Optical Air Data Systems, LLC v. L-3 Communications Corporation ( 2019 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
OPTICAL AIR DATA SYSTEMS, LLC, )
)
Plaintiff, )
) C.A. No.: N17C-05-619 EMD CCLD
v. )
)
L-3 COMMUNICATIONS )
CORPORATION, et al., )
)
Defendants. )
MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART L-3’S
MOTION FOR SUMMARY JUDGMENT
I. BACKGROUND
Plaintiff and Counterclaim Defendant Optical Air Data Systems, LLC (“OADS”)1 is a
technology-based small business that designs, engineers, and manufactures Light Detection and
Ranging (“LIDAR”) technology. Defendants and Counterclaim Plaintiffs’ L-3 Communications
Corporation, Display Systems Division, and L-3 Communications Avionics Systems, Inc.
(collectively “L-3”) wanted to purchase rights to OADS’ technology. OADS and L-3 Parties
engaged in due diligence. Subsequently, on March 31, 2016, L-3 and OADS entered into the
Agreements (as defined below). L-3 and OADS disagreed about whether another contract (the
“Gulfstream Agreement”)2 between OADS and Gulfstream Aerospace Corporation
(“Gulfstream”), and an impact, if any, on the Agreements. After some discussions with OADS,
L-3 sent a letter to OADS, terminating the Agreements due, in part, to the Gulfstream
Agreement.
1
The Court has been defining Optical Air Data Systems, LLC as “Optical Air;” however, the parties have defined
Optical Air as “OADS.” The Court will, going forward, use OADS when referring to Optical Air Data Systems,
LLC.
2
Def. Ex. 4.
a. PROCEDURAL BACKGROUND
On May 26, 2017, OADS initiated this civil action by filing a complaint against L-3. On
March 13, 2018, OADS filed the First Amended Complaint (the “Amended Complaint”). In the
Amended Complaint, OADS asserts causes of action (the “Counts”) for: (i) breach of License
Agreement—wrongfully terminated the agreement (Count 1”); (ii) breach of License
Agreement—denying OADS of cure period (“Count 2”); (iii) breach of Services Agreement—
failure to make payments (‘Count 3”); (iv) breach of Services Agreement—wrongfully sent
termination letter (“Count 4”); (v) fraud in the inducement and misrepresentation (“Count 5”);
(vi) breach of the implied covenant of good faith and fair dealing (“Count 6”); (vii) breach of
License Agreement—filing of cancellation notice to PTO (“Count 7”); (viii) intentional
interference with prospective business opportunities—Gulfstream (“Count 8”); (ix) intentional
interference with prospective business opportunities—Airbus and Airbus Helicopter (Count 9”);
(x) conspiracy (“Count 10”); and (xi) defamation (“Count 11”). After briefing and argument on
a motion to dismiss filed by L-3, the Court dismissed Counts 8 and 9.
On July 6, 2016, L-3 filed is answer to the Amended Complaint and asserted six
counterclaims (the “Counterclaims”). The Counterclaims are (i) Declaratory Relief Pursuant to
Superior Court Rule 13 (“Counterclaim 1”); (ii) Unjust Enrichment (“Counterclaim 2”); (iii)
Restatement (Second) of Torts § 552 (“Counterclaim 3”); Breach of Contract—Recessionary
Damages (“Counterclaim 4”); Breach of Contract—Benefit of the Bargain Damages
(“Counterclaim 5”); and Breach of the Implied Covenant of Good Faith and Fair Dealing
(“Counterclaim 6”). Counterclaim 1 seeks a declaration that the Agreements are not valid,
binding contracts due to OADS’s alleged fraud in the inducement. L-3 has plead Counterclaims
2
4, 5 and 6 in the alternative if the Court does not find that the Agreements were rescinded and/or
are void.
On October 12, 2018, L-3 filed L-3’s Motion for Summary Judgment. In addition, L-3
filed its Opening Brief in Support of its Motion for Summary Judgment (collectively with the
motion, the “L-3 Motion”). The L-3 Motion seeks judgment in favor of L-3 on all of the Counts
and the Counterclaims. OADS filed its Optical Air Data Systems, LLC’s Answering Brief in
Opposition of L-3’s Motion for Summary Judgment (Volumes 1 and 2) (the “Opposition”) and
the Affidavit of Philip Rogers on November 12, 2018. On November 21, 2018, L-3 filed L-3’s
Reply Brief in Support of its Motion for Summary Judgment (the “Reply”). The Court held oral
arguments on the L-3 Motion, the Opposition and the Reply at a hearing held on December 17,
2018 (the “Hearing”).
At the conclusion of the Hearing, the Court took the L-3 Motion under advisement. The
Court also informed the parties of some preliminary assessments as to the strengths of some of
the Counts and Counterclaims. Because the trial date for this civil action begins on January 28,
2019, the Court told the parties that a decision on the Motion may not be rendered prior to trial.
On October 15, 2018, OADS filed Optical Air Data Systems, LLC’s Opening Brief in
Support of its Motion for Summary Judgment (the “OADS Motion”). OADS moved for
summary judgment on Counterclaim 3, arguing that the Court lacks subject matter jurisdiction
over a negligent misrepresentation claim. On November 15, 2018, L-3 filed L-3’s Answering
Brief in Opposition to Optical Air Data Systems, LLC’s Motion for Summary Judgment. On
November 21, 2018, OADS filed Optical Air Data Systems, LLC’s Reply Brief in Support of its
Motion for Summary Judgment. The Court heard oral argument on the OADS Motion at the
Hearing. After the Hearing, the Court took the OADS Motion under advisement. On January
3
14, 2019, the Court entered judgment against L-3 on Counterclaim 3 but stayed the judgment to
allow L-3 to transfer Counterclaim L-3 to the Delaware Court of Chancery.
In order to assist the parties in trial preparation, the Court advised counsel in a telephone
conference held on January 18, 2019 that it had arrived at a preliminary decision on the L-3
Motion. The Court provided the preliminary decision in order to assist the parties in trial
preparation. For the reasons set out on January 18, 2019 telephone conference and set forth
below, the Court will (i) enter judgment in favor of L-3 on Courts 5 and 6, (ii) narrow Counts 10
and 11 to communications with one non-party entity; and (iii) find that genuine issues as to
material facts exist with respect to all remaining Counts and Counterclaims. Accordingly, the
Court will GRANT in part and DENY in part the L-3 Motion.
b. GENERAL FACTUAL BACKGROUND
On August 2, 2013, Gulfstream and OADS entered into the Gulfstream Agreement. The
Preamble to the Gulfstream Agreement provides:
WHEREAS, Gulfstream desires to establish a business agreement with OADS for
the design and development of Optical Air Data System or as “Product(s)” and as
further defined in Section 2; to the extent the Product(s) consist of various
components, components may be referred to as Product(s) as the context so
requires….3
Section 1.1 of the Gulfstream Agreement further addresses its purpose, stating that “Gulfstream
and OADS entered into this Agreement which contemplates the evaluation of a new system for
potential use in an Aircraft.”4
Section 14.0 of the Gulfstream Agreement sets out the various intellectual property rights
of the parties, and Section 14.2 specifically relates to intellectual property ownership.5 Under the
3
Gulfstream Agreement at 1.
4
Id. at Sec. 1.1.
5
Id. at Secs. 14.0 and 14.2.
4
Gulfstream Agreement, OADS granted a non-exclusive, royalty-free, and worldwide license to
Gulfstream for some of its LIDAR intellectual property. 6
Then, on December 23, 2013, UTC Aerospace Systems Company (“UTAS”) and OADS
entered into an agreement (the “UTAS Agreement”).7 According to OADS, the UTAS
Agreement is a paid due diligence contract, allowing UTAS to test an OADS prototype unit. The
UTAS Agreement provides, as background, that UTAS and OADS want to evaluate a long-term
venture, OADS requires additional funding for air data sensor systems technology, and UTAS is
interested in investing in such technology.8 The UTAS Agreement does not grant either party
licenses in the other party’s existing technology;9 however, any technology developed under the
UTAS Agreement would be jointly owned by OADS and UTAS.10 Through the UTAS
Agreement, UTAS was to provide up to $3,000,000 in funding and would receive royalties.11
Finally, on March 31, 2016, OADS and L-3 entered into three agreements: a General
Terms of Agreement (the “GTA”); an Engineering Services Agreement (the “Services
Agreement”); and a product Development and Licensing Agreement (the “Licensing
Agreement”) (collectively the “Agreements”).12
6
Id. at Sec. 14.3.2. Section 14.3.2 provides:
[OADS] Program License. [OADS] hereby grants Gulfstream a non-exclusive, worldwide, royalty
free license to use [OADS] Program IP, and [OADS] Background IP that is incorporated into
Products, during the Program Duration for the Program Purposes. “Program Purposes” means the
testing and evaluation of the Product, including their performance, features and functionally, as
installed within the Gulfstream Aircraft, for purposes of determining whether to enter a commercial
relationship with [OADS] for the purchase of the Products.
7
Def. Ex. 2.
8
UTAS Agreement at 1.
9
Id. at Sec. 6.1.
10
Id. at Sec. 6.2.1.
11
Id. at Sec. 2.1 and 4.0.
12
Countercl. ¶ 13; see also Countercl., Ex. 1 (the GTA); Countercl., Ex. 2 (the Services Agreement); Countercl., Ex.
3 (the Licensing Agreement).
5
Under the Agreements, OADS granted to L-3 a worldwide, perpetual, irrevocable,
transferable, and exclusive license to much of OADS’s intellectual property related to LIDAR.13
OADS, however, did reserve some rights to the LIDAR intellectual property. Section 2.1.2 of
the License Agreement provides, in part, that:
Without prejudice to the non-complete terms of this Agreement, [OADS]
specifically and expressly reserves to itself the right to make, have made, import,
and use Licensed Technology for research and development, test and evaluation,
and prototyping of the Licensed Technology and any Modifications, subject to [L-
3’s] rights in Section 2.2.1. Title to all Licensed Technology shall remain with
[OADS].14
L-3 conducted due diligence prior to signing any agreements. On November 12, 2016, L-
3 filed a “Notice of Exclusive License Agreement” with the U.S. Patent and Trademark Office
(“USPTO”).
On November 21, 2016, L-3 advised OADS that the License Agreement and Services
Agreement were rescinded and terminated based upon section 23.2 of the License Agreement.15
The letter also accused OADS of “material breaches and material misrepresentations.”16 OADS
and L-3 agree that the November 21, 2016 letter rescinded the Licensing Agreement.17 On
February 13, 2017, L-3 filed a “Notice of Cancellation and Release Regarding Exclusive License
Agreement” with the USPTO.
13
Id. at Sec. 2.1.1.
14
Id. at Sec. 2.1.2.
15
Compl. ¶ 27; see also Countercl., Ex. 3 at 23.2:
If either Party is in material breach of its obligations or warranties hereunder or has made any
material misrepresentation in anticipation of this Agreement, and the other Party provides written
notice to the breaching Party specifying the nature of such breach or misrepresentation, the
breaching Party shall cure such breach within sixty (60) days after such written notice. If the
breaching Party does not cure within the sixty (60) day period specified in this Section, the other
Party may, at its discretion, (a) terminate this Agreement; and/or (b) terminate the licenses granted
to the breaching Party under this Agreement by giving written notice of termination to the breaching
Party. Debarment of a Party by the Government of the United States of America shall be considered
a breach of this Agreement.
16
Id.
17
See Compl. ¶ 27; Countercl. ¶ 27.
6
II. STANDARD OF REVIEW
The standard of review on a motion for summary judgment is well-settled. The Court’s
principal function when considering a motion for summary judgment is to examine the record to
determine whether genuine issues of material fact exist, “but not to decide such issues.”18
Summary judgment will be granted if, after viewing the record in a light most favorable to a
nonmoving party, no genuine issues of material fact exist and the moving party is entitled to
judgment as a matter of law.19 If, however, the record reveals that material facts are in dispute,
or if the factual record has not been developed thoroughly enough to allow the Court to apply the
law to the factual record, then summary judgment will not be granted.20 The moving party bears
the initial burden of demonstrating that the undisputed facts support his claims or defenses.21 If
the motion is properly supported, then the burden shifts to the non-moving party to demonstrate
that there are material issues of fact for the resolution by the ultimate fact-finder.22
Where the parties have filed cross motions for summary judgment and have not argued
that there are genuine issues 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 the
motions.”23 Neither party’s motion will be granted unless no genuine issue of material fact exists
and one of the parties is entitled to judgment as a matter of law.24
18
Merrill v. Crothall-American Inc., 606 A.2d 96, 99-100 (Del. 1992) (internal citations omitted); Oliver B.
Cannon& Sons, Inc. v. Dorr-Oliver, Inc., 312 A.2d 322, 325 (Del. Super. 1973).
19
Id.20
Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962); see also Cook v. City of Harrington, 1990 WL 35244 at
*3 (Del. Super. Feb. 22, 1990) (citing Ebersole, 180 A.2d at 467) (“Summary judgment will not be granted under
any circumstances when the record indicates . . . that it is desirable to inquire more thoroughly into the facts in order
to clarify the application of law to the circumstances.”).
21
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1970) (citing Ebersole, 180 A.2d at 470).
22
See Brzoska v. Olsen, 668 A.2d 1355, 1364 (Del. 1995).
23
Super. Ct. Civ. R. 56(h).
24
E.I. DuPont de Nemours and Co. v. Medtronic Vascular, Inc., 2013 WL 261415, at *10 (Del. Super. Jan. 18,
2013).
7
III. DISCUSSION
a. BREACH OF CONTRACT CLAIMS AND COUNTERCLAIMS
Under Delaware law, to prove a breach of contract claim, the plaintiff must show: (1) a
contractual obligation; (2) a breach of that obligation; and (3) resulting damages.25 A party
harmed by a breach of contract is entitled to compensation that will place that party in the same
position that the party would have been in if the other party had performed under the contract.26
In the Complaint, OADS alleges: (i) L-3 breached the License Agreement because L-3
prematurely sent OADS a termination letter; (ii) L-3 breached the License Agreement because L-
3 did not allow OADS a cure period; (iii) L-3 breached the Services Agreement by accepting
work product without paying for the work product; (iv) L-3 breached the Services Agreement by
prematurely sending the termination letter; and (v) L-3 breached the License Agreement by
publishing an assignment and cancellation notice with the USPTO without the prior written
consent of OADS. L-3 asks for summary judgment on these claims—Counts 1, 2, 3, 4 and 7.
L-3 claims that OADS breached representations and warranties in the agreements which
stated that L-3 had an exclusive and unencumbered right to LIDAR technology. L-3 breached the
agreements because it had previously granted Gulfstream and UTAS similar licenses. In
response, OADS argues that it did not breach the Agreements because Section 2.1.2 of the
License Agreement permits OADS to do the type of research and development with the licensed
intellectual property that it was doing with UTAS and Gulfstream. In addition, OADS alleges
25
Interim Healthcare v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. 2005).
26
See E.I. DuPont de Nemours and Co. v. Pressman, 679 A.2d 436, 446 (Del. 1996).
8
that it did not breach the Agreements because L-3 did not give OADS an opportunity to cure any
alleged breaches.27
“Courts in our State [Delaware] and beyond have recognized that contractual notice and
cure provisions cannot be ignored no matter how urgently parties may seek to do so when
prosecuting breach claims in litigation.”28 In Cornell Glasgow, LLC v. LaGrange Properties,
LLC,29 the Court found that the parties were subject to an unambiguous notice and cure provision
and so the parties’ failure to comply with the notice and cure provisions extinguished their
breach of contract claims. But, the Court found that the Court will excuse parties’ failure to
comply with notice and cure provisions where complying with the notice and cure provisions
would be futile. The Court cited In re Best Payphones, Inc.30 in establishing a two-part test for
determining whether a notice and cure provision was futile: (i) where “the defaulting party
expressly and unequivocally repudiates the contract,” or (ii) “where the actions of the defaulting
party have rendered future performance of the contract by the nondefaulting party impractical or
impossible.”31
Neither party disputes that the notice and cure provisions in the agreements are
unambiguous. L-3 argues that providing an opportunity for OADS to cure its breach would have
been futile. Specifically, L-3 argues that OADS failed to pay a creditor for more than 90 days
27
OADS alleges L-3 knew about the alleged breaches before signing the agreement. But, L-3 retorts that it does not
matter whether L-3 knew about the breach because a party has a right to rely on the truth of the representations and
warranties in a contract. See Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 *77-81 (Del. Ch. Oct. 1, 2018).
Also, the parties argue about whether a clause making the failure to pay a creditor for more than 90 days after a
breach of contract is valid and enforceable. L-3 finds that the clause is enforceable. See, e.g., Salamone v. Gorman,
106 A.3d 354, 370 (Del. 2014) (“when parties have ordered their affairs through a binding contract, Delaware law is
strongly inclined to respect their agreement, and will only interfere upon a strong showing that dishonoring the
contract is required to vindicate a public policy interest even stronger than freedom of contract.”).
28
Cornell Glasgow, LLC v. LaGrange Properties, LLC, 2012 WL 6840625, at *13 (Del. Super. Dec. 7, 2012).
29
Id.30
Best Payphones, Inc. v. Manhattan Telec. Corp. (In re Best Payphones, Inc.), 432 B.R. 46 (S.D.N.Y.2010).
31
Id.9
and so triggered the default provision of in the UTAS/OADS agreement. This default provision
grants UTAS an exclusive license to some of the LIDAR technology. So, L-3 claims that OADS
could not cure its defects because it had granted two parties exclusive licenses. Similarly, L-3
argues that OADS could not cure the breach caused by its grant of rights to Gulfstream because
OADS could not unilaterally terminate Gulfstream’s rights.
As was developed at the Hearing, the Court believes that questions of fact remain as to
whether, given Section 2.1.2 of the Licensing Agreement, the Gulfstream Agreement—by its
terms and use—violated Section 2.1.1 of the Licensing Agreement. Moreover, the Opposition
provides a factual basis that OADS may have been able to cure defaults, if any, that related to the
UTAS Agreement.
Given this, the Court will not grant summary judgment on claims and counterclaims that
relate to the Agreements—Counts 1, 2, 3, 4 and 7 or Counterclaims 2, 4, 5 and 6.
Through Counterclaim 1, L-3 argues that it is entitled to a declaration that the
Agreements are void because of OADS’ fraud in the inducement. To plead a claim of fraud, L-3
must show (i) a false representation, usually one of fact . . .; (ii) OADS’s knowledge or belief
that the representation was false, or was made with reckless indifference to the truth; (iii) an
intent to induce L-3 to act or to refrain from acting; (iv) L-3’s action or inaction was taken in
justifiable reliance upon the representation; and (v) damage to L-3 as a result of such reliance.32
The Court finds that there are genuine questions of material fact as to whether OADS
fraudulently induced L-3 to enter into the agreements. Specifically, there are questions of fact as
to whether OADS knew that its representations in the Agreements were false or whether OADS
genuinely believed that OADS’ agreements with L-3 did not conflict with the agreements with
32
Hauspie v. Stonington Partners, Inc., 945 A.2d 584, 586 (Del. 2008) (quoting Gaffin v. Teledyne, Inc., 611 A.2d
467, 472 (Del.1992)).
10
Gulfstream and UTAS because the agreements with Gulfstream and UTAS were for research and
development. In essence, the resolution of the contract claims between L-3 and OADS will
resolve whether L-3 has a valid fraudulent inducement claim that voids the Agreements. As
such, the Court will deny summary judgment on this counterclaim.
b. THE COURT WILL GRANT SUMMARY JUDGMENT ON COUNTS 5 AND 6.
L-3 spends some time setting out the legal and factual arguments as to why L-3 is entitled
to summary judgment on Counts 5 and 6. In the Opposition, OADS makes a conclusory
argument that L-3 terminated the agreements early because of fraudulent inducement and that L-
3 breached the implied covenant of good faith and fair dealing. OADS argues that, as a result of
this fraud and breach of the implied covenant, the Court should deny summary judgment on L-
3’s breach of contract claims. Most of OADS’s factual basis for its arguments are contained in
the footnotes and exhibits. As discussed at the January 18, 2019 telephone conference, the Court
believes that there is no genuine issue as to material facts and L-3 is entitled to judgment as a
matter of law on Counts 5 and 6.
1. Count 5—Fraudulent Inducement
The following elements must be pleaded to state a claim for fraud: (i) a false
representation, usually of fact, made by the defendant; (ii) the defendant’s knowledge or belief
that the representation was false, or was made with reckless indifference to the truth; (iii) an
intent to induce the plaintiff to act or to refrain from acting; (iv) the plaintiff’s action or inaction
was taken in justifiable reliance upon the representation; and (v) damage to the plaintiff as a
result of such reliance.33
33
Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1208 (Del. 1993).
11
Delaware courts have consistently held that to successfully plead a fraud claim, the
allegedly defrauded plaintiff must have sustained damages as a result of a defendant's action. 34
The damages allegations, however, may not simply rehash the damages allegedly caused by
breach of contract.35 Moreover, plaintiff cannot “bootstrap a claim of breach of contract into a
claim for fraud by alleging that a contracting party never intended to perform its obligations.”36
In other words, plaintiffs cannot adequately state a fraud claim merely by adding the term
“fraudulently induced” to a claim for breach of contract.37
A plaintiff cannot rely on a misrepresentation made after the parties executed an
agreement for a fraudulent inducement claim. Fraudulent statements made after the execution of
an agreement “relate to the performance of the contract, not the inducement of the contractual
relationship.38 Statements made after the formation of the contract “are better addressed by
applicable contract law.”39 In fact, this Court has stated “[a] claim for fraudulent inducement
accrues when the fraudulent statements were made, which must be on or before the date when
the parties entered into the contract.”40
During the January 18, 2019 telephone conference, the Court pointed out that the
representations relied upon by OADS were—except for one—representations made after L-3 and
OADS entered into the Agreement. OADS also claims that L-3 acted fraudulently because L-3
failed to renegotiate or “work out” its problems with OADS. First, this does not state a claim for
34
Novipax Holdings LLC v. Sealed Air Corp., 2017 WL 5713307, at *14 (Del. Super. Nov. 28, 2017) (citing ITW
Glob. Invest. Inc., 2015 WL 3970908, at *5 (Del. Super. June 24, 2015)).
35
Id.36
Novipax Hldg., 2017 WL 5713307, at *14 (quoting Narrowstep, Inc. v. Onstream Media Corp., 2010 WL
5422405, at *15 (Del. Ch. Dec. 22, 2010)).
37
Novipax Hldg., 2017 WL 5713307, at *14.
38
Abbot Labs. v. Owens, 2014 WL 8407613, at *8-9 (Del. Super. Sept. 15, 2014).
39
Brasby v. Morris, 2007 WL 949485, at *7-8 (Del. Super. Mar. 29, 2007).
40
Pivotal Payments Direct Corp. v. Planet Payment, Inc., 2015 WL 11120934, at *4 (Del. Super. Dec. 29, 2015).
12
fraud. Second, these are statements happening after the formation of the Agreements, so a claim
for fraudulent inducement is not available.
2. Count 6—Breach of Implied Covenant of Good Faith and Fair Dealing
Every contract contains an implied covenant of good faith and fair dealing. The implied
covenant requires “‘a party in a contractual relationship to refrain from arbitrary or unreasonable
conduct which has the effect of preventing the other party to the contract from receiving the
fruits' of the bargain.”41 The implied covenant allows a court to infer contractual obligations
“that neither party anticipated.”42 A plaintiff must allege three elements to state a claim for
breach of the implied covenant: 1) “a specific obligation implied in the contract, [2] a breach of
that obligation, and [3] resulting damages.”43
Courts will not infer that an obligation exists, which “contradicts a clear exercise of an
express contractual right.”44 Express contractual language is more persuasive than a party’s
actions implementing a contract.45 Courts will infer an obligation “when the express terms of the
contract indicate that the parties would have agreed to the obligation had they negotiated the
issue, [so] the plaintiff must advance provisions of the agreement that support this finding in
order to allege sufficiently a specific implied contractual obligation.”46
Here, OADS argues that L-3 breached the implied covenant of good faith and fair dealing
because L-3 did not attempt to renegotiate the Agreements after (1) L-3 concluded that OADS
41
Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del.2005) (quoting Wilgus v. Salt Pond Inv. Co., 498
A.2d 151, 159 (Del. Ch.1985)).
42
CMS Inv. Holdings, LLC v. Castle, No. CV 9468-VCP, 2015 WL 3894021, at *15 (Del. Ch. June 23, 2015).
43
Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *3 (Del. Ch. Jan. 30, 2015).
44
Nemec v. Shrader, 991 A.2d 1120, 1127 (Del. 2010).
45
Id. at 1126.
46
Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del.Ch. Nov. 10, 1998) (footnote omitted).
13
had breached the Agreement and (2) L-3 executives determined that the Agreements were
preventing them from receiving management incentive bonuses.
As challenged at the Hearing, OADS does not point to any specific language in the
agreements which suggests that the parties intended to renegotiate the agreements if one party
breached the agreements. So, there is no evidence that OADS or L-3 intended to impose an
obligation to renegotiate on the other party and OADS argument that L-3 breached the implied
covenant of good faith and fair dealing fails. OADS’ argument that L-3 executives terminated
the Agreements in order to earn larger bonuses is a breach of contract claim rather than a breach
of an implied obligation. So, OADS’ arguments of a breach of the covenant of good faith and
fair dealing fails.
c. THE COURT WILL NOT GRANT SUMMARY JUDGMENT ON COUNTS 10 AND 11—
CONSPIRACY AND DEFAMATION.
Defamation consists of the “twin torts” of libel (written defamation) and slander (spoken
defamation).47 “Defamation is generally understood as ‘a false publication calculated to bring
one into disrepute.’”48 “In general, the scope of liability for slander is not as great as that for
libel, and the pleading requirements for slander are more strict.”49 To state a claim for
defamation, a plaintiff must plead: (1) a defamatory communication; (2) publication; (3)
reference to the plaintiff; (4) the third party's understanding of the communication's defamatory
character; and (5) injury.50 Usually, a plaintiff must plead special damages to bring a claim for
oral defamation. But, if a plaintiff brings a claim for slander per se, special damages are not
47
Read v. Carpenter, 1995 WL 945544, at *2 (Del. Super. June 8, 1995).
48
Naples v. New Castle County, 2015 WL 1478206, at *12 (Del. Super. Mar. 30, 2015), aff'd, 127 A.3d 399 (Del.
2015) (quoting Read, 1995 WL 945544, at *2).
49
Spence v. Funk, 396 A.2d 967, 970 (1978).
50
See Read, 1995 WL 945544, at *2.
14
required.51 The four types of slander per se are:1) malign one in a trade, business or profession;
2) impute a crime; 3) imply one has a loathsome disease; or 4) impute unchastity to a woman.52
A publisher is not liable for defamation when the publisher’s statements are substantially
true.53 The Court must consider whether the “gist” or “sting” of the statement is true in order to
determine whether it is substantially true.54 A statement is substantially true if an average reader
would consider the precise truth to have the effect as the statement made by the defendant.55
In the Amended Complaint, OADS claims that the following are defamatory:
1. Statements in a phone call between a representative from OADS and the CEO of L-3;
2. A representative of OADS, Mr. Hurley’s statements to others about OADS’
intellectual property;
3. L-3’s statement to Gulfstream that “OADS IP rights were generally clouded;”
4. L-3’s statement to Airbus that there was a “cloud on OADS’s intellectual property
portfolio;”
5. The fact that L-3 did not mention the “use field” and the circumstance under which L-
3 could terminate its license; and
6. An email with a magazine article which quotes Phil Rogers, the CEO of OADS.
First, L-3 claims that OADS cannot prove that OADS made defamatory statements. L-3
disputes that many of these statements were ever made. But, a reasonable person could find these
claims were made and that they are defamatory because they are untrue. Specifically, a
reasonable person could find that OADS had merely granted research and development
51
Id..
52
Id.53
Gannett Co. v. Re, 496 A.2d 553, 557 (Del. 1985) (“(“If the alleged libel was no more damaging to the plaintiff's
reputation in the mind of the average reader than a truthful statement would have been, then the statement is
substantially true.”).
54
Id.55
Ramada Inns, Inc. v. Dow Jones & Co., 543 A.2d 313, 318 (Del. Super. 1988).
15
agreements to Gulfstream and UTAS and so had not granted conflicting IP rights to different
parties. So, there is a genuine issue as to a material fact.
L-3 also claims that OADS did not suffer damages, because Gulfstream would have
terminated its agreement with OADS even if there were no cloud over OADS’ intellectual
property. Specifically, L-3 proffers testimony from Gulfstream that OADS’ technology did not
work well with its products and so was no longer useful. Also, L-3 argues that the fact that
OADS was able to form new agreements with customers such as Boeing after L-3’s alleged
statements suggests that L-3’s comments were not damaging.
Despite an opportunity for discovery, the Opposition does not provide much factual detail
regarding OADS Defamation Count. At the Hearing, the Court narrowed the purported
defamatory statements to those statements made to the CEO of Gulfstream’s parent, General
Dynamics. As stated on the January 18, 2019 telephone conference, the Court will allow OADS
to proceed on Count 11 but only as to statements made to the CEO of Gulfstream’s parent,
General Dynamics. The Court needs to state, however, that defamation claims are fact intensive
and OADS needs to substantially develop the record in order to prevail.
“Civil conspiracy is the combination of two or more persons or entities for an unlawful
purpose or for the accomplishment of a lawful purpose by unlawful means, resulting in
damages.”56 To plead a claim of civil conspiracy, a plaintiff must show: “(1) two or more
persons; (2) an object to be accomplished; (3) a meeting of the minds between or among such
persons relating to the object or a course of action; (4) one or more unlawful acts; and (5)
damages as a proximate result thereof.”57 To plead a conspiracy, the plaintiff must plead the
56
Connolly v. Labowitz, 519 A.2d 138, 143 (Del. Super. 1986).
57
See also Metropolitan Life Ins. Co. v. Tremont Grp. Hldgs., Inc., 2012 WL 6632681 at *19 (Del. Ch. Dec. 20,
2012) (stating that plaintiff must show ““(1) two or more persons; (2) an object to be accomplished; (3) a meeting of
16
object of the conspiracy, as well as when each conspirator joined the conspiracy.58 The plaintiff
must plead the underlying wrong. Civil conspiracy is not an independent cause of action in
Delaware and “must arise from some underlying wrong.”59
“Judgment pursuant to Rule 56 is seldom allowed in conspiracy cases, however, because
the existence of a conspiracy is usually an issue of fact as well as a question of law.” This is
because “[c]onspiratorial agreements are rarely made out in the open, and proof of conscious
complicity may depend upon the careful marshalling of circumstantial evidence and the
opportunity to cross-examine hostile witnesses.”60
L-3 notes that the conspiracy claim is to be read in conjunction with the defamation
claim. In the Amended Complaint, OADS alleges that Mr. Hurley and Mr. Ray, who are former
airline executives and are now part of a non-profit organization called the Conquistadors del
Cielo, conspired with L-3 to harm OADS. OADS hired Mr. Hurley and Mr. Ray to find buyers
or licensees for LIDAR. Now, OADS alleges that Mr. Hurley and Mr. Ray passed on defamatory
information about OADS to executives at General Dynamics, Gulfstream’s parent company, and
to employees at L-3. The L-3 employees then communicated to Airbus and OADS’ customers
and prospective customers that OADS had a “cloud” over its intellectual property. OADS also
alleges that L-3 conspired to file an overly broad and fraudulent assignment of license with the
USPTO right before terminating the License Agreement. As a result of these defamatory
statements, OADS alleges that Gulfstream discontinued its work with OADS and OADS lost
other contracts.
the minds between or among such persons relating to the object or a course of action; (4) one or more unlawful
acts; and (5) damages as a proximate result thereof.”).
58
See Metropolitan Life Ins. Co. v. Tremont Grp. Hldgs., Inc., 2012 WL 6632681 at *19 (Del. Ch. Dec. 20, 2012).
59
Rogers v. Bushey, 2018 WL 818374 at *7 (Del. Super. Feb. 7, 2018).
60
Id.17
In L-3’s Motion, L-3 alleges that it did not engage in a conspiracy because Mr. Ray
testified that he did not ask L-3 to do anything to hurt OADS. In addition, Mr. Ray received a
five percent commission from OADS for finding new licensees so hurting OADS would not have
been in his best interest. Finally, L-3 alleges that the conspiracy claim fails because the
underlying defamation claim fails.
A reasonable person could find that 1) Mr. Hurley, Mr. Ray and L-3 2) conspired to harm
OADS, 3) the conspirators had a meeting of the minds to act in concert, 4) to defame OADS, and
5) OADS suffered damages as a result of the defamation. As with the Defamation Count, OADS
will need to present much more evidence at trial to prove conspiracy.
D. OTHER COUNTERCLAIMS
IV. CONCLUSION
For the reasons set forth above, the Court will GRANT in part and DENY in part the L-3
Motion.61
IT IS SO ORDERED.
January 23, 2019
Wilmington, Delaware
/s/ Eric M. Davis
Eric M. Davis, Judge
cc: File&ServeXpress
61
Given the time constraints between the Hearing and the issuance of this Memorandum Opinion, the Court
concedes that some matters contained herein are unclear. To the extent anything in this Memorandum Opinion is
unclear, the Court will address what seems unclear with the parties on the first day of the trial.
18