Eagle Force Holdings, LLC v. Campbell

• Decision Date: 24 May 2018
• Docket Number: No. 399, 2017,399, 2017
• Citation: 187 A.3d 1209
• Parties: EAGLE FORCE HOLDINGS, LLC, and EF Investments, LLC, Plaintiffs Below, Appellants, v. Stanley V. CAMPBELL, Defendant Below, Appellee.
• Court: United States State Supreme Court of Delaware

187 A.3d 1209

EAGLE FORCE HOLDINGS, LLC, and EF Investments, LLC, Plaintiffs Below, Appellants,

v.Stanley V. CAMPBELL, Defendant Below, Appellee.

No. 399, 2017

Supreme Court of Delaware.

Submitted: March 7, 2018

Decided: May 24, 2018

Frank E. Noyes, II, Esquire, Offit Kurman, P.A., Wilmington, Delaware. Of Counsel: Harold M. Walter, Esquire, Baltimore, Maryland, for Appellants.

David L. Finger, Esquire, Finger and Slanina, LLC, Wilmington, Delaware, for Appellee.

Before STRINE, Chief Justice, VALIHURA, VAUGHN, SEITZ, and TRAYNOR, Justices, constituting the Court en Banc.

VALIHURA, Justice, for the Majority:

One of the first things first-year law students learn in their basic contracts course is that, in general, "the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration."¹ In other words, there must be a "meeting of the minds" that there is a contract supported by consideration. However, in the context of real life disputes, the basic elements are not always as straightforward as they might appear in the hornbooks. This case presents such a situation, where determining something as seemingly simple as whether a contract was formed proves a challenging endeavor.

After months of negotiations, the parties here signed versions of two transaction agreements: a limited liability company agreement, and a contribution and assignment agreement. However, a serious question exists as to whether the parties intended to be bound by these signed documents. And whether there exists a valid, binding contract implicates the other main issue raised on appeal—namely, whether this Court can exercise jurisdiction over the defendant. If at least one of these transaction documents is a valid, independently enforceable contract, then this Court has jurisdiction via a forum selection clause favoring Delaware. If neither document is independently enforceable, and if earlier agreements do not provide another means of exercising jurisdiction over the defendant, then Delaware courts lack personal jurisdiction over the defendant, and the plaintiffs' claims for breach of contract, unjust enrichment, and other causes of action against the defendant were properly dismissed.

In this unusual case, after numerous evidentiary hearings, a five-day trial, and several motions for contempt—proceedings spanning more than two years—the Court of Chancery determined that neither transaction document is enforceable. As a result, the Court of Chancery dismissed the case for lack of personal jurisdiction, even after finding one of the parties in contempt of its status quo order.

In Osborn ex rel. Osborn v. Kemp ,² this Court set forth the elements of a valid, enforceable contract. We explained that "a valid contract exists when (1) the parties intended that the contract would bind them, (2) the terms of the contract are sufficiently definite, and (3) the parties exchange legal consideration."³

The trial court did not apply this test in this case. Though it mentioned the Osborn test, the trial court primarily relied on Leeds ,⁴ a Court of Chancery opinion that addresses the enforceability of letters of intent and provides that "determination of whether a binding contract was entered into will depend on the materiality of the outstanding issues in the draft agreement and the circumstances of the negotiations."⁵ Applying Leeds , the trial court found that the agreement was not sufficiently definite due to a lack of agreement on certain material terms, primarily the consideration to be exchanged. Although this could be viewed as an implicit finding that the parties could never have intended to be bound, we believe that there is force in appellants' contention that the parties' intent to be bound requires a separate factual finding.

In this case, there is evidence within the four corners of the documents and other powerful, contemporaneous evidence, including the execution of the agreements, that suggests the parties intended to be bound. But we acknowledge that there is also evidence that cuts the other way. Given that this is a question of fact, we remand to the Court of Chancery to make such a finding.

Osborn 's second inquiry, i.e. , whether the contract's terms are sufficiently definite, is largely a question of law. We believe that the agreements sufficiently address all issues identified by the trial court as material to the parties—including the consideration to be exchanged. We remand because, although we conclude that the second and third Osborn prongs are satisfied, we recognize that the trial court's conclusions as to the parties' intent to be bound impact the analysis and ultimate determination as to whether a contract has been formed.⁶

If either document is enforceable, then the forum selection provisions are also enforceable. And, for reasons discussed below, we also find that the Court of Chancery erred in finding that its jurisdiction to enforce the previously issued contempt order depended on the enforceability of the transaction documents. It has jurisdiction to enforce its order regardless of the transaction documents' enforceability.

Thus, we REVERSE the Court of Chancery's decision and REMAND this case with instructions to the trial court to reconsider the evidence and make a finding on the parties' intent to be bound to each transaction document in accordance with the framework set forth in Osborn and guidance included in this opinion. We also REVERSE and REMAND to the Court of Chancery to enforce its contempt order, and so even if, on remand, the Court of Chancery adheres to its earlier conclusion that the transaction documents are unenforceable, it will need to decide the other contempt allegations pending in that court.

I.

Defendant-appellee Stanley Campbell is the creator of PADRE, a software system that aggregates medical information about patients to help physicians determine the appropriate medications to prescribe.⁷ He founded EagleForce Associates, Inc. ("Associates"), a Virginia Corporation, to develop and market PADRE. In November 2013, Associates had just been denied a government contract, and Campbell reasoned that it would have a better chance of succeeding if it were better capitalized.⁸ Perhaps even more pressing, the company also needed funding to stay afloat.⁹ It had no revenue.¹⁰

In seeking the much-needed capitalization, Campbell approached Richard Kay, a businessman and investor based in the Washington, D.C., area whom he had asked to invest in the company once before.¹¹ This time Kay agreed. To keep Associates operational, and without a written agreement obligating him to do so, Kay provided it funding through EF Investments LLC, a Delaware LLC.

Campbell and Kay sketched out their vision for their venture in a letter agreement dated November 15, 2013.¹² They planned to form "a new LLC entity and/or a series of industry specific LLC's [sic] verticals in Virginia."¹³ Campbell was to contribute to the venture his "PADRE source code and patents" (as described in the agreement), and Kay was to contribute $1.8 million in cash—"the amount stated by [Campbell] that he contributed to the effort so far ...."¹⁴ They would "each own 50% of the new companies" and agreed "to never dilute less than 50.1% together in order to maintain control." They also promised to vote their shares as a block and to "confer on all business and marketing related activities as well as all capital needs."¹⁵

Diligence progressed through the winter and, in early April 2014, the parties signed a new letter agreement (the "April Letter Agreement") that "amends" the November letter and "provides binding terms and conditions for [Campbell] and [Kay] to proceed with this venture."¹⁶ The April Letter Agreement envisioned that "a new LLC will be formed to serve as a parent entity (‘Holdco’) for [Associates] and the recently formed EagleForce Health Solutions, LLC," and that "ownership shall consist of [Campbell] and [Kay] only with equal rights to them or their heirs."¹⁷ The agreement provided that, aside from Associates and EagleForce Health Solutions LLC ("EF Health"),¹⁸ "[a]dditional new wholly owned Holdco subsidiaries shall be formed for each subsequent area of opportunity, such as online gambling, identity and cybersecurity, that Holdco elects to pursue."¹⁹ We refer to Associates and EF Health collectively as the "Targeted Companies," the "subsidiaries," and "EagleForce" in this opinion.

The April Letter Agreement reiterated that Campbell and Kay would each own 50% of Holdco directly, and 50% of the wholly owned subsidiaries, Associates and EF Health, indirectly through Holdco.²⁰ And it confirmed that Campbell and Kay would never dilute their ownership "less than 51% together in order to maintain joint control," and that "their vote will always be uniformly tied as a single vote thus protecting each of them from complete loss of control."²¹

To obtain his 50% ownership interest in Holdco, Campbell would contribute all intellectual property and licensing agreements related to PADRE. The agreement estimated that this property was worth $2.3 million.²² For his part, Kay would advance $500,000 to Holdco upon the execution of the letter agreement (evidenced by a demand promissory note that Associates and EF Health would issue jointly and severally to Kay) and contribute an additional $1,800,000 to Holdco—for a total of $2.3 million—once they agreed on an LLC operating agreement, which they promised to sign at a future date.²³ The April Letter Agreement provided that Campbell would receive a $500,000 distribution from Holdco for his personal use upon signing an operating agreement.²⁴

In the meantime, absent a formal LLC operating agreement, the April Letter Agreement further delineated the management responsibilities of the two partners outlined in the November letter into two "swim lanes," as the parties described them.²⁵ Campbell was to serve as a "member, President and Chairman of the 3 member ...