Hirtle Callaghan Holdings v. Thompson
| Decision Date | 30 September 2020 |
| Docket Number | CIVIL ACTION NO. 18-2322 |
| Parties | HIRTLE CALLAGHAN HOLDINGS, ET AL., v. CURT R. THOMPSON, ET AL. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Presently before the Court is Plaintiffs' Motion to Dismiss Defendant Curt R. Thompson's Counterclaims. (ECF No. 6.) For the following reasons, Plaintiff's Motion will be granted in part and denied in part.
In this breach-of-contract case, Plaintiffs Hirtle Callaghan Holdings Inc. and Hirtle, Callaghan & Co., LLC (collectively "Hirtle") bring claims against one of its former employees—Defendant Curt R. Thompson—for breach of contract and misappropriation of trade secrets.1 (ECF No. 1.) Plaintiffs allege that after he resigned from Hirtle, Mr. Thompson solicited Hirtle customers for a competing business in violation of covenants contained in stock purchase agreements he executed with Hirtle. Plaintiffs also seek a permanent injunction against Mr. Thompson and a declaratory judgment that Hirtle need not provide compensation to Mr. Thompson for stock they allege he forfeited as a result of his breach of contract.
Mr. Thompson alleges various counterclaims against Plaintiffs. Specifically, he asserts: (1) breach of contract; (2) promissory estoppel; (3) breach of fiduciary duty; (4) violation of the Pennsylvania Wage Payment and Collection Law (WPCL), 43 P.S. §§ 260.1 et seq.; (5) violation of the Delaware Wage Payment and Collection Act (WPCA), 19 Del. C. §§ 1101 et seq.; (6) violation of Arizona wage laws, A.R.S. §§ 23-350 et seq.; and (7) declaratory relief. (Counterclaims, ECF No. 4.) In support of these counterclaims, Mr. Thompson alleges the following:
Hirtle Callaghan is a Delaware limited liability company with its principal place of business in Pennsylvania. Hirtle Callaghan Holdings is a Delaware corporation. It has the same principal place of business as Hirtle Callaghan. Hirtle Callaghan Holdings is also the parent company and majority member of Hirtle Callaghan. (Counterclaim ¶¶ 4-6.) Collectively, Hirtle is comprised of an outsourced chief investment officer and investment advisory firm. (Id. ¶ 9.) Curt Thompson, an Arizona resident, was a long-time employee of Hirtle, where he served as an investment officer. (Id. ¶¶ 3, 10.) In 2000, Mr. Thompson was promoted to principal and became a partner in Hirtle. He is also a minority member of Hirtle Callaghan. (Id. ¶¶ 11-12.)
In 2001, Hirtle asked Mr. Thompson to move from the Philadelphia area to Scottsdale, Arizona to lead Hirtle's new regional office there. In consideration for the move, Hirtle awarded Mr. Thompson 5,050 shares of Hirtle stock, which have since fully vested. (Id. ¶¶ 13-14.) At the time, Mr. Thompson's compensation at Hirtle was 30% of the revenue the company received under his management. In 2006, Hirtle reduced Mr. Thompson's compensation to 25% of revenue, but explained that this change was not a "pay cut" and that it would make up the difference in cash wages by awarding Mr. Thompson additional equity in Hirtle. (Id. ¶¶ 15-17.) On September 29, 2006, Hirtle awarded Mr. Thompson an additional 4,659 shares of stock inHirtle, pursuant to a Stock Award Agreement dated September 29, 2006. These additional shares fully vested on September 30, 2010, at which point Mr. Thompson held a total of 9,719 shares of Hirtle stock. (Id. ¶¶ 19-20.)
From the time all of these shares were awarded to Mr. Thompson to the time at which they vested, Hirtle's valuation formula for its stock was 3.5 times Hirtle's revenue (the "Original Valuation Mechanism"). The Original Valuation Mechanism had been in place since 1988, when the company was formed, and it was the only valuation mechanism utilized for all shares awarded to employees. As such, Mr. Thompson relied on this valuation mechanism when Hirtle reduced his cash compensation in exchange for the additional equity, which Hirtle agreed would be valued in accordance with the Original Valuation Mechanism. (Id. ¶¶ 21-22.)
In 2010, Hirtle reduced Mr. Thompson's cash compensation to 16% of revenue, with the possibility of a 4% bonus, depending on various factors. In connection with this compensation change, Hirtle promised Mr. Thompson that he would receive additional equity in the company, subject to the Original Valuation Mechanism. (Id. ¶ 23.) In 2011 and beyond, Mr. Thompson was offered additional shares in Hirtle, but he was given the option to accept the shares as is or receive their cash value, based on the Original Valuation Mechanism. Mr. Thompson opted for the cash value, which was paid in accordance with the Original Valuation Mechanism. In 2016, Mr. Thompson redeemed 246 of his shares at $294.14 per share, also in accordance with the Original Valuation Mechanism. (Id. ¶¶ 24-26.)
In March 2017, Mr. Thompson learned that Hirtle had retroactively reduced the value of his remaining vested shares. When he inquired as to the reason for the change, Hirtle advised Mr. Thompson that it had decided to change the Original Valuation Mechanism. The New Valuation Mechanism allowed Hirtle to manipulate its stock value, which ultimately meant asignificant reduction in the value of Mr. Thompson's shares. Mr. Thompson asked for a written version of the New Valuation Mechanism, but Hirtle refused to provide it to him. (Id. ¶¶ 27-31.)
Later in 2017, Mr. Thompson redeemed an additional 301 shares at a reduced price of $195.01 per share (the "2017 Redeemed Shares"). Mr. Thompson currently holds 9,162 shares of Hirtle stock (collectively the "Thompson Shares"). He paid income taxes on the shares he earned as compensation, and the taxes were based on the Original Valuation Mechanism. (Id. ¶¶ 32-35.)
In December 2017, Mr. Thompson notified Hirtle that he was resigning. On January 4, 2018, he began employment with GSIS, a registered investment advisor. GSIS was founded by Donald Callaghan ("Callaghan"), who was a founding member of Hirtle, but departed Hirtle years before. (Id. ¶¶ 36-39.) On January 29, 2018, Hirtle sent a letter to Mr. Thompson, advising that Mr. Thompson's new colleague, Mr. Callghan, had contacted Hirtle customers, thus indicating that Mr. Thompson violated certain non-solicitation and confidentiality agreements between him and Hirtle. The letter also advised Mr. Thompson that if the solicitations did not cease, Hirtle would deem his outstanding shares in Hirtle forfeited. (Id. ¶ 41 & Ex. B.) Mr. Callaghan is not bound by any restrictive covenants in favor of Hirtle, and Mr. Thompson is not prohibited from working for a competitor of Hirtle. (Id. ¶¶ 39, 40, 43.)
Plaintiffs move to dismiss Mr. Thompson's Counterclaims pursuant to Rule 12(b)(6), for failure to state a claim. On a 12(b)(6) motion, "courts 'accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.'" Eid v.Thompson, 740 F.3d 118, 122 (3d Cir. 2014) ). "In order to defeat a Rule 12(b)(6) motion, plaintiffs' '[f]actual allegations must be enough to raise a right to relief above the speculative level....'" Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "Thus, 'only a complaint that states a plausible claim for relief survives a motion to dismiss'" under Rule 12(b)(6). Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)).
"In reviewing [a] motion to dismiss, we may also consider exhibits attached to and incorporated into the complaint." Estate of Gleiberman v. Hartford Life Ins. Co., 94 F. App'x 944, 946 (3d Cir. 2004) (citing ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994)). "Where there is a disparity between a written instrument annexed to a pleading and an allegation in the pleading based thereon, the written instrument will control." ALA, Inc, 29 F.3d at 859 n.8.
Mr. Thompson's claim for breach of contract is based on the September 29, 2006 Stock Award Agreement, which contains a Delaware choice-of-law provision. Mr. Thompson asserts that "Hirtle's unilateral change in the valuation of the 2017 Redeemed Shares and the Thompson Shares in the Spring of 2017 substantially diluted and decreased the value of the Thompson Shares, and constitutes a breach of the Stock Award Agreement." (Id. ¶ 50.) Mr. Thompson also alleges that Hirtle's unilateral change to the stock valuation mechanism is a breach of the implied covenant of good faith and fair dealing. (Id. ¶ 52).
An implied covenant of good faith and fair dealing "attaches to every contract." Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005) (citation omitted). "The covenant is 'best understood as a way of implying terms in the agreement,' whether employed to analyzeunanticipated developments or to fill gaps in the contract's provisions." Id. at 441 (internal citations omitted) (quoting E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 443 (Del. 1996)). "Existing contract terms control, however, such that implied good faith cannot be used to circumvent the parties' bargain, or to create a free-floating duty . . . unattached to the underlying legal document." Id. (internal citations omitted) (quoting Glenfed Fin. Corp., Commercial Fin. Div. v. Penick Corp., 647 A.2d 852, 858 (N.J. Super. Ct. App. Div. 1994)). "Thus, one generally cannot base a claim for breach of the implied covenant on conduct authorized by the terms of the agreement." Id. (citation omitted).
"Stated in its most general terms, the implied covenant requires a party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the...
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