Bako Pathology LP v. Bakotic

IN THE SUPREME COURT OF THE STATE OF DELAWARE
BAKO PATHOLOGY LP, BPA §
HOLDING CORP., and BAKO § No. 382, 2021
PATHOLOGY ASSOCIATES, LLC, §
§
Defendants Below, §
Appellants/Cross-Appellees, § Court Below—Superior Court
§ of the State of Delaware
v. §
§ C.A. No. N17C-12-337
BRADLEY BAKOTIC and §
JOSEPH HACKEL, §
§
Plaintiffs Below, §
Appellees/Cross-Appellants §
Submitted: September 21, 2022
Decided: November 28, 2022
Before VALIHURA, VAUGHN, and TRAYNOR, Justices.
Upon appeal from the Superior Court. AFFIRMED in part, REVERSED in part, and
REMANDED.
Mary F. Dugan, Esquire, Lauren E.M. Russell, Esquire, Young Conaway Stargatt &
Taylor, LLP, Wilmington, Delaware. Of counsel: Robert W. Capobianco, Esquire
(argued), Adriana R. Midence, Esquire, Kelli N. Church, Esquire, Jackson Lewis P.C.,
Atlanta, Georgia, for Appellants.
Bruce W. McCullough, Esquire, Bodell Bove, LLC, Wilmington, Delaware. Of counsel:
Salmeh K. Fodor, Esquire, Kristoffer V. Sargent, Esquire (argued), KF Law, LLC, Atlanta,
Georgia, for Appellees.
VALIHURA, Justice:
INTRODUCTION
This is an appeal in a protracted contractual battle between two sides that dispute
the meaning and application of certain restrictive covenants. Since the filing of the action
in the Superior Court in December 2017, the parties proceeded through Rule 12 motions,
then discovery and summary judgment motions, and, ultimately, a seven-day bench trial.
The Superior Court held that Plaintiffs Below, Appellees/Cross-Appellants, two
doctors who started a laboratory testing enterprise known as Bako Diagnostics (“Bako”),
breached certain restrictive covenants when they left Bako to form a new, competing
laboratory enterprise. Despite fee-shifting provisions in certain of the contracts, the trial
court declined to award attorneys’ fees.
We agree with the Superior Court’s determinations that the two doctors breached
certain of the restrictive covenants. But because it appears that the Superior Court may
have misapplied the formula that both sides employed for calculating damages, we remand
for the court to clarify how it derived its damages award and for any needed revisions.
Further, we disagree that no attorneys’ fees were warranted under certain of the contracts.
Accordingly, we AFFIRM in part, REVERSE in part, and REMAND for further
proceedings consistent with this Opinion.
2
I. RELEVANT FACTS AND PROCEDURAL BACKGROUND1
A. The Parties
Defendant Below, Appellant/Cross-Appellee Bako Pathology LP (“Bako LP”) is a
Delaware limited partnership. Defendant Below, Appellant/Cross-Appellee BPA Holding
Corp. (“BPA Holding”) is a Delaware corporation. Bako LP owns BPA Holding.
Defendant Below, Appellant/Cross-Appellee Bakotic Pathology Associates, LLC
(“Bakotic Associates”) is a limited liability company formed under the laws of the State of
Georgia.2 BPA Holding is the sole member of Bakotic Associates.
Plaintiff Below, Appellee/Cross-Appellant Dr. Bradley Bakotic, D.P.M., D.O. (“Dr.
Bakotic”) “is a licensed doctor of podiatric medicine and osteopathic medicine.” 3 Dr.
Bakotic served as the CEO of Bakotic Associates until September 2017.
Plaintiff Below, Appellee/Cross-Appellant Dr. Joseph Hackel, M.D. (“Dr. Hackel”
and together with Dr. Bakotic, the “Doctors”)4 “is a licensed medical doctor”5 who worked
1
The facts, except as otherwise noted, are taken from the post-trial opinion below, Bakotic &
Hackel v. Bako Pathology LP, et al., C.A. No. N17C-12-337 WCC (Nov. 2, 2021) [hereinafter,
the Opinion].
2
A232 (Compl. ¶ 10). Bakotic Associates has also been referred to in the trial court proceedings
as “Bako Diagnostics” or “Bako.” B21 (Pretrial Stipulation and Proposed Order at 5). We use the
term “Bako” to refer to the physical laboratory that “provid[es] clinical pathology, anatomic
pathology, and dermatopathology-related services” out of its principal place of business in
Alpharetta, Georgia. Id. Bakotic Associates, as used herein, refers to the same entity’s legal name.
We also note that Appellants incorrectly identified Bakotic Pathology Associates, LLC as “Bako
Pathology Associates, LLC” in the captions of their briefs filed with this Court.
3
Opinion, at 2.
4
The Doctors raise five contentions on cross-appeal. For ease of reference, this Opinion refers to
them as the Doctors and to Bako LP, BPA Holding, and Bakotic Associates collectively as the
“Appellants.”
5
Opinion, at 2.
3
as Bako’s Medical Director and as a practicing dermatopathologist.
B. The Doctors Establish Bako
The Doctors first met in 2000 and, over time, worked together at various pathology
laboratories. In 2007, the two decided to start their own pathology laboratory enterprise
and founded Bako in Alpharetta, Georgia. Bako is a dermatopathology laboratory that
offers four main lab services: (1) dermatopathology; (2) microbiology testing; (3)
molecular testing; and (4) epidermal nerve fiber density testing. In addition, the lab sells
specialized creams and solutions to medical practitioners, namely podiatrists and some
dermatologists throughout the United States.
While at Bako, Dr. Bakotic implemented several testing methods. As part of the
testing panel offered by the lab, Dr. Bakotic encouraged the use of Period Acid Schiff
(“PAS”) and GMS histochemical genetic tests. Both the PAS and GMS testing soon
became lucrative aspects of the lab’s business and were touted by Dr. Bakotic, in
communications with potential clients, as tests with “ultrahigh sensitivity with the fewest
false negative results.”6 In addition to the PAS and GMS testing, Bako developed PCR
testing as a faster alternative to other testing options. Bako’s PCR testing was the only
service of its type offered in the field and became a critical component of the lab’s business
model.
Bako’s laboratory enterprise soon attracted the attention of other entities in the
medical arena. In January 2014, Bako and the Ankle and Foot Centers of Georgia
6
Opinion, at 5.
4
(“AFCG”) entered into a Medical Director Services Agreement (the “AFCG Agreement”),
whereby Dr. Bakotic would serve as the Medical Director of AFCG. The AFCG
Agreement provides that Bako could replace Dr. Bakotic and select a new Medical Director
for AFCG.7
To augment the lab’s testing services, Bako developed a highly successful
marketing strategy. The lab sponsored various conferences hosted by various podiatry
associations, which allowed Dr. Bakotic to lecture at conferences and to strengthen the
lab’s brand, goodwill, and client base in the process. The lab obtained “booth space” at
these conferences and staffed them with sales representatives who marketed Bako’s
laboratory services to the conference attendees.
Dr. Bakotic proved to be the driving force behind Bako’s successful marketing
strategy. The lab “sponsored, produced, or provided over 200 lectures, seminars[,] and
small group meetings with podiatrists throughout the year.”8 Dr. Bakotic himself decided
which conferences the lab would sponsor based upon how much business he felt the
conferences could generate. Due to his visibility at the conferences — in particular, his
educational lectures — Dr. Bakotic became known as “the face of Bako” and a leader in
the podiatric community.
7
A561 (Dr. Bakotic Trial Test. at 216:7–19). Dr. Bakotic, however, remained the Medical
Director of AFCG even after his eventual termination from Bako. See Opinion, at 5; infra section
I.D.
8
Opinion, at 4 (internal quotations and citation omitted).
5
C. The Restrictive Covenants
Following Bako’s founding in 2007, the lab became quite successful. Starting in
the fall of 2011, the Doctors executed three contracts, each of which contains restrictive
covenants.
1. The Employment Agreements
In 2011, the Doctors sold a percentage of Bakotic Associates to Ampersand 2011
Limited Partnership. As part of that transaction, they entered into separate employment
agreements with BPA Holding, on behalf of its subsidiary, Bakotic Associates.9 The
Bakotic Employment Agreement and the Hackel Employment Agreement (collectively,
the “Employment Agreements”) became effective as of November 18, 2011.
The Employment Agreements contain several, nearly identical restrictive covenants
binding on the Doctors. For example, the Employment Agreements contain non-
competition provisions (the “Employment Non-Compete Provisions”) that provide:
1. NON-COMPETITION. While Employee is engaged by the Company,
Employee agrees that during the term of Employee’s employment by the
Company, other than in the proper performance of Employee’s
employment duties for the Company, and for a period of twenty-four (24)
months after such employment terminates for any reason (other than
without cause termination by the Company), Employee shall not perform
the same or similar duties that he or she performed for the Company on
behalf of or for the benefit of (i) any laboratory and/or health care
provider which competes with the Company, or (ii) any customer or client
of the Company for whom the Company provided services within two
years prior to Employee’s termination from the Company. The restriction
9
A93 (the “Bakotic Employment Agreement”); A101 (the “Hackel Employment Agreement”).
The parties to these agreements include “BPA Holding Corp., on behalf of itself and its wholly-
owned subsidiary, Bakotic Pathology Associates, LLC (collectively, ‘Company’)” and then either
Dr. Bakotic or Dr. Hackel, respectively. See id.
6
herein is limited to the territory where the Company was doing business
at the time of the transaction.10
The Employment Agreements also contain several provisions regarding the use of
proprietary information. Both contain non-use provisions (the “Employment Non-Use
Provisions”) that provide:
2. NON-DISCLOSURE AND NON-USE OF PROPRIETARY
INFORMATION.
a. Maintaining the Company’s Proprietary Information. Employee
agrees not to use, utilize, disclose, or reverse engineer the Company’s
Confidential Information or Trade Secrets for any purpose other than
the Company’s business, except as authorized in writing by the
Company. The covenants made by the Employee herein are in
addition to, and not exclusive of, any and all other rights to which the
Company is entitled under federal and state law, including, but not
limited to, rights provided under copyright and trade secret laws, and
laws concerning fiduciary duties. Employee’s obligations under this
Paragraph 2.a shall remain in effect as long as the information
constitutes a Trade Secret under applicable law and/or Confidential
Information, as defined above.11
The Bakotic Employment Agreement contains an additional provision (the
“Employment Existing Use Provision”), which provides:
2. NON-DISCLOSURE AND NON-USE OF PROPRIETARY
INFORMATION.
d. Existing Materials and Perpetual License. Notwithstanding
anything herein to the contrary, the parties hereto, hereby acknowledge
and agree that Employee is the sole owner of those items identified on
Exhibit A, attached hereto and incorporated herein by reference
(collectively, the “Employee Information”), and as a result, such
Employee Information is not considered to be Company Proprietary
10
A93 (Bakotic Employment Agreement § 1) (emphases added); A101 (Hackel Employment
Agreement § 1) (emphases added).
11
A94 (Bakotic Employment Agreement § 2(a)); A102–03 (Hackel Employment Agreement
§ 2(a)).
7
Information. Moreover, the parties hereto hereby acknowledge and
agree that, upon termination of Employee’s employment with the
Company for any reason, Employee shall have a non-exclusive,
perpetual license to use, for educational purposes, any and all
information of the same general type as the Employee Information
developed by Employee during the term of his employment by the
Company.12
Dr. Bakotic testified at trial that he understood the Employment Existing Use Provision to
be an “education carveout[.]”13 The Hackel Employment Agreement does not contain an
Employment Existing Use Provision.
In addition to the above restrictive covenants, the Employment Agreements contain
fee-shifting provisions for attorneys’ fees (the “Employment Fee-Shifting Provisions”) that
provide:
8. ATTORNEYS’ FEES If Company is the prevailing party in any legal
proceeding to construe, apply, interpret, enforce or defend any of Company’s
rights in this Agreement, Employee agrees to reimburse Company for all
reasonable costs, expenses and attorney’s fees incurred by Company in such
proceedings.14
2. The Merger Agreement
On December 3, 2015, the Doctors entered into an Agreement and Plan of Merger
(the “Merger Agreement”) with various corporate entities. The corporate signatories to the
Merger Agreement include: Bako Pathology Holdings Corp. (as the buyer); Bako LP; BPA
Merger Corp. (as the buyer’s subsidiary); BPA Holding (defined as the “Company” in the
12
A95 (Bakotic Employment Agreement § 2(d)).
13
A573 (Dr. Bakotic Trial Test. at 265:5–19).
14
A97 (Bakotic Employment Agreement § 8) (emphases added); A105 (Hackel Employment
Agreement § 8) (emphases added).
8
Merger Agreement); Ampersand 2011 Limited Partnership (as the securityholder
representative); and various individuals, including the Doctors.15
Like the Employment Agreements, the Merger Agreement contains a non-
competition provision (the “Merger Non-Compete Provision”), which provides:
5.11 Non-Competition; Non-Solicitation. (a) Each of Bradley W. Bakotic
[and] Joseph Hackel . . . agree that, from the Closing Date until the date that
is five (5) years following the Closing Date, he . . . shall not . . . without the
prior written consent of Buyer[:]
(ii)(A) engage in the Competing Business in any manner or capacity
(whether as an officer, director, employee, consultant, owner, investor or
otherwise with respect to any Competing Business), (B) own any equity
interest, or operate, control or participate (including as a joint venture
partner, agent, representative, consultant or lender) in any Person that
engages directly or indirectly in the Competing Business, (C) solicit any
direct or indirect investors, agents, providers/suppliers, distributors or other
similar parties of the Company or any of its Subsidiaries, in each case, in
respect of a Competing Business or (D) intentionally interfere with the
business relationships between the Company or any of its Subsidiaries and
any of its investors.
For purposes of this Agreement, “Competing Business” means any business
in which the Company or any of its Subsidiaries is engaged, or has specific
plans (as evidenced by documentation of the Company) to become engaged,
in each case, as of the Closing Date.
Notwithstanding the foregoing, nothing contained in this Agreement shall
restrict any of the individuals identified above in Section 5.11(a) from being
employed by a Competing Business (i) if such individual’s role with such
Competing Business is limited to a business unit or division that would not
reasonably be expected to be competitive with any business in which the
Company or any of its Subsidiaries is engaged, or has specific plans to
become engaged, in each case, as of the Closing Date[.]16
15
A114 (Merger Agreement Recital).
16
A163–64 (Merger Agreement § 5.11(a)(ii)) (emphases added).
9
The Merger Agreement also contains a non-solicitation provision (the “Merger Non-
Solicitation Provision”), which provides:
5.11 Non-Competition; Non-Solicitation. (a) Each of Bradley W. Bakotic
[and] Joseph Hackel . . . agree that, from the Closing Date until the date that
is five (5) years following the Closing Date, he . . . shall not . . . without the
prior written consent of Buyer[:]
(i)(A) hire or solicit for employment any employee of the Company or any
of its Subsidiaries or any Person who has been an employee of the Company
or any of its Subsidiaries in the preceding twelve (12) months, except for any
employee of the Company or any of its Subsidiaries who, following the
Closing, has been involuntarily terminated by the Company or Buyer for a
six (6)-month period prior to commencement of employment with such
Person or (B) induce or encourage any employee of an [sic] the Company or
any of its Subsidiaries to no longer be employed by the Company or any of
its Subsidiaries[.]17
Unlike the Employment Agreements, the Merger Agreement does not contain a fee-shifting
clause.
3. The Partnership Agreement
On January 7, 2016, just over a month after the Merger Agreement’s execution, the
Doctors — in their capacity as limited partners of Bako LP — entered into an Amended
and Restated Limited Partnership Agreement of Bako Pathology LP (the “Partnership
Agreement”) with Bako LP, Bako Pathology GP LLC, and various other limited partners.18
Dr. Bakotic’s capital contribution to Bako LP was $16,967,000,19 and Dr. Hackel’s was
17
A163 (Merger Agreement § 5.11(a)(i)) (emphasis added).
18
Opinion, at 9. The Partnership Agreement was formed pursuant to the Revised Uniform Limited
Partnership Act of the State of Delaware. See B61 (Partnership Agreement Recital); B63
(Partnership Agreement § 2.2).
19
B126 (Partnership Agreement Exhibit A).
10
$6,556,000.20 This translated to an ownership interest in Bako LP of “approximately
11.6% [for Dr. Bakotic] and 3.4% [for Dr. Hackel].”21
Like the Employment Agreements and the Merger Agreement, the Partnership
Agreement contains a non-competition provision (the “Partnership Non-Compete
Provision”), which provides:
6.5. Competitive Opportunity. 6.5.1 None of the Limited Partners nor any
of their respective Affiliates or Affiliated Funds shall have any business
interests or engage in business activities in addition to those relating to the
Partnership, including, without limitation, business interests and activities in
direct competition with the Partnership or any of its Subsidiaries[.]22
In addition to the Partnership Non-Compete Provision, the Partnership Agreement — like
the Employment Agreements but unlike the Merger Agreement — contains a fee-shifting
provision for attorneys’ fees (the “Partnership Fee-Shifting Provision”), which provides:
12.12. Attorneys’ Fees. If any dispute between the parties hereto should
result in litigation or arbitration, the prevailing party in such dispute shall be
entitled to recover from the other party all reasonable fees, costs and
expenses of enforcing any right of the prevailing party, including without
limitation, reasonable attorneys’ fees and expenses, all of which shall be
deemed to have accrued upon the commencement of such action and shall be
paid whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision providing for
the recovery of attorneys’ fees and costs incurred in enforcing such judgment
and an award of prejudgment interest from the date of the breach at the
maxim rate of interest allowed by law. For the purposes of this Section
12.12: (a) attorneys’ fees shall include, without limitation, fees incurred in
the following: (i) post-judgment motions; (ii) contempt proceedings; (iii)
garnishment, levy and debtor and third party examinations; (iv) discovery
20
B127 (Partnership Agreement Exhibit A).
21
A259 (Def. Ans. & Counterclaims ¶ 14).
22
B89 (Partnership Agreement § 6.5.1).
11
and (v) bankruptcy litigation and (b) “prevailing party” means the party who
is determined in the proceeding to have prevailed or who prevails by
dismissal, default or otherwise.23
D. The Doctors Leave Bako and Form the Rhett Foundation
On September 7, 2017, Dr. Bakotic was terminated as CEO of Bakotic Associates.24
Roughly three weeks later, on September 30, 2017, Dr. Hackel informed Bakotic
Associates that he planned on retiring.25 He resigned following Dr. Bakotic’s termination.
At trial, Dr. Hackel testified that he “didn’t want to work there if [Dr. Bakotic] was no
longer there” but that Dr. Bakotic did not encourage his resignation.26
A few days later, on October 3, 2017, the Doctors founded the Rhett Foundation
(the “Foundation”) and donated $2.2 million to it. The Doctors both served on the
Foundation’s board of directors, with Dr. Bakotic as chairman.27 Several of the
Foundation’s contributing founders previously gave lectures on behalf of Bako.
But with the Doctors gone, Bako needed a new Medical Director. On September
25, 2017, Bako entered into a contract with Dr. Bryan Markinson for the position of
Medical Director (the “Bako-Markinson Agreement”). A few days later, Dr. Markinson
shared the contract with Dr. Bakotic, and they discussed the potential implications the
Bako-Markinson Agreement would have on Dr. Markinson joining the Foundation. Dr.
Bakotic informed Dr. Markinson that, despite Bako’s representations, Dr. Bakotic could
23
B113-14 (Partnership Agreement § 12.12) (emphases added).
24
Opinion, at 9.
25
A590 (Dr. Hackel Trial Test. at 50:11–16).
26
A597 (Dr. Hackel Trial Test. at 77:22–78:4).
27
A531 (Dr. Bakotic Trial Test. at 97:2–9).
12
not return to Bako. Shortly after Dr. Bakotic’s conversation with Dr. Markinson, Dr.
Markinson rescinded the Bako-Markinson Agreement on October 1, 2017.28
Following the Foundation’s formation, Dr. Bakotic made a post about it on his
personal Facebook page. In his post, Dr. Bakotic wrote that the Foundation was his and
Dr. Hackel’s “second chapter” and that they would “sponsor various educational events
and institutions as we always have[.]”29 Consistent with his post, the Foundation
“sponsored twenty podiatric conferences and provided a speaker at thirty-five other
podiatry events.”30 Dr. Bakotic himself gave some of these lectures, including one on
November 22, 2017, during which he informed a room of podiatrists that the allegations
underlying his internal investigation at Bako had been found to be unsupported.
On December 28, 2017, the Doctors formed Rhett Diagnostics, LLC (“Rhett
Diagnostics”), which “was intended to be a human anatomic pathology laboratory.” 31 To
staff it, the Doctors “hired several employees to work for Rhett Diagnostics, including
several who were previously Bako employees, and purchased human pathology laboratory
equipment costing between $600,000 and $700,000.”32 Despite those efforts, the lab never
became operational.
Opinion, at 10. Dr. Markinson would go on to serve on the Foundation’s board and as a founding
28
member. See id. at 10–11.
29
A532 (Dr. Bakotic Trial Test. at 100:13–101:8).
30
Opinion, at 11.
31
Opinion at 14.
32
Id.
13
As time passed, Dr. Bakotic continued to emphasize that the Foundation’s purpose
mirrored that of Bako’s. In an article posted on June 21, 2018, to a website he created, Dr.
Bakotic stated that his departure from Bako was “voluntar[y]” and that, through the
Foundation, he and Dr. Hackel “intend to continue doing what [they have] done throughout
[their] entire professional careers: support the advancement of the podiatric profession[.]”33
E. Proceedings in the Superior Court and the Court of Chancery
On December 27, 2017, the Doctors filed their complaint in the Superior Court
against the Appellants. They sought a declaratory judgment that the restrictive covenants
— the Employment Non-Compete Provisions and the Partnership Non-Compete Provision
— were invalid under 6 Del. C. § 2707 (“Section 2707”).34 Appellants answered and filed
counterclaims on February 12, 2018. Appellants sought a declaratory judgment that the
restrictive covenants were valid under Delaware law. In addition, they asserted breach of
contract, breach of the duty of loyalty, unjust enrichment, and tortious interference
counterclaims against both Doctors and a claim for slander against Dr. Bakotic.35
Appellants subsequently moved for a preliminary injunction in the Court of
Chancery in July 2018. In the meantime, Dr. Bakotic informed a fellow podiatrist, Dr.
David Tarr, that Appellants had sought an injunction against the Doctors. In response, Dr.
Tarr drafted what became known as the “Tarr Petition,” which stated that the undersigned
Dr. Tarr planned to call Bako and:
33
Id. at 12 (internal quotations omitted).
34
A235 (Compl. ¶ 29).
35
Opinion, at 14; A270–76 (Def. Ans. & Counterclaims ¶¶ 64–107).
14
[G]ive them 30 days’ notice to cease and desist from their attempts to prevent
Dr. Bakotic from speaking and sponsor activities, all of which benefit our
collective profession. Should they not reverse course, I will entrust my
business to a lab that has not chosen to put profits above benevolence, and I
hope you will consider doing the same.36
Dr. Bakotic helped Dr. Tarr disseminate the Tarr Petition by connecting him “with public
relations professionals who worked for the Rhett Foundation to facilitate the circulation of
[the Tarr Petition].”37
The Court of Chancery entered a Status Quo Order on September 6, 2018, that
enjoined the Doctors from:
a. Engaging in any speaking or sponsorship activities at any podiatry or
dermatology conferences, or at any educational institutions at which
podiatrists or dermatologists are anticipated to be in attendance . . . b.
Administering a fellowship or similar internship program for podiatry
students . . . c. Interfering with any sponsorship and speaking activities of
Bako Diagnostics at podiatry or dermatology conferences, associations, and
educational intuitions; and d. Owning, operating, or having any interest in
or with any laboratory engaged in the provision of anatomic and molecular
pathology services, microbiology services, and neuropathy-related testing to
podiatrists and dermatologists.38
While the parties engaged in the initial stages of litigation, the Doctors continued to
communicate with the podiatric and dermatology communities. In November and
December of 2018, Dr. Bakotic contacted approximately 50 members of the podiatric
36
A302 (Tarr Petition).
37
Opinion, at 16.
38
C1–2 (Court of Chancery Status Quo and Scheduling Order). The Court of Chancery withdrew
the Status Quo Order on March 20, 2019, pending resolution of the claims in the Superior Court.
See Opinion, at 15 n.78.
15
community to sign and return affidavits for use against Appellants.39 Dr. Bakotic’s emails
were sent “on behalf of the Rhett Foundation[.]”40
The Doctors moved for judgment on the pleadings under Superior Court Civil Rule
12(c). On December 10, 2018, the Superior Court denied the Doctors’ motion for a
declaratory judgment on the restrictive covenants, the breach of contract counterclaim, and
the tortious interference counterclaim against Dr. Bakotic.41 The Superior Court dismissed
the breach of the duty of loyalty counterclaim, the unjust enrichment counterclaim, the
slander counterclaim against Dr. Bakotic, and the tortious interference counterclaim
against Dr. Hackel.42
Both sides later moved for summary judgment under Superior Court Civil Rule 56.
In their brief for summary judgment, the Doctors argued for the first time that neither of
the then-defendants (Bako LP and BPA Holding) had standing to pursue the breach of
contract claims.43 The parties stipulated to adding Bakotic Associates as a third defendant
to address any standing concerns, noting that such “stipulation shall not act as a waiver of
any party’s claims or defenses[.]”44
On December 11, 2019, the Superior Court denied the Doctors’ motion for summary
39
A554 (Dr. Bakotic Trial Test. at 188:7–15).
40
A555 (Dr. Bakotic Trial Test. at 195:14–16).
41
See Bakotic v. Bako Pathology LP, 2018 WL 6601172, at *3, *4, *6 (Del. Super. Dec. 10, 2018).
42
See id. at *4–7.
43
B156–59 (Plaintiff’s Op. Br. for Summary Judgment at 21–24). As of the time the Doctors filed
their brief for summary judgment, the defendants in the action were Bako LP and BPA Holding.
44
C151 (Stipulation to Add Party ¶ 3).
16
judgment and granted Appellants’ motion for partial summary judgment with respect to
the parties’ Section 2707 arguments, finding that the statute “cannot be used to invalidate
[the Doctors’] non-competition agreements because the statute does not apply.”45
The Superior Court conducted a seven-day bench trial in January 2021. On the
breach of contract claims, the Superior Court found that the Doctors breached the
following: the Employment Non-Compete Provisions, the Employment Non-Use
Provisions, the Partnership Non-Compete Provision, and the Merger Non-Solicitation
Provision. The court found that the Doctors did not breach the Merger Non-Compete
Provision and that Dr. Bakotic did not tortiously interfere with Bakotic Associates’
contracts.
Regarding the breach of contract claims, Appellants’ damages expert opined that
Bako suffered lost profits of $8,273,121 from January 2018 to February 2019 and a loss in
business value of $65,980,243 as of March 2019, for total damages of $74,253,364.46
Appellants’ expert applied “a growth rate of 9.4 percent and 8.9 percent” to calculate lost
profits, but the court found the growth rate to be “unrealistic” and declined to apply it,
saying that it caused the projected damages “figure to be inflated and unreliable.”47 Instead,
the court accepted the “expert[’s] opinion that some growth did occur” and “decided to
45
Bakotic v. Bako Pathology LP, 2019 WL 6896465, at *5 (Del. Super. Dec. 11, 2019) [hereinafter
Bako Pathology, 2019 WL 6896465, at _].
46
A381 (Mark J. Hosfield Expert Report at 34).
47
Opinion, at 47–48.
17
apply a growth rate of 1.5%[.]”48 The trial court then awarded damages totaling $1,740,254
to Appellants.
In addition to damages, both sides moved for attorneys’ fees. Appellants asserted
that their fees and costs totaled approximately $2.3 million, while the Doctors asserted their
fees and costs totaled $1,689,395. The court declined to award either side fees, despite the
fee-shifting clauses in the underlying contracts at issue. In analyzing the contract language
on fee shifting, the trial court found that neither side was the “prevailing party” in the
litigation and, thus, no fees would be shifted.49
F. Contentions on Appeal and Cross-Appeal
Appellants raise two issues on appeal. First, Appellants contend that the Superior
Court abused its discretion by applying — without explaining how it derived — its own
growth rate. Second, Appellants assert that the Superior Court abused its discretion by not
awarding attorneys’ fees despite the fee-shifting provisions in certain of the contracts.
The Doctors raise five issues on cross-appeal. First, they contend that the Superior
Court erred in finding Section 2707 to be inapplicable. Second, they assert that the
48
Id. at 49.
49
At trial, the court stated that the parties could present evidence regarding the reasonableness and
amounts of their attorneys’ fees at a later time if it became necessary. See A839 (Trial Tr. at
32:10–12) (“I’ll accept [the attorneys’ fees amounts] as submitted. And if I award fees, if I have
any concerns about it, I’ll address it at that time.”). We have no issue with the trial court’s practical
approach and reject the Doctors’ assertions that Appellants waived their ability to pursue fee-
shifting by not presenting evidence of the amount and reasonableness of their fees after the trial
court suggested that they do so later if necessary. See Avaya, Inc. v. Charter Commc’ns Hldg. Co.,
LLC, 2016 WL 381261, at *3 (Del. Ch. Jan. 29, 2016) (“As a general matter, for involved,
complicated litigation, waiting until resolution of the merits before shifting attorneys’ fees has a
common sense appeal.”).
18
Superior Court erred by not dismissing Appellants’ breach of contract claims under the
Partnership Agreement due to lack of standing. Next, the Doctors contend that the trial
court erred when it found that their conduct was the proximate cause of damage suffered
by Appellants. Fourth, they contend that the trial court erred when it found that their
conduct at the Foundation constituted a breach of the Employment Agreements and the
Partnership Agreement. And finally, the Doctors assert that the Superior Court erred when
it “reformed” the Partnership Agreement.
We address the cross-appeal arguments first, as they relate to the breach of contract
determinations against the Doctors. Then we address the damages and fees issues raised
by Appellants.
II. STANDARD OF REVIEW
“We review questions of law and contractual interpretation . . . de novo.”50 This
Court “reviews questions relating to standing under the de novo standard of review.”51
“We review [the Superior Court’s] damages award for abuse of discretion.”52 “We
review for an abuse of discretion the trial court’s assessment of attorney[s’] fees.”53 “While
we review an award of attorneys’ fees for abuse of discretion, we review the [trial court’s]
interpretation of a contractual fee-shifting provision de novo.”54 This Court will not disturb
50
Baldwin v. New Wood Res. LLC, __ A.3d __, 2022 WL 3364169, at *13 (Del. Aug. 16, 2022).
51
Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1262 (Del. 2021) (citing El Paso
Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1256 (Del. 2016)).
52
Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 449 (Del. 2013).
53
Sternberg v. Nanticoke Mem’l Hosp., Inc., 62 A.3d 1212, 1220 (Del. 2013).
54
Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.3d 665,
675 (Del. 2013) (internal citations omitted).
19
the trial court’s “factual findings unless they are clearly erroneous.”55
III. ANALYSIS
A. The Cross-Appeal Arguments
1. Section 2707 Does Not Apply
The Doctors argue that the Superior Court erred in determining that Section 2707
does not apply to the contracts at issue. We disagree.
Section 2707 reads in relevant part:
Any covenant not to compete provision of an employment, partnership or
corporate agreement between and/or among physicians which restricts the
right of a physician to practice medicine in a particular locale and/or for a
defined period of time, upon the termination of the principal agreement of
which the said provision is a part, shall be void[.]56
The Superior Court dismissed the Doctors’ Section 2707 argument at summary
judgment, holding that “Section 2707 cannot be used to invalidate [their] non-
competition agreements because the statute does not apply.”57
“The ‘most important consideration for a court in interpretating a statute is the words
the General Assembly used in writing it.’”58 As the Superior Court observed, the statute
55
Bäcker v. Palisades Growth Cap. II, L.P., 246 A.3d 81, 94 (Del. 2021) (internal quotations and
citation omitted).
56
6 Del. C. § 2707 (emphasis added).
57
Bako Pathology, 2019 WL 6896465, at *5.
58
Salzberg v. Sciabacucchi, 227 A.3d 102, 113 (Del. 2020) (quoting Boilermakers Loc. 154 Ret.
Fund v. Chevron Corp., 73 A.3d 934, 950 (Del. Ch. 2013)). See also Stream TV Networks, Inc. v.
SeeCubic, Inc., 279 A.3d 323, 354 (Del. 2022) (quoting Salzberg, 227 A.3d at 113).
20
governs agreements not to compete “between and/or among physicians” which restrict “the
right of a physician to practice medicine[.]”59 It held that:
It is evident that the Employment Agreement, Merger Agreement, and
Partnership Agreement are executed by Bakotic and Hackel on the one hand,
arguably in their capacity as physicians. However, the other parties that
executed the documents are largely corporate entities unrelated to the
practice of medicine. Accordingly, the Court finds that Section 2707 is
inapplicable because the agreements at issue cannot be considered “between
and/or among physicians.”60
On appeal, the Doctors contend that the trial court’s holding is erroneous because it
renders the term “among” superfluous. An overview of the contracting parties to each
agreement is a helpful starting point in addressing this contention. The Employment
Agreements are between the Doctors, on one side, and BPA Holding and Bakotic
Associates, on the other.61 The following are parties to the Merger Agreement: Bako
Pathology Holdings Corp., Bako LP, BPA Merger Corp., BPA Holding, and — solely for
certain provisions — Ampersand 2011 Limited Partnership. Solely for the purposes of the
Merger Non-Compete Provision, the Merger Non-Solicitation Provision, the amendment
provision, and the miscellaneous provisions, the Merger Agreement is also executed
individually by the Doctors and eight other individuals.62 The signatories to the Partnership
Agreement are: Bako Pathology GP LLC as general partner, and the following limited
59
6 Del. C. § 2707.
60
Bako Pathology, 2019 WL 6896465, at *5 (quoting 6 Del. C. § 2707).
61
A93 (Bakotic Employment Agreement); A101 (Hackel Employment Agreement).
62
A114 (Merger Agreement Recital).
21
partners: the Doctors, Consonance Bako Holdings LP, Ampersand 2006 Limited
Partnership, and Ampersand 2011 Limited Partnership, as well as five other individuals.63
We disagree with the Doctors that the Superior Court ignored the word “among.”
Clearly it did not. It simply concluded that the agreements are not “between and/or among
physicians.”64 We agree with the trial court that the statute requires that “physicians,”
which could include multiple physicians, be counterparties.65 The Doctors raise no
challenge to the Superior Court’s conclusion that the Merger Agreement and the
Employment Agreements lack physician counterparties. Nor did they contest, in their
briefing on appeal, the Superior Court’s finding that “the other parties that executed the
documents are largely corporate entities, unrelated to the practice of medicine.”66
However, at oral argument before this Court, the Doctors argued for the first time
that two of the limited partners who executed the Partnership Agreement were also
63
B61 (Partnership Agreement Recital); B126–27 (Partnership Agreement Exhibit A).
64
See, B.F. Goodrich Co. v. Aircraft Braking Sys. Corp., 1994 WL 16019986, at *8 (D. Del. Nov.
10, 1994) (“In its definition of ‘among,’ the same dictionary states: ‘Precise users of English use
AMONG when more than two . . . things are involved . . . and use BETWEEN when only two . . .
things are involved.”).
65
Also, “[t]he synopsis for the bill that became Section 2707 explains: ‘Because patients establish
relationships with their physicians and/or enter into courses of treatment with particular physicians,
the patients should not be deprived of the services of the physician of their choice because of an
economic contract entered into between two physicians.’” Dunn v. FastMed Urgent Care, P.C.,
2019 WL 4131010, at *14 (Del. Ch. Aug. 30, 2019) (quoting Del. S.B. 294 syn., 132nd Gen.
Assem. (Del. 1983)) (emphasis added). “[T]he General Assembly adopted Section 2707 in
furtherance of ‘the importance of maintaining the continuity of care by protecting the physician-
patient relationship.’” Id. (quoting Total Care Physicians, P.A. v. O’Hara, 2002 WL 31667901,
at *6 (Del. Super. Oct. 29, 2002)). In Dunn, the restriction preventing the plaintiff from engaging
in a competing executive position was held to not be violative of the statute because it did not
“provoke Section 2707’s protections of the physician-patient relationship” and the restriction was
wholly unconnected to patient care. Id. at *15.
66
Bako Pathology, 2019 WL 6896465, at *5.
22
physicians.67 Appellants responded that these limited partners were not counterparties to
the Doctors, but instead were “on the same side” with the Doctors as counterparties to the
partnership entity, Bako LP.68 Because the Doctors did not raise this argument in their
briefing before this Court, it is waived.69 But even if we were to consider the Doctors’
belated challenge, there is nothing in the record before this Court that suggests that the
signatories were acting other than in their capacity as investors in Bako LP, as opposed to
acting as “physicians” within the meaning of Section 2707.70
67
See Oral Argument, at 31:37–59,
https://livestream.com/delawaresupremecourt/events/10612702/videos/233007566 (Doctors’
counsel noting that the presence of the two additional physicians triggers Section 2707’s preclusive
effect). The Doctors did not advance this argument below in their briefing on § 2707 for summary
judgment.
68
See id. at 33:10–32 (Appellants’ counsel noting that the other two physicians are on the same
side of the Partnership Agreement as the Doctors).
The partnership itself is a counterparty to the Doctors and the other limited partners: Bako LP is
equally bound by the Partnership Agreement and may sue for rights under it, as occurred here. See
6 Del. C. § 17-101(14) (a limited partnership is bound by a partnership agreement regardless of
whether it executes the agreement).
69
Del. Supr. Ct. R. 14(b)(vi)(A)(3) (“The merits of any argument that is not raised in the body of
the opening brief shall be deemed waived and will not be considered by the Court on appeal.”).
70
We note, but do not address, the existence of other issues that raise questions as to Section
2707’s applicability here. The Superior Court observed that the court in Dunn suggested that
Section 2707 was intended to protect the physician/patient relationship in Delaware and was not
intended to manage the practice of physicians in other states. See, e.g., Dunn, 2019 WL 4131010,
at *14 (“I conclude that the term ‘practice medicine’ in Section 2707 refers to a physician’s
provision of medical services or treatment to patients in Delaware.”). The Superior Court stated
that “[a]t most, the Court would believe the prohibitions found in Section 2707 would only apply
to the treatment or diagnosis of Delaware patients.” Bako Pathology, 2019 WL 6896465, at *5.
Otherwise, such a reading “would expand Section 2707 beyond that intended by the General
Assembly.” Id. Although the Doctors were licensed in various states, they were not licensed in
Delaware. See C44 (Dr. Hackel Dep. Tran. at 7:13–15); C63 (Dr. Bakotic Dep. Tran. at 17:4–6).
The record contains no evidence of the Doctors identifying or treating any patients in Delaware.
Other colorable arguments were raised below and/or on appeal calling into question the
applicability of Section 2707. For example, Appellants contended that Section 2707 requires “the
termination of the principal agreement” in order for Section 2707 to apply. Appellants’ Reply Br.
23
Accordingly, we AFFIRM the trial court’s determination.
2. Appellants Have Standing
The Doctors’ second contention on cross-appeal relates to the Partnership
Agreement and an alleged lack of standing to sue for claims arising under it. They assert
that the Superior Court erred by not dismissing the claim for breach of the Partnership Non-
Compete Provision due to lack of standing for all three Bako-affiliated entities. They argue
that Bakotic Associates lacks standing because it is neither a signatory to the Partnership
Agreement nor a third-party beneficiary, although they later assert that Bakotic Associates
is the only Defendant who could possibly have injury-in-fact standing to pursue the breach
of contract claims in this case. For BPA Holding, they contend that it has no customers
and lacks an injury-in-fact to confer standing. They make the same argument for Bako LP,
namely, that it is too high up the corporate entity ladder to have suffered an injury.71
at 17. But here, the partnership remains in force and, as the Superior Court noted, the Doctors are
still limited partners in Bako LP. See Opinion, at 35–36. The Appellants also questioned whether
the Doctors were treating patients and whether their professional activities fell within the ambit of
Section 2707. Appellants’ Reply Br. at 16–17.
71
At oral argument before this Court, the Doctors went a step beyond their briefing. Counsel
argued that no Bako-affiliated entity — Bakotic Associates, BPA Holding, or Bako LP — has
standing to sue under the Partnership Agreement. See Oral Argument, at 40:41–49,
https://livestream.com/delawaresupremecourt/events/10612702/videos/233007566 (Doctors’
Counsel: “The result is that nobody has standing under the Partnership Agreement to pursue the
injuries that were pursued in this case.”). When the Court asked if that argument “made any
sense,” the Doctors’ counsel responded by diagnosing their position as a “cautionary tale from a
contracting perspective.” Id. at 40:59–41:03.
We note the trial court’s understandable frustration with the standing concerns raised well into the
more advanced stages of this litigation. See C137 (Oral Arg. Tran. at 36:9–16) (“[L]et’s stop the
gamesmanship, figure out who the parties are, who should be in the case, who has standing, and
try the case . . . it’s crazy that now in September when the court is going to trial in a few months I
have people standing in front of me talking about standing.”). As this Court has stated, “[s]tanding
is [] properly viewed as a threshold issue to ensure that the litigation before the tribunal is a case
24
Appellants raise several points in response. First, they assert that the Doctors
waived their standing arguments with respect to Bakotic Associates. Second, Appellants
assert that Bakotic Associates and BPA Holding are third-party beneficiaries under the
Partnership Agreement. Third, Appellants assert that Bako LP did suffer an injury-in-fact
sufficient to have standing.
We agree that the Doctors waived certain arguments by not fairly presenting them
to the trial court or to this Court. For example, the Doctors raise two third-party beneficiary
standing arguments for the first time on appeal. Of these, one was raised for the first time
in the Doctors’ reply brief on cross appeal, and another was raised for the first time at oral
argument.72 We decline to consider these two contract-based incorporation-by-reference
arguments seemingly conjured up as pure afterthoughts.73
or controversy that is appropriate for the exercise of the court’s judicial powers.” Brookfield Asset
Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1262 (Del. 2021) (internal quotations and citation omitted).
72
See Appellees’ Reply Br. at 7–8. See also Oral Argument, at 38:50–59,
https://livestream.com/delawaresupremecourt/events/10612702/videos/233007566.
73
The Doctors argue that the Merger Agreement contains a provision disclaiming third-party
beneficiaries and that the Merger Agreement is expressly incorporated into the Partnership
Agreement. See, e.g., A198 (Merger Agreement § 11.2), B74 (Partnership Agreement § 2.98),
B113 (Partnership Agreement §12.8). However, they raised this argument for the first time in their
reply brief on cross-appeal and did not raise it in their opening brief on appeal. See Appellees’
Reply Br. at 7. As noted above, it is waived. See Del. Supr. Ct. R. 14(c)(i) (a party “shall not
reserve material for reply brief which should have been included in a full and fair opening brief.”).
Additionally, at oral argument before this Court, the Doctors raised — for the first time — that
§ 12.6 of the Partnership Agreement “rules out Bako Labs being an intended beneficiary.” See
Oral Argument, at 38:50–59,
https://livestream.com/delawaresupremecourt/events/10612702/videos/233007566. Section 12.6
provides that “[t]he covenants and agreements” in the Partnership Agreement “inure to the benefit
of, the heirs, executors, administrators, personal representatives, successors and permitted assigns
of the respective parties hereto.” B113 (Partnership Agreement § 12.6). Like their § 11.2
argument, this argument also has been waived.
25
However, we address the remaining aspects of the standing arguments raised by the
Doctors that are, at least arguably, properly before this Court.74 We turn first to the
Doctors’ argument that BPA Holding and Bakotic Associates lack standing because neither
is a third-party beneficiary to the Partnership Agreement. This argument lacks merit. “A
third-party beneficiary’s rights are measured by the terms of the contract.”75 “As a general
rule, only parties to a contract and intended third-party beneficiaries may enforce an
agreement’s provisions.”76 A third-party beneficiary is “an individual who is not a party
to a contract [but] can nevertheless enforce it under certain circumstances.”77 As Delaware
courts have held:
Equally settled is the principle that a third person, who is, in effect, a stranger
to the contract, may enforce a contractual promise in his own right and name
if the contract has been made for his benefit. Essential to a third party’s right
of enforceability is the intention of the contracting parties to view that party
as either a donee or a creditor beneficiary.78
74
We note that the Doctors did not raise standing concerns regarding Bakotic Associates before
trial and that Bakotic Associates was not yet a party to the action. It was only during oral argument
on the motions for summary judgment that Bakotic Associates became a topic of discussion. At
that oral argument, counsel for the Doctors stated they were “prepared to allow [Bakotic
Associates] to be added to the extent that [Bakotic Associates] also has standing.” C137 (Oral
Arg. Tran. at 34:17–18). Following instruction from the trial court, the parties stipulated to adding
Bakotic Associates as a defendant. No specific argument was made as to Bakotic Associates’ lack
of standing until the briefing before this Court, but because of the unique procedural
circumstances, we consider this standing argument.
75
NAMA Hldgs., LLC v. Related World Mkt. Center, LLC, 922 A.2d 417, 431 (Del. Ch. 2007).
76
Id. at 434 (internal citation omitted). See also Triple C Railcar Serv., Inc. v. City of Wilm., 630
A.2d 629, 633 (Del. 1993) (“It is axiomatic that either party to an agreement may enforce its terms
for breach thereof.”).
77
13 Williston on Contracts § 37:1 (4th ed.).
78
Triple C Railcar, 630 A.2d at 633 (internal citations omitted).
26
“To qualify as a third party beneficiary of a contract, (i) the contracting parties must
have intended that the third party beneficiary benefit from the contract, (ii) the benefit must
have been intended as a gift or in satisfaction of a pre-existing obligation to that person,
and (iii) the intent to benefit the third party must be a material part of the parties’ purpose
in entering into the contract.”79 “When a promised performance is rendered directly to the
beneficiary, ‘it is presumed that the contract was for the beneficiary’s benefit.’”80
We agree with Appellants that BPA Holding and Bakotic Associates are third-party
beneficiaries to the Partnership Agreement. Appellants focus on the Partnership
Agreement’s explicit reference to these entities as “Subsidiaries.” The Partnership
Agreement defines “Subsidiary” as:
[A]ny corporation [or] limited liability company . . . of which more than 50%
of the total voting power of the equity interests entitled . . . to vote in the
election of the board of directors . . . thereof are at the time owned or control,
directly or indirectly, by such Person[.]81
Both BPA Holding and Bakotic Associates meet the definition of “Subsidiary.” Bako LP
owns BPA Holding and Bakotic Associates is an LLC whose sole member is BPA
Holding.82 Further, the Partnership Agreement’s Non-Compete Provision expressly
applies to Subsidiaries.
79
Madison Realty P’rs 7, LLC v. Ag ISA, LLC, 2001 WL 406268, at *5 (Del. Ch. Apr. 17, 2001).
80
Comrie v. Enterasys Networks, Inc., 2004 WL 293337, at *3 (Del. Ch. Feb. 17, 2004) (quoting
13 Williston on Contracts § 37:7 (4th ed.)).
81
B74 (Partnership Agreement § 2.103).
82
See supra section I.A.
27
The Doctors fail to address the specific language in the Partnership Agreement that
the provisions at issue here apply to Bako LP and its Subsidiaries.83 Rather than addressing
Appellants’ various arguments directly, the Doctors rebut Appellants’ third-party
beneficiary standing arguments by raising the entirely new arguments which we have
deemed waived.84 We are satisfied, based upon the record and on the lack of any focused
joining of the issues regarding the entities’ third-party beneficiary standing, that BPA
Holding and Bakotic Associates have standing to assert claims under the Partnership
Agreement as third-party beneficiaries.
The Doctors also contend in their opening brief on appeal that Bako LP did not
suffer an injury-in-fact. Delaware law is clear that “a party to a commercial contract who
sues to enforce its contractual rights can bring a direct contract action under Delaware
law.”85 That is what Bako LP did. Bako LP asserted counterclaims — brought under
contracts it signed — against the Doctors, who remain limited partners under the
partnership, alleging that the Doctors violated their contracts and competed with Bako.86
Thus, we reject the Doctors’ challenges to Bako LP’s standing, and we agree with the
83
See B89 (Partnership Agreement § 6.5.1); B93 (Partnership Agreement § 6.8).
84
See supra n.73. We sympathize with the trial court’s understandable frustration with this
scattershot approach to what should be a threshold issue.
85
NAF Hldgs., LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175, 176 (Del. 2015) (holding that
where the plaintiff — a stockholder of the third-party beneficiary — has secured a contractual
commitment of the defendant counterparty to render a benefit to that third-party, and the
counterparty defendant breaches that commitment, the promissee-plaintiff may bring a direct suit
against the promisor for damages suffered by the plaintiff resulting from that breach,
notwithstanding that the promisee-plaintiff’s loss derives indirectly from the loss suffered by the
third-party beneficiary corporation.).
86
A267–68 (Def. Ans. & Counterclaims ¶¶ 42–51).
28
Superior Court, as explained below, that those counterclaims are meritorious.87
3. The Doctors Breached the Employment and Partnership Agreements and
Proximately Caused Damage
The Doctors’ third and fourth arguments on cross-appeal can be combined. They
contend that the Superior Court erred when it found that their participation in conferences
(including serving as sponsors and lecturers) breached the Employment Agreements and
Partnership Agreement and that such breaches proximately caused damage to Appellants.
We reject their arguments and affirm the trial court’s ruling on both issues.
The Doctors’ arguments here strike at the heart of the entire dispute: whether their
actions violated certain restrictive covenants in the various contracts. The Superior Court
found that they did. We agree.
To start, the Doctors argue that the Employee Non-Compete Provisions do not bar
them from sponsoring and lecturing at podiatric medical conferences. They contend that
the trial court improperly determined that the Employee Non-Compete Provisions cover
“not just commercial benefits, but apparently a whole galaxy of non-commercial benefits
like positive feelings and subjective increases in medical knowledge.”88 An examination
of the facts found below is helpful.
The Superior Court found “that a key function of Dr. Bakotic’s role at Bako, and
critical to the company’s marketing strategy and success, was to sponsor podiatric
87
See Opinion, at 21–26, 31–39.
88
Appellees’ Ans. Br. at 54.
29
conferences and provide lectures at the events to educate attendees.”89 “It was a critical
piece of the strategy developed by Dr. Bakotic to enhance Bako’s presence in the market
and upon which the business gained its success.”90 The trial court found that, “[t]here is
no doubt that Dr. Bakotic intended to duplicate this success at the Rhett entities using the
same marketing strategy and to replace Bako as the leader in this industry.” 91 It further
found that “[a]s he once did at Bako, Dr. Bakotic selected the conferences the Rhett
Foundation would sponsor and he, along with Dr. Hackel, provided lectures at those events,
which were attended by and for the benefit of Bako’s client base.”92 It was “the duplication
of this marketing process, to the detriment of Bako, that was prohibited under the
[Employment] Non-Compete Provision[s].”93
In the face of these factual findings, the Doctors strenuously argue that the
Employment Agreements’ definition of “business” dictates that activities such as
sponsoring and providing lectures fall outside the scope of the prohibited activities.94 But
neither the Employment Non-Compete Provisions nor the Employment Agreements define
89
Opinion, at 23.
90
Id.91
Id.92
Id. at 24.
93
Id. at 23.
94
Appellees’ Ans. Br. at 55. The Doctors, though, merely reference a recital in the Employment
Agreements, which states that the “Company is a provider of anatomic pathology testing
services[.]” A93 (Bakotic Employment Agreement recital); A101 (Hackel Employment
Agreement recital). The Employment Agreements do not contain a “definitions” section.
“Company” is defined collectively in the initial paragraph as “BPA Holding Corp., on behalf of
itself and its wholly-owned subsidiary, Bakotic Pathology Associates, LLC[.]” Id.
30
“business.”95 In addition, the word “business” does not appear in the Employment Non-
Compete Provisions.
However, the Employment Non-Compete Provisions do contain a clear statement
that the Doctors may “not perform the same or similar duties that [they] performed for the
Company[.]”96 As the trial court found, the Doctors routinely sponsored and gave lectures
on podiatry topics at medical conferences which the court found helped “the business gain[]
its success.”97 The Doctors engaged in these activities while employed at Bako, and they
continued to do so after they started the Foundation. Based on the facts as found by the
trial court — which are not clearly erroneous — and the clear contractual language in the
Employment Agreements, we affirm the trial court’s ruling that the Doctors violated the
Employment Non-Compete Provisions.
Regarding the Partnership Non-Compete Provision, the Doctors contend that the
Merger Agreement is expressly incorporated into the Partnership Agreement and that the
meaning of “business” within the Partnership Non-Compete Provision is governed by the
Merger Agreement’s definition of “business.”98 We note that § 12.8 of the Partnership
Agreement, defining “Entire Agreement,” provides that the Partnership Agreement “and
the Related Agreements constitute the entire agreement[.]”99 Section 2.98 of the
95
A93 (Bakotic Employment Agreement); A101 (Hackel Employment Agreement).
96
A93 (Bakotic Employment Agreement § 1) (emphasis added); A101 (Hackel Employment
Agreement § 1) (emphasis added).
97
Opinion, at 23.
98
Appellees’ Reply Br. at 13.
99
B113 (Partnership Agreement § 12.8).
31
Partnership Agreement defines “Related Agreements” to include the Merger Agreement.100
The Merger Agreement defines “business” as “the business of providing anatomic
pathology, proprietary molecular microbiology and neurology testing services and
physician dispensed therapeutics as currently conducted or specifically planned to be
conducted by the Company and its Subsidiaries on the date hereof.”101 The Doctors
contend that this definition precludes a finding that their activities on behalf of the
Foundation — lecturing and sponsoring conferences — violated the Partnership Non-
Compete Provision.
We disagree. The fact that the Partnership Agreement provides that the Merger
Agreement is part of the “Entire Agreement” does not mean that the Merger Agreement’s
narrower definition of “business” overrides language in the Partnership Non-Compete
Provision and, specifically, its broader restriction on “business interests and activities in
direct competition with the Partnership or any of its Subsidiaries[.]”102 Rather, the Superior
Court acknowledged the differences in the provisions and read them in harmony, giving
100
B74 (Partnership Agreement § 2.98).
101
A181 (Merger Agreement § 10.1). The Merger Non-Compete Provision and the Merger Non-
Solicitation Provision, both found in § 5.11 of the Merger Agreement, restrict “Competing
Business” activities. A163 (Merger Agreement § 5.11(a)). As the Superior Court observed, “the
Merger Agreement defines Competing Business as ‘any business in which the Company or any of
its Subsidiaries is engaged, or has specific plans (as evidenced by documentation of the Company)
to become engaged.’” Opinion, at 27 (emphasis in original).
102
B89 (Partnership Agreement § 6.5.1). We note that § 10.1 of the Merger Agreement — entitled
“Definitions” — provides that “the following terms [including ‘Business’] when used in this
Agreement shall have the respective meanings set forth below[.]” A180 (Merger Agreement
§ 10.1) (emphasis added). “Agreement” is defined as the Merger Agreement. See id.
32
effect to both.103 It expressly found that the Merger Non-Compete Provision was not
violated “[s]ince there [was] no competing lab created by Plaintiffs[.]”104
But the court also gave effect to the specific, broader language in the Partnership
Non-Compete Provision. As the Superior Court found:
Drs. Bakotic and Hackel did engage in business activities and held business
interests that competed with Bako’s interests through the Rhett brand, and
therefore they breached the Non-Competition provision of the Partnership
Agreement. The Court finds that the activities performed by Drs. Bakotic
and Hackel in the name of the Rhett entities were detrimental to the historical
marketing practices that Bako relied upon and that was key to their success.
There is no doubt that [the Doctors] intended to conduct their new business
activities with the intent of undermining the Bako brand. That is simply not
allowed under the Partnership Agreement.105
The trial court found that the Doctors hired several employees to work for Rhett
Diagnostics, including several who were previously Bako employees, and that they
purchased lab equipment. Although there is no indication that the Rhett lab ever became
operational, the record does support the trial court’s conclusions, following a seven-day
bench trial, that the Doctors engaged in “business interests and activities in direct
competition with the Partnership or any of its Subsidiaries.”106 We find no error in this
aspect of the trial court’s ruling.
103
See Opinion, at 26–27, 34–36. The Doctors agree that the two agreements should be read
together. See Appellees’ Reply Br. at 16.
104
Opinion, at 30.
105
Id. at 36.
106
B89 (Partnership Agreement § 6.5.1); see also Opinion at 33–36. The trial court was not
persuaded that the Doctors were merely focused on educating the podiatric community. Rather,
the court observed that “[o]ne does not buy hundreds of thousands of dollars of equipment and
hire employees to simply sit for two years waiting for the Non-Compete time frame to end.”
Opinion, at 21.
33
In addition to challenging the findings that the Doctors breached the Employment
Agreements and Partnership Agreement, the Doctors also contend that the trial court erred
when it found that such activities “proximately caused” Appellants damage. The Superior
Court found “no doubt that [the Doctors’] violation of their contractual Non-Competition
restrictions caused Bako to lose business. In fact, there is an identifiable group of doctors
who clearly decided to stop using Bako or to reduce their volume of business because of
the conduct of [the Doctors].”107 In particular, the Superior Court noted that a list in the
Appellants’ expert report “identifies those individuals who Bako’s sales representatives
had reported reduced their orders to Bako because of the perceived mistreatment of Drs.
Bakotic and Hackel.”108 The trial court then determined the amount of damages to award
Appellants for the breaches suffered.
“On appeal, this Court reviews the issue of proximate cause for clear error, as the
question ‘is ordinarily a question of fact to be determined by the trier of fact.’”109 We find
no error in the Superior Court’s determination that the Doctors’ conduct proximately
caused damage to Appellants. “Under Delaware law, a proximate cause is one ‘which in
natural and continuous sequence, unbroken by any efficient intervening cause, produces
107
Opinion, at 46.
108
Id. See also A483–86 (Mark J. Hosfield Expert Report at Appendix D).
109
RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 864 (Del. 2015) (quoting Duphily v. Del. Elec.
Co-op., Inc., 662 A.2d 821, 830 (Del. 1995)). See also Siga Techs., Inc. v. PharmAthene, Inc., 132
A.3d 1108, 1128 (Del. 2015) (noting that this Court “will uphold [a trial court’s] factual findings
unless they are clearly erroneous.”) (internal citation omitted).
34
the injury and without which the result would not have occurred.’”110 The trial court’s
determination of proximate cause was based on a careful examination of the record
evidence.
4. The Partnership Agreement was not “Reformed”
The Doctors’ final argument on cross-appeal is that “the Superior Court erred when
it removed the limiting term ‘business’ when reforming the Partnership Non-Compete” and
“determined what the parties intended when they executed such provision.”111 They argue
that the Partnership Non-Compete Provision “is unlimited in territory and also unlimited
in the type of conduct it prohibits[,]” which, they contend, renders it “void as a matter of
law.”112
In addressing this argument, the trial court found that:
Although [the Doctors] argue that the Non-Competition provision of the
Partnership Agreement is unlimited in scope, territory, and duration, the
Court disagrees. While Drs. Bakotic and Hackel remain limited partners, the
restrictions on competition remain. However, if they choose to withdraw
from their position as limited partners, they have the power to end the
restrictive covenants immediately.113
It determined that the Partnership Non-Compete Provision “was intended to prevent [the
Doctors] from engaging in similar and competitive activity that would be detrimental to
110
RBC Cap. Mkts., LLC, 129 A.3d at 864 (quoting Russell v. K-Mart Corp., 761 A.2d 1, 5 (Del.
2000)).
111
Appellees’ Ans. Br. at 61.
112
Id. at 62.
113
Opinion, at 36.
35
the partnership.”114 The trial court concluded that the Doctors did breach the Partnership
Agreement through their actions with the Rhett entities.
We do not agree that the Superior Court “reformed” the contract by removing the
word “business” from the Partnership Non-Compete Provision. The Doctors’ argument is
not a fair reading of the trial court’s opinion. The trial court interpreted the term “business”
and the phrase “business interests and activities” based upon the evidence, including the
intentions of the parties to the Partnership Agreement. For example, the court concluded
that
The Court simply cannot accept or condone a provision that in essence
prohibits engaging in any activity regardless of how remote or unrelated to
the partnership’s business. The Court is equally convinced this was never
the intent of those who were participants in the Partnership Agreement.
There is no question that provision was intended to prevent [the Doctors]
from engaging in similar and competitive activity that would be detrimental
to the Partnership. However, the Court finds Drs. Bakotic and Hackel did
engage in business activities and held business interests that competed with
Bako’s interests through the Rhett brand, and therefore they breached the
Non-Competition provision of the Partnership Agreement. The Court finds
that the activities performed by Drs. Bakotic and Hackel in the name of the
Rhett entities were detrimental to the historical marketing practices that Bako
relied upon and that was key to their success.115
As we have discussed above, the trial court correctly found that the Doctors’ conduct
violated the Partnership Non-Compete Provision’s express terms. Accordingly, we reject
their final argument on cross-appeal.
114
Id. at 35.
115
Opinion, at 35–36.
36
B. The Damages Calculation
Having found no merit in any of the Doctors’ contentions on cross-appeal, we now
turn to the arguments presented by Appellants. Appellants claim that the trial court’s
damages analysis was flawed in two ways. First, they contend that the court abused its
discretion by arbitrarily applying a 1.5% growth rate without explaining how it derived that
growth rate. Second, they assert that even if the growth rate were found to be appropriate,
the court incorrectly applied the two-step damages formula that the parties employed in
this case.
Appellants’ expert, Mark J. Hosfield (“Hosfield”), “opined that Bako suffered lost
profits of $8,273,121 from January 2018 to February 2019 and a loss in business value of
$65,980,243 as of March 2019.”116 We note that both the Doctors and the Appellants
agreed with the basic framework of Hosfield’s two-step analysis to calculate damages for
lost profits.117 Hosfield’s two-step analysis involved calculating the lost unit sales because
of the Doctors’ conduct and then, secondly, determining the lost profits resulting from
those lost unit sales. To determine Bako’s lost unit sales, Hosfield first calculated the unit
sales Bako expected to generate in the relevant period. The lost unit sales number was
derived by applying an expected growth rate to Bako’s past sales. After calculating Bako’s
expected sales units (which Hosfield referred to as the “but for” units), he then subtracted
Bako’s actual sales for the relevant period from the “but for” unit sales.
116
Id. at 44 (citing A381 (Mark J. Hosfield Expert Report at 34)).
117
See Oral Argument, at 6:55–7:23, 26:24–50,
https://livestream.com/delawaresupremecourt/events/10612702/videos/233007566.
37
As for the second step in the analysis, in order to calculate Bako’s lost profits arising
from these “but for” unit sales, Hosfield multiplied the amount of lost “but for” unit sales
by the actual price of the units for that given month. He then subtracted costs and bad debt
expenses. He concluded that Bako’s lost profits from those lost units totaled $8,273,121.
We address the growth rate challenge first. Appellants contend that the trial court
abused its discretion when the court selected a growth rate of 1.5% to calculate Bako’s lost
profits and failed to provide any calculation or record support for its selection.118
The trial court concluded that Hosfield’s growth rate of 9.4 percent and 8.9 percent
was “inappropriate.”119 It then stated that “the fact that Drs. Bakotic and Hackel were no
longer employed by Bako would have greatly reduced any projected growth rate.”120 Thus,
the court found:
[A] growth rate of around 9% suggested by Mr. Hosfield is unrealistic and
would have caused the “but for” figure to be inflated and unreliable. Since
Mr. Hosfield’s subsequent projections as to the lost profits and loss of
business value rely upon the acceptance of his growth rate, they will not be
adopted by the Court.121
After rejecting Hosfield’s growth rate, the court stated:
[I] will accept Mr. Hosfield’s expert opinion that some growth did occur
during that timeframe. Therefore, based on the testimony of what was
occurring in the industry and the turbulent situation at Bako, the Court has
decided to apply a growth rate of 1.5% to the “but for” figure calculated by
Mr. Hosfield. This will result in a damages figure of $1,433,814.00 in 2018
118
The Doctors raise this same challenge, but they argue that Appellants submitted no competent
evidence of damages. See Appellees’ Ans. Br. at 18–19.
119
Opinion, at 47–48.
120
Id. at 48.
121
Id.38
and $306,440.00 in 2019. Therefore, the Court finds the contractual breaches
by [the Doctors] resulted in a damage award of $1,740,254.00 for lost
business.122
Appellants contend that the Superior Court arbitrarily chose the 1.5% growth rate.
They point out that if the Superior Court took issue with the higher growth rates offered by
Hosfield, Hosfield also provided alternative growth rates of 4.7% in 2018 and 4.45% in
2019.123 Appellants also assert that the expert called at trial by the Doctors, Robert J.
Taylor, IV, testified that he used a 3% growth rate.124
We have explained that “[i]n making a decision on damages, or any other matter,
the trial court must set forth its reasons. This provides the parties with a record basis to
challenge the decision. It also enables a reviewing court to properly discharge its appellate
function.”125 Here, the Superior Court did offer some reasoning behind its view that the
Appellants’ proffered growth rate was too high. The court reasoned that “the fact that Drs.
Bakotic and Hackel were no longer employed by Bako would have greatly reduced any
122
Id. at 49 (emphases added).
123
See A844 (Mark J. Hosfield Trial Test. at 54:11–17); A432–35 (Mark J. Hosfield Expert Rep.
at Exhibit 7).
124
Appellants’ Op. Br. at 25 n.5 (citing A795 (Robert J. Taylor, IV Trial Test. at 37:9–15)).
125
Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1251 (Del. 2012). In Americas Mining
Corporation, for example, we affirmed a damages award that was “the product of a logical
deductive reasoning process.” Id. at 1249. Although the parties here rely, in part, on appraisal
cases in their briefing, we note that a damages calculation in a contract dispute differs from a trial
court’s exercise of determining fair value in an appraisal action. Cf. DFC Global Corp. v.
Muirfield Value P’rs, L.P., 172 A.3d 346 (Del. 2017); Dell, Inc. v. Magnetar Global Event Driven
Master Fund Ltd., 177 A.3d 1 (Del. 2017). But even in a contractual dispute, the trial court must
sufficiently explain its analysis, so that there can be effective appellate review. See Theriault, 51
A.3d at 1251.
39
projected growth rate.”126 The court was also persuaded that “Bako had reached a market
saturation that would hamper any additional growth [and] that many of the podiatry
services were being insourced by the doctors, and hospitals, with their own labs, and were
beginning to purchase podiatric practices.”127
Accordingly, the court “decided to apply a growth rate of 1.5%[.]”128 It properly
weighed the testimony offered by Hosfield and examined the calculations in Hosfield’s
report. We do not agree with the Appellants that the chosen growth rate of 1.5% was not
grounded in the record. Although its explanation for choosing that growth rate could have
been more fulsome, the trial court did not abuse its discretion in selecting the 1.5% growth
rate, and we, thus, affirm that aspect of the court’s ruling.
We turn next to Appellants’ contention that the court did not properly apply that
growth rate in the lost units analysis. Appellants assert, and it does indeed appear, based
upon the Superior Court’s explanation in its opinion, that the court incorrectly applied the
1.5% growth rate to the “but for” figure calculated by Hosfield. In the first step, the growth
rate should have been applied to Bako’s historical sales data to determine Bako’s expected
or “but for” sales. Actual sales are then subtracted from the “but for” sales to derive the
lost unit sales. However, the court stated that it “has decided to apply a growth rate of
126
Opinion, at 48.
127
Id.
128
Id. at 49.
40
1.5% to the ‘but for’ figure calculated by Mr. Hosfield.”129 But the growth rate should not
have been applied to the “but for” sales.
Appellants argue that because the Superior Court did not explain and set forth its
calculations, it is unclear how it arrived at its awarded damages amount. We, too, cannot
determine for certain whether the court simply misstated what it did or whether it
misapplied the damages formula in performing its actual calculations.130 Accordingly, we
remand this issue to the trial court for clarification and to make any necessary revisions.
Appellants also argue that the trial court erred in its calculation of units lost by
misinterpreting Hosfield’s calculation of units in Schedules 2.a, 2.b, and 2.c of his report.
They assert that these schedules contain the monthly units bought during the relevant
period for three small subsets of customers who ceased or reduced their business with
Bako. They further assert that the Superior Court concluded that these schedules contain
52,419 units that were affected by the Doctors’ misconduct. They claim the court erred by
stating that the 52,419 units represent the total actual units sold to this subset of customers
during the relevant time, not the number of units lost due to the Doctors’ misconduct.
Based upon the record before this Court, it is unclear to us whether the disputed
figure of 52,419 units constitutes a subset of units sold or the actual number of units lost.
We direct the trial court on remand to address and clarify this additional point and to set
129
Id.
130
We are unaided by the Doctors’ briefing, which did not respond to Appellants’ arguments
regarding these alleged miscalculations.
41
forth the basis for its damages calculations. We anticipate that any further submissions on
these damages issues would be based upon the evidence already submitted.131
As for the Appellants’ contention that the trial court erred in not awarding damages
for lost business value, we find no error. The trial court found that Appellants “simply
have not met their burden to establish a sufficient causal connection between the actual
conduct of [the Doctors] and the proposed nearly 66-million-dollar loss in business
value.”132 The court found that “[t]he proposed loss is simply a theoretical one without
support as to what actually occurred.”133 We find no abuse of discretion with that
determination.
C. Failure to Award Attorneys’ Fees for Breach of the Employment Agreements was
Error
Appellants’ second set of issues concerns whether the Superior Court abused its
discretion when it declined to award “attorneys’ fees to Bako consistent with the fee-
shifting provisions in the Employment and Partnership Agreements[.]”134 The Doctors
argue that the trial court correctly declined to award attorneys’ fees because neither side
prevailed at trial.
131
We note that the Superior Court did not allocate its damages award among the various corporate
entities. However, it appears that counsel did not seek such apportionment. See Oral Argument,
at 12:38–13:51,
https://livestream.com/delawaresupremecourt/events/10612702/videos/233007566.
132
Opinion, at 50.
133
Id.
134
Appellants’ Op. Br. at 35. Appellants contend that their attorneys’ fees “totaled approximately
$2.3 million.” Id. (citing A701 (Daniel Spragle Trial Test. at 148:18–20)).
42
Where “an award [for attorneys’ fees] is legally permissible, [] the determination of
the appropriate amount is a classic matter for the trial court’s discretion.” 135 This Court
“conduct[s] a highly deferential abuse-of-discretion review by keeping in mind the non-
exhaustive factors of Rule 1.5(a) of the Delaware Lawyer’s Rules of Professional
Conduct.”136 “[A]lthough we review an award of attorneys’ fees for abuse of discretion,
we consider the [trial] court’s interpretation of relevant [] contractual provisions de
novo.”137
“Delaware generally follows the American Rule, under which litigants are
responsible for their own attorneys’ fees, regardless of the outcome of the lawsuit.”138 One
exception to the American Rule “is found in contract litigation that involves a fee shifting
provision.”139 “In contract litigation, where the contract contains a fee-shifting provision,
we will enforce that provision.”140
135
TransPerfect Global, Inc. v. Pincus, 278 A.3d 630, 653 (Del. 2022) (internal citation omitted).
136
Id. See also Mahani v. Edix Media Grp., Inc., 935 A.2d 242, 245–6 (Del. 2007). The Rule
1.5(a) factors are “(1) the time and labor required, the novelty and difficulty of the questions
involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent
to the client, that the acceptance of the particular employment will preclude other employment by
the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount
involved and the results obtained; (5) the time limitations imposed by the client or by the
circumstances; (6) the nature and length of the professional relationship with the client; (7) the
experience, reputation, and ability of the lawyer or lawyers performing the services; and (8)
whether the fee is fixed or contingent.” Id. at 246. Trial court judges in this State are directed by
case law “to consider [these] factors” when “assess[ing] a fee’s reasonableness[.]” Id. at 245–6.
137
TransPerfect, 278 A.3d at 656 (internal citation omitted).
138
Alaska Elec. Pension Fund v. Brown, 988 A.2d 412, 417 (Del. 2007) (internal citation omitted).
See also Reserves Dev. LLC v. Crystal Props., LLC, 986 A.2d 362, 369 (Del. 2009).
139
Mahani, 935 A.2d at 245.
140
SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330, 352 (Del. 2013) (internal citation
omitted).
43
Here, the trial court declined to award attorneys’ fees despite the fee-shifting
provisions in the Employment Agreements and the Partnership Agreement. At the outset
of its fees discussion, the trial court stated:
While the Court will explain its reasoning below, it does not believe the
conduct of the parties justifies such relief. Both failed to exercise good
business judgment and have used the justice system to obtain some form of
revenge. For the Court to deviate from the American Rule would only give
some degree of countenance to this litigation. Justice demands that both
parties pay for litigation that should have ended years ago.141
The court then examined the fee-shifting provisions in the Employment Agreements
and the Partnership Agreement. Both the Employment Fee-Shifting Provisions and the
Partnership Fee-Shifting Provision contain the phrase “prevailing party” as a precondition
to shifting fees.142 However, the provisions differ in a significant respect. The Partnership
Fee-Shifting Provision provides that fees are to be shifted to the prevailing party in “any
dispute between the parties hereto[.]”143 Further, the Partnership Agreement defines
“prevailing party” to mean “the party who is determined in the proceeding to have
prevailed or who prevails by dismissal, default or otherwise.”144 However, the
Employment Fee-Shifting Provisions provide that fees are to be shifted to “the prevailing
141
Opinion, at 51.
142
See A97 (Bakotic Employment Agreement § 8); A105 (Hackel Employment Agreement § 8);
B113–14 (Partnership Agreement § 12.12).
143
B113 (Partnership Agreement § 12.12) (emphasis added).
144
B114 (Partnership Agreement § 12.12) (emphasis added).
44
party in any legal proceeding to construe, apply, interpret, enforce or defend any of the
Company’s rights in this Agreement[.]”145
Both the Employment Fee-Shifting Provisions and the Partnership Fee-Shifting
Provision are contractual provisions and, as such, require this Court’s traditional approach
to contract interpretation. “We interpret clear and unambiguous contract terms according
to their plain meaning.”146 “Prevailing party” is a term of art that the parties bargained for
in the contracts. “Having chosen the common term ‘prevailing party,’ the parties can be
presumed to have intended that that term would be applied by the court as it has
traditionally done so.”147 “That traditional application is an all-or-nothing approach
involving an inquiry into which party predominated in the litigation[,]” as opposed to a
claim-by-claim or other partial basis approach.148
Our trial courts have frequently dealt with such “prevailing party” clauses in
contracts. In Brandin v. Gottlieb, for example, the Court of Chancery determined that a
“prevailing party” clause awards fees to a party “who has prevailed on most of her
145
A97 (Bakotic Employment Agreement § 8) (emphases added); A105 (Hackel Employment
Agreement § 8) (emphases added).
146
Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.3d 665,
683 (Del. 2013) (internal citation omitted).
147
Brandin v. Gottlieb, 2000 WL 1005954, at *28 (Del. Ch. July 13, 2000).
148
Comrie v. Enterasys Networks, Inc., 2004 WL 936505, at *2 (Del. Ch. Apr. 27, 2004), aff’d
864 A.2d 929 (Del. 2004) (TABLE). See also Aloha Power Co., LLC v. Regenesis Power, LLC,
2017 WL 6550429, at *5 (Del. Ch. Dec. 22, 2017) (“‘Absent any qualifying language that fees are
to be award claim-by-claim or on some other partial basis, a contractual provision entitling the
prevailing party to fees will usually be applied in an all-or nothing manner.’”) (quoting W. Willow-
Bay Court, LLC v. Robino-Bay Court Plaza, LLC, 2009 WL 458779, at *8 (Del. Ch. Feb. 23,
2009)).
45
claims[.]”149 There, one party had “succeeded on a variety of important claims, having
prevailed in her previous summary judgment motion [and then] having won most of the
claims she pressed at trial.”150 The party who was deemed the “prevailing party” in
Gottlieb did not win on every issue — and yet the court still shifted fees.151 In 2009 Caiola
Family Trust v. PWA, LLC, the Court of Chancery articulated that “[t]o achieve
predominance, a litigant should prevail on the case’s ‘chief issue.’”152
With that backdrop, our analysis turns to the trial court’s application of the fee-
shifting provisions. The differences in the fee-shifting provisions present some novel
issues. Unlike the typical case where there are multiple claims and the court must
determine which party prevailed — often with both sides having won on some and lost on
some — this case involves not only multiple claims, but also different agreements
containing different fee-shifting provisions. As noted above, the Partnership Agreement
speaks of the “prevailing party” in terms of the overall dispute, whereas the Employment
Agreements speak to the “prevailing party” in terms of success on claims involving rights
under those specific Employment Agreements. We think this difference is important here.
However, the trial court’s analysis did not consider these differences in the
contracts. Instead, it looked at the “prevailing party” language more globally, holding that:
149
Gottlieb, 2000 WL 1005954, at *27.
150
Id.151
See id. (noting that the other party prevailed on a material breach claim, “which involved a
good deal of litigation effort on both sides.”).
152
2015 WL 6007596, at *33 (Del. Ch. Oct. 14, 2015) (quoting W. Willow-Bay Court, 2009 WL
458779, at *9).
46
The fee-shifting language chosen by the parties requires the Court to perform
the traditional analysis and look to the overall substance of the litigation.
Both the [Doctors] and the [Appellants] have won some claims and lost on
others. However, after years of excessive litigation, that culminated in a
seven-day trial, the parties recovered much less than sought. Under those
circumstances, the Court has discretion to find that neither party is a
“prevailing party.”153
The Superior Court concluded that there were “two chief issues present at trial[.]”154 These
“boil[ed] down to five breach of contract claims and two tortious interference claims.”155
The Superior Court noted that the Doctors won “on the two tortious interference claims
and one of the contract claims[,] [w]hile [the Appellants] prevailed on the four-remaining
breach of contract claims only.”156 By ignoring the different language in the Employment
Fee-Shifting Provisions, the trial court’s analysis is only partly correct.
Under the Partnership Fee-Shifting Provision, the prevailing party must prevail in
the overall dispute itself. The trial court’s focus on the overall dispute and its conclusion
that there was no prevailing party in the overall dispute here is not an abuse of discretion.
Thus, we find no error in the trial court’s decision to not award attorneys’ fees under the
Partnership Agreement.
However, the narrower language in the Employment Fee-Shifting Provisions
focuses on vindicating rights under those specific contracts. With regard to the claims
raised under the Employment Agreements, the trial court ruled for Appellants on all claims:
153
Opinion, at 53.
154
Id.155
Id.156
Id. The one breach of contract claim that the Doctors won on was asserted under the Merger
Agreement, which does not contain a fee-shifting provision.
47
the Doctors breached the Employment Non-Compete Provisions and the Employment
Non-Use Provisions.157 Thus, the Appellants are the clear “prevailing party” on the claims
raised in connection with the Employment Agreements.158
We reject the Doctors’ assertions that their win on the tortious interference claims
undercuts this conclusion. The tortious interference claims asserted by Appellants against
Dr. Bakotic as compulsory counterclaims were based upon other agreements with third-
parties, not upon the Employment Agreements.159 The Doctors cite no case holding that
success on a tortious interference claim not based on the agreement containing the fee-
shifting provision negates fee-shifting where a party prevails on all claims based upon that
agreement and where the agreement’s “prevailing party” language focuses on claims
involving rights under that agreement. Accordingly, we conclude that the Superior Court
erred by not awarding attorneys’ fees in connection with the litigation of the claims arising
under the Employment Agreements. Accordingly, we REVERSE and REMAND for
further proceedings consistent with this Opinion.
IV. CONCLUSION
In sum and based on the foregoing, we reject all claims raised by the Doctors in
their cross-appeal and AFFIRM the Superior Court’s decisions on those claims. We
157
Id. at 54.
158
See AFH Hldg. & Advisory, LLC v. Emmaus Life Scis., Inc., 2014 WL 1760935, at *3 (Del.
Super. Apr. 16, 2014) (awarding attorneys’ fees under fee-shifting provision where party won on
the breach of contract issues).
159
Appellants asserted “that Dr. Bakotic tortiously interfered with two contracts: (1) the Podiatric
Medical Director Services Agreement between Bako and Dr. Bryan Markinson; and (2) the
Medical Director Services Agreement between Bako and the AFCG.” Opinion, at 18. Neither
contract is at issue on appeal.
48
REMAND to the Superior Court the two aspects of the lost profits damages calculations
for clarification and revision, if needed, consistent with this Opinion. Finally, we
REVERSE the Superior Court’s decision declining to award attorneys’ fees under the
Employment Agreements and REMAND for additional development of the record on that
issue consistent with this Opinion.
49