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Murphy v. Pentwater Capital Management LP

Superior Court of Delaware

July 24, 2019

DANIEL C. MURPHY, Plaintiff,

          Submitted: April 18, 2019




          Robert J. Katzenstein, Esquire; Margaret M. DiBianca, Esquire; Smith Katzenstein Jenkins LLP, Attorneys for Plaintiff.

          John L. Reed, Esquire; Peter H. Kyle, Esquire; Matthew Derm, Esquire; DLA Piper LLP, Wilmington, DE 19801. Attorneys for Defendants.


          William C. Carpenter, Judge

         Before the Court are Pentwater Capital Management LP, Halbower Holdings, Inc., and Matthew C. Halbower's (collectively, "Defendants" or "Pentwater") Motion to Dismiss Counts VI, VII, and VIII of Plaintiff Daniel C. Murphy's ("Plaintiff or "Murphy") Second Amended Complaint, Defendants' Motion for Summary Judgment, and Plaintiffs Motion for Partial Summary Judgment. For the reasons set forth in this Opinion, Defendants' Motion to Dismiss Counts VI and VII is DENIED. The Motion to Dismiss Count VIII is GRANTED. Defendants' Motion for Summary Judgment is DENIED. Plaintiffs Motion for Partial Summary Judgment is DENIED.


         Plaintiff Murphy initiated this litigation in order to recover money allegedly owed to him under the terms of a bonus plan (the "Bonus Plan") and employment agreement (the "Employment Agreement") (collectively, the "Agreements") with Pentwater.[1]

         A. Plaintiffs Employment Relationship With Pentwater

         Murphy first worked as a hedge fund portfolio manager at Pentwater from February 2008 until February 2011, when he resigned "because he disagreed with the amount of his compensation and the way ... Pentwater's CEO, Matthew C. Halbower ("Halbower") ... determined [it]."[2] In March 2012, Halbower asked Plaintiff to return to Pentwater, but he declined.[3] Over a year later, in June 2013, Halbower again attempted to recruit Murphy back to Pentwater, and Plaintiff eventually rejoined the hedge fund on July 16, 2013.[4]

         As part of Murphy's return to Pentwater, he was promised a 2.5% Synthetic Equity interest in the hedge fund.[5] This interest purportedly entitled Plaintiff to incentive bonuses "roughly equal to 2.5% of [its] distributable cash."[6] Halbower also allegedly promised Murphy in writing that he "would receive credit for amounts that had already been distributed in 2013 and that would be distributed in 2013 before he began work."[7]

         Upon rejoining the hedge fund, Murphy received a copy of the Bonus Plan, which stated that "if [his] employment with Pentwater was terminated, he still would be entitled to cash payments after his termination until he received an amount equal to 2.5%) of Pentwater's book value."[8] However, the copy of the Bonus Plan given to Plaintiff did not include an amendment apparently made just one day before his reemployment with Pentwater began.[9]

         Approximately two years later, on August 7, 2015, Halbower allegedly fired Murphy.[10] Plaintiff then sought to enforce the Bonus Plan after his departure from Pentwater, which "was required to pay [him] ... in cash on or before February 15, 2016."[11] However, Defendants refused to pay Murphy the money purportedly owed to him under the Agreements, citing the Bonus Plan amendment as a basis for its refusal.[12] Pentwater also claims it does "not owe any amounts under the Bonus Plan because Murphy did not execute a release of claims within two weeks of his termination as purportedly required in Paragraph 13 of the [Employment] Agreement."[13]

         B. The Instant Litigation

         On December 30, 2016, Plaintiff transferred his case from the Court of Chancery to Superior Court and filed an Amended Complaint, alleging claims for breach of contract (Counts I-II), recovery of wages under the Illinois Wage Payment and Collection Act ("IWPCA") (Counts III-IV), and fraudulent inducement (Count V).[14] In its October 31, 2017 Memorandum Opinion, the Court ultimately dismissed Count IV against Halbower for lack of personal jurisdiction, but denied Defendants' Motion to Dismiss the claims against the remaining parties.[15]

         On September 6, 2018, Plaintiff filed a Motion for Leave to File a Second Amended Complaint, which the Court granted.[16] Pentwater now moves to dismiss Counts VI, VII, and VIII of Murphy's Second Amended Complaint for failure to state a claim pursuant to Superior Court Civil Rule 12(b)(6) and has also filed a Motion for Summary Judgment on Counts I, II, III, and V of Murphy's Second Amended Complaint. Plaintiff filed his own Motion for Partial Summary Judgment on Counts I, II, III, and VII.

         This is the Court's decision on the portion of the motions not previously addressed in its Letter Opinion of July 16, 2019.


         A. Motion to Dismiss

         In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the Court must assume the truthfulness of the complaint's well-pleaded allegations, [17] and afford a plaintiff "the benefit of all reasonable inferences that can be drawn from its pleading."[18] Certain documents that are "integral to a plaintiffs claims ... may be incorporated by reference without converting the motion to a summary judgment."[19] At this preliminary stage, dismissal will be granted only when the Court is able to determine with "reasonable certainty" that the plaintiff would not be entitled to relief "under any set of facts that could be proven to support the claims asserted" in the complaint.[20]

         1. Counts VI & VII: Breach of Contract

         Defendants argue that Counts VI and VII for breach of contract in Plaintiffs Second Amended Complaint must be dismissed because they are barred by the statute of limitations.[21] According to Pentwater, Murphy's claims are also prohibited by the language and terms of the Agreements themselves.[22] More specifically, Defendants argue that Halbower, as CEO of Pentwater, "had complete and binding discretion to interpret and implement the Bonus Plan, "[23] including calculation of the Total Equity Payment figure.

         In response, Plaintiff argues that his additional claims are not time-barred because the discovery rule tolled the statute of limitations and they also relate back to his original Amended Complaint.[24] Murphy also contends that the Bonus Plan sets forth a formula for calculating the Total Equity Payment figure and does not give Halbower the ability to just "choose a number out of thin air."[25]

         The Court will first address the statute of limitations issue. Superior Court Rule of Civil Procedure 15(c)(2) states that "[a]n amendment of a pleading relates back to the date of the original pleading when the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading."[26]

         The Court finds that Counts VI and VII relate back to Plaintiffs original Amended Complaint and, as a result, are not barred by the statute of limitations. Murphy's original Amended Complaint contained claims for breach of contract for Defendants' refusal to pay amounts allegedly owed to him under the Agreements. Counts VI and VII also seek relief for Pentwater's failure to compensate Murphy for other, additional amounts that he was apparently required to receive under the Agreements. Ultimately, the Court believes discovery has revealed calculation issues that relate back to Plaintiffs original claims for breach of the Bonus Plan and Employment Agreement. The breach of contract claims now asserted in Counts VI and VII of the Second Amended Complaint arise from the same conduct complained of at the start of this litigation - Defendants' alleged failure to properly compensate Murphy pursuant to the terms set forth in the Agreements.

         The second issue is whether Murphy's new breach of contract claims are prohibited by the language of the Agreements. Defendants argue that Count VI must fail because the Bonus Plan gave Halbower "the authority and discretion to operate, maintain, amend and administer [it] ..."[27] Pentwater also claims that Halbower's determination of the Total Equity Payment is unchallengeable and cannot be the basis for a breach of contract action[28] because the Bonus Plan states that Halbower's "interpretations of [it] are final, binding, and conclusive on all parties."[29] Murphy believes that "even if Halbower had sole discretion to determine how much Pentwater paid him and his related entities, it does not follow that he can simply ignore the plain language of the Bonus Plan that mandates the Total Equity Payment must be calculated by the amounts paid to Halbower and related entities."[30]

         In Delaware, a breach of contract claim requires Plaintiff to demonstrate: (1) a contractual obligation, (2) a breach of that obligation, and (3) resulting damages.[31]When interpreting a contract, "[t]he Court will [construe] clear and unambiguous terms according to their ordinary meaning."[32] The discretionary provision cited by Defendants cannot be interpreted to prohibit Murphy's breach of contract claim or to insulate the Defendants from liability for any alleged failure to follow defined terms and formulas set forth in the Bonus Plan. In fact, Halbower was to determine Incentive Bonuses "consistent with the provisions"[33] contained in the Plan. The Court believes Murphy's allegation that the Total Equity Payment was not calculated "consistent with" the formula set forth in the Bonus Plan is enough to support his breach of contract claim against Defendants in Count VI. Furthermore, any issues regarding how the Total Equity Payment amount was calculated are factual in nature and cannot be decided on a Motion to Dismiss. Therefore, the Motion to Dismiss Count VI is denied.

         Defendants also contend that Count VII must be dismissed because "Murphy's Incentive Bonus was properly reduced by his buy-in amount in accordance with the terms of the Bonus Plan."[34] Plaintiff, by contrast, claims that Pentwater's Incentive Bonus calculation did not give him credit for one of two distributions that occurred in 2013.[35] Again, it is clear to the Court that there are factual issues surrounding how the Incentive Bonus was calculated. These issues cannot appropriately be decided or resolved on a Motion to Dismiss. Therefore, the Motion to Dismiss Count VII is denied.

         2. Count VIII: Quantum Meruit

         Pentwater argues that Murphy's quasi-contractual claim for quantum meruit is improper because its relationship with Plaintiff is governed by the two express Agreements.[36] Meanwhile, Murphy contends that the enforceability of the Bonus Plan and Employment Agreement at issue are questionable, and he only seeks ...

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