COURT OF CHANCERY
OF THE
STATE OF DELAWARE
TAMIKA R. MONTGOMERY-REEVES LEONARD WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: November 13, 2018
Date Decided: February 26, 2019
Mr. Alan J. Ross Anthony M. Saccullo, Esquire
67 Templeton Parkway Thomas H. Kovach, Esquire
Watertown, MA 02742 A. M. Saccullo Legal, LLC
27 Crimson King Drive
Bear, DE 19701
RE: Alan J. Ross v. Institutional Longevity Assets LLC et al.
Civil Action No. 2017-0186-TMR
Dear Parties:
This letter opinion resolves defendants’ motion for judgment on the pleadings
and plaintiff’s motion to compel and motion for default judgment. This action
represents one part of a long-running legal saga between plaintiff, defendants, and
their associates and predecessors in interest. At its heart, the dispute is about the
commercialization of a patent covering a method for pooling insurance policies. In
the case before me, plaintiff asserts claims for breach of contract and breach of
fiduciary duties related to (1) defendants’ business development of a patent-holding
entity, and (2) defendants’ alleged failure to provide certain information to plaintiff.
Ross v. Institutional Longevity Assets LLC
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Defendants move for judgment on the pleadings, arguing that they do not owe any
of the contractual or fiduciary obligations that plaintiff seeks to enforce. For the
reasons that follow, I grant defendants’ motion for judgment on the pleadings.
Because I grant the motion for judgment on the pleadings, plaintiff’s motions are
moot.
I. BACKGROUND
Plaintiff Alan J. Ross filed his Verified Complaint for Breach of Contract (the
“Complaint”) in this Court on March 10, 2017. On March 30, 2017, Ross moved to
dismiss then-defendants Institutional Pooled Benefits LLC (“IPB”), Meyer-
Chatfield Corp., and Balshe LLC; on March 31, 2017, I granted his motion. The
remaining defendants are Institutional Longevity Assets, LLC (“ILA”), a member
of non-party IPB; 1 MRB Pooled Benefits, LLC (“MRB”), a member of non-party
IPB;2 David B. Simon, the managing member of ILA; 3 and Bennett Meyer, a
1
Compl. ¶ 12.
2
Id.
3
Id. ¶ 6.
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manager of MRB.4 The only other member of IPB is Ross.5 The dispute underlying
the claims relates to the commercialization of United States Patent No. 5,974,390
(the “Patent”), which describes “[a] system and method . . . for creating a predictable
flow of funds . . . . [w]here participants pool their ownership of insurance policies
so as to share in the proceeds from those policies.”6
On June 2, 2017, Defendants filed a motion to dismiss. On July 6, 2017, Ross
filed an opposition. On August 10, 2017, Defendants informed the court that they
would not file a reply. On September 28, 2017, I granted the motion to dismiss to
the extent Ross pursued derivative claims, but I denied it in all other respects.
On March 8, 2018, Ross filed his motion to compel ILA to respond to his
discovery requests; ILA filed its opposition on May 9, 2018; and Ross filed his reply
on April 17, 2018.
On March 9, 2018, Defendants filed their motion for judgment on the
pleadings, followed by their opening brief in support of the motion on March 13,
4
Id. ¶ 7.
5
Id. ¶ 12.
6
System and method for assuring predictable gains, U.S. Patent No. 5,974,390 (filed
July 21, 1997).
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2018. On April 13, 2018, Ross filed his opposition. On May 1, 2018, Defendants
filed their reply. On May 2, 2018, Ross filed a surreply.
On September 7, 2018, Ross filed his motion for default judgment against
Defendant David B. Simon, who filed an opposition on October 9, 2018; Ross filed
his reply on October 12, 2018.
On November 13, 2018, I held oral argument on three motions—Ross’s
motion to compel, Ross’s motion for default judgment, and Defendants’ motion for
judgment on the pleadings—which are now fully briefed and before me.
The IPB Operating Agreement (the “Operating Agreement”) contains
requirements for how the Company functions. Section 6(d) of the Operating
Agreement (“Section 6(d)”) requires that
except as otherwise provided . . . the Company shall be
managed by a committee consisting of a designated
member of MRB and a designated member of ILA (the
Executive Committee). Except as otherwise provided in
this Agreement, or any written amendment hereto, all
decisions regarding the management of the Company are
within the purview of the Executive Committee and shall
only be made by unanimous vote of the Executive
Committee. 7
7
Defs.’ Opening Br. Ex. A § 6(d).
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Section 7(a) of the Operating Agreement (“Section 7(a)”) adds that
[t]he Executive Committee will not be liable to the
Company or any other Member for (i) the performance, or
omission to perform any act or duty on behalf of the
Company if, in good faith, such conduct did not constitute
fraud, gross negligence or reckless or intentional
misconduct and (ii) the performance, or the omission to
perform, on behalf of the Company, any act upon good
faith reliance on advice of legal counsel, accountants or
other professional advisors to the Company. 8
Section 10(b) of the Operating Agreement (“Section 10(b)”) states that
[a]s soon as practicable after the end of each Fiscal Year,
the Company (i) will cause to be prepared and sent to each
Member a balance sheet and a statement of income and
expenses for the Company which may, but not need, be
audited by a certified public accountant, and (ii) will cause
to be prepared and sent to each Member a report setting
forth in sufficient detail all such information and data with
respect to the Company for such Fiscal Year as shall
enable each Member to prepare his income tax returns in
accordance with the laws, rules and regulations then
prevailing. The Company will also cause to be prepared
and filed all tax returns required of the Company. All
balance sheets, statements, reports and tax returns required
pursuant to this Section 10(b) shall be prepared at the
expense of the Company. 9
8
Id. § 7(a).
9
Id. § 10(b).
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II. ANALYSIS
Plaintiff asserts three claims, which he styles as (1) breach of contract; (2)
breach of contract—implied covenant of good faith; and (3) continuing breach of
contract—breach of fiduciary duty. 10 Defendant moves for judgment on the
pleadings as to all three claims.
“After the pleadings are closed but within such time as not to delay the trial,
any party may move for judgment on the pleadings.”11 “When considering a Rule
12(c) motion, the court must accept well-pled facts in the complaint as true and view
those facts in the light most favorable to the nonmoving party.” 12 “A motion for
judgment on the pleadings will be granted if no material issue of fact exists and the
moving party is entitled to judgment as a matter of law.” 13 “A court may not grant
10
See Compl. ¶¶ 24-42.
11
Ct. Ch. R. 12(c).
12
Fiat N. Am. LLC v. UAW Retiree Med. Benefits Tr., 2013 WL 3963684, at *7 (Del.
Ch. July 30, 2013) (citing Rag Am. Coal Co. v. AEI Res., Inc., 1999 WL 1261376
(Del. Ch. Dec. 7, 1999)).
13
Id. (citing Credit Suisse Sec. (USA) LLC v. W. Coast Opportunity Fund, LLC, 2009
WL 2356881, at *3 (Del. Ch. July 30, 2009)).
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the motion unless it appears beyond doubt that the claimant can prove no set of facts
in support of its claims which would entitle it to relief.” 14
A. Plaintiff’s Breach of Contract Claim Fails
Plaintiff claims breach of contract based on a failure to provide documents,
arguing that
Section 10(b) of the IPB Operating Agreement requires
IPB on an annual basis (1) to prepare and send to each
member a balance sheet and a statement of income and
expense for the Company, and (2) to prepare and send to
each member a report setting forth in sufficient detail all
such information and data with respect to the Company for
such Fiscal years that shall enable each member to prepare
his income tax returns. 15
Plaintiff contends that Defendants have breached this obligation each year since
2014. 16
14
Id. (quoting Petroplast Petrofisa Plasticos S.A. v. Ameron Int’l Corp., 2009 WL
3465984, at *7 (Del. Ch. Oct. 28, 2009)).
15
Compl. ¶ 27.
16
Defendants argue that Ross is not a member of IPB because he is not listed as a
member in the Operating Agreement and therefore, he cannot assert these claims.
Ross points out that he signed the Operating Agreement on behalf of himself
individually and on behalf of SAVE Associates. Because I resolve the claims on
other grounds, and because the question of membership requires resolution of
factual disputes beyond the scope of a motion for judgment on the pleadings, I need
not address that argument and decline to do so.
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An analysis of Defendants’ obligations requires that this Court interpret the
contract. “Under Delaware law, courts interpret contracts to mean what they
objectively say. This approach is longstanding and is motivated by grave concerns
of fairness and efficiency.” 17
Because Delaware adheres to the objective theory of
contract interpretation, the court looks to the most
objective indicia of that intent: the words found in the
written instrument. As part of this initial review, the court
ascribes to the words their common or ordinary meaning,
and interprets them as would an objectively reasonable
third-party observer.18
“Standing in the shoes of an objectively reasonable third-party observer, if the court
finds that the terms and language of the agreement are unmistakably clear, then the
court should look only to the words of the contract to determine its meaning and the
parties’ intent.” 19 “[W]hen we may reasonably ascribe multiple and different
17
Seidensticker v. Gasparilla Inn, Inc., 2007 WL 4054473, at *1 n.1 (Del. Ch. Nov.
8, 2007) (citing Joseph M. Perillo, The Origins of the Objective Theory of Contract
Formation and Interpretation, 69 Fordham L. Rev. 427, 477 (2000)).
18
Sassano v. CIBC World Mkts. Corp., 948 A.2d 453, 462 (Del. Ch. 2008) (footnotes
omitted).
19
Dittrick v. Chalfant, 948 A.2d 400, 406 (Del. Ch. 2007).
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interpretations of a contract, we will find that the contract is ambiguous.”20 Despite
that, “[t]he parties’ steadfast disagreement will not, alone, render [a] contract
ambiguous.”21 When the “meaning [of a contract] is unambiguous and the
underlying facts necessary to its application are not in dispute, judgment on the
pleadings is an appropriate procedural device for resolving the dispute.” 22
Ross alleges that the Operating Agreement requires IPB to prepare and send
him financial statements each year. Ross, however, is not suing IPB. Indeed, Ross
voluntarily dismissed IPB from this case “for judicial economy and in order to
narrow the focus of this action.”23 The terms of the Operating Agreement
unambiguously refer to IPB as the responsible party, not the Defendants. 24 In other
20
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1160 (Del. 2010).
21
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195
(Del. 1992) (“A contract is not rendered ambiguous simply because the parties do
not agree upon its proper construction.”).
22
CorVel Enter. Comp, Inc. v. Schaffer, 2010 WL 2091212, at *1 (Del. Ch. May 19,
2010).
23
Pl.’s Mot. to Dismiss Institutional Pooled Benefits LLC, Meyer-Chatfield Corp. and
Balshe LLC 1.
24
Defendants also argue that “[b]ecause IPB incurred losses (from capital and funds
provided by Defendants) during all relevant times, Ross did not need to receive any
financial reporting ‘to prepare his income tax returns in accordance with the laws,
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sections of his complaint, Ross appears to argue that Defendants should have created
and sent him other documents and reports; he seems to contend that their failure to
do so is evidence of their wrongdoing. 25 To the extent Ross actually seeks those
additional documents or reports, Ross does not plead any support for the proposition
that he is entitled to those documents.
Thus, Defendants have carried their burden to show that Ross can prove no
set of facts in support of his breach of contract claims that would entitle him to relief
and that Defendants are entitled to judgment as a matter of law.
B. Plaintiff’s Breach of Contract—Implied Covenant of Good Faith
and Fair Dealing Claim Fails
Ross next alleges that Defendants’ failure to implement certain foundational
requirements he argues are necessary to patent monetization constitutes a breach of
the implied covenant of good faith and fair dealing (the “Implied Covenant”).26
rules and regulations then prevailing’ under Section 10(c).” Defs.’ Opening Br. 8.
Because I resolve the motion on other grounds, I decline to decide this issue.
25
See Compl. ¶ 34 (“[D]espite repeated requests, Defendants refus[e] to provide
required reports or any materials whatsoever in regard to the business and financial
activities regarding IPB so as to hide their breach, . . . Plaintiffs’ request for copies
of the Trust document and Private Offering Memorandum have been denied by
Defendant (as well as MRB)”).
26
Id. ¶¶ 30-36.
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“Under Delaware law, the implied covenant of good faith and fair dealing
attaches to every contract by operation of law.” 27 The Implied Covenant “‘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.” 28 “The implied covenant only applies where a contract lacks
specific language governing an issue”—i.e., where a “gap” exists in the contractual
scheme. 29
“The Court must focus on ‘what the parties likely would have done if they had
considered the issues involved.’” 30 Furthermore, “[i]t must be ‘clear from what was
expressly agreed upon that the parties who negotiated the express terms of the
contract would have agreed to proscribe the act later complained of . . . had they
thought to negotiate with respect to that matter.’” 31 “The implied covenant only
27
Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *3 (Del.
Ch. Jan. 30, 2015).
28
Id. (quoting Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 443 (Del. 2005)).
29
Id. (quoting Alliance Data Sys. Corp. v. Blackstone Capital P’rs V L.P., 963 A.2d
446, 770 (Del. Ch. 2009), aff’d, 976 A.2d 170 (Del. 2009)).
30
Id. at *3 (Del. Ch. Jan. 30, 2015) (quoting Lonegan v. EPE Hldgs. LLC, 5 A.3d
1008, 1018 (Del. Ch. 2010)).
31
Id.
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applies to developments that could not be anticipated, not developments that the
parties simply failed to consider.”32 Thus, when the complaint does not identify any
gap in the contract, and the contract therefore addresses the issue raised in the claim,
there can be no claim for breach of the Implied Covenant.
Ross argues that
in order for the Patent to be lawfully exploited through
enrollment of participants in a PBT Trust or Trusts, certain
foundational requirements must be met: (1) a Trust
document must be created, (2) a Trustee must be appointed
and (3) because such enrollment is considered to be a
security, a Private Offering Memorandum must also be
crafted.33
Ross contends that Defendants’ failure to carry out any of these steps that he
considers necessary to successful patent exploitation (the “Foundational
Requirements”) constitutes a breach of the Implied Covenant. Ross adds that
Defendants’ failure to provide him with “copies of the Trust document and Private
Offering Memorandum” and “Defendants [sic] refusal to provide required reports or
any materials whatsoever in regard to the business and financial activities regarding
IPB” reveal Defendants’ failure to implement the Foundational Requirements and
32
Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010).
33
Compl. ¶ 34.
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reflect a “breach [of] their most important duty to attend to the purpose of the
Company.” 34
Ross correctly identifies the legal standards applicable to a claim for a breach
of the Implied Covenant. But his claims have several defects. Ross fails to identify
any contractual gaps where it was “clear from what was expressly agreed upon that
the parties who negotiated the express terms of the contract would have agreed to
proscribe the act later complained of . . . had they thought to negotiate with respect
to that matter.” Further, his allegations do not relate to “developments that could
not be anticipated.” No pleadings before me support the notion that the parties to
the Operating Agreement would have contractually required the Foundational
Requirements had they only anticipated the need for them. Nor does the Company’s
failure to send Ross documents to which he has shown no entitlement under the
Operating Agreement evidence a breach of the Implied Covenant.
Thus, Defendants have carried their burden to show that Ross can prove no
set of facts in support of his Implied Covenant claims that would entitle him to relief
and that Defendants are entitled to judgment as a matter of law.
34
Id.
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C. Plaintiff’s Breach of Fiduciary Duty Claim Fails
In Ross’s third count, “Continuing Breach of Contract—Breach of Fiduciary
Duty,” he asserts that Defendants have breached their fiduciary duties of care and
loyalty.
Ross alleges that
[d]ue to their continuing complete absence of effort or care
in exploiting the Patent, Defendants have significantly
mishandled (1) the investments by Plaintiffs of their right
to purchase the MONY portion of the Patent and sell it to
any party of their choosing and (2) the 50% of the [Patent]
belonging to Alan J. Ross, and in doing so they have not
only breached the Implied Covenant of Good Faith, they
have also continuingly breached their fiduciary duty of
care and loyalty to their fellow member of the IPB LLC.
As a result of that breach Plaintiffs have suffered and will
suffer harm and other damages. 35
As evidence, Ross points to (1) Defendants’ failure to carry out precisely the same
Foundational Requirements he identified in his Implied Covenant claim; and (2)
“Defendants [sic] refusal to provide required reports or any materials whatsoever in
regard to the business and financial activities regarding IPB” and the Foundational
Requirements.36
35
Id. ¶ 42.
36
Id. ¶ 40.
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The Complaint does not clearly identify what duty the Defendants purportedly
breached.37 Regardless, Section 7(a) of the LLC Agreement provides that
[t]he Executive Committee will not be liable to the
Company or any other Member for (i) the performance, or
omission to perform any act or duty on behalf of the
Company if, in good faith, such conduct did not constitute
fraud, gross negligence or reckless or intentional
misconduct and (ii) the performance, or the omission to
perform, on behalf of the Company, any act upon good
faith reliance on advice of legal counsel, accountants or
other professional advisors to the Company. 38
Ross alleges a failure to carry out tasks that he says were necessary to the success of
the business. At best, Ross claims the Defendants exercised poor business judgment
in deciding how to pursue commercialization of the patent—that is, Defendants
should have followed his blueprint for commercialization instead of their own.39
Ross offers no explanation for why such a failure, if indeed it exists, rises to the level
37
Ross argues Defendants have shown a “seemingly complete absence of effort or
care.” Id. ¶ 41.
38
Defs.’ Opening Br. Ex. A § 7(a).
39
Defendants argue that they have expended considerable resources in attempting to
commercialize the patent. See, e.g., Defs.’ Reply Br. 7 n.1 (“In fact, as the parties’
prior litigations demonstrated, Defendants made many attempts and spent millions
of dollars on the launching [sic] a PBT Trust since 2008, including hiring and paying
counsel to draft Private Placement Memoranda to distribute to potential
participants.”); Defs.’ Answer & Affirmative Defenses 17 (denying as false
Plaintiff’s assertion that they have used no effort to exploit the patent).
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of “fraud, gross negligence or reckless or intentional misconduct” that Section 7(a)
requires.
Furthermore, “[c]ourts will dismiss the breach of fiduciary duty claim where
the [breach of fiduciary duty and breach of contract] claims overlap completely and
arise from the same underlying conduct or nucleus of operative facts.” 40 The same
rule applies to overlap between breach of fiduciary duty and breach of Implied
Covenant claims alleging wrongdoing specifically related to contractual obligations.
“To allow a fiduciary duty claim to coexist in parallel with an implied contractual
claim, would undermine the primacy of contract law over fiduciary law in matters
involving the essentially contractual rights and obligations of . . . stockholders.”41
Put differently, “because the contract claim addresses the alleged wrongdoing . . .
any fiduciary duty claim arising out of the same conduct is superfluous.”42 Here, the
40
Grunstein v. Silva, 2009 WL 4698541, at *6 (Del. Ch. Dec. 8, 2009).
41
Gale v. Bershad, 1998 WL 118022, at *5 (Del. Ch. Mar. 4, 1998) (citation omitted).
42
Id.; see also Blue Chip Capital Fund II Ltd. P’ship v. Tubergen, 906 A.2d 827, 833
(Del. Ch. 2006) (“Just like in Bershad, the fiduciary duty claim that the board
breached its duty of loyalty . . . is substantially the same as the implied contract
claim . . . . Therefore, if the dispute relates to rights and obligations expressly
provided by contract, the fiduciary duty claims would be ‘superfluous.’” (quoting
Bershad, 1998 WL 118022, at *5)).
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breach of fiduciary duty claims and the Implied Covenant claims are identical. Thus,
Defendants have carried their burden to show that Ross can prove no set of facts in
support of his breach of fiduciary duty claims that would entitle him to relief and
that Defendants are entitled to judgment as a matter of law.
III. CONCLUSION
For the foregoing reasons, Defendants’ motion for judgment on the pleadings
is GRANTED. The remaining pending motions are moot.
IT IS SO ORDERED.
Sincerely,
/s/ Tamika Montgomery-Reeves
Vice Chancellor
TMR/jp