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O'Neill v. AFS Holdings, LLC

Superior Court of Delaware, New Castle

January 15, 2014

GED O'NEILL, Plaintiff,
AFS HOLDINGS, LLC., a Delaware limited liability company, ARROW GLOBAL GUERNSEY LIMITED, a company incorporated in Guernsey, and SALLIE MAE, INC., a Delaware corporation, Defendants.

Submitted: September 5, 2013

Upon Consideration of Defendants' Motion to Dismiss or, in the Alternative, to Strike

Thomas E. Hanson, Esq., Morris James, LLP, Wilmington, Delaware. Attorney for Plaintiff.

Kelly E. Farnan, Esq., and Katharine C. Lester, Esq., Richards, Layton & Finger, P.A., Wilmington, Delaware. Attorneys for Defendants.


James T. Vaughn, President Judge

The plaintiff, Ged O'Neill ("O'Neill") has filed this action against defendants AFS Holdings, LLC ("AFSH"), Arrow Global Guernsey Limited ("AGGL"), and Sallie Mae, Inc., ("Sallie Mae") (collectively referred to as "Defendants") seeking a declaratory judgment and compensatory and exemplary damages in connection with a July 16, 2008 earn out agreement (the "Earn Out Agreement") and a November 27, 2008 amended agreement (the "Amended Agreement").

The Defendants have filed a motion to dismiss the complaint under Civil Rules 12(b)(1) and 12(b)(6), or in the alternative, to strike a portion of the complaint under Civil Rule 12(f).


In September 2005, Arrow Financial International, LLC ("AFI") was created as a joint venture between Langenlewy, L.P. ("Langenlewy") and Arrow Financial Services, LLC ("AFS"), a debt purchaser owned by Sallie Mae. AFI's membership interest was held 75% by AFSH and 25% by Langenlewy. AFI, along with certain of its subsidiaries, operated under the trade name Arrow Global. Arrow Global's business model centered around purchasing distressed consumer receivables and engaging with outside collection agencies and law firms to collect the unpaid debt. Defendant Sallie Mae is a guarantor under the Earn Out Agreement.

In July 2007, Arrow Global hired O'Neill, a UK solicitor with experience in commercial law, as Commercial Director for the company. On July 17, 2007, O'Neill and Arrow Global memorialized the terms of O'Neill's employment in an employment agreement which provided for a salary, bonuses and long-term compensation ("Long-Term Compensation") upon the occurrence of certain events. One triggering event for the payment of Long-Term Compensation was the sale of AFI. Upon such sale, the Long-Term Compensation would equal 5% of the equity value of AFI.

In late 2007, Sallie Mae decided to sell both AFS and AFI. In anticipation of such sale, Sallie Mae and AFSH entered into two agreements, one with Langenlewy, a Purchase and Sale of Limited Liability Company Interests (the "Purchase and Sale Agreement") and one with O'Neill, the Earn Out Agreement. The Purchase and Sale Agreement stated that in the event of a sale transaction involving AFI or a substantial part of its assets (defined in the Purchase and Sale Agreement as a "Transaction"), AFSH would purchase Langenlewy's membership interest in AFI at a modified price.

The Earn Out Agreement, entered into by AFSH, Sallie Mae and O'Neill provided that O'Neill would waive his rights to Long-Term Compensation in exchange for a closing payment at the close of the sale (the "Closing Payment") and three deferred payments (the "Deferred Payments") calculated at the end of certain performance periods. The performance periods commenced on January 1, 2008 and respectively ended on December 31, 2009 (the "First Performance Period"), December 31, 2010 (the "Second Performance Period") and December 31, 2011 (the "Third Performance Period"). The Earn Out Agreement required AFSH to make the Deferred Payments to O'Neill on February 1, 2010, January 31, 2011 and January 31, 2012. Section 2.2.2 of the Earn Out Agreement provides that the Deferred Payments were to be calculated as the sum of a certain minimum payment, as set forth in the Earn Out Agreement, and a Performance-Based Payment, based on a comparison of actual "Collections"[1] made on certain accounts, portfolios and loans to certain target amounts.

In connection with the Collections, AFSH ensured that any purchaser of AFI and AFS would be obligated to provide O'Neill and Sallie Mae with certain reporting, access and audit rights, as follows:

Buyer [AFSH] shall cause, and shall insure that, the agreements providing for any Transaction [sale of AFI or its assets] shall require the purchaser or acquirer under any such Transaction . . . to cause (a) to be prepared and delivered to Executive [O'Neill] and Guarantor [Sallie Mae] sufficient details of all Collections after the end of each quarter . . . and (b) to provide Executive and his representatives and Guarantor and its representative with reasonable access to, and reasonable and customary audit rights with respect to, the books and records of such entity relating to such of the Portfolios and Loans set forth in Exhibits A and B as may be owned or controlled by such entity. After the closing of any Transactions . . . Buyer ...

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