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QC Communications Inc. v. Quartarone

Court of Chancery of Delaware

August 15, 2014


Date Submitted: June 4, 2014

Barry M. Klayman, of COZEN O'CONNOR, Wilmington, Delaware; OF COUNSEL: Bernard Chanin, Philadelphia, Pennsylvania, Attorneys for the Plaintiff.

Perry F. Goldlust, of PERRY F. GOLDLUST, P.A., New Castle, Delaware, Attorney for the Defendants.


GLASSCOCK, Vice Chancellor

The Defendant in this matter was a corporate officer and director of the Plaintiff corporation, which owns the radio station at which the Defendant was also employed. The Defendant set up his own corporation on the side. According to the Plaintiff, the Defendant officer sold assets belonging to the Plaintiff, and used his position as a corporate fiduciary to hide the fact that he diverted the proceeds thereof to himself via his own corporation. The Defendant officer maintains strenuously that this is untrue, and testified that he sold only consulting services unrelated to his duties to the Plaintiff through his own corporation. The record evidence convinces me that the Defendant's testimony is untrue, and that he did enrich himself through breaches of fiduciary duty. The Defendant, therefore, must account for those sums wrongfully diverted.


A. QC Communications

Defendant Anthony "Tony" Quartarone has over thirty years of experience in the radio industry.[1] Many years ago, Quartarone befriended now-retired lawyer Alvin Chanin, who—according to Alvin's son, Steven[2]—"developed an interest in radio broadcasting" through Quartarone.[3] In the late 1980s, Quartarone and Alvin formed a small group of investors to purchase a radio station in Ocean View, Delaware, which Quartarone managed until September 1997.[4]

In 1996, Plaintiff QC Communications Inc. ("QC, " or "the Company"), a Delaware corporation, was formed to effectuate the purchase of additional radio stations.[5] In 1997, QC purchased two radio stations located in Salem, New Jersey—WJKS-FM ("WJKS") and WFAI-AM;[6] only WJKS is pertinent to the matter before me. The Ocean View station was then sold, and WJKS was relocated to Wilmington, Delaware.[7]

Following QC's incorporation, Alvin became President and Secretary, while Quartarone became Vice President and Treasurer.[8] A five-person board of directors initially governed the corporation, with Quartarone, Alvin, Alvin's wife Myra, their son Steven, and Donald Snyder serving as directors.[9] Over the years, the composition of the board changed slightly, as did the officer positions. As of early October 2012, the Company's officers and directors were Quartarone, Alvin, Myra, and Steven.[10] Through a consent action executed October 4, 2012, Quartarone was removed from his positions as officer and director; his employment was also terminated at this time.[11]

Until October 2012, Quartarone held several employment positions at the station, including General Manager.[12] Although Alvin and Myra spent time at the station each week, Steven—who resides in California and only visited the station once before September 2012[13]—testified that Quartarone was often "the only person of the group regularly physically present at the station."[14]

Steven owns approximately 66 percent of QC's outstanding stock, while Quartarone retains approximately 32 percent.[15]

B. Kelvyn Ventour

Kelvyn Ventour, an independent record promoter, worked with Quartarone earlier in his career, prior to QC's purchase of WJKS, as well as during Quartarone's tenure at that station.[16] At deposition, Ventour testified that he often transacted with QC, through his company Kelvyn Ventour Promotions, Inc. ("KVP"), to purchase advertisements, "time buys, " that promoted music he was representing.[17] Quartarone facilitated most of these transactions on behalf of WJKS.[18]

C. Q Media

In April 2003, Quartarone founded Defendant Q Media Inc. ("Q Media"), a Delaware corporation for which he acts as the sole director and officer, and one of two stockholders.[19] According to Quartarone, this company was established so that he could charge for the consulting services he provided to record companies.[20]Apart from his work for QC, Quartarone testified that he would be hired by entertainers or promoters to listen to a song or record in order to comment on "which format [he] thought the record would work on, " and would then be compensated—as Q Media—for his advice.[21] Quartarone considers the proceeds of this alleged side business to be his separate property, and not that of QC.

Although Q Media predominately conducted this alleged consulting business with Ventour, according to Quartarone, he did not provide consulting for Ventour.[22] Rather, per Quartarone's testimony, Ventour acted as an intermediary between Quartarone and the artists or record companies.[23] In other words, instead of coming to him directly, "[r]ecord companies would go to Kelvyn; ask Tony what does he think of this record. I would give the advice, and then they would go back to them."[24] Ventour, however, denies that he played such an intermediary role or that he himself purchased consulting services from Quartarone or Q Media.[25]

Despite this purported consulting arrangement, Quartarone initially labeled the invoices from Q Media as charging for "adds." In the radio industry, an add "means that the record is going to be added to the station's playlist, "[26] and, if the station is a reporting station, like WJKS, then this "add" is reported to and tracked by services such as Mediabase and Broadcast Data Systems ("BDS") as songs these stations "are going to or have already started to support by airplay."[27]According to Joshua Medlock, the Director of Affiliate Relations and Integrated Music Marketing for Mediabase, "[t]he 'adds' are important to persons in the recording and broadcasting industry because they reflect which new songs are receiving airplay."[28] Although Quartarone insists that he was providing consulting and not selling "adds" (the proceeds from which would have belonged to QC), he did not have a credible explanation for why these invoices provided that description.[29]

In addition to tracking those songs "added" by radio stations such as WJKS, Mediabase and other services track "auto adds." For instance, when WJKS plays a song ten times "and does not log into the system to report 'adds' for the week, the 'auto add' is included in the data base [sic] based on monitoring of the station's airplay by Mediabase;" conversely, "if the station reports any 'adds' for the week or logs into the system and reports no 'adds' for the week, then no 'auto adds' will be included in the data base [sic] for that week."[30] It is my understanding from the evidence that "spins, " an important metric in the radio industry, are individual broadcasts of a record; "spins" accumulate to become an "add" on these reporting services.[31]

Receiving undisclosed payment for "adds and spins" constitutes payola, and is prohibited by federal law. Specifically, 47 U.S.C. § 317, entitled "Announcement of Payment for Broadcast, " provides, in pertinent part:

All matter broadcast by any radio station for which any money, service or other valuable consideration is directly or indirectly paid, or promised to or charged or accepted by, the station so broadcasting, from any person, shall, at the time the same is so broadcast, be announced as paid for or furnished, as the case may be, by such person . . . .[32]

Accordingly, this statute mandates that radio stations such as WJKS disclose any consideration received for "spins and adds."

Despite insisting that Q Media was charging for consulting services, Quartarone continued to describe the product sold by Q Media as "adds" for more than two years. Beginning in July 2005, however, Quartarone—purportedly after receiving advice from QC counsel—began to describe the services provided as "consulting" rather than "adds" on Q Media invoices.[33] For instance, Q Media invoices included descriptions such as "consulting Beyouce [sic]" or "consulting Jennifer Lopez."[34] Even after the invoices began to reflect a consulting arrangement, however, correspondence between Quartarone and Ventour, as well as a comparison of Q Media invoices and Mediabase records, indicate that Q Media was actually billing, and receiving payment for, services provided by the station, payment for which should have flowed to QC.[35]

In fact, the Plaintiff points out that most of the songs for which Quartarone is said to have provided "consulting" were added to the station's playlist, and thus reflected on Mediabase reports, within the same time frame.[36] Despite this correlation, Quartarone attempted to convey during his deposition that these adds were unrelated to his consulting. He explained, for instance, that the funds for consulting were often not available "until the add date was available, " which could have been "three or four or five weeks" after he consulted on that record.[37] He also testified that it could have been others at the station playing that music[38]—in other words, purely coincidental to any "consulting" payment—and noted generally that adds were sometimes automatic.[39]

Nonetheless, Quartarone admitted that he sometimes caused Q Media to erroneously bill for services that were provided by the radio station. However, he testified that, in those instances, he took corrective measures through a self-developed reconciliation process that, according to Quartarone, appropriately attributed payments to QC that were billed by and paid to Q Media wrongly.[40]More specifically, in order to correct for such an error, Quartarone explained:

On a QC Communications invoice by QuickBooks, I would repeat the artist—title and artist with a zero invoice, with a zero balance due, so that they would not be confused on paying the same artist twice. Then I would put down other titles of projects that belonged to Q Media that would get credited to QC.[41]

In other words, to compensate QC for payments erroneously billed by and paid to Q Media, he would arrange to have a consulting payment owed to Q Media made to QC. That way, according to Quartarone, both companies would be appropriately compensated for the services they provided, QC for services provided by the station and Q Media for consulting. He has no explanation, however, why he employed such a byzantine reallocation scheme, rather than simply having funds erroneously received by Q Media transferred to QC. Nor does he explain why these "erroneous" billings were not brought to the attention of anyone at QC. There does not seem to be any discernable distinction between those transactions that Quartarone purportedly reconciled as improperly billed, and those transactions "correctly" allocating revenues to Q Media.

Despite Quartarone's description of Q Media as a consulting business, Ventour testified that he was not paying Q Media for consulting.[42] Instead, Ventour insists that the payments he made to Q Media were for time buys, that is, services provided by the radio station, which would have entitled QC—not Q Media or Quartarone—to payment.[43] In fact, Ventour testified that the reason that his company, KVP, made payments to Q Media was because Ventour was prompted by Quartarone to write checks to that company.[44] When prompted by Quartarone to make payments this way, he had "just assumed that those two companies [i.e. QC and Q Media] belonged to WJKS."[45] Ventour was also prompted by Quartarone to send some Q Media payments directly to Quartarone's home address, after Quartarone explained that otherwise the payments would sometimes get lost.[46] Regardless, Ventour testified that it remained his intention to conduct business with, and to purchase advertising from, the radio station, not Quartarone.[47]

While Ventour continues to conduct business with QC, [48] he has not maintained any business relationship with Quartarone since Quartarone's termination from the station.[49] In fact, Q Media does not presently conduct any business, consulting or otherwise, and even its bank account has been closed.[50]

D. Nana Productions

One of the other entities that Q Media conducted business with was "Nana Productions, " which Quartarone contends was one of Ventour's companies.[51]Conversely, Ventour testified that he did not know of this entity, [52] and that he "made no payments on behalf of Nana [P]roductions."[53]

E. The Plaintiff's Discovery of Q Media

Quartarone testified that he informed Alvin orally of his plans to form a company through which he could conduct his consulting work.[54] In fact, he recalled a conversation with Alvin where:

I said, Al, look, you know, I'm going to form this consultancy company to consult record companies, because I've been doing it since I'm 21, and I'm tired of giving out this information for free. I don't know if it will work, but I'm going to give it a shot . . . . And he goes, let's go 50/50 on it. And, quite frankly, I told him no. Because this is something that belongs to me. This is my opinion, not the station's. This is me that they're coming to. And I said, do you always have to have your hand out? And that's what I told him.[55]

According to Quartarone, Alvin kept the existence of Q Media a secret, and instructed Quartarone "not to report it at the Board meetings."[56] Quartarone also testified that he told other station employees that he was planning to engage in this consulting business, [57] and that an attorney for QC knew about Q Media.[58] Around 2008, Quartarone also purportedly sent out a press release to the industry "that Q Media had been formed to purchase other radio stations."[59]

The Plaintiff nonetheless contends that, until late 2012, it had no awareness of Q Media's existence.[60] However, in September 2012, Quartarone was suspended from his positions at WJKS following complaints by his co-workers unrelated to the issues in this litigation.[61] Soon thereafter, the Plaintiff began to suspect that Quartarone was diverting revenue from QC to Q Media. As Steven recounts in his Affidavit:

In the course of the examination of Quartarone's office and the return of his personal effects, we came across TD Bank deposit slips in the name of Q Media, which was an entity unknown to me or to my parents. These deposit slips listed checks and amounts similar to the payments received by the station from Kelvyn Ventour, a record promoter and long term client of the station. The discovery of these documents led us to a further investigation of Q Media and its relationship to the station.[62]

In connection with this discovery, QC requested that Cornerstone Legal Consultants conduct a focused search of Quartarone's computer; this search uncovered QuickBooks files for both QC and Q Media.[63] The Plaintiff also hired a forensic accounting firm, Smart Devine, to "identify the scope of Q-Media's business activities and the revenue generated from those activities."[64] In conducting its analysis, Smart Devine reviewed Q Media's QuickBooks files and tax filings, Q Media's TD Bank records later subpoenaed during discovery in this litigation, and certain of QC's QuickBooks records that were generated by Quartarone.[65]

F. Promotional Event at the Pale Dog

On Saturday, September 25, 2010, WJKS hosted an event featuring the artist Jeremih at a Newark, Delaware tavern known as the Pale Dog. From this event, QC was entitled to all cover charge proceeds less expenses.[66] On Monday, September 27, 2010, the first business day following the event at the Pale Dog, Quartarone made a cash deposit of $3, 470 into Q Media's bank account at TD Bank.[67] The Plaintiff argues that it never received any proceeds from the Jeremih event, and that this deposit represents those proceeds.

Sean Gomes, a QC account executive who was paid to collect the cover charge that night, testified that, following the event, he "put the money into a bank envelope, gave it to [Quartarone], and went home."[68] Although he did not recall how much money he collected, he recalls that the cover charge was $7 for those who arrived early in the evening, and then $10 thereafter, [69] and that, "[g]iven the low cover fee and the maximum occupancy, the gross could not have been very much. No one was impressed with the gross."[70]

Melvin Brittingham, who hosted the Pale Dog event, testified that approximately 300 people attended, [71] that the cover charge was perhaps $20 per person, [72] and that Gomes had told him that $5, 500 to $6, 500 had been collected at the door.[73] He also testified that Quartarone stood with Gomes by the door during the event.[74] At deposition, James Himmons similarly estimated that roughly 250 to 300 people attended that event, [75] that Quartarone was "working the door" with Gomes, [76] and that, "[a]t the end of the night when everybody's clearing out, [he] watched [Quartarone] pay the DJ and take the money and put it in his pocket."[77]

According to Quartarone, however, he was only at the event briefly;[78] he did not obtain possession of the event proceeds until Monday;[79] and station proceeds were only about $1, 000, after expenses were paid and he awarded Brittingham a 50% commission, in cash, for organizing the event.[80] Quartarone was not able to recall, at his deposition, where he received the cash for this September 27 deposit, however.[81]

G. The Audio Jam Transaction

Quartarone was also involved in selling advertising at the station. The Plaintiff challenges one such transaction. In a March 4, 2011 email, Quartarone wrote to an Audio Jam, Inc. employee that:

You will have 5 spots a day for 7 days a week in prime time Dayparts for $1, 000 per month. Retail value is $10, 500.00. Please keep this contract confidential please. [. . .] just let me know when you want me to start. All I would need is copy for the spots. . . . As far as the TV that you are giving me, thank you! ps I am also going to give you that leader board banner as well![82]

The Audio Jam employee responded later that day, noting "I really appreciate this deal and I would work on the ad and get back to you next few days [sic]. My installer Hugo will call you to come over to take care of your TV as well."[83] It is the Plaintiff's contention that this evidence indicates that Quartarone sold a company asset, advertising time, at a discount, and in return personally received a television set as a kickback.[84]


On January 15, 2013, QC filed a Verified Complaint against Quartarone and Q Media. In its Complaint, QC alleges three Counts. Count I alleges that Quartarone breached his duty of loyalty to QC; Count II alleges that the Defendants were unjustly enriched; and Count III alleges conversion and civil theft against Quartarone.

On February 26, 2013, the Defendants moved to dismiss this action for lack of subject matter jurisdiction pursuant to Court of Chancery Rule 12(b)(1). On May 14, 2013, I issued a Letter Opinion denying that Motion.[85]

On May 6, 2014, the Defendants moved to preclude the testimony of the Plaintiff's expert witness, Steven A. Witten, a Senior Manager at Smart Devine. I heard oral argument on this motion on May 28, 2014, and reserved decision at that time. For the reasons explained below, I deny this Motion.

On March 14, 2014, the Defendants' filed a Motion for Summary Judgment to Dismiss with Prejudice Plaintiff's Complaint Pursuant to Court of Chancery Rule 56(b). The Plaintiff moved for summary judgment on April 9, 2014. On June 2, 2014, oral argument was held on the parties' Cross-Motions. At that time, the parties agreed to submit the matter for a decision on a stipulated record. After carefully reviewing the record and the parties' submissions, I find that Quartarone breached his fiduciary duty of loyalty to QC, in part by diverting revenues due to QC to his own company, Q Media.


A motion for summary judgment pursuant to Court of Chancery Rule 56(b) will be granted "where the record reflects that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."[86] "Where the parties have submitted cross-motions for summary judgment on a stipulated record, as the parties here have done, I may treat the matter as submitted for a decision on the merits."[87] Because there are irreconcilable conflicts in witness testimony, I must assess credibility from the stipulated record.[88]


The Defendants argue that the Plaintiff has failed to demonstrate, or even allege, that it is entitled to the relief it seeks; accordingly, they seek dismissal of the Plaintiff's Complaint with prejudice. In addition to arguing that the Complaint is deficient, the Defendants argue that Quartarone, who did not have an employment contract with QC, could be paid for the consulting services he provided, and that this consulting business—conducted through Q Media—was not usurping an opportunity from QC. The Defendants characterize this litigation as an attempt by the Chanin family "to get rid of a minority shareholder."[89]

Conversely, the Plaintiff contends that, instead of providing consulting services, Quartarone was using Q Media to benefit personally from services that were being provided by the station. According to the Plaintiff, by exploiting the loyalty he derived as director and officer of QC, and as Managing Director of WJKS, Quartarone breached his fiduciary duties to QC.

A. The Smart Devine Report

Smart Devine was engaged by QC in connection with this litigation "to identify the scope of Q-Media's business activities and the revenue generated from those activities."[90] In its investigation, Smart Devine reviewed Q Media's QuickBooks files, bank records, and tax filings, as well as "a limited set of plaintiff QC's transactional documents that were [] created and maintained by Defendant Quartarone using QuickBooks for comparative purposes."[91]

Based on its analysis of these records, Smart Devine determined that Q Media revenues between 2003 and 2012 totaled $698, 216.[92] These revenues were largely generated through the 287 invoices issued by Q Media during this period, totaling $644, 775.[93] Of these invoices, 140 were issued to KVP, the Ventour entity, totaling $342, 700, while 142 invoices were issued to Nana Productions in an amount totaling $298, 000.[94] Through its "review of the Q-Media bank records . . . [Smart Devine] determined that the invoices posted as Nana Production invoices in Q-Media's QuickBooks file were actually paid by Kelvyn Ventour Promotions."[95]

The Defendants seek to preclude the testimony of the Plaintiff's expert, Steven A. Witten, [96] who authored a report on behalf of Smart Devine. The Defendants argue that his analysis is neither relevant nor reliable; that its probative value is substantially outweighed by its prejudicial effect;[97] and that the methods that were used to generate this report were proprietary and impossible to replicate.

Rule 702 of the Delaware Rules of Evidence, which governs testimony by experts, provides:

If scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training or education may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.[98]

This Rule "imposes a special obligation on a trial judge to make sure that all expert testimony is not only relevant, but also reliable."[99] Further, "[t]he proponent of the expert testimony bears the burden of establishing its relevance, reliability, and admissibility by a preponderance of the evidence."[100]

I find that the Smart Devine report authored by Witten, which explores "the scope of Q-Media's business activities and the revenue generated from those activities, "[101] is relevant to the issues before me, as well as conducted using reliable standards. Though the Defendants criticize the report as not adhering "to any professional standards, "[102] the report states that Smart Devine's "engagement is a 'litigation services' engagement and is subject to standards applicable to those types of engagements, " which "require, among other things, the CPA to have sufficient evidentiary material to support opinions and conclusions expressed during the conduct of an engagement."[103] The Plaintiff further clarifies that "[t]he standards enunciated in the Witten report mirror the standards established by the AICPA [American Institute of Certified Public Accountants] for litigation services."[104]

The Defendants, however, suggest that the limited scope of the engagement, as well as the analysis, undermines the probative value of the Smart Devine report authored by Witten.[105] Moreover, the Defendants argue that Witten's opinion was improperly constrained to an insufficient universe of information, as "the opinion is [] limited to the information provided by [P]laintiff, " which "fail[ed] to give Smart Devine enough information."[106] There is no indication in the record, however, that the Smart Devine report was not produced in accordance with the standards set out therein, or that the universe of documents considered or questions explored was so constrained as to undermine the reliability or relevance of this report. In fact, as the Plaintiff notes,

[t]he Smart Devine presentation, contained in the Witten report, involves no opinions on substantive matters beyond the aggregation of the data contained in the three sources of Q Media financial information: the QuickBooks files maintained by Quartarone, the federal tax returns and related 1099 forms, and the TD Bank records. Using these records, Smart Devine was able to account for the monies received by Q Media and to relate them to the Q Media invoices.[107]

The Defendants, moreover, have not demonstrated that the Smart Devine report contains anything other than a straightforward analysis of the evidence in the record. More specifically, to determine Q Media's total revenue from July 2003 to September 2012, Smart Devine aggregated the relevant transactions, based on its review of Q Media's QuickBooks files and banking records, and then conducted a detailed reconciliation process.[108] Smart Devine also compared Q Media invoices to those that Quartarone generated for QC during this period, discovering several correlations between them.[109] The Defendants were free to conduct a similar analysis.

Most importantly, the Plaintiff has clarified that the methods used to generate this report could be replicated by the Defendants, as the Defendants were given access to the technology used to generate this report. Accordingly, I deny the Defendants' Motion to Preclude Testimony of Plaintiff's Expert Witness. In any event, since (as described below) the remedy here is to order Quartarone to account for funds wrongfully removed from QC, the Defendants will have ample opportunity to dispute the conclusions of the Smart Devine report.

B. Quartarone Breached his Duty of Loyalty to QC

The Plaintiff contends that Quartarone exploited the trust and opportunity he derived as director and officer of QC, as well as General Manager of WJKS, for his own benefit. Officers and directors of Delaware corporations owe fiduciary duties of care and loyalty to those corporations for which they serve.[110] This means, in part, that "[c]orporate officers and directors are not permitted to use their position of trust and confidence to further their private interests."[111] I find, for the reasons explained below, that Quartarone breached his fiduciary duty of loyalty to QC.

It is clear from the record that Quartarone was not providing consulting services through Q Media but was instead diverting to himself revenues generated using station assets. As a fiduciary, Quartarone owed a duty of loyalty to the Company, which he breached in the most fundamental way possible when diverting revenues owed to QC to his own company, Q Media.

Although Quartarone contends that Q Media served as a vehicle for him to receive payment for his consulting to record companies, I do not find his testimony credible. Moreover, his testimony is not corroborated by the counterparty to this alleged arrangement, who denies that any consulting took place and insists that he intended to purchase services from the station. Although Ventour acknowledged that record companies were interested in Quartarone's opinion, [112] he explained that the payments Q Media received on his behalf were not for consulting, but for services that could only be provided by QC. Notably, Quartarone has stopped providing any "consulting" since his termination from QC and Q Media's bank account has been closed. That, to me, indicates that Quartarone was not providing any services independent of those products—whether time buys or adds—requiring the use of station assets. Accordingly, I find that, by diverting assets from QC, for which he acted as a director and officer, to Q Media, Quartarone breached his fiduciary duty of loyalty to QC.

Quartarone, as a fiduciary of QC, was also prohibited from converting that company's assets to his own use, or exploiting those assets for his personal benefit. It is clear from the record that Quartarone retained proceeds belonging to QC from the 2010 Pale Dog event, and used his position at QC to extract a television set from a QC customer, as part of a sale of QC assets. Through this conduct, Quartarone committed additional breaches of fiduciary duty.

As a result of Quartarone's breaches, I find that the Plaintiff is entitled to recover those revenues diverted to Q Media from QC, as well as the proceeds appropriated from the Pale Dog event and the value, if any, diverted from QC in the sale of advertising to Audio Jam. That recovery is in line with this Court's recognition that "once disloyalty [by a fiduciary] has been established, the standards evolved in the Delaware courts require that a fiduciary not profit personally from his conduct, and that the beneficiary not be harmed by such conduct."[113]

The Defendants argue that the Plaintiff is not entitled to recover under its theory of the case, which is that Quartarone was accepting money for adds and spins—services that could only be provided by the station—because that would amount to payola and the Plaintiff is not entitled to reap the rewards of this illegal activity. In essence, the Defendants argue that the Plaintiff's recovery is barred by its unclean hands.

The unclean hands doctrine is an equitable doctrine this Court may invoke when "a party's particularly egregious conduct offends the integrity of this Court."[114] Under this doctrine, the Court "may refuse[] to consider requests for equitable relief in circumstances where the litigant's own acts offend the very sense of equity to which he appeals."[115] I find the doctrine of unclean hands inapplicable here. Even assuming that Quartarone was involved in payola, and that Q Media was receiving payments for such services, the Defendants have not demonstrated how the Plaintiff corporation is implicated in Quartarone's illegal conduct. In fact, if Quartarone was intentionally engaging in illegal payola on the part of QC, those acts amount to bad faith, another breach of the duty of loyalty he owed to the Company. As such, I find it inappropriate to apply the doctrine of unclean hands here.

Having found that Quartarone breached his fiduciary duties to QC, and that the doctrine of unclean hands does not bar the Plaintiff's recovery, I must now determine the amount of damages appropriate here. The Plaintiff requests $701, 686 plus interest and costs, which accounts for those revenues diverted from QC to Q Media between 2003 and 2012, as well as the proceeds from the Pale Dog event; the Plaintiff does not quantify any additional damage caused by the Audio Jam transaction. Before I determine damages, however, I find it appropriate to provide the Defendants with an opportunity to contest what, if any, payments to Q Media were not received in connection with services employing station assets. Therefore, I direct Quartarone to account for all revenue diverted to himself or Q Media that is rightfully owed to QC. In an accounting, the burden is on the fiduciary, [116] and Quartarone consequently must demonstrate what portion, if any, of the cash flow to Q Media is not attributable to QC.[117]

Lastly, the Plaintiff alleges that the Defendants have been unjustly enriched, based on the diversion of revenue from QC to Q Media, and that Quartarone has committed conversion and civil theft. As I have already found that Quartarone breached his fiduciary duty of loyalty by engaging in the misconduct that forms the basis for these additional allegations, and that QC is, as a result, entitled to recovery of the diverted assets, I do not address these claims, which would, if resolved in the Plaintiff's favor, lead to the same recovery already granted.[118]


For the reasons explained above, I grant partial judgment for the Plaintiff, pending a determination of damages. If the Defendants wish to contest the Plaintiff's measure of damages, they should file a memorandum to that effect within twenty days of the date of this Memorandum Opinion. The Plaintiff shall respond within twenty days of the Defendants' Opening Memorandum, and the Defendants may submit a Reply Memorandum within fourteen days thereafter.

If the Defendants do not submit any additional memoranda, I will determine the appropriate amount of damages owed to QC in a subsequent opinion, based on the record currently before me. An appropriate Order accompanies this Memorandum Opinion.


AND NOW, this 15th day of August, 2014,

The Court having considered the parties' Cross-Motions for Summary Judgment, submitted on a stipulated record, and for the reasons explained in my August 15, 2014 Memorandum Opinion, IT IS HEREBY ORDERED that the Defendants' Motion for Summary Judgment is DENIED and that the Plaintiff's Motion is GRANTED as to liability.


Sam Glasscock III Vice Chancellor

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