Stoebe v. Minusnine Technology, Inc.MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM or, in the alternative, for Summary JudgmentE.D. Pa.February 21, 2017IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ROBERT STOEBE, Plaintiff, v. MINUSNINE TECHNOLOGY, INC., Defendant. Case No. 5:16-cv-06606 Judge Edward G. Smith ORDER GRANTING DEFENDANT MINUSNINE TECHNOLOGIES, INC.’S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT This matter having come before the Court on Defendant MinusNine Technologies, Inc.’s Motion to Dismiss for Failure to State a Claim or, in the alternative, for Summary Judgment, and the Court having considered submissions of the Parties, this Court hereby GRANTS Defendant’s Motion. Plaintiff’s case is DISMISSED WITH PREJUDICE. IT IS SO ORDERED. Dated: ______________________ ______________________________ Hon. Edward G. Smith United States District Judge Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 1 of 25 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ROBERT STOEBE, Plaintiff, v. MINUSNINE TECHNOLOGY, INC., Defendant. Case No. 5:16-cv-06606 Judge Edward G. Smith DEFENDANT MINUSNINE TECHNOLOGIES, INC.’S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Defendant MinusNine Technologies, Inc. (“MinusNine”), respectfully moves this Court for an order dismissing Plaintiff Robert Stoebe’s Complaint for failure to state a claim. In the alternative, MinusNine moves for summary judgment against Plaintiff under Rule 56. A brief in support of MinusNine’s motion is submitted pursuant to Local Civil Rule 7.1. A short and concise statement of material facts as to which there is no genuine dispute is submitted pursuant to your Honor’s policies and procedures. Respectfully submitted, MORGAN, LEWIS & BOCKIUS LLP By: /s/ Michael S. Burkhardt Michael S. Burkhardt (PA ID# 68072) David C. Dziengowski (PA ID# 208342) 1701 Market Street Philadelphia, PA 19103-2921 Telephone: 215.963.5000 Facsimile: 215.963.5001 michael.burkhardt@morganlewis.com david.dziengowski@morganlewis.com Dated: February 21, 2017 Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 2 of 25 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ROBERT STOEBE, Plaintiff, v. MINUSNINE TECHNOLOGY, INC., Defendant. Case No. 5:16-cv-06606 Judge Edward G. Smith DEFENDANT MINUSNINE TECHNOLOGIES, INC.’S SHORT AND CONCISE STATEMENT OF MATERIAL FACTS AS TO WHICH THERE IS NO GENUINE DISPUTE 1. MinusNine Technologies, Inc. (“MinusNine”), a Delaware corporation, vests its powers and duties in a board of directors, which oversees MinusNine and maintains responsibility for setting compensation. (Compl. ¶ 4.) 2. Plaintiff Robert Stoebe (“Plaintiff”) began service as Director of Business Development for MinusNine on September 1, 2009. (Compl. ¶ 11.) 3. Plaintiff “entered into a contract with MinusNine, the 2007 Equity Compensation Plan [“the Plan”], which governed certain aspects of his compensation.” (Compl. ¶ 12.) 4. Stock options are one aspect of compensation governed by the Plan. (Compl., Pl. Exhs. A, B.) 5. Plaintiff admits that the Plan “gave the MinusNine Board authority to administer and interpret the Plan and to make binding decisions related to the grants [of stock options] made under the Plan.” (Compl. ¶ 13.) Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 3 of 25 2 6. For example, the Plan states that “[t]he Board shall have full power and authority to administer and interpret the plan, [and] to make factual determinations … in its sole discretion.” (Compl., Pl. Exh. A at 1 (emphasis added).) 7. The Plan further states that “[a]ll powers of the Board shall be executed in its sole discretion, in the best interest of the Company … and in keeping with the objectives of the Plan[.]” (Compl., Pl. Exh. A at 1-2 (emphasis added).) 8. These “objectives” are two-fold: (i) First, “encourage the [Plan] participants to contribute materially to the growth of the company, thereby benefitting the Company’s stockholders[.]” (Compl., Pl. Exh. A at 1.) (ii) And second, “align the economic interests of the [Plan] participants with those of the stockholders.” (Id.) 9. In keeping with these objectives, “if the Board determines that the Grantee has engaged in conduct that constitutes Cause at any time while the Grantee is employed by, or providing service to, the Employer or after the Grantee’s termination of employment or service, any Option held by the Grantee shall immediately terminate[.]” (Compl., Pl. Exh. A at 5 (emphasis added).) 10. The Plan defines cause, in part, as “a finding by the Board that the Grantee … has engaged in disloyalty to the Company … or … has engaged in such other behavior detrimental to the interests of the Employer as the Board determines.” ((Compl., Pl. Exh. A at 6 (emphasis added).) 11. Plaintiff admits that he was a Plan participant. (See generally Compl.) Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 4 of 25 3 12. MinusNine fashioned Plaintiff’s Nonqualified Stock Option Grant as an “inducement for [Plaintiff] to promote the best interests of the Company and its shareholders.” (Compl., Pl. Exh. B. at 1.) 13. Plaintiff admits that “[t]he Nonqualified Stock Option Grant [the Grant] … along with the Plan, governed the Stock Option.” (Compl. ¶ 15.) 14. All grants are “conditional upon the Grantee’s acknowledgment, in writing or by acceptance of the Grant, that all decisions and determination[s] of the Board shall be final and binding on the Grantee[.]” (Compl., Pl. Exh. A at 2 (emphasis added).) 15. Plaintiff provided this acknowledgment on September 1, 2009, when he stated: “I hereby accept the Option described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all the decisions and determinations of the Board shall be final and binding.” (Compl., Pl. Exh. B at 5 (emphasis added).) 16. The Plan makes clear that it is the “controlling document.” (Compl., Pl. Exh. A at 12.)1 17. Plaintiff resigned as Director of Business Development from MinusNine on April 15, 2012. (Compl. ¶ 17.) 18. MinusNine extended the exercise period of the options from 90 days to the “remaining term of the Option.” (Compl., Pl. Exhs. C at 1; D.) 1 After page 9 of the Plan, the page numbering resets to “1” and remains at “1” for the remainder of the Plan. (Compl., Pl. Exh A.) For ease of reference, MinusNine cites numbering as if it had continued, consecutively, until the end of the document. Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 5 of 25 4 19. Plaintiff informed MinusNine that he wanted to leave MinusNine to achieve his goal of teaching. (Declaration of Hans Frederick, Feb. 19, 2017, (“Frederick Dec.”) at ¶ 8, a true and correct copy attached hereto as Def. Exh. A.) 20. Plaintiff further informed MinusNine that, while working to achieve that goal, he desired to consult for two of MinusNine’s customers: Interprint and Applied Products. (Frederick Dec. at ¶ 8.) 21. After Plaintiff resigned from MinusNine, the Board learned that Plaintiff began working for Nicoat, a competitor of MinusNine. (Frederick Dec. at ¶ 12.) 22. After Stoebe left, MinusNine lost the Interprint customer relationship to Nicoat. (Frederick Dec. at ¶ 10-11.) 23. The Board also learned that Plaintiff solicited business from other MinusNine customers, including Flexo Technologies, Pacon, and Ample. (Frederick Dec. at ¶ 13.) 24. Additionally, MinusNine was forced to lower its price on its UV sealant to AFSI, a top customer, because Plaintiff had provided a lower quote through Nicoat. (Frederick Dec. at ¶ 14.) 25. The MinusNine Board met on August 27, 2015 to discuss Plaintiff’s actions in the marketplace. (Declaration of Frank P. Slattery, Jr., Feb. 19, 2017, (“Slattery Dec.”) at ¶ 13-14, a true and correct copy attached hereto as Def. Exh. B.) 26. At that meeting, the Board determined that Plaintiff engaged in disloyalty to the company and had engaged in behavior detrimental to MinusNine. (Slattery Dec. at ¶ 14.) Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 6 of 25 5 27. Pursuant to the terms of the Plan, the Board, in its sole discretion, made the determination to terminate Plaintiff’s outstanding stock options. (Slattery Dec. ¶ 14; Frederick Dec. ¶ 16; Compl., Pl. Exh. A.) 28. On October 19, 2015, Hans Frederick sent Plaintiff a letter informing him that the Board voted to terminate his stock options. (Compl., Pl. Exh. E; Frederick Dec. at ¶ 17.) Respectfully submitted, MORGAN, LEWIS & BOCKIUS LLP By: /s/ Michael S. Burkhardt Michael S. Burkhardt (PA ID# 68072) David C. Dziengowski (PA ID# 208342) 1701 Market Street Philadelphia, PA 19103-2921 Telephone: 215.963.5000 Facsimile: 215.963.5001 michael.burkhardt@morganlewis.com david.dziengowski@morganlewis.com Dated: February 21, 2017 Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 7 of 25 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ROBERT STOEBE, Plaintiff, v. MINUSNINE TECHNOLOGY, INC., Defendant. Case No. 5:16-cv-06606 Judge Edward G. Smith BRIEF IN SUPPORT OF DEFENDANT MINUSNINE TECHNOLOGIES, INC.’S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT Respectfully submitted, MORGAN, LEWIS & BOCKIUS LLP By: /s/ Michael S. Burkhardt Michael S. Burkhardt (PA ID# 68072) David C. Dziengowski (PA ID# 208342) 1701 Market Street Philadelphia, PA 19103-2921 Telephone: 215.963.5000 Facsimile: 215.963.5001 michael.burkhardt@morganlewis.com david.dziengowski@morganlewis.com Dated: February 21, 2017 Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 8 of 25 TABLE OF CONTENTS Page i I. INTRODUCTION ............................................................................................................. 1 II. PROCEDURAL HISTORY............................................................................................... 2 III. STATEMENT OF FACTS ................................................................................................ 2 A. Plaintiff’s Allegations About The Plan .................................................................. 3 B. Plaintiff Resigns from MinusNine ......................................................................... 5 IV. SUMMARY OF ARGUMENT ......................................................................................... 6 V. ARGUMENT ..................................................................................................................... 7 A. Plaintiff’s Complaint Should Be Dismissed .......................................................... 7 1. Standard of Review .................................................................................... 7 2. Plaintiff Fails to State a Breach of Contract Claim.................................... 8 VI. CONCLUSION ................................................................................................................ 13 Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 9 of 25 ii TABLE OF AUTHORITIES Page(s) CASES ALA, Inc. v. CCAIR, Inc., 29 F.3d 855 (3d Cir. 1994).........................................................................................................8 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .......................................................................................................8, 10, 11 Beard v. Elster, 160 A.2d 731 (Del. 1960) ..........................................................................................................9 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................................8, 10 Cantor Fitzgerald, L.P. v. Cantor, No. 16297, 2000 WL 307370 (Del. Ch. 2000), overruled on other grounds by Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.3d 665 (Del. 2013) ................................................................................................12 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ...................................................................................................................8 Fraser v. Nationwide Mutual Ins. Co., 334 F. Supp. 2d 755 (E.D. Pa. 2004) .......................................................................................13 Gatz Properties, LLC v. Auriga Capital Corp., 59 A.3d 1206 (Del. 2012) ........................................................................................................12 Giles v. Kearney, 571 F.3d 318 (3d Cir. 2009).......................................................................................................8 Grimes v. Alteon, Inc., 804 A.2d 256 (Del. 2002) ........................................................................................................10 Kanter v. Barfella, 489 F.3d 170 (3d Cir. 2007)...................................................................................................7-8 Kruzits v. Okuma Mach. Tool, Inc., 40 F.3d 52 (3d Cir. 1994)...........................................................................................................9 Mariasch v. Gillette Co., 521 F.3d 68 (1st Cir. 2008) ......................................................................................................10 Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 10 of 25 iii Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380 (3d Cir. 1994).......................................................................................................7 Pastore v. Bell Telephone Co. of Pennsylvania, 24 F.3d 508 (3d Cir. 1994).......................................................................................................11 STAAR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1991) ......................................................................................................10 VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606 (Del. 2003) ......................................................................................................8-9 RULES Fed. R. Civ. P. 6(a)(1)(C) ................................................................................................................2 Fed. R. Civ. P. 12(b)(6)....................................................................................................................7 Fed. R. Civ. P. 56(b) ........................................................................................................................8 OTHER AUTHORITIES Innovative Chemical Products Group Announces Acquisition of MinusNine Technologies by Industrial Division (Feb. 6, 2017), http://www.icpgroup.com/innovative-chemical-products-group-announces- acquisition-of-minusnine-technologies-by-industrial-division/ .................................................5 MinusNine Technologies, Inc. Home Page, http://www.minus9.com/ (last visited Feb. 21, 2017) ............................................................................................................................1 Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 11 of 25 I. INTRODUCTION This is a claim by Plaintiff Robert Stoebe (“Plaintiff”) claiming that Defendant MinusNine Technologies, Inc.2 (“MinusNine”) breached its 2007 Equity Compensation Plan (the “Plan”) when it terminated his stock options. It is undisputed that Mr. Stoebe had been awarded certain stock options pursuant to the Plan and that, after his resignation from the Company, he was granted a period of ten years to exercise those grants assuming he did not engage in conduct that could lead to the termination of the options. However, it is also undisputed (based on the face of the Plan terms, which are attached to Plaintiff’s Complaint) that the Board of Directors of MinusNine had the absolute right, in its sole discretion, to terminate the stock options at any time if it concluded that Plaintiff engaged in conduct that was detrimental to the Company’s interests or was disloyal to the Company. Plaintiff cannot dispute that the Board made such a determination and terminated his stock options under the clear terms of the Plan. No term or provision in the agreements that governed Plaintiff’s stock options provided Plaintiff with an absolute right to exercise the stock options. Plaintiff’s ability to exercise the options, even after he resigned from MinusNine, remained contingent on Plaintiff’s contractual obligations as set forth in the Plan. These obligations (loyalty, honesty, and not engaging in conduct detrimental to the company, among others) survived Plaintiff’s resignation and lasted throughout the limited term of the option exercise period. Plaintiff had every right to be disloyal or to compete against the direct interests of MinusNine. However, the Board had the right under the Plan to terminate Plaintiff’s stock options based on his conduct. Plaintiff made an economic choice: remain loyal to MinusNine and keep his stock options during the entire 2 The correct name of Defendant is “MinusNine Technologies, Inc.,” not “MinusNine Technology, Inc.,” as set forth in Plaintiff’s Complaint. See MinusNine Technologies, Inc. Home Page, http://www.minus9.com/ (last visited Feb. 21, 2017). Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 12 of 25 2 exercise period, or engage in disloyal activity and risk having his stock options terminated. Plaintiff chose the latter. Plaintiff’s allegations run headlong into the very documents that he attached to his Complaint. Plaintiff grounds his claim in a theory of wrongful “unilateral” termination, but the governing documents empowered the MinusNine Board of Directors, in its sole discretion, to terminate his options. The Board, in accordance with the terms of the Plan, terminated Plaintiff’s stock options only after it determined-in its authorized, sole discretion-that Plaintiff failed to honor his obligations as set forth in the agreement. Accordingly, this Court should dismiss Plaintiff’s Complaint with prejudice. II. PROCEDURAL HISTORY On December 23, 2016, Plaintiff filed his Complaint in this case. (ECF No. 1.) On January 17, 2017, MinusNine filed an Uncontested Motion for Extension of Time to Respond to the Complaint. (ECF No. 3.) This Court granted that motion the next day, on January 18, 2017. (ECF No. 5.) Having thirty (30) additional days to respond to Plaintiff’s Complaint (the original due date was January 19, 2017), this Motion to Dismiss for Failure to State a Claim or, in the alternative, for Summary Judgment was due on Saturday, February 18. Because the next business day, February 20, was a federal holiday, this Motion is timely filed under Rule 6 on February 21, 2017. Fed. R. Civ. P. 6(a)(1)(C). III. STATEMENT OF FACTS Plaintiff began service as Director of Business Development for MinusNine on September 1, 2009. (Compl. ¶ 11.) A Delaware corporation, MinusNine vests its powers and Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 13 of 25 3 duties in a board of directors, which oversees MinusNine and maintains responsibility for setting compensation. (Compl. ¶ 4.) Upon commencement of employment, Plaintiff “entered into a contract with MinusNine, the 2007 Equity Compensation Plan [“the Plan”], which governed certain aspects of his compensation.” (Compl. ¶ 12.) Stock options were one aspect of compensation governed by the Plan. (Compl., Pl. Exhs. A, B.) Thus, on September 1, 2009, the MinusNine Board granted Plaintiff an option to purchase 63,000 shares of common stock. (Compl. ¶ 14; Pl. Exh. B at 1.) MinusNine fashioned the stock option grant as an “inducement for the Grantee to promote the best interests of the Company and its shareholders.” (Compl., Pl. Exh. B at 1.) A. Plaintiff’s Allegations About The Plan Plaintiff admits that the Plan “gave the MinusNine Board authority to administer and interpret the Plan and to make binding decisions related to the grants [of stock options] made under the Plan.” (Compl. ¶ 13.) For example, the Plan states that “[t]he Board shall have full power and authority to administer and interpret the plan, [and] to make factual determinations … in its sole discretion.” (Compl., Pl. Exh. A at 1 (emphasis added).) The Plan further states that “[a]ll powers of the Board shall be executed in its sole discretion, in the best interest of the Company … and in keeping with the objectives of the Plan[.]” (Compl., Pl. Exh. A at 1-2 (emphasis added).) These “objectives” are two-fold. First, the Plan is designed to “encourage the [Plan] participants to contribute materially to the growth of the company, thereby benefitting the Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 14 of 25 4 Company’s stockholders[.]”3 (Compl., Pl. Exh. A at 1.) And second, the Plan is designed to “align the economic interests of the [Plan] participants with those of the stockholders.” (Id.) Significantly, in the event that “the Board determined that the Grantee has engaged in conduct that constitutes Cause at any time while the Grantee is employed by, or providing service to, the Employer or after the Grantee’s termination of employment or service, any option held by the Grantee shall immediately terminate[.]” (Compl., Pl. Exh. A at 5.) The Plan defines “cause” as a finding by the Board that the Grantee (here, Plaintiff): • Has breached his or her employment or service contract with the Employer; • Has engaged in disloyalty to the Company, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty; • Has disclosed trade secrets or confidential information of the Employer to persons not entitled to receive such information; • Has breached any written noncompetition or nonsolicitation agreement between the Grantee and the Employer; or • Has engaged in such other behavior detrimental to the interests of the Employer as the Board determines. (Compl., Pl. Exh. A at 6.) All grants are “conditional upon the Grantee’s acknowledgement, in writing or by acceptance of the Grant, that all decisions and determination[s] of the Board shall be final and binding on the Grantee[.]” (Compl., Pl. Exh. A at 2.) Plaintiff provided this acknowledgement 3 Plaintiff admits that he was a Plan participant. (See Compl.) Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 15 of 25 5 on September 1, 2009: “I hereby accept the Option described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all the decisions and determinations of the Board shall be final and binding.” (Compl., Pl. Exh. B at 5.) B. Plaintiff Resigns from MinusNine Plaintiff resigned from MinusNine on April 15, 2012.4 (Compl. ¶ 17.) Plaintiff informed MinusNine that he wanted to leave MinusNine to achieve his goal of teaching. (Declaration of Hans Frederick, Feb. 19, 2017 (“Frederick Dec.”) ¶ 8, a true and correct copy attached hereto as Def. Exh. A.) Plaintiff further informed MinusNine that, while working to achieve that goal, he desired to consult for two of MinusNine’s customers, Interprint and Applied Products, but would continue to advocate for MinusNine. (Frederick Dec. at ¶ 9.) Plaintiff did not do what he said he would do. After he resigned, the Board learned that Plaintiff began working for Nicoat, a competitor of MinusNine. (Frederick Dec. at ¶ 11-12.) MinusNine lost Interprint as a customer to Nicoat.5 (Frederick Dec. at ¶ 11.) The Board also learned that Plaintiff solicited business from other MinusNine customers, including Flexo Technologies, Pacon, and Ample. (Frederick Dec. at ¶ 13.) Additionally, MinusNine was forced to lower its price on its UV sealant to AFSI, a top customer. (Frederick Dec. at ¶ 14.) 4 Around that same time, MinusNine extended the exercise period of the options from 90 days to the “remaining term of the Option.” (Compl., Pl. Exhs. C at 1; D.) Originally, the option was to vest “in a staggered manner, equally over three years.” (Compl. ¶ 15.) The first 21,000 shares would vest on September 1, 2010, the next 21,000 on September 1, 2011, and the final 21,000 on September 1, 2012. (Compl., Pl. Exh. B at 1.) In light of Plaintiff’s resignation, he originally had 90 days to exercise the stock option. (Compl. ¶ 19.) The extension gave him 10 years from the original date of the grant to exercise the option. (Compl., Pl. Exhs. A, D.) 5 On February 6, 2017, Innovative Chemical Products Group, which manufactures products under specialty brands such as Nicoat, acquired MinusNine. See Innovative Chemical Products Group Announces Acquisition of MinusNine Technologies by Industrial Division, (Feb. 6, 2017), http://www.icpgroup.com/innovative-chemical-products-group-announces-acquisition- of-minusnine-technologies-by-industrial-division/. Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 16 of 25 6 MinusNine lowered its price to match a quote provided by Plaintiff via Nicoat. (Frederick Dec. at ¶ 14.) The Board met on August 27, 2015 to discuss Plaintiff’s actions in the marketplace. (Declaration of Frank Slattery, Jr., Feb. 19, 2017, (“Slattery Dec.”) at ¶¶ 13-14, a true and correct copy attached hereto as Def. Exh. B.) The Board determined that Plaintiff “engaged in disloyalty to the company and had engaged in behavior detrimental to MinusNine.” (Slattery Dec. at ¶ 14.) The Board made the determination to terminate Plaintiff’s outstanding stock options. (Slattery Dec. ¶ 14.) On October 19, 2015, Hans Frederick sent Plaintiff a letter informing him that the Board voted unanimously to terminate his stock options. (Frederick Dec. ¶ 17; Compl., Pl. Exh. E.) That same letter set forth the various reasons for the termination. (Compl., Pl. Exh. E.) IV. SUMMARY OF ARGUMENT This Court should dismiss Plaintiff’s sole breach of contract claim against MinusNine because the claim fails as a matter of law. Plaintiff does not-and cannot-claim that MinusNine breached any obligation set forth in the stock option agreement. To the extent plaintiff’s breach of contract theory is premised on his allegation that MinusNine “unilaterally” terminated his contract, Plaintiff states no viable claim. The governing documents bestow no obligation on MinusNine not to act unilaterally, particularly once the Board determines that Cause exists to terminate the stock options. Instead, the agreement expressly states that the Board shall act in its sole discretion in matters under the Plan. Thus, the Board was authorized to unilaterally terminate his stock options, and it breached no obligation set forth in the agreement upon doing so. Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 17 of 25 7 The remainder of Plaintiff’s Complaint is littered with threadbare, legal conclusions. This Court should reject those pleadings outright. In the alternative, this Court should convert this motion to summary judgment and enter judgment in favor of MinusNine based on the fact that MinusNine had the right to terminate Plaintiff’s stock options when it, in its sole discretion, determined that Plaintiff engaged in disloyal and detrimental conduct against the interests of MinusNine, which he said he would not do. Plaintiff cannot dispute that he went to work for Nicoat, a competitor of MinusNine, after resigning from MinusNine. And he cannot dispute the Board’s broad grant of authority under the Plan to determine, in its sole discretion, that he engaged in disloyal conduct or behavior detrimental to MinusNine when he decided to compete against MinusNine in the marketplace. Any one of these determinations would serve as sufficient basis to terminate Plaintiff’s options under the Plan. The Board had an express right to do so, and Plaintiff cannot now complain after having made the economic choice to act in a manner inconsistent with his obligations as set forth in the Plan. Therefore, this Court should dismiss Plaintiff’s case with prejudice. V. ARGUMENT A. Plaintiff’s Complaint Should Be Dismissed 1. Standard of Review In reviewing a motion to dismiss under Rule 12(b)(6), this Court “accept[s] as true all factual allegations in the complaint and all reasonable inferences that can be drawn therefrom … view[ing] them in the light most favorable to the plaintiff.”6 Kanter v. Barfella, 6 This court “may also consider matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case.”6 Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir. 1994). In the event that “there is a disparity between a Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 18 of 25 8 489 F.3d 170, 177 (3d Cir. 2007). Nevertheless, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”). Accordingly, “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557 (2007). Nor will pleadings that are “merely consistent with” a theory of defendant's liability suffice. Id. (ruling such a pleading “stops short of the line between possibility and plausibility of ‘entitlement to relief”). Summary judgment should be granted when “the pleadings … together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). That some evidence exists “in support of the non[-]movant is insufficient to deny a motion for summary judgment; enough evidence must exist to enable a jury to reasonably find for the non[-]movant on the issue.” Giles v. Kearney, 571 F.3d 318, 322 (3d Cir. 2009) (emphasis added). Of note, “a party may file a motion for summary judgment at any time until 30 days after the close of discovery.” Fed. R. Civ. P. 56(b). 2. Plaintiff Fails to State a Breach of Contract Claim Under Delaware law, to state a breach of contract claim a “plaintiff must demonstrate: [1] the existence of the contract, whether express or implied; [2] the breach of an obligation imposed by that contract; and [3] the resultant damage to the plaintiff.” VLIW Tech., written instrument annexed to a pleading and an allegation in the pleading based thereon, the written instrument will control.” ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 n.8 (3d Cir. 1994). Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 19 of 25 9 LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).7 Here, Plaintiff fails to demonstrate the breach of any obligation imposed by the written agreements that governed the stock options. Twice Plaintiff claims that the MinusNine Board “unilaterally” decided to terminate his stock options, thereby violating the Plan. • “MinusNine unilaterally decided to terminate Mr. Stoebe’s options in violation of the amended compensation plan.” (Compl. ¶ 1.) • “MinusNine sent Mr. Stoebe a letter that unilaterally terminated the Stock Option, thus violating the amended Plan.” (Compl. ¶ 23.) But the Board’s so-called “unilateral” decision to terminate Plaintiff’s stock options was expressly permitted by the Plan. The Plan states that “[t]he Board shall have full power and authority to administer and interpret the plan, [and] to make factual determinations … in its sole discretion.” (Compl., Pl. Exh. A at 1 (emphasis added).) The Plan further states that “[a]ll powers of the Board shall be executed in its sole discretion, in the best interest of the Company … and in keeping with the objectives of the Plan[.]” (Compl., Pl. Exh. A at 1-2 (emphasis added).) Plaintiff acknowledged the applicability of these terms when he accepted the grant of stock 7 For two principle reasons, this dispute is governed by Delaware law. First, choice of law provisions in the governing documents require application of Delaware law, (Compl., Pl. Exhs. A at 14; B at 4.), and “Pennsylvania … generally honor[s] the intent of the contracting parties” to enforce choice of law provisions. Kruzits v. Okuma Mach. Tool, Inc., 40 F.3d 52, 55 (3d Cir. 1994). Second, MinusNine is a Delaware Corporation, (Compl., Pl. Exh. C at 1), a fact that, in the stock-option context, calls for application of Delaware law. See Beard v. Elster, 160 A.2d 731, 735 (Del. 1960) (“The issuance of stock options plans by Delaware corporations involves the internal affairs of a Delaware corporation, and is, therefore, controlled by the laws of Delaware.”). Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 20 of 25 10 options on September 1, 2009. He agreed that he would “be bound by the terms of the Plan and [the Grant],” and “that all the decisions and determinations of the Board shall be final and binding.” (Compl., Pl. Exh. 5.) Under Delaware law, these powerful terms must not be neutered of their meaning. Grimes v. Alteon, Inc., 804 A.2d 256, 258 (Del. 2002) (observing Delaware’s policy “to preserve the board’s broad authority over the corporation and to protect the certainty of investors’ expectations regarding stock.”) (emphasis added); STAAR Surgical Co. v. Waggoner, 588 A.2d 1130, 1136 (Del. 1991) (“The issuance of corporate stock is an act of fundamental legal significance having a direct bearing upon questions of corporate governance, control and the capital structure of the enterprise. The law properly requires certainty in such matters.”) (emphasis added); Mariasch v. Gillette Co., 521 F.3d 68, 73 (1st Cir. 2008) (“Delaware law requires the strict application of the terms and conditions of a board-approved stock option plan.”) (emphasis added). Thus, once the Board determined cause for termination existed, the Plan imposed no impediment to MinusNine acting “unilaterally” to terminate Plaintiff’s options. The remainder of Plaintiff’s complaint is littered with threadbare, legal conclusions that cannot save his claim and should be afforded no weight under Iqbal or Twombly: • “Mr. Stoebe had not materially breached any aspect of the Grant or the First or Second Extensions.” (Compl. ¶ 24.) • “Mr. Stoebe was in compliance with his obligations[.]” (Id.) • “MinusNine acted without a good faith belief that Mr. Stoebe had breached any applicable obligations.” (Id.) Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 21 of 25 11 • “MinusNine, through the termination of the Stock Option without legal basis, breached the parties’ agreement.” (Compl. ¶ 29.) No details are provided. No facts are offered. Under the standards that govern this Court’s review, Plaintiff’s complaint markedly fails to state a claim and must be dismissed. Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”).8 To the extent this Court finds Plaintiff’s allegation concerning good faith raises a plausible allegation sufficient to survive a motion to dismiss, this Court should convert this motion to one for summary judgment and dismiss Plaintiff’s case. A “nonmoving party cannot rely upon conclusory allegations in its pleadings … to establish a genuine issue of material fact.” Pastore v. Bell Telephone Co. of Pennsylvania, 24 F.3d 508, 511 (3d Cir. 1994). Pleading nothing more than “MinusNine acted without a good faith belief” hardly overcomes this standard. But even if Plaintiff satisfied that hurdle, which he does not, Plaintiff cannot dispute that he went to work for Nicoat, a MinusNine competitor, and that he did so after telling MinusNine that he would continue to advocate for MinusNine after his resignation. These irrefutable facts gave rise to the Board’s subsequent actions, both in meeting to discuss 8 Plaintiff’s articulation of damages is also deficient, though, for another reason: it runs headlong into the very documents he attached to his Complaint. According to Plaintiff, his damages are based, at least in part, on the fact that he was “rendered unable to exercise the Stock Option at a time of his choosing.” (Compl. ¶ 30 (emphasis added).) Neither the Plan nor the Grant allowed him to do any such thing. Plaintiff could exercise his stock options only during the applicable extension period, and only then if he did not otherwise breach the terms of his agreement so as to trigger the “cause” provision under the Plan. (Compl., Pl. Exhs. A, B.) Thus, Plaintiff’s own exhibits contradict his curious suggestion that could have exercised the options “at a time of his choosing,” were it not for MinusNine’s alleged breach. Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 22 of 25 12 Plaintiff’s actions in the marketplace, and in deciding to terminate his options for cause. The declarations of Frederick and Slattery, combined with Plaintiff’s Exhibit E (the letter from Frederick to Plaintiff terminating the options), collectively demonstrate that the Board acted well within its discretion, afforded by the express terms of the Plan, to terminate Plaintiff’s options pursuant to the Plan. About these material facts, there can be no dispute. Further, neither the Plan nor the Grant provided Plaintiff with an absolute right to exercise the options during the extension period. The stock options remained subject to the terms and conditions of the Plan and the Grant and could be terminated for cause at any time, even after he resigned from MinusNine.9 The Option shall automatically terminate [on] … [t]he date on which the Grantee ceases to be employed by, or provide service to, the Employer for Cause. In addition … if the Grantee engages in conduct that constitutes Cause after the Grantee’s employment or service terminates, the option shall immediately terminate. (Compl., Pl. Exh. B. at 2 (emphasis added).) On this point, Plaintiff’s exhibits are clear. MinusNine does not dispute that Plaintiff had every right to be disloyal or to work against the best interests of MinusNine. Plaintiff faced a clear economic choice: remain loyal to MinusNine and keep his stock options during the exercise period, or engage in disloyal activity and risk having his stock options terminated. Plaintiff chose the latter. That he does not now 9 Delaware law recognizes contracted-for fiduciary duties. See Gatz Properties, LLC v. Auriga Capital Corp., 59 A.3d 1206, 1213-15 (Del. 2012) (finding plaintiff owed contractual fiduciary duties); Cantor Fitzgerald, L.P. v. Cantor, No. 16297, 2000 WL 307370, *22 (Del. Ch. 2000), (“The duty of loyalty that parties may impose upon one another by mutual assent in a contract, whether management, operational, or governance responsibilities follow or not, is a mutual exchange of a promise to treat one another with good faith, trust, confidence and candor. It is a promise articulated to define a mutually agreed relationship explicitly beyond that of any ‘implied’ duty of good faith in an ordinary contract.”), overruled on other grounds by Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.3d 665 (Del. 2013). Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 23 of 25 13 like the result does not entitle him to relief. See Fraser v. Nationwide Mutual Ins. Co., 334 F. Supp. 2d 755, 760 (E.D. Pa. 2004) (“[Plaintiff] faced two options: he could choose to compete and consequently forfeit his deferred compensation; or he could choose not to compete and receive his deferred compensation. It was his decision.”). VI. CONCLUSION For the foregoing reasons, this Court should dismiss Plaintiff’s Complaint. Respectfully submitted, MORGAN, LEWIS & BOCKIUS LLP By: /s/ Michael S. Burkhardt Michael S. Burkhardt (PA ID# 68072) David C. Dziengowski (PA ID# 208342) 1701 Market Street Philadelphia, PA 19103-2921 Telephone: 215.963.5000 Facsimile: 215.963.5001 michael.burkhardt@morganlewis.com david.dziengowski@morganlewis.com Dated: February 21, 2017 Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 24 of 25 CERTIFICATE OF SERVICE I, David C. Dziengowski, hereby certify that on the 21st day of February, 2017, I filed the foregoing Defendant MinusNine Technologies, Inc.’s Motion to Dismiss for Failure to State a Claim or, in the Alternative, For Summary Judgment, Short and Concise Statement of Material Facts as to Which There is No Genuine Dispute, and Exhibits in support thereof using the Court’s CM/ECF, which caused a copy of the same to be served via CM/ECF upon the following: Daniel H. Aiken Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 daniel.aiken@dbr.com Attorney for Plaintiff Robert Stoebe /s/ David C. Dziengowski David C. Dziengowski Case 5:16-cv-06606-EGS Document 8 Filed 02/21/17 Page 25 of 25 Case 5:16-cv-06606-EGS Document 8-1 Filed 02/21/17 Page 1 of 4 Case 5:16-cv-06606-EGS Document 8-1 Filed 02/21/17 Page 2 of 4 Case 5:16-cv-06606-EGS Document 8-1 Filed 02/21/17 Page 3 of 4 Case 5:16-cv-06606-EGS Document 8-1 Filed 02/21/17 Page 4 of 4 Case 5:16-cv-06606-EGS Document 8-2 Filed 02/21/17 Page 1 of 4 Case 5:16-cv-06606-EGS Document 8-2 Filed 02/21/17 Page 2 of 4 Case 5:16-cv-06606-EGS Document 8-2 Filed 02/21/17 Page 3 of 4 Case 5:16-cv-06606-EGS Document 8-2 Filed 02/21/17 Page 4 of 4
