Opinion
C.A. No.: N12C-08-244 FSS
05-01-2015
MEMORANDUM OPINION AND ORDER
Upon Defendant Carrols's Motion for Summary Judgment - DENIED, in part, and GRANTED, in part.
Upon Defendant Fiesta's Motion for Summary Judgement - GRANTED.
SILVERMAN, J.
This is a breach of contract case involving an employment agreement between a corporation and its former CEO. He is pursuing further relief by estoppel, piercing the corporate veil, successor liability, and so on. While Plaintiff also embellishes his core dispute with his former employer, Carrols, it boils down to a relatively simple claim.
Basically, Plaintiff had a written contract containing several advantageous terms that were triggered if Carrols tried to modify Plaintiff's responsibilities or terminate his employment without cause. According to Plaintiff, Carrols fraudulently induced him to waive those terms through a phony promise that Plaintiff would become Chairman of a new Carrols spin-off, Fiesta. Even though Fiesta was eventually spun-off, Plaintiff was never part of it, much less its chairman, and Plaintiff lost the additional compensation he would have received had he not waived it at Carrols's behest. In the process, Plaintiff also gave up a directorship.
I.
Plaintiff was Carrols's CEO and Chairman for almost 25 years. The parties agree that under Plaintiff's written contract, he remained Carrols's CEO and Chairman through 2011. The parties also agree that the contract included two provisions specifically protecting not just Plaintiff's job, but also his duties and responsibilities. Under the "Good Reason" provision, Plaintiff would receive a severance payment if (1) Carrols modified Plaintiff's duties and (2) Plaintiff terminated his employment for good reason. Under the "Change of Control" provision, Plaintiff would be entitled to a larger severance payment if (1) Carrols modified Plaintiff's duties, (2) Plaintiff terminated his employment for good reason, and (3) Carrols started reorganizing. Basically, it was "play me or pay me."
Everyone agrees Carrols had no cause to fire Plaintiff but wanted him out of the way, and eventually gone for good. And, Plaintiff's favorable employment agreement was well-known. As it happened, Carrols intended to reorganize, using two existing companies to make a new restaurant subdivision, Fiesta, which Carrols would then spin-off as an independent subsidiary. To effectuate this spin-off, however, Carrols needed Plaintiff's assistance. For example, Plaintiff handled the necessary debt refinancing.
By way of background, Carrols owns hundreds of fast-food restaurants. Over the years, Plaintiff developed a line of Hispanic-themed outlets that proved highly profitable. Perhaps, they carried Carrols. Anyway, Fiesta would comprise Carrols's Hispanic outlets, so running that operation was enticing to Plaintiff.
Carrols knew the spin-off would trigger Plaintiff's contractual rights under the Change of Control and Good Reason provisions. Allegedly attempting to avoid paying Plaintiff significant severance payments, Carrols suggested it would be best for everyone if Plaintiff agreed to modify his current responsibilities at Carrols and become Fiesta's Chairman, post-spin-off. This arrangement entailed Plaintiff's signing a letter agreement, waiving his rights to any severance payments under his then-controlling employment agreement.
Initially, the spin-off was going to occur in 2011, but for whatever reason it was delayed. The spin-off eventually occurred in May 2012. It is undisputed that although Plaintiff briefly had some management role with Fiesta after it was incorporated, Plaintiff was never associated with Fiesta after it became a free-standing subsidiary. Thus, when the dust settled after the spin-off, Plaintiff was out of work, his favorable severance package was gone, and he no longer was a director on Carrols's board.
II.
Plaintiff sued both Carrols and Fiesta, alleging: (i) breach of contract by both companies, (ii) fraud by both companies, (iii) declaratory judgment against both companies, (iv) promissory estoppel against Fiesta, and (v) successor liability against Fiesta. Plaintiff is seeking compensatory and punitive damages and attorneys' fees. In October 2014, Carrols and Fiesta filed separate motions for summary judgment. Briefing was completed December 2, 2014. Oral arguments were December 4, 2014 and March 20, 2015.
Plaintiff's breach of contract claim includes allegations regarding a bonus payment, a tax planning reimbursement, directors' fees, medical expenses, and damages for loss of observer rights. Ultimately, however, this litigation's outcome turns on Plaintiff's claim under the contract's Change of Control provision, or alternatively, under the Good Reason provision.
According to Plaintiff, he is entitled to the Change of Control payment because (1) during his term, Carrols submitted SEC filings and IRS applications, anticipating the spin-off; (2) the spin-off was completed within 12 months of Plaintiff's last work day; and (3) Plaintiff terminated his employment with Carrols for good reason because beginning in February 2011, Plaintiff's authority as CEO, i.e. conducting negotiations and hiring senior management, was diminished.
As mentioned, Plaintiff claims Carrols promised him a position with Fiesta after it spun-off in 2011. But, Carrols had no intention of employing Plaintiff with it or Fiesta beyond 2011. Plaintiff alleges Carrols's promises induced him to sign a letter agreement, where he essentially waived his rights under both the Change of Control and Good Reason provisions.
Plaintiff further alleges that, based on Carrols's fraudulent promises, he also resigned from his position as Carrols's Chairman and director. In June 2010, Plaintiff had been re-elected to a three-year term, but he resigned two years before his term was up. In sum, Plaintiff maintains that because of Carrols's fraud, the waiver is voidable, and he is entitled to the severance payment, plus directors' fees for 2012 and 2013.
III.
Summary judgment can be granted when there is no genuine issue of fact and the moving party is entitled to judgment as a matter of law. "If, however, there are material factual disputes, that is, if the parties are in disagreement concerning the factual predicate for the legal principles they advance, summary judgment is not warranted." Where "it seems desirable to inquire more thoroughly into the facts . . . to clarify the application of law to the circumstances," summary judgment should also be denied. Furthermore, summary judgment is inappropriate where "the inference or ultimate fact to be established concerns intent or other subjective reactions."
See E. I. du Pont de Nemours & Co. v. Stonewall Ins. Co., C.A. No. 99C-12-253 (JTV), 2009 WL 1915212 (Del. Super. June 30, 2009).
Merril v. Crothall-Am., Inc., 606 A.2d 96, 99 (Del. 1992).
Gunzl v. Chadwick, 2 A.3d 74, *1 (Del. 2010) (TABLE) (citing Ebersole v. Lowengrub, 180 A.2d 467, 468-69 (Del.1962)).
George v. Frank A. Robino, Inc., 334 A.2d 223, 224 (Del. 1975) (citing 6 JAMES W. MOORE ET AL., MOORE'S FEDERAL PRACTICE ¶ 56.17 (2d ed. 1961); Cont'l Oil Co. v. Pauley Petroleum, Inc., 251 A.2d 824 (Del.. 1969)).
The court must view the evidence in the light most favorable to the non-moving party. It will accept "as established all undisputed factual assertions . . . and accept the non-movant's version of any disputed facts. From those accepted facts[,] the court will draw all rational inferences which favor the non-moving party."
Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995).
Marro v. Gopez, 1994 WL 45338 (Del. Super. Jan. 18, 1998) (citing Merril, 606 A.2d at 99-100).
First, the court has to mention choice-of-law in passing. This case involves contract interpretation. Delaware law controls procedural matters, however, there may be a choice of law regarding the substantive, contract issues. Here, the contract plainly designates New York law. Nevertheless, "[i]f the results are the same under the different laws, it is a false conflict and choice-of-law analysis is not needed." Accordingly, not only will Delaware's procedural law control, so will its substantive, contracts law.
See Tumlinson v. Advanced Micro Devices, Inc., C.A.No. 08C-07-106 FSS, 2010 WL 8250792 (Del. Super. July 23, 2010), aff'd., 106 A.3d 983, 987 (Del. 2013).
High Voltage Beverages, LLC v. Hartford Cas., Ins. Co., No. C.A. No. 10C-09-002 FSS CCLD, 2011 WL 7063295, at *2 (Del. Super. Nov. 30, 2011) (citing Deuley v. DynCorp Int'l, Inc., 8 A.3d 1156, 1160-61 (Del. 2010)); see Lagrone v. Am. Mortell Corp., C.A. Nos. 04C-10-116-ASB, 07C-12-019-JRS, 2008 WL 4152677, at *5 (Del. Super. 2008) ("[Where] the end result is the same regardless of which State's law the Court applies here[,]...the Court may resolve the dispute without a choice between the laws of the competing jurisdictions.").
At most, Plaintiff arguably raises choice-of-law in a footnote, implying New York law "is potentially applicable." But, no differences are argued. Moreover, both parties rely on Delaware law throughout their briefing. Plaintiff did eventually file an unsolicited, out-of-order "sur reply," arguing New York law controls. The court deems the choice-of-law argument is waived, and the court will only apply Delaware law.
IV.
A. Breach of Contract
As mentioned, Plaintiff basically alleges Carrols breached a contract, the employment agreement. Generally, a breach of contract claim's elements are: (i) a contractual obligation between two parties, (ii) a breach, and (iii) damages. Here, three contract provisions are at issue.
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. 2005).
The Change of Control provision states, in pertinent part:
[Section 10] (c) If Parent or Employer (1) during the Term enters into a binding written agreement to engage in a transaction which, if consummated, would result in a Change of Control; (2) such transaction is consummated within twelve (12) months after the last date of the Term; and (3) subsequent to entering into such agreement . . . Employee terminates his employment for Good Reason, Employer shall pay to Employee an amount equal to the payment set forth in Section 10(b) hereof.
The Good Reason provision states, in pertinent part:
[Section 10] (e) Other than in the case of Employee receiving benefits under paragraph (b) above[, which concerns the Change of Control payment,] following a Change of Control, if . . . Employee terminates his employment for Good Reason, Parent or Employer shall pay to Employee . . . .
And, relevant to both provisions, the contract further provides:
"Good Reason" shall mean (i) the material failure of Employer to comply with the provisions of this Agreement which failure shall not cease promptly and in no event more than thirty (30) days after Employer's receipt of written notice from Employee objecting to such conduct; (ii) any termination by Parent or Employer of Employee's employment other than expressly permitted in this Agreement; or (iii) the assignment to Employee of duties and responsibilities materially inconsistent with those duties and responsibilities customarily assigned to individuals holding the position of Chairman and Chief Executive Officer of a company of comparable size or the substantial reduction by Parent or Employer of Employee's duties and responsibilities and, if curable, not remedied by Employer within 30 days after receipt of written notice.
To begin, Carrols argues Plaintiff cannot receive both the Change of Control and the Good Reason severance payments. While Carrols is correct that Plaintiff may only recover once, Plaintiff is entitled to present alternative recovery theories to the jury. If it comes to it, the court will prevent a contractually uncalled- for double recovery.
See Section 10(e): "Other than in the case of Employee receiving benefits under paragraph (b) above following a Change of Control. . . ."
Moving on, Carrols offers three general reasons Plaintiff is not entitled to a severance payment: (1) he waived this benefit; (2) he does not qualify under the Change of Control provision; and (3) he did not meet the requirements under the Good Reason provision. Again, these claims must be viewed in the light most favorable to Plaintiff, not Carrols.
Carrols's best argument is that Plaintiff waived the very claims he now brings. That is true. But, as mentioned, Plaintiff maintains the waiver is invalid because it was obtained by fraud. Arguing at cross-purposes to his fraud claim, Plaintiff also contends that even without the fraud, he is somehow entitled to the severance benefits. Plaintiff makes two make-weight arguments about the waiver: (1) there is a lack of consideration for it because the waiver was in exchange for an illusory post-spin-off position with Fiesta; and (2) the waiver's express conditions were not met. But, absent Carrols's fraud, Plaintiff cannot explain around his staying at the job and not explicitly demanding the severance benefits. To be clear, the only way around the waiver, as the court sees it, is Plaintiff's fraud claim. Absent fraud, the waiver does what it purports to do.
November 1, 2010 letter: "In the event that the above described restructuring occurs, it can be anticipated that certain of your duties and responsibilities will change. You and the Company agree as follows:
1. Such restructuring would not be considered a "Change of Control" (as defined in the Employment Agreement).
2. The change in your duties and responsibilities, including a change in title, assuming the role of Chairman and CEO of the entity holding the Hispanic brands or serving solely as Chairman of such entity, would not permit you to terminate your employment on the basis of 'Good Reason' (as defined in Section 1 of the Employment Agreement). . . ."
See supra note 11 and accompanying text.
Carrols further argues Plaintiff does not qualify under the Change of Control provision for two reasons. First, Carrols maintains there was no "binding written agreement to engage in" a change of control transaction. While Plaintiff concedes that, he maintains a written agreement like that is not to be expected, nor necessary, in the situation here because the spin-off came as an internal reorganization under Carrols's control, which took place. Therefore, Plaintiff contends the SEC filings or IRS applications Carrols filed anticipating the spin-off are written documents that serve as written commitments to a change of control transaction. And, Carrols filed these documents in 2011. Accordingly, Plaintiff contends that the contract's "binding written agreement" requirement is satisfied. Second, only raising it for the first time at oral argument, Carrols disputes a change of control occurred at all.
Next, Carrols argues that under the Good Reason provision, Plaintiff did not meet the following requirements: (1) sufficiently modified duties and responsibilities, (2) give proper notice, (3) and terminate the contract. Carrols argues Plaintiff's duties and responsibilities did not change enough to violate the Good Reason provision, and Plaintiff did not notify Carrols of any violations. Finally, Carrols contends that Plaintiff did not "terminate" his contract. Rather, he voluntarily left when his contract naturally expired in December 2011. Relying on William Blair & Co., L.L.C. v. Meizler UCB Bio. S.A., Carrols argues that Plaintiff could not have terminated his contract because it naturally expired.
William Blair & Co., L.L.C. v. Meizler UCB Bio. S.A., No. N13C-01-068, at *6-11 (Super. Ct. July 28, 2014). (holding that, where it was undisputed that the contract naturally expired, the contract's termination clause limited a tail provision to situations where one party terminated the contract before it naturally expired).
Ignoring his fraud claim, Plaintiff responds that he met the Good Reason requirements. Plaintiff argues that his duties and authority as CEO were interfered with and curtailed, that he notified Carrols that he was unhappy with the contract violations and was not going to renew his contract, and that he terminated his contract with the November 1, 2011 letter. Plaintiff's arguments, however, ignore his core claim - that Carrols duped him. Plaintiff's position rests on his proving that he did not perfect his claim because Carrols gulled him into not doing what he needed to do, when he needed to do it.
As to the "binding written agreement" requirement, Carrols submitted SEC filings and IRS applications anticipating the spin-off. With those filings, Carrols publicly announced its intent to reorganize. In those filings, Carrols tacitly acknowledged that the Fiesta spin-off amounted to a reorganization and therefore, as discussed below, a change of control. For example, in its Form 10, Carrols states the spin-off is part of a "reorganization under Section 368(a)(1)(D) of the [tax] Code." To the extent Carrols made representations in its federal filings, Carrols is, in effect, estopped from disavowing them now.
The clause's purpose was to ensure that Plaintiff's enhanced rights were truly triggered. It is undisputed that Carrols reorganized, spinning-off Fiesta, within 12 months of Plaintiff's leaving and that the transaction was started during Plaintiff's term with Carrols. Again, the fait accompli trumps the need for a signed agreement.
The court is also unpersuaded by Carrols's argument that no change of control occurred. This argument is confounded for two reasons. First, under the contract a change of control occurs when the company reorganizes, and the parties agree that Carrols completed an internal reorganization in May 2012. Second, the waiver Carrols drafted and signed states: "The effect of such restructuring would trigger certain rights that you and the Company currently have under your employment agreement . . . . Such restructuring would not be considered a 'Change of Control'. . . ." Carrols has tacitly conceded that the waiver exists because the reorganization was a change of control under Plaintiff's contract.
See Section 1 (c): "The consummation by Parent (whether directly involving Parent or indirectly involving Parent through one or more intermediaries) of (i) a merger, consolidation, reorganization, or business combination."
Lastly, Carrols's argument that Plaintiff did not meet the Good Reason provision's requirements yet again ignores Plaintiff's core claim that Carrols duped him. Typically, an abused or disgruntled employee cannot trigger damages without terminating his employment. Plaintiff's position is that when he started complaining about things that would trigger his severance package if he quit, Carrols's fraud induced him to stay until his term ended. Looking at it from Plaintiff's view, as a jury might, had he realized what Carrols was up to, Plaintiff would have quit during his term, instead of not renewing, thereby triggering his valuable severance package. Again, Plaintiff's core point is that Carrols duped him into not properly exercising his rights. If Plaintiff's claim proves out, just as he was tricked into waiving his rights, he was also tricked into not giving notice, etc.
B. Fraud
Carrols argues Plaintiff's fraud claim is based on only two promises: he would be given observer rights and made Fiesta's Chairman, both of which actually happened. Moreover, relying on Grunstein v. Silva, Carrols asserts that because Plaintiff is a "sophisticated businessman," the "contracts control his rights," and he "made no effort to read those contracts or seek out advice," Plaintiff cannot show reasonable reliance. Put another way, Carrols argues that someone as savvy as Plaintiff should have seen what Carrols was up to, or he should have hired a lawyer who would have seen through Carrols. So, Carrols's fraud is not actionable by Plaintiff simply because it worked.
Grunstein v. Silva, C.A. No. 3932-VCN, 2009 WL 4698541, at *12 (Del. Ch. Dec. 8, 2009).
A "contractual promise made with the undisclosed intention of not performing it is fraud." The elements of promissory fraud are: (1) defendant makes a promise to perform without the present intention to perform, (2) for the purpose of inducing another to act or refrain from acting, (3) action or inaction resulting from a reasonable reliance on defendant's promise, and (4) resulting damages caused by the reliance.
See Reserves Dev. LLC v. Crystal Props., LLC, No. C.A. No. 05C-11-011-RFS, 2009 WL 1514929, at *10 (Del. Super. May 18, 2009), aff'd in part, rev'd in part, 986 A.2d 362 (Del. 2009) (citing Restatement of the Law - Contracts, § 473) ("[A] contractual promise made with the undisclosed intention of not performing it is fraud."); see also, Outdoor Techs., Inc. v. Allfirst Fin., Inc., No. CIV.A.99C-09-151-JRS, 2001 WL 541472, at *4 (Del. Super. Apr. 12, 2001).
See Restatement of the Law - Torts, §§ 9,15, Tentative Draft No. 2 (Apr. 7, 2014); see also, Reserves Dev. LLC, 2009 WL 1514929, at *10.
There is no general rule for how to determine what constitutes fraud. Nonetheless, a speaker's intent not to perform "may be inferred from the circumstances." Repudiation of the promise soon after it was made or the promisor's continued assurances after it is clear he does not intend to perform are indicative.
Reserves Dev. LLC, 2009 WL 1514929, at *9 (citing Browne v. Robb, 583 A.2d 949, 955 (Del. 1990)) ("[T]here is no general rule for determining what facts will constitute fraud.").
Reserves Dev. LLC, 2009 WL 1514929, at *9.
Id. at *13, n. 89 (citing 9 STUART M. SPEISER ET AL., THE AMERICAN LAW OF TORTS § 32:27, at 266-67 (2009) ("[R]elevant circumstances include failure to perform, a failure to attempt performance, a repudiation of the promise soon after making it, and the speaker's continued assurances after it is clear the speaker does not intend to perform.").
As to Plaintiff's reasonable reliance, Grunstein rejected an argument similar to Carrols's. In Grunstein, defendants argued that plaintiff's reliance on oral representations regarding a partnership agreement was unreasonable given the transaction's size, the parties' sophistication (including an attorney in a major law firm), and the fact that other agreements involving the transaction were written. Grunstein, however, found that plaintiff's allegations supported an inference of reasonable reliance. Those allegations included: the parties had a preexisting relationship; the parties collectively worked on the acquisition for nearly a year; and one defendant "repeatedly affirmed the nature of their relationship . . . orally and in writing."
Grunstein, 2009 WL 4698541, at *12.
Id.
The record suggests that individuals acting on Carrols's behalf promised Plaintiff, both before and after Plaintiff signed the waiver, that Plaintiff would be Fiesta's Chairman if he waived his contractual rights and resigned as Carrols's Chairman. The record reveals many Carrols references to Plaintiff's being Fiesta's Chairman after May 2012, after the spin-off. For instance, at the end of January, Carrols issued a press release stating: "[Plaintiff] is expected to continue as the non-executive Chairman of the Board of directors of Fiesta . . . following the spinoff of Fiesta." Likewise, common sense suggests Plaintiff would not have given up valuable contract rights and a directorship so he could run Fiesta until two months before it spun-off.
The record also includes evidence from which the jury could conclude that Carrols probably did not intend to follow through on its promises. Rather, Carrols had two goals: (1) ensure that Plaintiff continued to assist Carrols in reorganizing through the end of 2011 and (2) induce Plaintiff to, in effect, give up his positions and advantageous contractual benefits so he could be cut loose almost immediately and without consequences for Carrols.
For one thing, Plaintiff repeatedly requested something in writing, memorializing the Fiesta position, but Carrols denied his requests while assuring him his position was secure. For example, Carrols's general counsel assured Plaintiff: "[A]t present you are the non-executive Chairman of . . . Fiesta - you have been since Fiesta was formed with a mirror Board. There is nothing to do to memorialize it."
For another thing, there is evidence that in order for the spin-off to happen, Carrols's debt needed refinancing. Based on the record, Plaintiff was instrumental in completing that refinancing. And, Plaintiff received 200,000 shares of stock from Carrols that only vested when the refinancing was complete. Moreover, Plaintiff's 2011 bonus was based on the refinancing's completion.
The record also contains support for Plaintiff in emails between Carrols's directors and management, written concurrently with persistent representations to the effect that Plaintiff would be Fiesta's Chairman after the spin-off. For example, an email sent in September 2011 from Fiesta's newly hired CEO states:
I was recruited with the understanding that I would be in charge of [Fiesta] . . . [Plaintiff] is laying the groundwork for his role as Chairman . . . I was under the direct impression during the interview process that all I had to do was make it until the end of the year and the transition would resolve itself.And, although the court has struck several incriminating emails and the like due to late production, Plaintiff is still entitled to call Carrols's employees at trial.
In conclusion, a jury could find that these emails and their authors' testimony show that Carrols's decision makers intended to induce Plaintiff to sign the waiver while having no intention of keeping him on. Moreover, regarding Plaintiff's reliance, the record includes evidence, i.e. the parties' long-standing relationship, Carrols's many assurances, and Carrols's press release, from which a jury could infer Plaintiff acted reasonably. Accordingly, Carrols's intent and Plaintiff's reliance are jury questions. Therefore, summary judgment as to Plaintiff's fraud claim will be denied.
C. Other Claims Against Carrols
As to Plaintiff's remaining claims against Carrols, Plaintiff seeks the balance of his 2011 bonus, which required Plaintiff's achieving three objectives. The parties agree Plaintiff accomplished and was compensated accordingly for the first objective, the debt refinancing. But, Plaintiff argues he is entitled to $120,000, each, for also meeting the second and third objectives: the spin-off's consummation and refinement and implementation of a development model of new restaurants.
2011 Executive Bonus Plan: "consummation of a spin-off transaction, which results in the separation of the Hispanic Brands from [CRG]..."
2011 Executive Bonus Plan: "refinement and implementation of the model for development of new Pollo Tropical restaurants which yields improved returns on invested capital, as determined in the reasonable judgment and discretion of the Board of Directors."
Plaintiff claims he met the second objective by completing the spin-off's work in 2011, regardless of when the spin-off consummated, as long as it consummated. Plaintiff maintains that the second and third objectives could have been completed after 2011 because only the first one specified "completion, during 2011." Carrols responds that (1) the spin-off had to have consummated in 2011 for Plaintiff to receive a bonus for the second objective, and it was not; and (2) Plaintiff offered no evidence that he met the third objective.
As to his bonus for completing the spin-off, although the parties each have their own view on the objective's meaning, they agree that this is a question of law based on unambiguous language. And, courts do not construe contracts that are unambiguous; those contracts speak for themselves. Based on the unambiguous language of the second objective, if Plaintiff did the work in 2011, he is entitled to the bonus. It is, however, for the jury to determine whether and when Plaintiff completed the tasks for which he was responsible. If Plaintiff did all he was expected to do in 2011, the deal then closed, and the delay until May was not his fault, he met the objective.
O'Brien v. Progressive N. Ins. Co., 785 A.2d 281, 289 (Del. 2001).
As to the third objective, refinement and implementation of the model for new restaurants that "yields improved returns on invested capital," Plaintiff seems to argue that Carrols did not fairly consider and assess the situation. Plaintiff, however, has not produced evidence from which a jury could conclude he was contractually entitled to a bonus under this objective. At best, his claim to the third objective is conclusory.
Plaintiff also seeks reimbursement of 2011 tax planning and preparation expenses. Carrols argues Plaintiff is not entitled to this payment for three reasons: (1) Carrols is not obligated to reimburse Plaintiff for tax services after his contract expired; (2) Plaintiff did not claim the reimbursement while his contract "was in force;" and (3) Plaintiff did not submit the contractually required invoices. Opposing Carrols's summary judgment motion, Plaintiff, at first, vaguely responded: "There is a genuine dispute regarding the ambiguous terms of the $10,000 tax preparation fee. The Employment Agreement does not unequivocally address [Plaintiff]'s entitlement to reimbursement for tax services regarding his last year of employment, especially because such services could not be rendered until the year lapsed."
Section 7(b): "[W]ithin 30 days of the rendition of the applicable invoices, Employer shall reimburse Employee annually for the reasonable costs incurred by Employee in tax planning and tax return preparation in an annual amount not to exceed $10,000. Notwithstanding anything herein to the contrary, expenses that are reimbursable under this Section 7(b) shall be reimbursed no later than March 15th of the calendar year immediately following the calendar year in which such expenses are incurred."
Under the contract, however, Plaintiff had to submit an invoice in order to be reimbursed for tax services. Plaintiff's response, or lack thereof, does not warrant the court's consideration. Accordingly, Carrols's Motion for Summary Judgment will be granted as to the tax planning reimbursement.
Plaintiff also makes a two-part claim regarding medical insurance he and his wife currently receive under Plaintiff's contract. Since beginning litigation, the parties have resolved the Part B Medicare issue. The unresolved issue concerns the current coverage's quality, which Plaintiff maintains is inferior to the 1996 coverage.
Under the contract, Plaintiff and his wife are entitled to coverage "consistent with the level and type of coverage provided to Employee by Employer's policy at March 1, 1996." Plaintiff testified that he not only selected and approved the current policy, but he never complained about its inadequacy. Furthermore, Plaintiff acknowledged that, if not for already litigating the other contract disputes, he would not have raised this issue. Accordingly, as long as Plaintiff and his wife continue to receive the same level and type of medical coverage that is provided to top-level Carrols executives, Plaintiff has no claim. The court will sign a consent order with specific terms to that effect.
Plaintiff further alleges Carrols breached its promise that Plaintiff could observe directors' meetings, but fails to allege any damages resulting from this breach. When asked about damages in discovery, Plaintiff responded: "They're yet to be determined." The time for that has passed. At this point, any amount Plaintiff alleges would be speculative at best. Accordingly, Plaintiff has failed to state a claim on which relief can be granted based on observer rights.
Finally, as to Carrols, Plaintiff asks the court to declare he is no longer bound by his contract's restrictive covenants. This claim is now moot. The provision restricted Plaintiff for two years after leaving Carrols. Plaintiff left Carrols more than two years ago. And so, Plaintiff is no longer bound by the contract's restrictive covenants. If Carrols disagrees, it must notify the court immediately.
In sum, Carrols's Motion for Summary Judgement will be DENIED as to Plaintiff's claims for the severance payment and the bonus related to the second objective. Carrols's Motion for Summary Judgement will be GRANTED as to Plaintiff's claims for the tax planning reimbursement, medical coverage, observer rights, and bonus related to the third objective.
V.
As to Fiesta, Plaintiff alleges fraud, breach of contract, promissory estoppel, declaratory judgment, and successor liability. Plaintiff argues (1) officers and directors of both Carrols and Fiesta conspired to induce Plaintiff to waive his rights and relinquish his Carrols's position; (2) Fiesta adopted Plaintiff's contract with Carrols when Fiesta accepted the benefits of Plaintiff's work; (3) Fiesta's directors made promises to Plaintiff with no intent of honoring them; and (4) as Carrols's successor, Fiesta is liable "for [Carrols] participating in misconduct prior to the spinoff." Additionally, Plaintiff seeks a declaration that, based on statements of their agents, Defendants are estopped from exercising any right to validly remove Plaintiff from Fiesta's Board.
Fiesta disputes Plaintiff's position by arguing four things. First, Fiesta asserts Plaintiff's fraud claim fails because the alleged fraudulent promises were made by Carrols's employees, board members, or officers, not by anyone from Fiesta. In fact, Fiesta was not an independent company until May 2012, and the promises were allegedly made in 2010 and 2011, before Fiesta existed.
Second, Fiesta maintains that because it was not a party to Plaintiff's contract with Carrols, or any of the contracts at issue here, Fiesta cannot breach those contracts. Moreover, Fiesta argues lack of privity between Plaintiff and Fiesta. Plaintiff never had a contract with Fiesta. So, merely suggesting Fiesta received some benefit from Plaintiff's working for Carrols is insufficient evidence that Fiesta assumed any of Carrols's contractual obligations.
Third, Fiesta asserts Plaintiff's promissory estoppel claim fails because the claimed promise is the subject of an existing, written contract. And, again, Carrols made the promises supporting this claim.
Fourth, Fiesta contends it is not Carrols's successor-in-interest and therefore is not liable for Carrols's debts because Fiesta is a separate, publicly-traded company. Fiesta maintains that one company will be held liable for another's debts in limited circumstances, none of which are present here. In response, Plaintiff argues: (1) he also brought direct claims against Fiesta for its directors' actions; and (2) the court can pierce the corporate veil, imposing contractual liability to Fiesta.
See Ross v. Desa Holding Corp., C.A. No. 05C-05-013 MMJ, 2008 WL 4899226, at *4 (Del. Super. Sept. 30, 2008) (listing the exceptions: (1) buyer's express assumption of liability, (2) a de facto merger or consolidation, (3) mere continuation of the predecessor, or (4) fraudulent transfer of assets).
See Patterson-Woods & Assocs., LLC v. Realty Enters., LLC, C.A. No. 05C-01-224-JOH, 2008 WL 2231511, at *6 (Del. Super. May, 27, 2008).
To start, this court cannot pierce the corporate veil or make Plaintiff a director. Further, Fiesta and Carrols are separate entities, and Fiesta is not Carrols's successor. Fiesta did not exist when Plaintiff signed his contract with Carrols or when the promises were made. Moreover, the individuals making the promises acted for Carrols, not Fiesta. Although he had no contract with Fiesta, Plaintiff argues that Fiesta adopted Plaintiff's contract with Carrols by accepting the benefits of Plaintiff's work. This, however, is not how contracts are formed. And, again, Plaintiff is arguing at cross-purposes. Moreover, there is no evidence in the record to hold Fiesta liable for Carrols's debt here.
See Sonne v. Sacks, 314 A.2d 194, 197 (Del. 1973) (holding that only Court of Chancery may pierce the corporate veil); see also, Stinnes Interoil, Inc. v. Petrokey Corp., No. C.A. 82C-JN-109, 1983 WL 21115, at *1 (Del. Super. Aug. 24, 1983) (finding no jurisdiction to pierce the corporate veil where plaintiff argued the subsidiary was a mere instrument) (citing Sonne, 314 A.2d at 197).
See McMahon v. New Castle Assocs., 532 A.2d 601, 604 (Del. Ch. 1987) (explaining Court of Chancery's traditional and exclusive jurisdiction over equity actions involving corporate officers and directors) (citing Harman v. Masoneilan Int'l, Inc., 442 A.2d 487, 498 (Del. 1982)). --------
Plaintiff is actually bringing a direct claim against Carrols. If Plaintiff has a claim against Carrols, he has no claim against Fiesta. That is even more the case if Plaintiff has no claim against Carrols. Fiesta is not only a different pocket, it is a different pair of pants.
Plaintiff's promissory estoppel and fraud claims also fail. None of the alleged relied upon promises were made on Fiesta's behalf. Plaintiff was gone by the time Fiesta became a separate, functioning subsidiary. Moreover, Plaintiff's allegations implicate only Carrols. For example: "On November 1, 2011, [Plaintiff] and C[arrols] entered into a letter agreement providing that [Plaintiff] would not renew his Employment Agreement beyond 2011 . . . General Counsel of C[arrols] signed on behalf of C[arrols] . . . . It now appears that the Company . . . never intended to comply with its commitments under this agreement." Accordingly, Plaintiff has failed to state a claim upon which relief can be granted as to Fiesta, and Fiesta's Motion for Summary Judgment is in order.
VI.
Defendant Carrols's Motion for Summary Judgement is DENIED as to Plaintiff's claims for the severance payment and bonus related to the second objective. Carrols's Motion for Summary Judgement is GRANTED as to Plaintiff's claims for the tax planning reimbursement, medical coverage, observer rights, and bonus related to the third objective. Defendant Fiesta's Motion for Summary Judgement is GRANTED. The court will schedule a trial to decide Plaintiff's breach of contract claims, largely turning on Plaintiff's contention that he was duped into waiving his severance benefits.
IT IS SO ORDERED.
/s/ Fred S. Silverman
Judge
oc: Prothonotary (Civil)
pc: Christopher Selzer, Esquire
Travis Hunter, Esquire
All counsel of record, by efile