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TMC Consulting Services, L.L.C. v. Wright

Superior Court of Delaware

January 26, 2017

TMC CONSULTING SERVICES, L.L.C., Plaintiff,
v.
MATTHEW WRIGHT, CHRISTOPHER KENNEDY, MADISON NICHE OPPORTUNITIES FUND, LTD., MADISON NICHE OPPORTUNITIES FUND, L.L.C., MADISON NICHE OPPORTUNITIES MASTER FUND, LTD., MADISON NICHE ASSETS FUND, LTD., MADISON NICHE ASSETS FUND, L.L.C., MADISON NICHE ASSETS MASTER FUND, LTD., Defendants.

          Submitted: October 3, 2016

         Motion of Defendants Matthew Wright and Christopher Kennedy to Dismiss Plaintiff's Complaint DENIED.

          William Hazeltine, Esquire, Sullivan Hazeltine Allinson, LLC, Wilmington, Delaware and Roger G. Jones, Esquire, Bradley Arant Boult Cummings, LLP, Nashville, Tennessee, Attorneys for Plaintiff TMC Consulting Services, L.L.C.

          John T. Dorsey, Esquire, Matthew B. Lunn, Esquire, Edmon L. Morton, Esquire, James L. Higgins, Esquire, and Mary F. Dugan, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Warren Gluck, Esquire, Sean C. Sheely, Esquire, and Sean P. Barry, Esquire, Holland & Knight, LLP, New York, New York, Attorneys for Defendants Matthew Wright and Christopher Kennedy.

          Eric M. Davis Eric M. Davis, Judge

         I. INTRODUCTION

         This is a civil action assigned to the Complex Commercial Litigation Division of the Court. In this action, Plaintiff TMC Consulting Services, LLC ("TMC") asserts a breach of contract claim against Defendants Matthew Wright, Christopher Kennedy (collectively, "Wright and Kennedy"), and six separate but related Delaware and Cayman Islands limited liability companies - Madison Niche Opportunities Fund, Ltd., Madison Niche Opportunities Fund, L.L.C., Madison Niche Opportunities Master Fund, Ltd., Madison Niche Assets Fund, Ltd., Madison Niche Assets Fund, L.L.C., and Madison Niche Assets Master Fund, Ltd. (collectively, the "Funds").

         TMC is a Delaware limited liability company that offers consulting services to businesses. Wright and Kennedy are insolvency practitioners employed by RHSW (Cayman) Ltd. ("RHSW"). RHSW is a Cayman Islands firm that specializes in corporate advisory and restructuring services. Madison Niche Opportunities Fund, Ltd., Madison Niche Opportunities Master Fund, Ltd., Madison Niche Assets Fund, Ltd., and Madison Niche Assets Master Fund, Ltd. are Cayman Islands exempted limited liability companies. Madison Niche Opportunities, L.L.C. and Madison Niche Assets Fund, L.L.C. are Delaware limited liability companies.

         On July 1, 2014, the Funds initiated voluntary liquidation. The Funds appointed Wright and Kennedy to serve as Joint Voluntary Liquidators to oversee the liquidation process. Wright and Kennedy and the Funds then hired TMC. Wright and Kennedy, the Funds and TMC entered into and executed the Consulting Agreement. Under the Consulting Agreement, TMC agreed to provide consulting services for the Funds during their liquidation. In return, the Funds would compensate TMC for its services.

         At some point during the contract term, Wright and Kennedy terminated the Consulting Agreement. In response, TMC filed its Complaint (the "Complaint") on November 16, 2015.[1] The Complaint alleges that Wright and Kennedy and the Funds breached the Consulting Agreement by terminating the Consulting Agreement before allowing TMC the opportunity to cure an alleged breach.

         On December 28, 2015, Wright and Kennedy filed a Motion to Dismiss, Opening Brief in Support of Motion of Defendants Matthew Wright and Christopher Kennedy to Dismiss Plaintiff's Complaint, and Declaration of Christopher Kennedy in Support of the Motion to Dismiss (collectively, the "Motion").[2] Through the Motion, Wright and Kennedy claim that TMC cannot maintain a breach of contract claim against them individually because Wright and Kennedy were acting solely in their representative capacities as Joint Voluntary Liquidators under the Consulting Agreement. TMC opposes the Motion. TMC filed its Brief in Opposition to Motion of Defendants Matthew Wright and Christopher Kennedy to Dismiss Plaintiff's Complaint (the "Opposition") on April 1, 2016. Wright and Kennedy submitted their Reply Brief of Defendants Matthew Wright and Christopher Kennedy in Further Support of Motion to Dismiss Plaintiff's Complaint (the "Reply") on April 15, 2016.

         The Court held a hearing on the Motion, the Opposition and the Reply on October 3, 2016. After hearing from the parties, the Court took the Motion under advisement.

         This is the Court's decision on the Motion. For the reasons set forth below, the Court will DENY the Motion to Dismiss.

         II. RELEVANT FACTS[3]

         A. The Voluntary Liquidation of the Funds

         On July 1, 2014, the shareholders and managers of each of the Funds voted to initiate the liquidation of their respective Funds.[4] As a result, the Funds hired Wright and Kennedy to serve as Joint Voluntary Liquidators.[5] Wright and Kennedy and the Funds then hired TMC to provide consulting services for the Funds during the liquidation process.[6]

         B. The Consulting Agreement

         On July 1, 2014, TMC entered into the Consulting Agreement with Wright and Kennedy and each of the Funds.[7] The parties re-executed the Consulting Agreement on October 15, 2014.[8] The preamble to the Consulting Agreement identifies Wright and Kennedy, TMC, and the Funds as the parties to the Consulting Agreement.[9] The three are separately identified by Roman numeral.[10] The preamble states:

THIS AMENDED AND RESTATED CONSULTING AGREEMENT is made and entered into as of October 15, 2014, pursuant to section 10 of that certain Consulting Agreement dated July 1, 2014, by and between, (i) MATTHEW WRIGHT and CHRISTOPHER KENNEDY of RHSW (Cayman) Limited ("RHSW"), the Joint Voluntary Liquidators (collectively, the "Liquidators") of the funds (each a "Fund", and collectively the "Funds") and their respective operating companies (each an "Operating Company", and collectively the "Operating Companies") set forth in Exhibit A hereto, (ii) TMC CONSULTING SERVICES, LLC, a Delaware limited liability company (the "Consultant"), and (iii) each of the Funds.[11]

         The signature page follows a structure of designating the parties separately.[12] Wright and Kennedy, the Funds, and TMC are each listed on the signature page, and each of the three parties signed the Consulting Agreement.[13] First, Wright and Kennedy signed under their names and under the heading "Liquidators."[14] Second, Wright and Kennedy, in their capacity as Joint Voluntary Liquidators, signed on behalf of the Funds.[15] Third, the managing director of TMC signed on behalf of TMC and under the heading "Consultant."[16]

         The notice provision, section 19, of the Consulting Agreement appears to be similarly structured.[17] Wright and Kennedy, the Funds, and TMC are each entitled to receive any notices sent by another party.[18] Section 19 provides:

Notice to the CONSULTANT shall be sent to: TMC Consulting Services, LLC 5619 DTC Parkway, Suite 800 Greenwood Village, Colorado, 80111 Attn: Robert Walker
Notice to LIQUIDATORS and the Funds shall be sent to them: c/o RHSW (Cayman) Limited Windward 1 Regatta Office Park P.O. Box 897 Grand Cayman, KY1-1103 Cayman Islands Attn: Matthew Wright and Christopher Kennedy[19]

         The Consulting Agreement further states that none of the foregoing parties may act as an agent for another party under the Consulting Agreement.[20] Section 14 states: "Nothing herein contained shall be deemed to authorize or empower any party to act as agent for another party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement."[21]

         The Consulting Agreement goes on to provide that the contract term would continue in effect until December 31, 2015 and after that from year-to-year.[22] However, the parties could terminate the Consulting Agreement under certain circumstances.[23] Section 9(c) of the Consulting Agreement provides:

(c) Notwithstanding the foregoing, this Agreement may be earlier terminated as follows: (i) by either the LIQUIDATORS or the CONSULTANT (A) upon the breach of this Agreement by another party if such breach is not cured within 30 calendar days of written notice of such breach to the breaching party, or (B) the final dissolution of all of the Funds, (ii) by the LIQUIDATORS upon 30 calendar days notice to the CONSULTANT if the LIQUIDATORS' office as liquidators to each of the Funds shall cease, or (iii) automatically without further action by any party, in the event that one or more parties other than the Liquidators are appointed as the Joint Voluntary Liquidators to the Funds.[24]

         Based on this section, on June 3, 2015, Wright and Kennedy informed TMC that TMC breached its obligations under the Consulting Agreement by making an unauthorized expenditure of funds.[25] Wright and Kennedy and the Funds then notified TMC of their intent to terminate the Consulting Agreement.[26] This prompted TMC to file the Complaint against Wright and Kennedy and the Funds.[27] TMC claims that Wright and Kennedy and the Funds should have provided TMC thirty days to cure its alleged breach before terminating the Consulting Agreement.[28]

         C. The Cayman Islands Court-Supervised Liquidation Proceedings

         On March 5, 2015, Wright and Kennedy filed a petition (the "Petition") in the Grand Court of the Cayman Islands (the "Grand Court").[29] The Petition asked the Grand Court to oversee the liquidation of two of the Cayman Islands Funds, Madison Niche Opportunities Fund, Ltd. ("Madison Opportunities Fund") and Madison Niche Assets Fund, Ltd. ("Madison Assets Fund").[30] Wright and Kennedy filed the Petition five months after the parties executed the Consulting Agreement, but before TMC's alleged breach.[31]

         On March 11, 2015, the Grand Court granted the Petition.[32] The Grand Court then appointed Wright and Kennedy to serve as Joint Official Liquidators of the two Funds.[33] To date, Madison Opportunities Fund and Madison Assets Fund are the only two Funds in official court-supervised liquidation with Wright and Kennedy acting as Joint Official Liquidators.[34]The other four Funds remain in voluntary non-court-supervised liquidation with Wright and Kennedy serving as Joint Voluntary Liquidators.[35]

         D. Chapter 15 Proceedings

         On January 6, 2016, Madison Opportunities Fund and Madison Assets Fund sought relief under Chapter 15 of the United State Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").[36] Wright and Kennedy filed the petitions on behalf of these two funds.[37] The Chapter 15 cases seek to have the Bankruptcy Court recognize the Cayman Islands liquidations of Madison Opportunities Fund and Madison Assets Fund.[38] On March 1, 2016, the Bankruptcy Court entered an Order Granting Recognition and Relief in Aid of a Foreign Main Proceeding Pursuant to Section 1504, 1509, 1515, 1517, 1520, and 1521 of the Bankruptcy Code (the "Recognition Order").[39] Section 4 of the Recognition Order states:

4. ORDERED, that all persons and entities (other than the Official
Liquidators and their expressly authorized representatives and agents) are hereby enjoined, except as provided in 11 U.S.C. §§ 555 through 557, 559 through 562, 1520 and 1521 or as modified herein, from:
(1) executing against the Funds' property or assets;
(2) taking or continuing any act to obtain possession of, or exercise control over, the Official Liquidators (with respect to the Funds), the Funds, or any of the Funds' property or assets;
(3) taking or continuing any act to create, perfect or enforce a lien or other security interest, set-off or other claim against the Official Liquidator (with respect to the Funds), the Funds or any of the Funds' property or assets as of the date of the filing of the Petition, or otherwise seeking the issuance of or issuing any restraining notice or other process or encumbrance with respect to the Funds or any of the Funds' property or assets; and
(4) transferring, relinquishing, or disposing of any property of the Funds to any person or entity other than the Official Liquidators [40]

         Despite the foregoing limitations, the Recognition Order expressly acknowledges the existence of this civil action and that this civil action could proceed.[41] The Recognition Order additionally provides:

[I]n the event an application by TMC to the Grand Court to lift the Cayman Stay is denied by the Grand Court ("Cayman Stay Denial Order") the Official Liquidators do not waive any rights whatsoever to seek recognition and enforcement of the Cayman Stay Denial Order in this Court or the Delaware Superior Court and TMC does not waive any right to contest such recognition or enforcement.[42]

         TMC petitioned the Grand Court to lift the stay on these proceedings.[43] On May 24, 2016, the Grand Court ordered that TMC be granted leave to continue its litigation against Madison Opportunities Fund and Madison Assets Fund.[44]

         III. PARTIES' CONTENTIONS

         Wright and Kennedy move to dismiss the Complaint pursuant to Superior Court Civil Rules 12(b)(6) and 12(b)(1) of the Superior Court Civil Rules ("Civil Rule ___").[45] In support of dismissal under Civil Rule 12(b)(6), Wright and Kennedy first argue that TMC cannot maintain a breach of contract claim against them individually. Wright and Kennedy argue that they were acting solely in their representative capacities as Joint Voluntary Liquidators and agents of the Funds under the contract. Even if they were operating in their representative capacities, however, Wright and Kennedy next claim that TMC still fails to state a claim against them. Wright and Kennedy reason that they are entitled to qualified immunity for their actions undertaken as Joint Voluntary Liquidators on behalf of the Funds as part of the Funds' liquidation.

         Finally, in support of dismissal under Civil Rule 12(b)(1), Wright and Kennedy argue that the Barton doctrine divests the Court of subject matter jurisdiction to hear the case. Because two of the Funds are in official liquidation in the Cayman Islands, Wright and Kennedy argue that TMC must first obtain approval of the Grand Court before pursuing any action that could affect the Funds' assets.

         In response, TMC argues that Wright and Kennedy executed the Consulting Agreement in both their individual and representative capacities and are capable of being bound individually. TMC also contends that Wright and Kennedy are not protected by qualified immunity because Wright and Kennedy were not acting as court-supervised liquidators at the time the parties entered the Consulting Agreement. Finally, TMC avers that it need not obtain prior approval of the Grand Court because this litigation, and any relief ordered against Wright and Kennedy by the Court, has no impact on the Grand Court liquidation proceedings. TMC maintains that the Court possesses jurisdiction to hear its claim.

         IV. LEGAL STANDARD

         Upon a motion to dismiss under Civil Rule 12(b)(6), the Court (i) accepts all well-pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they give the opposing party notice of the claim, (iii) draws all reasonable inferences in favor of the non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[46] However, the Court must "ignore conclusory allegations that lack specific supporting factual allegations."[47]

         The Court will dismiss an action under Civil Rule 12(b)(1) if the record, which may include evidence outside the pleadings, demonstrates that the Court does not have subject matter jurisdiction over the plaintiff's claims.[48] The plaintiff bears the burden of establishing subject matter jurisdiction, and "where the plaintiff's jurisdictional allegations are challenged through the introduction of material extrinsic to the pleadings, [the plaintiff] must support those allegations with competent proof."[49]

         V. DISCUSSION

         A. Whether Wright and Kennedy are individually liable

         The main issue raised in the Motion is whether Wright and Kennedy are bound in their individual capacities under the Consulting Agreement. In making this determination, the Court must analyze the Consulting Agreement in its entirety.[50]

         Wright and Kennedy argue that they executed the Consulting Agreement as Joint Voluntary Liquidators and agents of the Funds during its liquidation. The title of Joint Voluntary Liquidator is statutorily defined in the Cayman Islands Companies Law (the "Companies Law").[51] Sections 116-129 of the Companies Law apply to the voluntary winding up of a company.[52] Section 119 states that "[o]ne or more liquidators shall be appointed for the purpose of winding up the company's affairs and distributing its assets."[53] The Funds and Wright and Kennedy enlisted TMC's consulting services for the purpose of facilitating the liquidation process.[54] Therefore, Wright and Kennedy argue that they executed the Consulting Agreement in compliance with their statutory duties under the Companies Law. Wright and Kennedy maintain that they may not now be sued individually for these acts performed on behalf of the Funds.

          To further support this argument, Wright and Kennedy rely on the language in the Consulting Agreement. The preamble to the Consulting Agreement defines Wright and Kennedy by their statutory title of "Joint Voluntary Liquidators."[55] The Consulting Agreement also consistently refers to Wright and Kennedy as the "Liquidators."[56] Finally, while Wright and Kennedy signed the signature page twice, they signed once under the heading "Liquidators" and a second time above the title of "Joint Voluntary Liquidator."[57]

         Based on these repeated references to Wright and Kennedy as liquidators, Wright and Kennedy analogize their case to Pennsylvania House, Inc. v. Kauffman's of Delaware, Inc.[58] In Pennsylvania House, the defendant signed an indemnity agreement on behalf of his partnership, Kauffman's furniture store.[59] The agreement expressly identified the defendant in his representative capacity as an indemnitor six separate times.[60] However, the defendant signed the agreement in his individual capacity, failing to identify himself as Kauffman's agent.[61] The Court refused to find the defendant personally liable, reasoning that the defendant clearly intended to execute the agreement as Kauffman's agent.[62] The Court noted that agents are individually liability in those circumstances where an agent has "expressly or impliedly incurred or intended to incur personal responsibility."[63]

         At this stage in the proceedings, the facts of this case seem meaningfully different from Pennsylvania House and the typical case of agent liability where an agent contracts on behalf of the principal.[64] Here, the facts indicate that Wright and Kennedy are not merely contracting on behalf of a principal because the principal, the Funds, is a separate party to the Consulting Agreement.[65] This makes the Consulting Agreement more of a tri-party contract, with Wright and Kennedy, the Funds, and TMC as separate signatories.[66]

         Bonnant v. Merrill Lynch, Pierce, Fenner & Smith, Inc.[67] presents the same unique factual issue of agent liability in the context of a tri-party contract. [68] Mr. Bonnant, an attorney, executed an agreement to open a Merrill Lynch Cash Management Account on behalf of his client, Sophin Investments.[69] The agreement identified three separate parties: (1) Sophin Investments, the "accountholder, " (2) Mr. Bonnant, Sophin's "President/Director" and "Representative, " and (3) Merrill Lynch, the account provider.[70] At the end of the agreement, Mr. Bonnant signed his name twice, once in his capacity as his client's authorized representative and once in his individual capacity.[71] Sophin Investments later initiated arbitration against Merrill Lynch.[72] Merrill Lynch then named Mr. Bonnant as a third-party defendant.[73] Mr. Bonnant argued against individual liability because he signed the agreement "in a purely representative capacity on behalf of Sophin and never intended to be bound personally by [the] agreement."[74]

          Merrill Lynch moved for summary judgment and to compel arbitration. The district court granted the motion.[75] It held that Mr. Bonnant's two signatures unambiguously indicated that Mr. Bonnant opened the account "in both representative and personal capacities." Mr. Bonnant appealed the district court's decision.[76]

         The second circuit vacated the district court's finding.[77] It explained that the district court could only grant a motion for summary judgment if the agreement was unambiguous as to the issue of liability. [78] In determining the question of liability, the second circuit explained that "it is not sufficient to look only at the signature line in isolation."[79] Instead, "what is written on a signature line must be understood in the light of the entire agreement."[80] The second circuit found that the district court erred in relying solely on the signature line in finding individual liability.[81] Moreover, the second circuit held that the signature line, when read in isolation, created an ambiguity as to individual liability.[82] As such, the signature line alone could not be the basis for an unambiguous or unequivocal finding of liability, as is required for a grant of summary judgment on this issue.[83]

         Wright and Kennedy thus argue that the language of the Consulting Agreement does not unambiguously establish individual liability. However, Wright and Kennedy overlook two important facts. First, the Bonnant court decided the liability issue on a motion for summary judgment. The "unambiguous and unequivocal" standard cited in Bonnant is thus relevant on a motion for summary judgment. Here, the Court is not bound by the summary judgment standard because this is a motion to dismiss. The Court need only discern whether TMC would not be able to recover under any reasonably conceivable set of circumstances.[84] Second, the Bonnant court stated that the issue ...


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