Harrison v. Soroof Int'l, Inc.
| Decision Date | 27 July 2018 |
| Docket Number | Civil Action No. 17-473-CJB |
| Citation | 320 F.Supp.3d 602 |
| Parties | John E. HARRISON, Plaintiff, v. SOROOF INTERNATIONAL, INC., Defendant. |
| Court | U.S. District Court — District of Delaware |
Peter B. Ladig, BAYARD, P.A., Wilmington, Delaware; Meghan A. Adams, MORRIS JAMES LLP, Wilmington, Delaware, Attorneys for Plaintiff.
Ryan W. Browning, MANNING GROSS + MASSENBURG, Wilmington, Delaware; Haig V. Kalbian, D. Michelle Douglas, William P. McGrath, Jr., KALBIAN HAGERTY LLP, Washington, District of Columbia, Attorneys for Defendant.
Presently pending before the Court is a motion to dismiss filed by Defendant Soroof International, Inc. ("Defendant" or "Soroof") pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the Federal Rules of Civil Procedure (the "Motion"). (D.I. 6) Specifically, Soroof argues that this action should be dismissed because: (1) Plaintiff John E. Harrison ("Plaintiff" or "Harrison") lacks standing to assert an alter ego/veil piercing claim (the "alter ego claim"); (2) this Court lacks personal jurisdiction over Soroof; and (3) Harrison has failed to allege a plausible alter ego claim. For the reasons that follow, the Court GRANTS-IN-PART Soroof's Motion and DENIES-IN-PART the remainder of the Motion as moot.
In August 2007, Soroof and Quivus Holdings, LLC (an entity wholly owned by Harrison) formed Quivus Systems, LLC ("Quivus"), a Delaware limited liability company. ) Soroof and Quivus Holdings, LLC were the sole members of Quivus. (Complaint at ¶ 1) Under the terms of Quivus' operating agreement (the "operating agreement"),1 Harrison was to serve as Chief Executive Officer ("CEO") of Quivus. (Id. at ¶ 12)
During the negotiations over the operating agreement, Harrison wanted equal representation on Quivus' board of directors (the "board"), while Soroof wanted to control the board. (Id. ) The parties compromised in the end. (Id. ) The operating agreement ultimately gave Soroof control of the board—it permitted Soroof to appoint three board members, while Harrison (via Quivus Holdings, LLC) was permitted to appoint two members. In return, Harrison negotiated a provision of the operating agreement that stated that Harrison could only be removed as CEO if one of Harrison's own board nominees agreed to his removal.
On July 1, 2014, Soroof removed Harrison as CEO of Quivus without an approving vote of at least one of Harrison's board nominees, in violation of the terms of the operating agreement. (Complaint at ¶¶ 11-12; see also id. at ¶ 1) From that date forward, Quivus' operation and management has allegedly been controlled by Quivus directors Prince Bander Bin Abdulla Bin Mohammed Al-Saud ("Prince Bander"), Tahir Rashid, and Sasa Petrovic. (Id. at ¶ 11) Prince Bander serves as Chairman of Quivus' board and is also the owner of a majority of Soroof's outstanding shares. (Id. ) Mr. Rashid is the Chief Operating Officer of Soroof. (Id. ) And Mr. Petrovic, who currently serves as CEO of Quivus, is said to be "beholden to Soroof for his position at Quivus and [his] salary." (Id. )
After removing Harrison, Soroof and Quivus (which was now "controlled by Soroof") filed suit against Harrison in the Superior Court for the District of Columbia (the "DC Action") on July 6, 2015 for "breaches of [Harrison's] duties to Quivus." (Id. at ¶¶ 1-2; see also D.I. 6-1 at 4) The DC Action "triggered [ ] Harrison's right to advancement [of his legal fees and expenses in connection with suits against him for alleged breach of duties to Quivus] under the Quivus operating agreement." (Complaint at ¶ 2) Harrison requested advancement from Quivus but was rejected. (Id. )
In a March 4, 2016 letter rejecting Harrison's advancement demand, Quivus claimed that it did not have the financial capacity to advance funds to Harrison. (Id. at ¶ 15 & n.1) Following Quivus' rejection of Harrison's advancement demand, on March 7, 2016, Harrison commenced suit (the "Advancement Action") against Quivus in the Delaware Court of Chancery ("Chancery Court"). (Id. at ¶ 2; D.I. 6-1 at 4)
Harrison alleges that it is not a coincidence that the " ‘downturn’ " in Quivus' financial status, which rendered it unable to pay its advancement obligations, "occurred around the same time that [ ] Harrison commenced the Advancement Action in March 2016." (Complaint at ¶ 15) Harrison claims that Quivus' suggestion that it was unable to advance these monies is suspicious, given that "Quivus reported over $2.3 million in revenue in 2015 (a full year after Soroof removed [ ] Harrison as CEO) and an increase in assets in 2015 over 2014[.]" (Id. )2
On August 23, 2016, Harrison obtained an Order in the Advancement Action (the "August 23, 2016 Order") "holding that he was entitled to advancement ... of certain fees and expenses incurred in the DC Action and requiring Quivus to indemnify [him] for all of his fees in pursuing the Advancement Action." (Id. at ¶ 2) However, Quivus did not advance Harrison these funds nor indemnify him, as required by the August 23, 2016 Order. (Id. at ¶ 3) This caused Harrison to file a motion for contempt, which the Chancery Court subsequently granted. (Id. at ¶¶ 3-4) In doing so, the Chancery Court ordered Quivus to pay Harrison's counsel in the DC Action $259,071.88, ordered Quivus to pay Harrison's counsel in the Advancement Action $160,724.78, and awarded Harrison his fees for bringing the motion for contempt (later determined to be $29,341.33). (Id. at ¶ 4) Additionally, the Chancery Court: (1) ordered that Quivus disclose to it, inter alia , "the manner by which the fees and expenses incurred in defense of the Advancement Action were paid"; and (2) ordered that Harrison was allowed "to propound written discovery requests and take depositions in aid of execution." (Id. at ¶ 5)
Pursuant to the aforementioned order, Quivus "disclosed that all of the fees incurred in defense of the Advancement Action had been paid by Soroof." (Id. at ¶ 6)3 Also, in response to discovery propounded in both the DC Action and the Advancement Action, Harrison learned that "Soroof was the sole source of funding for Quivus." (Id. ) More specifically, Harrison discovered that Quivus' employees were either paid directly by Soroof, or were paid using funds that Soroof would transfer to a "Quivus Special Account" maintained by Kalbian Hagerty LLP ("Kalbian Hagerty"), a law firm that is representing Soroof and Quivus in the DC Action (and that represents Soroof in the instant action). (Id. at ¶¶ 6, 17) With regard to the latter payment method, a Soroof employee would direct Kalbian Hagerty how much to pay Quivus' employees and would wire that money to the firm; in turn, the firm would provide the funds and payment instructions to Quivus' payroll administrator. (Id. at ¶¶ 6, 17) Kalbian Hagerty also used monies obtained from Soroof to pay other invoices submitted to Quivus. (Id. at ¶ 18)
Although it complied with the disclosure and discovery requirements ordered by the Chancery Court, Quivus ultimately did not make the payments to Harrison that had been ordered by the Chancery Court. (Id. at ¶ 7) Consequently, on December 22, 2016, Harrison filed a motion for leave to file an amended complaint in the Advancement Action, wherein he sought to add Soroof as a party and "obtain a declaration that Soroof was responsible for Quivus' obligations under a veil piercing theory." (Id. ) Additionally, on January 10, 2017, Harrison filed a second motion for contempt against Quivus in the Advancement Action, wherein Harrison again sought to compel payment of the funds owed to him by Quivus and to be appointed receiver of Quivus. (Id. )
The Chancery Court agreed to hear argument on both motions and scheduled the hearing for March 10, 2017. (Id. ) Four days prior to the hearing, the Chancery Court asked the parties to reschedule the hearing to March 9, 2017; Quivus' attorneys advised that they were unable to do so, but provided other dates when they were available. (Id. at ¶ 8) Then, on March 8, 2017, two days prior to the originally-scheduled hearing, "Quivus filed a petition for bankruptcy protection under Chapter 7 of the Bankruptcy Code" (the "Bankruptcy Action") in the United States District Court for the District of Columbia (the "Bankruptcy Court"). (Id. )
Harrison initially filed the instant suit against Soroof in the Chancery Court on March 13, 2017. (Complaint at 1) On April 26, 2017, Soroof filed a notice of removal in this Court on the basis of diversity of citizenship. (D.I. 1) The parties thereafter jointly consented to the Court's jurisdiction to conduct all proceedings in the case, including trial, the entry of final judgment, and all post-trial proceedings. (D.I. 8)
Soroof filed the instant Motion in lieu of answering on May 17, 2017, (D.I. 6), and briefing was completed on July 6, 2017, (D.I. 10). Harrison thereafter filed additional submissions regarding: (1) a potentially relevant motion filed in the Bankruptcy Action (relating to the Chapter 7 Bankruptcy Trustee's request that Soroof be permitted to purchase Quivus' claims against Harrison), (D.I. 13); (2) potentially relevant decisions in the Bankruptcy Action and DC Action, (D.I. 18); and (3) additional legal authority supportive of its position, (D.I. 19).
The Court granted oral argument on the Motion, which was held on January 17, 2018. (D.I. 20 (hereinafter, "Tr.") ) However, at oral argument, it became clear that a key (and perhaps the key) issue regarding the Motion was whether Harrison's alter ego claim is the property of Quivus' bankruptcy estate (and, thus, whether Harrison has standing to bring that claim here). Yet that issue was addressed in only a few pages of the parties' pre-hearing briefing, and a number of the important c...
To continue reading
Request your trial
-
Kind Operations, Inc. v. Cadence Bank, N.A. (In re Pa Co-Man, Inc.), Bankruptcy No. 20-20422-JAD
...generalized claim which is property of the estate. See In re Emoral, Inc., 740 F.3d 875 (3d Cir. 2014) ; accord Harrison v. Soroof Int'l, Inc., 320 F. Supp. 3d 602 (D. Del. 2018) ; In re Tronox, Inc., 855 F.3d at 99-104 ; Krasny v. Bagga (In re Jamuna Real Estate, LLC), 365 B.R. 540, 562-63......
-
Maxus Liquidating Trust v. YPF S.A., YPF Int'l S.A., YPF Holdings, Inc. (In re Maxus Energy Corp.)
...a ‘general’ claim.") (quoting In re Alper Holdings USA, Inc., 398 B.R. 736, 759 (S.D.N.Y. 2008) ). See also Harrison v. Soroof Int'l, Inc., 320 F.Supp.3d 602, 613 (D. Del. 2018) ; and Duke Energy Trading & Mktg., L.L.C. v. Enron Corp., 2003 WL 1889040 at *3 (Bahkr. S.D.N.Y. Apr. 17, 2003).3......
-
47 E. 34th St. (NY), L.P. v. Bridgestreet Worldwide, Inc.
...federal subject matter jurisdiction. This case is thus distinguishable from the sole case Defendants rely on, Harrison v. Soroof Int'l Inc., 320 F. Supp. 3d 602 (D. Del. 2018). In that case, the district court held that a claim for alter ego liability was the property of the bankruptcy esta......
-
Wayne Cnty. Emps.' Ret. Sys. v. Mavenir, Inc.
...the same standard as a Rule 12(b)(6) motion. Kamal v. J. Crew Grp., Inc., 918 F.3d 102, 109 (3d Cir. 2019); Harrison v. Soroof Int'l, Inc., 320 F. Supp. 3d 602, 610 (D. Del. 2018). "In reviewing a facial attack, 'the court must only consider the allegations of the complaint and documents re......
-
CHAPTER § 6.02 Piercing the Corporate Veil
...C.R. Bard, Inc., 997 F. Supp. at 559).[26] Foxmeyer Corp., 290 B.R. at 236 (quotation omitted); Harrison v. Soroof Int'l, Inc., 320 F. Supp.3d 602, 620 (D. Del. 2018) ("Delaware law requires that the fraud or injustice be found in the defendant's use of the corporate form itself.") (emphasi......