Opinion
C.A. No.: N17C-07-227 EMD CCLD
04-03-2019
FLOWSHARE, LLC, a Delaware limited liability company, and ERIC D. FOGLE Plaintiffs/Counterclaim Defendants, v. GEORESULTS, INC., a Georgia corporation, THOMAS E. SHIELDS and DAWN SHIELDS, Defendants/Counterclaim Plaintiffs.
Stephen B. Brauerman, Esquire, Sara E. Bussiere, Esquire, Bayard, P.A., Wilmington, Delaware, John E. Petite, Esquire, John C. Drake, Esquire, Greensfelder, Hemker and Gale P.C., St. Louis, Missouri, Attorneys for Plaintiffs and Counterclaim Defendants. Jeffrey L. Moyer, Esquire, Travis S. Hunter, Esquire, Richards Layton & Finger, Wilmington, Delaware, Stephen P. Fuller, Esquire, CKR LAW, LLP, Johns Creek, Georgia, Attorneys for Defendants and Counterclaim Plaintiffs.
Upon Plaintiffs/Counterclaim Defendants Flowshare, LLC D/B/A ShareTracker and Eric D. Fogle's Motion for Summary Judgment
DENIED Upon Defendant/Counterclaim Plaintiffs GeoResults, Inc., Thomas E. Shields, and Dawn Shields' Motion for Summary Judgment
GRANTED IN PART and DENIED IN PART Stephen B. Brauerman, Esquire, Sara E. Bussiere, Esquire, Bayard, P.A., Wilmington, Delaware, John E. Petite, Esquire, John C. Drake, Esquire, Greensfelder, Hemker and Gale P.C., St. Louis, Missouri, Attorneys for Plaintiffs and Counterclaim Defendants. Jeffrey L. Moyer, Esquire, Travis S. Hunter, Esquire, Richards Layton & Finger, Wilmington, Delaware, Stephen P. Fuller, Esquire, CKR LAW, LLP, Johns Creek, Georgia, Attorneys for Defendants and Counterclaim Plaintiffs. DAVIS, J.
I. INTRODUCTION
This civil action is assigned to the Complex Commercial Litigation Division of the Court. The claims in this civil action relate to the purchase of the assets of GeoResults, Inc. ("GeoResults"). On November 6, 2015, Flowshare, LLC ("Flowshare") and GeoResults entered into an asset purchase agreement (the "APA"). Under the APA, Flowshare purchased substantially all of GeoResults' assets.
Eric D. Fogle is the CEO and owner of Flowshare. Thomas E. Shields founded GeoResults and Dawn Shields was the CFO of GeoResults. Mr. Fogle entered into a separate agreement (the "Shortfall Agreement") with Flowshare and the Shieldses. Under the terms of the Shortfall Agreement, Mr. Fogle personally guaranteed that he, in conjunction with Flowshare, would pay $8 million for GeoResults. Mr. Fogle purportedly entered into the Shortfall Agreement to assure the Shieldses that they would be paid in full under the APA, and to supplement the consideration under the APA's terms.
Flowshare and Mr. Fogle (collectively, the "Plaintiffs") brought this action on July 21, 2017. Plaintiffs raise four claims: (i) breach of the APA, (ii) declaratory judgment with respect to the APA, (iii) fraudulent inducement with respect to the APA, and (iv) declaratory judgment that the Shortfall Agreement is unenforceable. GeoResults and the Shieldses (collectively, the "Defendants") answered Plaintiffs' claims and asserted five counterclaims: (i) declaratory judgment that Defendants did not breach the APA, (ii) breach of the Shortfall Agreement, (iii) unjust enrichment, (iv) promissory estoppel, and (v) fraud in the inducement.
On September 27, 2018, Defendants filed a motion for summary judgment ("Defendants' Motion") seeking judgment on all of Plaintiffs' claims. Then, Plaintiffs filed a motion for summary judgment ("Plaintiffs' Motion") on October 10, 2018 seeking judgment on all of Defendants' counterclaims (collectively, the "Motions"). On December 14, 2018, the Court held a hearing on the Motions. At the conclusion of the hearing, the Court took the Motions under advisement. For the reasons set forth below, the Court DENIES Plaintiffs' Motion. The Court GRANTS Defendants' Motion in part and DENIES Defendants' Motion in part.
II. RELEVANT FACTS
A. PARTIES AND JURISDICTION
Flowshare, which does business under the names Flowshare and ShareTracker, is a Delaware limited liability company with its principal place of business in Ashland, Missouri. Flowshare performs market research on telecommunications companies' market share, analyzes its findings and then compiles reports. Mr. Fogle is a resident of the state of Missouri. He is the co-founder of Flowshare and its president and CEO.
Am. Compl. ¶ 2.
Id. ¶ 9.
Id. ¶ 3.
Id. ¶ 48.
GeoResults is a Georgia corporation with its principal place of business in Alpharetta, Georgia. GeoResults provides telecom intelligence information to the communications industry. Mr. and Mrs. Shields are residents of the state of Georgia. The Shieldses were the sole shareholders of GeoResults at the time of the acquisition.
Id. ¶ 4.
Id. ¶ 10.
Id. ¶ 5.
Id.
Jurisdiction is proper in this Court because Flowshare and Defendants agreed, in the APA, to a forum selection clause that states that disputes will be resolved in Delaware courts.
Id. ¶ 7.
B. THE ASSET PURCHASE AGREEMENT
On November 6, 2015, Flowshare entered into the APA with Defendants. In Section 3.2 of the APA, the parties agreed that Flowshare would pay a purchase price for GeoResults calculated as follows: (i) $4,420,000.00, (ii) less the amount of the estimated working capital adjustment, which was $137,017.00, (iii) plus the escrow amount of $500,000. The final purchase price for GeoResults was $4,282,983.
Answer Ex. A, Asset Purchase Agreement. Ex. A to the Answer will be cited as "APA § ___."
APA § 3.2.
Am. Compl. ¶ 44.
In the APA, GeoResults made several representations and warranties that are at issue in this case. Specifically, in Section 4.05 of the APA, GeoResults represented,
there has not occurred any Material Adverse Effect or any fact, event, change, development or effect that (individually or when taken together with any other facts, events, changes, developments or effects) would reasonably be expected to, result in any Material Adverse Effect.The APA defined "Material Adverse Effect" to mean,
any change, effect, event, occurrence, state of facts, development or circumstance that, individually or in the aggregate, is or would reasonably be expected to be materially adverse to (a) the business, assets, condition, prospects, or operations of the Business, taken as a whole . . . .In Section 4.11 of the APA, GeoResults represented,
no Material Customer has advised [GeoResults] that such customer intends to stop, decrease, accelerate or delay the rate of purchasing products or services from [GeoResults], in any material respect, at any time after the date hereof and (ii) no Material Customer has provided notice or information to [GeoResults] that it intends to materially reduce the volume of business that it currently conducts with [GeoResults] or to cease doing business with [GeoResults].In Section 4.20 of the APA, GeoResults represented,
To the Knowledge of [GeoResults], no representation or warranty by [GeoResults] in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to [Flowshare] pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.Section 8.02 of the APA provides that GeoResults will indemnify Flowshare for breaches of GeoResults' representations and warranties:
[GeoResults] and [the Shieldses] shall, jointly and severally, indemnify, defend, protect, and hold harmless [Flowshare] and its successors and permitted assigns, and each of their respective Affiliates, officers, managers, members, employees and Representatives (collectively, the "Purchaser Indemnitees") for, from and against any and all Losses imposed upon or incurred by the Purchaser Indemnities (or any one of them), directly or indirectly, arising out of . . . any Breach of any representation or warranty of [GeoResults] or [the Shieldses] set forth in this Agreement or given or made by [GeoResults] or [the Shieldses] in any other Transaction Document . . . .Section 11.09 of the APA includes a merger and integration clause as follows:
This Agreement (including all Exhibits and the Disclosure Schedules hereto) and all other Transaction Documents contain the entire agreement between the Parties with respect to the subject matter herein and therein and supersede all prior agreements and understandings, oral or written, with respect to such matters.
APA § 4.05.
Id. § 1.01.
Id. § 4.11.
Id. § 4.20.
Id. § 8.02.
Id. § 11.09.
Finally, the APA provided that $500,000.00 be held in an escrow account. Flowshare would pay the amount in the escrow account to the Shieldses on the one-year anniversary of the date on which the parties signed the APA. But, the parties also agreed that if Defendants breached the representations and warranties in the APA, the funds in the escrow account would be distributed to Plaintiffs in the amount of the Plaintiffs' losses. Defendants would pay additional losses directly to Plaintiffs.
Am. Compl. ¶ 37.
APA Ex. A, Escrow Agreement § 2.1.
Id. § 2.02.
APA § 8.07.
C. THE SHORTFALL AGREEMENT
The Shortfall Agreement is signed by Mr. Fogle (individually), Flowshare (by Mr. Fogle as manager of Flowshare), and Mr. Shields (president/CEO of GeoResults) and Ms. Shields (CFO of GeoResults). The Shortfall Agreement is framed as a letter agreement from the Shields to Mr. Fogle. Mr. Fogle and Flowshare expressly agree and accept the terms of the Shortfall Agreement.
Am. Compl. Ex. B.
Id.
Id.
In the Shortfall Agreement, Plaintiffs guaranteed payment of $8 million for Defendants' sale of GeoResults. Specifically, Plaintiffs promised to pay $2.5 million of the $8 million to employees of GeoResults. In accordance with the Shortfall Agreement, if Plaintiffs did not make the payments to employees within ten days of their payment deadlines, Plaintiffs agreed to make the payments to the Shieldses. Flowshare agreed to indemnify Defendants for any losses resulting from these payments to employees.
Id.
Id.
Id.
Id.
In addition, in the Shortfall Agreement, Plaintiffs agreed to pay the Shieldses an amount such that the Shieldses' total compensation from the APA and the Shortfall Agreement would be $5.5 million. In this provision, Plaintiffs agree to pay the Shieldses (i) for any deficiency if Flowshare was not able to pay Defendants as per the APA, and (ii) an extra sum of money, if the purchase price in the APA was below $5.5 million. Plaintiffs promised to make these payments by employing the Shieldses and periodically paying them a salary until the Shieldses had been paid at least $5.5 million. The Shortfall Agreement states,
Id.
Id.
Id.
If the total consideration received by Seller [GeoResults] and Owners [the Shieldses] from the closing of the APA and the Real Estate Purchase Agreement is less than Five Million Five Hundred Thousand Dollars ($5,500,000.00), Purchaser [Flowshare] shall employ Owners at the rate of pay specified in their employment agreements with FLOWSHARE EMPLOYMENT GROUP, LLC for the time period necessary for Owners to receive compensation income equal to the difference (the "Shortfall") between Five Million Five Hundred Thousand Dollars ($5,500,000.00) and the amount of total consideration received pursuant to the closing of the APA and Real Estate Purchase Agreement. Total consideration from the APA and Real Estate Purchase Agreement shall mean the cash paid to Seller and Owners at Closing, plus the Escrow Amount, plus cash on hand retained by Seller. [ ]Finally, the Shortfall Agreement states, "[t]his agreement is independent of and in addition to the APA. The obligations of Purchaser [Flowshare] in this agreement are the joint and several obligations of Purchaser and Eric Fogle."
The Shortfall shall be increased by all adjustments due to Seller and Owners for tax consequences of stock versus asset sale, salary versus purchase price and capital gains versus ordinary income. This additional tax adjustment ("Tax Shortfall") payment calculation will not begin until after the previous Shortfall to the Seller(s) and Owner(s) is satisfied and will be paid within 30 days.
Id.
Id.
The parties negotiated the Shortfall Agreement before they executed the APA. On October 15, 2015, Mr. Fogle emailed Mr. Shields that the Shortfall Agreement must post-date the APA. Mr. Fogle stated, "[a]s discussed, this agreement can't exist prior to closing, as we both will be signing agreements . . . that state the payments in the APA, etc. . . .are the full payment and consideration for the purchase." On November 4, 2015, Mr. Shields sent Mr. Fogle an email also indicating that the Shortfall Agreement should post-date the APA. Mr. Fogle returned the signed Shortfall Agreement to Mr. Shields on November 5, 2015. The version of the Shortfall Agreement that Mr. Fogle returned to Mr. Shields was dated November 9, 2015. The APA's effective date is November 6, 2015.
Am. Compl. at ¶¶ 54-57; Answer at ¶¶ 77-78 and ¶ 89.
Defs.' Mot. Ex. 17.
Id.
Am. Compl., Ex. D ("Donnie has requested that we sign the document again with a date on the document that is after closing has been completed. We have signed and added a date line of 11/09/15 on the first page and resent so you can sign this one again so it is effective after the close officially.").
Pls.' Mot. p. 16.
Am. Compl. Ex. B.
Mr. Fogle was not represented by counsel in negotiating or signing the Shortfall Agreement. Instead, Mr. Fogle copied his counsel on an email dated October 27, 2015 in which he agreed to the $8 million commitment in the Shortfall Agreement, but then asked the Shieldses to only send a copy of the Shortfall Agreement to him. Mr. Fogle testified that he did not talk to his lawyer or the Chief Financial Officer of Flowshare about the Shortfall Agreement.
Am. Compl. ¶ 53.
Answering Brief of GeoResults, Inc., Thomas E. Shields, and Dawn Shields in Response to Summary Judgment p. 10.
Id.
D. GEORESULTS' CONTRACT WITH TELECOM CUSTOMER
In deference to the parties' confidentiality concerns, the Court is using a pseudonym for this entity.
GeoResults provided services to Telecom Customer. On December 24, 2014, GeoResults and Telecom Customer entered into their fourth statement of work, which provided for Telecom Customer to pay GeoResults $750,000 annually for the years 2015, 2016, and 2017. GeoResults' contract with Telecom Customer was a material contract because it was GeoResults' most lucrative contract. Defendants identified this fourth statement of work as a material contract in the APA's Disclosure Schedules. Defendants assigned the material contracts listed on the APA's Disclosure Schedules to Flowshare as part of the overall transaction.
Pls.' Mot. p. 20.
Id.
Am. Compl. ¶ 16.
APA § 2.01(b).
GeoResults' contract with Telecom Customer had an early termination provision. Under this provision, Telecom Customer could terminate the agreement at any time upon thirty days' notice to GeoResults. James Kenny was GeoResults' primary contact with Telecom Customer. On October 20, 2015, Geoff Levy, a representative of Telecom Customer, emailed Mr. Kenny and informed Mr. Kenny that he wanted to talk about GeoResults' contract with Telecom Customer. Between October 20, 2015 and October 26, 2015, including on a phone call on October 26, 2015, Mr. Levy told Mr. Kenny that Telecom Customer was considering terminating GeoResults' contract early. After receiving this news, Mr. Kenny sought guidance from GeoResults' legal counsel on whether Telecom Customer could terminate GeoResults' contract early. GeoResults' counsel quickly answered that Telecom Customer could terminate GeoResults' contract early after giving GeoResults thirty-days of notice.
Pls.' Mot. p. 21.
Id. at 8.
Id. at 20.
Id. at 21.
Id.
Id.
Mr. Kenny explained to Mr. Shields that another company was competing with GeoResults for Telecom Customer's business. On October 26, 2015, Mr. Shields strongly encouraged Mr. Kenny to meet with Telecom Customer's representatives in its headquarters in Little Rock, Arkansas in order to keep Telecom Customer's business. Before Mr. Kenny met with Telecom Customer at its headquarters, representatives at Telecom Customer expressed to Mr. Kenny that key stakeholders at Telecom Customer, such as the IT and business process teams, were interested in terminating GeoResults' contract. But, other key stakeholders were concerned about the costs of competitors' services and so had not yet made a decision to terminate GeoResults' contract.
Id. at 22.
Id.
Pls.' Mot. Ex. X p. 106.
Id. at 105.
Mr. Fogle requested to speak with Telecom Customer about its relationship with GeoResults in order to conduct due diligence before signing the APA. On November 4, 2015, Mr. Fogle engaged in a phone conversation with Telecom Customer. After the call, Mr. Fogle reported that "[t]he call went VERY, VERY well" and that Telecom Customer had "no intentions of making any changes."
Defs.' Mot. Ex. 14.
Mr. Kenny met with Telecom Customer on November 6, 2015, which was the same day that the parties signed the APA. Mr. Kenny informed the Shieldses about his meeting with Telecom Customer before the November 6, 2015 meeting. Mr. Shields then informed Mr. Fogle that Mr. Kenny was meeting with Telecom Customer in order to "educate" Telecom Customer about its products. After the meeting, Mr. Kenny reported to Mr. Shields that the meeting went well and that Mr. Kenny had to prepare a new cost report for Telecom Customer. On November 7, 2015, Mr. Levy called Mr. Kenny. Mr. Levy wanted cost estimates for a transaction whereby GeoResults would provide data to Telecom Customer and Telecom Customer would then use other companies' technology to match and analyze that data.
Am. Compl. ¶ 28.
Id. ¶ 29.
Pls.' Motion, Ex. K
Defs.' Mot. Ex. 7 p. 314-15.
Defs.' Mot. Ex. 13 p. 109-110.
Id.
On November 30, 2015, Telecom Customer notified GeoResults that it was terminating the contract. Mr. Levy testified that the purpose of Telecom Customer's November 30, 2015 notice of termination was to provide flexibility for Telecom Customer as it continued to explore different cost arrangements.
Am. Compl. ¶ 34.
Defs.' Mot. Ex. 13 p. 136-137.
Despite Telecom Customer's termination, Plaintiffs continued performing under the Shortfall Agreement by making periodic payments to the Shieldses in the form of a salary. Then, Mr. Fogle abruptly stopped the payments and asked the Shieldses to accept further delayed compensation. Mr. Fogle noted that he hoped to continue the periodic payments in April 2016 after Mr. Fogle had resolved his problems of low cash flow.
Answering Brief of GeoResults, Inc., Thomas E. Shields, and Dawn Shields in Response to Summary Judgment p. 13.
Defs.' Mot. Ex. 1 p. 214.
Id. p. 216.
During the same time period, Flowshare initiated litigation against TNS, US, LLC ("TNS"). Flowshare asserted that TNS had stolen data from Flowshare. Flowshare also claimed that TNS caused Flowshare to lose Telecom Customer's business account.
Answering Brief of GeoResults, Inc., Thomas E. Shields, and Dawn Shields in Response to Summary Judgment p. 13; Answer Ex. G.
Id.
On October 7, 2016, Flowshare notified GeoResults of its claim that GeoResults must indemnify Flowshare for losses arising from Telecom Customer's termination. Flowshare also notified the escrow agent of its claim against the funds in the escrow account. On October 25, 2016, GeoResults denied liability for the indemnification claim and demanded that the funds in the escrow account be released to Defendants at the appropriate time. Then, on November 1, 2016, GeoResults made a demand on Plaintiffs for $655,569.99 under the Shortfall Agreement and for release of funds in the escrow account.
Am. Compl. ¶ 39.
Id.
Id. ¶ 40.
Id. ¶ 78.
E. PROCEDURAL HISTORY
Plaintiffs filed suit against Defendants on July 21, 2017. Plaintiffs then filed an amended complaint (the "Amended Complaint") on October 20, 2017. In the Amended Complaint, Plaintiffs assert four causes of action. In Count I, Plaintiffs allege that Defendants breached Sections 4.05, 4.11, 4.20 of the APA by failing to inform Flowshare that GeoResults was at risk of losing Telecom Customer as its customer at the time of the parties signed the APA. In Count II, Plaintiffs claim that they are entitled to a declaratory judgment for indemnification under Section 8.2 of the APA because GeoResults breached the APA. Plaintiffs also argue that they are entitled to receive the funds in the Escrow Account to cover their losses arising from Defendants' breach of the APA. In Count III, Plaintiffs contend that Defendants fraudulently induced Plaintiffs to enter into the APA by failing to disclose that Telecom Customer was contemplating terminating its contract with GeoResults. Finally, in Count IV, Plaintiffs allege that they are entitled to a declaratory judgment that the Shortfall Agreement is unenforceable (i) because of Defendants' unethical conduct, (ii) the Shortfall Agreement is superseded by Section 11.09 of the APA, and (iii) Mr. Fogle is not liable under the Shortfall Agreement.
Id. ¶ 79-119.
Id. ¶ 79-89.
Id. ¶ 90-94.
Id. ¶ 94-96.
Id. ¶ 101-112.
Id. ¶ 113-119.
Defendants filed counterclaims (the "Counterclaims") against Plaintiffs on November 3, 2017. In the Counterclaims, Defendants assert five causes of action. In Counterclaim I, Defendants claim that they are entitled to a declaratory judgment that they did not breach the APA and that Flowshare should release $500,000 from the Escrow fund. In Counterclaim II, Defendants assert that Plaintiffs breached the Shortfall Agreement because Plaintiffs (i) did not pay $655,569.99 owed to Defendants under the Shortfall Agreement, (ii) did not pay additional amounts due as a true-up for income tax liability to Defendants under the Shortfall Agreement, and (iii) did not account for the $2.5 million that was supposed to be paid to employees under the Shortfall Agreement. Counterclaim III is for unjust enrichment. Counterclaim IV is for promissory estoppel. Both Counterclaims III and IV are pled in the alternative to Counterclaim II. Finally, in Counterclaim V, Defendants contend that Mr. Fogle fraudulently induced Defendants to sell GeoResults to Flowshare. Specifically, Defendants argue that Mr. Fogle misrepresented that he would pay Defendants the amounts set forth in the Shortfall Agreement even though he never had any intention of fulfilling these promises.
Countercl. ¶ 50-95.
Id. ¶ 52-55.
Id. ¶ 61-66.
Id. ¶ 67-74.
Id. ¶ 75-81.
Id. ¶¶ 68, 76.
Id. ¶ 82-95.
Id.
On December 22, 2017, Plaintiffs filed a reply to the Counterclaims and asserted the following affirmative defenses: (i) failure to state a claim, (ii) unclean hands, (iii) failure of a condition precedent, (iv) fraud, (v) vagueness, (vi) unconscionability, (vii) waiver, (viii) public policy, (ix) reformation. Plaintiffs filed a motion to dismiss Counterclaim V, which the Court denied on July 25, 2018. The Court found that Defendants may only pursue Counterclaim V as an alternative to Counterclaim II.
Pls. Reply and Affirmative Defenses to Countercl. p. 33-36.
Flowshare, LLC v. GeoResults, Inc., 2018 WL 3599810 (Del. Super. July 25, 2018).
Id. at *6.
Defendants filed their Opening Brief of GeoResults, Inc., Thomas E. Shields, and Dawn Shields in Support of Summary Judgment on September 27, 2018. Next, on October 31, 2018, Plaintiffs filed their Memorandum in Opposition to Defendants/Counterclaim Plaintiffs GeoResults, Inc., Thomas E. Shields and Dawn Shields' Motion for Summary Judgment ("Plaintiffs' Opposition"). On November 20, 2018, Defendants filed their Reply Brief of GeoResults, Inc., Thomas E. Shields, and Dawn Shields in Support of Summary Judgment ("Defendants' Reply").
On October 10, 2018, Plaintiffs filed their Opening Brief in Support of Plaintiffs/Counterclaim Defendants Flowshare, LLC, d/b/a Sharetracker and Eric D. Fogle's Motion for Summary Judgment. Defendants filed their Answering Brief of GeoResults, Inc., Thomas E. Shields, and Dawn Shields in Response to Summary Judgment ("Defendants' Opposition") on November 12, 2018. Finally, on December 7, 2018, Plaintiffs' filed their Reply Brief of Flowshare, LLC and Eric Fogle in Support of Summary Judgment ("Plaintiffs' Reply").
III. PARTIES' CONTENTIONS
A. DEFENDANTS' MOTION
Defendants argue they are entitled to summary judgment on all of Plaintiffs' claims. First, Defendants argue that Defendants did not breach the APA because Telecom Customer did not intend to terminate GeoResults' contract until after the parties signed the APA. Defendants also contend that they are entitled to the funds in the escrow account because they did not breach any representations and warranties made in the APA. Next, Defendants claim that Plaintiffs have not sufficiently pleaded a claim for fraudulent inducement. Finally, Defendants assert that the Shortfall Agreement is enforceable because Mr. Fogle has already performed part of the Shortfall Agreement, and because the Shortfall Agreement was not consummated as a result of Defendants' unethical conduct.
B. PLAINTIFFS' MOTION
Plaintiffs argue that they are entitled to summary judgment on all of Defendants' Counterclaims. First, Plaintiffs claim that GeoResults breached its representations in the APA because it failed to disclose that Telecom Customer intended to terminate GeoResults' contract. Second, Plaintiffs contend that the Shortfall Agreement is unenforceable because the Shortfall Agreement is (i) rendered void by the merger and integration clauses in the APA and in the Shieldses' employment agreements with Flowshare, (ii) void because it was signed as a result of Defendants' unethical conduct, and (iii) not supported by consideration. Third, Plaintiffs argue that Defendants cannot recover under their claims for fraudulent inducement, unjust enrichment and promissory estoppel. Finally, Plaintiffs assert that they are entitled to summary judgment on Count III—fraudulent inducement—because Defendants made material omissions of fact concerning GeoResults' contract with Telecom Customer.
IV. STANDARD OF REVIEW
The standard of review on a motion for summary judgment is well-settled. The Court's principal function when considering a motion for summary judgment is to examine the record to determine whether genuine issues of material fact exist, "but not to decide such issues." Summary judgment will be granted if, after viewing the record in a light most favorable to a nonmoving party, no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. If, however, the record reveals that material facts are in dispute, or if the factual record has not been developed thoroughly enough to allow the Court to apply the law to the factual record, then summary judgment will not be granted. The moving party bears the initial burden of demonstrating that the undisputed facts support his claims or defenses. If the motion is properly supported, then the burden shifts to the non-moving party to demonstrate that there are material issues of fact for the resolution by the ultimate fact-finder.
Merrill v. Crothall-American Inc., 606 A.2d 96, 99-100 (Del. 1992) (internal citations omitted); Oliver B. Cannon & Sons, Inc. v. Dorr-Oliver, Inc., 312 A.2d 322, 325 (Del. Super. 1973).
Id.
Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962); see also Cook v. City of Harrington, 1990 WL 35244 at *3 (Del. Super. Feb. 22, 1990) (citing Ebersole, 180 A.2d at 467) ("Summary judgment will not be granted under any circumstances when the record indicates . . . that it is desirable to inquire more thoroughly into the facts in order to clarify the application of law to the circumstances.").
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1970) (citing Ebersole, 180 A.2d at 470).
See Brzoska v. Olsen, 668 A.2d 1355, 1364 (Del. 1995).
Where, as here, the parties have filed cross motions for summary judgment and have not argued that there are genuine issues of material fact, "the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions." Neither party's motion will be granted unless no genuine issue of material fact exists and one of the parties is entitled to judgment as a matter of law.
Super. Ct. Civ. R. 56(h).
E.I. DuPont de Nemours and Co. v. Medtronic Vascular, Inc., 2013 WL 261415, at *10 (Del. Super. Jan. 18, 2013).
As set forth below, the Court finds and holds that, after viewing the record in a light most favorable to a nonmoving party, genuine issues of material fact exist on certain claims related to the APA. Accordingly, the Court cannot grant summary judgment to the respective moving party on all contentions raised in the Motions.
V. DISCUSSION
A. BREACH OF THE APA
Under Delaware law, to prove a breach of contract claim, a party must show: (1) a contractual obligation; (2) a breach of that obligation; and (3) resulting damages. A party harmed by a breach of contract is entitled to compensation that will place that party in the same position that the party would have been in if the other party had performed under the contract.
Interim Healthcare v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. 2005).
See E.I. DuPont de Nemours and Co. v. Pressman, 679 A.2d 436, 446 (Del. 1996).
In the Motions, the parties ask the Court to determine whether Defendants breached the APA by failing to disclose, prior to closing, that Telecom Customer was contemplating a termination of its agreement with GeoResults. The parties agree that, under the APA, Telecom Customer was a "Material Customer," and GeoResults contract with Telecom Customer was a "Material Contract."
1. Section 4.11 of the APA
First, Plaintiffs argue that Defendants breached Section 4.11 of the APA. Specifically, Plaintiffs contend that Defendants did not disclose that Telecom Customer evinced a clear intent to terminate its contract with GeoResults before the parties signed the APA. As evidence, Plaintiffs provide that, between October 20, 2015 and October 26, 2015, Mr. Levy, who works for Telecom Customer, told Mr. Kenny, GeoResults' primary contact with Telecom Customer, that Telecom Customer was considering exercising the early termination provision in its contract with GeoResults. Plaintiffs contend that Mr. Kenny was so concerned about Telecom Customer's early termination that he consulted with GeoResults' legal counsel as to whether Telecom Customer could terminate its contract with GeoResults after only one year of a three-year contract. Plaintiffs also note that Mr. Kenny called Mr. Shields and informed Mr. Shields that GeoResults was in competition with another company for Telecom Customer's continued business.
Next, Plaintiffs argue that Mr. Shields understood that Telecom Customer was so strongly considering terminating GeoResults' contract that Mr. Shields exhorted Mr. Kenny to meet with representatives at Telecom Customer's office in Little Rock, Arkansas to discuss GeoResults' myriad products and services. Mr. Kenny met with Telecom Customer's representatives on November 6, 2015, the date on which the parties signed the APA and notified the Shieldses about this meeting. Plaintiffs claim that this meeting was GeoResults' last effort to continue its contract with Telecom Customer.
Plaintiffs note that Mr. Levy had notified Mr. Kenny that the IT and business groups at Telecom Customer had decided not to continue the contract with GeoResults, although other stakeholders at Telecom Customer had not yet decided whether to terminate GeoResults' contract. Finally, Plaintiffs argue that Mr. Shields believed that Mr. Kenny had convinced Telecom Customer to continue GeoResults' contract after the meeting, which shows that Telecom Customer had the prior intent to terminate the contract.
In response, Defendants argue that Telecom Customer did not intend to terminate GeoResults' contract until November 30, 2015, when Telecom Customer actually notified GeoResults of its termination. Defendants cite an email that Mr. Fogle sent to Mr. Shields regarding Mr. Fogle's meeting with Telecom Customer on November 4, 2015 as evidence that Telecom Customer did not intend to terminate GeoResults' contract before the parties signed the APA. In the email, Mr. Fogle stated that Telecom Customer had "[i]ndicated that they are in the first year of a three-year contract, with no intentions of making any changes."
Defendants also contend that Mr. Kenny met with Telecom Customer in order to fend off normal competition and to encourage Telecom Customer to do more business with GeoResults, rather than because Telecom Customer intended to terminate GeoResults' contract. Defendants assert that Mr. Kenny's meeting with Telecom Customer was merely to "educate" Telecom Customer about GeoResults' products. Defendants state that they informed Mr. Fogle that Mr. Kenny was meeting with Telecom Customer in order to educate Telecom Customer before the November 6, 2015 meeting. Lastly, Defendants argue that Plaintiffs admitted in Plaintiff's Motion that "Telecom Customer's decision was neither official nor final at the time of closing[.]"
The parties have both offered conflicting evidence on the issue of whether Telecom Customer did not intend to terminate GeoResults' contract at the time the parties signed the APA or that Telecom Customer had effectively informed GeoResults in phone calls and in the November 6, 2015 meeting that it intended to terminate GeoResults' contract. The Court finds that there is a genuine issue of material fact on whether Telecom Customer "provided . . . information to [GeoResults] that it intends to . . . cease doing business with [GeoResults]" in violation of APA Section 4.11. Accordingly, the Court cannot grant summary judgment for either party on this issue.
2. Section 4.05 of the APA
Plaintiffs claim that Defendants breached APA Section 4.05. Specifically, Plaintiffs argue that a "Material Adverse Effect had occurred because the information GeoResults had regarding Telecom Customer, in the aggregate, was a "change, effect, event, occurrence, state of facts, development or circumstance that, individually or in the aggregate, is or would reasonably be expected to be materially adverse to" GeoResults' business, assets, condition, prospects, or operations.
The Court has already determined that there is a genuine issue of material fact as to whether Defendants' breached Section 4.11 of the APA. The Court therefore must find that there remains an open question as to whether the situation surrounding Telecom Customer had occurred in a manner and time that would constitute a violation of APA Section 4.05. As such, the Court also finds that, at this stage of the proceedings, this issue is not ripe for summary judgment.
3. Section 4.20 of the APA
Lastly, Plaintiffs contend that Defendants breached Section 4.20 of the APA. Plaintiffs claim that Defendants failed to disclose material facts because Defendants concealed facts that (i) Telecom Customer had informed Mr. Kenny that relevant constituents at Telecom Customer had decided to terminate the GeoResults contract and (ii) Mr. Kenny was trying to salvage GeoResults' terminal relationship with Telecom Customer on November 6, 2015. Plaintiffs also argue that the Shieldses breached Section 4.20 because they did not exercise due inquiry in determining whether representations in the APA were true.
The Court finds that there is a genuine issue of material fact on whether there has been a breach of APA Section 4.20. The parties provide differing interpretations of facts surrounding Telecom Customer, the disclosure of those facts to the parties, the importance of those facts and the impact. Given this, the Court has to find that there are genuine issues of material fact as to whether the Defendants breached APA Section 4.20. The Court will resolve the dispute after a trial on the merits.
B. PLAINTIFFS' CLAIM FOR FRAUDULENT INDUCEMENT
The next issue raised in the Motions is whether Defendants fraudulently induced Plaintiffs to enter into the APA. To plead a claim of fraud, Plaintiffs must show:
(1) a false representation, usually one of fact . . .; 2) the defendant's knowledge or belief that the representation was false, or was made with reckless indifference to the truth; 3) an intent to induce the plaintiff to act or to refrain from acting; 4) the plaintiff's action or inaction taken in justifiable reliance upon the representation; and 5) damage to the plaintiff as a result of such reliance.In Delaware, there are three types of fraud: "(1) false statements represented as truth; (2) active concealment of facts which prevents the other party from discovering them; and (3) silence in the face of a duty to speak."
Hauspie v. Stonington Partners, Inc., 945 A.2d 584, 586 (Del. 2008) (quoting Gaffin v. Teledyne, Inc., 611 A.2d 467, 472 (Del.1992)).
DRR, L.L.C. v. Sears, Roebuck & Co., 949 F. Supp. 1132, 1137 (D. Del. 1996).
Delaware courts have consistently held that to successfully plead a fraud claim, the allegedly defrauded plaintiff must have sustained damages as a result of a defendant's action. The damages allegations, however, may not simply rehash the damages allegedly caused by breach of contract. Moreover, plaintiff cannot "bootstrap a claim of breach of contract into a claim for fraud by alleging that a contracting party never intended to perform its obligations." In other words, plaintiff cannot adequately state a fraud claim merely by adding the term "fraudulently induced" to a claim for breach of contract.
Novipax Holdings LLC v. Sealed Air Corp., 2017 WL 5713307, at *14 (Del. Super. Nov. 28, 2017) (citing ITW Glob. Invest. Inc., 2015 WL 3970908, at *5).
Id.
Novipax Hldg., 2017 WL 5713307, at *14 (quoting Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *15 (Del. Ch. Dec. 22, 2010)).
Novipax Hldg., 2017 WL 5713307, at *14.
Here, Plaintiffs argue that Defendants had a duty to inform Plaintiffs that Telecom Customer was considering terminating its contract with GeoResults. Plaintiffs explain that Defendants had a common law duty to inform Plaintiffs about the issues surrounding Telecom Customer. Plaintiffs contend that Defendants failure to inform Plaintiffs about these issues meant that Defendants fraudulently induced Telecom Customer into executing the APA.
In response, Defendants argue that Plaintiffs have not sufficiently pleaded a claim for fraud. First, Defendants reiterate that they did not make false representations because Telecom Customer had not definitely stated that Telecom Customer intended to terminate its contract with GeoResults. Second, Defendants claim there is no evidence that Mr. Fogle relied on Defendants' allegedly fraudulent statements regarding Telecom Customer. Defendants note that Mr. Fogle conducted his own due diligence on GeoResults' contract with Telecom Customer by speaking with representatives from Telecom Customer on the phone. Third, Defendants argue that Plaintiffs have not alleged that Plaintiffs suffered damages as a result of Defendants' fraudulent conduct which are distinct from Plaintiffs' breach-of-contract damages.
The Court will grant summary judgment in favor of Defendants on Plaintiffs' claim for fraudulent inducement. The Court has reviewed the Amended Complaint and the record and notes that Plaintiffs have not alleged damages for this fraudulent inducement claim that are separate from Plaintiffs' damages for the breach-of-contract claims. Instead, Plaintiffs have merely stated that they are entitled to "damages." Moreover, Plaintiffs' expert also has not included damages for fraudulent inducement in his report. The Court, therefore, finds that Plaintiffs have failed to state a fraudulent inducement claim against Plaintiffs. The Court grants summary judgment in favor of Defendants on Plaintiffs' fraudulent inducement claim.
See Defendants' Opp., Ex. 32.
Cornell Glasgow, LLC v. La Grange Props. LLC, 2012 WL 2106945, at *9 (Del. Super. Ct. June 6, 2012) ("[Plaintiff] has failed to plead fraud damages separate and apart from its breach damages. The fraud claim, therefore, must be dismissed for this reason as well."). See also EZLinks Golf, LLC v. PCMS Datafit, Inc., 2017 WL 1312209, at *7 (Del. Super. Ct.) ("'Delaware courts have consistently held that to successfully plead a fraud claim, the allegedly defrauded plaintiff must have sustained damages as a result of a defendant's action.' And those fraud damages allegations can't simply 'rehash' the damages that were allegedly caused by the claimed breach of contract.").
C. THE SHORTFALL AGREEMENT IS ENFORCEABLE
The third issue in the Motions is whether the Shortfall Agreement is enforceable. Plaintiffs argue that the Shortfall Agreement is unenforceable because the Shortfall Agreement (i) is overridden by the integration clauses in the APA and the Shieldses' employment agreements with Flowshare, (ii) was procured by Defendants' attorneys' unethical conduct, and (iii) is not supported by consideration.
1. Integration clauses
a. Integration Clause in the APA
The integration clause of APA Section 11.09 provides that the APA "supersede[s] all prior agreements and understandings, oral or written, with respect to such matters." Plaintiffs argue that the parties agreed to the Shortfall Agreement before signing the APA, so the APA supersedes the Shortfall Agreement. Specifically, Plaintiffs claim that the Shortfall Agreement is a "prior agreement [to the APA] . . . with respect to such matters" because GeoResults and Flowshare were parties to both the APA and the Shortfall Agreement.
Id. § 11.09.
In response, Defendants contend that the parties clearly intended for the Shortfall Agreement to be a separate enforceable agreement. First, Defendants note that the Shortfall Agreement post-dates the APA and so the APA does not supersede the Shortfall Agreement. Defendants note that this result is supported by Mr. Fogle's intent to avoid the APA's integration clause when he signed the Shortfall Agreement, as evidenced by his October 15, 2015 email to Mr. Shields. Second, Defendants argue that the integration clause in the APA only applies to agreements between the parties to the APA—Flowshare, GeoResults and the Shieldses. Defendants provide that the Shortfall Agreement is a separate and enforceable agreement not subject to APA Section 11.09 as Mr. Fogle is a party to the Shortfall Agreement, but not the APA. Third, Defendants claim that Plaintiffs performed on the Shortfall Agreement subsequent to execution of the APA. As such, the parties ratified, through their conduct, the contractual obligations in the Shortfall Agreement.
The Court finds that the Shortfall Agreement is enforceable. The parties clearly drafted and executed the Shortfall Agreement in a manner so that it would not be subject to APA Section 11.09. Moreover, the parties performed on the Shortfall thereby ratifying its obligations subsequent to its execution. Mr. Fogle's argument that he entered into the Shortfall Agreement knowing that the APA would extinguish the Shortfall Agreement a few days later is not supported by the factual record. The Court also finds that it is clear that the Shortfall Agreement is a separate agreement to which the integration clause in the APA does not apply because (i) the Shortfall Agreement is in writing, (ii) the Shortfall Agreement references the APA as a distinct contract, and (iii) the parties intended the Shortfall Agreement to post-date the APA, as evidenced in their emails.
See, e.g., Independence Mall, Inc. v. Wahl, 2012 WL 6945505, at *4 (Del. Super. Dec. 31, 2012) (In a dispute over a commercial lease, the Court found that "[u]nless an offeree manifests a contrary intent, performance may be deemed an acceptance").
b. Integration Clause in the Shieldses' Employment Agreements
Plaintiffs also argue that the integration clause in the Shieldses' employment agreement supersedes the Shortfall Agreement. Section 7 of the employment agreements include an integration clause,
This Agreement contains the entire agreement concerning your employment with the Company [Flowshare] and will, as of the date of execution hereof, supersede all other agreements, whether written or oral, between you [the Shieldses] and the Companies. . . You and the Company further acknowledge and agree that any previous or contemporaneous representations not contained herein that may have been made by either you or the Company to the other are of no effect and that neither you nor the Company has relied thereon in connection with his/her or its dealings with the other.Section 8 of the employment agreements state that the parties may agree to modifications of the employment agreements,
No waiver or modification of this Agreement or any covenant, condition or limitation hereunder shall be valid unless in writing and duly executed by you and the Company. No evidence of waiver or modification shall be offered or received in evidence in any proceeding between you and the Company [Flowshare] arising out of or affecting this Agreement or the rights or obligations of you or the Company hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid, and you and the Company further agree that the provision of this section may not be waived except as herein provided.
Ms. Shields' employment agreement with Flowshare is dated November 7, 2019, which is before the November 9, 2015 effective date of the Shortfall Agreement. So, Ms. Shields' employment agreement clearly does not supersede the Shortfall Agreement because the employment agreement pre-dates the Shortfall Agreement. Mr. Shields' employment agreement is dated November 10, 2019. Still, Mr. Shields' employment agreement does not supersede the Shortfall Agreement.
The Shortfall Agreement is enforceable because it is a separate agreement between different parties. The integration clause in the employment agreement only applies to agreements between Mr. and Ms. Shields, respectively and Flowshare. The integration clause does not apply to the Shortfall Agreement because the Shortfall Agreement is an agreement between GeoResults, Mr. Fogle and Flowshare. In addition, the Court finds it clear that the Shortfall Agreement is a separate agreement because Mr. Fogle asked to enter into the Shortfall Agreement, signed the Shortfall Agreement being fully informed on its obligations, and performed on the Shortfall Agreement. These factors all suggest that the Shortfall Agreement and the Shieldses' employment agreements are separate contracts.
Next, even if the Shortfall Agreement were not a separate agreement between different parties, the Court would consider the Shortfall Agreement to be a modification of the employment agreement. Section 8 provides for the parties to the employment agreement to modify the employment agreement in writing. The Shortfall Agreement expounds on Mr. Shields' relationship with Flowshare in writing and is duly signed. As such, it can be considered a modification, if the employment agreement were signed by the same parties as the Shortfall Agreement.
2. Improper Conduct
Plaintiffs argue that Defendants' attorneys communicated with Mr. Fogle, through the Shieldses and outside the presence of Flowshare's counsel, to consummate the Shortfall Agreement. Plaintiffs argue that the Shortfall Agreement varied the terms of the APA. Plaintiffs assert that this conduct violates Rule 4.2 of the Delaware Lawyer's Rules of Professional Conduct. Therefore, Plaintiffs claim, that the Shortfall Agreement violates public policy and is void. Rule 4.2 of the Delaware Lawyer's Rules of Professional Conduct states,
In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order . . ..
In response, Defendants argue that Plaintiffs' theory that Defendants' attorneys communicated through their client to reach Mr. Fogle is not a violation of Rule 4.2. Instead, Defendants assert that Rule 4.2 only applies to communications between attorneys and an opposing, represented party. Defendants cite a treatise on professional conduct, which notes,
The Model Code counterpart to Rule 4.2 had occasionally been interpreted to mean that a lawyer may not encourage his own client to communicate directly with the other client, on the theory that this would constitute violating an ethical rule through the acts of another . . .. However, [this] interpretation stands the no-contact rule on its head. The purpose of the rule is to protect lawyers' agency relationships with their respective clients, and to prevent clients from being overreached by opposing lawyers.Similarly, Defendants cite the Restatement, which states that Rule 4.2 "does not prohibit the lawyer from assisting the client in otherwise proper communication by the lawyer's client with a represented no client." Next, Defendants contend that Mr. Fogle was not a represented party in the Shortfall Agreement. This is clear because Mr. Fogle asked the Shieldses not to send the Shortfall Agreement to his counsel. So, Defendants claim that Rule 4.2 is inapplicable. Finally, Defendants note that this alleged misconduct raises a question of ethics, but does not render the Shortfall Agreement void.
Geoffrey C. Hazard, Jr. et al., The Law of Lawyering § 41.02, at 3 (4th ed. 2017).
Restatement (Third) of the Law Governing Lawyers § 99(2) (2000).
The Court finds that Defendants' attorneys' conduct did not render the Shortfall Agreement void. Mr. Fogle chose to represent himself in negotiating and signing the Shortfall Agreement. This is clear because he informed the Shieldses that his attorneys were not involved with the Shortfall Agreement and asked the Shieldses to send the Shortfall Agreement only to Mr. Fogle. So, neither the Shieldses nor Defendants' attorneys had an obligation to contact Mr. Fogle's counsel about the Shortfall Agreement. As Defendants note, Rule 4.2 only applies to communications between attorneys and represented clients. The purpose of the rule is to prevent attorneys from unduly influencing opposing, represented parties. The Court finds that undue influence is not present in discussions between the Shieldses and Mr. Fogle. So, Rule 4.2 is inapplicable under these circumstances. Finally, the Court notes that Plaintiffs did not pursue any complaint with disciplinary boards for attorneys about the allegedly unethical conduct of Defendants' counsel.
3. Shortfall Agreement Supported by Consideration
"Delaware courts define consideration as a benefit to a promisor or a detriment to a promisee pursuant to the promisor's request." But, "a promise to fulfill a pre- existing duty, such as a promise to pay a debt owed, cannot support a binding contract because consideration for the promise is lacking." Plaintiffs argue that the only consideration for the Shortfall Agreement was GeoResults' promise to sell GeoResults' assets to Flowshare. Plaintiffs contend that this was a preexisting obligation under the APA and so is not sufficient consideration. In response, Defendants argue that Plaintiffs did not timely raise their claim for lack of consideration as an affirmative defense. Defendants also argue that Plaintiffs waived their claims for lack of consideration because Plaintiffs performed on the Shortfall Agreement.
Cont'l Ins. Co. v. Rutledge & Co., 750 A.2d 1219, 1232 (Del. Ch. 2000)
Cigna Health & Life Ins. Co. v. Audax Health Sols., Inc., 107 A.3d 1082, 1089 (Del. Ch. 2014) (internal quotation marks and brackets omitted).
The Court finds that Plaintiffs may raise a claim for lack of consideration. Rule 8(c) of the Delaware Superior Court Civil Rules require parties to raise "lack of consideration" as an affirmative defense. The purpose of this rule is to give notice to opposing parties. In this case, Plaintiffs stated their claim for lack of consideration in the Amended Complaint so gave sufficient notice to Defendants, even though Defendants did not raise an affirmative defense for lack of consideration. So, Defendants did not suffer the kind of prejudice Rule 8(c) is designed to avoid.
Ratcliffe v. Fletcher, 1996 WL 527207, at *3 (Del. 1996). --------
The Court also finds that the Shortfall Agreement is supported by sufficient consideration. This is clear because each party to the Shortfall Agreement suffered a legal detriment. Specifically, Flowshare and Mr. Fogle incurred an obligation to pay $8 million in consideration to GeoResults' employees and the Shieldses, which is greater than the $4.3 million purchase price for GeoResults in the APA. Flowshare also incurred an obligation to indemnify Defendants if GeoResults' employees bring claims relating to their payments under the Shortfall Agreement. The Shieldses offered consideration because they agreed to be paid for the sale of GeoResults in delayed and periodic payments, rather than at the time the parties signed the APA. So, the Shortfall Agreement is enforceable because it is supported by sufficient consideration.
4. Pre-existing Condition to the Shortfall Agreement
Finally, Plaintiffs argue that the Shortfall Agreement is unenforceable because the continuation of GeoResults' contract with Telecom Customer was an express condition precedent to the Shortfall Agreement. Plaintiffs notes that Mr. Fogle sent an email prior to the parties executing the Shortfall Agreement in which Mr. Fogle stated that Plaintiffs could fulfill their obligations under the Shortfall Agreement only if Flowshare had annual revenue of $15 million. Plaintiffs do not provide a citation to an exhibit to the pleadings for this email. Plaintiffs claim that the Shortfall Agreement never became effective because Telecom Customer terminated GeoResults' contract and so Flowshare never accrued revenue of $15 million. In response, Defendants mistakenly contend that Delaware contract law by arguing that the Court should not consider extrinsic evidence in order to determine whether there was a condition precedent to the Shortfall Agreement.
The Court finds that the requirement that Flowshare accrue $15 million in revenue is not a condition precedent to the Shortfall Agreement. This purported condition precedent is not contained in the Shortfall Agreement and the record does not demonstrate that this condition precedent was accepted by Defendants. Moreover, Mr. Fogle performed some of his obligations under the Shortfall Agreement before the purported condition precedent could have been determined—i.e., that Flowshare had annual revenue of $15 million.
D. BREACH OF THE SHORTFALL AGREEMENT
The Shortfall Agreement is enforceable, so Plaintiffs had an obligation to make payments to the Shieldses under the Shortfall Agreement. The Court will decide the amount of damages that Defendants suffered for breach of the Shortfall Agreement at trial.
VI. CONCLUSION
For the reasons set forth above, the Court DENIES Plaintiffs' Motion. In addition, the Court GRANTS Defendants' Motion in part and DENIES Defendants' Motion in part.
IT IS SO ORDERED.
/s/_________
Eric M. Davis, Judge cc: File&ServeXpress