Whittington v. Dragon Group, LLC

• Decision Date: 18 December 2009
• Docket Number: No. 392,2009.,392
• Citation: 991 A.2d 1
• Parties: Frank C. WHITTINGTON, II, Plaintiff Below, Appellant, v. DRAGON GROUP, L.L.C., Thomas D. Whittington, Jr., Richard Whittington, L. Faith Whittington, and Dorothy W. Minotti, Marna A. McDermott, Sarah I. Whittington, Ruth A. Whittington, Matthew D. Minotti, Dorothy A. Minotti, Defendants Below, Appellees.
• Court: Supreme Court of Delaware

991 A.2d 1

Frank C. WHITTINGTON, II, Plaintiff Below, Appellant, v. DRAGON GROUP, L.L.C., Thomas D. Whittington, Jr., Richard Whittington, L. Faith Whittington, and Dorothy W. Minotti, Marna A. McDermott, Sarah I. Whittington, Ruth A. Whittington, Matthew D. Minotti, Dorothy A. Minotti, Defendants Below, Appellees.

No. 392, 2009.

Supreme Court of Delaware.

Submitted: November 3, 2009.

Decided: December 18, 2009.

COPYRIGHT MATERIAL OMITTED

Richard H. Cross, Jr., Esquire (argued) and Amy Evans, Esquire, Cross & Simon, Wilmington, Delaware, for appellant.

John G. Harris, Esquire, Berger Harris, LLC, Wilmington, Delaware, for appellees, Dragon Group, L.L.C., Thomas D. Whittington, Jr., Richard Whittington, L. Faith Whittington and Dorothy W. Minotti.

Richard I.G. Jones, Jr., Esquire (argued) and Andrew D. Cordo, Esquire, Ashby & Geddes, Wilmington, Delaware, for appellees, Marna A. McDermott, Sarah I. Whittington, Ruth A. Whittington, Matthew D. Minotti and Dorothy A. Minotti.

Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and RIDGELY, Justices, constituting the Court en Banc.

HOLLAND, Justice, for the majority.

The plaintiff-appellant, Frank C. Whittington, II ("Frank"), brought this action to enforce his rights as an alleged member of Dragon Group, L.L.C. ("Dragon Group"), a Delaware limited liability company. The defendants-appellees include Frank's four siblings, all of whom are members of Dragon Group: Thomas D. Whittington, Jr. ("Tom"), Richard Whittington ("Richard"), L. Faith Whittington ("Faith") and Dorothy W. Minotti ("Dorothy") (collectively, the "Sibling Defendants"). The remaining defendants are Dragon Group and certain other members of the Whittington family, who are not of the same generation as Frank. The defendants Tom and Richard are also managers of Dragon Group.

The Court of Chancery held that Frank's action was barred by the doctrine of laches. In reaching that decision, it determined that the analogous statute of limitations is three years. We have concluded the applicable analogous statute of limitations is twenty years. Therefore, this matter will be remanded to the Court of Chancery for further consideration in accordance with our holding in this opinion.

Facts¹

In 2001, Frank and the Sibling Defendants entered into an Agreement in Principle (the "AIP"), which constituted a global settlement of the case styled Whittington v. The Farm Corp., and various other disputes. In the Farm Corp. case, Frank sought recognition of his proportionate ownership interest in various business entities owned and operated by the Sibling Defendants, including Whittington Ltd. ("Ltd."). On June 14, 2001, each of the parties to that litigation signed the AIP following three days of trial before the Court of Chancery.

The AIP is a single-page document containing eleven numbered paragraphs. It provides in relevant part:

3. Frank gets 10 shares of Ltd. Stock upon payment of $10,000 (without interest). Frank's proportionate interest in Ltd. will be carried forward into Dragon Group LLC with same rights as all other members.

* * *

5. In full repayment of a $190,000 loan from Dorothy B. Whittington, Frank pays Estate $90,000 and waives his interest in his Generation Skipping Trust in favor of his four siblings; Estate releases to Trust and Trust releases to Frank 55 Ltd. shares upon payment.

* * *

10. Frank, and other members, will receive periodic financial and operating information for Ltd., Frog Hollow and Dragon Group as outlined in items 22 and 23 of the March 21, 2001, letter of Todd C. Schiltz.

11. All payments set forth herein above shall be made by June 30, 2001, and appropriate documentation acceptable to all parties to accomplish same including without limitation the Certificate of Formation and Operating Agreement for Dragon Group, L.L.C.

Claiming Frank failed to perform under the AIP, the Sibling Defendants filed a motion with the Court of Chancery to enforce that agreement. The Court of Chancery heard the motion on October 11, 2001, and held that the AIP should be enforced as a contract. Among other things, the Court of Chancery expressly held that the parties' inability to agree upon the form of certain documents contemplated in the AIP (e.g., releases, a new note, and new governing documents for certain related entities) did not make the AIP unenforceable.

Despite the Court of Chancery's ruling, the parties continued their pattern of delay, waiting nearly a year before purporting to comply fully with the express terms of the AIP. Unable to work together cooperatively or effectively, the parties never completed certain of the secondary documentation referred to in the Court of Chancery's ruling. The parties could not agree, for example, on a proposed form of operating agreement for Dragon Group prepared by the Sibling Defendants to reflect Frank's membership in that entity.

On September 23, 2002, Tom distributed that document (the "Offering Memorandum") to all prospective members of Dragon Group. The Offering Memorandum provided that each member must pledge his shares of Ltd. stock as a prerequisite for membership in Dragon Group. The Offering Memorandum also stated that "any shareholder of Ltd. not returning all documents fully executed on or before the close of business on October 15, 2002, will be deemed not to have accepted the offer and thus not be able to participate."

Frank submitted an executed copy of the Offering Memorandum by the deadline on October 15. In that copy, however, he changed his Dragon Group ownership interest from 17.77% to 24%. On October 15, 2002, at 4:10 p.m., Frank also paid the aggregate $100,000 referenced in paragraphs 3 and 5 of the AIP and the Sibling Defendants delivered to him the stock certificates for the 65 total shares of Ltd stock.

By letter dated November 1, 2002, Tom, Dragon Group's sole managing member at the time, informed Frank's counsel that Frank's altered version of the Offering Memorandum constituted a counteroffer that had been rejected. In response, on December 9, 2002, Frank, acting pro se, filed a Motion for Order Compelling Defendants' Compliance with Court Order and Directing Performance by Substitute (the "2002 Motion"). That motion essentially asked the Court of Chancery to resolve the differences among the parties as to the form of the ancillary documentation for Dragon Group, and to permit relitigation of certain issues resolved by the AIP.

In a letter opinion dated March 4, 2003, the Court of Chancery denied Frank's 2002 Motion. With respect to Dragon Group's operating agreement, which also is at issue in this action, the Court of Chancery ruled that the "terms of the Dragon Group LLC operating agreement will be those that were established at its inception, adjusted to reflect Frank Whittington's percentage ownership therein." Seizing upon the fact that the Court of Chancery had denied Frank's 2002 Motion, the Defendants apparently claimed victory and proceeded as if nothing had changed. Frank, on the other hand, believed his position had been vindicated and mistakenly assumed he would be included as a member of Dragon Group with a 23.65% ownership stake. In fact, however, after the March 4, 2003, letter opinion, the Defendants never took any action to include Frank as a member of Dragon Group.

Frank's sister, Dorothy, testified at trial but did not reveal during the discovery period, that she had spoken to Frank by telephone only days after the March 4, 2003, ruling. According to Dorothy, she informed Frank that she and the other Sibling Defendants believed they had prevailed in the 2002 Motion and, consequently, Frank was not a member of Dragon Group. Frank denied that this conversation occurred.

In April 2003, Frank initiated discussions concerning his rights under the AIP with two attorneys, Jay Katz and Jeffrey Boyer, before engaging them formally as his legal counsel on May 23, 2003. Katz and Boyer had detailed discussions with Frank about the AIP. According to Katz, "Frank was adamant that the Sibling Defendants were not treating him as a member of Dragon Group. He was being excluded. He was not getting information on Dragon Group and he was very upset about that." At the time, the Dragon Group matter was only one of several disputes Frank had with his siblings.

After their engagement, Katz and Boyer sent a global settlement offer on behalf of Frank to Jeffrey Weiner, counsel for the Sibling Defendants. The offer proposed "a buy-out by the Sibling Defendants of all of Frank's interests (including notes) in all of the entities for fair market value." The Sibling Defendants rejected Frank's settlement offer on July 7, 2003. About a day or two later, Katz called Weiner to inquire about the rejection and the Sibling Defendants' refusal to negotiate. At trial, Katz described that conversation as follows:

I pointed out to the fact that Frank had complained that he wasn't getting the Dragon Group financial statements.

And Weiner said, "Why should he get them? He's not a member.

So I asked Weiner why Frank's not a member. And isn't that what the AIP says. And he gave me his explanation of why he didn't think Frank was a member."

Weiner said two different things. One was that in the creation of Dragon Group or at some point all of the Whittington family members who were supposed to be members of Dragon Group were supposed to do something. In that case I think it was, as I remember, to turn over certain certificates. Frank had refused. This was part of the deal. And when Frank ... had refused, they took that as his saying "Well, I don't want to really be a member." And there might have been some other things he did about marking up some documents. I can't specifically remember what that was, but some back-and-fourth which, in his mind, was Frank's rejection of membership in Dragon Group and, therefore, he wasn't entitled to the financial statements.

Shortly after this conversation and before July 20, 2003,...