Servaas v. Ford Smart Mobility LLC
| Decision Date | 25 August 2021 |
| Docket Number | C. A. 2020-0909-LWW |
| Parties | PETER SERVAAS, ILYA REKHTER, JUSTIN REES, and KELLY REES, Plaintiffs, v. FORD SMART MOBILITY LLC and JOURNEY HOLDING CORP., d/b/a TRANSLOC INC., Defendants. |
| Court | Court of Chancery of Delaware |
Date Submitted: June 3, 2021
MICHAEL A. BARLOW, ABRAMS & BAYLISS LLP, WILMINGTON DELAWARE; RENITA SHARMA, TY ADAMS, AND CHARLES SANGREE, QUINN EMANUEL URQUHART & SULLIVAN, LLP, NEW YORK, NEW YORK COUNSEL FOR PLAINTIFFS PETER SERVAAS, JUSTIN REES, AND KELLY REES
MICHAEL A. BARLOW, ABRAMS & BAYLISS LLP, WILMINGTON, DELAWARE; GEORGE GASPER, ICE MILLER LLP, INDIANAPOLIS, INDIANA; COUNSEL FOR PLAINTIFF ILYA REKHTER
RAYMOND J. DICAMILLO AND JOHN M. O'TOOLE, RICHARDS, LAYTON & FINGER, P.A., WILMINGTON, DELAWARE; KATHERINE V.A. SMITH, GIBSON, DUNN & CRUTCHER LLP, LOS ANGELES, CALIFORNIA; JASON J. MENDRO, MOLLY T. SENGER, MATT GREGORY, BRITTANY A. RAIA, AND REBECCA RUBIN, GIBSON, DUNN & CRUTCHER LLP, WASHINGTON, D.C.; COUNSEL FOR DEFENDANTS FORD SMART MOBILITY LLC AND JOURNEY HOLDING CORP.
In July 2019, the plaintiffs-the founders and original owners of two startups-sold their companies to defendant Ford Smart Mobility LLC. The parties entered into various agreements in connection with that sale, including agreements addressing the plaintiffs' employment, transaction bonuses, and deferred consideration. In June 2020, the plaintiffs were terminated (purportedly) for cause one month before certain payments to them were scheduled to vest.
The plaintiffs claim that those terminations were improper and assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and violation of the Delaware Wage Payment and Collection Act. The defendants have moved to dismiss the majority of those claims. This decision holds that the plaintiffs have failed to state a claim for relief as to the breach of contract claim that the defendants challenge, the unjust enrichment claim, and the claim for violation of the Delaware Wage Payment and Collection Act. The plaintiffs have, however, stated a viable claim at the pleadings stage for breach of the implied covenant of good faith and fair dealing. The defendants' partial motion to dismiss is granted in part and denied in part.
The following facts are drawn from the Verified Complaint and the documents it incorporates by reference.[1]
Plaintiffs Peter SerVaas and Ilya Rekhter co-founded DoubleMap, Inc. during college in 2010.[2] Plaintiffs Justin Rees and Kelly Rees (together with SerVaas and Rekhter, the "Founders" and each a "Founder") co-founded Ride Systems LLC while attending college in 2004.[3] DoubleMap and Ride Systems sought to "provide intelligent transportation solutions for municipal transit fleets, university systems, corporations, hospitals, and airports."[4]
The Founders formed defendant Journey Holding Corp. in October 2018 for the purposes of owning and operating DoubleMap and Ride Systems.[5] In January 2019, DoubleMap and Ride Systems were merged under the Journey umbrella.[6] Several companies, including defendant Ford Smart Mobility LLC ("Ford"), a wholly owned subsidiary of Ford Motor Company that "design[s], build[s], grow[s], and invest[s] in emerging mobility services, "[7] subsequently expressed interest in acquiring Journey.[8]
On July 25, 2019, Ford agreed to purchase Journey from the Founders-who were Journey's sole stockholders at the time-for approximately $40 million in immediate and deferred consideration.[9] The Founders, Ford, and Journey entered into a series of contracts to govern that acquisition and the Founders' employment arrangements and compensation post-closing.
Recital B to the Reallocation Agreement states that each Founder can only receive a transaction bonus if Journey meets the performance targets and he or she is employed at Journey on the payment date:
Certain employees of [Journey] have been designated to participate in the Bonus Pool with the potential to receive two cash Transaction Bonus payments if the performance targets are attained, and the employee is still employed with the Company on each payment date, in accordance with the terms of the transaction bonus agreements to be executed in connection with the Transaction Bonus (the "Transaction Bonus Agreements").[18]
Journey and each Founder also entered into "Transaction Bonus Agreements" dated March 5, 2020.[19] A recital in the Transaction Bonus Agreements explains that bonus payments are available if certain performance targets are attained and the Founder "is still employed with the Company Group on each payment date, in accordance with the terms described" in the agreement.[20] Section 3 of the Transaction Bonus Agreements similarly provides that each Founder's "potential Transaction Bonus amount" will be paid "provided that the performance targets set forth below are attained, and Employee is continuously employed with the Company Group through and including the applicable payment dates."[21]
Each Founder also entered into a Founder Deferred Consideration Agreement (the "DCAs") with Ford and Journey in connection with the acquisition. The Founders agreed to defer approximately 30% of the $40 million purchase price through the DCAs and receive distributions of the remaining consideration over the following two years.[22] The DCAs provide that the deferred consideration "will vest in installments" based on the achievement of certain time-based and performance-based targets.[23]
The DCAs detail what will happen to unvested deferred consideration if a Founder is terminated. Section 4.a of the DCAs provides for immediate vesting of any unvested amount if a Founder is terminated "without Cause" or resigns for "Good Reason."[24] In that case, "any portion of the Time-Based portion of the Aggregate Founder Deferred Consideration Amount that is unvested immediately prior to Founder's employment termination date will vest effective as of the date of his or her employment termination."[25] Alternatively, Section 4.e states that if a Founder is terminated for "Cause" or resigns "without Good Reason," the "Founder will forfeit any portion of the Aggregate Founder Deferred Consideration Amount that has not vested as of the date of his or her employment termination."[26]
The DCAs define what constitutes "Cause" for termination. Relevant here, "Cause":
[M]eans the occurrence of any of the following: . . . (iii) Founder's commission of an act of fraud, theft, embezzlement, misappropriation, self-dealing, or breach of fiduciary duty against the Company or any of its Affiliates, including, but not limited to, the offer, payment, solicitation or acceptance of any unlawful bribe or kickback with respect to the Company's business; . . . and (v) Founder's misconduct that constitutes a violation of a material written policy or rule of the Company or any of its Affiliates that is applicable to Founder and has been provided to Founder prior to such misconduct, as may be in effect from time to time during Founder's employment with the Company and its Affiliates, after there has been delivered to Founder a written notification from Parent that describes such violation and provides Founder with the ability to immediately take satisfactory corrective action, if corrective action is possible.[27]
The Founders continued as employees of Journey after the acquisition pursuant to Executive Employment Agreements.[28] Rekhter became the Vice President of Growth and later the Special Projects Lead.[29] SerVaas became the Vice President of...
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