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Grove v. Brown

Court of Chancery of Delaware

August 8, 2013

MARY MARLENE GROVE and LARRY E. GROVE, Plaintiffs,
v.
MELBA E. BROWN and HUBERT E. BROWN, JR., Defendants. MELBA E. BROWN, HUBERT E. BROWN, JR. and HEARTFELT HOME HEALTH II, LLC (a Delaware limited liability company), Counterclaim Plaintiffs,
v.
MARY MARLENE GROVE, LARRY E. GROVE, TIMOTHY GROVE, MICHELLE GROVE, SHAWN GROVE, ANGELA GROVE, ANNA KEITHLEY, NO PLACE LIKE HOME LLC (a Delaware limited liability company), NO PLACE LIKE HOME, LLC (a Maryland limited liability company) and HEART-N-HAND HOME CARE, LLC (a Maryland limited liability company), Counterclaim Defendants.

Date Submitted: May 2, 2013

Thomas C. Marconi, Esquire, of LOSCO & MARCONI, P.A., Wilmington, Delaware, Attorney for Plaintiffs and Counterclaim Defendants.

Anthony J. Testa, Jr., Esquire and Herbert W. Mondros, Esquire, of MARGOLIS EDELSTEIN, Wilmington, Delaware, Attorneys for Defendants and Counterclaim Plaintiffs.

MEMORANDUM OPINION

GLASSCOCK, Vice Chancellor

It requires a certain kind of courage to forgo a salary and strike out on one's own. When individuals launch a small business with little equity beyond their own sweat and dreams, what follows is often a long, hard struggle leading, ultimately, to failure. When that happens, the results should evoke admiration for their efforts and sympathy for their misadventure. This matter involves a rarer bird altogether: here, four individuals launched a small and poorly capitalized business and were, from the outset, wildly successful. Unfortunately, those individuals were unable to cooperate to enjoy the fruits of that success, choosing instead acrimony and, ultimately, this litigation.

I. BACKGROUND

This matter involves a dispute between Plaintiffs Mary Marlene Grove and Larry E. Grove and Defendants Melba E. Brown and Hubert E. Brown, Jr.[1] In 2010, the Groves and the Browns started a successful home health care agency, Heartfelt Home Health, LLC ("Heartfelt"), and they worked together without issue for over a year.

However, in preparing tax returns for their first year in business, and upon discovering that not all four members had made the requisite $10, 000 initial capital contribution, the parties began to dispute the ownership of Heartfelt, and relationships in the workplace started to dissolve. The Groves, meanwhile, established other home health care agencies in Maryland and Delaware without informing the Browns, and the Browns attempted to remove the Groves from Heartfelt by creating another LLC owned solely by the Browns and merging Heartfelt with that company. The Groves sued the Browns for a breach of fiduciary duty arising from the supposed merger. The Browns answered and counterclaimed for breach of fiduciary duty by Larry and Marlene Grove. The Browns also brought claims against associates of Larry and Marlene Grove— including their sons; Timothy and Shawn Grove; their daughters-in-law, Michelle and Angela Grove; and a friend of Marlene's, Anna Keithley—for aiding and abetting Larry's and Marlene's alleged breach of fiduciary duty. The matter was tried; this is my post-trial opinion.

A. Background of the Business and Events Leading to the Litigation

Marlene and Melba first met while working at the MBNA America bank.[2] Marlene worked in management, and Melba as a personal banking representative, until both accepted buy-outs from the company in 2005.[3] Several months later, Marlene started working at Home Health Services by TLC ("TLC"), after having been recommended for the job by Melba.[4] As the name suggests, TLC employed aides who delivered health care and assistance to patients in their homes. Melba joined Marlene at TLC a year later, and the two again worked together through 2009.[5] After witnessing many layoffs at TLC and fearing that they would lose their jobs, Melba and Marlene began to discuss opening their own home health care business in late 2009.[6]

In December 2009, Marlene established Heartfelt Home Health, LLC ("Heartfelt").[7] Heartfelt is a home-care staffing agency that provides assistance to those in need of personal or health care services. Heartfelt offers a range of services, including companion, homemaker, and personal care services. On December 23, 2009, the Browns and the Groves entered into a limited liability company operating agreement (the "Operating Agreement"), [8] which named the Browns and the Groves as the four members of Heartfelt.[9] The Browns and the Groves then had the Operating Agreement notarized because, according to Mrs. Grove, they "wanted someone in authority to be able to indicate that what [they] decided was fair and legal as to setting up the business."[10] The Operating Agreement indicated that each of the four members owned an equal portion of Heartfelt and provided that each member was to supply $10, 000 as an initial capital contribution.[11]

Heartfelt operations began in early 2010.[12] The company was "very successful" and achieved a "respectable operating profit" during its first year.[13]Marlene served as the Director of Operations, performing various tasks such as hiring, booking, invoicing, and managing the accounts receivable.[14] Melba researched and created various forms needed for Heartfelt.[15] Larry performed assorted maintenance projects, and Hubert maintained a register of payments and managed the technology setup for Heartfelt.[16] In February 2010, Marlene's son, Timothy Grove, began working with Heartfelt as a records specialist.[17] In June 2010, Timothy's wife Michelle joined Heartfelt as a staffing coordinator.[18]Though Melba expressed her concern about working with members of the Grove family at the time, she ultimately agreed to both hires.[19] The Browns, the Groves, Timothy, and Michelle continued to work well together until early 2011.

The unexpected success of Heartfelt led to discussions in January 2011 between Marlene, Melba, and Hubert about possibly expanding into Maryland and southern Delaware. The parties now disagree over the nature and extent of these discussions. The Groves argue that they approached the Browns about opening a new business in Maryland with the Grove family, and that the Browns indicated that they were not interested in joining because they disliked being in business with family and Melba "did not want to travel."[20] Marlene did concede, however, that she never specifically asked the Browns to become members of Heart-N-Home or its Maryland and Delaware successors after these conversations.[21]

For their part, the Browns maintain that though Heartfelt was financially stable enough to expand, they wanted to focus on establishing the existing business in Delaware before opening new offices.[22] The Browns further insist that they never decided not to expand to other locations.[23] Melba repeatedly testified that expanding Heartfelt to Maryland, Pennsylvania or Sussex County remained "on the table."[24] The Browns further testified emphatically that they did not grant Marlene or any other Heartfelt employees the right to engage in business competing with Heartfelt.[25]

Though the parties disagree on what was said concerning an expansion of Heartfelt's business, what the parties subsequently did is not disputed. While still working at Heartfelt, and without informing the Browns, Marlene formed a new home health agency, a Maryland LLC called Heart-N-Hand Home Care, LLC ("Heart-N-Hand"), on March 10, 2011.[26] Counterclaim Defendants Larry Grove, Timothy Grove, and Shawn Grove were named as Directors of Heart-N-Hand, and Marlene was included as an initial member responsible for billing, legal, and compliance matters. Marlene later changed the Name of Heart-N-Hand to No Place Like Home, LLC ("Home MD")- Home MD was located in Elkton, Maryland, less than ten miles from Heartfelt's offices in Newark, Delaware.[27]

Meanwhile, a dispute over the parties' ownership percentages and capital account balances began in April 2011 when Melba, Marlene, and Larry met with an accountant to discuss the preparation of Heartfelt's 2010 tax return.[28] In a meeting on April 5, 2011, Heartfelt's accountant expressed concern over the fact that both Larry and Melba were short on their required initial $10, 000 capital contributions as specified by the Operating Agreement and proposed that Marlene and Hubert transfer to their respective spouses an amount sufficient for Larry and Melba to reach the $10, 000 mark.[29] Accordingly, Hubert gave Melba $6, 500, to bring her cash contribution to $10, 000, and Marlene gave Larry $3, 657. The Groves argue that the balance of Larry's contribution, $6, 343, was satisfied by his donations of furniture and equipment to Heartfelt. The Browns, however, dispute the value of those donations and argue that they did not satisfy Larry's contribution obligation.[30]

From that time, the relationship between the Groves, especially Marlene, and the Browns grew confrontational. Though Hubert testified that he and Marlene never fought, [31] Marlene recalled engaging in arguments with Hubert.[32] Marlene and Larry's son, Timothy, also testified that he had witnessed confrontations between Marlene and Hubert in which Hubert hit Marlene's desk and "talk[ed] down" to her.[33] Marlene began avoiding the Browns at work.[34] On May 10, 2011, Timothy resigned from his position at Heartfelt because of the conflicts. A month later, Marlene "fired" Michelle from her position at Heartfelt, in what an unemployment-insurance-appeals-board referee characterized as a "sham discharge."[35] The parties were ultimately unable to come to an agreement to resolve the tax dispute, and the Browns now assert that they actually own 63% of Heartfelt, and the Groves own 37%, [36] because the Groves' collective cash contribution was $13, 657, [37] whereas the Browns' contribution was $23, 248.[38]

As the dispute over the parties' capital contributions and ownership intensified, the Groves continued establishing their own competing health care businesses. On May 3, 2011, Marlene solicited and received via email a licensing agreement for Generation software, the same software package used by Heartfelt, to be used at Home MD.[39] That same day, Marlene also received an application for workers compensation insurance coverage for Home MD, which she completed and submitted on June 21, 2011.[40] Then, after successfully starting Home MD, the Groves expanded their business to Delaware. On July 6, 2011, Anna Keithley, Marlene's sister, signed the Certificate of Formation to create a Delaware LLC, No Place Like Home LLC ("Home DE"), with the help of Marlene.[41] Home DE was headquartered on the same street—in fact, the same building—as Heartfelt.[42] Later that month Home DE opened another office in Lewes, Delaware.[43]

The Groves ultimately decided to try to sever ties with the Browns. On May 31, 2011, the Groves sent the Browns a proposal letter suggesting that a purchase price of $941, 000 would "be necessary for Mr. and Mrs. Brown to purchase Mr. and Mrs. Grove's interest in [Heartfelt]."[44] The proposal also demanded that the parties "agree that the documents signed by Mr. and Mrs. Grove and their family members that purport to be covenants not to compete are invalid and unenforceable."[45] Additionally, on July 1, 2011 the Groves notified the Browns via email of their intention to file a certificate of dissolution, to ...


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