IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
BW PIEZO HOLDINGS LLC, PIEZO )
INVESTMENT HOLDINGS, LLC, and )
CHANNEL TECHNOLOGIES GROUP, )
LLC )
)
Plaintiffs, ) C.A. No. N16C-08-214 RRC
)
v. )
)
RALPH L. PHILLIPS )
)
Defendant. )
Submitted: January 25, 2017
Decided: April 18, 2017
On Defendant‘s Motion to Dismiss, or in the Alternative to Stay, Plaintiffs‘ First
Amended Complaint. MOTION TO STAY GRANTED.
ORDER
Michael F. Bonkowski, Esquire and Nicholas J. Brannick, Esquire, Cole Schotz
P.C., Wilmington, Delaware; and Jonathan C. Wilson, Esquire and James T.
McBride, Esquire, Littler Mendelson, PC, Dallas, Texas, Attorneys for Plaintiffs.
Joseph J. Bellew, Esquire, and Keith L. Kleinman, Esquire, Cozen O‘Connor,
Wilmington, Delaware, Attorneys for Defendants.
COOCH, R.J.
This 18th day of April, 2017, upon consideration of Defendant‘s Motion to
Dismiss, or in the Alternative to Stay, Plaintiffs‘ First Amended Complaint, it
appears to the Court that:
I. FACTS AND PROCEDURAL HISTORY
1. This breach of contract dispute arises out of employment, lending, and
investment relationships between Defendant Ralph L. Phillips and
Plaintiffs BW Piezo Holdings LLC (―BW Piezo‖), Piezo Investment
Holdings, LLC (―Piezo Investment Holdings‖), and Channel
Technologies Group, LLC (―Channel‖). Plaintiffs have filed this action
against Defendant to ―seek enforcement and recovery of damages and
attorneys‘ fees from Defendant for his breach of [a] Promissory Note,
Pledge Agreement, and Severance Agreement and General Release, and
for a declaration of the Parties‘ rights under [Piezo Investment
Holdings‘] Limited Liability Company Agreement and Mirror Unit
Grant Agreements issued to Defendant.‖1
2. In accordance with the Court‘s order, the parties have submitted the
following joint stipulation of facts and procedural history pertinent to
Defendant‘s Motion to Dismiss or in the Alternative to Stay Plaintiff‘s
First Amended Complaint:
A. December 29, 2011 – [Piezo Investment Holdings,] LLC
Operating Agreement [executed].
B. June 13, 2013 – Employment Agreement executed between
Channel and Phillips, including reference to Phillips‘ opportunity
to invest in Channel. Phillips begins work.
C. As of October 11, 2013:
1. Promissory Note executed between [BW Piezo] and Phillips.
2. Mirror Unit Grant Agreement executed between [Piezo
Investment Holdings] and Phillips.
3. Pledge Agreement executed between [BW Piezo] and
Phillips.
D. October 11, 2013 – Effective date of Joinder Agreement
whereby Phillips‘ agrees to be bound by terms of [Piezo
Investment Holdings] Operating Agreement.
1
First Am. Compl. at 1.
E. October 14, 2013, September 30, 2014, December 31, 2014,
August 31, 2015 – Additional Mirror Unit Grant Agreements
executed between [Piezo Investment Holdings] and Phillips.
F. January 18, 2016 – Phillips‘ employment with Channel is
terminated.
G. February 12, 2016 – Severance Agreement and General Release
executed by Phillips.
H. April 20, 2016 – Notice of Default by [BW Piezo] to Phillips
under Promissory Note and Pledge Agreement.
I. August 26, 2016 – Delaware Plaintiff [BW Piezo]‘s Original
Complaint against Phillips filed with this [] Court.
J. September 8, 2016 – Delaware Defendant Phillips‘ Complaint
filed against [Piezo Investment Holdings], [BW Piezo,] and
Channel in Superior Court of the State of California.
K. September 12, 2016 and September 13, 2016 – California
Defendants [Piezo Investment Holdings], [BW Piezo] and Channel
served with California Complaint.
L. September 13, 2016 – Delaware Plaintiff [BW Piezo]'s counsel
advises Phillips' counsel that Delaware Original Complaint had
been filed August 26, 2016.
M. September 23, 2016 – Delaware Plaintiffs [BW Piezo], [Piezo
Investment Holdings] and Channel‘s First Amended Complaint
against Defendant Phillips filed with this [] Court.
N. October 11, 2016 – Delaware Defendant Phillips counsel enters
appearance in Delaware action.
O. October 12, 2016 – California Defendants [Piezo Investment
Holdings], [BW Piezo] and Channel file Demurrer to Phillips‘
Complaint based on asserted release in Severance Agreement and
General Release.
P. October 14, 2016 – California Defendant Channel files Chapter
11 Petition.
Q. November 14, 2016 – Delaware Defendant Phillips files Motion
to Dismiss or Stay Delaware action.
R. November 16, 2016 – California Court overrules Demurrer of
Defendants [Piezo Investment Holdings] and [BW Piezo].
S. November 28, 2016 – California Defendants [Piezo Investment
Holdings], [BW Piezo] file Answer in California action.
T. January 11, 2017 – California Court continues Court
Management Conference until March 1, 2017 in light of hearing on
Delaware Defendant‘s Motion to Dismiss in Delaware and pending
this Court‘s ruling.2
3. In addition to the timeline jointly provided by the parties, the Court
finds that three agreements must be considered in deciding this motion.
First is Defendant‘s employment agreement with Channel (the
―Employment Agreement‖). Under that agreement, Defendant agreed
to be Channel‘s president and chief executive officer in exchange for
compensation and benefits. In the Employment Agreement, Defendant
was also given the right to invest $500,000 in Channel, with a right to
borrow $250,000 from BW Piezo. The Employment Agreement
provides in pertinent part:
5. Equity Compensation: . . . Employee will have the opportunity
to invest up to $500,000 in [Channel]. [BW Piezo] will lend
Employee up to 50% of the purchase price of this equity, secured
only by the equity, and repayable on sale or with 50% of any bonus
above target. All of the matters set forth in this Section 5 are
subject to the more detailed terms of (and the execution of) the
2
Joint Stipulation of Procedural History, Undisputed Facts, and the Parties‘ Summary
Statements of Contentions at 16 [hereinafter ―Joint Stipulation of Procedural History and
Undisputed Facts‖]. The Court has not been advised of what transpired at the March 1, 2017
Court Management Conference in California.
form grant agreement and other documents applicable to these
equity issuances.
...
27. Choice of Law: All questions concerning the construction,
validity, and interpretation of this Agreement will be governed by
the law of the State of California as applied to contracts made and
to be performed entirely within California. Employee hereby
irrevocably consents to the exclusive jurisdiction and venue of the
state and federal courts located in Santa Barbara, California in
connection with any action relating to this Agreement. Employee
agrees not to, and hereby waives any right to, bring any action
relating to this agreement in a state or federal court in any other
venue.3
4. Defendant acted on this right and borrowed $250,000 from BW Piezo
pursuant to a Promissory Note and Pledge Agreement. The Promissory
Note, however, contained the following non-exclusive forum selection
clause:
14. Governing Law and Jurisdiction: This Note is and will be
deemed to have been made and delivered in the State of Delaware
and in all respects will be governed and construed in accordance
with the laws of that State. Maker and Payee (by acceptance
hereof) each hereby irrevocably consent to the non-exclusive
jurisdiction of the state and federal courts located in the State of
Delaware in any and all actions and proceedings whether arising
hereunder or under any other agreement or undertaking.4
The Pledge Agreement executed by Defendant and BW Piezo contains
virtually identical language, providing that the parties consent to the
―non-exclusive jurisdiction of the state and federal courts located in the
State of Delaware.‖5 At oral argument on this motion, counsel for all
the parties advised that each did not know why an exclusive forum
3
First Am. Compl., Ex. 7, at 1, 6 (emphasis added).
4
First Am. Compl., Ex. 1, at 3-4 (emphasis added).
5
First Am. Compl., Ex. 2, at 3.
selection clause favoring California was used in the Employment
Agreement, but non-exclusive forum selection clauses favoring
Delaware were included in the other agreements. Counsel further
advised that they were not the attorneys who had drafted or negotiated
the various agreements that included different forum selection clauses.
5. BW Piezo filed its original Complaint in the Delaware Superior Court
on August 26, 2016. In its original Complaint, BW Piezo alleged one
count of breach of contact pertaining to the Promissory Note.
6. On September 8, 2016, Defendant filed a complaint against all
Plaintiffs currently in this case in the Superior Court of California. In
that action, Defendant alleges that Plaintiffs made misrepresentations
regarding the financial well being of Channel, which Defendant relied
on in entering into the Employment Agreement, Promissory Note, and
Pledge Agreement. In his prayer for relief, Defendant requests a
judgment that the Promissory Note, Pledge Agreement, and agreements
granting him equity in Channel are rescinded, and that Plaintiffs pay
Defendant monetary damages.
7. On September 23, 2016, BW Piezo filed its First Amended Complaint,
adding Piezo Investment Holdings and Channel as plaintiffs.
Additionally, Plaintiffs‘ First Amended Complaint asserted two new
claims. First, Plaintiffs‘ First Amended Complaint claimed that
Defendant breached the Severance Agreement and General Release.
Second, Plaintiffs‘ First Amended Complaint requested a declaratory
judgment that Defendant breached the Severance Agreement and
General Release by filing suit against Plaintiffs in California, that the
termination of Defendant‘s employment constituted a default under the
Promissory Note and Pledge Agreement, that Defendant had
represented in the grant agreements that he had all material information
needed to decide whether to invest in Channel, and that he has no right
to withdraw or demand a return of his capital contribution in Channel
pursuant to Piezo Investment Holdings‘ Limited Liability Company
Agreement.
II. PARTIES’ CONTENTIONS
8. Defendant has moved for dismissal under Superior Court Civil Rule
12(b)(3) on grounds of improper venue. In support of his Motion to
Dismiss, Defendant argues that the exclusive forum selection clause in
the Employment Agreement requires that this action be brought in a
California court. Defendant argues that all of Plaintiffs‘ claims ―relate
directly to the Employment Agreement and are subject to its exclusive
California forum selection clause.‖ Defendant further argues that ―the
entire Amended Delaware Complaint relates to [Defendant‘s]
employment relationship with Channel and the Employment
Agreement.‖6
9. Alternatively, Defendant asserts that this action should be stayed,
arguing that the California action was the first-filed action. Relying on
McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co.,7
Defendant contends that although the Delaware action was filed before
the California action, the September 23, 2016 amendment of Plaintiffs‘
Delaware complaint ―asserted new and independent claims and added
additional parties that cannot relate back to the [filing date of the] Initial
Delaware Complaint.‖8 Accordingly, Defendant asserts in the
alternative that ―the Delaware action should . . . be stayed pending an
adjudication of the more comprehensive California action.‖9
10. Plaintiffs argue that this action should not be dismissed, as the
Employment Agreement‘s exclusive forum selection clause does not
apply to these claims arising from the Promissory Note and Settlement
Agreement and General Release. In support of their position, Plaintiffs
contend that ―[Defendant‘s] argument fails as it ignores well-
established contract law and the parties‘ agreement in the subsequently
6
Def.‘s Mot. to Dismiss or in the Alternative to Stay Pls.‘ First Am. Complaint at 13.
7
263 A.2d 281, 283 (1970).
8
Id. at 18.
9
Joint Stipulation of Procedural History and Undisputed Facts at 16.
executed agreements at the center of this case which clearly provide[]
that the Parties agreed venue and jurisdiction was proper in
Delaware.‖10
11. Additionally, Plaintiffs argue that the Delaware action should not be
stayed, asserting that the First Amended Complaint relates back to the
date that BW Piezo filed its complaint. Plaintiffs claim that the ―First
Amended Complaint clearly relates back to the first-filed complaint, as
they both ‗arise from a common nucleus of operative facts‘—that is, if
the claims ‗rely on and arise from the same factual foundation‘ and,
therefore, the amended complaint should be considered filed as of the
date of the original complaint.‖11
12. The Court concludes that a stay is the most appropriate step to be taken
at this time, pending a resolution of the California litigation.
Accordingly, the Court does not reach Defendant‘s Motion to Dismiss.
III. DISCUSSION
Given the Litigation Pending in California Regarding the Validity of the
Employment Agreement, This Court Grants Defendant’s Motion to Stay This
Litigation
13. ―Delaware Courts generally give effect to the terms of private
agreements to resolve disputes in a designated judicial forum out of
respect for the parties‘ contractual designation.‖12 ―Forum selection
clauses are presumptively valid and should be specifically enforced
unless the resisting party clearly shows that enforcement would be
unreasonable and unjust, or that the clause is invalid for such reasons as
10
Pls.‘ Resp. to Def.‘s Mot. to Dismiss or in the Alternative to Stay Pls.‘ First Am. Compl. At
11.
11
Id. at 15.
12
Loveman v. Nusmile, Inc., 2009 WL 847655, at *3 (Del. Super. Mar. 31, 2009) (internal
quotations omitted).
fraud and overreaching.‖13 ―Where the action is filed in a proper venue
but the contract contains a forums election clause, the Court should
decline to proceed where the parties agreed that litigation should be
conducted in another forum.‖14 ―The question [of whether to grant a
stay of the proceedings] is addressed to the sound discretion of the trial
court and is to be determined in light of all the facts and circumstances
and in the interest of expeditious and economic administration of
justice.‖
14. At least one Delaware court has stayed an action where the resolution
of that action depended on the interpretation of an instrument in which
the parties agreed to exclusive venue in a foreign jurisdiction. In RWI
Acquisition LLC v. Todd, the Delaware Court of Chancery was called
upon to determine the parties‘ obligations under, among others, an
employment agreement and a stock purchase agreement with exclusive
forum selection clauses in favor of New Mexico state and federal
courts.15 In RWI Acquisition LLC, the Delaware declaratory judgment
action was filed by the Delaware plaintiff, but a New Mexico action
was then filed by the Delaware defendant as plaintiff. In its decision,
the Court of Chancery had to determine whether the defendant‘s
employment was terminated for cause, thereby triggering the plaintiff‘s
―Call Right,‖16 and effectively forfeiting the defendant‘s equity interest
in the plaintiff‘s affiliate.17 However, such a determination required an
13
Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1146 (Del. 2010) (internal quotations omitted).
14
Double Z Enters., Inc. v. Gen. Mktg. Corp., 2000 WL 970718, at *2 (Del. Super. June 1,
2000).
15
RWI Acquisition LLC v. Todd, 2012 WL 1955279 (Del. Ch. May 30, 2012).
16
The employment agreement in RWI Acquisition LLC defined the ―Call Right‖ as
[N]otwithstanding anything contained in the Members Agreement, . . . [if
Todd's] employment with [RWI (N.M.)] is terminated by [RWI (N.M.)] for
Cause (as defined in [the Employment Agreement]) . . . the [Restricted] Units
shall upon such termination of employment be forfeited and transferred back
to [RWI (Del.)] without payment of any consideration by [RWI (Del.)].
Id. at *6.
17
Id. at *4. The RWI Acquisition LLC Court noted that Plaintiff‘s declaratory judgment action
asserted that
there is an actual controversy between the parties regarding: (i) whether
Ronny Todd‘s membership interest in RWI (Del.) had been repurchased;
interpretation of the employment agreement, which the agreement
expressly provided could only be done by state and federal courts in
New Mexico. Accordingly, the Court of Chancery stayed the action
pending the resolution of that issue in the New Mexico courts.
15. Additionally, the Delaware Court of Chancery has recognized that
disputes arising out of related agreements are generally best resolved by
the same court. In Ashall Homes Ltd. v. ROK Entertainment Group, the
Court of Chancery held that
bifurcating [a] dispute—so as to send claims arising from [one
agreement] to the English courts, but to keep claims arising from [a
separate but related agreement] here in this court—would result in
obvious inefficiencies and confusion. Those inefficiencies and the
potential for injustice are serious enough that long-standing
doctrines, such as res judicata and the Delaware Supreme Court‘s
McWane doctrine, have been developed to minimize claims
splitting.18
16. The facts of RWI Acquisition LLC are similar to those in this case. As
in RWI Acquisition, this was the first case filed, followed by the filing
of a case in another jurisdiction. Similarly, in this case, a
determination of whether Defendant breached the Pledge Agreement
and Promissory Note, or the Severance Agreement and General
Release, requires a resolution of the California action which will
determine whether the Employment Agreement is valid.19 These
agreements were all executed based on the premise that Defendant was
an employee of Channel. Therefore, since the Promissory Note, Pledge
(ii) whether Ronny Todd has any remaining equity interest in RWI (Del.)
or any right in such interest; and (iii) whether RWI (Del.) owes Ronny
Todd any money in connection with the repurchase of Ronny Todd‘s
membership interest in RWI (Del.).‖
Id. at *5.
18
992 A.2d 1239, 1251 (Del. Ch. 2010).
19
At oral argument, Plaintiffs‘ counsel conceded that a claim directly related to the Employment
Agreement would have to be brought in California pursuant to the Employment Agreement‘s
forum selection clause.
Agreement, and Severance Agreement and General Release each
depend on the valid employment of Defendant, the validity of those
agreements depends on whether the Employment Agreement itself was
validly executed. Additionally, should the California action resolve in
Defendant rescinding the Promissory Note, Pledge Agreement,
Employment Agreement, and investment agreements, it may render
issues in the Delaware litigation moot.20 Accordingly, a stay of this
action pending the resolution of the California action is the appropriate
step to be taken at this stage in the proceedings.21
IV. CONCLUSION
Therefore, Defendant‘s alternative Motion to Stay Plaintiff‘s First Amended
Complaint is GRANTED.
IT IS SO ORDERED.
/s/Richard R. Cooch
Richard R. Cooch, R.J.
cc: Prothonotary
20
The Court expresses no view on the merits of any party‘s claims in the California action.
21
The Court notes that Defendant‘s reliance on McWane is inapposite, as McWane applies only
to cases in which the first-filed case was in a foreign jurisdiction. Lisa, S.A. v. Mayorga, 993
A.2d 1042, 1047 (Del. 2010) (providing that only ―where the Delaware action is not the first
filed‖ will the McWane doctrine apply).
BW Piezo Holdings LLC v. Phillips
Combined Opinion