Todd Moscowitz v. Theory Entertainment LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

TODD MOSCOWITZ, )
)
Plaintiff, )
)
v. ) C.A. No. 2019-0780-MTZ
)
THEORY ENTERTAINMENT LLC, )
)
Defendant. )

MEMORANDUM OPINION
Date Submitted: July 15, 2020
Date Decided: October 28, 2020

Stephen B. Brauerman, BAYARD, P.A., Wilmington, Delaware; Stanton L. Stein
and Ashley R. Yeargan, RUSS, AUGUST & KABAT, Los Angeles, California,
Attorneys for Plaintiff.

Kevin G. Abrams, Michael A. Barlow, and Joseph A. Sparco, ABRAMS &
BAYLISS LLP, Wilmington, Delaware; Scott A. Edelman and Ilissa Samplin,
GIBSON, DUNN & CRUTCHER LLP, Los Angeles, California, Attorneys for
Defendant.

ZURN, Vice Chancellor.
 This is a case of contractor’s remorse. The plaintiff is a former attorney and

sophisticated businessman who has enjoyed great success in the music industry. The

defendant company, a Delaware limited liability company, is a music label

cofounded by the plaintiff. As a founding member of the company, the plaintiff

received 25% ownership in the form of common and preferred units in exchange for

his initial investment.

When new members invested in the company, the company and its members

entered into a series of three agreements that bind the plaintiff. These agreements

complement each other, as each one foreshadows the more restrictive terms of the

next. The company’s members executed the first agreement in the series, an

operating agreement naming the plaintiff as a co-manager. The operating agreement

also permitted issuance of new incentive units, subject to the terms set forth in the

issuance plan attached to and incorporated into the operating agreement. The second

agreement in the series, the issuance plan, empowered the manager to grant those

incentive units to management in the manager’s sole discretion. The plan mandated

that any issuance would not issue or vest until the recipient executed a forthcoming

award agreement and tax election. The plan foreshadowed that such an award

agreement would impose terms and conditions on the award, including those related

to unit forfeiture, unit repurchase, and the unitholder’s termination, as the manager

deemed appropriate. The award agreement was the final document in the series.

1
 The new members diluted the plaintiff’s interest to 11.9%, and all agreed that

he should maintain a 12% stake in the company to avoid an immediate tax event.

The company and plaintiff agreed he would receive incentive units pursuant to the

plan equal to 0.1% of the company’s equity. He executed an award agreement and

tax election as required by the plan, both of which acknowledged that the incentive

units issued and became effective upon execution.

The plaintiff’s award agreement permitted the company to repurchase all of

the plaintiff’s units—not only incentive units, but also common and preferred—upon

his departure from the company. If the plaintiff separated from the company under

circumstances considered “for cause” or a “forfeiture termination,” the company

could repurchase the plaintiff’s entire equity stake for as little as $0.10 per unit. If

the plaintiff left the company on more favorable terms, the company could

repurchase his equity for fair market value. The plain terms of the award agreement

put the plaintiff on notice that his total equity might be cashed out, at the company’s

discretion, when he left. He signed the award agreement and agreed to these terms,

despite doing so in exchange for a perceivably small stake of 0.1%.

Thereafter, the plaintiff submitted a resignation letter that stated his

resignation was effective immediately. Such resignation, without advance written

notice, triggers a “for cause” or “forfeiture termination” under the award agreement.

The plaintiff drafted his resignation letter to be conditioned on retaining his equity

2
in the company, overriding the award agreement’s terms. The company held fast to

the agreement and sought to purchase the plaintiff’s total equity at $0.10 per unit.

The plaintiff then attempted to rescind his resignation and resubmit it on terms that

he believed would avoid the company’s repurchase right. The company pressed its

repurchase right, and this action followed.

The plaintiff presents a number of claims challenging the company’s

repurchase and seeking to validate his attempted conditional resignation. The

company moved to dismiss on the grounds that the terms of the agreements both

authorize its conduct and foreclose plaintiff’s conditional resignation. To the extent

the plaintiff’s claims question the company’s rights under the agreements, the

motion is granted. Unfortunately for the plaintiff, “Delaware is more contractarian

than many other states,” recognizing “that parties have a right to enter into good and

bad contracts, the law enforces both.”1 Delaware law presumes the plaintiff is bound

by the language of the agreements he signed, no matter how draconian. It affords

no occasion to weigh the sufficiency of the consideration the plaintiff received (0.1%

equity) against the company’s rights to repurchase all of his equity, or the

consequences of the plaintiff’s resignation without written notice. The agreements

1
HC Cos., Inc. v. Myers Indus., Inc., 2017 WL 6016573, at *5 (Del. Ch. Dec. 5, 2017)
(alteration, internal quotation marks, and omission omitted) (quoting GRT, Inc. v.
Marathon GTF Tech., Ltd., 2011 WL 2682898, at *12 (Del. Ch. July 11, 2011), and then
quoting Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010)).

3
unambiguously grant the company the right to repurchase plaintiff’s equity and

extinguish his status as a member. The plaintiff’s claims to that effect are dismissed,

and the motion is granted in part. However, the company has failed to meet its

burden on the motion with respect to the plaintiff’s claims regarding the propriety

and effect of his resignation attempts; the motion is denied in part.

I. BACKGROUND

On January 29, 2020, plaintiff Todd Moscowitz filed a First Amended Verified

Complaint (the “Amended Complaint”) in the above-captioned action against

defendant Theory Entertainment LLC, a Delaware limited liability company

(“Theory” or the “Company”).2 Upon consideration of Theory’s February 11,

2020, motion to dismiss (the “Motion”),3 I accept the Amended Complaint’s well-

pled allegations as true, draw all reasonable inferences in the plaintiff’s favor, and

from those allegations and inferences, discern the following pertinent facts from the

Amended Complaint and the documents integral to it.4

2
Docket Item (“D.I.”) 25 [hereinafter “Am. Compl.”].
3
D.I. 28.
4
See Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251 (Del. 2019); Horman v.
Abney, 2017 WL 242571, at *2 n.2 (Del. Ch. Jan. 19, 2017); In re Gardner Denver, Inc.
S’holders Litig., 2014 WL 715705, at *2–3 (Del. Ch. Feb. 21, 2014); In re Gen. Motors
(Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006).

4
 A. Moscowitz Co-Founds Theory, Receives Units As Theory’s
Member And Manager, And Executes An LLC Agreement
And Initial Plan.

Moscowitz is a veteran music industry executive who has discovered,

developed, and guided numerous recording artists, and has held many high-level

managerial roles in the industry, including the role of CEO at Warner Bros. Records,

US. Moscowitz co-founded Theory with Lyor Cohen, Roger Gold, and Kevin Liles.

Theory does business as the imprint label 300 Entertainment (“300”), which is

distributed by Atlantic Records.

Moscowitz and Cohen were Theory’s founders and only members under

Theory’s June 5, 2013, Amended LLC Agreement. Moscowitz invested $500,000

in exchange for 25% of Theory’s equity, and Cohen invested $1,500,000 for 75% of

Theory’s equity. Thereafter, Gold, Liles, and others joined as members, after which

Theory’s capital contributions were as follows: Moscowitz $400,000, Liles

$400,000, and Cohen $1.2 million.

Theory’s June 5, 2013, Amended LLC Agreement was then amended as the

Second Amended and Restated Operating Agreement dated October 7, 2013 (the

“LLC Agreement”).5 The LLC Agreement named Moscowitz and Cohen as

5
Am. Compl. ¶¶ 9, 10. Plaintiff did not attach the LLC Agreement as an exhibit to the
Amended Complaint. Defendant provided it as an exhibit to the Motion. See D.I. 31, Ex.
A [hereinafter “LLC Agreement”]. I consider the LLC Agreement attached as an exhibit
to the Motion because it is incorporated into and integral to the Amended Complaint. See

5
Theory’s “Founders” and “Common Managers” on the Company’s Board of

Managers.6 Aside from Moscowitz’s obligations under the LLC Agreement,

Moscowitz was not required or expected to render services to Theory, and he did not

have an employment agreement with Theory.

The LLC Agreement reflected Moscowitz’s 11.9% total equity interest in

Theory, consisting of 3,829,286 Common Units (25%) that Moscowitz received as

Theory’s founder, as well as 400,000 Preferred Units (2.7%). Theory’s members

agreed that new members would receive Incentive-1 Units to minimize tax

consequences. Accordingly, Section 11.14 of the LLC Agreement authorized the

issuance of Incentive Units “pursuant to this Agreement and the Initial Plan, or

pursuant to any other option or other equity award plan of the Company properly

approved pursuant to Section 11.12.”7 The Initial Plan (or the “Plan”), effective

October 4, 2013, was attached as Exhibit A to the LLC Agreement.8

Horman, 2017 WL 242571, at *2 n.2; In re Gardner Denver, Inc., 2014 WL 715705, at
*2–3; In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d at 169.
6
Am. Compl. ¶ 10; LLC Agreement at 1, § 11.1(c). The LLC Agreement considers that
the Founders will assume duties to the Company as designated thereunder and can be
terminated by the Company for failure to perform those duties. See LLC Agreement § 3.1,
“Cause.” The LLC Agreement also expressly eliminates any fiduciary duties that a
Member, Manager, or other person might ordinarily owe Theory; waives the corporate
opportunity doctrine; and contemplates and permits Members or Managers, including
Moscowitz, to operate other businesses and directly compete with Theory. See id. § 11.9.
7
LLC Agreement § 11.14(a).
8
Am. Compl. ¶ 13; see LLC Agreement, Ex. A. Plaintiff did not attach the Initial Plan as
an exhibit to the Amended Complaint. Defendant provided it as an exhibit to the Motion.
See D.I. 31, Ex. B [hereinafter “Initial Plan”]. I consider the Initial Plan because it is

6
 The Initial Plan provides Theory’s Manager, in its sole and absolute

discretion, the power to give Service Providers, defined as “eligible management

personnel,” an Award of Incentive-1 Units.9 Its purpose “is to reward designated

Service Providers for their performance in enhancing the value of the Company.”10

Pursuant to Section 3.1(b), “the Manager shall grant such Awards and may impose

such terms and conditions on the issuance of such Awards as the Manager deems

appropriate; provided, however, that no such terms may be inconsistent with the

LLC Agreement.”11 The Initial Plan defines “Manager” as “Lyor Cohen, or such

other Person as designated by the Board.”12

The Initial Plan contemplates a subsequent Award Agreement for each Award

granted under the Plan: “[e]ach Award granted to a Participant under this Plan is

subject to the terms of the Award Agreement pursuant to which such Award was

issued and the applicable provisions of this Plan and the LLC Agreement.”13 “In the

event of a conflict between the provisions of this Plan and the LLC Agreement, the

incorporated into and integral to the Amended Complaint. See Horman, 2017 WL 242571,
at *2 n.2; In re Gardner Denver, Inc., 2014 WL 715705, at *2–3; In re Gen. Motors
(Hughes) S’holder Litig., 897 A.2d at 169.
9
Initial Plan at 1.
10
Id.
11
Id. § 3.1(b) (emphasis in original).
12
Id. § 1.4.
13
Id. § 6.1.

7
provisions of the LLC Agreement shall govern.”14 A Service Provider does not

become a “Participant” under the Initial Plan until he executes the requisite Award

Agreement.15 And Section 3.2 mandates that every Participant receiving an Award

under the Initial Plan execute an Award Agreement:

14
Id.; accord id. at 1 (stating that Incentive-1 Units granted thereunder “shall be governed
by, and shall be subject to, the transfer and other restrictions contained in (a) this Plan, (b)
an ‘Award Agreement’ . . . to be executed by and between the Company and each such
Participant and (c) the [LLC Agreement], including all exhibits and schedules thereto”).
15
Id. § 1.5 (defining Participant as “any Service Provider who is selected by the Manager
to receive an Award pursuant to the provisions of Section 3.1 who executes an Award
Agreement pursuant to the provisions of Section 3.2.); see also id. § 3.2 (requiring Service
Provider to execute an Award Agreement).

8
 Each Award shall be issued only pursuant to an Award Agreement, and
no such Award shall be effective until such Award Agreement,
including any ancillary documents appended thereto, has been executed
by the selected Service Provider, an officer or manager of the Company
designated by the Manager on behalf of the Company and, if applicable,
the Service Provider’s spouse. Any such Award Agreement, and any
ancillary documents appended thereto, shall contain such terms and
conditions as the Manager shall determine, consistent with this Plan and
with the terms of the LLC Agreement. Upon full execution of all such
documents, the selected Service Provider shall become a Participant
and shall, without further action on his or her part, be deemed to be a
party to, signatory of and bound by the LLC Agreement. In addition,
at the Company’s request, such Participant and, if applicable, his or her
spouse shall execute the LLC Agreement. All Awards issued under this
Plan shall be subject to the terms of the LLC Agreement, this Plan and
the applicable Award Agreement, which shall contain such additional
terms, conditions or restrictions as the Manager shall determine
(provided that such terms are not inconsistent with restrictions set forth
in this Plan or the LLC Agreement), including restrictions concerning
transferability, provisions regarding distributions from the Company
and vesting conditions based on duration of employment or service with
the Company or its subsidiaries and/or performance by the Participant
and/or the Company and/or its subsidiaries.16

In addition to an Award Agreement, the LLC Agreement and Initial Plan

require each Service Provider receiving an Award to “make a timely and effective

election under Section 83(b) of the Code with respect to” the units received.17

Section 6.4 states that “[t]he grant of such Award shall be conditioned on the

Participant making such Section 83(b) election.”18

16
Id. § 3.2.
17
Id. § 6.4; see also LLC Agreement § 7.8.
18
Initial Plan § 6.4.

9
 The Initial Plan details the Manager’s discretion to condition the Award of

Incentive-1 Units on forfeiture and repurchase restrictions set forth in the

corresponding Award Agreement.19 Section 4.1 of the Initial Plan contemplates

“forfeiture of awards” “upon any Termination of Service of a Participant.”20

“Termination of Service” includes resignation “with or without Cause,” and

[t]he Manager, in its absolute discretion, shall determine the effect of
all matters and questions relating to Termination of Service, including
when a Termination of Service is effective, the question of whether a
Termination of Service resulted from a discharge for Cause, and all
questions of whether particular leaves of absence constitute
Terminations of Service.21

“Cause” “shall have the meaning set forth in [each] Participant’s applicable Award

Agreement.”22 And Section 4.2(a) addresses restrictions on Awards to be

determined by the Manager: “the Incentive-1 Units shall be subject to such

restrictions as the Manager shall determine in its sole discretion, including . . .

repurchase rights,” which “may, in the Manager’s sole discretion, be contained in

the applicable Award Agreement or in such other agreement as the Manager shall

19
Id. §§ 4.1, 4.2(a).
20
Id. § 4.1.
21
Id. § 1.6; see also id. § 1.5 (“‘Participant’ means any Service Provider who is selected
by the Manager to receive an Award pursuant to the provisions of Section 3.1 who executes
an Award Agreement pursuant to the provisions of Section 3.2, and who joins the LLC
Agreement as a Member.”).
22
Id. § 1.2.

10
determine, in each case in a form determined by the Manager in its sole discretion.”23

“The issuance of the Incentive-1 Units shall be conditioned on the Participant’s

consent to such restrictions or the Participant’s entering into such agreement or

agreements.”24

Section 5.2 further solidifies the Manager’s broad discretion with respect to

the Initial Plan and corresponding Award Agreements:

The Manager shall have the power to interpret this Plan and the Award
Agreements pursuant to which Awards are issued, and to adopt such
rules for the administration, interpretation, and application of this Plan
as are consistent therewith and to interpret, amend or revoke any such
rules. Any Award under this Plan and the determinations with respect
to any Award under this Plan need not be the same with respect to each
Participant. All designations, determinations, interpretations, and other
decisions under or with respect to this Plan or any Award or any Award
Agreements pursuant to which Awards are issued shall be within the
sole discretion of the Manager, may be made by the Manager at any
time and shall be final, conclusive and binding upon all parties,
including the Company (and any of its subsidiaries), any Participant,
any holder or beneficiary of any Award and any Member.25

Thus, the LLC Agreement and contemporaneous Initial Plan contemplated

an issuance of Incentive-1 Units, to be effective upon the recipient’s execution of

an Award Agreement and Section 83(b) election. The LLC Agreement and Initial

Plan granted Theory’s Manager with the power and discretion to award units;

23
Id. § 4.2(a).
24
Id.
25
Id. § 5.2.

11
condition that award; determine what constitutes termination for Cause; and

determine the consequences of a recipient’s termination or resignation, such as

forfeiture and repurchase by the Company.

B. Moscowitz Receives An Award Of Incentive-1 Units Under
The Initial Plan And Executes An Award Agreement.

In October 2013, when Theory granted Incentive-1 Units to new members,

Theory also granted Moscowitz Incentive-1 Units under the Initial Plan to raise his

ownership stake from 11.9% to 12%. This was done to ensure that Cohen owned

36% of Theory and that Moscowitz and Liles each owned 12%. To facilitate this

0.1% increase, Theory authorized the issuance of 46,429 Incentive-1 Units to

Moscowitz, as reflected in a schedule circulated on October 8, 2013. In November

2013, Ori Winitzer, on behalf of Theory’s investor LionTree, suggested preparing

award agreements for those Incentive-1 Units. Accordingly, Moscowitz executed a

Profit Interest Award Agreement dated December 17, 2013 (the “Award

Agreement”), as contemplated and required by the Initial Plan.26

26
Am. Compl. ¶ 16; see also Initial Plan § 3.2. Plaintiff did not attach the Award
Agreement as an exhibit to the Amended Complaint. Defendant provided it as an exhibit
to the Motion. See D.I. 31, Ex. C [hereinafter “Award Agreement”]. I consider the Award
Agreement because it is incorporated into and integral to the Amended Complaint. See
Horman, 2017 WL 242571, at *2 n.2; In re Gardner Denver, Inc., 2014 WL 715705, at
*2–3; In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d at 169.
In 2016, Theory asked Moscowitz to re-sign a corrected Award Agreement to
conform the number of Incentive Units to what was reflected on the October 2013 closing
capitalization table. At the time, Theory’s lawyer referred to the issue as a “scrivener’s

12
 The Award Agreement provides that Moscowitz, as the “Participant,”

received the “Award” of 46,429 Incentive-1 Units (“Interests”) “for the performance

of services to or for the benefit of the Company and/or its subsidiaries in [his]

capacity as a Member.”27 It also provides,

This Award is made pursuant to all of the provisions of the Plan and the
LLC Agreement, which are incorporated herein by this reference, and
is intended, and shall be interpreted in a manner, to comply therewith.
In the event of any conflict between the provisions of this Agreement,
the Plan and/or the LLC Agreement, the provisions of the Plan and LLC
Agreement shall govern.28

Consistent with the Initial Plan,29 the Award Agreement provides that “[e]ffective as

of the Grant Date,” December 17, 2013, the Company issued 46,429 Incentive-1

Units “under the Plan, which once the full amount of Incentive-1 Units authorized

as of the Grant Date . . . has been issued, will represent a Percentage Interest of

0.1%.”30 Moscowitz agreed that, subject to his continued provision of services to

the Company, “one twenty-fourth (l/24th) of the Interests shall vest each month on

each of the first twenty-four months following the Grant Date.”31

error” and stated that “after investigation, we believe that the cap table amounts are correct,
and that the Profit Interest Agreements themselves contained errors.” Am. Compl. ¶ 16.
27
Award Agreement § 2.1.
28
Id.
29
Initial Plan §§ 1.5, 3.1, 3.2, 6.1.
30
Award Agreement § 2.1.
31
Id. § 3.1(a).

13
 Section 3.3 of the Award Agreement governs the “Effect of Termination of

Service on Interests,” and details the instances in which Moscowitz’s unvested

Incentive-1, Common, and Preferred Units may be subject to forfeiture and in which

the vested units of the same may be subject to repurchase.32 “Termination of

Service,” as used in the Award Agreement is defined in the Initial Plan as

the termination, for any reason, including death, Disability, resignation,
retirement or termination with or without Cause, at any time, of the
Service Provider’s employment or other service with the Company (or
any of its subsidiaries), but excluding any termination which includes
simultaneous continuous service of the Participant with the Company
(or any of its subsidiaries).33

Cohen as “Manager” has “absolute discretion” to “all matters and questions relating

to Termination of Service” under the Award Agreement, “including when a

Termination of Service is effective” and “the question of whether a Termination of

Service resulted from a discharge for Cause.”34

Sections 1.2 and 3.3 of the Award Agreement contemplate the consequences

of the Participant’s Termination of Service. In Section 1.2, termination by the

Company is for “Cause” upon “the occurrence or existence” of certain events, “as

32
Id. § 3.3.
33
Initial Plan § 1.6; see also Award Agreement § 1 (“Capitalized terms used in this
Agreement but not otherwise defined herein shall have their respective meanings set forth
in the [LLC Agreement], including all exhibits and schedules thereto . . . and the [Initial
Plan] included as Exhibit A of the LLC Agreement . . . , as applicable.”).
34
Initial Plan § 1.6.

14
determined in good faith by the Manager,”35 including “[a] material violation of this

Agreement that, if curable, is not cured within 30 days after written notice describing

such violation has been given to such person.”36 In Section 3.3, termination by the

Participant is for Cause “in the event Participant voluntarily terminates Participant’s

service and fails to provide the Manager with written notice at least ninety (90) days

in advance of such Termination of Service (such ninety (90)-day period, the ‘Notice

Period’).”37 “In the event of Participant’s Termination of Service by the Company

for Cause,” as that term is defined in the Award Agreement, the termination is

considered a “Forfeiture Termination.”38

Upon a Forfeiture Termination, the Participant’s unvested Interests

shall thereupon automatically and without further action be cancelled
and forfeited for no consideration effective as of Participant’s
Termination of Service, and Participant shall have no further right or
interest in or with respect to such Interests.39

A Forfeiture Termination also triggers the Company’s right to repurchase the

Participant’s vested Interests, as well as his Common and Preferred Units, at

predetermined prices:

35
Award Agreement § 1.2.
36
Id. § 1.2(a).
37
Id. § 3.3(a); see also LLC Agreement § 17.2 (requiring that all notice thereunder be
written).
38
Award Agreement § 3.3(b).
39
Id.; see id. § 2.1 (defining “Interests”).

15
 upon the occurrence of a Forfeiture Termination, the Company shall
have the option (exercisable by the Company within the one (1)-year
period immediately following the date of such Termination of Service)
to repurchase the Participant’s vested Interests, as well as Participant’s
vested Common Units and Participant’s Preferred Units, if any,
including (in each case) Participant’s Capital Account balance that is
attributable to such Interests, Common Units and Preferred Units, as
applicable, at the repurchase price set forth below:

(i) in respect of vested Interests, the repurchase price shall be $0.10
per Incentive- I Unit repurchased;

(ii) in respect of Participant’s Common Units, the repurchase price
shall be the lesser of (1) the Fair Market Value of such Common Units
and (2) the greater of (A) the original cost (or exercise price, as
applicable, in the event of Common Units issued in exchange for
Preferred Units) paid by the Participant in respect of such Common
Units and (B) $0.10 per Common Unit; and

(iii) in respect of Participant’s Preferred Units, the repurchase price
shall be the Fair Market Value of such Preferred Units.40

If the Participant’s termination is “other than for Cause,” under Section 3.3(a),

“subject . . . to Participant delivering and not revoking a release of claims in favor

of the Company and its Affiliates, Participant’s vested Interests shall remain

outstanding (subject to all terms of the LLC Agreement, including those regarding

repurchase).”41 But unvested Incentive-1 Units

40
Id. § 3.3(b).
41
Id. § 3.3(a).

16
 shall automatically and without further action be cancelled and
forfeited for no consideration effective (i) in the event of Termination
of Service for any reason other than Cause or death, as of Participant’s
Termination of Service . . . , and Participant shall have no further right
or interest in or with respect to such unvested Interests.42

And if termination is “for any reason other than a Forfeiture Termination,” the

Company has a one-year “Call Right,” or the right to repurchase the Participant’s

vested Incentive-1, Common, and Preferred Units, upon the Participant’s

Termination of Service:

[T]he Company or its designee, in its sole discretion, may exercise a
right to repurchase for Fair Market Value some or all of Participant’s
vested Interests, vested Common Units and Preferred Units (the “Call
Right”) until the one (1)-year anniversary of the date of Participant’s
Termination of Service. If the Company chooses to exercise the Call
Right, in its sole discretion, the Company may either (a) pay to
Participant in cash the Fair Market Value of the repurchased Interests,
Common Units and Preferred Units or (b) issue to Participant a note
bearing interest at a rate equal to the London Interbank Offered Rate at
the time of issuance plus 200 basis points (the “Note”). . . . Upon
exercise of the Call Right, the repurchased Interests, Common Units
and Preferred Units shall be cancelled by the Company without any
further action of Participant, and Participant shall have no further right
or interest in or with respect to such Interests.43

Thus, the Award Agreement contemplates the various reasons for and manner

in which the Participant and the Company could part ways, and stratifies the

Participant’s ability to keep and monetize his Incentive-1, Preferred, and Common

42
Id.
43
Id. § 3.4.

17
Units based on the nature of his termination. A voluntary resignation without notice,

as a Termination for Cause, is a Forfeiture Termination that triggers the Company’s

repurchase right at lower prices than the Call Right, which is triggered by

termination for any reason other than a Forfeiture Termination.

When Moscowitz executed the Award Agreement, he also executed an

Election Pursuant to Section 83(b) of the Internal Revenue Code (the “83(b)

Election”), stating that “the date on which the above property was transferred to the

undersigned was December 17, 2013, and the taxable year to which this election

relates is 2013.”44 The 83(b) Election also recognizes that the Award is subject to

44
Award Agreement, Ex. A ¶ 3. Over Moscowitz’s objection, I conclude the 83(b) Election
is properly considered on Theory’s Motion because it is attached as an exhibit to the Award
Agreement, which is integral to the Complaint. See Winshall v. Viacom Int’l, Inc., 76 A.3d
808, 818 (Del. 2013).. Under the incorporation-by-reference doctrine, “[a] plaintiff may
not reference certain documents outside the complaint and at the same time prevent the
court from considering those documents’ actual terms.” Reiter v. Fairbank, 2016 WL
6081823, at *5–6 (Del. Ch. Oct. 18, 2016) (alteration in original) (quoting Winshall, 76
A.3d at 818); see also Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch.
2016) (providing extensive summary of the incorporation-by-reference doctrine),
abrogated on other grounds by Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del. 2019).
The Amended Complaint extensively cites and refers to the Award Agreement and Initial
Plan. The 83(b) Election is an exhibit to and part of the Award Agreement, which is
unquestionably integral to the Amended Complaint, but which Moscowitz failed to
provide. Moscowitz may not reference the Award Agreement “and at the same time
prevent the court from considering [the] document[’s] actual terms” in connection with a
motion to dismiss. Winshall, 76 A.3d at 818 (quoting Fletcher Int’l, Ltd. v. ION
Geophysical Corp., 2011 WL 1167088, at *3 n.17 (Del. Ch. Mar. 29, 2011)). Theory has
provided and referred to the omitted exhibit to the Award Agreement, and in “doing so
fairly represents the selective portions the plaintiffs have submitted into the record.” In re
Gen. Motors (Hughes) S’holder Litig., 2005 WL 1089021, at *6 (Del. Ch. May 4, 2005)
(“Surely plaintiffs do not contend that the Court is not entitled to consider the full context
of a document once the plaintiffs have relied on particular segments in their
Complaint?”), aff’d, 897 A.2d 162 (Del. 2006). “The better practice would have been for

18
certain restrictions, including “forfeiture and/or a right of repurchase by the

Company or its designee if the undersigned ceases to provide services to the

Company or one of its Affiliates or otherwise breaches Participant’s obligations to

the Company” and any other restrictions set forth in the Award Agreement and LLC

Agreement.45

C. Moscowitz Resigns From Theory.

In spring 2016, Moscowitz verbally advised Cohen that he intended to leave

Theory. Cohen retaliated in April by removing Moscowitz as a voting member of

the Board and replacing him with Liles. Moscowitz was excluded from Company

meetings and key decisions.

In June, Moscowitz discussed the possibility of Theory purchasing his stock

with LionTree’s Winitizer, stating that he wanted additional cash flow, and that if

he did not receive it, he would need to leave. Winitzer responded that Moscowitz’s

stock purchase proposal was “quite thoughtful,” but advised him that Theory

plaintiff[] to set forth the entire contract or to attach that document to the [Amended]
Complaint in the first place . . . .” Lewis v. Straetz, 1986 WL 2252, at *3 (Del. Ch.
Feb. 12, 1986) (quoting Bechtel v. Local 215, Laborers’ Int. Union of N. Am., AFL-CIO,
405 F. Supp. 370, 374 n.1 (M.D. Pa. 1975), aff’d in part, rev’d in part on other grounds,
544 F.2d 1207 (3d Cir. 1976)).
45
Award Agreement, Ex. A ¶ 4.

19
“need[ed] the capital first (the more we have, the easier for you) and then we can

revisit.”46 No purchase plan materialized, and Moscowitz focused on his departure.

In September, Cohen announced that he was leaving 300, and therefore

Theory, to become YouTube’s Global Head of Music. When Cohen advised

Theory’s Board of his departure, Moscowitz told Cohen that “the news did not

change his own plans and, as previously indicated months before, Moscowitz still

was planning to leave.”47 Cohen and YouTube’s owner, Google, Inc., remain two

of Theory’s largest investors. In October, allegedly related to Cohen’s transition to

YouTube, Theory launched a self-tender for $17,000,000 of Theory equity (the

“Tender Offer”).

On November 7, Moscowitz sent Theory a formal notice of resignation dated

November 1, 2016 (the “Resignation Notice”).48 The Resignation Notice states that

in accordance with the terms of the LLC Agreement, Moscowitz “hereby gives

notice of [his] immediate resignation as a Manager of the Company and from any

46
Am. Compl. ¶ 20.
47
Id. ¶ 22.
48
Id. ¶ 23. Plaintiff did not attach the Resignation Notice as an exhibit to the Amended
Complaint. Defendant provided it as an exhibit to the Motion. See D.I. 31, Ex. D
[hereinafter “Resignation Notice”]. I consider the Resignation Notice because it is
incorporated into and integral to the Amended Complaint. See Horman, 2017 WL 242571,
at *2 n.2; In re Gardner Denver, Inc., 2014 WL 715705, at *2–3; In re Gen. Motors
(Hughes) S’holder Litig., 897 A.2d at 169.

20
and all positions [he] hold[s] or ha[s] held with the Company, arising under the

Agreement, or otherwise.”49

But, even while resigning, Moscowitz strove to retain all the benefits from his

membership in Theory. His Resignation Notice went on:

Notwithstanding the foregoing, the undersigned has in no way
surrendered, waived or in any way modified any of my rights, benefits
or entitlements as a Member or as an owner of a membership interest
in the Company or any successor in interest of the Company.

If for any reason, whatsoever, a court of competent jurisdiction
determines that the foregoing resignation shall result in the loss,
forfeiture, diminution or waiver of the undersigned’s rights and/or
entitlements as a Member or owner of a membership interest in the
Company, the foregoing resignation shall be deemed void, ab initio,
and of no force or effect.50

On November 10, Moscowitz and Universal Music Group issued a joint press release

announcing their joint venture, Cold Heat Records, which is now known as Alamo

Records.

On November 11, Theory’s Board of Managers notified Moscowitz via email

that it accepted his “immediate voluntary resignation,” “consistent with the [LLC

Agreement], and the [Initial Plan]” (the “Board Notice”).51 Although the Board

49
Resignation Notice at 1.
50
Id. (emphasis in original).
51
D.I. 40 at 1. Plaintiff did not attach the Board Notice as an exhibit to the Amended
Complaint. Defendant provided it to the Court. See id. I consider the Board Notice
because it is incorporated into and integral to the Amended Complaint. See Horman, 2017

21
Notice did not explicitly address the conditions Moscowitz imposed on his

resignation, it stated, “The Company hereby reserves and does not waive any rights

it has with respect to the foregoing, including with respect to any rights it has under

the [LLC] Agreement, the Initial Plan and the [Award Agreement] between the

Company and you.”52

On November 18, Moscowitz accepted the Tender Offer, expressing that he

intended to sell Theory 400,000 Preferred Units and 1,049,489 Common Units.

Theory bought Moscowitz’s tendered shares for $1.648 per unit, totaling

$2,388,575.87. Thereafter, Moscowitz held 2,798,797 Common Units and 46,429

Incentive-1 Units (the “Remaining Units”).

D. Theory Exercises Its Repurchase Right Under The Award
Agreement, And Moscowitz Reneges His Resignation.

Two months later, Theory notified Moscowitz that it determined his

resignation constituted Termination of Service for Cause under the Award

Agreement. In a letter dated January 17, 2017 (the “Repurchase Letter”), Theory

stated that Moscowitz violated the Award Agreement by failing to provide the

Company with 90 days’ written notice of his voluntary Termination of Service.

Accordingly, Theory deemed Moscowitz’s resignation a termination for Cause, and

WL 242571, at *2 n.2; In re Gardner Denver, Inc., 2014 WL 715705, at *2–3; In re Gen.
Motors (Hughes) S’holder Litig., 897 A.2d at 169.
52
D.I. 40 at 1.

22
therefore a Forfeiture Termination, under the Award Agreement. Theory explained

it was exercising its right to repurchase Moscowitz’s Remaining Units at the

predetermined Forfeiture Termination price of $0.10 per unit, for a total of

$283,622.60. Theory included a check payable to Moscowitz in that amount, and

informed Moscowitz that the repurchase extinguished his interest and membership

in Theory.

In response to the Repurchase Letter, Moscowitz took three steps. First, in a

letter dated February 1 (the “Revocation Letter”), Moscowitz “emphasiz[ed] that the

[Resignation Notice] was expressly conditioned upon the premise that it would not

cause him to surrender, waive, diminish, or modify any of his rights, benefits or

entitlements as a member of Theory or as an owner of a membership interest in

Theory.”53 The Revocation Letter also purported to “rescind[] and withdr[a]w” the

Resignation Notice, and “expressed Moscowitz’s ability and willingness to return to

work for Theory (though he disputed that such an obligation existed under the [LLC]

Agreement).”54 Moscowitz returned the $283,622.60 repurchase check with the

Revocation Letter.

Second, after purportedly revoking his initial resignation via the Revocation

Letter, Moscowitz tried to resign in a manner that would not trigger any repurchase

53
Am. Compl. ¶ 29.
54
Id.

23
right. On February 1, Moscowitz sent Theory a letter in which he purported to resign

from Theory on 90 days’ notice and expressly stated that such notice superseded his

Resignation Notice (the “Second Resignation Notice”). Once again, Moscowitz

attempted to impose conditions on his resignation, stating that nothing in the Second

Resignation Notice “should be construed as a surrender, waiver, or modification of

his rights, benefits or entitlements as a member or as an owner of any membership

interest in Theory,” and that “if such resignation resulted in a loss, forfeiture,

diminution or waiver of his rights and/or entitlements as a member or owner of a

membership interest, then the resignation was of no force or effect.”55

Third, Moscowitz reiterated his position though counsel via a letter to Theory

on February 3. On February 8, Theory responded via letter, maintaining that the

Award Agreement gave the Company the right to repurchase Moscowitz’s

Remaining Units at $0.10 per share. Through new counsel, Moscowitz again

protested Theory’s position; Theory reiterated that Moscowitz forfeited his interest

in the Company.

E. Moscowitz Files This Action.

Alleging that he has not yet been paid for his Remaining Units and “does not

know what became of them because Theory ceased treating him as a unitholder,”56

55
Id. ¶ 30.
56
Id. ¶ 33.

24
Moscowitz filed a Verified Complaint initiating this action on September 27, 2019.57

Theory moved to dismiss on November 25.58 In response, Moscowitz filed the

Amended Complaint on January 29, 2020.59

Count I of the Amended Complaint seeks a declaratory judgment that the

Award Agreement is invalid for lack of consideration. Count II seeks a declaratory

judgment that Moscowitz is a Theory member owning 2,789,797 Common and

46,429 Incentive-1 Units; that Moscowitz’s Resignation Notice is of no force and

effect; that Moscowitz’s Second Resignation Notice validly effected his resignation;

and that Theory’s Forfeiture Termination is of no force and effect. Count III asserts

an alternative claim for breach of the Award Agreement, assuming the Award

Agreement is binding, claiming Theory breached by

purporting to redeem Moscowitz’s membership Units; failing to give
notice to Moscowitz of any purported breach of the Award Agreement;
failing to provide any opportunity to cure such breach to Moscowitz;
improperly construing the Award Agreement such that Moscowitz’s
[Resignation Notice] gives rise to a Forfeiture Termination; improperly
terminating Moscowitz’s membership interest in Theory; and
converting, alienating, or otherwise dealing with Moscowitz’s Units
and/or membership interest without Moscowitz’s consent.60

57
D.I. 1.
58
D.I. 17.
59
See generally Am. Compl.
60
Id. ¶ 51.

25
Count IV asserts a claim for breach of the implied covenant of good faith and fair

dealing, alleging that the LLC Agreement and Award Agreement are binding and

that Theory breached the implied covenants therein for identical reasons.61 Count V

asserts a claim for conversion, and Count VI seeks an accounting and specific

performance.

Theory filed the Motion on February 11.62 On April 10, Theory submitted its

opening brief in support.63 On June 8, Moscowitz opposed the Motion.64 Theory

replied on June 29.65 I heard argument on July 15.66

II. ANALYSIS

This opinion addresses Theory’s Motion pursuant to Court of Chancery Rule

12(b)(6). “The standard for dismissal pursuant to Rule 12(b)(6) for failure to state a

claim upon which relief can be granted is well established.”67 The Court accepts all

61
See id. ¶ 62 (“Theory has breached this implied contractual term, inter alia, by failing to
give notice to Moscowitz of any defect in his resignation; failing to provide Moscowitz
any opportunity to cure such breach; improperly construing the Award Agreement such
that Moscowitz’s [Resignation Notice] gave rise to a Forfeiture Termination; improperly
terminating Moscowitz’s membership interest in Theory; and converting, alienating, or
otherwise dealing with Moscowitz’s Units and/or membership interest without
Moscowitz’s consent.”).
62
D.I. 28.
63
D.I. 31.
64
D.I. 33.
65
D.I. 35; see also D.I. 40, 42.
66
D.I. 43, 46.
67
Feldman v. Cutaia, 2006 WL 920420, at *7 (Del. Ch. Apr. 5, 2006).

26
well-pled allegations as true and draws all reasonable inferences in favor of the non-

movant.68 However, the Court “need not accept conclusory allegations as true, nor

should inferences be drawn unless they are truly reasonable.”69 The Court will not

grant dismissal “unless the plaintiff would not be entitled to recover under any

reasonably conceivable set of circumstances.”70 A motion to dismiss will be granted

only if “it appears with reasonable certainty that the plaintiff could not prevail on

any set of facts that can be inferred from the pleading.”71 “Under Rule 12(b)(6), a

complaint may, despite allegations to the contrary, be dismissed where the

unambiguous language of documents upon which the claims are based contradict the

complaint’s allegations.”72

Theory seeks dismissal on the basis that its conduct is authorized by the plain

language of the LLC Agreement, Initial Plan, and Award Agreement (collectively,

the “Agreements”), precluding each theory of recovery in the Amended Complaint.

And so the Amended Complaint and Motion turn primarily on questions of contract

interpretation. “Under Delaware law, the proper interpretation of language in a

68
Sheldon, 220 A.3d at 251.
69
Id.
70
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del.
2011).
71
Feldman, 2006 WL 920420, at *7.
72
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 139 (Del. Ch. 2003).

27
contract is a question of law. Accordingly, a motion to dismiss is a proper

framework for determining the meaning of contract language.”73

The principles governing contract interpretation are well settled.
Contracts must be construed as a whole, to give effect to the intentions
of the parties. Where the contract language is clear and unambiguous,
the parties’ intent is ascertained by giving the language its ordinary and
usual meaning. Courts consider extrinsic evidence to interpret the
agreement only if there is an ambiguity in the contract.74

Contract language is ambiguous if it is “reasonably susceptible of two or more

interpretations or may have two or more different meanings.”75

“When interpreting a contract, a court must give effect to all of the terms of

the instrument and read it in a way that, if possible, reconciles all of its provisions.”76

“[A] court will prefer an interpretation that harmonizes the provisions in a contract

as opposed to one that creates an inconsistency or surplusage.”77 “Contract terms

themselves will be controlling when they establish the parties’ common meaning so

that a reasonable person in the position of either party would have no expectations

inconsistent with the contract language.”78

73
Allied Cap. Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006).
74
Nw. Nat’l Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996) (citations omitted).
75
Twin City Fire Ins. Co. v. Del. Racing Ass’n, 840 A.2d 624, 628 (Del. 2003) (quoting
Kaiser Alum. Corp. v. Matheson, 681 A.2d 392, 395 (Del. 1996)).
76
GRT, Inc. v. Marathon GTF Tech., Ltd., 2012 WL 2356489, at *4 (Del. Ch.
June 21, 2012).
77
Id.
78
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).

28
 Consistent with Delaware’s pro-contractarian policy, “a party may not come

to court to enforce a contractual right that it did not obtain for itself at the negotiating

table.”79 Delaware law presumes parties are bound by the language of the agreement

they negotiated, especially when the parties are sophisticated entities that have

engaged in arms-length negotiations.80 The Court “will not disturb a bargain

because, in retrospect, it appears to have been a poor one.”81 “Parties have a right to

enter into good and bad contracts, the law enforces both.”82

A. The Award Agreement Binds Moscowitz.

I first address Count I’s request that the Court enter a declaratory judgment

that the Award Agreement is invalid for lack of consideration and that, therefore,

Moscowitz is not bound by its terms. The plain contract language that the parties

agreed upon indicates that Moscowitz’s Incentive-1 Units were consideration for

executing the Award Agreement. Count I is dismissed.83

79
GRT, Inc., 2012 WL 2356489, at *7.
80
See W. Willow-Bay Ct., LLC v. Robino-Bay Ct. Plaza, LLC, 2007 WL 3317551, at *9
(Del. Ch. Nov. 2, 2007) (“The presumption that the parties are bound by the language of
the agreement they negotiated applies with even greater force when the parties are
sophisticated entities that have engaged in arms-length negotiations.”), aff’d, 985 A.2d 391
(Del. 2009); accord HC Cos., Inc., 2017 WL 6016573, at *5.
81
W. Willow-Bay Ct., LLC, 2007 WL 3317551, at *9.
82
Nemec, 991 A.2d at 1126.
83
“Parties to a contract can seek declaratory judgment to determine ‘any question of
construction or validity’ and can seek a declaration of ‘rights, status or other legal relations
thereunder.’” Energy P’rs, Ltd. v. Stone Energy Corp., 2006 WL 2947483, at *6 (Del. Ch.
Oct. 11, 2006) (quoting 10 Del. C. § 6502). The party seeking a declaratory judgment must

29
 Drawing all reasonable inferences that logically flow from well-pled facts in

the plaintiff’s favor, this Court can properly determine the validity and effect of

consideration at the motion to dismiss stage.84 “It is the blackest of black-letter law

that an enforceable contract requires an offer, acceptance, and consideration.”85 As

the Delaware Supreme Court has explained, “it is well settled that consideration for

a contract can consist of either a benefit to the promiser or a detriment to the

promisee.”86 Delaware law does not “assume[] that parties to a contract must

explicitly detail the precise consideration they are exchanging” and “makes no such

requirement,”87 but a recital in a written agreement that a stated consideration has

demonstrate that an “actual controversy” exists. See id. Theory couched its contention
that the governing Agreements refute Moscowitz’s claim as a failure to plead the existence
of an actual controversy. I reject Theory’s position that its accurate reading of the contracts
means there is no actual controversy to support Count I. As demonstrated by their briefs,
the parties have adverse legal interests and hold divergent views about the effectiveness
and meaning of the Award Agreement; a controversy exists between Moscowitz and
Theory. The Amended Complaint adequately identifies an actual controversy between
Moscowitz and Theory about the validity and enforceability of the Award Agreement. See
id. at *6–9. But Theory interprets the Agreements correctly, so I proceed on that basis.
84
See Seiden v. Kaneko, 2015 WL 7289338, at *5–6 (Del. Ch. Nov. 3, 2015); Seiden v.
Kaneko (Seiden II), 2017 WL 1093937, at *4 (Del. Ch. Mar. 22, 2017), aff’d, 177 A.3d 69
(Del. 2017); see also Acker v. Transurgical, Inc., 2004 WL 1230945, at *3–4 (Del. Ch.
Apr. 22, 2004) (granting dismissal under Court of Chancery Rule 12(b)(6) of claim for
declaration that contract was void for lack of consideration).
85
Seiden II, 2017 WL 1093937, at *5 (quoting James J. Gory Mech. Contr., Inc. v. BPG
Residential P’rs V, LLC, 2011 WL 6935279, at *2 (Del. Ch. Dec. 30, 2011)).
86
Id. (quoting First Mortg. Co. of Pa. v. Fed. Leasing Corp., 456 A.2d 794, 795–96 (Del.
1982)).
87
Id. at *6.

30
been given facially supports a finding that the agreement is supported by

consideration, absent facts suggesting that no such consideration was actually given

or expected.88 “An allegation that a party has received no consideration is a

conclusion of law and is not entitled to deference.”89

1. The Award Agreement Applies to Moscowitz.

As an initial matter, Moscowitz argues the Award Agreement’s Termination

of Service and Forfeiture provisions do not apply to him. He makes two arguments

based on the Award Agreement’s language stating the Incentive-1 Units were issued

to “eligible management personnel” “for the performance of services to or for the

benefit of” Theory in his “capacity as a Member.”90

First, Mosowitz theorizes that the Award Agreement’s Notice Period for

resignation was designed to retain employees, and that because Moscowitz is not an

employee, it does not apply to him. Moscowitz contends that “[a]s a co-founder of

88
See TA Operating LLC v. Comdata, Inc., 2017 WL 3981138, at *23 (Del. Ch.
Sept. 11, 2017) (stating that where a contract contains a recital of consideration, it suggests,
“on its face,” that the parties exchanged valuable consideration); see also Restatement
(Second) of Contracts § 87 cmt. c (1981) (“A recital in a written agreement that a stated
consideration has been given is evidence of that fact as against a party to the agreement,
but such a recital may ordinarily be contradicted by evidence that no such consideration
was given or expected.”); id. § 218 cmt. b (“A recital of fact in an integrated agreement is
evidence of the fact, and its weight depends on the circumstances. Contrary facts may be
proved.”); id. § 218 cmt. e (“Where consideration is required, the requirement is not
satisfied by a false recital of consideration, although in some circumstances a recital of
consideration may make a promise binding without consideration.”).
89
Acker, 2004 WL 1230945, at *4.
90
Award Agreement § 2.1; Initial Plan at 1, § 3.3.

31
Theory, he was not required to perform services to Theory, and he was not granted

Incentive-1 Units to encourage his continued employment with the Company.” 91 He

pleads that he was not a Theory employee, was not subject to an employment

contract, and had no “required duties or responsibilities at Theory.” 92 Moscowitz

concludes there is a question of fact as to whether he was actually a “Service

Provider” (defined as “eligible management personnel”) under the Initial Plan, and

“Participant” (defined as a “Service Provider who . . . executes an Award

Agreement”) under the Award Agreement.93

The Award Agreement is not limited in whole or in part to employees. The

entire Award Agreement applies to any Service Provider who became a Participant

by agreeing to accept units thereunder. The LLC Agreement contemplates that

Incentive-1 Units “will be reserved for issuance to officers, key employees,

consultants and other Persons who provide services to the Company” or the

“Management Pool.”94 It further explains that all Incentive Units awarded outside

of the context of an option “are received in exchange for the provision of services

by such recipient to or for the benefit of the Company in a service provider capacity

91
D.I. 33 at 39.
92
See id. at 36; see also id. at 34 n.7.
93
Initial Plan at 1, § 1.5; Award Agreement at 1, § 1.
94
LLC Agreement § 11.14(a).

32
or in anticipation of becoming a service provider.”95 The Award Agreement in

whole, and its Notice Period in particular part, are not limited to employees.

Second, Moscowitz contends the Resignation Notice submitted his

resignation as Manager, but not as Member, and argues that because he does not

provide services as a Member, the Award Agreement’s provisions regarding

Termination of Service does not apply to him. But even assuming that Moscowitz

could and did resign as a Manager but not as a Member, his resignation as Manager

still meets the plain definition of a Termination of Service. The Initial Plan defines

“Termination of Service” as “the termination, for any reason, including . . .

resignation, of the Service Provider’s employment or other service with the

Company, but excluding any termination which includes simultaneous continuous

service of the Participant.”96 Taking as true Moscowitz’s contention that he did not

provide services as Member, his resignation as Manager comprises a Termination of

Service that permits the Company to repurchase his equity under the Award

Agreement. This is a logical reading of the Award Agreement: if a Service Provider

no longer wishes to provide any services to the Company, the Company has the

option to make a clean break as to equity as well.97

95
Id. § 11.14(b).
96
Initial Plan § 1.6.
97
See Focus Fin. P’rs, LLC, v. Holsopple, 2020 WL 6266915, at *19 (Del. Ch.
Oct. 26,2020) (concluding that in “a manager-managed LLC in which holders of units have
minimal rights,” where an agreement granting units contains provisions regarding or

33
 2. The Award Agreement Is Supported By
Consideration.

Moscowitz contends that the Incentive-1 Units were not consideration for the

Award Agreement because he already owned those Units when he executed the

Award Agreement. He alleges that a schedule circulated on October 8, 2013

reflected he owned 46,429 Incentive-1 Units, and asks the Court to infer therefrom

that he acquired the Incentive-1 Units in October 2013, rather than December 2013

when he executed the Award Agreement.98 He also alleges that the Award

Agreement materialized upon LionTree’s mere suggestion, and argues the Court

should infer that the Award Agreement was an “afterthought.”99 Moscowitz’s

position is undermined by the Initial Plan and Award Agreement, and the inferences

he asks the Court to make in considering the schedule and impetus for the Award

Agreement are not reasonable.

Each of the Agreements provides that it is supported by valuable

consideration. The LLC Agreement plainly states that “in consideration of the

mutual promises herein contained and for other good and valuable consideration, the

restricting the unitholder’s provision of services, those provisions pertain not to the
unitholder’s status as a unitholder, but rather to his status as a service provider).
98
Am. Compl. ¶ 15; D.I. 33 at 17.
99
D.I. 33 at 6; see also id. at 17–18; Am. Compl. ¶ 16.

34
receipt and sufficiency of which are hereby acknowledged,”100 Moscowitz agreed to

be bound by its terms, including the Initial Plan.101

The Initial Plan in turn makes clear that additional issuances would be

effective upon, and therefore consideration for, an Award Agreement. The Initial

Plan provides that Service Providers “may be granted” an Award of Incentive-1

Units thereunder,102 as the Manager “may from time to time, in its sole and absolute

discretion”103 determine in exchange “for the performance of services to or for the

benefit of the Company or its subsidiaries . . . in the Participant’s capacity as a

Member.”104 It also mandates that for an eligible Service Provider to become a

“Participant” in receipt of the Award, the Service Provider must execute an Award

Agreement in the form to be determined by the Manager.105 And “each Award

100
LLC Agreement at 1.
101
See id. (stating the “Existing Members, by their execution hereof, hereby approve the
amendment and restatement of the Amended LLC Agreement to this Agreement, and
approve the rights, preferences, privileges and restrictions of the Members of the Company
as set forth in this Agreement”); id. § 11.14 (authorizing issuance of Incentive-1 Units
under the Initial Plan attached as Exhibit A to the LLC Agreement); see generally Initial
Plan.
102
Initial Plan § 2.1 (emphasis added).
103
Id. § 3.1(a) (emphasis added).
104
Id. § 3.3.
105
See id. § 3.2 (“Each Award shall be issued only pursuant to an Award Agreement, and
no such Award shall be effective until such Award Agreement, including any ancillary
documents appended thereto, has been executed by the selected Service Provider. . . . Upon
full execution of [any such Award Agreement, and any ancillary documents appended
thereto], the selected Service Provider shall become a Participant . . . .” (emphasis added));
see also id. §§ 1.1, 1.5, 3.1, 3.4, 4.1, 4.2.

35
granted to a Participant under this Plan is subject to the terms of the Award

Agreement pursuant to which such Award was issued and the applicable provisions

of this Plan and the LLC Agreement.”106 Thus, while the Initial Plan empowers the

Manager to authorize an issuance of Incentive-1 Units, and conditions that issuance

on the Service Provider’s execution of an Award Agreement, the Initial Plan does

not effectuate that issuance.

The issuance is accomplished by the Award Agreement, which

unambiguously provides the Award issues and becomes effective upon the Award

Agreement’s execution. The Award Agreement provides that “[e]ffective as of the

Grant Date,” December 17, 2013, the Company issued the Award “under the Plan,

which, once the full amount of Incentive-1 Units authorized as of the Grant Date . . .

has been issued, will represent a Percentage Interest of 0.1%,”107 and identifies a

vesting schedule.108 Moscowitz, as the Participant, acknowledged receipt of 46,429

Incentive-1 Units as of that date in exchange for his “performance of services to or

for the benefit of the Company and/or its subsidiaries in [his] capacity as a

106
Id. § 6.1 (emphasis added); accord id. at 1 (stating that Incentive-1 Units granted
thereunder “shall be governed by, and shall be subject to, the transfer and other restrictions
contained in (a) this Plan, (b) an ‘Award Agreement’ . . . to be executed by and between
the Company and each such Participant and (c) the [LLC Agreement], including all exhibits
and schedules thereto”).
107
Award Agreement § 2.1 (emphasis added).
108
Id. § 3.1(a).

36
Member;”109 his vesting schedule based on his continued provision of services;110

and his agreement to the terms and restrictions.111

The Initial Plan and Award Agreement also plainly provide that each recipient

must execute a Section 83(b) election for the Award to issue.112 Moscowitz executed

that 83(b) Election, attached as Exhibit A to the Award Agreement.113 He attested

therein that “the date on which the above property was transferred to the undersigned

was December 17, 2013, and the taxable year to which this election relates is

2013.”114

From the Initial Plan’s plain terms, Incentive-1 Units issue and vest only upon

the execution of an Award Agreement and corresponding 83(b) Election. The

Agreements and 83(b) Election unambiguously provide that Theory issued

Moscowitz 46,429 Incentive-1 Units on December 13, 2013, as present

consideration for the Award Agreement.115 The October schedule does not support

109
Id. § 2.1.
110
Id. § 3.1(a).
111
See id. § 2.1.
112
Id. § 7; Initial Plan § 6.4.
113
See Award Agreement, Ex. A.
114
Id. ¶ 3.
115
See Seiden II, 2017 WL 1093937, at *6–7 (holding that an agreement was supported by
present consideration where nothing in the agreement itself supported an inference that the
consideration given was “past consideration” or nothing more than the party “was already
entitled to receive,” and rejecting the nonmovant’s attempts to create issues of fact as to
those points); see also James J. Gory Mech. Contr., Inc., 2011 WL 6935279, at *2 (“A
commitment to honor a pre-existing obligation works neither benefit nor detriment;

37
a reasonable inference that the Award issued or became effective upon the

schedule’s distribution.116 The more reasonable inference is that the schedule

reflected the anticipated issuance. And LionTree’s suggestion may have spurred the

Award Agreement’s execution, but there is no basis to conclude the Award

Agreement did not effectuate the issuance as it, and the Initial Plan, contemplated.

Moscowitz’s allegations, in the context of the Agreements, do not state a claim that

the Award Agreement lacked consideration.

Moscowitz also contends the 46,429 Incentive-1 Units are inadequate

consideration for the Award Agreement’s consequences, and that the Initial Plan and

Award Agreement are unenforceable because he was unfairly surprised by their

terms. Moscowitz contends that he “agreed to accept the Incentive-1 Units to

address Theory’s math (and associated tax) problem,” but he did not foresee that he

would risk losing his entire equity stake in Theory by accepting another 0.1% of the

therefore, ‘a promise to fulfill a pre-existing duty, such as a promise to pay a debt owed,
cannot support a binding contract’ because consideration for the promise is lacking.”
(alteration omitted) (quoting First State Staffing Plus, Inc. v. Montgomery Mut. Ins. Co.,
2005 WL 2173993, at *9 (Del. Ch. Sept. 6, 2005))).
116
See Seiden II, 2017 WL 1093937, at *6–7 (looking to the terms of the agreement at issue
to determine whether it was supported by consideration); Acker, 2004 WL 1230945, at *3–
4 (rejecting argument that an agreement was unsupported by consideration where the
complaint and documents integral to it “plead[] . . . out a viable claim that the [agreements]
were without consideration”); H-M Wexford LLC, 832 A.2d at 139 (stating a claim is
dismissed “where the unambiguous language of documents upon which the claims are
based contradict the complaint’s allegations”).

38
company.117 He argues that “[w]hen [he] agreed to receive an additional 0.1% of

equity in the form of Incentive-1 Units, he had not seen the Award Agreement or

any of its terms (including the clause purportedly regarding 90 days’ written notice

of resignation, and the overbroad ‘Forfeiture Termination’ provision that are at issue

in this case)”118 and that “all he had seen related to the Incentive-1 Units was the

‘Initial Plan,’ which did not contain a written resignation notice provision, and which

solely contemplated the limited forfeiture of unvested Incentive-1 Units upon

‘Termination of Service of a Participant.’”119 Moscowitz argues that he agreed to

accept the Incentive-1 Units “[b]ased on the information available to him at the

time.”120

While Moscowitz’s characterization of the balance between consideration and

consequence as “draconian” is understandable,121 three principles foreclose relief.

117
D.I. 33 at 17; see also id. at 33–34 (contending dismissal “would be improper as there
are numerous questions of fact and matters for discovery regarding the purpose of the
Award Agreement [and] the parties’ intent with respect to Paragraph 3.3 and the Award
Agreement as a whole”); id. at 38 (“The Court should deny the motion and reject Theory’s
attempt to use the Award Agreement, which the Amended Complaint alleges to conflict
with the Operating Agreement, to eliminate all of Moscowitz’s equity, when its sole
purpose was to round out Moscowitz’s holdings, in a tax efficient manner, by granting him
less than one percent of his equity. No reasonable person, including initially Theory, would
have expected that a rounding device could be used to deprive Moscowitz of all of his
equity in the Company.”).
118
Id. at 17.
119
Id. at 18 (emphasis in original).
120
Id. at 17.
121
Id. at 37, 49.

39
First, even if the parties intended for Moscowitz to receive the Incentive-1 Units and

execute the Award Agreement only to correct a “math problem,” where the contract

language is clear and unambiguous, as it is here, the Court must ascertain the parties’

intent by looking to the Agreements’ plain terms.122 Those terms do not reflect a

purpose of curing a rounding error, and they do not reflect Moscowitz’s concern that

the 0.1% stake was inadequate consideration for the significant enumerated

consequences. Instead, the Initial Plan predicted that the parties intended for

Incentive-1 issuances to carry forfeiture and repurchase terms as determined in the

Manager’s sole discretion and enumerated in the Award Agreement.123 The Award

Agreement reflects the parties’ intent that in exchange for the Incentive-1 Units, the

Company could cash Moscowitz out if he and the Company parted ways, whether

or not for Cause.124

Second, Moscowitz is a sophisticated party who was on notice of the

Agreements’ terms. Delaware law presumes that sophisticated parties like

Moscowitz have read and are aware of the terms of the agreements they sign. “A

party to a contract cannot silently accept its benefits, and then object to its perceived

122
See Nw. Nat’l Ins. Co., 672 A.2d at 43.
123
See Initial Plan §§ 1.1, 1.2, 1.6, 2.2, 3.1, 3.2, 4.1, 4.2.
124
See Award Agreement §§ 3.3, 3.4.

40
disadvantages, nor can a party’s failure to read a contract justify its avoidance.”125

Moscowitz is no exception. He was aware of the consequences imposed by the

Award Agreement, as foretold by the Operating Agreement and Initial Plan. The

Initial Plan explicitly states that any Award is subject to the terms and restrictions

set forth in the Award Agreement; that the Award Agreement “shall contain such

additional terms, conditions or restrictions as the Manager shall determine;”126 and

that such restrictions may include “forfeiture of awards” “upon any Termination of

Service of a Participant.”127 And the Initial Plan vested the Manager with sole

discretion to “determine the effect of all matters and questions relating to

Termination of Service, including when a Termination of Service is effective” and

“the question of whether a Termination of Service resulted from a discharge for

Cause.” 128 The Initial Plan also put Moscowitz on notice that “the Incentive-1 Units

shall be subject to such restrictions as the Manager shall determine in its sole

discretion, including . . . repurchase rights,” which “may, in the Manager’s sole

125
Pellaton v. Bank of N.Y., 592 A.2d 473, 477 (Del. 1991) (alteration omitted) (quoting
Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989)).
126
Initial Plan § 3.1; see also id. §§ 3.1(b), 4.1, 4.2(a), 5.2.
127
Id. § 4.1.
128
Id. § 1.6; see also id. §§ 1.2, 1.5.

41
discretion, be contained in the applicable Award Agreement or in such other

agreement as the Manager shall determine.”129

Despite this notice and the plain terms of the Award Agreement, Moscowitz

signed the Award Agreement in exchange for the Incentive-1 Units, no matter how

few. By executing the LLC Agreement and approving the Initial Plan, Moscowitz

attested to his understanding and agreement that any “issuance of the Incentive-1

Units shall be conditioned on [his] consent to such restrictions or [his] entering into

such agreement or agreements.”130 Moscowitz did not bargain for more favorable

terms or more valuable consideration. If he failed to read the Agreements he signed,

“he alone is responsible for his omission.”131 And because he had no interest in or

entitlement to the Incentive-1 Units until he executed the Award Agreement, he

could have declined the Award and freed himself of the notice, forfeiture, and

repurchase provisions he now complains of. But Moscowitz affirmatively elected

to bind himself to the Award Agreement’s terms by accepting 46,429 Incentive-1

Units from Theory in December 2013. Moscowitz is bound by the language of the

129
Id. § 4.2(a).
130
Id.
131
Pellaton, 592 A.2d at 477 (quoting Upton v. Tribilcock, 91 U.S. 45, 50 (1875)).

42
unambiguous Agreements he signed, even if in retrospect he believes it to be a raw

deal that did not play out as he expected.132

Finally, this Court will not weigh the sufficiency of the Award Agreement’s

consideration. “Even if the consideration exchanged is grossly unequal or of

dubious value, the parties to a contract are free to make their bargain. Absent fraud

or unconscionability, the adequacy of consideration is not a proper subject for

judicial scrutiny.”133 Moscowitz does not plead fraud or seek rescission due to

unconscionability. Moscowitz’s belief that 46,429 Incentive-1 Units was

insufficient consideration for the Company’s rights under the Award Agreement is

of no moment before this Court.

The Amended Complaint and the Agreements integral thereto fail to state a

claim that the Award Agreement is unenforceable due to lack of consideration.134

Moscowitz received 46,429 Incentive-1 Units in exchange for his services to Theory

132
See HC Cos., Inc., 2017 WL 6016573, at *5; GRT, Inc., 2012 WL 2356489, at *7;
W. Willow-Bay Ct., LLC, 2007 WL 3317551, at *9.
133
Acker, 2004 WL 1230945, at *4 (alteration and internal quotation marks omitted)
(quoting Apfel v. Prudential-Bache Sec., Inc., 616 N.E.2d 1095, 1097 (N.Y.1993)).
134
See id. (stating that “[a]n allegation that a party has received no consideration is a
conclusion of law and is not entitled to deference” and finding that “the complaint pleads
itself out of a viable claim that the [agreements] were without consideration”); H-M
Wexford LLC, 832 A.2d at 139 (stating a claim is dismissed “where the unambiguous
language of documents upon which the claims are based contradict the complaint’s
allegations”).

43
and his consent to the restrictions set forth in the Award Agreement. Accordingly,

Count I is dismissed.

B. The Agreements Permit Theory To Repurchase A
Participant’s Equity Upon His Resignation, And To Do So At
A Lower Price If He Resigned Without Notice.

Having concluded the Award Agreement is valid and supported by

consideration, I turn to whether Moscowitz has stated claims under that Agreement.

Count II seeks a declaratory judgment that Theory acted improperly under the Award

Agreement by concluding Moscowitz’s resignation was a Forfeiture Termination

and accordingly electing to repurchase the Remaining Units. Count III claims that

Theory breached the Award Agreement, and Count IV asserts Theory breached its

implied covenant of good faith and fair dealing. Count V alleges conversion, and

Count VI seeks the remedies of accounting and specific performance.

To the extent these claims depend on whether the Award Agreement permitted

Theory to repurchase Moscowitz’s units after his resignation, I dismiss them today.

The Award Agreement is unambiguous; none of its terms are “reasonably

susceptible of two or more interpretations or may have two or more different

meanings.”135 The Court therefore ascertains the parties’ intent with respect to the

135
Twin City Fire Ins. Co., 840 A.2d at 628 (quoting Kaiser Alum. Corp., 681 A.2d at 395).
Moscowitz asserts that the Agreements are ambiguous, pointing to supposed
“conflicts” between the Agreements “that cannot be resolved on a motion to dismiss.” D.I.
33 at 35; accord id. at 36–37. He contends that because the terms of the Agreements with
respect to certain issues are not identical, they are in conflict. First, he argues the Initial

44
Plan and Operating Agreement did not address resignation, and that “this concept first
appears . . . in the Award Agreement.” Id. at 36. Moscowitz is wrong: the Initial Plan
states that the “Manager, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Service,” Initial Plan § 1.6, and that conditions
regarding forfeiture of Awards upon Termination of Service, other than those stated in the
Initial Plan, shall be determined at the Manager’s discretion and detailed in the Award
Agreement, see id. §§ 1.2, 1.6, 3.1(b), 4.1, 4.2.
He then argues that the Agreements address Forfeiture of Awards in conflicting
ways. Recognizing for this argument that Section 4 of the Initial Plan contemplates
forfeiture and repurchase, he states that “the later prepared Award Agreement contemplates
broad forfeiture of not only just the Incentive-1 Units that it granted, but also ‘Participant’s
vested Common Units and Participant’s Preferred Units.’” D.I. 33 at 37 (quoting Award
Agreement § 3.3(b)). But the Initial Plan provides for a forthcoming Award Agreement
“contain[ing] such terms and conditions as the Manager shall determine,” Initial Plan § 3.2,
including for forfeiture and repurchase, id. §§ 4.1, 4.2. The Award Agreement is more
specific than the Initial Plan by design: its terms are complementary, not conflicting.
Finally, Moscowitz contends the Award Agreement’s parameters on a signatory’s
relationship with the Company conflict with the LLC Agreement. Without much
explanation, Moscowitz concludes that the definitions of “Cause” provided in the Award
Agreement conflict with the LLC Agreement, and asserts he is bound only by clauses in
the LLC Agreement addressing a Founder’s performance. See D.I. 33 at 36, 39. No such
conflict exists.
As Founder, the LLC Agreement defines instances in which the Company could
take action against Moscowitz for “Cause,” including “a Founder’s continuing failure to
perform such Founder’s assigned duties or responsibilities as an employee of the Company,
consistent with the Founder’s position with the Company, as directed or assigned by the
Board . . . after written notice thereof.” LLC Agreement § 3.1, “Cause” (a). This definition
has limited import: it addresses a Founder’s Common and Preferred Units in the event of
a change of control, in his capacity as Founder. See id. § 7.2(c)(ii) (stating that “Upon any
Change in Control of the Company . . . any remaining unvested Units owned by a Founder
at such time shall vest upon such Founder’s termination without Cause”). And “Cause”
under the LLC Agreement includes
a Founder’s material breach of the terms of any agreement between the
Founder and the Company (or any subsidiary of the Company), unless the
Founder has cured such breach (to the extent that such breach is curable)
within thirty (30) days following the Founder’s receipt of written notice from
the Board specifying with particularity the alleged breach.
Id. § 3.1, “Cause” (e). This definition contemplates that Moscowitz would enter into
agreements with the Company that are separate and distinct from the LLC Agreement,
including the Award Agreement. The consequences of breaching those agreements would

45
Award Agreement “by giving the language its ordinary and usual meaning.”136

Looking to the Award Agreement’s plain language, I determine that Theory enjoys

a repurchase right, whether or not Moscowitz’s resignation is considered a Forfeiture

Termination.

But to the extent these claims require consideration of the propriety and effect

of the Resignation and Second Resignation Notices, the Motion is denied, as

explained infra. Accordingly, for the reasons I will explain, Count IV is dismissed,

and Counts II and III are dismissed in part; the Motion is denied with respect to the

remaining portions of Counts II and III, as well as Counts V and VI.

redound to his role as a Founder. The LLC Agreement’s definition of Cause in his role as
Founder does not conflict with the definition in Section 3.3(a) in his role as a Participant.
Compare id., and id. § 3.3, “Cause” (a), with Award Agreement § 3.3(a). In fact, it is
consistent with the Award Agreement’s definition of Cause in Section 1.2(a), which as
explained in Section II.B.1 infra, is separate and distinct from the Award Agreement’s
second definition of Cause in Section 3.3(a). Compare LLC Agreement § 3.1, “Cause”
(e), with Award Agreement § 1.2(a).
Ultimately, the Agreements subject Moscowitz to three complementary definitions
of Cause: (1) breach of the LLC Agreement’s duties and responsibilities as Founder and
Manager; (2) breach of the Award Agreement’s obligations imposed in exchange for
Incentine-1 Units; and (3) Termination of Service without 90 days’ written notice. These
definitions do not conflict.
136
Nw. Nat’l Ins. Co., 672 A.2d at 43.

46
 1. Voluntary Resignation Without 90 Days’
Written Notice Is A Termination Of Service For
Cause Without An Opportunity To Cure.

Moscowitz resigned from Theory voluntarily. That resignation constituted a

Termination of Service under the Award Agreement.137 His Resignation Notice

gave “notice of [his] immediate resignation as a Manager of the Company,”138 rather

than 90 days’ written notice. Moscowitz claims Theory improperly deemed his

resignation without notice to be a Termination of Service for Cause, and therefore a

Forfeiture Termination resulting in repurchase of the Remaining Units under Section

3.3(b). He also contends Theory deprived him of a right to notice and opportunity

to cure. Theory seeks dismissal on the grounds that it followed the Award

Agreement in responding to Moscowitz’s voluntary resignation. For purposes of

construing the Award Agreement, I assume Moscowitz voluntarily resigned without

90 days’ notice via the Resignation Notice; as explained below, this assumption is

disputed and not resolved by this opinion.

Some consequences of Moscowitz’s Termination of Service depend on

whether it is considered “for Cause” or “other than for Cause.”139 Section 3.3(b)

137
See Initial Plan § 1.6 (defining “Termination of Service” to include “resignation” of the
“Service Provider’s employment or other service with the Company . . . , but excluding
any termination which includes simultaneous continuous service of the Participant with the
Company”); Award Agreement § 1 (incorporating the Initial Plan’s defined terms).
138
Resignation Notice at 1 (emphasis added).
139
See Award Agreement §§ 3.3(a), 3.3(b), 3.4.

47
addresses Termination for Cause.140 The Award Agreement defines “Cause” in two

ways, depending on who is severing the relationship. First, Section 1.2 sets forth six

occurrences that justify Theory terminating a Participant’s service for “Cause” “as

determined in good faith by the Manager.”141 Under Section 1.2(a), in the event the

Manager perceives the Participant has committed a “material violation” of the

Award Agreement, termination will be for Cause under Section 3.3(b).142 In view

of the Manager’s broad discretion to determine whether a material violation has

occurred, Section 1.2(a) affords a Participant the right to notice of the perceived

breach and an opportunity to cure.143

Second, Section 3.3(a) identifies Termination of Service for Cause by the

Participant: “in the event Participant voluntarily terminates Participant’s service and

fails to provide the Manager with written notice” during the 90-day Notice Period in

advance of such Termination of Service (the “For Cause Provision”).144 If the

Participant resigns with 90 days’ written notice, then the voluntary Termination of

140
As explained below, this Section addresses both termination “by the Company” and
voluntary termination by the Participant. See infra Section II.B.3.
141
Award Agreement § 1.2.
142
Id. § 1.2(a); see also id. § 3.3(b).
143
See id. § 1.2(a).
144
Id. § 3.3(a). The LLC Agreement also mandates that notice be written: “Any notice or
other communication required by this Agreement must be in writing. Notices and other
communications will be deemed to have been given when delivered by hand or dispatched
. . . .” LLC Agreement § 17.2.

48
Service is not for Cause. That Section does not include the right to notice and an

opportunity to cure. The parties could have elected to include such a right, but

explicitly did not. Rather, the parties agreed that a Participant voluntarily

terminating service must provide 90 days’ written notice for that termination to be

deemed “other than for Cause.”145 If the Participant provides such notice, affording

Theory an opportunity to off-ramp that person, then the Participant enjoys more

favorable terms. But if the Participant resigns without 90 days’ written notice, the

Participant triggers a Termination of Service for Cause.146

Moscowitz argues that his Termination of Service could not be for Cause

unless his conduct triggered an event listed in Section 1.2.147 He also argues “Theory

was required to evaluate Moscowitz’s action in good faith and to give Moscowitz

notice and an opportunity to cure” under Section 1.2(a).148

But Section 1.2’s triggers for Cause are separate and distinct from, and in

addition to, Section 3.3(a)’s trigger. While there are many grounds for which Theory

145
Award Agreement § 3.3(b).
146
I note that in view of the broad discretion vested in the Manager under the Initial Plan
and Award Agreement with respect to Terminations of Service, it is possible that the
Manager could afford a Participant who has voluntarily resigned without notice and
therefore triggered Section 3.3(a)’s For Cause Provision notice and an opportunity to cure.
That did not happen here: Theory’s Manager held Moscowitz to the terms of the Award
Agreement.
147
See D.I. 33 at 41–42.
148
Id. at 43 (internal quotation marks omitted) (citing Award Agreement § 1.2(a)).

49
could terminate a Participant for Cause, a Participant may also effectuate his own

termination for Cause by resigning without sufficient notice. Moscowitz’s

termination would be for Cause if the Company decided he triggered the conditions

in Section 1.2, or if he decided to resign without notice under Section 3.3(a)’s For

Cause Provision. Moscowitz’s voluntary resignation without written notice

triggered not Section 1.2(a), but rather Section 3.3(a)’s For Cause Provision, which

does not afford him notice or an opportunity to cure.

In an attempt to avail himself of Section 1.2(a)’s right to notice and

opportunity to cure, Moscowitz argues that by electing to forego the Notice Period

under Section 3.3(a), he was “violating the contract” and triggered Section 1.2(a).149

For Moscowitz to prevail, the Court would have to transmogrify his voluntary

resignation into a Manager-discerned violation of the Award Agreement. But as

explained, Section 3.3 deems a Participant’s voluntary resignation to be for Cause

separately from the additional Cause triggers in Section 1.2.

In order for resignation without written notice to be a violation of the Award

Agreement, the Court would also have to read into the For Cause Provision an

obligation or duty requiring Moscowitz to provide 90 days’ written notice before

resigning.150 The For Cause Provision contemplates the “event” that the Participant

149
Id. at 44.
150
See GRT, Inc., 2012 WL 2356489, at *7 (“For a court to read into an agreement a
contract term that was expressly considered and rejected by the parties in the course of

50
does not give written notice, but does not require such notice. It does not state that

the Participant “shall provide” or “is required to provide” 90 days’ written notice

prior to a voluntary termination, nor does it command that the Participant give notice

in any particular way. Rather, the For Cause Provision’s only mandate is that

voluntary Termination of Service without notice “shall be considered for ‘Cause’

for purposes of the Agreement.”151 It obliges the Manager to categorize a voluntary

Termination of Service without notice as for Cause; it imposes no obligation on the

Participant.

Under Section 3.3’s plain terms, resignation without 90 days’ written notice

“shall be considered for Cause.”152 Moscowitz was not contractually obligated to

give notice under Section 3.3(a); he did not breach the Award Agreement by

resigning without notice; and he is not entitled to notice and an opportunity to cure

his own resignation. If Moscowitz opted to resign effective immediately, he

effectuated a Termination of Service for Cause, and he must endure the contractual

consequences of his decision.

negotiations would be to create new contract rights, liabilities and duties to which the
parties had not assented in contravention of that settled role.” (internal quotation marks
omitted) (quoting Allied Cap. Corp., 910 A.2d at 1030)).
151
Award Agreement § 3.3(a) (emphasis added).
152
Id. (internal quotation marks omitted).

51
 2. Termination Of Service For Cause Triggers
Section 3.3(b)’s Forfeiture And Repurchase
Provisions.

A Termination of Service for Cause under Section 3.3(a) results in a Forfeiture

Termination under Section 3.3(b).153 Theory repurchased Moscowitz’s Remaining

Units on the grounds that his resignation triggered a Forfeiture Termination and the

cheaper repurchase price Theory enjoys as a result.154 Moscowitz contends his

resignation cannot constitute a Forfeiture Termination because the contractual

provision describing Forfeiture Terminations addresses termination “by the

Company,” not voluntary resignations.155 Theory asserts that Moscowitz

misconstrues the contract. In considering the effect of a voluntary Termination of

Service for Cause, I again put aside for now the issues associated with Moscowitz’s

“conditional” resignation and the effect of his Second Resignation Notice, and

assume Moscowitz’s immediate Resignation Notice, which did not give 90 days’

written notice, is effective.

When determining whether a Participant’s voluntary termination can

constitute a Forfeiture Termination under Section 3.3(b), I must construe the Award

Agreement “as a whole,”156 “giv[ing] effect to all of the terms of the instrument and

153
See id. §§ 3.3(a), 3.3(b).
154
See id. § 3.3(b); Am. Compl. ¶ 27.
155
See D.I. 33 at 41–42.
156
See Nw. Nat’l Ins. Co., 672 A.2d at 43.

52
read[ing] it in a way that, if possible, reconciles all of its provisions,” “as opposed

to one that creates an inconsistency or surplusage.”157 While Section 3.3 presents

some obstacles to a fully reconciled reading, I conclude reading Forfeiture

Terminations to exclude voluntary Terminations of Service for Cause would do

untoward violence to the contract.

Section 3.3 is titled “Effect of Termination of Service on Interests.”158 Section

3.3(a), entitled “Termination other than for Cause,” begins by explaining what

happens to a Participant’s Interests if the Company terminates the Participant’s

service “for any reason other than Cause.”159 It goes on to address voluntary

Termination of Service by the Participant and, in the For Cause Provision, identifies

the circumstances under which a Participant subjects himself to the consequences in

Section 3.3(b).160 Thus, while Section 3.3(a) begins with the phrase “[i]n the event

of Participant’s Termination of Service by the Company,” that language refers to

Company terminations other than for Cause, but does not apply to its subsequent

discussion of voluntary terminations or the For Cause Provision.161

157
GRT, Inc., 2012 WL 2356489, at *4.
158
Award Agreement § 3.3.
159
Id. § 3.3(a).
160
Id.
161
Id. (emphasis added).

53
 Section 3.3(b), titled “Termination by the Company for Cause,” defines a

Forfeiture Termination as “Participant’s Termination of service by the Company

and/or its subsidiaries for Cause.”162 In a vacuum, the phrase “by the Company” in

the definition of Forfeiture Termination would exclude voluntary terminations. But

limiting Forfeiture Terminations to Terminations of Service “by the Company”

would effectively read out the For Cause Provision and render it surplusage. Section

3.3(a) goes to the trouble of identifying voluntary terminations “for Cause;” Section

3.3(b) is the only provision that can give meaning to that identification. Section

3.3(b) must be interpreted to give effect to the For Cause Provision. While this

interpretation reads out the phrase “by the Company” from the definition of a

Forfeiture Termination, this does less violence to the contract than reading out the

For Cause Provision. I construe Section 3.3 to first categorize voluntary resignations

without sufficient notice as for Cause, and then to categorize all terminations for

Cause, either by the Company or by the Participant, as Forfeiture Terminations.

Assuming Moscowitz’s Resignation Notice effected his immediate

resignation, his Remaining Units are subject to Section 3.3(b)’s consequences: the

Company’s option to repurchase them at a predetermined cost per unit.163 Theory

162
Id. § 3.3(b) (emphasis added).
163
Id. § 3.3(b)(i)–(iii). The parties do not dispute that Moscowitz’s Remaining Units vested
or the timeliness of Theory’s Repurchase Letter.

54
sought to exercise that option by delivering its Repurchase Letter on January 17,

2017.164 Again assuming Moscowitz resigned without 90 days’ written notice,

Theory’s Repurchase Letter was authorized by the Award Agreement’s plain terms.

Beyond the contractual language justifying it, Moscowitz raises two concerns

regarding the Repurchase Letter. First, he contends that Theory somehow acted

wrongfully by exercising its repurchase right after Moscowitz accepted the Tender

Offer:165 “Had Theory believed the position that it has taken now in this litigation,

it should have refused to buy Moscowitz’s shares and [] advised him that it would

be purchasing them for $0.10 per share (or $144,948.90). Instead, Theory performed

on the tender offer and paid Moscowitz $2,388,757.87 for his equity.”166 He argues

that under Theory’s reading of the Award Agreement, Theory should have

“require[d] the forfeiture of all of Moscowitz’s Theory Units,” rather than

“permitt[ing] Moscowitz to participate in the tender offer.”167

Moscowitz misreads the plain language of Section 3.3(b), which provides that

“the Company shall have the option” within a one-year period to repurchase his units

164
Am. Compl. ¶ 27.
165
See id. ¶¶ 27, 58; D.I. 33 at 27, 29. Moscowitz primarily uses the Tender Offer as
support for his conditional resignation. As discussed below, I do not address this issue
today, as the Motion is denied to that effect.
166
D.I. 33 at 27.
167
Id. at 48 (emphasis in original).

55
at fixed prices.168 An “option” is “[a] contract by which a property owner agrees

with another party that the latter may buy the property at a fixed price within a

specified time; the right or privilege to buy property at the election of the purchaser”

or “[t]he right (but not the obligation) to buy or sell a given quantity of securities,

commodities, or other assets at a fixed price within a specified time.” 169 Theory

could exercise its repurchase option at any time before December 1, 2017, regardless

of whether it purchased some of Moscowitz’s units in the Tender Offer. The

Company had the “right to choose” when and if it purchased all or some of the

Remaining Units as circumscribed by the Award Agreement.170 Theory’s business

decision to buy some of Moscowitz’s units in the Tender Offer does not make the

Award Agreement inapplicable to his Remaining Units.171

168
Award Agreement § 3.3(b) (emphasis added).
169
Option, Black’s Law Dictionary (11th ed. 2019) (emphasis added); accord Option,
Merriam-Webster Online Dictionary, https://www.merriam-
webster.com/dictionary/option (last visited October 27, 2020) (defining “option” as “the
power or right to choose” or “freedom of choice,” “a privilege of demanding fulfillment of
a contract on any day within a specified time,” and “a contract conveying a right to buy or
sell designated securities, commodities, or property interest at a specified price during a
stipulated period”).
170
Option, Merriam-Webster Online Dictionary, https://www.merriam-
webster.com/dictionary/option (last visited October 27, 2020).
171
Moscowitz does not assert estoppel, waiver, or any other doctrinal grounds for
modifying the terms of the Award Agreement based on the parties’ participation in the
Tender Offer.

56
 Next, Moscowitz argues that Theory breached Section 3.3(b)(iii)’s pricing

structure by stating in its Repurchase Letter that it was acquiring the Remaining

Units at $0.10 per unit.172 Sections 3.3(b)(i)–(iii) fix the prices for Theory’s

repurchase option in the event of a Forfeiture Termination. Those prices vary based

on the type of unit Theory elects to repurchase.173 Section 3.3(b)(i) allows Theory

to purchase vested Incentive-1 Units at $0.10 per unit.174 Section 3.3(b)(ii) allows

Theory to purchase vested Common Units at “the lesser of (1) the Fair Market Value

of such Common Units and (2) the greater of (A) the original cost . . . paid by the

Participant in respect of such Common Units and (B) $0.10 per Common Unit.”175

Moscowitz alleges that the Repurchase Letter asserted a $0.10 repurchase

price for both Common and Incentive-1 Units.176 But he contends this price was a

breach for the first time in briefing, not in his Amended Complaint. “Briefs relating

to a motion to dismiss are not part of the record and any attempt contained within

such documents to plead new facts or expand those contained in the complaint will

172
D.I. 33 at 45–46.
173
Compare Award Agreement § 3.3(b)(i), with id. § 3.3(b)(ii), and id. § 3.3(b)(iii).
174
Id. § 3.3(b)(i).
175
Id. § 3.3(b)(ii) (emphasis added).
176
Am. Compl. ¶ 28 (“Theory also claimed that a Forfeiture Termination allowed Theory
to repurchase Moscowitz’s Incentive-1 Units and Common Units—which Theory counted
as 2,789,797 Common Units and 46,429 Incentive-1 Units—at $0.10 per Unit.”).

57
not be considered.”177 And a plaintiff “cannot defeat an argument raised in a motion

to dismiss by proffering an after-the fact theory for this first time in his answering

brief.”178 I need not consider this new allegation on the Motion.179

Under the plain terms of the Award Agreement, resigning without 90 days’

written notice triggers a Forfeiture Termination under Section 3.3(b). A Forfeiture

177
Orman v. Cullman, 794 A.2d 5, 28 n.59 (Del. Ch. 2002).
178
In re Saba Software, Inc. S’holder Litig., 2017 WL 1201108, at *23 (Del. Ch.
Mar. 31, 2017) (citing Dolphin Ltd. P’ship I, L.P. v. Gupta, 2007 WL 315864, at *1 (Del.
Ch. Jan. 22, 2007) (refusing to consider an allegation not found in the complaint when
addressing plaintiff's response to a motion to dismiss), and OLL Ventures, Inc. v. Woodland
Mills Assocs., L.P., 2001 WL 312452, at *1–2 (Del. Ch. Mar. 8, 2001) (same)).
179
See Gerber v. EPE Hldgs., LLC, 2013 WL 209658, at *10 (Del. Ch. Jan. 18, 2013)
(concluding where the plaintiff made an argument for the first time in briefing that “the
Court . . . need to consider only the claims fairly asserted in the [complaint],” but choosing
to “briefly address” plaintiff’s arguments anyway). In reply, Theory explains that even if
the Court were to consider this allegation, Moscowitz’s claim would fail because Theory
reached the $0.10 per unit repurchase price for the Common Units based on the formula
set forth in Section 3.3(b)(ii). See D.I. 35 at 22–24. Moscowitz alleges that his capital
contribution to Theory was $400,000, and that in return he received 3,829,286 Common
Units and 400,000 Preferred Units. Am. Compl. ¶¶ 9, 12; see also LLC Agreement sched.
A. If no Preferred Units issued at all, dividing his total contribution by the total number of
Common Units issued indicates Moscowitz would have paid approximately
$0.1044581156 per Common Unit. See Am. Compl. ¶¶ 9, 12. Because Moscowitz also
purchased 400,000 Preferred Units with his initial capital contribution, it is reasonable to
infer that the purchase price paid per Common Unit was less than $0.10 per unit. And
Moscowitz concedes that the Fair Market Value of his Common Units is greater than the
exercise price of Theory’s option under the Award Agreement. See D.I. 33 at 30
(“Moscowitz went from being a co-founder of Theory with an interest worth at least $1.648
per share (using the tender offer price) (or $4,674,100.45) to just $0.10 per share (or
$283,622.60). The disparity in those figures is much greater today given Theory’s
increased value.”). Based on that explanation, Theory’s conclusion that it reached the
$0.10 price stated in the Repurchase Letter based on Section 3.3(b)(ii)’s formula is
reasonable. (Nothing in the Award Agreement required Theory to explain its reasoning
behind the repurchase price.) At bottom, Moscowitz failed to allege his belief that Theory
used the wrong original price or fair market value in his Amended Complaint.

58
Termination gives Theory the option, or right, to repurchase some or all of the

Participant’s vested units at fixed prices for one year following the resignation.

Moscowitz fails to state a claim for breach of the Award Agreement.

3. Even If Moscowitz’s Resignation Is Not
Considered A Forfeiture Termination, Theory
Has A Call Option Under Section 3.4.

Moscowitz spilled a great deal of ink trying to avoid labeling his resignation

as a Forfeiture Termination, claiming Theory has no right, at any price, to repurchase

his Remaining Units. But even if Moscowitz resigned with 90 days’ written notice

(as he purports to have done in his Second Resignation Notice), his resignation

would still trigger a repurchase right—just at a better price for him. Any dispute

about the fate of Moscowitz’s Remaining Units is limited to the price at which they

were repurchased.

Section 3.4 addresses the “Company’s Repurchase Right” “[i]n the event of

Participant’s Termination of Service for any reason other than a Forfeiture

Termination.”180 A voluntary Termination of Service that is not a Forfeiture

Termination initiates the Company’s Repurchase Right, and the Company “in its

sole discretion, may exercise a right to repurchase for Fair Market Value some or all

of Participant’s vested” units.181 This “Call Right” allows Theory to repurchase such

180
Award Agreement § 3.4 (emphasis added).
181
Id.

59
units for one year following the Participant’s Termination of Service at Fair Market

Value.182 If Theory chooses to exercise its Call Right, then the repurchased units

“shall be cancelled by the Company without any further action of Participant, and

Participant shall have no further right or interest in or with respect to such

Interests.”183

Thus, even if Moscowitz is correct that his was not a Forfeiture Termination,

Theory had the right to purchase some or all of the Remaining Units for one year

following his resignation.184 The only distinction in that case would be the

repurchase price. Rather than paying $0.10 per unit, Section 3.4 would compel

Theory to pay Moscowitz Fair Market Value.

4. Counts II And III Are Dismissed In Part.

As explained, Theory had the right to repurchase all of the Remaining Units

under either Section 3.3(b) or Section 3.4 of the Award Agreement. Thus, to the

extent Count II seeks a declaratory judgment that Theory was not contractually

entitled to repurchase those units, Count II is dismissed in part.

182
Id.
183
Id.
184
This would also be the case assuming Moscowitz was correct that his was not a
Termination of Service for Cause “by the Company” that triggered a Forfeiture
Termination under Section 3.3(b). And it is the case regardless of which of Moscowitz’s
resignation notices was effective.

60
 Similarly, Count III is dismissed in part.185 Count III alleges Theory breached

the Award Agreement by

purporting to redeem Moscowitz’s membership Units; failing to give
notice to Moscowitz of any purported breach of the Award Agreement;
failing to provide any opportunity to cure such breach to Moscowitz;
improperly construing the Award Agreement such that Moscowitz’s
[Resignation Notice] gives rise to a Forfeiture Termination; improperly
terminating Moscowitz’s membership interest in Theory; and
converting, alienating, or otherwise dealing with Moscowitz’s Units
and/or membership interest without Moscowitz’s consent.186

Assuming Moscowitz resigned via the Resignation Notice, Theory had the express

right under Section 3.3 to redeem the Remaining Units. Even if Moscowitz had

given adequate written notice of his resignation, Theory could still repurchase the

Remaining Units, and the dispute would be limited to the price. Theory had the right

to redeem Moscowitz’s units and terminate his membership interest.

I have also concluded that the Award Agreement did not impose on

Moscowitz an obligation to give 90 days’ written notice of his resignation that he

breached, nor did it give Moscowitz the right to notice and an opportunity to cure.

Count III is dismissed in part.

185
See Sparton Corp. v. O’Neil, 2017 WL 3421076, at *5 (Del. Ch. Aug. 9, 2017) (“In
order to allege a breach of contract, a plaintiff must show the existence of a contract, a
breach of the contractual obligations, and damages to the plaintiff as a result of the
breach.”).
186
Am. Compl. ¶ 51.

61
 However, the Motion is denied with respect to Count II’s request that the

Court determine the validity and effect of the Resignation and Second Resignation

Notices and Count III’s contention that Theory improperly construed the

Resignation Notice for the reasons explained in Section II.C below.

5. Count IV Fails To State A Claim For Breach Of
The Implied Covenant Of Good Faith And Fair
Dealing.

Count IV is also dismissed because Moscowitz has failed to state a claim for

breach of the implied covenant of good faith and fair dealing. “The implied covenant

of good faith and fair dealing inheres in every contract.”187 It “involves a cautious

enterprise, inferring contractual terms to handle developments or contractual gaps

that the asserting party pleads neither party anticipated.”188 The doctrine “cannot be

used to circumvent the parties’ bargain, or to create a free-floating duty unattached

to the underlying legal documents.”189

187
Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009).
188
Nemec, 991 A.2d at 1125 (internal quotation marks omitted) (quoting Dunlap v. State
Farm Fire & Cas. Co., 878 A.2d 434, 445 (Del. 2005)); see also Allen v. El Paso Pipeline
GP, Co., L.L.C., 113 A.3d 167, 182 (Del. Ch. 2014) (referring to the implied covenant as
“the doctrine by which Delaware law cautiously supplies terms to fill gaps in the express
provisions of a specific agreement”).
189
Lonergan v. EPE Hldgs., LLC, 5 A.3d 1008, 1017 (Del. Ch. 2010) (quoting Dunlap,
878 A.2d at 441).

62
 We 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. When conducting this analysis,
we must assess the parties’ reasonable expectations at the time of
contracting and not rewrite the contract to appease a party who later
wishes to rewrite a contract he now believes to have been a bad deal.
Parties have a right to enter into good and bad contracts, the law
enforces both.190

Determining whether the implied covenant applies turns on the language of the

contract itself.191 A claim for breach of the implied covenant cannot be based “on

conduct authorized by the terms of the agreement.”192 The Court relies on the

implied covenant “only in that narrow band of cases where the contract as a whole

speaks sufficiently to suggest an obligation and point to a result, but does not speak

directly enough to provide an explicit answer.”193 “It 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.”194

190
Nemec, 991 A.2d at 1126 (footnotes omitted).
191
Allen, 113 A.3d at 183.
192
Dunlap, 878 A.2d at 441; see also Nemec, 991 A.2d at 1127 (stating the implied
covenant cannot be used to “contradict[] a clear exercise of an express contractual right”).
193
Lonergan, 5 A.3d at 1018 (quoting Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d
126, 146 (Del. Ch. 2009)).
194
Id. (omission in original) (internal quotation marks omitted) (quoting Katz v. Oak Indus.
Inc., 508 A.2d 873, 880 (Del. Ch. 1986)).

63
 Moscowitz looks to the implied covenant to nullify his immediate resignation

via the Resignation Notice, or to give him the opportunity to revisit or cure it. The

Amended Complaint alleges that “[t]o the extent it does not expressly address it, the

Award Agreement would have implied the opportunity to cure any defective

resignation—especially where Moscowitz clearly attempted to resign without

forfeiting his Units—before a Forfeiture Termination could occur.”195 According to

Moscowitz, “[t]he Award Agreement does not expressly address how any alleged

deficiencies in a notice of resignation may be addressed,”196 but does “include a

notice and opportunity to cure provision that suggests the parties did not intend to

allow any technical deficit in a notice of resignation to result in the unjust result of

the loss . . . all equity units.”197 Moscowitz theorizes that “[h]ad the parties

considered it, they would not have agreed that Moscowitz’s attempted, but technical

non-compliance, with the notice period set forth in Award Agreement, could result

in the forfeiture of all of Moscowitz’s Theory Units.”198

Count IV is the type of implied covenant claim this Court routinely rejects:

the precise conduct Moscowitz complains of is “authorized by the terms of the

195
Am. Compl. ¶ 59.
196
Id. ¶ 56.
197
Id. ¶ 57.
198
Id. ¶ 59 (emphasis in original) (footnote omitted).

64
agreement,” so there is no gap for the implied covenant to fill. 199 Contrary to his

claim, the parties addressed Moscowitz’s perceived “deficiencies” in his resignation,

namely failure to provide 90 days’ written notice. Section 3.3(a) strictly mandates

that failure to provide such notice results in a Termination of Service for Cause and

associated forfeiture and repurchase consequences. Likewise, as explained above,

Section 3.3 intentionally does not provide Moscowitz with the right to notice and an

opportunity to cure. And to the extent Moscowitz contends that the parties would

have agreed that verbal notice or his attempt to resign in compliance with Section

3.3(a) would avoid loss of all Remaining Units, Section 3.4 squarely addresses that

concern: any resignation permits repurchase, just at a higher price.

The parties set firm parameters for voluntary Terminations of Service, and

clear consequences for resigning without sufficient notice. The parties could have

bargained for more lenient circumstances for voluntary Terminations of Service, as

Moscowitz suggests, but opted not to. The Court declines to provide Moscowitz

with contractual protections he failed to secure for himself at the bargaining table.200

Count IV is dismissed.

199
Dunlap, 878 A.2d at 441.
200
See Winshall v. Viacom Int’l, Inc., 55 A.3d 629, 636–37 (Del. Ch. 2011) (“[T]he implied
covenant of good faith and fair dealing should not be applied to give plaintiffs contractual
protections that they failed to secure for themselves at the bargaining table. In other words,
the implied covenant is not a license to rewrite contractual language just because the
plaintiff failed to negotiate for protections that, in hindsight, would have made the contract
a better deal. Rather, a party may only invoke the protections of the covenant when it is

65
 C. The Motion Is Denied In Part As To Counts II, III, V, And
VI Regarding The Effect Of Moscowitz’s Resignation
Efforts.

Although I have determined the Award Agreement is binding on Moscowitz

and Theory has the right to repurchase its preferred amount of Moscowitz’s

Remaining Units, that does not end the inquiry. Each of the remaining counts

depends in part on the effect and validity of the Resignation Notice, Board Notice,

Repurchase Letter, Revocation Letter, and Second Resignation Notice. Moscowitz

contends the Resignation Notice constituted a conditional resignation; that Theory

accepted his resignation; that after Theory labeled his resignation a Forfeiture

Termination, he revoked that resignation via the Revocation Letter; and that his

resignation was effective, but still conditional, under the Second Resignation Notice.

Theory moved to dismiss Moscowitz’s claims based on his resignation

narrative by seeking to hold him to the Resignation Notice and contending it was not

conditional. Theory points out the Award Agreement does not contemplate a

conditional resignation, could not be modified except by a bilateral instrument in

writing, and grants Theory’s Manager the “absolute discretion” to “determine the

effect of all matters and questions relating to Termination of Service, including when

clear from the underlying contract that the contracting parties would have agreed to
proscribe the act later complained of had they thought to negotiate with respect to that
matter.” (alteration, footnotes, and internal quotation marks omitted)), aff’d, 76 A.3d 808
(Del. 2013).

66
a Termination of Service is effective.”201 Theory also needles Moscowitz’s

purported conditions, contending the events that would nullify his resignation have

not come to pass.

Theory’s Motion falls short of demonstrating, as it must, that Moscowitz

cannot “recover under any reasonably conceivable set of circumstances.”202 In

simply comparing the Resignation Notice to the Award Agreement, Theory fails to

consider the subsequent dance between the parties. Moscowitz sought to make his

resignation conditional, as the Resignation Notice states,

If for any reason, whatsoever, a court of competent jurisdiction
determines that the foregoing resignation shall result in the loss,
forfeiture, diminution or waiver of the undersigned’s rights and/or
entitlements as a Member or owner of a membership interest in the
Company, the foregoing resignation shall be deemed void, ab initio,
and of no force or effect.203

The Board Notice in response to the Resignation Notice states that “[t]he Company

hereby reserves and does not waive any rights it has with respect to the foregoing,

including with respect to any rights it has under the [LLC] Agreement, the Initial

Plan and [Award Agreement].”204 After Theory indicated its intent to repurchase

Moscowitz’s Remaining Units under the Forfeiture Termination framework,

201
Initial Plan § 1.6.
202
Cent. Mortg. Co., 27 A.3d at 535.
203
Resignation Notice at 1 (emphasis in original).
204
Board Notice at 1.

67
Moscowitz purported to retract his resignation in the Revocation Letter; he then

resubmitted his resignation, purporting to provide 90 days’ written notice under

Section 3.3(a), via the Second Resignation Notice. Theory’s Motion does not

consider or accommodate these additional steps.

Theory contends Moscowitz’s “conditional resignation” is foreclosed by the

LLC Agreement, but that Agreement is silent on Manager resignation. Nothing

therein prohibits Moscowitz from resigning subject to certain conditions. The

Delaware Limited Liability Company Act provides that “[a] manager may resign as

a manager of a limited liability company at the time or upon the happening of events

specified in a limited liability company agreement and in accordance with the limited

liability company agreement.”205 This Court has recognized conditional

resignations.206 Theory has not foreclosed Moscowitz’s ability to submit a

conditional resignation.

The next question is whether Moscowitz’s purported conditions could be

effective. Again, the LLC Agreement does not address Manager resignation.

Theory, as an LLC, deserves this Court’s commitment “to give the maximum effect

205
6 Del. C. § 18-602.
206
See, e.g., Bouchard v. Braidy Indus., Inc., 2020 WL 2036601, at *15 (Del. Ch.
Apr. 28, 2020) (assessing a corporate director’s conditional resignation in view of a voting
agreement); Martin v. Med-Dev Corp., 2015 WL 6472597, at *10 (Del. Ch. Oct. 27, 2015)
(assessing a conditional resignation in the corporate context under 8 Del. C. § 141); In re
Peierls Family Inter Vivos Trs., 59 A.3d 471, 476 (Del. Ch. 2012) (assessing a conditional
resignation in the trust context), aff’d, 77 A.3d 249 (Del. 2013).

68
to the principle of freedom of contract,”207 including the provisions regarding

Termination of Service in the Initial Plan and Award Agreement. But Theory is also

a manager-managed LLC with a board of managers, such that it should expect this

Court to draw on analogies to corporate law.208 The parties did not brief whether

this Court should consider Manager resignation under contract principles, or

principles of corporate law.209

207
6 Del. C. § 18-1101(b).
208
Obeid v. Hogan, 2016 WL 3356851, at *6 (Del. Ch. June 10, 2016) (“Using the
contractual freedom that the LLC Act bestows, the drafters of an LLC agreement can create
an LLC with bespoke governance features or design an LLC that mimics the governance
features of another familiar type of entity. The choices that the drafters make have
consequences. . . . If the drafters have opted for a manager-managed entity, created a board
of directors, and adopted other corporate features, then the parties to the agreement should
expect a court to draw on analogies to corporate law. Depending on the terms of the
agreement, analogies to other legal relationships may also be informative. . . . It is
important not to embrace analogies to other entities or legal structures too broadly or
without close analysis, because the flexibility inherent in the limited liability company form
complicates the task of fixing such labels or making such comparisons. (citations,
footnotes, and internal quotation marks omitted)); see LLC Agreement § 11.1(a) (“The
business of the Company shall be managed by a Board of Managers . . . . A Member, in its
capacity as such, shall not participate in the day-to-day operation of the business affairs of
the Company.”); id. § 11.2 (granting the Board “the general powers and duties of
management typically vested in the board of directors of a corporation” subject to other
provisions of the LLC Agreement).
209
See Llamas v. Titus, 2019 WL 2505374, at *17-18 (Del. Ch. June 18, 2019)
(contemplating corporate parallels that logically apply to removal of a manager from a
manager-managed LLC); see also, e.g., Martin, 2015 WL 6472597, at *11 (holding that
general contract principles did not apply when assessing enforceability of a corporate
director’s conditional resignation because “resignations pursuant to 8 Del. C. § 141(b) are
creatures of statute, not contract” and therefore “director resignations a[re] statutory, rather
than contractual, instruments”); id. at *14 (considering a director’s conditional resignation
in unilateral terms); compare 6 Del. C. § 18-1101(b) (stating that “[i]t is the policy of this
chapter to give the maximum effect to the principle of freedom of contract”), and id. § 18-
602 (“A limited liability company agreement may provide that a manager shall not have

69
 Moscowitz’s conditions do not appear to alter the foundational terms of the

LLC Agreement, but rather terms in subsequent contracts between himself and

Theory, namely the Initial Plan and Award Agreement. Considering those

conditions under general contract principles, in order for his conditions to be

binding, there must be a meeting of the minds as to that point.210 In making such a

determination, Delaware “has adopted the mirror-image rule.”211

the right to resign as a manager of a limited liability company. Notwithstanding that a
limited liability company agreement provides that a manager does not have the right to
resign as a manager of a limited liability company, a manager may resign as a manager of
a limited liability company at any time by giving written notice to the members and other
managers. If the resignation of a manager violates a limited liability company agreement,
in addition to any remedies otherwise available under applicable law, a limited liability
company may recover from the resigning manager damages for breach of the limited
liability company agreement and offset the damages against the amount otherwise
distributable to the resigning manager.”), with 8 Del. C. § 141(b) (“Each director shall hold
office until such director’s successor is elected and qualified or until such director’s earlier
resignation or removal. Any director may resign at any time upon notice given in writing
or by electronic transmission to the corporation. A resignation is effective when the
resignation is delivered unless the resignation specifies a later effective date or an effective
date determined upon the happening of an event or events. A resignation which is
conditioned upon the director failing to receive a specified vote for reelection as a director
may provide that it is irrevocable.”).
210
Cf. Martin, 2015 WL 6472597, at *11 (suggesting that “want of essential elements of
a contract, including the intent to be bound” would be relevant if the conditional resignation
was not handled under 8 Del. C. § 141(b) and was instead governed by “general contract
principles”).
211
Ramone v. Lang, 2006 WL 4762877, at *10 (Del. Ch. Apr. 3, 2006) (citing Friel v.
Jones, 206 A.2d 232, 233–34 (Del. Ch. 1964), aff’d, 212 A.2d 609 (Del. 1965), and also
citing PAMI-LEMB I Inc. v. EMB-NHC, L.L.C., 857 A.2d 998, 1015 (Del. Ch. 2004)).

70
 In order to constitute an “acceptance,” a response to an offer must be
on identical terms as the offer and must be unconditional. A response
to an offer that is not on the terms set forth by the offeror constitutes a
rejection of the original offer and a counteroffer. The words and
conduct of the response are to be interpreted in light of all the
circumstances.212

The parties did not thoroughly brief how the Resignation Notice conditions fared

under this framework, and Theory has not shown they could not have survived.

And the dance between the parties may be even more elaborate. Moscowitz’s

conditions seem to line out parts of the Award Agreement, including Sections 3.3

and 3.4, in connection with the resignation. It reads as a statement of Moscowitz’s

intention not to abide by the Award Agreement’s plain terms, which may be not a

condition, but a repudiation. “Under Delaware law, repudiation is an outright refusal

by a party to perform a contract or its conditions entitling the other contracting party

to treat the contract as rescinded. A statement not to perform unless terms different

from the original contract are met also constitutes a repudiation.”213 “A party

repudiates a contract when it takes an action that constitutes a significant and

212
PAMI-LEMB I Inc., 857 A.2d at 1015 (footnotes omitted).
213
CitiSteel USA, Inc. v. Connell Ltd. P’ship, 758 A.2d 928, 931 (Del. 2000) (internal
quotation marks and footnotes omitted) (quoting Sheehan v. Hepburn, 138 A.2d 810, 812
(Del. Ch. 1958)).

71
substantial alteration of both the present and the reasonably anticipated future

relations created by the agreement.”214

Considering the Resignation Notice as a repudiation may give some doctrinal

context to the Board Notice and Revocation Letter. Once the repudiation is final,

the non-repudiating party “may respond by (i) electing to treat the contract as

terminated by breach, (ii) by lobbying the repudiating party to perform, or (iii) by

ignoring the repudiation.”215 Depending on how the non-repudiating party responds,

the would-be repudiator may retract his repudiation:

A repudiation is, of course, the reverse of positive and clear where the
promisor before the time of performance retracts the repudiation and
announces himself prepared to perform his promise. Thus, when
effective, a retraction has the effect of nullifying a repudiation and
placing the matter in its original position. There are, however,
circumstances that will remove the possibility of retraction. This
limitation on the power to retract a repudiation reflects a concern for
the awkward situation in which ambiguity concerning performance
may place the promisee. . . . Indeed, the law’s concern with the
uncertainty faced by a promisee to whom a repudiation has been made
is such that it, in effect, gives such a promisee the election to withdraw
the promisor’s power to retract his repudiation simply by notifying the
promisor that he considers the repudiation to be final.216

214
PAMI-LEMB I Inc., 857 A.2d at 1014 (alteration and internal quotation marks omitted)
(quoting Bali v. Christiana Care Health Servs., 1998 WL 685380, at *1 (Del. Ch.
Sept. 22, 1998)).
215
Henkel Corp. v. Innovative Brands Hldgs., LLC, 2013 WL 396245, at *7 (Del. Ch.
Jan. 31, 2013); accord Mumford v. Long, 1986 WL 2249, at *3 (Del. Ch. Feb. 21, 1986)
(“Where a contracting party repudiates a contract, the non-breaching party is entitled to
treat the contract as terminated, i.e., as being at an end.”).
216
Carteret Bancorp, Inc. v. Home Gp., Inc., 1988 WL 3010, at *6 (Del. Ch. Jan. 13, 1988).

72
Thus, “[o]nce the promisee relies on the repudiation—e.g., by filing suit for damages

or by engaging in a substitute transaction—or notifies the promisor it regards the

repudiation as final, effective retraction is no longer possible.”217

The doctrines of offer and acceptance, and of repudiation and retraction, mean

that the analysis of Moscowitz’s Resignation Notice is more complicated than

simply comparing it to the Award Agreement as Theory asserts. It remains to be

seen how these doctrines may apply in this case, considering in particular whether

there was a meeting of the minds on Moscowitz’s offered conditions; whether the

conditions imposed in both the Resignation and Second Resignation Notices

constituted a repudiation of the Award Agreement; whether Moscowitz was able to

retract any repudiation after receiving the Board Notice; whether in view of the

foregoing, the Second Resignation Notice has any effect; and whether the Second

Resignation Notice’s conditions were effective. This inquiry is also informed by

today’s determinations that Moscowitz was not entitled to notice and an opportunity

to cure and of the Manager’s broad discretion under the Initial Plan and Award

Agreement to determine all matters with respect to Terminations of Service.

These open issues preclude me from dismissing Count II’s request for a

declaratory judgment that the Resignation Notice is of no force and effect and that

217
Henkel Corp., 2013 WL 396245, at *7 (quoting W. Willow-Bay Ct., LLC v. Robino-Bay
Ct. Plaza, LLC, 2009 WL 458779, at *5 (Del. Ch. Feb. 23, 2009)).

73
Moscowitz’s Second Resignation Notice validly effected his resignation, and Count

III’s claim that Theory breached the Award Agreement by processing a Forfeiture

Termination based on a Resignation Notice stripped of its conditions. Counts V and

VI remain viable as well, to accommodate the possibility that Moscowitz resigned

in a manner that is not properly a Forfeiture Termination.

III. CONCLUSION

The Award Agreement is binding on Moscowitz, supported by valid

determination, would provide for a Forfeiture Termination if Moscowitz in fact

resigned without giving 90 days’ notice, and does not provide Moscowitz with the

rights of notice and an opportunity to cure. The Award Agreement gave the

Company the option to repurchase Moscowitz’s shares, either because his

resignation was a Forfeiture Termination or pursuant to the Call Right. But the terms

by which Moscowitz actually resigned remain unadjudicated.

The Motion is GRANTED with respect to Counts I and IV. Counts II and III

are GRANTED IN PART. The Motion is DENIED with respect to the remaining

portions of Counts II and III, as well as Counts V and VI. The parties shall submit

an implementing order within twenty days of this decision.

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