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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
DANIEL C. MURPHY,
Plaintiff,
Vv. C.A. No. N16C-12-433 WCC CCLD
PENTWATER CAPITAL
MANAGEMENT LP,
HALBOWER HOLDINGS, INC.,
and MATTHEW C. HALBOWER
Defendants.
Submitted: April 18, 2019
Decided: July 24, 2019
DEFENDANTS’ MOTION TO DISMISS COUNTS VI, VI, AND VIII OF
PLAINTIFF’S SECOND AMENDED COMPLAINT — DENIED IN PART,
GRANTED IN PART
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT — DENIED
PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT -
DENIED
MEMORANDUM OPINION
Robert J. Katzenstein, Esquire; Margaret M. DiBianca, Esquire; Smith Katzenstein
Jenkins LLP, 1000 West Street, Wilmington, DE 19801. Attorneys for Plaintiff.
John L. Reed, Esquire; Peter H. Kyle, Esquire; Matthew Denn, Esquire; DLA Piper
LLP, 1201 North Market Street, Suite 2100, Wilmington, DE 19801. Attorneys for
Defendants.
CARPENTER, J.
Before the Court are Pentwater Capital Management LP, Halbower Holdings,
Inc., and Matthew C. Halbower’s (collectively, “Defendants” or “Pentwater”)
Motion to Dismiss Counts VI, VI, and VIII of Plaintiff Daniel C. Murphy’s
(“Plaintiff’ or “Murphy”) Second Amended Complaint, Defendants’ Motion for
Summary Judgment, and Plaintiff's Motion for Partial Summary Judgment. For the
reasons set forth in this Opinion, Defendants’ Motion to Dismiss Counts VI and VII
is DENIED. The Motion to Dismiss Count VIII is GRANTED. Defendants’ Motion
for Summary Judgment is DENJED. Plaintiff's Motion for Partial Summary
Judgment is DENIED.
I FACTUAL & PROCEDURAL BACKGROUND
Plaintiff Murphy initiated this litigation in order to recover money allegedly
owed to him under the terms of a bonus plan (the “Bonus Plan”) and employment
agreement (the “Employment Agreement”) (collectively, the “Agreements”) with
Pentwater.!
A. Plaintiff’s Employment Relationship With Pentwater
Murphy first worked as a hedge fund portfolio manager at Pentwater from
February 2008 until February 2011, when he resigned “because he disagreed with
the amount of his compensation and the way ... Pentwater’s CEO, Matthew C.
| See Second Am. Compl. § 7.
Halbower (“Halbower”) ... determined [it].”? In March 2012, Halbower asked
Plaintiff to return to Pentwater, but he declined.? Over a year later, in June 2013,
Halbower again attempted to recruit Murphy back to Pentwater, and Plaintiff
eventually rejoined the hedge fund on July 16, 2013.4
As part of Murphy’s return to Pentwater, he was promised a 2.5% Synthetic
Equity interest in the hedge fund.’ This interest purportedly entitled Plaintiff to
incentive bonuses “roughly equal to 2.5% of [its] distributable cash.” Halbower also
allegedly promised Murphy in writing that he “would receive credit for amounts that
had already been distributed in 2013 and that would be distributed in 2013 before he
began work.””
Upon rejoining the hedge fund, Murphy received a copy of the Bonus Plan,
which stated that “if [his] employment with Pentwater was terminated, he still would
be entitled to cash payments after his termination until he received an amount equal
to 2.5% of Pentwater’s book value.” However, the copy of the Bonus Plan given to
Plaintiff did not include an amendment apparently made just one day before his
reemployment with Pentwater began.’
21.41.
31.92.
4 1d. 193, 5.
514.43.
6 Id.
7 Second Am. Compl. §f 4, 21.
81a G4.
91d. 46.
Approximately two years later, on August 7, 2015, Halbower allegedly fired
Murphy." Plaintiff then sought to enforce the Bonus Plan after his departure from
Pentwater, which “was required to pay [him] ... in cash on or before February 15,
2016.”!' However, Defendants refused to pay Murphy the money purportedly owed
to him under the Agreements, citing the Bonus Plan amendment as a basis for its
refusal.!? Pentwater also claims it does “not owe any amounts under the Bonus Plan
because Murphy did not execute a release of claims within two weeks of his
termination as purportedly required in Paragraph 13 of the [Employment]
Agreement.”
B. The Instant Litigation
On December 30, 2016, Plaintiff transferred his case from the Court of
Chancery to Superior Court and filed an Amended Complaint, alleging claims for
breach of contract (Counts I-II), recovery of wages under the Illinois Wage Payment
and Collection Act (“IWPCA”) (Counts III-IV), and fraudulent inducement (Count
V).! In its October 31, 2017 Memorandum Opinion, the Court ultimately dismissed
01a.97.
Ng
? Id. 49 6-7, 38.
8 Second Am. Compl. § 79.
'4 See Murphy v. Pentwater Capital Mgmt. LP, 2017 WL 5068572, at *2 (Del. Super. Ct.
Oct. 31, 2017).
Count IV against Halbower for lack of personal jurisdiction, but denied Defendants’
Motion to Dismiss the claims against the remaining parties.
On September 6, 2018, Plaintiff filed a Motion for Leave to File a Second
Amended Complaint, which the Court granted.'® Pentwater now moves to dismiss
Counts VI, VII, and VIII of Murphy’s Second Amended Complaint for failure to
state a claim pursuant to Superior Court Civil Rule 12(b)(6) and has also filed a
Motion for Summary Judgment on Counts I, II, II, and V of Murphy’s Second
Amended Complaint. Plaintiff filed his own Motion for Partial Summary Judgment
on Counts I, II, I, and VII.
This is the Court’s decision on the portion of the motions not previously
addressed in its Letter Opinion of July 16, 2019.
I. DISCUSSION
A. Motion to Dismiss
In considering a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), the Court must assume the truthfulness of the complaint’s well-pleaded
allegations,'” and afford a plaintiff “the benefit of all reasonable inferences that can
1S See id. at *1, 5.
16 See Second Am. Compl.
17 See Solomon v. Pathe Commce’ns Corp., 672 A.2d 35, 38-39 (Del. 1996). See also VLIW Tech.,
LLC v. Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003) (noting that the complaint is to be
liberally construed and under “Delaware’s judicial system of notice pleading, a plaintiff need not
plead evidence” but must “only allege facts that, if true, state a claim upon which relief can be
granted.”).
be drawn from its pleading.”'* Certain documents that are “integral to a plaintiff's
claims ... may be incorporated by reference without converting the motion to a
summary judgment.”!? At this preliminary stage, dismissal will be granted only
when the Court is able to determine with “reasonable certainty” that the plaintiff
would not be entitled to relief “under any set of facts that could be proven to support
the claims asserted” in the complaint.”°
1. Counts VI & VII: Breach of Contract
Defendants argue that Counts VI and VII for breach of contract in Plaintiff's
Second Amended Complaint must be dismissed because they are barred by the
statute of limitations.?! According to Pentwater, Murphy’s claims are also prohibited
by the language and terms of the Agreements themselves.” More specifically,
Defendants argue that Halbower, as CEO of Pentwater, “had complete and binding
discretion to interpret and implement the Bonus Plan,”” including calculation of the
Total Equity Payment figure.
In response, Plaintiff argues that his additional claims are not time-barred
because the discovery rule tolled the statute of limitations and they also relate back
18 In re USACafes, L.P. Litig., 600 A.2d 43, 47 (Del. Ch. 1991) (noting, however, that the Court
is not required to blindly accept all allegations or draw all inferences in a plaintiff's favor).
'9 Furnari v. Wallpang, Inc., 2014 WL 1678419, at *3—4 (Del. Super. Ct. Apr. 16, 2014).
20 See id. (citing Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).
21 See Defs.’ Opening Br. Mot. to Dismiss at 16-17.
22 See id. at 18-23.
23 Id. at 18.
to his original Amended Complaint.** Murphy also contends that the Bonus Plan sets
forth a formula for calculating the Total Equity Payment figure and does not give
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Halbower the ability to just “choose a number out of thin air.
The Court will first address the statute of limitations issue. Superior Court
Rule of Civil Procedure 15(c)(2) states that “[a]n amendment of a pleading relates
back to the date of the original pleading when the claim or defense asserted in the
amended pleading arose out of the conduct, transaction, or occurrence set forth or
9926
attempted to be set forth in the original pleading.
The Court finds that Counts VI and VII relate back to Plaintiff's original
Amended Complaint and, as a result, are not barred by the statute of limitations.
Murphy’s original Amended Complaint contained claims for breach of contract for
Defendants’ refusal to pay amounts allegedly owed to him under the Agreements.
Counts VI and VII also seek relief for Pentwater’s failure to compensate Murphy for
other, additional amounts that he was apparently required to receive under the
Agreements. Ultimately, the Court believes discovery has revealed calculation
issues that relate back to Plaintiff's original claims for breach of the Bonus Plan and
Employment Agreement. The breach of contract claims now asserted in Counts VI
and VII of the Second Amended Complaint arise from the same conduct complained
24 See PI.’s Opp’n. Br. Mot. to Dismiss at 12-13.
25 Tq. at 17.
26 Super. Ct. Civ. R. 15.
of at the start of this litigation — Defendants’ alleged failure to properly compensate
Murphy pursuant to the terms set forth in the Agreements.
The second issue is whether Murphy’s new breach of contract claims are
prohibited by the language of the Agreements. Defendants argue that Count VI must
fail because the Bonus Plan gave Halbower “the authority and discretion to operate,
maintain, amend and administer [it] ...”?” Pentwater also claims that Halbower’s
determination of the Total Equity Payment is unchallengeable and cannot be the
basis for a breach of contract action?’ because the Bonus Plan states that Halbower’s
“interpretations of [it] are final, binding, and conclusive on all parties.”? Murphy
believes that “even if Halbower had sole discretion to determine how much
Pentwater paid him and his related entities, it does not follow that he can simply
ignore the plain language of the Bonus Plan that mandates the Total Equity Payment
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must be calculated by the amounts paid to Halbower and related entities.
In Delaware, a breach of contract claim requires Plaintiff to demonstrate: (1)
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a contractual obligation, (2) a breach of that obligation, and (3) resulting damage
When interpreting a contract, “[t]he Court will [construe] clear and unambiguous
terms according to their ordinary meaning.” The discretionary provision cited by
27 See Am. Compl., Ex. 1 at § 3.2 [hereinafter, Bonus Plan].
28 Defs.’ Opening Br. Mot. to Dismiss at 19.
2° Bonus Plan at § 3.3.
3° P].’s Opp’n. Br. Mot. to Dismiss at 18.
3! Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. Ct. Feb. 4, 2005).
32 GMG Capital Inv., LLC y. Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del. 2012).
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Defendants cannot be interpreted to prohibit Murphy’s breach of contract claim or
to insulate the Defendants from liability for any alleged failure to follow defined
terms and formulas set forth in the Bonus Plan. In fact, Halbower was to determine
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Incentive Bonuses “consistent with the provisions contained in the Plan. The
Court believes Murphy’s allegation that the Total Equity Payment was not calculated
“consistent with” the formula set forth in the Bonus Plan is enough to support his
breach of contract claim against Defendants in Count VI. Furthermore, any issues
regarding how the Total Equity Payment amount was calculated are factual in nature
and cannot be decided on a Motion to Dismiss. Therefore, the Motion to Dismiss
Count VI is denied.
Defendants also contend that Count VII must be dismissed because
“Murphy’s Incentive Bonus was properly reduced by his buy-in amount in
accordance with the terms of the Bonus Plan.”*4 Plaintiff, by contrast, claims that
Pentwater’s Incentive Bonus calculation did not give him credit for one of two
distributions that occurred in 2013.°5 Again, it is clear to the Court that there are
factual issues surrounding how the Incentive Bonus was calculated. These issues
cannot appropriately be decided or resolved on a Motion to Dismiss. Therefore, the
Motion to Dismiss Count VII is denied.
33 Bonus Plan at § 3.2(b).
34 Defs.’ Opening Br. Mot. to Dismiss at 23.
35 See Pl.’s Opp’n. Br. Mot. to Dismiss at 19-20.
2. Count VIII: Quantum Meruit
Pentwater argues that Murphy’s quasi-contractual claim for quantum meruit
is improper because its relationship with Plaintiff is governed by the two express
Agreements.*° Meanwhile, Murphy contends that the enforceability of the Bonus
Plan and Employment Agreement at issue are questionable, and he only seeks
recovery under the quantum meruit theory as an alternative to the breach of contract
claims.”
Quantum meruit “is a quasi-contractual remedy by which a plaintiff, in the
absence of an express agreement, can recover the reasonable value of the materials
or services it rendered to the defendant.”** When “there is an enforceable contract
9939
between the parties, quantum meruit recovery is inapplicable.
Because this litigation is based on alleged breaches of the Employment
Agreement and Bonus Plan, Murphy’s quantum meruit claim cannot proceed. The
Court believes these two express Agreements and the terms contained within them
control the parties’ now-soured relationship and the ultimate outcome of Plaintiff's
lawsuit. In short, there is no “absence of an express agreement” to support quantum
36 See Defs.’ Opening Br. Mot. to Dismiss at 23-24.
37 See Pl.’s Opp’n. Br. Mot. to Dismiss at 21-22.
38 C & C Drywall Contractor, Inc. v. Milford Lodging, LLC, 2010 WL 1178233, at *3 (Del.
Super. Ct. Jan. 13, 2010).
39 Id.
40 Td.
meruit recovery in this case. Therefore, Count VIII of Plaintiff's Second Amended
Complaint for quantum meruit is dismissed.
B. Motions for Summary Judgment
In reviewing a motion for summary judgment pursuant to Superior Court Civil
Rule 56, the Court must determine whether any genuine issues of material fact
exist.1 The moving party bears the burden of showing that there are no genuine
issues of material fact, such that he or she is entitled to judgment as a matter of law.”
In reviewing a motion for summary judgment, the Court must view all factual
inferences in a light most favorable to the non-moving party.*? Where it appears that
there is a material fact in dispute or that further inquiry into the facts would be
appropriate, summary judgment will not be granted.“ Additionally, “the standard
t,45
for summary judgment ‘is not altered” with cross-motions for summary judgmen:
1. Defendants’ Motion for Summary Judgment
@ Fraudulent Inducement
As indicated in prior rulings, the Court believes the dispute over how bonus
amounts were calculated and the numbers used to make those calculations is factual
41 Super. Ct. Civ. R. 56(c); see also Wilm. Tru. Co. v. Aetna, 690 A.2d 914, 916 (Del. 1996).
*® See Moore v. Sizemore, 405 A.2d 679 (Del. 1979).
‘8 See Alabi v. DHL Airways, Inc., 583 A.2d 1358, 1361 (Del. 1990).
‘4 See Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. Super. Ct. 1962), rev'd in part on
procedural grounds and aff'd in part, 208 A.2d 495 (Del. 1965).
4° Total Care Physicians, P.A. v. O’Hara, 798 A.2d 1043, 1050 (Del. Super. Ct. 2001) (citing
United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997)).
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in nature, and therefore also cannot be resolved on a motion for summary judgment.
It appears to the Court that beyond the issue of a release, the parties’ dispute centers
around whether Plaintiff is in fact owed any additional amounts under the
Agreements and, if so, when those amounts could have been calculated and paid to
him. There is also a dispute as to which version of the Bonus Plan is applicable to
Plaintiff's compensation. Resolution of these underlying factual issues is
inappropriate at the summary judgment stage.
The Court also finds there is a sufficient basis for Plaintiff's fraudulent
inducement claim to go forward. Under Illinois law, fraudulent inducement is
false representation of material fact, made with knowledge or belief of that
representation’s falsity, and made with the purpose of inducing another party to act
or to refrain from acting, where the other party reasonably relies upon the
representation to its detriment.” If Halbower presented Murphy with what he knew
was an outdated or soon-to-be amended version of the Bonus Plan, as Plaintiff
alleges,‘” the Court believes it was likely done in an effort to encourage Murphy to
rejoin Pentwater. In contrast, Defendants claim that Halbower “explained to Plaintiff
the terms of the Bonus Plan as it existed in or around July 2013,” and deny that he
made any false representations to Murphy.** Again, this is an issue of disputed fact,
46 Enter. Recovery Sys., Inc. v. Salmeron, 927 N.E.2d 852, 858 (Ill. App. Ct. 2010).
47 See Compl. § 84.
48 See Answ. § 84.
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which cannot be resolved at the summary judgment stage. The outcome of Plaintiffs
fraudulent inducement claim ultimately depends upon whether the jury believes: (a)
Murphy, who argues that “the Plan actually had been materially amended the day
before [he] was presented with the Agreement” and he was not advised of the
changes,” or (b) Defendants, who contend there is “no evidence that Pentwater
engaged in any scheme to deftaud.”*°
Furthermore, the Court finds these alleged fraudulent representations have not
been consumed by the terms of the employment contract subsequently issued. The
Agreement correctly references the Bonus Plan, but the conduct addressed in this
claim is materially amending the Plan to Plaintiff's detriment, knowing he would
rely upon the information previously provided, and not disclosing the changes made
to induce Murphy to rejoin Pentwater. Therefore, Defendants’ Motion for Summary
Judgment on Count V is denied, and Plaintiff's claim for fraudulent inducement will
proceed to trial.
ii) IWPCA
The remaining issue on Defendants’ Motion for Summary Judgment is
whether the penalties imposed under the Illinois Wage Payment and Collection Act
(“IWPCA” or “Act”) are applicable to Murphy’s bonus under the Plan. At this
* Pl’s, Opp’n Br. Mot. for Summ. J. at 35.
5° Defs.’ Opening Br. Mot. for Summ. J. at 34.
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juncture of the litigation, the Court finds the requirements of the WPCA have not
been met to bring the penalties imposed by the Act into play.
The Act defines final compensation to include “any other compensation owed
the employee by the employer pursuant to an employment contract or agreement
between the 2 parties.” The Employment Agreement in this matter dated July 16,
2013 sets forth the compensation to be paid to Plaintiff, including amounts he would
be owed if his employment was terminated by Defendants. Paragraph 6 of the
Employment Agreement outlines the calculation process and asserts that Plaintiff
“shall receive” a post termination bonus on or before February 15" of the following
year. The Employment Agreement itself refers to this post termination bonus as
compensation. As a result, under the Employment Agreement between the parties,
at least as of February 15, 2016, this compensation would be owed to Plaintiff.
However, the other competing provision of the Employment Agreement is the
requirement in paragraph 13 that Plaintiff execute a waiver and release of claims to
specifically obtain the post termination bonus. At this juncture, Murphy has failed
to execute such a release and this has been a hotly contested issue in this litigation.
The Court has previously ruled that Defendant had an obligation to initially propose
arelease and Plaintiff's right to post termination compensation was not extinguished
until a reasonable release was provided. While the Court finds Plaintiff has earned
compensation as of February 15, 2016, its payment is still controlled by paragraph
13
13 of the Employment Agreement and payment is not due until the execution of a
release has occurred. As such, the Court finds that the IWPCA will only become
applicable if the release is signed, and once executed, the compensation must be paid
within 21 days from that date. Failure to pay within the 21 days will activate the
penalties set forth in the WPCA.
As a final note, this statute is uniquely applicable to compensation to
employees of IIlinois-based entities and any violation of its provisions are to be
investigated and enforced by the Illinois Department of Labor. While the primary
enforcement of the Act rests with the Department of Labor, the Act does specifically
allow an employee to pursue violations of the Act, independent of the Department
of Labor. However, the statute appears to require that if an individual desires to
prosecute a claim, they do so in the Circuit Court of Illinois in the county where the
alleged violation occurred. Section 11 of the Act in part states:
Any employee aggrieved by a violation of this Act or any
rule adopted under this Act may file suit in circuit court of
Illinois, in the county where the alleged violation occurred
or where any employee who is party to the action
resides,...
As such, the Court only highlights that it has some concern as to whether it has
proper jurisdiction to even consider the claim. However, since the Court has ruled
that at the moment the Act is not applicable to Plaintiffs post termination
compensation, the Court need not address the concern at this time.
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2. Plaintiffs Motion for Partial Summary Judgment
Plaintiff has also moved for Partial Summary Judgment on Counts I, IT, and
III of his Second Amended Complaint. For the reasons set forth in its Letter Opinion
of July 16, 2019, the Court believes summary judgment on these counts is not
appropriate.
As to Count VIL, Plaintiff argues he is entitled to partial judgment “in the
amount of at least $400,000 related to an underpayment of [his] Incentive Bonus
paid in February 2014.”°! Defendants respond by claiming that Murphy is not
entitled to any additional 2014 compensation because he suffered no damages and
his calculations are incorrect and inconsistent with how the Bonus Plan is
administered.>* The Court again finds that there is a factual dispute regarding how
the Incentive Bonus is calculated and which numbers should be used in the
calculation. It cannot be resolved at the summary judgment stage. Therefore,
Plaintiff's Motion for Partial Summary Judgment on Count VII is also denied.
51 P],s Opening Br. Mot. for Partial Summ. J. at 25.
52 Defs.’ Opp’n Br. Mot. for Partial Summ. J. at 24.
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Ii. CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss Counts VI and VII
of Plaintiff's Second Amended Complaint is DENIED. The Motion to Dismiss
Count VIII is GRANTED. Defendants’ Motion for Summary Judgment is
DENIED. Plaintiff's Motion for Partial Summary Judgment is DENIED.
IT IS SO ORDERED.
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Judge William C. Carpenter,
16