding attorneys’ fees.17

And Counterclaim-Plaintiffs’ argument that Verdantus lacks assets is unavailing. Indeed,

Verdantus filed this action in pursuit of an asset—its fees due from the Company under the

Consultant Agreement.18

          11.    For all of these reasons, Counterclaim III fails to state a claim. Because

Counterclaim III fails to state a claim, Counterclaim I too fails to state a claim against

Phillips by Counterclaim-Plaintiffs’ own admission. Counterclaim-Defendants’ motion to

dismiss Counterclaims I as to Phillips and Counterclaim III in its entirety is GRANTED.

                                           /s/ Kathaleen St. J. McCormick
                                           Chancellor Kathaleen St. J. McCormick
                                           Dated: March 2, 2022

16
     Id. ¶ 32.
17
   Counterclaim-Plaintiffs cite Compagnie des Grands Hotels d’Afrique S.A. v. Starwood
Cap. Gp. Glob. I LLC, 2019 WL 148454 (D. Del. Jan. 9, 2019) and Gadsden v. Home Pres.
Co., Inc., 2004 WL 485468 (Del. Ch. Feb. 20, 2004), but those cases are distinguishable.
In Starwood, the siphoning of funds happened after there was an order directing the
defendant to “cease making payments to any third parties,” when the company was
admittedly insolvent, and as part of a scheme that was intended to leave the company
unable to pay a prospective award. 2019 WL 148454, at *2. None of these allegations are
present in this case. In Gadsden, the court pierced the corporate veil and held the sole
stockholder/employee liable for breach of contract where the corporation sold
workmanship warranties but the stockholder made sure that it never had title to any cash
or assets to make good on those warranties. 2004 WL 485468, at *5. Those facts are also
not present here.
18
   Philips also argues that veil-piercing theories should be unavailable or extraordinarily
limited in the alternative entity context. See Dkt. 65 at 21–22; Dkt. 68 at 1–2. Given the
paucity of the allegations pled in support of veil-piercing, this decision need not and thus
does not wade into the rich area of law and policy implicated by this argument.

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