Opinion
Civil Action No. 20380-NC
Submitted: August 4, 2003
Decided: October 20, 2003
Richard R. Wier, Jr., Richard R. Wier, Jr., P.A., Wilmington, DE 19801
Robert K. Payson, Kevin R. Shannon, Erica L. Niezgoda Potter Anderson Corroon LLP, Wilmington, DE 19899
Dear Counsel:
This is my decision on defendants' motion to dismiss plaintiffs verified complaint. Although outlined extensively in the briefs submitted to this Court, defendants' arguments can be distilled to two main points: (1) that due to Section 10 (the "Jurisdiction Clause") of the Employment Agreement between defendants PFPC Worldwide, Inc., and PNC Bank Corporation, and plaintiff Clayton H. Burton, III (the "Employment Agreement"), this Court lacks subject matter jurisdiction over this controversy and (2) that Section 8(c) of the Employment Agreement (the "Deficient Opportunity Clause") may only be construed as allowing the termination of plaintiff as soon as he declared himself to be in Deficient Opportunity. Because I agree with defendants' argument regarding subject matter jurisdiction, I do not reach the substantive issues the parties have raised in regard to the Deficient Opportunity Clause. I do not, however, dismiss plaintiffs sixth cause of action, for breach of the covenant of good faith and fair dealing, at this stage of the litigation.
I. STANDARD
The Court of Chancery will not "`accept jurisdiction over' claims that are properly committed to arbitration."` With this in mind, I consider defendants' motion to dismiss. In considering the motion, this Court must accept all well-pleaded allegations in the complaint as true, and view such facts, and all reasonable inferences drawn from them, in the light most favorable to the plaintiff. This, however, does not extend to conclusory allegations contained in the complaint. Thus, Burton's argument that this Court must accept as true the bald assertion that he was "wrongly fired for exercising his contract right to call the question on his Deficient Opportunity status" is incorrect.
Dresser Indus., Inc. v. Global Indus. Techs., Inc., 1999 Del. LEXIS 118, at * 12 (Del.Ch.) (citing MeMahon v. New Castle Assocs., 532 A.2d 601, 603 (Del.Ch. 1987).
Orman v. Cullman, 794 A.2d 5, 6 (Del.Ch. 2002).
Id.; Gelfman v. Weeden Investors, L.P., 792 A.2d 977, 984 (Del. Ch. 2001).
Pl.'s Answering Br., at 13.
II. THE ISSUE
Plaintiff and defendants disagree over what truly is at issue in this case. The key Employment Agreement provision implicated is the Jurisdiction Clause. This clause reads:
The Employment Agreement was incorporated into the plaintiffs complaint and this Court may consider it in deciding a Rule 12(b)(6) motion to dismiss. Vanderbilt Income Growth Assocs., L.L.C. v. Arvida/JMB Managers, 691 A.2d 609, 613 (Del.Ch. 1996).
Except as set forth in Sections 8(b) and (c) hereof, each party hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of Delaware . . ."
Compl. Ex. A (emphasis added).
Section 8(c), to which the Jurisdiction Clause refers, is the Deficient Opportunity Clause. It reads:
If the Executive proposes to terminate his employment by reason of Deficient Opportunity, the Executive shall immediately notify PFPC's Chief Executive Officer of such fact in writing, specifying the action or conduct which resulted in Executive's determination of Deficient Opportunity. Within 30 days, PFPC shall have the right to cure such action or conduct or to submit the determination of Deficient Opportunity to binding arbitration in accordance with the Commercial Rules of the American Arbitration Association and, if applicable, the Supplementary Rules for Large Complex Disputes then in force. If: (i) within 30 days, PFPC fails to cure such action or conduct to the satisfaction of the Executive and fails to seek arbitration of such determination of Deficient Opportunity, the termination shall be treated as a termination for Deficient Opportunity as of such thirtieth day; or (ii) the determination of Deficient Opportunity is upheld in arbitration, the termination shall be treated as a termination for Deficient Opportunity as of the date of such determination; or (iii) the determination of Deficient Opportunity is overturned in arbitration, the termination shall be treated as a termination for reason other than Deficient Opportunity as of the date of such determination.
Id.
In the verified complaint, Burton alleges that as a condition precedent to PFPC seeking arbitration, PFPC must "continue to employ Burton and maintain his salary and benefits, including medical/dental benefits and stock options during that arbitration process." Burton then requests "this Court to enjoin [PFPC's] wrongfully initiated arbitration proceeding, and reinstate his and his family's medical benefits and his options, both on a preliminary and permanent basis." Burton's verified complaint further alleges that Burton's termination was wrongful because PFPC did not abide by this condition precedent. Burton also argues that a court determination that he was terminated without cause is separate and distinct from the existence of such a condition precedent. Specifically, he argues that "this case is not about whether Burton was in fact placed in a Deficient Opportunity situation, but rather, about whether he was first terminated without cause for his intention to pursue his contractual rights." Nevertheless, Burton contends "the Court must accept [for purposes of a motion to dismiss] that Burton was terminated without cause by Defendants for refusing to withdraw the exercise of his contractual right to propose that he be terminated by reason of Deficient Opportunity." Thus, with this construction of the issue, plaintiff then goes on to state that this Court must accept his conclusory allegation as true for purposes of the motion to dismiss. Based on the well-known standards discussed above, however, the Court does not accept conclusory allegations as true. Given the facts pleaded in the verified complaint, the only way this Court may determine, outside of the Deficient Opportunity Clause, whether Burton was terminated without cause is to interpret that Clause to ascertain whether a condition precedent to arbitration was Burton's continued employment. Whether such a determination is within this Court's jurisdiction is the issue.
Compl. ¶ 2.
Id. ¶ 4.
See id. ¶ 23. Indeed, Burton states, " Under no scenario did the parties agree that in the event of a Deficient Opportunity dispute, PFPC would be free to terminate Burton without cause, strip him of all his continuing salary and benefits, and then later choose to seek arbitration." (Emphasis in original).
See Pl.'s Answering Br. pp. 22-25.
Id. p. 25.
Id. p. 22.
Since the issue is whether, as a condition precedent to arbitration, PFPC was required to maintain Burton's employment, rather than whether Burton was wrongfully terminated, I must now turn to whether the determination of the existence of such a condition precedent is within the jurisdiction of this Court.
III. ARBITRABILITY OF THE ISSUE
Delaware has a strong public policy in favor of arbitration. But plaintiff asks this Court to view this issue as one of contract interpretation, invoke the doctrine of contra proferentem, and interpret any ambiguity against the drafter of the employment contract, defendants. This course would be appropriate if the issue was one of substantive arbitrability — whether the underlying issue is one that the parties agreed to submit to arbitration. Issues of substantive arbitrability are left to the courts. Issues of procedural arbitrability — those requiring the resolution of questions of form or method are left to the arbitrators to decide. SBC Interactive, Inc. v. Corporate Media Partners is instructive authority as to whether this is an issue of procedural or substantive arbitrability. In SBC, the plaintiff had argued that defendants lost their ability to arbitrate because they did not abide by a "condition precedent" of seeking arbitration within a prescribed time limit. This Court held, and the Supreme Court affirmed, that this argument constituted a waiver defense and was a question of procedural arbitrability.
Worldwide Ins. Group v. Klopp, 603 A.2d 788, 790 (Del. 1992) ("The public policy of this State favors the resolution of disputes through arbitration."); see also SBC Interactive, Inc. v. Corporate Media Partners, 714 A.2d 758, 761 (Del. 1998); Graham v. State Farm Ins. Co., § 565 A.2d 908, 911 (Del. 1989).
Pl.'s Answering Br. pp. 17-22.
SBC, 714 A.2d, at 761 ("In a proceeding to stay or to compel arbitration, the question whether the parties agreed to arbitrate, commonly referred to as "substantive arbitrability,' is generally one for the courts and not for the arbitrators.").
Id. at 758.
Id. at 761.
Id. at 762 ("It appears that SBC's `condition precedent' argument is really a "waiver in the sense of laches' argument and, thus, should be considered by the arbitrator.").
Burton attempts to distinguish the issue in the current controversy from that in SBC. I find this attempt, as the Supreme Court found SBC's argument, "an exercise in semantics." The jursdiction Clause carves disputes falling under sections 8(b) (disputes arising after PFPC proposes to terminate for good cause) and 8(c) (disputes arising after an employee declares a deficient opportunity) out of the jurisdiction of the Delaware Courts and places them within the realm of arbitration. All other issues are left within the Court's jurisdiction. For Burton to successfully contend that this Court has jurisdiction over the pending matter, he must couch the issue in such terms that it does not implicate the Deficient Opportunity or good cause clauses. Considering that most issues questioning whether an employee was terminated without cause would involve the employer alleging the employee was terminated with cause, disputes not implicating sections 8(b) or (c) would be relatively rare. Here, PFPC does not claim that it terminated Burton for cause. Rather, it claims that it terminated Burton in accordance with the terms of the Deficient Opportunity Clause. Burton tries to change the characterization of this issue from whether PFPC acted in accordance with the terms of that clause to whether PFPC terminated Burton without cause.
Id. at 761 (discussing the Court of Chancery's characterization of the dispute in the case, and SBC's counter-characterization).
The heart of this controversy — the existence of a Deficient Opportunity falls squarely within the arbitration clause. That this core question is subject to arbitration, which could have been a matter of substantive arbitrability, is unambiguous. The question Burton seeks to put before the Court is a procedural issue. Stated another way, Burton effectively seeks an answer to this question: did defendants waive their right to seek arbitration, and thus immediately terminate Burton without cause, by not continuing his employment pending the arbitrator's decision? This question is legally nondistinct from that in SBC. It is a matter of procedural arbitrability, which is properly left to the arbitrators.
SBC, 714 A.2d at 762; Falcon Steel Co. v. Weber Eng'g Co., 517 A.2d 281, 288 (1986) ("To the extent that "waiver" is used in the sense of laches or estoppel, it operates to bar arbitration only where the arbitration remedy would be inequitable, such as where relevant evidence has been lost due to delay.").
IV. CONCLUSION
As discussed above, Burton attempted to characterize the present issue as whether or not he was terminated for cause. That characterization, I have concluded, is incorrect. The arbitrators must decide, first, whether a condition precedent to arbitration exists — namely, whether Burton must be employed and receive benefits from defendants during the course of the arbitration proceeding. I cannot entertain Burton's claims of being terminated for cause without the benefit of the arbitrators' decision; that decision is outside of this Court's jurisdiction.A. Counts II-V
In Counts II-V, Burton seeks, respectively, specific performance, a declaratory judgment, statutory damages, and damages for breach of contract. Because I find that Burton's current claim cannot be entertained by this Court, I grant defendants' motion to dismiss without prejudice. Should the arbitrators decide that a condition precedent to arbitration exists, and that defendants waived their right to arbitration (or are estopped from invoking arbitration) by not abiding by that condition precedent, Burton is free to seek relief in this Court, pursuant to the Jurisdiction Clause of the Agreement.
Burton, in connection with his argument regarding stock options, contends that "complete dismissal of the Complaint with prejudice is inappropriate." Pl.'s Answering Br. at 40. I note that most of Burton's stock option claims are based on claims that depend, like his other claims for relief, on the decision of the arbitrators regarding the existence of a condition precedent. I also emphasize that this partial dismissal is without prejudice. Burton is free to seek relief in this Court if the arbitrators decide that a condition precedent was present, and that Defendants, by breaching such a condition, waived their right to arbitration. Although far from clear, Burton also appears to make claims based on breach of the stock option agreement. However, he does not present to this Court a distinct claim for breach of any stock option agreement, and did not attach any agreement to the verified complaint. Thus, I cannot reach such potential arguments.
B. Count I
I separate Count I from Counts II-V, above, in order to address the issue of irreparable harm.
Count I originally sought injunctive relief to free Burton from three restrictive covenants: the Non-Compete term, Non-Solicit Term, and No-Hire term. In a telephone conference with the Court on June 27, 2003, defendants agreed to waive the Non-Compete term of the employment agreement. The remaining restrictive covenants prevent Burton from soliciting any entity he reasonably knows to be a (potential or current) customer of PFPC, and from hiring any of PFPC's employees. I conclude, contrary to Burton's argument, that his "inability to seek employment free from" these restrictive covenants will not inflict upon Burton a risk of imminent, irreparable harm necessary for this Court to grant a preliminary injunction. Further, I do not find any "specific consequences" resulting from Burton's loss of medical benefits that would make such economic loss irreparable. Finally, although Burton has alleged that his daughter required surgery in June of this year, he has not alleged that he would be unable to obtain medical and life insurance for his family in the absence of injunctive relief. His only argument is that irreparable harm is suffered by having to pay for the insurance. However, as former-Chancellor Allen wrote in Burge v. City of Dover, "To lose one's salary is a blow to any working person, but it is not ordinarily a blow that is legally irreparable." In Burge, as here, the plaintiff alleged that because he would have to pay health insurance premiums, he would suffer irreparable harm. And, as similar to this case, the plaintiffs submissions to the court did "not detail his financial position in such a way as to permit the court to conclude that in fact [the plaintiff] will suffer . . . more than simply the loss of money and what it can buy, but will suffer further specific consequences that the law would regard as irreparable." Given the absence of such allegations, I find no ground upon which to grant injunctive relief.
Compl. ¶ 60.
Letter to Court from Richard R. Wier (July 2, 2003).
Pl.'s Answering Br. at 41.
See Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 586 (Del. Ch. 1988) (noting that in order for this Court to grant a preliminary injunction, a plaintiff must establish "immediate, discernible harm for which there is no adequate remedy at law"). While requiring Burton to abide by the most stringent of the restrictive covenants, the Non-Compete term, may have constituted irreparable injury, the remaining two terms are not so restrictive as to be preclusive to Burton's employment opportunities. Burton is free to engage in competition with defendants. He is simply unable to solicit clients he reasonably knows to be customers of PFPC as of the date of termination or attempt to hire an employee away from defendants. I do not find such restrictions to be so preclusive to future employment as to justify the grant of injunctive relief.
1987 Del. LEXIS 446, at *29 (Del.Ch. 1987).
Id.
Plaintiff asks me to distinguish the current case from Burge. First, plaintiff argues that Burge was not at the motion to dismiss stage. I have taken all of plaintiffs alleged, nonconclusory facts as true, however, and still can find no ground upon which to base injunctive relief. Second, plaintiff notes that Burge cited to a Third Circuit case, United Steelworkers v. Fort Pitt Steel Casting Co., 598 F.2d 1273 (3d Cir. 1979), which noted that loss of medical benefits may rise to the level of irreparable harm. That case, however, merely stated that the loss of insurance benefits is not automatically a loss that would not constitute irreparable harm. Id. at 1289. I agree with the Third Circuit. Here, I simply find an absence of facts that would allow me to grant plaintiff the relief he seeks.
Count I also seeks an injunction barring the American Arbitration proceeding initiated by PFPC. At times, a party to an arbitration agreement may require interim injunctive relief, which is ordinarily only available in this Court. Although this Court generally errs on the side of caution when granting injunctive relief in arbitration proceedings, it will always balance its sensitivity to plaintiffs seeking injunctive relief with a recognition of the costs associated with court proceedings. In BFI Waste Systems of North America, Inc. v. Waste Management Holdings, Inc., I considered and denied a party's request for a preliminary injunction and expedited proceeding because I found that the parties' arbitration clause covered the subject matter of the dispute and that the arbitration panel was empowered to grant the plaintiff interim relief. The specific facts in that case led me to believe that arbitration was the correct forum for the dispute — that there was no sufficient possibility of irreparable injury to justify the costs of an expedited preliminary injunction process. Based on the specific facts in this case — that the arbitration agreement covers the basic subject matter of the dispute, and that the type of harm Burton may suffer may be remedied at law — I find no necessity to enjoin the arbitration proceedings. C. Count VI
Compl. ¶ 60.
See BFI Waste Sys's. of N. Am., Inc. v. Waste Mgmt. Holdings, Inc., Del. LEXIS 170, at *5-6 (Del.Ch. 1998).
Id.
Burton cites to Qwest Communications International, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, 821 A.2d 323 (Del.Ch. 2002), for the proposition that allowing an arbitration proceeding to continue constitutes the type of irreparable harm necessary for a preliminary injunction. Pl.'s Answering Br., 17. However, the harm Vice Chancellor Lamb identified in Qwest was the loss of Qwest's contract right to determine between binding arbitration and non-binding mediation. Qwest, 821 A.2d. at 329. This harm, the loss of a negotiated contract right, is quite different from the harm Burton claims he may suffer — purely economic harm.
In Count VI, Burton asks this Court for relief based on a breach of the covenant of good faith and fair dealing. "[E]very employment contract made under the laws of [Delaware] . . . includes covenants of good faith and fair dealing. This implied covenant has evolved in Delaware law to counter the potential inequity in employers' use of the employment-at-will doctrine. Claims arising under this covenant can be divided into four categories: (i) termination in violation of public policy; (ii) promissory estoppel (employer misrepresentation of an important fact, coupled with employee reliance determining their future career path); (iii) employer use of superior bargaining power to deprive employee of clearly identifiable compensation related to the employee's past service; and (iv) employer falsification or manipulation of employment records to create fictitious grounds for termination.
Merrill v. Crothall-American, Inc., 606 A.2d 96, 101 (Del. 1992).
Lord v. Souder, 748 A.2d 393, 400 (Del. 2000) (citing E.I. DuPont de Nemours Co. v. Pressman, 679 A.2d 436, 442-44 (Del. 1996)).
Regardless of whether the arbitrator finds that a condition precedent to seeking arbitration exists or not, the implied covenant of good faith and fair dealing is still present, and may have been breached by defendants. As stated above, for purposes of a motion to dismiss, I must take all of the plaintiffs nonconclusory allegations as true. Based upon these allegations, I cannot dismiss this cause of action at this time. I pause to impress upon both parties, however, that the crux of the controversy here is the Deficient Opportunity Clause. Although I cannot dismiss Burton's sixth cause of action at this stage of the litigation, I encourage both parties to use the arbitration procedure before resorting to a time and resource consuming court process.
Orman v. Cullman, 794 A.2d 5, 6 (Del.Ch. 2002).
Defendants' motion to dismiss Counts I-V is granted; those counts are dismissed without prejudice. Defendants' motion to dismiss Count VI of the verified complaint is denied.
IT IS SO ORDERED.