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Murphy v. Pentwater Capital Management LP

Superior Court of Delaware

October 31, 2017

DANIEL C. MURPHY, Plaintiff,
v.
PENTWATER CAPITAL MANAGEMENT LP, HALBOWER HOLDINGS, INC., and MATTHEW C. HALBOWER Defendants.

          Submitted: June 23, 2017

         Defendants' Motion to Dismiss - GRANTED in Part and DENIED in Part. Plaintiffs Partial Motion for Summary Judgment - DENIED

          John L. Reed, Esquire, Ethan H. Townsend, Esquire, Harrison S. Carpenter, Attorneys for Defendants.

          Thomas M. Horan, Esquire, Johnna M. Darby, Esquire, Shaw Fishman Glantz & Towbin LLC, Attorney for Plaintiff.

          MEMORANDUM OPINION

          WILLIAM C. CARPENTER, JR. JUDGE.

         Defendants Pentwater Capital Management LP ("Pentwater"), Halbower Holdings, Inc. ("Holdings"), and Matthew C. Halbower ("Halbower") (jointly "Defendants") move to dismiss the Amended Verified Complaint ("Complaint") filed by Plaintiff Daniel C. Murphy ("Murphy" or "Plaintiff). Plaintiff also filed a Motion for Partial Summary Judgment for Count I of the Complaint. For the following reasons, the Motion to Dismiss as to Defendant Halbower is granted and all remaining Motions are denied.

         I. FACTS

         This action stems from the parties' varying interpretations of Plaintiffs Employment Agreement and Pentwater's Employee Bonus Plan (the "Agreements"). Plaintiff was employed at Pentwater, a Chicago based hedge fund, from February 2008 to February 2011[1] and rejoined Pentwater in July, 2013 as the Co-Head of Fixed Income.

         Upon his return, Plaintiff received a copy of his Employment Agreement and Bonus Plan. The Employment Agreement set forth the salary, benefits, and other bonuses available to Plaintiff including the disputed post termination bonus.[2] It also stated:

[i]n the event your employment is terminated, Pentwater will have no further obligation to provide any further compensation or benefits to you, including post termination bonus, unless you execute a waiver and release of claims within two weeks of your termination in a form reasonably determined by Pentwater.[3]

         The Bonus Plan, dated April 20, 2010, confirmed the "explanation of Pentwater's Synthetic Equity program, including that, if Murphy's employment with Pentwater was terminated, he still would be entitled"[4] to earn an annual Incentive Bonus.[5] The Bonus Plan stated that:

If the employment of a Plan Participant is terminated for any reason other than Cause and said Plan Participant is not in breach of any provision of his or her employment contract, the Plan Participant shall have the right to continue to receive Incentive Bonuses based upon his or her Synthetic Equity Percentage until such time as he or she has received in aggregate the Post Termination Incentive Bonus Cap. Once the Plan Participant has received the Post Termination Incentive Bonus Cap, the plan Participant shall have no further rights to receive any Incentive Bonus or payment of any kind under the Plan.[6]

         Post Termination Incentive Bonus Cap was defined as:

The amount equal to the sum of (a) the Post Termination Incentive Bonus Supplement and (b) a Plan Participant's Synthetic Equity Percentage multiplied by the lesser of (i) the Book Value on December 31 prior to the date of termination or (ii) the Book Value on December 31 subsequent to the date of termination.[7]

         On July 15, 2013, the day before Plaintiff began at Pentwater, the Bonus Plan was amended, and during the time that Plaintiff worked there, it was amended two additional times before he terminated his employment.[8] Plaintiff was unaware of such amendments until his separation from Pentwater in 2015.[9] In fact, Plaintiff received bonuses from Pentwater for the two years 2013 and 2014 without issue.[10]

         On August 7, 2015, after a disagreement regarding compensation, Plaintiff separated from Pentwater.[11] There is an on-going dispute as to whether Plaintiff was terminated or resigned, but after August 2015, he was no longer employed by the company.[12] Plaintiff sought to enforce the Bonus Plan, which required Pentwater to pay Murphy the Post Termination Incentive Bonus Supplement and an annual Incentive Bonus (jointly the "Bonus Plan Money") "on or before February 15, 2016."[13] The Defendants refused to pay Plaintiff the Bonus Plan Money, asserting Plaintiff did not meet his obligations under the Agreements. Specifically, Defendants assert that Plaintiff failed to execute a release and waiver within two weeks of termination.[14] Additionally, Defendants assert that Plaintiff resigned from Pentwater, releasing them of payment of any post termination bonuses.

         Upon denial of the Bonus Plan Money, Plaintiff filed suit in the Court of Chancery on June 12, 2016.[15] The Court of Chancery held it lacked subject matter jurisdiction over the case and Plaintiff transferred the case to the Superior Court on December 30, 2016, [16] and filed an Amended Verified Complaint. Plaintiffs complaint asserts claims for breach of contract, violation of the Illinois Wage Payment and Collection Act ("IWCPA"), and fraudulent inducement.[17] The Plaintiffs Amended Verified Complaint included a breach of contract claim, which Plaintiff previously stated in the Court of Chancery pleading he would not pursue due to time and expense.[18]

         In response to Plaintiffs Amended Verified Complaint, Defendants filed a Motion for Judicial Action and to Strike, which was denied in February 2017. Plaintiff subsequently filed a Motion for Partial Summary Judgment on Count I of the Amended Verified Complaint. On March 17, 2017, Defendants filed a Motion to Dismiss the amended verified complaint pursuant to Superior Court Civil Rules 12(b)(2) and 12(b)(6), for lack of personal jurisdiction and failure to state a claim. This is the Court's decision on these Motions.

         II. MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION

         On a defendant's motion to dismiss pursuant to Superior Court Civil Rule 12(b)(2) for lack of personal jurisdiction, the plaintiff "bear[s] the burden to articulate a non-frivolous basis for this court's assertion of jurisdiction."[19] The plaintiff can satisfy this burden "by making a prima facie showing that jurisdiction is conferred by statute."[20] Although the factual record is read in the light most favorable to the plaintiff in ruling on the motion, "the plaintiff must plead specific facts and cannot rely on mere conclusory assertions."[21] This requires the Court to answer two legal questions. "First, it must determine whether jurisdiction is appropriate under Delaware's Long-Arm statute. And, second, it must evaluate whether asserting such jurisdiction would offend the Due Process Clause of the Constitution."[22]

         Defendants argue that Counts IV and V against Halbower as an individual should be dismissed for lack of personal jurisdiction. Defendants contend that the Court has no personal jurisdiction over Halbower as he is a resident of Illinois and has no contacts with the State other than being the CEO of the two Delaware Defendants.[23] Plaintiff asserts that Halbower is subject to the jurisdiction of this Court based on the Delaware Long-Arm Statute, 10 Del. C. § 3104(c)(1) because Halbower, "regularly transacts business in Delaware."[24] Plaintiff also asserts that personal jurisdiction is proper based on the forum-selection clause in the disputed Bonus Plan.[25]

         Under Delaware's Long-Arm statute, Delaware courts can exercise personal jurisdiction over a defendant for a claim that "arises from" a "jurisdictional act" enumerated in the statute.[26] Section 3104(c)(1) gives this Court personal jurisdiction over any nonresident who "transacts any business or performs any character of work or service in the State."[27] "In order for this Court to exercise jurisdiction under 3104(c)(1) 'some act must actually occur in Delaware.'"[28]

         Plaintiff contends that jurisdiction over Halbower is proper because Halbower regularly transacts business in Delaware.[29] However, in his Amended Verified Complaint, Plaintiff fails to cite to any specific instances of such activity as required and in fact, the Complaint is totally void of any such information. It appears the Plaintiff simply assumed jurisdiction without pleading it even though the conduct here occurred in Illinois.[30] As such, the Court agrees with the Defendants that Plaintiff has failed to make a prima facie showing to fit Halbower's conduct under Delaware's Long-Arm Statute. Plaintiffs claim for personal jurisdiction via the forum-selection clause, however, is more complicated and requires additional analysis.

         Plaintiff asserts "that Halbower is estopped from contesting jurisdiction based on his close relationship with the Bonus Plan, as someone who it was foreseeable would be sued personally in matters relating to the administration of the plan."[31]Plaintiff cites to previous Delaware cases which held non-party officers and directors bound to forum-selection clauses.[32] Such cases applied the following three-pronged test to determine if a non-party should be bound: "(1) [the] forum selection clause [is] valid, (2) [] the non-signatory [is] a third-party beneficiary of the agreement or [is] closely related to the agreement, and (3) [] the claim at hand arise[s] from the non-signatory's claims related to the agreement[.]"[33]

         Plaintiff asserts that the first and third prong are easily satisfied[34] and "the only question is if Halbower is a third-party beneficiary of, or closely related to, the Bonus Plan."[35] Plaintiff cites Delaware Chancery case Weygandt v. Weco, LLC, where the Court recognized that "a party can be closely related to an agreement: 1) she receives direct benefit from the agreement; or 2) it was foreseeable that she would be bound by the agreement."[36]

         Plaintiff does not contend that Halbower receives a direct benefit, [37] but rather that it was foreseeable that Halbower could be sued in matters relating to the Bonus Plan as CEO of both Holdings and Pentwater and "makes all significant decisions regarding their operations."[38] More specifically, Plaintiff argues that "it was foreseeable that Halbower could be sued individually under the IWPCA for causing Pentwater to breach the Bonus Plan."[39]

         Defendants assert that Halbower is doubly shielded by the fiduciary shield doctrine, as the Bonus Plan is not an agreement with Halbower personally nor is the Bonus Plan a Holdings document.[40] The fiduciary shield doctrine prohibits acts performed by a person acting in his official corporate capacity from serving as the basis for personal jurisdiction over that individual.[41] Defendants assert Halbower was not a party to the Bonus Plan and as a non-signatory he is not bound to the forum-selection clause.[42]

         The Court finds that the cases Plaintiff relies on are distinguishable from Halbower, and he is not closely related enough such that it would be foreseeable that he would be haled into Delaware courts. For example, in Hadley v. Shaffer, the Court stated that defendants could be bound to the forum-selection clause if they were considered either parties, third-party beneficiaries, or closely related to the Agreement.[43] The Court held the defendants were third-party beneficiaries of the merger agreement and were to receive payments set forth in the agreement.[44]However, the Court suggested that if the defendants were not third-party beneficiaries, they would be considered closely related as "they were undoubtedly intended to receive a benefit from the sale of their stock through the Merger Agreement."[45] In the instant case, Halbower is not a third-party beneficiary, nor has the Plaintiff provided any evidence to suggest Halbower as an individual would directly benefit from the Agreements.

         Similarly, in Baker v. Impact Holding, LLC, the Court found that the defendant was bound by the forum-selection clause because he received a direct benefit as a board of director for a listed entity in the stockholder agreement.[46] More specifically that the company the defendant was a director for had substantial investments in the disputed agreement.[47] Here, however, Plaintiff has not provided evidence to suggest that Halbower received any direct benefit to consider him similar to the defendant in Baker.

         Further, the Plaintiff relies heavily on Weygandt v. Weco, LLC for support but that case is factually distinguishable from the case at hand. Specifically, that Weygandt, as an individual and as a control person, had previously agreed to be bound to Delaware jurisdiction in a separate agreement-the Asset Purchase Agreement.[48] Because the Lease Agreement, the agreement between W&A and Gulf Stream, did not include a forum-selection clause, the Court found that non-signatory W&A, was bound by the Asset Purchase Agreement's forum-selection clause because it was controlled by Weygandt who had already provided consent.[49] Justice Strine bound the non-signatory to the forum-selection clause to prevent "duplicative and inefficient litigation in multiple forums and undermine the benefit of predictability that W&A's controller, Weygandt, provided..."[50] This case like Weygandt has interrelated agreements, however both the Bonus Plan and Employment Agreement have forum-selection clauses. The Bonus Plan lists Delaware, while the Employment Agreement lists Illinois. Thus, unlike in Weygandt, there is no issue of undermining predictability or having inefficient litigation in multiple forums because the Agreements predetermine the forums. Further, Halbower never agreed to be bound to this jurisdiction, nor did Holdings. Halbower signed the Bonus Plan as a general partner of Holdings on behalf of Pentwater.

         The Court agrees with Defendants that Plaintiffs argument stretches personal jurisdiction beyond its appropriate bounds. The Plaintiff has failed to provide evidence and precedent cases that suggest Halbower is closely related enough to the Agreements to find his presence in Delaware courts to be foreseeable. The Defendants' Motion to Dismiss for Lack of Personal Jurisdiction the counts that include Halbower is GRANTED as to that Defendant.

         III. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

         In considering the Motion to Dismiss for failure to state a claim filed pursuant to Rule 12(b)(6), the Court must assume the truthfulness of the Complaint's well-pleaded allegations, [51] and afford Plaintiffs "the benefit of all reasonable inferences that can be drawn from [their] pleading."[52] Certain documents that are "integral to a plaintiffs claims...may be incorporated by reference without converting the motion to a summary judgment."[53] At this preliminary stage, dismissal will be granted only when the Court is able to determine with "reasonable certainty" that Plaintiffs would not ...


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