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Sheth v. Harland Financial Solutions, Inc.

Superior Court of Delaware, New Castle

August 28, 2014

DINESH SHETH, in his individual capacity and as Member Representative and SHETH LIMITED PARTNERSHIP, by and through Dinesh Sheth, its General Partner, Plaintiffs,
v.
HARLAND FINANCIAL SOLUTIONS, INC., Defendant.

Submitted: May 12, 2014

On Defendant's Motion to Dismiss – GRANTED in part, DENIED in part On Plaintiffs' Motion for Partial Summary Judgment – GRANTED

Richard L. Horwitz, Esquire, Brian C. Ralston, Esquire, and Michael B. Rush, Esquire, Potter Anderson & Corroon, LLP

Thomas R. Dyer, Esquire and Mark Vorder-Bruegge, Jr., Esquire, Wyatt, Tarrant & Combs, LLP, The Renaissance Center, Attorneys for Plaintiffs.

Joel Friedlander, Esquire, Jeffrey M. Gorris, Esquire, Friedlander & Gorris, P.A., Attorneys for Defendant.

OPINION

William C. Carpenter, Jr. Judge

Before this Court is Harland Financial Solution Inc.'s ("Defendant") Motion to Dismiss and Dinesh Sheth's and Sheth Limited Partnerships's ("Plaintiffs") Motion for Partial Summary Judgment (on Count IV). In addressing these Motions together, the Court is asked to answer three questions: (1) whether Plaintiffs' claims are subject to the contractual obligation that disputes relating to the Earn-Out provisions be resolved by an Independent Accountant; (2) whether Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing is actionable; and (3) whether Plaintiff, Dinesh Sheth ("Sheth"), has established a cognizable claim for termination fees. The Court finds that, under the plain language of the unambiguous contract, the Independent Accountant Provision does not apply to the claims at issue and, thus, Plaintiffs are entitled to the declaratory judgment requested in Count IV. However, Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing is not appropriate given the detailed, comprehensive, bargained-for, 78-page, single-spaced agreement. Therefore, that Count will be dismissed. Finally, at this juncture, Plaintiffs' remaining claims are sufficient to withstand Defendant's Motion to Dismiss. Accordingly, Defendant's Motion to Dismiss is GRANTED in part, as to Count III, the implied covenant claim, but otherwise DENIED and Plaintiffs' Motion for Partial Summary Judgment is GRANTED.

A. FACTUAL BACKGROUND

This action arises out of a Purchase and Sale Agreement entered into by the parties on December 6, 2010, whereby Defendant agreed to purchase Plaintiffs' entire ownership interest in Parsam Technologies, LLC, for over $32 million (the "Agreement"). The Agreement provided for the potential payment to Plaintiffs of an additional $25 million depending upon the company's performance during the two years following closing (the "Earn-Out Payments"). The Earn-Out Payments were only payable if certain revenue thresholds were met during the specified benchmark periods. The contract provided that disputes relating to the Earn-Out Payments were subject to review by an Independent Accountant, whose decision would be final and binding on the parties. Also, within the same section, the Agreement contained restrictions on Defendant's termination of Sheth, who stayed on as a Senior Vice President after closing (the "Termination Without Cause Payment").

Plaintiffs were never paid any Earn-Out Payments for either 2011 or 2012. Both parties agree that the revenue thresholds were not met to trigger such payments and that, mathematically, no payments were due. Plaintiffs acknowledged this, via letter to Defendants on April 2, 2013, stating that the calculations were correct and there were no Earn-Out Payments due under such reported revenues. However, Plaintiffs allege that during the Earn-Out period, Defendant operated in a manner which suppressed the company's revenue and Defendant purposefully underperformed to avoid making the Earn-Out Payments. Further, Plaintiffs allege that Defendant avoided revenue-generating opportunities and failed to give due accord to the advice of Sheth.

In addition, Plaintiffs allege that Defendant began to strip Sheth of his role within the company in February, 2011, until such authority was fully removed in June, 2011. This prompted Sheth to offer to terminate his employment that month and again in early 2012. Such offers were declined and instead, Plaintiffs allege he was assigned no responsibilities and given no meaningful tasks. Thereafter, on June 12, 2013, Defendant terminated Sheth, without cause, and the Termination Without Cause Payment was never tendered to Plaintiffs.

After making a demand upon Defendant, which was rejected, Plaintiffs sued Defendant in Florida state court seeking the full Earn-Out Payments and Termination Without Cause Payment. However, the Florida court found that the Agreement was governed by Delaware law and contained an enforceable provision agreeing to litigate disputes in Delaware.[1] Accordingly, the Florida action was dismissed and Plaintiffs, thereafter, filed a Complaint in this Court on January 24, 2014. Therein, Plaintiffs assert five claims for relief: (i) breach of contract (for Defendant's alleged failure to conduct the business in a productive manner to allow for Earn-Out Payments); (ii) breach of contract (for Defendant's alleged failure to pay Sheth the Termination Without Cause Payment); (iii) breach of the implied covenant of good faith and fair dealing (for Defendant's alleged dereliction of duties to conduct the business productively after closing); (iv) declaratory judgment (that the Agreement does not require the above claims to first go to an Independent Accountant); and (v) contractual indemnification (for the fees and cost expended by Plaintiffs in bringing suit for the above allegations of wrongdoing). Plaintiffs have now moved for partial summary judgment as to Count IV and Defendants have moved to dismiss the Complaint in its entirety.

B. STANDARD OF REVIEW

In reviewing a motion for summary judgment pursuant to Rule 56, the Court must determine whether any genuine issues of material fact exist.[2] Specifically, the moving party bears the burden of showing that there are no genuine issues of material fact so that he is entitled to judgment as a matter of law.[3] Further, the Court must view all factual inferences in a light most favorable to the non-moving party.[4] Therefore, summary judgment will not be granted if it appears that there is a material fact in dispute or that further inquiry into the facts would be appropriate.[5] When addressing a motion for summary judgment on the interpretation of a contract, the threshold question is whether the contract is ambiguous.[6] A contract is ambiguous if the provisions at issue "are fairly susceptible of different interpretations or may have two or more different meanings."[7] "[S]ummary judgment may not be awarded if the language is ambiguous and the moving party has failed to offer uncontested ...


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