Feeley v. Nhaocg, LLC

• Decision Date: 28 November 2012
• Docket Number: C.A. No. 7304–VCL.
• Citation: 62 A.3d 649,37 Del. J. Corp. L. 1115
• Parties: Christopher J. FEELEY, AK–Feel, LLC, a Delaware limited liability company, and Oculus Capital Group, LLC, a Delaware limited liability company, Plaintiffs, v. NHAOCG, LLC, a New York limited liability company, Andrea Akel, George Akel, David Newman, and Daniel Hughes, Defendants.
• Court: Court of Chancery of Delaware

62 A.3d 649
37 Del. J. Corp. L. 1115

Christopher J. FEELEY, AK–Feel, LLC, a Delaware limited liability company, and Oculus Capital Group, LLC, a Delaware limited liability company, Plaintiffs,
v.
NHAOCG, LLC, a New York limited liability company, Andrea Akel, George Akel, David Newman, and Daniel Hughes, Defendants.

C.A. No. 7304–VCL.

Court of Chancery of Delaware.

Submitted: Sept. 26, 2012.
Decided: Nov. 28, 2012.

[62 A.3d 652]

Michael P. Kelly, Andrew S. Dupre, McCarter & English, LLP, Wilmington, Delaware; Attorneys for Plaintiffs.

Jason C. Jowers, Brett M. McCartney, Morris James LLP, Wilmington, Delaware; Jeanette N. Simone, Albert J. Millus, Jr., Hinman, Howard & Kattell, LLP, Binghamton, New York; Attorneys for Defendants NHAOCG, LLC, George Akel, David Newman, and Daniel Hughes.

Michael W. McDermott, David B. Anthony, Berger Harris, LLC, Wilmington, Delaware; Thomas A. Riley, Jr., Riley

[62 A.3d 653]

Riper Hollin & Colagreco, Exton, Pennsylvania; Attorneys for Defendant Andrea Akel.

OPINION
LASTER, Vice Chancellor.

This case began as a control dispute in which the managing member of Oculus Capital Group, LLC (“Oculus,” “OCG,” or the “Company”) sought to block the non-managing member from attempting to take over the managerial role. After a stipulated order and assorted rulings, the control dispute has largely been resolved. What remains are the non-managing member's counterclaims, which seek damages from the managing member and its human controller based on the actions they took that caused the relationship between the parties to deteriorate and led to the control dispute. The plaintiffs have moved to dismiss the counterclaims. Their motion is partially granted.

I. FACTUAL BACKGROUND

The facts for purposes of the motions are drawn from the counterclaims (cited as “CC”) and the documents they incorporate by reference. All reasonable inferences are drawn in favor of the non-movant.

A. A New Business Relationship

Before the events giving rise to this litigation, plaintiff Christopher J. Feeley and defendant Andrea Akel worked for NorthMarq Capital Group, Inc., where they identified and structured real estate transactions. In late 2009, Feeley and Akel wanted to strike out on their own, but they needed financing for their business. When other sources proved unavailable, Akel turned to her father, defendant George Akel, who is a successful real estate developer. George Akel had invested in other real estate projects with defendant David Newman, who joined the discussions. Newman in turn brought in defendant David Hughes, with whom Newman had invested in the past.

George Akel, Newman, and Hughes liked the idea of backing George's daughter, but they were “not previously acquainted with Feeley” and “were concerned about going into business with an untested stranger.” CC ¶ 190. “Eventually, however, Feeley sold himself to Mr. Akel, Mr. Newman, and Mr. Hughes by convincing them that he was extremely well connected in the world of financing and that he had an extensive ‘book of business' that he would be able to employ to seek out and secure sources of equity and debt financing.” Id. According to the counterclaims, George Akel, Newman, and Hughes nevertheless “were unwilling to commit to a long-term relationship in untested waters.” Id. ¶ 191. They allegedly insisted “that the relationship would be an experiment” and “that the entity formed by Mr. Akel, Mr. Newman, and Mr. Hughes ... would be able to end after two years if they were not satisfied with the outcome.” Id. As will be seen, the plain language of the relevant agreements does not impose a two-year time limit on the venture or give the entity formed by George Akel, Newman, and Hughes a termination right.

B. The Parties Form Oculus.

In January 2010, the parties formed Oculus as a Delaware limited liability company. The two members of Oculus are plaintiff AK–Feel, LLC (“AK–Feel” or “AFE”), a Delaware limited liability company, and defendant and counterclaim plaintiff NHAOCG, LLC (“NHA”), a New York limited liability company. AK–Feel's two members are Feeley and Andrea Akel. NHA's three members are entities affiliated with Newman, Hughes, and George Akel. AK–Feel and NHA each hold a 50%

[62 A.3d 654]

member interest in Oculus, but AK–Feel serves as the managing member. See Compl. Ex. A § 4.1(a) (the “Operating Agreement” or “OA”). As managing member, AK–Feel generally has authority to run the day-to-day business of Oculus, subject to NHA having approval rights over certain major decisions. See id. § 4.1(b).

Feeley serves as the managing member of AK–Feel. In that capacity, he controls the activities of both AK–Feel and Oculus. In addition, Feeley serves as the President and CEO of Oculus pursuant to the terms of an employment agreement. See Compl. Ex. C (the “Employment Agreement” or “EA”). The Employment Agreement mandates that any disputes arising under or relating to its terms be referred to arbitration. Id. § 9.

C. The Parties' Relationship Sours.

NHA alleges that “Feeley failed miserably” in his managerial roles at Oculus and that his “vaunted ‘book of business' and his supposed acumen as a financier proved to be illusory.” CC ¶¶ 209–10. According to NHA, “Feeley identified few projects over the two-year period, and one of the only ones he arguably ‘found’—The Gatherings project in Florida—ended in disaster due to Feeley's gross negligence.” Id. ¶ 210. NHA asserts that after the failed Gatherings project, Feeley began “negotiating student housing deals for his own account” instead of presenting them to NHA for consideration by Oculus. Id. ¶ 225.

The Gatherings project fell through in November 2011. Oculus had signed a contract to acquire the property during the summer which called for Oculus to tender a deposit payment in a specific amount and stated that time was of the essence. Feeley tendered less than what the contract specified. The seller declared a default and cancelled the contract. Oculus forfeited a portion of its deposit, became obligated to reimburse a co-investor for its investment, suffered financing penalties, and lost the fees that would have been earned had the deal closed. See id. ¶¶ 221–22. Feeley has offered to make NHA whole for its losses, but NHA regards that as an empty promise. See id. ¶ 223.

D. The Delaware Litigation

Dissatisfied with Feeley in general and angry about the Gatherings debacle, the principals of NHA decided to end their business relationship with Feeley and attempted to take over Oculus. On March 5, 2012, Feeley and AK–Feel filed this litigation, in which they sought to block NHA's attempt and establish their continuing control. On March 23, the parties entered into a stipulation resolving the near-term control issues and mooting the need for an expedited trial. Dkt. 57.

After settlement discussions failed, the plaintiffs filed an amended complaint, which NHA answered. The plaintiffs moved for judgment on the pleadings on certain of their claims, and that motion was largely granted. See Feeley v. NHAOCG, LLC, 2012 WL 4859157 (Del.Ch. Oct. 12, 2012). Between the March 23 stipulation and the partial judgment on the pleadings, the control dispute that sparked this litigation has been resolved.

What remains are NHA's counterclaims, through which NHA seeks to recover damages from AK–Feel and Feeley for the failed Gatherings transaction, Feeley's alleged diversions of real estate opportunities, and other events that caused the parties' relationship to fracture. NHA also seeks to enforce its claimed right to end the Oculus venture after two years. AK–Feel and Feeley have moved to dismiss the counterclaims.

[62 A.3d 655]

II. LEGAL ANALYSIS

When considering a motion to dismiss, all well-pled factual allegations in the counterclaims must be accepted as true and all reasonable inferences drawn in favor of the non-movants. See Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.2011). A pleading only can be dismissed if it fails to state a claim on which relief can be granted under this liberal pleading standard. See id.; Ch. Ct. R. 12(b)(6).

NHA organizes its counterclaims into five counts. Count I contends that AK–Feel breached the Operating Agreement by acting in a grossly negligent manner or engaging in willful misconduct in connection with the Gatherings transaction, by diverting investment opportunities that should have been passed along to Oculus, and by failing to perform a list of other “obligations pursuant to the OCG Operating Agreement.” CC ¶ 245. Count II alleges that Feeley aided and abetted the breaches of the Operating Agreement outlined in Count I. Count III alleges that both AK–Feel and Feeley owe “default fiduciary duties” to NHA, which they breached by engaging in the acts described in Count I. Id. ¶¶ 253, 255. Count IV is styled as a separate claim for negligence. Count V seeks a declaratory judgment that NHA has the right to cause Oculus to “cease ... business operations,” which NHA defines as “the search for business and financing opportunities.” Id. ¶ 269. NHA believes that Oculus would and, despite ostensibly “ceasing business operations” could, continue as a passive investor in its existing projects, receive distributions from those projects, and pass them along to NHA and AK–Feel.

A. Arbitration

As a threshold matter, Feeley argues that any counterclaims against him necessarily arise out of actions he took as President and CEO of Oculus, relate to his Employment Agreement, and therefore must be arbitrated. Feeley is partially correct.

Section 9 of the Employment Agreement states:

Any controversy, dispute or claim arising out of or relating to this Agreement or the breach hereof which cannot be settled by mutual agreement ... shall be finally settled by arbitration as follows: Any party who is aggrieved shall deliver a notice to the other party setting forth the specific points in dispute. Any points remaining in dispute twenty (20) days after the giving of such notice...