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West v. Access Control Related Enterprises, LLC

Superior Court of Delaware

June 5, 2019

WILLIAM WEST, Plaintiff,
v.
ACCESS CONTROL RELATED ENTERPRISES, LLC; LLR EQUITY PARTNERS, IV, L.P.; LLR EQUITY PARTNERS PARALLEL IV, L.P.; SETH LEHR, an individual; DAVID STIENES, an individual; GREG CASE, an individual; ROBERT CHEFITZ, an individual; and JOSEPH GRILLO, an individual. Defendants.

          Submitted: April 24, 2019

         Upon Defendants' Partial Motion to Dismiss GRANTED IN PART AND DENIED IN PART

         Upon Plaintiffs Motion for Leave to Amend DENIED

          Justin K. Victor, Esq., Michael L. Banks, Esq. (Argued), Vishal H. Shah, Esq., Morgan, Lewis, & Bockius, LLP, Attorneys for Defendants.

          Geoffrey G. Grivner, Esq., Buchanan, Ingersoll, & Rooney, PC; Ekwan E. Rhow, Esq., Sharon Mayer, Esq. (Argued), Patricia H. Jun, Esq., Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg, & Rhow, P.C., Attorneys for William West.

          OPINION

          Honorable Mary M. Johnston Judge

         PROCEDURAL AND FACTUAL CONTEXT

         This action involves the termination of an employment relationship between Plaintiff William West and Defendant Access Control Related Enterprises ("ACRE"). West co-founded ACRE in 2012 along with Joseph Grille ACRE provides security technologies to limit physical access to campuses, buildings, rooms, and other environments. West served as ACRE'S Chief Financial Officer and its Chief Operating Officer. ACRE quickly grew into a leading private security company through acquisitions of other companies.

         In 2013 Defendant LLR Equity Partners ("LLR") made a substantial investment in ACRE. This investment gave LLR a majority ownership interest and control of ACRE'S Board of Directors. LLR Partners Seth Lehr, David Stienes, and Greg Case joined West and Grillo on ACRE'S board. LLR became ACRE'S largest shareholder as a result of this transaction. West received a payment in the form of equity in exchange for the interest in the company that he sold to LLR.

         West executed a number of agreements for his employment and related compensation. Those agreements included: an LLC Agreement; a Severance Agreement; an Equity Award Agreement; an Equity Incentive Plan; and a Non-Competition Agreement.

         The Severance Agreement provided for certain payments to be made to West if his employment with ACRE were terminated without "Cause." The Severance Agreement also referred to the Equity Award Agreement, which described incentive securities that were issued to West when he became an ACRE employee. These incentive securities were units of common equity that would vest over time as long as West remained employed.

         The Equity Award Agreement also defined the term "Cause" to include: (i) the commission of an act involving dishonesty and disloyalty; (ii) failure to perform duties as directed by the Board; (iii) the "material breach of a fiduciary duty, gross negligence or willful misconduct with respect to [ACRE].. .or the disclosure or unauthorized use of confidential or trade secret information"; and (iv) material breach of West's agreements with ACRE.

         West claims that after LLR acquired its majority ownership interest in ACRE, LLR began to push management to create exit options. West claims that LLR instructed ACRE'S management to consider four potential exit strategies for LLR. West argues that he was induced to provide confidential and proprietary information in order to facilitate these transactions.

         ACRE argues that West used highly proprietary and confidential information without the approval or knowledge of ACRE'S Board or owners. ACRE argues that West engaged an investment banking firm without Board approval, and without communicating his intentions to anyone on the Board. The Board terminated West after learning that he disclosed confidential information. ACRE argues that because the Board determined that West's actions were in breach of his employment agreement, the Board's termination of West was for Cause.

         West argues that ACRE has "manufactured" Cause after the fact, and that West was merely acting at the direction of the Board. Accordingly, West has filed this action and has alleged several claims against ACRE:

I. Wrongful termination - Against all Defendants;
II. Breach of the Covenant of Good Faith and Fair Dealing -Against Defendants ACRE and Grillo;
III. Breach of Contract - Against Defendants ACRE and Grillo;
IV. Tortious Interference with Contract - Against Defendants LLR Equity Partners, IV, L.P., LLR Equity Partners Parallel IV, L.P., Seth Lehr, David Stienes, Gregory Case, Robert Chefitz, and Joseph Grillo;
V. Tortious Interference with Prospective Business Relations -Against all Defendants;
VI. Conversion - Against Defendant ACRE; and
VII. Declaratory Relief- Against Defendant ACRE.

         Defendants have moved for partial dismissal on several grounds. First, Defendants argue that West's claim for breach of contract against Grillo fails to state a claim for relief, because Grillo was not a party to the contracts that West claims were breached. Second, Defendants argue that an implied covenant is unnecessary to fill any gaps in the contracts between West and ACRE, which explicitly address the circumstances under which West could be terminated for Cause. Third, Defendants argue that West's conversion claim fails, because it is duplicative of his breach of contract claim against ACRE. Fourth, Defendants argue that West's claim for wrongful termination fails because only an employer can be liable for wrongful termination. Fifth, West's claim for tortious interference with contract must be dismissed because he fails to show that LLR and the Individual Defendants acted outside of the scope of their authority. Finally, Defendants argue that West's claim for tortious interference with prospective business relations fails to state a claim because his allegations are insufficient as a matter of law. -

         MOTION TO DISMISS STANDARD

         In a Rule 12(b)(6) Motion to Dismiss, the Court must determine whether the claimant "may recover under any reasonably conceivable set of circumstances susceptible of proof."[1] The Court must accept as true all well-pleaded allegations.[2]Every reasonable factual inference will be drawn in the non-moving party's favor.[3]If the claimant may recover under that standard of review, the Court must deny the Motion to Dismiss.[4]

         ANALYSIS

         Implied Covenant of Good Faith and Fair Dealing

         Every contract contains an implied covenant of good faith and fair dealing that "requires a 'party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits' of the bargain."[5] By definition, this covenant is implied. Therefore, "because it protects the spirit of the agreement rather than the form, it cannot be invoked where the contract itself expressly covers the subject at issue."[6] "[The Court] will only imply contract terms when the party asserting the implied covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected."[7] "The 'implied covenant of good faith and fair dealing involves...inferring contractual terms to handle developments or contractual gaps that.. .neither party anticipated.'"[8]

         In this case, "Cause" has been explicitly defined in the contract between ACRE and West. The Equity Award Agreement defined the term "Cause" as used in the Severance Agreement to include: (i) the commission of an act involving dishonesty and disloyalty; (ii) failure to perform duties as directed by the Board; (iii) the "material breach of a fiduciary duty, gross negligence or willful misconduct with respect to [ACRE].. .or the disclosure or unauthorized use of confidential or trade secret information"; and (iv) material breach of Plaintiff s agreements with ACRE. The contract definition of Cause is not unusual. The definition does not create a gap in the contract for the Court to fill. The expectations of both parties were clear at the time the agreement was executed.

         West claims that he was "tricked" into creating cause for termination. West believes that Cause was manufactured after the fact. The Court finds that assuming the truth of the facts, as alleged by West, ACRE'S alleged trickery and course of dealing would prohibit a finding of Cause as defined by the contract. The term "Cause" itself is unambiguous and does not create a gap for the Court to fill.

         Therefore, West's claim based on breach of the implied covenant of good faith and fair dealing must be dismissed.

         Wrongful Termination

         Under California law, the elements of wrongful termination are: (1) an employer-employee relationship; (2) the termination of plaintiff s employment was in violation of a public policy[9]; (3) the termination of plaintiff s employment was a legal cause of plaintiff s damages; and (4) the nature and the extent of plaintiff s damages.[10]

         In Khajavi v. Feather River Anesthesia Med. Group, [11] the court determined that "[o]nly an employer can be liable for the tort of wrongful discharge of an employee, and 'a third party who is not and never has been the plaintiffs employer cannot be bootstrapped by conspiracy into tort liability for a wrong he is legally incapable of committing.'"[12]

         In this case, ACRE is West's employer. West has not shown that the individuals named in this action, or LLP, are West's employers. "The key factor to consider in analyzing whether an entity is an employer is 'the right to control and direct the activities of the person rendering service, or the manner and method in which the work is performed.'"[13] "A finding of the right to control employment requires ... a ...


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