Vaccaro v. APS Healthcare Bethesda, Inc. and Universal American Corp. ( 2014 )

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: October 6, 2014
Date Decided: October 15, 2014
Michael A. Weidinger, Esquire Blake Rohrbacher, Esquire
Seton C. Mangine, Esquire Richards Layton & Finger, P.A.
Pinckney, Weidinger, Urban & Joyce LLC One Rodney Square
1220 North Market Street, Suite 950 920 North King Street
Wilmington, Delaware 19801 Wilmington, Delaware 19801
Re: Vaccaro v. APS Healthcare Bethesda, Inc. and Universal
American Corp., Civil Action No. 9637-VCG
Dear Counsel:
This matter involves a dispute over severance obligations in the employment
agreement between Plaintiff Jerome Vaccaro and Defendants APS Healthcare
Bethesda, Inc. (“APS”) and Universal American Corp. (“Universal”), entered into
on January 10, 2012 (the “Original Agreement”), amended on April 29, 2013 (the
“Amended Agreement”), and at all times governed by New York law. Reduced to
its simplest terms, the parties’ dispute concerns whether the Amended Agreement
completely replaced all severance obligations in the Original Agreement, as the
Defendants contend, or only replaced a portion of the severance obligations in the
Original Agreement, leaving the rest in place, as the Plaintiff contends. At this
stage in the litigation, the Defendants have moved to dismiss or stay the Plaintiff’s
action, arguing both that I should use my discretion to defer to a first-filed action in
the United States District Court for the District of Delaware1 and that this Court
lacks subject matter jurisdiction to hear the dispute. In this Letter I address the
latter threshold issue of whether this Court properly has jurisdiction over the
Plaintiff’s claims.
This Court is one of limited jurisdiction. The Court of Chancery’s subject
matter jurisdiction is confined to three realms: “(1) the invocation of an equitable
right; (2) a request for an equitable remedy when there is no adequate remedy at
law; or (3) a statutory delegation of subject matter jurisdiction.”2 The Complaint
here implicates only the second of these prongs—the request for an equitable
remedy: contract reformation. The Plaintiff has brought four Counts stemming
from the severance dispute: (1) breach of contract for the Defendants’ alleged
violation of the Amended Agreement; (2) breach of contract for the Defendants’
alleged violation of a separate severance agreement executed at the time of the
Plaintiff’s release; and, in the alterative, (3) fraud for the Defendants’ alleged
intentional misleading conduct inducing the Plaintiff to enter the Amended
Agreement and (4) reformation of the Amended Agreement to conform to the
Plaintiff’s understanding of the severance obligations at the time of contracting.
1
Whether the federal lawsuit, which involves APS and Universal suing Vaccaro and other
parties over allegedly fraudulently inducing the sale of Partners Healthcare Solutions, Inc. to
Universal, sufficiently meets the test announced in McWane Cast Iron Pipe Corp. v. McDowell-
Wellman Engineering Co., 263 A.2d 281, 283 (Del. 1970), is an issue that I reserve for a later
ruling.
2
E.g., Gladney v. City of Wilmington, 2011 WL 6016048, at *3 (Del. Ch. Nov. 30, 2011).
2
As only Count IV seeks an equitable remedy,3 this Court’s subject matter
jurisdiction over the dispute hinges on its survival. The Defendants concede that
this Court has jurisdiction over claims seeking reformation of a contract, but argue
that the Plaintiff’s claim seeking reformation here fails as a matter of New York
law, would not survive a motion to dismiss, and is essentially a mere makeweight
intended solely to, but insufficient to, invoke the jurisdiction of this Court.4
Under New York law, “a party seeking reformation of a contract by reason
of mistake must establish, with clear and convincing evidence, that the contract
was executed under mutual mistake or a unilateral mistake induced by the other
party’s fraudulent misrepresentation.”5 The Plaintiff has pled as much, alleging in
Count IV that “[t]o the extent the Defendants’ severance obligations differ from
Vaccaro’s understanding of them, Vaccaro is entitled to have the [Amended
Agreement] reformed to conform to the parties’ specific prior understanding of the
Defendants’ severance obligations to Vaccaro,” because the “Defendants’
affirmative representations” caused him to believe that the severance payments
3
See, e.g., Waggoner v. Laster, 581 A.2d 1127, 1135 (Del. 1990) (“It is a basic principle of
equity that the Court of Chancery has jurisdiction to reform a document to make it conform to
the original intent of the parties.”); Travelers Indem. Co. v. N. Am. Phillips Corps., 1992 WL
210560, at *2 (Del. Ch. Aug. 26, 1992) (finding proper jurisdiction over an action in which a
plaintiff sought “reformation as an alternative form of relief in several of its claims and as the
only form of relief for [other claims]” because “reformation is an equitable remedy that may be
granted only by a Court exercising equitable powers”).
4
In briefing, the Defendants also argued that Chancery jurisdiction is improper because the
Plaintiff’s breach of contract actions at law can grant full relief. However, the Defendants are
challenging the Plaintiff’s interpretation of the contract; if this Court finds against the Plaintiff on
contract interpretation, he seeks reformation, an equitable remedy, as an alternative.
5
E.g., Yu Han Young v. Chiu, 853 N.Y.S.2d 575, 576 (N.Y. App. Div. 2008).
3
would only increase under the Amended Agreement.6 The Defendants contend,
however, that this argument fails as a matter of New York law due to the principle
in that state that a plaintiff “cannot claim he was defrauded by an oral
representation that is contradicted by the unambiguous written contract he
signed.”7 The language of the Amended Agreement is “crystal clear,” the
Defendants argue, and provides that the severance obligations in the Amended
Agreement completely replaced those in the Original Agreement, such that any
oral representation to the contrary may not serve as grounds for a valid claim
seeking reformation under New York law.8 Specifically, the Defendants cite
language in the Amended Agreement that the benefits enumerated therein “shall
replace any benefits or other payments that might otherwise be owed to [the
Plaintiff] under [the Original Agreement and related equity award agreements].”9
In rebuttal, the Plaintiff points to language in the Amended Agreement that
“[e]xcept as amended hereby, all other terms and conditions of [the Original
Agreement and related equity award agreements] shall remain in full force and
effect through the Termination Date.”10 The Plaintiff further points out that the
benefit-replacement clause cited by the Defendants is conditional; it applies “in the
event (i) [the Plaintiff] remains continuously employed by [Universal] through the
6
Compl. ¶¶ 84–88; see also id. ¶¶ 77–79.
7
Defs.’ Op. Br. in Supp. of Mot. to Dismiss or Stay, at 29.
8
Id.9
Compl. Ex. B.
10
Id.4
Termination Date and [is] not terminated for Cause, [and] (ii) [the Plaintiff]
perform[s] [his] assigned duties in a reasonably satisfactory manner.”11 Consistent
with this language, the Plaintiff contends that only one section of severance
obligations in the Original Agreement was replaced by the Amended Agreement,
and that by the language of the Amended Agreement this new set of benefits would
“replace any benefits or other payments” only if the Plaintiff fulfilled the added
requirements of working through the agreed termination date, avoiding termination
“for Cause,” and satisfactorily performing his assigned duties. In other words, the
Plaintiff argues that he was always guaranteed, at a minimum, the severance
obligations found in other sections of the Original Agreement, which were left in
place by the Amended Agreement as an alternative severance package in the event
that the Plaintiff quit, was terminated “for Cause,” or was found not to have
satisfactorily performed his assigned duties. To the extent both the Plaintiff’s and
the Defendants’ readings of the contract are plausible, an ambiguity exists, and
reformation based on fraud is available, if warranted, under New York law.
In order to find that the Plaintiff’s claim seeking reformation fails as a matter
of law, I must determine “with ‘reasonable certainty’ that a plaintiff could prevail
on no set of facts that can be [reasonably] inferred from the pleadings,” when taken
11
Id.5
as true.12 Here, without making any determination as to the ultimate validity of the
Plaintiff’s claims, I find that the language of the Amended Agreement, and
consequently its effect on the severance obligations in the Original Agreement, is
reasonably subject to diverging interpretations. Contrary to the Defendants’
position, the language of the Amended Agreement is not so clear as to preclude the
Plaintiff’s fraudulent-inducement argument under New York law, and thus his
claim seeking reformation in this Court.13 Rather, the claim seeking reformation
endures, and with it so does this Court’s subject matter jurisdiction over the
dispute.
Accordingly, for the foregoing reasons, the Defendants’ Motion to Dismiss
for Lack of Subject Matter Jurisdiction is DENIED. Nothing in this Letter
prevents any party from seeking case dispositive motions with respect to any
count. To the extent the foregoing requires an Order to take effect, IT IS SO
ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
12
Cf. Solomon v. Pathe Comm’ns Corp., 672 A.2d 35, 38 (Del. 1996) (citation omitted)
(considering a motion to dismiss for failure to state a claim).
13
The Defendants have not explicitly argued whether the reformation sought in Count IV would
lead to substantially the same remedy as that advanced under the common-law fraud claim of
Count III. Based on the very limited record before me, I cannot say that the legal damages
available for fraud in the inducement of the Amended Agreement are equivalent to reformation
such that the legal remedy is sufficient here.
6