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Batty v. UCAR International Inc.

Court of Chancery of Delaware

April 3, 2019

LIONEL D. BATTY, Plaintiff,
v.
UCAR INTERNATIONAL INC., UCAR CARBON COMPANY INC., GRAFTECH INTERNATIONAL LTD., GRAFTECH INTERNATIONAL HOLDINGS INC., BCP IV GRAFTECH HOLDINGS LP, and ATHENA ACQUISITION SUBSIDIARY INC., Defendants.

          Date Submitted: January 10, 2019

          Charles A. McCauley III, OFFIT KURMAN, P.A., Wilmington, Delaware; Counsel for Plaintiff Lionel D. Batty.

          Bradley R. Aronstam, Eric D. Selden, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Counsel for Defendants UCAR International Inc., UCAR Carbon Company Inc., GrafTech International Ltd., GrafTech International Holdings Inc., BCP IV GrafTech Holdings LP, and Athena Acquisition Subsidiary Inc.

          MEMORANDUM OPINION

          McCORMICK, V.C. JUDGE

         Plaintiff Lionel D. Batty was employed by certain of the entity defendants for over thirty-four years. They compensated Batty over that time in various combinations of cash and equity. On July 13, 2000, Batty signed a severance compensation agreement (the "Agreement"). The Agreement sets the compensation that Batty would receive from the defendants in the event he resigned for "good reason" following a "change in control." A change of control occurred in 2015, and Batty resigned in early 2017. The defendants accepted Batty's resignation no-contest and paid him over $1 million in compensation. Batty then filed this suit on May 29, 2018, seeking the over $1.5 million that the defendants allegedly shortchanged him under the Agreement. The defendants have moved to dismiss the complaint.

         The parties do not dispute that the change of control occurred or that Batty's resignation triggered his entitlement to compensation under the Agreement. The parties dispute whether the plain language of the Agreement entitles Batty to compensation for his equity awards. This decision finds that the parties' competing interpretations of the Agreement are both reasonable. That finding renders the Agreement ambiguous. At the pleadings stage, the Court may not choose between reasonable interpretations of an ambiguous contract. As to Batty's claim for breach of the Agreement, therefore, the defendants' motion is denied.

         Not all of Batty's claims survive. The complaint lumps Batty's core contractual grievance with four alternative counts for compensation and two counts for attorneys' fees. Plus, two of the entities listed as a "defendants" do not belong on the caption: one no longer exists and another is redundant. Cutting the clutter, the Court grants the motion to dismiss as to those six counts and two "defendants."

         I. FACTUAL BACKGROUND

         The facts are drawn from the Verified Complaint[1] and documents incorporated by reference therein.

         The defendants ("Defendants") are GrafTech International Ltd. ("GrafTech") and its predecessors and successors in interest: UCAR International Inc. ("UCAR International"); UCAR Carbon Company Inc. ("UCAR Carbon"); GrafTech International Holdings Inc.; BCP IV GrafTech Holdings LP ("BCP IV"); and Athena Acquisition Subsidiary Inc. ("Athena").

         Batty worked for Defendants for over 34 years. UCAR International entered into the Agreement with Batty on July 13, 2000. The Agreement was later assigned to GrafTech.

         In 2005, GrafTech adopted an Equity Incentive Plan. Batty contends that this equity plan entitled him to equity awards as part of his annual compensation.

         On January 4, 2017, Batty resigned from GrafTech "for good reason," effective February 15, 2017. GrafTech sent a letter to Batty dated February 8, 2017, acknowledging receipt of the notice of termination. The letter lists five amounts due to Batty under the Agreement.

         Batty alleges that he has been underpaid for the amounts he is owed under Sections 2(a)(iv), 2(a)(ii)(A), 2(a)(ii)(B), 2(a)(iii), 2(a)(vi), and 9 of the Agreement. Batty's position concerning the first three amounts is reflected in the following table. The latter three amounts, not reflected in the table, are for health insurance, tax benefits, and attorneys' fees.



Base Salary

Incentive Compensation Plan

Long-term Incentive Plan

Total

2(a)(iv)

Due:

2 * 300,000 = $600,000

2 * 195,000 = $390,000

2 * 450,000 = $900,000

$1,890,000

Paid:

$600,000

$390,000

$0

$990,000

Owed:

$0

$0

$900,000

$900,000

2(a)(ii)(A)

Due:

N/A

$195,000

$450,000

$645,000

Paid:

N/A

$29,250

$0

$29,250

Owed:

N/A

$165,750

$450,000

$615,750

2(a)(ii)(B)

Due:

N/A

46/365 * $195,000 = $24,575

46/365 * $450,000 = $56,712

$81,287

Paid:

N/A

$24,590

0

$24,590

Owed:

N/A

-$15

$56,712

$56,697


$1,572,447

         Batty filed this action on May 29, 2018. His Verified Complaint asserts seven causes of action. Count IV asserts Batty's claim to additional compensation under the Agreement. Counts I through III and Count VII assert Batty's claims to additional compensation under alternative legal theories. Counts V and VI seek attorneys' fees and expenses under the Agreement, Defendants' governance documents, and 8 Del. C. § 145.

         On June 29, 2018, Defendants moved to dismiss all claims asserted in the Verified Complaint. Defendants' motion was fully briefed by November 14, 2018, and argued on January 10, 2019.[2]

         II. LEGAL ANALYSIS

         This Court may grant a motion to dismiss under Rule 12(b)(6) for failure to state a claim if a complaint does not allege facts that, if proven, would entitle the plaintiff to relief.[3] "[T]he governing pleading standard in Delaware to survive a motion to dismiss is reasonable 'conceivability.'"[4] When considering such a motion, the Court must "accept all well-pleaded factual allegations in the [c]omplaint as true . . ., draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof."[5] This reasonable conceivability standard asks whether there is a possibility of recovery.[6] The Court, however, need not "accept conclusory allegations unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-moving party."[7]

         A. Breach of Contract

         Count IV claims that Defendants breached four different subsections of Section 2 of the Agreement by failing to pay Batty certain compensation upon his resignation.

         To state a claim for breach of contract, Batty must allege: "1) a contractual obligation; 2) a breach of that obligation by the defendant; and 3) a resulting damage to the plaintiff."[8]

         On a motion to dismiss, the Court must determine whether the contract contains "plain and unambiguous" terms "as a matter of law" to determine the absence of a breach.[9] "Contract language is not rendered ambiguous simply because the parties in litigation differ concerning its meaning."[10] "A contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings."[11]

         1. Accrued Incentive Compensation

         Section 2(a)(ii) of the Agreement entitles Batty to the amount of his "accrued Incentive Compensation" upon his resignation.[12] Section 2(a)(ii) specifically requires GrafTech to pay accrued amounts of Batty's "target variable compensation payment."[13] Batty alleges that the term "target variable compensation" includes equity awards, and that Defendants breached the Agreement by failing to pay him his equity awards that accrued in 2016 and 2017. Batty values these awards at around $1.5 million.

         Defendants argue that "accrued Incentive Compensation" is limited to cash compensation and thus excludes equity awards. Defendants rely on Section 1(f), which defines "Incentive Compensation" as "any compensation, variable compensation, bonus, benefit or award paid or payable in cash under an Incentive Compensation Plan."[14] According to Defendants, Section 1(f)'s phrase "paid or payable in cash" modifies all preceding nouns ("compensation, variable compensation, bonus, benefit or award"). In the alternative, Defendants argue that they prevail even if "paid or payable in cash" modifies only the nearest noun, "awards," because equity awards are "awards" and thus subject to the cash limitation.[15] To bolster their interpretation, Defendants point to the definition of "Incentive Compensation Award," which too is limited to "cash payment or payments awarded to [Batty] under any Incentive Compensation Plan."[16]

         Defendants' interpretation of Section 2(a)(ii) is reasonable, but it is not the only reasonable interpretation. Just as conceivable, the term "Incentive Compensation" could mean certain items that may be paid in cash or equity ("compensation, variable compensation, bonus, benefit") as well as one item that is only paid or payable in cash ("award"). Under this interpretation, regardless of whether the equity awards are "paid or payable in cash," they are included in Batty's accrued Incentive Compensation.

         Both parties point to selective SEC filings as supportive of their plain language arguments. For example, Batty cites as supportive UCAR International's 2015 10-K reference to "total target variable compensation" as both "annual and long-term performance-based incentive compensation."[17] Defendants cite other aspects of this filing as supportive.[18] While it is true that the Court "may take notice of SEC filings," this is only true "to the extent that the facts put forth in those filings are not subject to reasonable dispute."[19] Here, the parties dispute the significance of statements made in the filings, and those statements do not clearly resolve any aspect of the Agreement's ambiguity in any event.[20]

         When deciding a motion to dismiss, the Court may not "choose between two differing reasonable interpretations of ambiguous provisions."[21] Rather, "any ambiguity must be resolved in favor of the nonmoving party . . . ."[22] Defendants are "not entitled to dismissal under Rule 12(b)(6) unless the interpretation of the contract on which [its] theory of the case rests is the 'only reasonable construction as a matter of law.'"[23] Because Section 2(a)(ii) is susceptible to multiple reasonable interpretations, Defendants' motion as to Section 2(a)(ii) fails.[24]

         2. Severance Payment

         Section 2(a)(iv) entitles Batty to a "Severance Payment" in the amount of two times the greater of Batty's "target variable compensation payment" in either the year that his employment terminates or the year that the change in control occurs.[25]Defendants argue that the phrase "target variable compensation" as used in Section 2(a)(iv) must be interpreted consistently with Section 2(a)(ii).[26] In light of the Court's ruling as to Section 2(a)(ii), interpreting the provisions consistently at the pleadings stage renders Section 2(a)(iv) ambiguous. Accordingly, Defendants' motion to dismiss Batty's claims under Section 2(a)(iv) is denied.

         3. Payment of Taxes

         Section 2(a)(vi) of the Agreement entitles Batty to "Payment of Taxes."[27] Batty alleges that Defendants are responsible to pay the excise tax due on the additional severance compensation Batty demands in this lawsuit. But Batty does not allege that Defendants have failed to pay taxes on any amounts due to Batty. Nor has Batty alleged any other facts demonstrating that this is a ripe controversy. Accordingly, Batty's claim for breach of Section 2(a)(vi) is dismissed.

         4. Insurance Benefits

         Section 2(a)(iii) of the Agreement entitles Batty to "Insurance Benefits" that are substantially equivalent to those he received from the Defendants prior to the Resignation.[28] Section 2(a)(iii) further provides that "[s]uch benefits shall be provided . . . in lieu of any continuation of coverage [Batty] would be eligible for under COBRA."[29]

         Batty contends that GrafTech breached Section 2(a)(iii) by failing to timely arrange for insurance coverage. Before the end of August 2018, GrafTech merely reimbursed Batty for his payments under COBRA. GrafTech has since arranged for coverage effective September 1, 2018, but Batty argues that the benefits provided might not be "substantially equivalent."[30]

         Batty has stated a claim that GrafTech breached the Agreement before September 1, 2018, by failing to comply with the requirements of Section 2(a)(iii). What, if any, relief is appropriate for such a claim is not a pleadings-stage determination.

         Batty has failed to state a claim that GrafTech breached the Agreement since September 1, 2018. Batty's claim of breach under Section 2(a)(iii) with respect to this time period is dismissed without prejudice.

         5. Non-Parties to the Contract

         Defendants argue that the Court should dismiss Count IV as to certain Defendants. For the purposes of these arguments, the Court takes judicial notice of filings with the Delaware Secretary of State, which are not subject to dispute.[31]

         UCAR Carbon changed its name to GrafTech International Holdings Inc. in 2007.[32] Because UCAR Carbon is GrafTech, and not a separate or independent entity, [33] the name "UCAR Carbon" is struck from the caption as redundant.[34]

         Athena merged with GrafTech in 2015; GrafTech is the surviving corporation.[35] When corporations merge under Delaware law, their separate existences end[36] and the surviving corporation has all the rights and obligations of the former corporations.[37] Having no ongoing separate or distinct legal existence, the constituent corporations to a merger ...


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