Haft v. Dart Group Corp.

• Decision Date: 30 December 1993
• Docket Number: Civ. A. No. 93-384.
• Parties: Robert M. HAFT, Plaintiff, v. DART GROUP CORPORATION, Crown Books Corporation and Trak Auto Corporation, Defendants.
• Court: U.S. District Court — District of Delaware

841 F. Supp. 549

Robert M. HAFT, Plaintiff, v. DART GROUP CORPORATION, Crown Books Corporation and Trak Auto Corporation, Defendants.

Civ. A. No. 93-384.

United States District Court, D. Delaware.

December 30, 1993.

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Lawrence C. Ashby of Ashby & Geddes, Wilmington, DE (David J. Hensler, Lisa Bonanno, and Jonathan A. Constine of Hogan & Hartson, Washington, DC, of counsel), for plaintiff.

Edward M. McNally, Lewis H. Lazarus, and Joseph C. Schoell of Morris, James, Hitchens & Williams, Wilmington, DE (Michael R. Klein, David M. Becker, Mary C. Manemann, Christopher P. Howard, and Bruce L. Plotkin of Wilmer, Cutler & Pickering, Washington, DC, of counsel), for defendants.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

I. INTRODUCTION

This case arises out of various disputes among members of the family which controls a parent holding company, Dart Group Corporation "Dart", and several majority owned subsidiaries, including Crown Books Corporation "Crown" and Trak Auto Corporation "Trak". This Court has subject matter jurisdiction by virtue of diversity of citizenship. 28 U.S.C. § 1332(a)(1) (1988).

In his amended complaint, Robert M. Haft "plaintiff" has asserted nine claims against Dart, Crown, and Trak "defendants", and defendants have responded by asserting nine affirmative defenses and seven counterclaims.¹ Docket Items "D.I." 7, 13. This opinion addresses plaintiff's motion for partial summary judgment. D.I. 9. Originally, plaintiff moved for partial summary judgment with respect to four of his nine claims, but three have subsequently become moot.² The only issue remaining, therefore, is whether plaintiff is entitled to summary judgment on his claim against Crown "defendant"³ for breach of an Incentive Stock Agreement the "agreement".

Plaintiff currently holds certain shares subject to a restriction upon their transfer. Under the agreement, defendant enjoys the right to repurchase plaintiff's shares if plaintiff "voluntarily terminates employment" with defendant. D.I. 11 Exhibit "Ex." C at 2; D.I. 15 Ex. 1-C at 2.⁴ Defendant's right to repurchase those shares lapses, however, "upon the termination of plaintiff's employment by defendant for any reason other than" plaintiff's conviction of a felony involving moral turpitude and directly involving defendant. The agreement further provides that upon the lapse of defendant's repurchase rights, plaintiff is entitled to the issuance of new shares unburdened by any restriction upon their transfer. Id. at 4.

The parties make the following arguments: Plaintiff contends he is entitled to new, unrestricted shares because he was fired by defendant on or around June 30, 1993. D.I. 10 at 23. Defendant, by contrast, maintains its right to repurchase those shares has vested because plaintiff "voluntarily terminated" his employment either when he hired Glenn Hemmerle "Hemmerle" to replace him as President and Chief Executive Officer on or around September 15, 1992, or when Hemmerle assumed that position on or around October 26, 1992. D.I. 14 at 19-23. In the alternative, defendant claims plaintiff "voluntarily terminated" any employment he may have had through abandonment, that is, by taking actions which were incompatible with the terms of his employment during the months preceding June 30, 1993. D.I. 14 at 23-27. Defendant also asserts two affirmative defenses: first, plaintiff's shares are voidable because they were issued for invalid consideration; and second, plaintiff is not entitled to specific performance of the agreement because he comes before a court of equity with "unclean hands." D.I. 14 at 28-31.

For the reasons which follow, plaintiff's motion for partial summary judgment will be granted in part and denied in part. Summary judgment will be denied as to: (1) plaintiff's claim of entitlement to the issuance of unrestricted shares; and (2) defendant's affirmative defense of "unclean hands." Summary judgment will be granted plaintiff as to defendant's affirmative defense of lack of consideration. That is, as a matter of law, defendant issued the disputed shares to plaintiff for valid consideration.

II. FACTUAL BACKGROUND

A. The Early Relationship Between Robert Haft and Crown⁵

Dart is a publicly traded corporation, organized under the laws of the State of Delaware, which is engaged in the business of operating retail discount stores throughout the area surrounding Washington, D.C. D.I. 11 at ¶ 2. During all relevant events, Herbert H. Haft "Herbert Haft" was not only its Chairman and Chief Executive Officer, but also its majority shareholder, holding 57% of Dart's stock. Dart in turn is the majority shareholder of Crown, a subsidiary of Dart which owns and operates a chain of retail bookstores. Herbert Haft by virtue of his majority holding in Dart effectively controls Crown. D.I. 15 Ex. 2 at ¶ 1; D.I. 32 at 6. Id.; D.I. 7 at ¶¶ 18, 29. Plaintiff, Robert M. Haft "Robert Haft", is the son of Herbert Haft. D.I. 15 Ex. 2 at ¶ 2.

In September of 1977, Robert Haft states he joined Dart as its Vice President of Corporate Planning and Development, shortly thereafter founding Crown as a subsidiary of Dart. D.I. 11 at ¶¶ 3-4. Robert Haft describes Crown as a "highly successful chain of retail discount bookstores." Id. at ¶ 4. Defendant counters that Robert Haft joined Crown in 1978, "when it was founded by Dart." D.I. 14 at 3.

According to Robert Haft, he served both as Crown's principal executive officer and one of Crown's directors from its creation until June 30, 1993. D.I. 11 at ¶ 5. Defendant differs, asserting Robert Haft served as Crown's principal executive officer only until Robert Haft hired Hemmerle to replace him in that position. D.I. 14 at 19-23. Hemmerle was hired on September 15, 1992 and states he assumed his new position on or around October 26, 1992. D.I. 15 Ex. 1-G, Ex. 3 at ¶ 5.

On February 28, 1987, Robert Haft and Crown entered into an Employment Agreement whereby Crown employed Robert Haft as President and Chief Executive Officer of Crown for a ten-year renewable period. D.I. 15 Ex. 1-B. The Employment Agreement required Robert Haft to "render such services to Crown as are customarily rendered by either the President or Chief Executive Officer of comparable publicly held companies and as are required by the General Corporation Law of the State of Delaware." Id. at 2.

On June 7, 1989, Crown's Board of Directors authorized the issuance of 100,000 shares of Crown common stock to Robert Haft at a price of $2,0375 per share. D.I. 11 at ¶ 26. That action was implemented on August 30, 1989, when Robert Haft and Crown entered into an Incentive Stock Agreement involving the purchase by Robert Haft of 100,000 shares of Crown common stock for $203,750.⁶ D.I. 11 at ¶ 10; D.I. 15 Ex. 1-C. The agreement acknowledged "payment by Robert Haft of the sum of $203,750, in the form of an unsecured, non-interest bearing promissory note due January 2, 2004 (the `Note'), in full payment of the Shares." D.I. 11 at ¶¶ 26, 27, Ex. O; D.I. 15 Ex. 1-C at 1-2.

The Incentive Stock Agreement also provided that Crown would have the right to repurchase some or all of the shares issued under that agreement if, prior to January 2, 2001, "(i) Robert Haft voluntarily terminates employment with Crown or (ii) Crown terminates Robert Haft's employment with Crown for `good cause,'" which is defined as the conviction of a felony directly involving Crown and involving moral turpitude on the part of Robert Haft. D.I. 11 at ¶ 28; D.I. 15 Ex. 1-C at 2. Robert Haft has never been convicted of a felony. D.I. 11 at ¶ 28.

At some time following the execution of the Incentive Stock Agreement, Crown issued and delivered Stock Certificate No. 5464 to Robert Haft, which represents 100,000 shares of Crown common stock. Id. at ¶ 30. That certificate also contains an endorsement pertaining to transfer restrictions as set forth in the agreement. Id.; D.I. 11 Ex. P.

B. The Relationship Between Glenn Hemmerle and Crown

Hemmerle, now the President and Chief Executive Officer of Crown, maintains the search firm of Heidrick & Struggles made an unsolicited call to him in the fall of 1991. That call related to the possibility he might assume the position he currently holds. D.I. 15 Ex. 3 at ¶¶ 1-2. At the time, Hemmerle states he was employed as President and Chief Executive Officer of The Athlete's Foot Group, Inc. Id. at ¶ 2. According to Hemmerle, he indicated to the search firm that he would be interested in considering the opportunity. Id. Thereafter, Hemmerle states Robert Haft contacted him about the position, explaining he was looking for someone to replace him because Robert Haft "was leaving Crown to become Chief Executive Officer of Dart Group Corporation ... the parent company of Crown." Id. at ¶ 3. Herbert Haft was then, and is now, the Chief Executive Officer of Dart. Id. at ¶ 3; D.I. 15 Ex. 2 at ¶ 1.

According to Hemmerle, Robert Haft actively recruited him to join Crown, contacting him several more times and inviting him to visit the Crown stores in and around Washington, D.C. in December of 1991. D.I. 15 Ex. 3 at ¶ 4. Hemmerle states he accepted, and during the visit spoke at length with Robert Haft about Hemmerle's potential duties and responsibilities at Crown. Id. at ¶ 4. Robert Haft allegedly offered Hemmerle the position of President and Chief Executive Officer after several months of similar discussions. Id. On September 15, 1992, Robert Haft, acting on behalf of Crown, entered into an Employment Agreement with Hemmerle whereby Hemmerle became President and Chief Executive Officer of Crown. Id. at ¶ 5; D.I. 15 Ex. 1-G. Hemmerle maintains he assumed those positions on October 26, 1992. D.I. 15 Ex. 3 at ¶ 5.

From the very beginning, Hemmerle claims he made it clear to Robert Haft that Hemmerle would join Crown only if Robert...