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Cavi v. Evolving Systems NC Inc.

United States District Court, D. Delaware

May 21, 2018

LARS CAVI, Plaintiff,

          Sean A. Meluney, BERGER HARRIS LLP, Wilmington, DE; Alan L. Frank, ALAN L. FRANK LAW ASSOCIATES, Jenkintown, PA.

          Attorneys for Plaintiff Herbert W. Mondros, Diane M. Coffey, MARQOLIS EDELSTEIN, Wilmington, DE; Paul N. Silverstein, Brian M. Clarke, ANDREWS KURTH KENYON LLP, New York, NY. Attorneys for Defendants



         Plaintiff Lars Cavi filed this action on December 28, 2015. (D.I. 1). He filed an amended complaint on April 20, 2016. (D.I. 24). The amended complaint asserts various tort, contract, and quasi-contract claims against Defendants Evolving Systems, Inc., Evolving Systems NC, Inc. ("NC"), Ratelntegration, Inc. ("RII"), and Thomas Thekkethala. (See generally id.). In light of my Memorandum Order of March 27, 2017, Evolving Systems, Inc. is no longer a defendant in this case. (D.I. 42 at 3).

         Presently before the Court is Defendants' Motion for Summary Judgment (D.I. 98) and related briefing (D.I. 99, 104, 113). For the reasons set forth herein, Defendants' motion is granted in part and denied in part.

         I. Background

         This suit arises out of Plaintiff s recruitment to and subsequent employment with Defendant RII. RII is a Delaware corporation in the business of "mobile marketing." (D.I. 24 ¶ 4). Its principal place of business is in North Carolina. (Id.). RII is a subsidiary of Defendant NC. (Id. ¶ 8). Defendant Thekkethala is the former CEO and President of RII and was a member of its board of directors. (Id. ¶ 5).

         The facts underlying this dispute are well-known to the parties and are fully set forth in the February 17, 2017 Report and Recommendations issued by United States Magistrate Judge Mary Pat Thynge. (See D.I. 37).

         Defendants filed a motion to dismiss the amended complaint as to all counts but Count V on May 31, 2016. (D.I. 28). The motion was referred to Judge Thynge (D.I. 36), who issued a Report and Recommendations (D.I. 37). On March 27, 2017, 1 adopted the Report and Recommendations except as to sections G, H, and I. (D.I. 42 at 3). Accordingly, I dismissed Count VI and all counts against Evolving Systems, Inc. (Id.).

         Twelve counts remain. Plaintiff seeks to recover unpaid sales commissions and damages for Defendants' misrepresenting the value of Plaintiff s RII shares and concealing stock liquidation preferences. (D.I. 24 ¶ 12).

         II. Legal Standard

         "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party has the initial burden of proving the absence of a genuinely disputed material fact relative to the claims in question. Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). Material facts are those "that could affect the outcome" of the proceeding, and "a dispute about a material fact is 'genuine' if the evidence is sufficient to permit a reasonable jury to return a verdict for the nonmoving party." Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir. 2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). When determining whether a genuine issue of material fact exists, the court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Scott v. Harris, 550 U.S. 372, 380 (2007); Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007).

         III. Discussion

         In their motion, Defendants seek summary judgment on Plaintiffs counts for breach of fiduciary duty (Count I), common law fraud (Counts II, III), securities fraud (Count XIII), breach of the covenant of good faith and fair dealing (Counts VII and VIII), quantum meruit (Count IX), promissory estoppel (Counts X, XI), and unjust enrichment (Count XII). (See generally D.I. 99).

         A. Count I: Breach of Fiduciary Duty

         First, Defendants move for summary judgment on Count I, which alleges breach of fiduciary duty against Defendant Thekkethala. (D.I. 24 ¶¶ 161-77). More specifically, Count I alleges that Thekkethala breached his fiduciary duties of loyalty, care, and good faith by making misrepresentations and omissions to Plaintiff in regard to the value of RII's shares, the value of Plaintiffs stock options and ownership interest in RII, and the "payout structure in the case of a sale of RII." (Id.).

         Defendants argue summary judgment is appropriate as to Count I because there are no material facts in dispute in regard to the duties of care or loyalty owed to Plaintiff by Thekkethala. (D.I. 99 at 22-23). Defendants point to the exculpation provision in RII's Certificate of Incorporation, which shields the company's directors from liability for breaches of the duty of care. (Id. at 22). They maintain also that Plaintiff has failed to rebut the presumption of the business judgment rule. (Id. at 23-24).[1]

         Plaintiff responds by arguing essentially that neither the exculpation clause nor the business judgment rule protects Thekkethala in this case because neither shields liability for acts done in bad faith. (D.I. 104 at 21). Here, Plaintiff alleges that Thekkethala did not act in good faith because "he intentionally deceived Cavi about the value of the stock and actively concealed liquidation preferences and management carve-out." (Id.).

         I agree with Plaintiff and thus will deny Defendants' motion for summary judgment as to Count I.

         Under Delaware law, "directors owe a duty not to speak falsely" when communicating with shareholders. In re Allergan, Inc. Stockholder Litig., 2014 WL 5791350, at *10 (Del. Ch. Nov. 7, 2014) (citing Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998)). The Delaware Supreme Court has stated:

Whenever directors communicate publicly or directly with shareholders about the corporation's affairs, with or without a request for shareholder action, directors have a fiduciary duty to shareholders to exercise due care, good faith and loyalty. It follows a fortiori that when directors communicate publicly or directly with shareholders about ...

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