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Davis v. 24 Hour Fitness Worldwide, Inc.

United States District Court, D. Delaware

September 30, 2014

CHRIS A. DAVIS, Plaintiff/Counter-Defendant,
v.
24 HOUR FITNESS WORLDWIDE, INC., a Delaware corporation, Defendant/Counter-Claimant.

MEMORANDUM

GREGORY M. SLEET, District Judge.

I. INTRODUCTION

The plaintiff, Chris A. Davis ("Davis"), filed this diversity action on October 29, 2012, against the defendant, 24 Hour Fitness Worldwide, Inc. ("24HFW"), alleging breach of contract and unjust enrichment. (D.I. 1.) On November 21, 2012, 24HFW filed its Answer, along with counterclaims against Davis, seeking declaratory judgment and alleging breach of fiduciary duties, fraud, equitable fraud, negligent misrepresentation, and fraudulent concealment. (D.I. 7.) 24HFW voluntarily dismissed its counterclaims for fraud and equitable fraud on May 1, 2014. (D.I. 73.) Presently before the court is Davis' motion for summary judgment for the remainder of 24HFW's counterclaims. (D.I. 79.) Davis argues these claims are barred by a three-statute of limitations. For the reasons stated below, the court will grant Davis' motion for summary judgment.

II. BACKGROUND[1]

Davis, a limited partner with the private equity firm Forstmann Little & Co. ("FL"), was elected to the board of directors ("Board") of 24HFW in 2006, after FL acquired all of 24HFW's voting shares. (D.I. 7, ¶¶ 1, 14, 18.) In or around December 2008, Davis became the Chair of the Board. ( Id. ¶ 21.) Around this time, Davis sought increased compensation via a phantom stock agreement with 24HFW and had the law firm Kirkland & Ellis LLP ("Kirkland") outline a proposal for the Board's Compensation Committee. (Id.¶¶ 23-24.)

The Compensation Committee and subsequently the entire Board considered the proposed phantom stock agreement as well as some alternative proposals on May 19, 2009, but ultimately took no action. ( Id. ¶¶ 42-44.) Instead, on May 20, 2009, the Board sent Kirkland a list of "basic terms" for a potential agreement. ( Id. ¶ 47.) Thereafter Davis "took charge" of working to finalize the phantom stock agreement and instructed Kirkland to alter several key provisions. ( Id. ¶¶ 50-52.) Most important, the revisions included: "(a) changing the settlement date for the award from a date in 2013 to a date in 2012; and (b) specifying that the entire award shall be settled in cash, instead of settlement of thirty percent (30%) of the award in stock." ( Id. ¶ 51.)

Kirkland sent a finalized phantom stock agreement ("PSA") to 24HFW's CEO, Carl Liebert, for execution on June 15, 2009. ( Id., ¶ 54.) Liebert was not aware of any agreement previously reached by the Board concerning "the PSA. ( Id. ¶ 55.) Liebert sent the PSA to Edward Beck, 24HFW's General Counsel, and Jeff Boyer, 24HFW's CFO, neither of whom knew whether the terms correctly reflected any prior agreement. ( Id. ¶ 55-56; D.I. 81, Ex. E.) Liebert, Boyer, and Beck all recognized that the PSA specified a cash payment, to be settled in 2012, rather than 2013. (D.I. 81, Ex. B at 95-96; Ex. E.) Liebert nevertheless signed the PSA on or about June 15, 2009, with Davis signing on June 17, 2009.[2] ( Id. ¶58.) Liebert, Beck, and Boyer never conferred with anyone on the Compensation Committee, the Board, or at Kirkland to determine whether the PSA accurately reflected the true agreement.

The details of the PSA were subsequently published in 24HFW's June 2009 quarterly report ("June 2009 Financials"). (D.I. 81, Ex. Fat 14-15.) 24HFW's management prepared the June 2009 Financials and distributed them to the Board's Audit Committee.[3] ( Id. Ex. D at 103-05; Ex. H at 114-15.) Director Dale Frey, a member of the Audit Committee who had previously been involved with the Board discussions concerning the PSA, received (or should have received) the 2009 June Financials within fifty days of the June 30, 2009 issue date. ( Id. Ex. D at 102; Ex. H at 114-15.)

In 2011, Liebert for the first time reached out to members of the Board with concerns about the upcoming 2012 cash settlement date under the PSA. (D.I. 7 ¶ 66.) Directors Wayne Smith and Frey indicated that they were surprised to learn that the payment was due in 2012, rather than 2013. (D.I. 86, Ex. 37 at 82.) After conducting an investigation, the Board voted on September 13, 2012 to repudiate the PSA. ( Id. Exs. 49, 50.) Davis filed her Complaint shortly thereafter on October 29, 2012. (D.I. 1.) 24HFW filed its counterclaims on November 21, 2012. (D.I. 7.)

III. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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." See also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of proving that no genuine issue of material fact exists. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585 n.10 (1986). A fact is material if it "could affect the outcome" of the proceeding. Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir. 2011). There is a genuine issue "if the evidence is sufficient to permit a reasonable jury to return a verdict for the non-moving party." Id. When determining whether a genuine issue of material fact exists, the district court must view the evidence in a light most favorable to the nonmoving party and draw inferences in that party's favor. Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007). If the moving party is able to demonstrate an absence of disputed material facts, the nonmoving party must then "come forward with specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587 (citing FED. R. CIV. P. 56(e)).

Importantly, the mere existence of some evidence in support of the nonmoving party will not prove sufficient for denial of a summary judgment motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Rather, the nonmoving party must present enough evidence to enable a jury to reasonably find for it on that issue. Id. Specifically, the party opposing summary judgment "must present more than just bare assertions, conclusory allegations or suspicions' to show the existence of a genuine issue." Podobnik v. U.S. Postal Serv., 409 F.3d 584, 594 (3d Cir. 2005) (quoting Celotex Corp., 477 U.S. at 325). Thus, a nonmoving party asserting that a material fact is in dispute must support this assertion by: "(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations, ... admissions, interrogatory answers, or other materials; or (B) showing that the materials cited [by the opposing party] do not establish the absence... of a genuine dispute...." See Fed.R.Civ.P. 56(c)(1). If the nonmoving party fails to make a sufficient showing on an essential element of its case for which it has the burden of proof, the moving party is entitled to judgment as a matter of law. See Celotex Corp., 477 U.S. at 32.

IV. DISCUSSION

Davis asserts that 24HFW's counterclaims are time-barred by a three-year statute of limitations. The parties do not dispute that, under Delaware law, a three-year statute of limitations governs the counterclaims at issue and that 24HFW first asserted its claims on November 21, 2012. Thus, the question in dispute is whether the ...


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