Seva Holding Inc. v. Octo Platform Equity Holdings, LLC ( 2024 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
SEVA HOLDINGS INC., )
)
Plaintiff, )
v. ) C.A. No. 2022-0437-PRW
)
OCTO PLATFORM EQUITY )
HOLDINGS, LLC, )
)
Defendant. )
Submitted: August 8, 2024
Decided: August 29, 2024
Upon Octo Platform Equity Holdings, LLC ’s
Motion for Partial Summary Judgment,
GRANTED IN PART AND DENIED IN PART.
Upon Seva Holdings Inc.’s
Motion for Partial Summary Judgment,
DENIED.
MEMORANDUM OPINION AND ORDER
Alan D. Albert, Esquire, O’HAGAN MEYER PLLC, Wilmington, Delaware, Charles
M. Sims, Esquire (argued), Rachael L. Loughlin, Esquire, C. Quinn Adams, Esquire,
O’HAGAN MEYER PLLC, Richmond, Virginia. Attorneys for Plaintiff Seva
Holdings, Inc.
Brian C. Ralston, Esquire, Daniel M. Rusk, IV, Esquire, POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware, Paul A. Werner, Esquire, Imad Matini,
Esquire (argued), SHEPPARD MULLIN RICHTER & HAMPTON, LLP, Washington,
District of Columbia. Attorneys for Defendant Octo Platform Equity Holdings, LLC.
WALLACE, J.
I. INTRODUCTION
This Opinion addresses the applicability of the absolute litigation privilege to
the repurchase of a member’s interests in a Delaware limited liability company. The
defendant here sought to repurchase the plaintiff’s interests on the basis of alleged
violations of a non-disparagement clause. Delaware recognizes the right of a party
to pursue one’s claims in court without fear of incurring liability for his statements
in a judicial proceeding. That protection extends to contractual non-disparagement
claims. But as now explained, the absolute litigation privilege does not operate to
nullify the repurchase of a member’s interests where allegedly defamatory
statements trigger the repurchase right.
II. BACKGROUND
A. THE ACQUISITION
In 2003, Arvinder (“Sonny”) Kakar founded Sevatec, LLC.1 Sevatec was a
technology services firm that provided a variety of services to federal government
agencies, including design, development, security and operations, as well as cloud
service and data integration.2
In November 2020, Octo Consulting Group, LLC (“Octo Consulting”), a
technology solutions provider, acquired Sevatec through a stock purchase agreement
1
Transmittal Affidavit of Alan D. Albert in Support of Opening Brief in Support of Motions for
Summary Judgment and Partial Summary Judgment (“Albert Trans. Aff.”), Ex. 1 ¶ 2 (D.I. 97).
2
Id. ¶ 3.
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(the “SPA”).3 The SPA contained indemnification provisions for certain
representations agreed to by the parties and provided for certain post-closing
adjustment payments.
Following the acquisition, Mr. Kakar remained involved in the business. He
held the title of Vice Chair and Head of Strategy under the Executive Employment
Agreement (“Employment Agreement”).4 Under the Employment Agreement and
Non-Competition Agreement, he agreed to be bound by confidentiality, non-
compete, non-solicit, non-interference, and non-disparagement clauses.5 Based on
Sevatec’s performance, Mr. Kakar was also entitled to earn potential payments
pursuant to the Additional Payments Agreement.6
Mr. Kakar sat on the board of Octo Consulting’s parent, Octo Platform Equity
Holdings, LLC (“Octo Platform”).7 Through a holding company, Seva Holdings,
Inc. (“Seva”), he received membership interests in Octo Platform.8 The Side Letter
3
Transmittal Affidavit of Daniel M. Rusk, IV in Support of Defendants’ Opening Brief in
Support of their Motions for Partial Summary Judgment (“Rusk Trans. Aff.”), Ex. C (“SPA”),
Preamble (D.I. 91); Rusk. Trans. Aff., Ex. H.
4
Rusk Trans. Aff., Ex. K § 3 (“Employment Agreement”).
5
Employment Agreement § 9, id. Ex. J (“Non-Competition Agreement”) §§ 3.1, 3.2, 3.3, 3.4.
6
Rusk Trans. Aff., Ex. E.
7
Rusk Trans. Aff., Ex. F (“Side Letter Agreement”). “Octo” will be used to refer to Octo
Consulting and Octo Platform without distinguishing between them, unless specificity is required.
8
Rusk Trans. Aff., Ex. D; Verified Complaint of Seva Holdings Inc. against Defendants Octo
Platform Equity Holdings, LLC, Octo Consulting Group, LLC, and Arlington Capital Partners IV,
L.P. (“Ch. Compl.”) ¶ 11; SPA at 1-4. Mr. Kakar’s wife, Seema Kakar, in her capacity as trustee
of the Kakar Family Irrevocable Trust, also received membership interests in Octo Platform
through Seva. The phrase “the Kakar Parties” will be used to refer to Mr. Kakar and Ms. Kakar
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Agreement and the Amended and Restated Limited Liability Company Agreement
of Octo Platform Equity Holdings, LLC (“LLC Agreement”) govern Octo’s right of
repurchase (the “Repurchase Option”).9
B. ISSUES ARISE BETWEEN MR. KAKAR AND OCTO
After the acquisition, issues arose between Mr. Kakar and Octo. Mr. Kakar
and Octo disagreed on company branding and use of company resources.10
Mr. Kakar believes Octo “undermined and disparaged him” and sidelined him from
management responsibility.11 Octo claims that Mr. Kakar stopped attending
company meetings and events, mismanaged client projects, and damaged employee
relationships.12
About nine months after the acquisition, in August 2021, Octo issued a notice
to Mr. Kakar of his for-cause termination from Octo Consulting and removal from
Octo Platform’s board.13 The parties dispute whether Mr. Kakar subsequently
resigned or was constructively discharged.14 Octo then sent Mr. Kakar three notices
without distinguishing between them, unless specificity is required.
9
Rusk Trans. Aff., Ex. G (“LLC Agreement”) § 8.7; Side Letter Agreement.
10
Defendants’ Opening Brief in Support of their Motions for Partial Summary Judgment (“Octo
Mot. for Summ. J.”) at 23-26, 27 (D.I. 91).
11
Consolidated Opening Brief in Support of Motions for Summary Judgment and Partial
Summary Judgment of Plaintiffs-Counterclaim Defendants Arvinder Kakar, Seema Kakar,
Trustee, and Seva Holdings, Inc. (“Kakar Mot. for Summ. J.”) at 24-26 (D.I. 97).
12
Octo Mot. for Summ. J. at 26-28, 31-32.
13
Rusk Trans. Aff., Ex. N.
14
Octo Mot. for Summ. J. at 33; Kakar Mot. for Summ. J. at 30-31.
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of claims for indemnification pursuant to the SPA––one with respect to a legacy
Sevatec project, and the others relating to employee retention payments and
bonuses.15 Mr. Kakar submitted a competing notice for indemnification with respect
to post-closing adjustment payments and demanded release of funds held in
escrow.16
Then, on January 14, 2022, Mr. Kakar sued Octo Platform’s board for
defamation in Virginia state court (the “Virginia Action”)17 and initiated the first part
of this consolidated action in the Delaware Superior Court (the “Superior Court
Action”).18 In the Superior Court Action complaint, the Kakar Parties asserted
claims for fraudulent inducement (Count I), breach of contract with respect to Mr.
Kakar’s Employment Agreement (Count II), the Additional Payments Agreement
(Count III), and the SPA (Count IV), as well as breach of the implied covenant of
good faith and fair dealing (Count V), and have requested declaratory judgment
(Count VI).
Octo counterclaimed, asserting breaches under the Employment Agreement
(Count I), a breach of Mr. Kakar’s Non-Competition Agreement (Count II), a breach
15
Rusk Trans. Aff., Exs. BM, BN, BT.
16
Albert Trans. Aff., Ex. 1(O).
17
See Ch. Compl., Ex. 9.
18
See Complaint of Plaintiffs Arvinder (Sonny) Kakar, Seema Kakar, Trustee of the Kakar
Family Irrevocable Trust UTA dated December 29, 2009, and Seva Holdings Inc., against
Defendant Octo Consulting Group, LLC, C.A. No. N22C-01-104 PRW CCLD (Del. Super. Ct).
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of the SPA regarding its indemnification claims (Count III), unjust enrichment
(Count IV), and seeking declaratory relief (Count V).19
C. THE REPURCHASE
After Mr. Kakar initiated the Superior Court Action and Virginia Action, on
February 14, 2022, Octo informed Seva of its intent to repurchase Seva’s
membership units in Octo Platform (the “Repurchase Notice”).20
The Repurchase Option is conditioned in part on the occurrence of a
Triggering Event.21 A Triggering Event includes:
a material breach by Mr. Kakar of any of the restrictive covenants with
respect to confidentiality (but only in the event such breach causes or
results in demonstrable material harm to [Octo Platform] or any of its
Subsidiaries), non-competition, non-solicitation, non-interference or
non-disparagement obligations in either his [Employment Agreement]
or his Non-Competition Agreement.22
The contents of Octo’s Repurchase Notice focus on Mr. Kakar’s alleged
19
Arvinder (“Sonny”) Kakar et al., v. Octo Consulting Group, LLC, C.A. No. N22C-01-104
PRW CCLD (Del. Super. Ct) (D.I 33).
20
Rusk Trans. Aff, Ex. BW (“Repurchase Notice”).
21
See LLC Agreement § 8.7. The Repurchase Option is further conditioned on either Octo’s
termination of Mr. Kakar without cause or his voluntary termination. See id. (“Notwithstanding
the provisions of Section 8.7 of the Operating Agreement, the Repurchase Option in favor of the
Company and the Sponsor Members shall not apply with respect to any Membership Interests or
other equity securities held by Newco and its Transferees in the event of a termination of Mr. Kakar
by the Company or any of its Subsidiaries without Cause or if such Termination is voluntary;
provided, however, that in the event of such Termination either without Cause or on a voluntary
basis or otherwise, the definition of “Triggering Event” as it applies to Newco and its Transferees
shall be deemed to include the occurrence, following such Termination, . . .”).
22
Side Letter Agreement § 6.
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violations of the non-disparagement obligations. Section 9(d)(i) of the Employment
Agreement provides that Mr. Kakar will not “publish or communicate” any
“Disparaging” statements concerning Octo.23 “Disparaging” remarks include “those
intended to impugn the character, honesty, integrity, reputation” or “business
abilities in connection with any aspect of the operation of business of the individual
or entity being disparaged.”24 The non-disparagement obligation, however, is not:
applicable to (A) truthful testimony obtained through subpoena, (B) any
truthful information provided pursuant to investigation by any
governmental authority, or (C) any truthful information provided
pursuant to any claim by [Mr. Kakar] or [Octo] under the [Employment
Agreement].25
The Repurchase Notice states that Mr. Kakar’s “publicly filed” complaints
against Octo contained “numerous statements of a defamatory nature” in alleged
violation of the confidentiality and non-disparagement obligations.26 On that basis,
as well as on the alleged “breaches of the non-competition, non-solicitation and non-
interference restrictive covenants,” Octo initiated procedures to repurchase Seva’s
membership units in Octo Platform.27
Section 8.7(d) of the LLC Agreement sets out the required closing procedures
23
Employment Agreement § 9(d).
24
Id.
25
Id. § 9(d)(iii).
26
Repurchase Notice at 1.
27
Id.
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for the Repurchase. After the calculation of certain offsetting and additive payments,
Octo is to deliver a “Repurchase Note for the balance of the Repurchase Price;”28
the “Repurchase Price shall be paid against the delivery of the certificates or other
instruments” of the membership interests.29 Octo is entitled to “receive customary
representations and warranties” with respect to “any securities purchased.”30 If Seva
fails to comply with the obligations under Section 8.7, Octo “may thereupon place
an amount of, equal to the amount of the purchase price to be paid . . . in escrow
. . . whereupon [Octo] shall be entitled to cancel . . . and treat” the membership
interests “as having been purchased.”31
Along with the Repurchase Notice, Octo sent Seva the Repurchase Agreement
and Repurchase Note.32 Mr. Kakar didn’t agree to signing the Repurchase
Agreement.33 On April 15, 2022, Octo Platform canceled the membership interests
and notified Seva that the Repurchase Note would be held in escrow until Seva
delivered an executed Repurchase Agreement.34
28
LLC Agreement § 8.7(d)(i).
29
Id. § 8.7(d)(ii).
30
Id. § 8.7(d)(iii).
31
Id.
32
Rusk Trans. Aff., Exs. A and B to Repurchase Notice.
33
Albert Trans. Aff., Ex. 1 at ¶ 52, Ex. 1(U).
34
Id., Ex. 1V at 1.
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D. COURT OF CHANCERY COMPLAINT AND IBM ACQUISITION.
A month later, Seva challenged the Repurchase by filing a new complaint in
Delaware––this time in the Court of Chancery (“Court of Chancery Action”).
Counts I to III of the Court of Chancery complaint seek declaratory relief that the
repurchase of Seva’s membership interests is void because of the absolute litigation
privilege, Octo’s failure to comply with the repurchase procedures, and prior
material contractual breaches. Counts IV and V relate to Octo’s alleged breaches of
the LLC Agreement and refusal to permit Seva to repurchase other employees’
membership interests under the Side Letter Agreement. Counts VI and VII seek the
imposition of a constructive trust and injunctive relief.
In December 2022, IBM acquired Octo Consulting.35 The parties entered into
a status quo order, agreeing to place into escrow a reserve of the purchase price to
cover potential liabilities relating to this consolidated action and the Virginia
Action.36 Plaintiffs in the Superior Court Action voluntarily dismissed the fraudulent
inducement claim, and in the Court of Chancery Action, only the claims against Octo
Platform survived after Octo’s motion to dismiss.
With the Delaware suits consolidated, the parties moved for partial summary
judgment. Octo moved for summary judgment on claims relating to the
35
Id., Ex. 15.
36
See D.I. 41.
-8-
Employment Agreement, Additional Payments Agreement, Breach of the Implied
Covenant of Good Faith and Fair Dealing and declaratory relief count (Counts II,
III, V and VI) in the Superior Court Action, all of Octo’s counterclaims in the
Superior Court Action, and, Seva’s claims in the Court of Chancery Action relating
to the repurchase (Counts I to III), breaches of the LLC Agreement (Count IV), and
requests for relief (Counts VI and VII). With respect to the Superior Court Action,
the Kakar Parties moved for summary judgment on Count IV of the LLC Agreement,
and the counterclaims. With respect to the Court of Chancery Action, Seva moved
for summary judgment on Counts II and V.
At argument on the motions earlier this month, the Court denied the parties’
motions for summary judgment in the Superior Court Action via a bench ruling and
took the Court of Chancery Action motions under advisement.
III. STANDARD OF REVIEW
“When opposing parties make cross motions for summary judgment, a judge
should not grant . . . summary judgment for one party unless no genuine issue of
material fact exists and that party is entitled to judgment as a matter of law.”37 In
turn, summary judgment won’t be granted for either if there is a material fact in
dispute or if it seems desirable to inquire thoroughly into the facts to clarify the
37
State ex rel. Jennings v. City of Seaford, 278 A.3d 1149, 1159 (Del. Ch. 2022) (quoting Wygant
v. Geico Gen., 2011 WL 3586488, at *1 (Del. Aug. 16, 2011)).
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application of the law to the circumstances.38
The Court always views the facts in the light most favorable to the opposing
party.39 And, “[u]nder well-established Delaware law, ‘the moving party initially
bears the burden of showing that no genuine issue of material fact exists.” 40 “But
when a motion for summary judgment is supported by such a showing . . . the burden
shifts to a non-moving party to demonstrate that there are material issues of fact.”41
“Where cross-motions for summary judgment are filed and neither party
argues the existence of a genuine issue of material fact, the Court shall deem the
motions to be the equivalent of a stipulation for decision on the merits based on the
record submitted with them.”42 Even so, “the [C]ourt is not relieved of its obligation
to deny summary judgment if a material factual dispute exists.”43 In the end,
summary judgment “must be denied if there is any reasonable hypothesis by which
the opposing party may recover, or if there is a dispute as to a material fact or the
38
IDT Corp. v. U.S. Specialty Ins. Co., 2019 WL 413692, at *5 (Del. Super. Ct. Jan. 31, 2019)
(citing Ebersol v. Lowengrub, 180 A.2d 467, 468-69 (Del. 1962)).
39
Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1977).
40
Dieckman v. Regency GP LP, 2019 WL 5576886, at *11 (Del. Ch. Oct. 29, 2019) (quoting
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979)).
41
Id. (cleaned up) (quoting Moore v. Sizemore, 405 A.2d 679, 681 (Del. 1979)); Del. Ch. Ct. Civ.
R. 56(e) (the burden shifted to the opponent is to show “there is a genuine issue for trial.”).
42
Radulski v. Liberty Mutual Fire Ins. Co., 2020 WL 8676027, at *4 (Del. Super. Ct. Oct. 28,
2020) (cleaned up) (quoting identical language from Del. Super. Ct. Civ. R. 56(h)).
43
Fasciana v. Elec. Data Sys. Corp., 829 A.2d 160, 166 (Del. Ch. 2003).
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inferences to be drawn therefrom.”44
IV. DISCUSSION
The bulk of this consolidated action will proceed to trial. This decision is an
attempt to clear the legal underbrush so that the parties can focus their energies on
the remaining factual disputes. The Court analysis begins and ends with the
Repurchase.
Seva argues the Repurchase was void due to the absolute litigation privilege
and invalid due to procedural deficiencies. The Court first addresses the
applicability of the absolute litigation privilege to the Repurchase, then moves to its
purported procedural deficiencies.
A. THE ABSOLUTE LITIGATION PRIVILEGE DOES NOT RENDER
THE REPURCHASE VOID.
Seva argues that enforcement of the Repurchase Option violates the immunity
Delaware law confers on statements made in litigation, including those of a
defamatory nature. Because the Repurchase Option was triggered in part on
allegedly defamatory statements that Mr. Kakar made in the Virginia and Superior
Court Actions, Seva contends that the Repurchase must be held null and void.
Seva’s request finds no support in Delaware’s contractarian regime.
The absolute litigation privilege, “long recognized in Delaware . . . protects
44
In re El Paso Pipeline P’rs L.P. Deriv. Litig., 2014 WL 2641304, at *1 (Del. Ch. June 12,
2024) (quoting Vanaman v. Milford Mem’l Hosp., Inc., 272 A.2d 718, 720 (Del. 1970)).
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from actions for defamation statements of judges, parties, witnesses and attorneys
offered in the course of judicial proceedings so long as the party claiming the
privilege shows that the statements issued as part of a judicial proceeding and were
relevant to a matter at issue in the case.”45 The privilege “encourages citizens to
peaceably resolve their differences in court through litigation (or the threat of
litigation) by allowing them to speak to their adversaries freely without fear of facing
liability for what they say, and without the prospect of having their good faith legal
claims prompt the initiation of more claims.”46 “The privilege is designed to
encourage candid and full testimony in court, to have parties resolve their disputes
peaceably, to let a result issue, and then move on.”47 The privilege shields litigants
from defamation and similar tort-based claims, operating as a “complete defense
. . . irrespective of accuracy or malice.”48 Three Delaware decisions have discussed
the scope of the privilege’s protection to contractual claims.
In Ritchie CT Opps, LLC v. Huizenga Managers Funds, LLC, the plaintiff
sought to enjoin defendant from making allegedly disparaging statements in other
45
Paige Cap. Mgmt., LLC v. Lerner Master Fund, LLC, 22 A.3d 710, 715 (Del. Ch. 2011)
(quoting Barker v. Huang, 610 A.2d 1341, 1345 (Del.1992)).
46
Id. (citation).
47
Id. at 721.
48
Barker, 610 A.2d at 1349; Ritchie CT Opps, LLC v. Huizenga Managers Fund, LLC, 2019
WL 2319284, at *12 (Del. Ch. May 30, 2019) (citing Short v. News-Journal Co., 212 A.2d 718,
720 (Del. 1965)).
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lawsuits that defendant had initiated against plaintiff.49 The Ritchie plaintiff sought
to do so through the enforcement of a non-disparagement clause agreed to by the
parties in a subscription agreement.50 Stopping short of dismissing that plaintiff’s
contractual non-disparagement claim, the court denied its request for injunctive
relief—the only type of relief the plaintiff was seeking.51 This Court held that the
“absolute litigation privilege . . . prevent[s] equity from specifically enforcing,
prospectively, the contractual non-disparagement clause in the context of litigation,
via injunction.”52 The Court reasoned that granting injunctive relief based on the
violation of that contractual clause at-issue “raises the same interests as using tort
law to chill litigation.”53 Indeed, “such a use of equity . . . would render contract
rights effectively unenforceable.”54 Although the Court in Ritchie CT Opps did not
hold as a matter of law that the absolute litigation privilege barred a contractual non-
disparagement claim, one year later, the Court did in Sheehan v. AssuredPartners,
Inc.55
In Sheehan, sellers sold their interests in an insurance company and entered
49
Ritchie CT Opps, LLC, 2019 WL 2319284, at *6-7.
50
Id. at *4.
51
Id. at *13.
52
Id.
53
Id. at *14.
54
Id.
55
2020 WL 2838575, at *1 (Del. Ch. May 29, 2020).
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into employment agreements with the buyer that contained reciprocal non-
disparagement obligations.56 After closing, the buyer discovered alleged fraud in
connection with the sale and sued the sellers.57 Sellers, in turn, sued the buyer for
breach of the non-disparagement claim in the employment agreements based on
buyer’s statements in its complaint.58 This Court held that the absolute litigation
privilege barred the non-disparagement claims because of the risk of “chilling
litigation” and creating an unending cycle of side-litigation. 59
In contrast, the Superior Court in Feenix Payment Sys., LLC v. Blum found,
on the facts before it, that applying the privilege “undermine[d] [the parties’]
freedom of contract.”60 In Feenix, the defendant asserted the privilege against
defamation and contract-based claims based on allegedly defamatory statements that
he had made in a demand letter.61 The court found that the absolute litigation
privilege did not bar the non-disparagement and confidentiality claims.62 Doing so
would “arguably disrupt the private ordering of the parties and thus undermine their
56
Id. at *1.
57
Id. at *6.
58
Id. at *8.
59
Id. at *17.
60
2022 WL 215026, at *7 (Del. Super. Ct. Jan. 25, 2022).
61
Id. at *2-3.
62
Id. at *8.
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freedom of contract.”63 If parties could “circumvent these provisions by filtering
their breaches through a lawyer in the context of potential litigation, such contracts
would contain an unforeseen but easily exploited loophole.”64
The Court distinguished Sheehan and Ritchie CT Opps as “stand[ing] for the
proposition that the absolute litigation privilege will not allow non-disparagement
clauses to be used offensively, as a means of gaining an unfair advantage during the
litigation process.”65 The Feenix court explained that, in the situation before it, the
party was not using the non-disparagement clauses to “prevent the other from
effectively litigating its case.”66 Instead, the statements in Feenix were pre-litigation
communications, based on a “one-off” event, and involved a request for money
damages.67 The court concluded that the Feenix plaintiff was not using the clauses
to “control” the defendant’s litigation conduct, and thus the absolute litigation
privilege did not apply.68
Sheehan and Ritchie CT Opps on the one hand and Feenix on the other display
the tension that exists in balancing the public policy interest of encouraging the
63
Id. at *7.
64
Id.
65
Id. at *8.
66
Id.
67
Id.
68
Id.
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freedom of a person to pursue one’s claims in court and that of upholding the
freedom of contract. Whereas Feenix falls on the latter end of the spectrum, Sheehan
and Ritchie CT Opps fall on the former. Seva’s arguments similarly pit these policy
considerations against one another.
Seva contends that enforcing Octo Platform’s Repurchase Option violates the
absolute litigation privilege because enforcement of the Repurchase Option would
impermissibly chill Mr. Kakar’s litigation against Octo. Because the privilege would
protect Seva from defamatory and contractual non-disparagement claims, Seva
contends that the statements should also be off-limits in triggering the Repurchase
Option. In effect, Seva aims to expand the scope of the absolute litigation privilege
as a means to nullify the repurchase of a member’s interest in a Delaware limited
liability company. Seva identifies no Delaware caselaw permitting this. And so, in
the Court’s balancing of the two policy considerations, freedom of contract prevails,
regardless of the collateral effect the Repurchase may have on Mr. Kakar’s decision
to litigate his claims against Octo.
Delaware law affords primacy to the freedom of contract, especially in the
context of provisions governing the internal affairs of a Delaware limited liability
company. Given that the Repurchase Option is in a limited liability company
agreement, the Court should give “maximum effect to the principle of freedom of
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contract and to the enforceability of limited liability company agreements.”69 The
Delaware Supreme Court recently affirmed this principle in forfeiture-for-
competition provisions.70
In Cantor Fitzgerald, L.P. v. Ainslie, former limited partners in a Delaware
limited partnership were entitled to payments and other financial incentives upon the
condition that they did not engage in competitive and other behavior after their
departure from the company.71 When the partnership withheld those deferred
financial benefits based on the limited partners’ alleged competitive behavior, the
limited partners brought suit seeking declarations that such forfeiture-for-
competition provisions were invalid.72 Our high court resolved the divergent policy
interests of respecting parties’ private agreements and the public interests against
restraints of trade in favor of the former.73 Finding that the forfeiture-for-
competition did not prohibit the limited partners from engaging in competitive
behavior, it found the policy interest of disfavoring restraints on trade “significantly
69
DEL. CODE ANN. tit. 6, § 18-1101(b) (2024).
70
Cantor Fitzgerald, L.P. v. Ainslie, 312 A.3d 674 (Del. 2024). There, the Delaware Supreme
Court was applying the Delaware Revised Uniform Limited Partnership Act (“DRULPA”), but the
provision regarding the weight placed on the freedom-of-contract principle is identical. See DEL.
CODE ANN. tit. 6, § 17-1101(c) (2024) (“It is the policy of this chapter to give maximum effect to
the principle of freedom of contract and to the enforceability of partnership agreements.”).
71
Cantor Fitzgerald, L.P., 312 A.3d at 678-81.
72
Id. at 682-83.
73
Id. at 692-93.
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weakened.”74 Thus, public-policy considerations weighed in favor of enforcing such
provisions.
Ainslie and a review of the Delaware precedent on the scope of the absolute
litigation privilege counsels a like result here. Under the LLC Agreement, the parties
conditioned Seva’s membership status on Mr. Kakar’s conformity with his
obligations under the Employment and Non-Competition Agreements. If Seva were
asserting the privilege against any non-disparagement claims Octo was asserting, the
privilege would bar such claims. But here, the provision at issue is a repurchase
provision, which directly touches on the internal affairs of the company.
Accordingly, the Court is “strongly inclined” to respect the parties’ right to
voluntarily order their affairs unless “dishonoring the contract is required to
vindicate a public policy interest even stronger than freedom of contract.”75
No such overriding public policy interest exists. The specter of potentially
chilling litigation by enforcing the Repurchase Option is far weaker in comparison
to the facts in Sheehan and Ritchie CT Opps. In Sheehan and Ritchie CT Opps,
defendants sought specific enforcement of non-disparagement clauses that directly
targeted defamatory statements plaintiffs made in litigation. Here, Octo is invoking
74
Id. at 691.
75
RSUI Indem. Co. v. Murdock, 248 A.3d 887, 903 (Del. 2021) (quoting Libeau v. Fox, 880 A.2d
1049, 1056-57 (Del. Ch.), judgment entered, (Del. Ch. 2005), aff’d in part, rev’d in part, 892 A.2d
1068 (Del. 2006)).
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a repurchase provision in response to allegedly disparaging statements. Even more
so than in Feenix, the Repurchase is the quintessential “one-off” event, and like in
Ainslie, the Repurchase Option itself does not prevent Mr. Kakar from continuing
his litigation against Octo. Mr. Kakar is free to continue litigating his claims in the
Superior Court and Virginia actions without fear of incurring tort or non-
disparagement-based liability for the statements he makes in those actions.76
In sum, Delaware law provides for maximum freedom in allowing parties to
order their governance arrangements. It doesn’t offend the public policy of this state
for a Delaware limited liability company’s operating agreement to condition a
member’s ownership in the business on whether a member makes disparaging
remarks about the business. Mr. Kakar was represented by sophisticated counsel
when he entered into the LLC Agreement and Mr. Kakar is free to litigate the full
value to which he is entitled for those interests. The absolute litigation privilege,
therefore, has no bearing on the validity of the Repurchase.
Octo’s motion for summary judgment dismissing Count I of the Court of
Chancery complaint will be granted.
B. A TRIGGERING EVENT OCCURRED.
Octo is entitled to repurchase Seva’s interests upon the occurrence of any one
76
The disparaging statements are not the target of injunctive relief. Though Octo includes
breach-of-contract counts against Mr. Kakar as counterclaims, Octo doesn’t appear to be moving
for injunctive relief on those counts.
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breach of the confidentiality obligations, restrictive covenants, or non-
disparagement clause. Rather than go through each alleged breach, the Court
addresses the breach of the non-disparagement clause and finds that there is no
genuine issue of material fact that a breach occurred, thus triggering the Repurchase
Option.
Seva’s disputation that Mr. Kakar violated the non-disparagement clause is
tripartite:77 (1) the filing of a complaint is not a “communication” within the
meaning of the non-disparagement clause, and (2) if it is, there is a dispute as to the
truthfulness of the allegations, and (3) the absolute litigation privilege protects
Mr. Kakar’s statements in a judicial proceeding. Notably, Seva doesn’t dispute that
the statements fall under the definition of “Disparaging” under the Employment
Agreement. The Court has already dismissed Seva’s third argument for the reasons
given above, so the Court now focuses on the first two.
Seva’s first argument—that the filing of a complaint is not a
“communication”—is belied by the contract’s plain language and the fact that the
parties carved out an exception that contemplates that statements could be made in
the context of litigation, and hence, in the body of a complaint. Section 9(d)(i) of
the Employment Agreement provides that Mr. Kakar will not “publish or
77
Consolidated Answering Brief of Plaintiffs-Counterclaim Defendants Arvinder Kakar, Seema
Kakar, Trustee, and Seva Holdings, Inc. in Opposition to Defendants-Counterclaim Plaintiffs’
Motion for Partial Summary Judgment (“Kakar Ans. Br.”) at 19 (D.I. 102).
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communicate” any “Disparaging” statements concerning Octo and its affiliates.78
“Disparaging” remarks include “those intended to impugn the character, honesty,
integrity, reputation” or “business abilities in connection with any aspect of the
operation of business of the individual or entity being disparaged.”79 The
Employment Agreement further provides that “Disparaging” statements are “not
applicable to (A) truthful testimony obtained through subpoena, (B) any truthful
information provided pursuant to investigation by any governmental authority, or
(C) any truthful information provided pursuant to any claim by [Mr. Kakar] or [Octo]
under the [Employment Agreement].”80
The Court interprets unambiguous language according to its plain meaning.81
Merriam-Webster82 defines “communicate” thusly: “to convey knowledge of
or information about”; “to make known”; or “to transmit information, thought, or
feeling so that it is satisfactorily received or understood.”83
78
Employment Agreement § 9(d).
79
Id.
80
Id. § 9(d)(iii).
81
RSUI Indem. Co, 248 A.3d at 905.
82
Delaware’s courts, including our Supreme Court, have used Merriam-Webster to construe
undefined contractual terms. E.g., Spintz v. Div. of Fam. Servs., 228 A.3d 691, 700 (Del. 2020);
USAA Cas. Ins. Co. v. Carr, 225 A.3d 357, 360 (Del. 2020); Intermec IP Corp. v. TransCore, LP,
2021 WL 3620435, at *22 (Del. Super. Ct. Aug. 16, 2021); Aveanna Healthcare, LLC v.
Epic/Freedom, LLC, 2021 WL 3235739, at *32 n.298 (July 29, 2021). So, for purposes here, this
Court does the same.
83
Communicate, MERRIAM-WEBSTER DICTIONARY (online ed.), www.merriam-
webster.com/dictionary/communicate (last visited Aug. 27, 2024); see also Communication, id.(“information transmitted or conveyed”); Communicate, CAMBRIDGE DICTIONARY (online ed.),
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Penning statements or averments in a complaint no doubt does all of these
these. And a complaint’s statements and averments are “information
communicated.” What’s more, the language of the exceptions—“[i]nformation
provided pursuant to any claim . . . under the Employment” and “truthful testimony
obtained through subpoena”—suggests that the transmission of such information can
occur in the body of a complaint.84 Thus, the making of statements contained in a
complaint does indeed “communicate” such under Section 9(d)(i) of the
Employment Agreement.
The second argument—that there is a dispute as to the truthfulness of the
allegations—fails because that exception only applies with regards to statements
provided pursuant to a claim under the Employment Agreement. But the Virginia
action was a defamation action against Octo Platform’s board and did not involve
any employment claims.85 Thus, given that Seva does not dispute that the statements
were themselves disparaging, the statements in the Virginia action alone trigger Octo
Platform’s Repurchase Option.86
Because there is no genuine issue of material fact that a triggering event
www.dictionary.cambridge.org/us/dictionary/english/communicate (last visited Aug 27, 2024)
(“to share information with others by speaking, writing, . . . or using other signals”).
84
Employment Agreement § 9(d)(iii).
85
Ch. Compl., Ex. 9.
86
Even had Seva briefed the issue of the accuracy of the statements, they likely fall under the
broad definition of “Disparaging” under the Employment Agreement.
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occurred, Octo’s motion for summary judgment dismissing Count III of the Court of
Chancery complaint will be granted to the extent that Seva seeks a declaration that
the Repurchase is void because no triggering event occurred.
C. GENUINE ISSUES OF MATERIAL FACT EXIST AS TO WHETHER
THE REPURCHASE WAS PROCEDURALLY VALID.
Seva argues that the Repurchase was procedurally defective because: (a) the
unexecuted Repurchase Note was an invalid means of payment and that the LLC
Agreement instead required that the full amount of the repurchase price be placed in
escrow; (b) cancellation of the units never occurred because Octo Platform’s 2022
and 2023 K-1s show that Seva continues to hold those interests; and (c) Octo
impermissibly conditioned the Repurchase on a general release of claims by Seva.
The interpretation of contractual language is unquestionably a question of
law.87 When interpreting a contract, the Court will give priority to the parties’
intentions as reflected in the four corners of the agreement.88 “In upholding the
intentions of the parties, a court must construe the agreement as a whole, giving
87
See Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012) (“A judicial
interpretation of a contract presents a question of law . . .”); Northrop Grumman Innovation Sys.,
Inc. v. Zurich Am. Ins. Co., 2021 WL 347015, at *9 (Del. Super. Ct. Feb. 2, 2021) (“The
interpretation of contractual language . . . is a question of law.”); OSI Sys. v. Instumentarium Corp.,
892 A.2d 1086, 1090 (Del. Ch. Mar. 14, 2006) (“Under Delaware law, the proper interpretation of
language in a contract, while analytically a question of fact, is treated as a question of law both in
the trial court and on appeal.”) (cleaned up).
88
GMG Cap. Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del. 2012).
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effect to all provisions therein.”89 If the contract language is “clear and
unambiguous, the parties’ intent is ascertained by giving the language its ordinary
and usual meaning.”90 A contract is ambiguous only when the provisions in
controversy are reasonably or fairly susceptible of different interpretations or may
have two or more different meanings.91 The test to determine if ambiguity exists is
not what the parties intended it to mean, but “what a reasonable person in the position
of the parties would have thought it meant.”92 In cases where ambiguity creates
factual disputes and requires consideration of extrinsic evidence, “summary
judgment is improper.”93
1. The Repurchase Note Condition
Section 8.7(d) of the LLC Agreement dictates the closing procedures for the
Repurchase Option. First, closing shall occur “on the date designated by the
Company in the Repurchase Notice,” which shall not be more than sixty (60) days
nor less than five (5) days after the delivery of such notice.”94 After making certain
offsetting and additive payments, the “Company shall pay . . . by delivery of a
89
E.I. du Pont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985).
90
RSUI Indem. Co, 248 A.3d at 905.
91
Rhone-Poulenc Basic Chemicals Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del.
1992).
92
Id.93
GMG Cap. Invs., LLC, 36 A.3d at 783.
94
LLC Agreement § 8.7(d)(i).
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Repurchase Note for the balance of the Repurchase Price, if any.”95 Section
8.7(d)(iii) later provides that if the:
Repurchase Holder shall fail to appear at the closing . . . or shall
otherwise fail to comply with its obligations under the [LLC
Agreement], the Company may thereupon place an amount of, equal to
the amount of the purchase price to be paid for the Membership
interests in escrow for the applicable Repurchase Holder.96
Seva jumps on the latter clause to argue that Octo was obligated to place the
amount of the purchase price in escrow, and that putting the Repurchase Note in
escrow did not satisfy the payment delivery conditions.
At a minimum, these provisions are ambiguous, and without further
development of the facts at trial to better ascertain the parties’ intent, genuine issues
of material fact preclude the Court from making a ruling at this stage.
On the one hand, these provisions—whether to pay via delivery of Repurchase
Note or cash in escrow—do not appear disjunctive; both may represent acceptable
means of payment. The language under Section 8.7(d)(i) is mandatory. Octo
Platform “shall pay . . . by delivery of a Repurchase Note.”97 The language under
Section 8.7(d)(iii), on the other hand is permissive—if Seva fails to perform its
obligations under the Agreement, Octo Platform “may thereupon place an amount
95
Id.
96
Id. § 8.7(d)(iii).
97
Id. § 8.7(d)(i).
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of, equal to the amount of the purchase price to be paid for the Membership interests
in escrow.”98 Nothing in Section 8.7(d)(iii) prohibits Octo from initially delivering
the Repurchase Note, and then later holding onto the Repurchase Note as if in
“escrow.” Section 8.7(d)(iii) may be reasonably interpreted as providing for a non-
mutually exclusive option to place an equivalent amount in cash in escrow in the
event Seva fails to perform its obligations. The language is not particularly clear as
to whether an equivalent amount in cash is the only option or whether holding onto
the Repurchase Note until its execution satisfies Section 8.7(d)(iii)’s so-called
escrow requirement. Ultimately, it may have caused no prejudice to Seva and the
Court may conclude upon further development at trial that Octo’s interpretation of
Section 8.7 is more reasonable.
All that said, the provisions may be read disjunctively as well. The
requirement to pay by delivery of the Repurchase Note was the requirement at
closing, whereas the requirement to place an amount in escrow was the requirement
that governed in the event that the Repurchase Holder failed to comply with its
obligations under the LLC Agreement. In the latter scenario, the added benefit to
Octo of treating the interests as cancelled may therefore have imposed a
corresponding burden of putting the equivalent value of the Repurchase Note in
escrow. The parties have not supplied any extrinsic evidence and while it is the
98
Id. § 8.7(d)(iii).
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prerogative of the Court to ultimately determine which interpretation is more
reasonable, the Court does not find it proper to do so until the issues have been fully
developed at trial.
2. A Genuine Issue of Material Fact Exists as to Whether the
Repurchase Agreement was “Customary.”
Seva argues that Octo Platform impermissibly conditioned the Repurchase on
a general release of claims by Seva. LLC Agreement Section 8.7(d)(iii) provides
that;
The Company shall be entitled to receive customary representations
and warranties from the sellers of any securities purchased pursuant to
[the Repurchase Option] regarding such sale of Membership Interests
. . . (including representations and warranties regarding good title to
such Membership Interests . . . free and clear of any liens or
encumbrances).99
The Repurchase Agreement that Octo Platform attached with the Repurchase
Notice contained a release that encompassed claims Seva:
may have or claim to have . . . for or by reason of any matter,
circumstance, event, action, inaction, omission, cause or thing
whatsoever arising out of, related to or in connection with the
Repurchase Units.100
The parties dispute whether inclusion of this release went outside the scope of
Octo’s entitlement to receive “customary representations and warranties.” The
99
Id.
100
Rusk Trans. Aff., Ex. A § 4.3 to Repurchase Notice.
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parties primarily rely on ipse dixit arguments as to whether the release was outside
the scope or not. More is needed to prevail on a Rule 56 motion.
For example, Octo merely points out that the language of the LLC Agreement
does not suggest that the release isn’t customary, and that releases given to other
employees were much broader.101 That may be so, but past practice is relevant
extrinsic information for consideration at trial to resolve an otherwise undefined,
ambiguous term. On reply, Octo also argues that delivery of “representations and
warranties required by the Company” means those representations and warranties
that are “customary.”102 But that only begs the question of what indeed is
“customary.”
Seva, on the other hand, argues that Octo could only require representations
and warranties limited to “statements of fact about the condition of the Membership
Units,” because the representations and warranties include those regarding “good
title to such Membership Interests or other equity securities, free and clear of any
liens or encumbrances.”103 With the language of Section 8.7(d)(iii) of the LLC
Agreement, that, too, may be a plausible reading.
As mentioned, “customary” is not a defined term and the parties chose not to
101
Octo Mot. for Summ. J. at 75.
102
Reply Brief of Octo Consulting Group, LLC and Octo Platform Equity Holdings, LLC, in
Support of their Motions for Partial Summary Judgment at 8 (D.I. 108).
103
Kakar Ans. Br. at 12-13; LLC Agreement § 8.7(d)(iii).
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attach a draft Repurchase Agreement to the LLC Agreement. Given the present
record, further development is needed to ascertain the parties’ intent on the
ambiguity of “customary” here.
3. The K-1s
Seva argues that Octo’s K-1s demonstrate that it never canceled Seva’s
interests. And, in its answering brief opposing Octo’s motion for summary
judgment, Seva seeks judicial estoppel of Octo from asserting that it canceled the
membership interests.
Octo disputes whether the K-1s were inaccurate.104 Upon reviewing the
record, the Court finds that genuine issues of material fact exist as to the accuracy
of the K-1s. And it seems Section 8.7(d)(iii) may entitle Octo Platform to “cancel”
and “treat” the membership interests “as having been purchased” if Seva failed to
comply with the obligations under Section 8.7, regardless of the accuracy of
subsequent K-1s.105 Whether Seva complied with all of its obligations is still to be
decided. And until it is, the parties’ request for rulings on the question of the K-1s
is premature—as are questions of judicial estoppel.
For these reasons, the parties’ motion for summary judgment as to Counts II
104
Answering Brief of Octo Consulting Group, LLC and Octo Platform Equity Holdings, LLC in
Opposition to Plaintiffs’ Motion for Summary Judgment and Partial Summary Judgment at 44-45
(D.I. 101).
105
Id. § 8.7(d)(iii).
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and IV of the Court of Chancery Complaint will be denied.106
D. REMAINING COUNTS
Seva’s motion for summary judgment as to Count V will be denied. Seva’s
purported right to purchase the membership interests of departing Sevatec
employees depends on Seva’s status as a member at the time of the employee’s
departures. Because the question of Seva’s membership status has yet to be decided,
Seva’s motion for summary judgment on Count V must be denied.
Octo’s motion for summary judgment on Count III will be granted to the
extent Seva seeks a declaration that the Repurchase is void based on Octo Platform’s
material breaches of the various agreements. Seva did not address Octo’s arguments
on this point in its answering brief, and accordingly failed to explain why a purported
breach in one agreement by a counterparty is sufficient to void a right in an entirely
separate agreement by that counterparty. Seva has therefore abandoned this aspect
of Count III.107
Finally, Octo’s motion for summary judgement dismissing Counts VI and VII
will be denied because they seek remedies the viability of which depend on the
underlying validity of the Repurchase.
106
Because Count IV’s allegations of bad faith depend in part on non-compliance with the
repurchase procedures, genuine issues of material fact remain precluding a ruling on this Count.
107
Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed
waived.”).
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VI. CONCLUSION
Consistent with the above, Octo’s motion for summary judgment on Count I
and III is GRANTED. Each party’s motion for summary judgment on the remaining
counts are DENIED.
IT IS SO ORDERED.
/s/ Paul R. Wallace
______________________
Paul R. Wallace, Judge*
Original to Register in Chancery
cc: All counsel via File & Serve
* Sitting by designation of the Chief Justice pursuant to In re Designation of Actions Filed
Pursuant to 8 Del. C. § 111 (Del. Sept. 18, 2023) (FIRST AMENDED ORDER).
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