Thomas D. Murray v. Shannon Rolquin

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
THOMAS D. MURRAY and TDM )
PROPERTY INVESTMENTS LLC, )
)
Plaintiffs, )
)
v. ) C.A. No. 2018-0819-KSJM
)
SHANNON ROLQUIN, and COLLEEN )
MCGUIGAN, )
)
Defendants. )
)
COLLEEN MCGUIGAN, )
)
Counterclaim-Plaintiff, )
)
v. )
)
THOMAS D. MURRAY and TDM )
PROPERTY INVESTMENTS LLC )
)
Counterclaim-Defendants. )
POST-TRIAL MEMORANDUM OPINION
Date Submitted: December 6, 2022
Date Decided: March 9, 2023
Kevin R. Shannon, Christopher N. Kelly, Jaclyn C. Levy, Daniel M. Rusk, IV, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Edward A. Marod, Michael D.
Simon, GUNSTER, West Palm Beach, Florida; Counsel for Plaintiffs and Counterclaim -
Defendants Thomas D. Murray and TDM Property Investments LLC.
Richard P. Rollo, Angela Lam, Melissa A. Lagoumis, RICHARDS, LAYTON & FINGER,
P.A., Wilmington, Delaware; Robert D. Sweeney, John J. Scharkey, SWEENEY,
SCHARKEY & BLANCHARD LLC, Chicago, Illinois; Counsel for Defendant and
Counterclaim-Plaintiff Colleen McGuigan.
McCORMICK, C.
This is the tail end of a lengthy and bitter dispute among Norbert Murray’s children
over ownership of a corporation formed by Norbert, Naples Building Corporation (“NBC”
or the “Company”). In this chapter, youngest sibling Colleen claims that her oldest brother
Thomas defrauded her by exercising an option to buy her interest in NBC. Colleen claims
that, at the time Thomas exercised the option, he knew that the option bore a cut-and-paste
forgery of Colleen’s signature. The option is dated 1988. Thomas exercised the option in
2006. Colleen did not assert her claim of fraud until 2021. Thomas argues that Colleen’s
claim is time-barred, and the court held a limited trial on this defense. This post-trial
decision grants judgment in favor of Thomas.
I. FACTUAL BACKGROUND
Trial took place over one day. As reflected in the Schedule of Evidence submitted
by the parties, the record comprises 270 joint trial exhibits, trial testimony from three fact
witnesses, deposition testimony from three fact witnesses, and stipulations of facts in the
pre-trial order.1 In what is intended as an act of kindness, this factual background omits
many of the allegations that the sibling litigants levied against each other. Moreover, to
avoid duplication, some of the factual findings are set out in the legal analysis.
1
C.A. No. 2018-0819-KSJM, Docket (“Dkt.”) 240 (“Joint Schedule of Evid.”). This
decision cites to: trial exhibits (by “JX” number); the trial transcript, Dkt. 228 (by “Trial
Tr. at” page, line, and witness); stipulations of fact in the Pretrial Stipulation and Order,
Dkt. 217 (“PTO”); and the deposition transcripts of Thomas McGuigan and Thomas D.
Murray (by the deponent’s name and “Dep. Tr. at” page and line).
A. Formation Of NBC
Norbert spent much of his adult life in the business of commercial real estate.2
Although he had significant experience and early success in property development, by the
late 1980’s, Norbert “could foresee the upcoming years as being especially troubling and I
needed my family to assist me with running the business.”3 Seeking “a fresh avenue of
growth that was not entangled with these problems,” Norbert began forming Murray
family-owned entities to manage his real estate business.4
Norbert formed NBC in 1988 and “to separate . . . from my past troubles.”5 NBC
was based in Naples, Florida.6 Its original stockholders were Norbert, Norbert’s wife
Marjorie, and their five children: Thomas, Shannon (Rolquin), Michael, Kimberly (Meek),
and Colleen (McGuigan).7 Norbert named Thomas President of NBC.8 Due to Norbert’s
felony conviction and personal bankruptcy, Norbert held the position of “consultant” with
the Company.9 Thomas managed NBC for over 30 years and took responsibility for leasing
its properties.10
2
JX-152 at 3.
3
Id. at 4.
4
Id.
5
Id.
6
Id. at 3.
7
Id. at 4.
8
Id.
9
Trial Tr. at 9:4–12 (Thomas).
10
Id. at 8:22–9:3 (Thomas).
2
NBC had little to no value when it was formed.11 Thomas contributed three strip
malls to NBC in 1988.12 Thomas understood that, in exchange for these properties, he
obtained an option to acquire any NBC shares held by other family members for $250
each.13 NBC’s corporate records contain minutes of a Special Meeting of the Board of
Directors of NBC, which reference a February 15, 1988 meeting in Naples, Florida among
the Murray family members.14 The only matter addressed in the minutes is Thomas’s
option to purchase the NBC shares held by the other family members for $250 (the “1988
Option”).15 Neither Thomas nor Colleen recall attending the meeting.16 Colleen testified
11
Id. at 9:13–16 (Thomas).
12
JX-14; JX-15; JX-16; Trial Tr. at 11:8–15:15 (Thomas).
13
Trial Tr. at 17:17–24 (Thomas) (testifying that “I was deeding my property to . . . NBC
and I needed an option”).
14
JX-8.
15
The relevant text of the Special Meeting minutes (JX-8) reads:
Resolved that Thomas D. Murray has the authority to purchase
the shares of Naples Building Corporation Stock that has been
issued to the Stockholders of said corporation. The purchase
price has been determined to be Two Hundred and Fifty
Dollars ($250.00) per Stockholder. It has further been resolved
that there be no prior authorization required from said
Stockholders to purchase said shares of stock, and that Thomas
D. Murray shall have the rights and privileges that have been
attached thereto.
16
Trial Tr. at 18:7–17 (Thomas); id. at 155:5–20 (Colleen). Thomas did not draft the 1988
Option and does not recall when he first saw it. Id. at 18:7–17 (Thomas). Although not
relevant to the issues in this trial, Colleen speculates that Thomas must have drafted the
1988 Option because he benefitted from it. Dkt. 234 (“Colleen’s Answering Post-Trial
Br.) at 46 (citing Trial Tr. at 92:6–9 (Thomas)). But Norbert also benefited from the 1988
Option. After Norbert’s felony conviction and bankruptcy, Norbert’s livelihood was tied
to the success of NBC and Thomas’s willingness to keep Norbert on as a consultant. Trial
Tr. at 9:4–12 (Thomas). And as Colleen recalls, it was Norbert (not Thomas) who
3
that she has “always known” that she did not attend the stockholders’ meeting in 1988.17
Thomas, at least, was generally aware of the 1988 Option, which was referenced in his
financial statements as an asset.18
Colleen was nineteen and attending college in Indiana when Norbert formed NBC.19
Colleen stayed in the Midwest after graduating from college and enjoyed a career in
Chicago working for the federal government.20 Colleen’s approach to NBC could best be
characterized as “hands-off”: she described herself as the “the only person” in the family
who never worked for the business;21 she never loaned money to NBC or guaranteed any
of its debts;22 and she never received a dividend or distribution from NBC.23 Still, as an
NBC stockholder, Colleen always accommodated her family’s requests to execute
corporate documents.24
“ambushed” her and threatened to “destroy” her if she did not transfer her shares to
Thomas. Id. at 161:17–162:1 (Colleen).
17
Trial Tr. at 155:5–20 (Colleen).
18
See, e.g., JX-22.
19
Trial Tr. at 101:19–102:6, 187:2–5 (Colleen); id. at 261:1–9 (Thomas McGuigan).
20
Id. at 98:21–99:2 (Colleen).
21
Id. at 97:6–12 (Colleen).
22
Id. at 157:17–20 (Colleen).
23
Id. at 166:14–16 (Colleen).
24
Id. at 101:19–102:6 (Colleen) (“I just know that when I was younger, they would ask for
my signature and I would provide it.”); JX-18. While there has been confusion regarding
the number of shares of NBC stock owned by Colleen due to the existence of two sets of
stock certificates, Colleen owned either 12.4% or 12.6% of NBC. Compare JX-11, with
JX-13.
4
B. The FDIC Litigation
Norbert’s “past troubles” caught up to him in 1992, when he was convicted of
felonies involving fraud against federally insured savings institutions.25 Norbert failed to
pay the $600,000 fine imposed in connection with his conviction.26 As a result, in 1997,
the FDIC filed an action for fraud, conspiracy, civil theft, and other claims against
numerous entities, including NBC and its subsidiaries.27 The members of the Murray
family were also named as defendants in the FDIC action as NBC stockholders.28
Settlement negotiations with the FDIC spurred conversations about Colleen
transferring her interest in NBC to Thomas in exchange for his capital contributions.
Norbert twice pressured Colleen to transfer her NBC shares to Thomas during the
negotiations, as Colleen testified credibly and at length during trial.
The first time was in May 1999. Norbert and Thomas requested that Colleen come
to Florida to participate in an aspect of the FDIC litigation.29 On the evening of her arrival,
Norbert “ambushed” Colleen in the family kitchen,30 pressuring her to sign a document
relinquishing her shares to Thomas.31 Colleen signed the document.32 She then called her
25
PTO ¶ 23.
26
Id. ¶ 24.
27
Id.; see also FDIC v. Norbert Murray et al., 97-380-CIV-FTM-10D (M.D. Fla. 1997).
28
FDIC v. Norbert Murray et al., 97-380-CIV-FTM-10D.
29
Trial Tr. at 106:6–12 (Colleen).
30
Id. at 161:17–162:1 (Colleen).
31
Id. at 161:8–16 (Colleen).
32
Id. at 107:4–21 (Colleen).
5
husband, Thomas McGuigan, who advised her to rescind her consent and rip up the
document, which she did.33 She attended a meeting with the FDIC the next day and then
returned home to Illinois.34
The second time was in June 1999. Colleen and her husband were contacted by
Norbert, Norbert’s attorney, and Thomas at separate times, each informing Colleen that
she could not participate in the FDIC settlement unless she relinquished her shares of NBC
to Thomas.35 Michael advised Colleen that he thought NBC was worth $6–7 million and
that Colleen should consult with an attorney before relinquishing her shares. 36 Colleen
sought advice from her attorney,37 and without reading the document, declined to
relinquish her NBC shares in exchange for participation in the FDIC settlement.38
The FDIC agreed to settle the FDIC litigation for $1.5 million, and the action was
dismissed in 2000.39 Thomas funded the settlement.40 None of the other family members
contributed. As Colleen explained: “Q. So as long as it got paid, you really didn’t care
where it came from? A. Exactly.”41 Thomas believed that he became the only stockholder
33
Id. at 107:21–108:7 (Colleen). To distinguish Thomas Murray from Thomas McGuigan,
this decision uses Mr. McGuigan’s full name.
34
Id. at 108:15–109:18 (Colleen).
35
Id. at 109:19–110:2 (Colleen); JX-53.
36
Trial Tr. at 110:6–20 (Colleen).
37
JX-53; JX-54.
38
Trial Tr. at 111:1–22 (Colleen).
39
PTO ¶ 25.
40
Trial Tr. at 25:3–26:6 (Thomas).
41
Id. at 164:4–24 (Colleen).
6
in NBC as a consequence of funding the settlement,42 and contemporaneous tax records
substantiate that Thomas held that belief.43 But in fact, at the close of the FDIC litigation,
each member of the Murray family retained their interest in NBC.44
C. The 2006 Agreement
After the settlement, the family drama quieted down for a few years. Then, in 2006,
Thomas’s accountants advised him via letter that he should convert NBC to an S
Corporation to minimize his tax liability.45 Since an S Corporation is a flow-through tax
entity, all of NBC’s income would be taxable to each individual stockholder, regardless of
whether they received distributions from the Company that year.46 As explained by
Thomas’s accountants, this conversion made sense under Thomas’s belief that he was a
sole stockholder, as he could streamline his income from NBC into his personal income
taxes.47
If NBC had multiple stockholders, however, the implications would be more
complicated—the Murray family members could be in a financial lurch if NBC’s new tax
status imposed unexpected tax burdens on them without capital to cover the liability. As a
42
Id. at 27:1–28:5 (Thomas).
43
See JX-106, JX-108–09; JX-111; JX-114; JX-116; JX-120; JX-124; JX-127; JX-135;
JX-173 (Form K-1 filings for NBC from 2007 through 2017 indicating Thomas as the sole
stockholder of NBC).
44
Dkt. 231 (“Thomas’s Opening Post-Trial Br.”) at 9 n.6; JX-68; JX-70; JX-98.
45
Trial Tr. at 28:23–30:16 (Thomas).
46
Id.
47
JX-79.
7
result, even though Thomas believed himself to be NBC’s sole stockholder, his accountants
recommended that he exercise the 1988 Option to eliminate any uncertainty.48
At the suggestion of his accountants, Thomas retained Florida counsel to assist with
NBC’s conversion to an S Corporation and Thomas’s exercise of the 1988 Option. 49 His
Florida counsel prepared documents for each NBC stockholder to relinquish their shares
to Thomas in exchange for $250 (the “2006 Agreement”).50 The 2006 Agreement stated
that Thomas was exercising his rights under the 1988 Option to purchase his family
members’ interests in NBC.51 The 2006 Agreement also contained a release clause that
forever discharged Thomas and NBC from liability for claims arising out of the family
members’ stock ownership.52 The 2006 Agreement stated that the signatory “is not relying
on any representations or warranties by Thomas D. Murray except for those representations
48
Id. In their letter dated May 19, 2006, Thomas’s accountants stated:
In light of the potentially very negative impact to the
shareholders of the Company in it’s [sic] election of S
Corporation status, we have recommended that you exercise
the option to purchase the shares of the Company held by its
other shareholders. After such exercise, the other shareholders
would not be responsible for the additional income taxes that
would occur after the S Corporation election.
Id.
49
Trial Tr. at 30:17–23 (Thomas).
50
Id. at 30:24–31:11 (Thomas).
See JX-87 § 2.1 (“Exercise of Option. Thomas D. Murray hereby exercises the [1988]
51
Option to purchase the Ownership Interests.”) (emphasis in original).
52
Id. § 5.1.
8
specifically set forth in this Agreement[.]”53 The 1988 Option was attached as “Exhibit A”
to the 2006 Agreement. 54
In June 2006, Thomas sent the 2006 Agreement to each of the family members,
accompanied by payment of $250.55 Norbert supported the 2006 Agreement and believed
that his daughters signed the 2006 Agreement because he personally asked them to do so.56
Norbert, Marjorie, Colleen, Shannon, and Kimberly promptly signed the 2006
Agreement.57 Thomas testified that he did not recall any discussions with Colleen in 2006
regarding the 2006 Agreement or the 1988 Option.58
Colleen testified that she read both the 2006 Agreement and the 1998 Option before
signing the 2006 Agreement and initialing every page.59 She also testified that the first
time she recalled seeing the 1988 Option was when she received the 2006 Agreement.60
When she reviewed the 1988 Option, Colleen did not recall signing it.61 Colleen testified
53
Id. § 4.2(d).
54
Id. at 6–7.
55
Trial Tr. at 32:1–8 (Thomas).
56
JX-152 at 6; see also Trial Tr. at 34:7–12 (Thomas).
57
Although no longer relevant, there was a dispute regarding whether Michael signed the
2006 Agreement.
58
Trial Tr. at 32:12–15 (Thomas).
59
Id. at 167:14–168:3, 172 (Colleen); JX-87.
60
Trial Tr. at 158:6–17 (Colleen).
61
Id. at 172:16–24 (Colleen).
9
that Thomas told her over the phone that she had to sign the 2006 Agreement because she,
along with the entire Murray family, had signed the 1988 Option.62
Also in June 2006, Michael copied his siblings on a letter he sent to Thomas
explaining Michael’s reasons for not signing the 2006 Agreement.63 Michael’s letter stated
that “with respect to the purported option agreement to redeem the stock, I do not believe
that it is enforceable.”64 Though Colleen testified that she did not recall reading this
document, she is the one who produced the document in discovery.65
In early 2007, Thomas converted NBC into an S Corporation.66 For a decade,
Thomas was the only NBC stockholder to receive a Form K-1, and each of NBC’s annual
tax filings identified Thomas as NBC’s sole stockholder.67 During this period, Thomas
contributed over $15 million of his own funds to NBC, which significantly reduced NBC’s
debt.68 Thomas credibly testified that he would not have contributed his own funds to pay
NBC’s debts unless he believed that he owned 100% of NBC.69
62
Id. at 173:15–174:16 (Colleen).
63
JX-259.
64
Id. at 1.
65
Trial Tr. at 177:8–178:17 (Colleen).
66
JX-102.
67
See, e.g., JX-106, JX-108, JX-09, JX-111, JX-114, JX-116, JX-120, JX-124, JX-127,
JX-135, JX-173.
68
Trial Tr. at 34:16–35:12 (Thomas); see also Thomas’s Opening Post-Trial Br., Ex. C
(trial demonstrative detailing contributions).
69
Trial Tr. at 35:9–12 (Thomas).
10
D. 2017 Brings More Drama.
After a decade-long familial ceasefire, tension rose once more in the Murray family
in 2017.
The first relationship to fall was between Norbert and Thomas. The father-son duo
had worked together for over 30 years, and Thomas enjoyed working with his father.70
Norbert was generously compensated for his work as a “consultant” for NBC.71 By 2017,
however, Norbert was in his 80s and dealing with health issues.72 Around this same time,
Thomas hired an outside accountant, Howard Markoff, to review the accounting records
for his businesses.73 Markoff questioned why Norbert was paid so generously given his
limited role at NBC,74 and Thomas reduced Norbert’s annual compensation to a reasonable
amount.75 This angered Norbert.76
Friction also rose between Thomas and his sister Shannon, who worked at NBC as
its secretary and a director.77 In the fall of 2017, Shannon informed Colleen that Thomas
was planning to restructure his business interests by merging NBC into his controlled
entity, TDM Property Investments LLC (“TDM”), among other things.78 Shannon began
70
Id. at 17:12–16 (Thomas).
71
JX-152 at 8–9.
72
Trial Tr. at 122:1–13 (Colleen).
73
Id. at 35:13–36:10 (Thomas).
74
Id. at 37:5–12 (Thomas).
75
Id. at 37:13–19 (Thomas).
76
Id. at 37:20–38:8 (Thomas).
77
Id. at 73:18 – 21 (Thomas); id. at 124:5–12 (Colleen).
78
Id. at 299:2–8 (Thomas McGuigan); see also JX-172.
11
to secretly copy thousands of pages of documents relating to NBC and Thomas’s other
business interests.79 Shannon started sending the documents to Colleen in November
2017,80 and Colleen’s husband reviewed them.81 Shannon was fired from NBC in early
2018.82
Armed with these documents, Thomas McGuigan, Colleen, and her siblings began
investigating potential claims against Thomas.83 That investigation led them to believe
there were “lots of problems” with the 1988 Option—and that both the 1988 Option and
2006 Agreement were invalid and void for various reasons.84 Colleen’s interrogatory
responses admit that she noticed “peculiarities” in the 1988 Option starting in December
79
JX-202; JX-253. Colleen claims that Shannon secretly copied the NBC documents
because Thomas was “destroying documents.” Trial Tr. at 124:2–125:1 (Colleen). As
made clear at trial, however, all of the office employees participated in the shredding of
old records in May 2017, more than six months before Michael or anyone else claimed to
be a stockholder of NBC. Id. at 36:11–37:4 (Thomas). Thomas testified credibly that
Markoff suggested that Thomas shred old documents around the office that were no longer
necessary. Id. at 35:13–36:10 (Thomas). There is also a contemporaneous document, a
receipt from May 4, 2017, showing that Thomas’s office disposed of two 95-gallon
containers of paper, refuting Colleen’s testimony that this document dump was done in fall
2017 to destroy documents. See JX-132.
80
Trial Tr. at 124:2–125:1 (Colleen).
81
Id. at 180:24–181:6 (Colleen); id. at 287:15–18 (Thomas McGuigan).
82
Id. at 134:2–6 (Colleen).
83
Id. at 199:2–7 (Colleen) (agreeing that she and her husband “were considering potential
claims as minority stockholders of NBC”).
84
Thomas McGuigan Dep. Tr. at 88:17–89:12; JX-240 at 2 (Colleen’s interrogatory
responses stating that “on or around December of 2017, [Colleen] noticed some
peculiarities with respect to the content to the [1988] Option”); Trial Tr. at 188:4–7
(Colleen).
12
2017, including that Colleen was “attending college out of state” on the date of the purported
Special Meeting.85
E. The Internal Partnership Memorandum
The first concerted effort to compile claims against Thomas was the “Implied
Partnership Memorandum,” a detailed 12-page, single-spaced document, which was
intended to provide prospective counsel with the information necessary to evaluate claims
against Thomas.86 The document is written in the first person from Norbert’s perspective.87
Norbert’s health had deteriorated significantly by this time, however, so Thomas
McGuigan helped Norbert type up his thoughts.88 The 1988 Option and the 2006
Agreement were attached to the Implied Partnership Memorandum.89
On December 1, 2017, Colleen circulated a draft of the Implied Partnership
Memorandum to Michael and Shannon by email.90 The next day, Colleen texted Michael
that “Dad and Shannon are in process of adding and reviewing it as well.”91 On December
3, 2017, Colleen emailed the final version of the Implied Partnership Memorandum to
Shannon with a cover note—“fresh start!!”92 Colleen also emailed the Implied Partnership
85
JX-240 at 3; Trial Tr. at 186:12–187:8 (Colleen).
86
JX-152; see also Trial Tr. at 190:24–191:5 (Colleen); id at 265:9–266:15 (Thomas
McGuigan).
87
JX-152.
88
Trial Tr. at 136:9–14 (Colleen).
89
JX-152 at 14–19.
90
JX-148.
91
JX-150; Trial Tr. at 191:23–192:24 (Colleen).
92
JX-152 at 1.
13
Memorandum to her brother Michael on December 4, 2017.93 When asked why Colleen
sent this document to Michael, Thomas McGuigan testified, “Well, again, you know, as
I’ve said numerous times, people were scratching their heads at this point.”94 According
to Thomas McGuigan, one of the questions being asked was: “Is Colleen a shareholder?”95
The Implied Partnership Memorandum has a separate section titled “NBC Purported
Option,” which states in part:
There are lots of problems with this option concept including
the fact that a) the shareholder minute meeting is dated 14 days
before NBC was legally formed in the state of Delaware, b) a
few of the shareholders don’t ever recall signing it and were
attending college 1300 miles away on that day, c) there is no
underlying instrument supporting and documenting the option,
d) the option does not attempt to transfer shares at fair market
value. (Why would any shareholder agree to someone
acquiring a valuable interest for $250) e) the purported option
is for the “authority to purchase shares of Naples Building
Corporation stock that has been issued”—yet no stock had
been issued on February 15, 1988.96
The Implied Partnership Memorandum also states that “there is a dispute over the
authenticity, validity and enforceability of [the 1988 Option] and [the 2006 Agreement]
where [Thomas] claims he had the right and did exercise the right to purchase all of the
NBC shares for $250 per share.”97 Norbert’s “primary settlement goal” was to invalidate
93
Id.94
Thomas McGuigan Dep. Tr. at 60:9–17.
95
Id.96
JX-152 at 6 (emphasis added).
97
Id. at 13.
14
the “dubious” 1988 Option.98 To that end, the Implied Partnership Memorandum states
that “Michael and the other shareholders . . . are considering pursuing legal remedies to
invalidate the” 1988 Option.99
Colleen testified that she never read the Implied Partnership Memorandum, but her
testimony is not credible.100 For one thing, she circulated the document to her siblings
three times via email. Contrary to Colleen’s testimony, she was not merely a messenger
silently passing along the Internal Partnership Memorandum to her siblings—she added
cover text that the document was a “fresh start!!”101 Not only that, she texted Michael that
Shannon and Norbert had been reviewing the document and adding to it.102 Colleen also
emailed the Implied Partnership Memorandum to Kimberly on January 26, 2018, noting
that the “memo . . . may be useful to you for any discussions with an attorney. You would
need to edit the memo as you see fit to apply to you, rather than me, before passing it along
to an attorney.”103 It is difficult to imagine how Colleen could know that the Internal
Partnership Memorandum would be helpful in conversations with an attorney, and that the
document would need to be tailored to Kimberly’s interests, if Colleen had no knowledge
98
Id. at 10.
99
Id. at 7.
100
Trial Tr. at 192:13–196:18 (Colleen).
101
JX-152 at 1.
102
JX-150.
103
JX-177; Trial Tr. at 200:4–204:15 (Colleen).
15
of its contents. At the very least, Colleen concedes that nothing prevented her from reading
the Implied Partnership Memorandum.104
F. Continuing Investigations And The Settlement Term Sheet
Colleen and her husband continued investigating into the 1988 Option through
December 2017. Thomas McGuigan testified as follows regarding the results of their
investigation:
And so once we, you know, looked -- at this point, it’s what,
December 16th, so I think we looked at the option agreement
for the first time in real detail and said: Wait a second. You
know, this is a -- this is a fraudulent document. This is
absolutely ridiculous. This is dated before the formation of the
company. . . . [T]his isn’t my wife’s signature. This isn’t
Michael’s signature. You know, I could go through all the
defects if you’d like.105
At this point, Colleen and her husband began exploring the types of claims that the
siblings could make against Thomas as minority stockholders. Thomas McGuigan testified
about these “discussions” in his deposition:
Q. Did you have discussions with any of Colleen’s siblings
about bringing a claim as minority stockholders of NBC?
A. You know, again, we’re evaluating a lot. We’re trying to -
- trying to figure out what’s going on, trying to sort things out.
And I’m sure there were discussions as to, okay -- you know,
for the first time, we see this 2006 option and recognize that
it’s defective, that -- on many fronts. We realized the
conditions leading up to it and why it was executed, so people
started scratching their head. And, you know, at that point, I
104
Trial Tr. at 194:13–18 (Colleen); see also id. at 290:10–12 (Thomas McGuigan).
105
Thomas McGuigan Dep. Tr. at 70:4–15. At trial, Colleen suggested that her husband
may have “pointed out” alleged defects with the 1988 Option, but contends they were not
“relevant” to her and not what she “cared” about. Trial Tr. at 184:13–186:6 (Colleen).
16
think they were -- people were asking questions. So yeah, there
were probably some -- some discussions, yeah.
Q. Probably, but you don’t know for sure?
A. My testimony is there were probably discussions, yeah.106
On December 16, 2017, Colleen and her husband prepared a “Settlement Term
Sheet” to resolve the siblings’ claims against Thomas.107 That same day, Colleen emailed
the Settlement Term Sheet to Shannon, Michael, and Kimberly, “Please review and add
changes or comments as you see fit and pass them back to me.”108 Two minutes later,
Colleen sent a follow-up email saying, “Also you do not need to sign this term sheet. Just
want to be in agreement.”109
In the Settlement Term Sheet, Colleen purported to transfer approximately 80% of
NBC from Thomas to herself, her siblings, and her parents.110 To support that claim,
Paragraph 3 of the Settlement Term Sheet states: “Shareholders agree that any and all
purported NBC shareholder options, agreements, or shareholder minutes conveying any
right for any Shareholder to purchase NBC stock from any other Shareholder are invalid
and declared null and void for various reasons.”111 Also, Paragraph 5 of the Settlement
Term Sheet contains a mutual release, including for “[a]ny claims of fraud.”112
106
Thomas McGuigan Dep. Tr. at 88:17–89:12.
107
Trial Tr. at 204:17–207:8 (Colleen).
108
JX-162.
109
JX-163.
110
JX-162 at 2.
111
Id.
112
Id.
17
G. The Siblings Pursue Litigation.
In January 2018, Colleen’s husband contacted counsel “to discuss a possible
engagement to evaluate possible claims that [Colleen] may have against [Thomas].”113
Colleen was aware that her husband was speaking to counsel about claims against Thomas
and did not object.114
In addition to consulting counsel, Colleen was doing her own “Google lawyering”—
researching the rights of minority stockholders.115 On February 2, 2018, Colleen sent an
email to Kimberly stating: “Just wanted you to feel comfortable that mike is also a minority
shareholder like the rest of us. We are only powerful together. Familiarize yourself with
the rights of a minority shareholder if you want to be comfortable with those rights.”116
On March 19, 2018, Michael filed a complaint asserting claims against Thomas and
TDM (as successor to NBC).117 Colleen was aware in March 2018 that Michael filed a
complaint.118 Although Colleen claimed at trial that she did not attempt to obtain a copy
of the public filing,119 she admitted that she reviewed Michael’s complaint no later than
June 2018 when she was subpoenaed.120
113
JX-244 at 14.
114
Trial Tr. at 220:6–21 (Colleen).
115
Id. at 214:3–12 (Colleen).
116
JX-184; Trial Tr. at 213:17–214:12 (Colleen).
117
JX-192.
118
Trial Tr. at 214:23–215:3 (Colleen).
119
Id. at 215:12–15 (Colleen).
120
Id. at 216:6–20 (Colleen).
18
Michael’s complaint set forth a list of reasons why he believed that the 1988 Option
was invalid:
(a) it was allegedly executed before NBC existed (NBC did not
become an entity until February 29, 1988) and was not
subsequently ratified; (b) neither Thomas nor NBC gave
consideration in exchange for the purported option; (c) it was
not agreed to or executed by Michael; (d) it referred to stock
that “has been issued” but no stock had been issued (the
original stock certificates are dated February 29, 1988, the date
of NBC’s formation); (e) the terms are vague, ambiguous, and
indefinite; and (f) a $250 option, which does not account for
the value of NBC or the stockholders’ varying interests, is
unconscionable.121
Colleen testified that she was not surprised by anything Michael alleged in his complaint.122
In November 2018, Thomas filed a complaint against Michael, Colleen, and
Shannon, alleging breach of fiduciary duty, aiding and abetting, civil conspiracy, and
conversion.123
On January 23, 2020, Colleen was served with a court filing from Michael stating
that: “Michael will show that the entire signature block of the [1988 Option] . . . was cut
and pasted from a different NBC document on which Michael’s signature was forged.”124
121
JX-192 at 6–7.
122
Trial Tr. at 218:22–219:19 (Colleen).
123
Dkt. 1.
124
JX-232 at 2 n.2.
19
In February 2020, the court agreed to stay discovery (with the exception of
Thomas’s deposition) to allow Thomas to proceed with a motion for summary judgment
on the grounds that Michael’s claims were time-barred.125
Thomas was deposed on October 1 and 2, 2020.126 Michael, Shannon, Thomas
McGuigan, and Colleen all attended at various points.127 Counsel presented Thomas with
the signature block from the 1988 Option and the signature block from a second document,
titled “Waiver of Notice of the Special Meeting of Shareholders of Naples Building
Corporation” (the “Waiver”).128 The Waiver references a special stockholders’ meeting on
February 1, 1988, in Naples.129 The signatories to the Waiver are the same signatories and
in the same order as the February 15, 1988 Option: Shannon, Michael, Kimberly, Colleen,
Norbert, and Marjorie.130 Side by side, the similarities between the signature blocks on the
Waiver and the 1988 Option become clear:
125
Dkt. 102 (Feb. 25 Hr’g Tr.) at 21.
126
Thomas Dep. Tr.
127
Id. at 3:19–24; id. at 217:11–16.
128
JX-7 at 1; Thomas Dep. Tr. at 124:3–125:22.
129
JX-7 at 1.
130
Id.
20
Counsel asked Thomas whether he was aware of anyone cutting and pasting the
signature block from the Waiver onto the 1988 Option; he credibly responded that he was
not.131 He conceded that the documents appeared to be a cut-and-paste forgery upon closer
inspection: “Q: Sitting here right now, do you believe that this is the case, that this
document is a forgery? . . . A. I don’t believe -- I don’t know if they were forgeries, but
I do believe that it was placed on top of it.”132 Thomas testified in his deposition and
credibly at trial that he did not cut-and-paste the signature block himself.133 Thomas also
credibly testified that he first realized the 1988 Option might contain a cut-and-paste
131
Thomas Dep. Tr. at 125:20–22.
132
Id. at 396:4–10.
133
Id.; id. at 124:3–12; Trial Tr. at 83:11–14 (Thomas).
21
forgery during this litigation.134 This makes sense: the signatures on the 1988 Option did
not appear abnormal because the signatures on the page were the signatures of Thomas and
his family members. Without seeing the 1988 Option side-by-side with the Waiver, there
was little reason to suspect anything nefarious. When asked at trial whether Collen knew
that the 1988 Option signatures were fabricated, Thomas admitted that she had no more
reason than he did to believe that her signature was forged.135
H. The Bifurcated Litigation
After full briefing and a hearing on Thomas’s motion for summary judgment, the
court denied Thomas’s motion on June 8, 2021.136 Thomas and Michael then agreed to
mediate the dispute, and the mediation was scheduled for September 1, 2021.
On August 31, 2021, at 6:13 PM, Colleen’s counsel emailed Thomas’s counsel,
saying they were “preparing to file a counterclaim on behalf of Colleen McGuigan against
Thomas and TDM in the coming days.”137 Counsel did not state the basis for Colleen’s
claims in their email.138
Colleen filed her Amended Answer and Verified Counterclaims on September 27,
2021.139 Colleen asserted five counts in her counterclaim:
134
Trial Tr. at 71:9–16 (Thomas).
135
Id. at 92:10–19 (Thomas) (“I didn’t know it was fabricated. How would she know?”).
136
Dkt. 242 (June 8, 2021 Bench Ruling) at 21:3–15.
137
JX-236 at 1.
138
Id.
139
Dkt. 137.
22
• In Count I, Colleen alleges fraud against Thomas for inducing her to sign the
2006 Agreement while knowing that the 1988 Option was invalid.
• In Count II, Colleen alleges equitable fraud against Thomas for inducing her
to sign the 2006 Agreement while in a position of trust as her sibling and
director of NBC.
• In Count III, Colleen alleges breach of fiduciary duty against Thomas for
inducing her to enter the 2006 Agreement, usurping NBC’s business
opportunities, and merging NBC with TDM.
• In Count IV, Colleen alleges aiding and abetting against TDM for
effectuating the merger between NBC and TDM.
• In Count V, Colleen alleges unjust enrichment against Thomas and TDM for
depriving Colleen of her interest in NBC.
Thomas moved to bifurcate the action to first address the issue of whether Colleen’s
(and at the time, Michael’s) claims were time-barred.140 Recognizing that bifurcation could
promote efficiency by breaking up the 30-year evidentiary record in this litigation, the court
granted bifurcation.141 Trial was scheduled for July 14 and 15, 2022, on the narrow issue
of whether Michael and Colleen’s claims against Thomas were time-barred.
On July 11, counsel submitted a letter reporting that mediation between Michael
and Thomas had proven successful and that the two had reached an agreement in
principle.142 As a result, the July 14, 2022 trial in this matter was limited to the question
of whether Colleen’s claims against Thomas were time-barred.
140
Dkt. 133.
141
See Dkt. 157 (Nov. 8 Hr’g Tr.) at 37:3–7.
142
Dkt. 225; see also Dkt. 227 (stipulation of dismissal with prejudice).
23
II. LEGAL ANALYSIS
The equitable doctrine of laches “prevent[s] someone who slumbers on her rights
and delays unreasonably in filing suit from being permitted to prosecute her claims.”143
“While laches is a standalone doctrine, ‘equity follows the law and in appropriate
circumstances will apply a statute of limitations by analogy.’”144 “The statute of limitations
for a claim essentially provides the outermost limit for a plaintiff, filing in Chancery, to
bring a claim, with laches typically acting to require even earlier filing.” 145 Along with
unreasonable delay, a defendant must also show that they are prejudiced by the delay,
though the “Court may also presume prejudice if the claim is brought after the analogous
limitations period has expired.”146
The first step in a laches analysis is determining when the claim accrued. 147 “The
general principle in Delaware is that the statute of limitations begins to run, i.e., the cause
of action accrues, at the time of the alleged wrongful act, even if the plaintiff is ignorant of
143
TrustCo Bank v. Mathews, 2015 WL 295373, at *5 (Del. Ch. Jan. 22, 2015); see also
Daugherty v. Highland Cap. Mgmt., L.P., 2018 WL 3217738, at *7 (Del. Ch. June 29,
2018) (“Laches is an equitable defense designed to ensure that equity aids the vigilant, and
not the dilatory.”) (citation omitted).
144
Largo Legacy Gp., LLC v. Charles, 2021 WL 2692426, at *9 (Del. Ch. June 30, 2021)
(quoting In re Tyson Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 584 (Del. Ch. 2007)
(alterations omitted)).
145
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 2012 WL 3201139, at *5
(Del. Ch. Aug. 7, 2012).
146
Kraft v. WisdomTree Invs., Inc., 145 A.3d 969, 979 (Del. Ch. 2015) (citing In re Sirius,
2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013)).
147
Largo Legacy, 2021 WL 2692426, at *9 (“The statute of limitations begins to run at the
time that the cause of action accrues[.]”) (quoting Tyson Foods, 919 A.2d at 584).
24
the cause of action.”148 Where a claim is pursued in the Court of Chancery that would be
barred by the applicable statute of limitations if pursued at law, laches will also bar the
claim absent tolling or extraordinary circumstances.149
“The Delaware courts recognize three doctrines that may toll the statute of
limitations: (1) inherently unknowable injuries, (2) fraudulent concealment, and (3)
equitable tolling following a breach of fiduciary duties.”150 Inquiry notice, however,
“universally limits tolling doctrines.”151 Tolling does not extend beyond the point when
the plaintiff “was objectively aware, or should have been aware, of facts giving rise to the
wrong.”152
In this case, Colleen alleges that the harm occurred when Thomas induced her to
sign the 2006 Agreement in June 2006. The parties agree that Colleen’s claims are subject
to a three-year statute of limitations.153 The default limitations period thus expired in June
2009 absent tolling. Colleen argues that the limitations period was tolled, while Thomas
contends that tolling doctrines are unavailable because Colleen was on inquiry notice.
148
In re Dean Witter P’ship Litig., 1998 WL 442456, at *4 (Del. Ch. July 17, 1998).
149
See Levey v. Brownstone Asset Mgmt., LP, 76 A.3d 764, 769 (Del. 2013) (“A filing after
the expiration of the analogous limitations period is presumptively an unreasonable delay
for the purposes of laches.”); Whittington v. Dragon Gp., LLC, 991 A.2d 1, 7–10 (Del.
2009) (similar).
150
Vichi v. Koninklijke Philips Elecs. N.V., 2009 WL 4345724, at *17 (Del. Ch. Dec. 1,
2009).
151
Lebanon Cty. Empls.’ Retirement Fund v. Collis, 287 A.3d 1160, 1212 (Del. Ch. 2022).
152
Tyson Foods, 919 A.2d at 585; see also Collis, 287 A.3d at 121 (“Once the plaintiff is
aware of the injury, or should have discovered it in the exercise of reasonable diligence,
then the period for bringing a claim starts to run.”).
153
Thomas’s Opening Post-Trial Br. at 23; Colleen’s Answering Post-Trial Br. at 42.
25
Colleen filed her counterclaims against Thomas on September 27, 2021, meaning that if
Colleen had inquiry notice before September 27, 2018, then her claims are time-barred.
The following factual findings support Thomas’s position that Colleen was on
inquiry notice:
• Twice in 1999, Norbert and others “ambushed” and pressured Colleen to sign
documents transferring her interest to Thomas.154 Colleen initially signed
the document, but on the advice of her husband, ripped up the document.155
• In 2006, Colleen signed the 2006 Agreement, which appended the 1988
Option.156 Colleen received, and produced in this litigation, a letter from
Michael saying that he did not believe the 1988 Option was enforceable.157
• In late 2017, Thomas McGuigan helped Norbert draft the Internal Partnership
Memorandum. Colleen sent this document by email three times, with text
that it was a “fresh start!!”158
• By December 16, 2017, Colleen and her husband had “discussions” about all
of the defects in the 1988 Options.159 This discussion culminated in their
joint preparation of the Settlement Term Sheet, which states that any NBC
stockholders’ options to “purchase NBC stock from any other Shareholder
are invalid and declared null and void for various reasons.”160
• By December 2017, Colleen was aware of “peculiarities” in the 1988
Option.161
• In January 2018, Colleen’s husband contacted prospective counsel “to
discuss a possible engagement to evaluate possible claims that [Colleen] may
154
Trial Tr. at 161:17–162:1 (Colleen).
155
Id. at 107:21–108:7 (Colleen).
156
JX-87.
157
JX-259.
158
JX-152.
159
Thomas McGuigan Dep. Tr. at 88:17–12.
160
JX-162 at 2.
161
JX-218.
26
have against [Thomas].”162 That same month, Colleen emailed the Internal
Partnership Memorandum to Kimberly, advising that Kimberly could contact
an attorney but would need to “edit the memo as you see fit to apply to you,
rather than me, before passing it along to an attorney.”163
• In March 2018, Michael filed his complaint against Thomas, alleging six
reasons why the 1988 Option was invalid. By Colleen’s account, the latest
she read these documents was in June 2018.
Colleen admits that she harbored suspicions about the authenticity of the documents,
particularly during her investigation in 2017. Still, she claims that what mattered to her
was that the signature on the 1988 Option was her own, and so she did not pursue her
claims once she concluded that the 1988 Option in fact contained her signature. Colleen
testified credibly that she did not fully appreciate that the document was a cut-and-paste
forgery until she attended Thomas’s deposition in October 2020. She also correctly points
out that not even Thomas knew of the cut-and-paste job for over 30 years.
All of these facts ring true, but they do not render Colleen’s claim timely. “Inquiry
notice does not require actual discovery of the reason for the injury. Nor does it require
plaintiffs’ awareness of all of the aspects of the alleged wrongful conduct. Rather, the
statute of limitations beings to run when plaintiffs should have discovered the general
fraudulent scheme.”164 Tolling exceptions to statutes of limitations are “narrow and
162
JX-244 at 14.
163
JX-177; Trial Tr. at 200:4–204:15 (Colleen).
164
Dean Witter, 1998 WL 442456, at *7 (emphasis in original); see also Pomeranz v.
Museum P’rs, L.P., 2005 WL 217039, at *3 (Del. Ch. Jan. 24, 2005) (“[P]laintiffs are on
inquiry notice when they have sufficient knowledge to raise their suspicions to the point
where persons of ordinary intelligence and prudence would commence an investigation
that, if pursued would lead to the discovery of the injury.”).
27
designed to prevent injustice.”165 Once a plaintiff is on notice of facts that should raise red
flags of wrongdoing, “she is obliged to diligently investigate and to file within the
limitations period as measured from that time.”166 To borrow a line from Thomas’s
counsel: “there is a reason they call it inquiry notice and not everything notice.”167
Even where the alleged wrongdoer is a fiduciary to the plaintiff, the plaintiff is “not
entitled to sit idly by, blindly relying on defendants’ assurances, when the documents and
disclosures plaintiffs received [] were so suggestive of mismanagement.”168 Even “the
trusting plaintiff must still be reasonably attentive to his interest.”169
This court has consistently dismissed claims as time-barred where the claimant had
sufficient facts to discover wrongdoing, regardless of whether they knew the full extent of
the harm. For instance, in In re Dean Witter Partnership Litigation, the plaintiffs invested
in a slew of defendant-controlled entities that promised high, stable returns.170 Meanwhile,
the defendant used the capital to purchase his own underperforming investments and
fudged the numbers on investors’ returns by re-distributing their capital contributions. The
plaintiffs filed suit in 1996, relying on a 1990 annual report that disclosed on the first page
that their annualized return was 7.5%. A mere few pages later, however, the 1990 report
165
Pomeranz, 2005 WL 217039, at *13.
166
Id.; see also Dean Witter, 1998 WL 442456, at *7 n.49 (“Once a plaintiff is in possession
of facts that make him suspicious, or that ought to make him suspicious, he is deemed to
be on inquiry notice.”).
167
Dkt. 241 (Post-Trial Oral Arg. Tr.) at 17:9–10.
168
Dean Witter, 1998 WL 442456, at *9.
169
Id. at *8.
170
Id. at *3.
28
showed that distributions consistently exceeded the entities’ income and that the capital
accounts consistently declined. The presence of this “inherently contradictory
information” in the 1990 report “alone [was] sufficient notice of wrongdoing to prompt
inquiry.”171 Thus, the claims were time-barred by 1996.172
Then-Vice Chancellor Strine addressed a similar set of circumstances in Pomeranz
v. Museum Partners, L.P.173 There, the plaintiffs invested in two ventures with the sole
purpose of acquiring a controlling interest in a French company. Defendants, the majority
investors in both ventures, withdrew their capital contributions and executed a favorable
withdrawal agreement in April 2000 at the expense of the remaining interest holders.
Without this capital, the ventures’ purpose was inevitably thwarted, and the plaintiffs lost
significantly on their investment. Plaintiffs received the partnership’s financials in April
2000 that showed its capital accounts had decreased by 60%, but the financial statements
still showed positive profit projections. Plaintiffs contended that they could not have
known the extent of the harm they would suffer until they learned the full terms of the
withdrawal agreement in March 2001.
The Vice Chancellor disagreed. Although the plaintiffs did not yet know the entire
extent of their damages in April 2000, the proverbial writing was on the wall. The ventures’
only purpose was to buy up blocks of stock in a French company, yet 60% of their capital
had disappeared. Any hopeful promises of continued positivity rang hollow once the
171
Id. at *8.
172
Id.
173
2005 WL 217039, at *13.
29
plaintiffs knew that their capital had been slashed. The plaintiffs could not “simply wait
until the details of the harm are provided to them before the statute begins to run”; rather,
“[k]nowing of a wrong is sufficient to require action to preserve one’s rights.”174 Because
they were on inquiry notice in April 2000, the plaintiffs’ suit was time-barred when they
filed it in 2004.175
Here, Colleen advances a narrative akin to those in Dean Witter and Pomeranz: she
believed that the 1988 Option had her signature, she trusted Thomas, and she did not learn
of the cut-and-paste forgery until October 2020. Unfortunately, lack of actual notice will
not save Colleen’s claims.
Colleen knew of a laundry list of defects in the 1988 Option before September 2018.
She had “always known” that she had not attended a stockholder meeting at which the
option was allegedly approved.176 As in Dean Witter, the 1988 Option was inherently
defective on its face, as it purported to issue stock in the corporation two weeks before
NBC was even formed. Colleen cannot rely on her blissful ignorance of the family business
when repeatedly presented with a two-page document that contained such blatant internal
consistencies. Colleen’s own interrogatory responses admit that she was aware of
“peculiarities” in the 1988 Option by December 2017. At this point, it was her own
obligation to ensure the propriety of the option.
174
Id. at *11.
175
Id.
176
Trial Tr. at 155:5–20 (Colleen).
30
Nor can Colleen rely on her adamant commitment to ensuring that the 1988 Option
had her actual signature. Although she credibly testified that this was the only aspect that
mattered to her, that determination alone does not satisfy her obligation. That would be as
if the plaintiffs in Pomeranz confirmed that the ventures’ bank accounts indeed reflected
the capital depletion depicted in the financials, then called foul because they failed to put
together the implications of those numbers until they were left penniless. Colleen cannot
deny that she was aware of facial deficiencies in the 1988 Option that could render it
unenforceable. She was also armed with Michael’s complaint, which alleged that the 1988
Option was unenforceable for all the same reasons. That the dupe ultimately committed
was different than the one Colleen cared about does not change the outcome. She cannot
hide behind her ignorance of the full scope of the underlying fraud when she knew that
some wrongdoing was afoot, just not the one she expected.
Colleen also cannot rely on her dependence on Thomas as a fiduciary. She rests her
claim on her characterization that Thomas encouraged her to sign the 2006 Agreement
because everyone had signed the 1988 Option and it was legitimate. She claims that she
read the 1988 Option before signing the 2006 Agreement, yet still argues that she could
not have known that the 1988 Option was fraudulent. As she read on the face of the
document in 2006 and rehashed again with her husband in December 2017, Colleen could
tell at the very least that the document declared her presence at a meeting in Naples when
she knew she was attending college in Indiana. This is precisely the sort of information
that would put a “reasonably attentive” stockholder on guard and forms a basis for inquiry
notice.
31
The court need not pinpoint a single moment in time that Colleen had inquiry notice;
the relevant question is whether she had inquiry notice before September 27, 2018. As
explained above, Thomas presented ample evidence of such notice in this time frame. As
a result, tolling ceased and the limitations period expired before Colleen brought suit.
Finally, Colleen argues that Thomas’s laches defense is barred by the doctrine of
unclean hands. Unclean hands derives from the equitable maxim that “[h]e who comes
into equity must come with clean hands.”177 “If a plaintiff’s ‘claim grows out of or depends
on, or is inseparably connected with, his own prior fraud, a court of equity will, in general,
deny him any relief.’”178 The purpose of the unclean hands doctrine “is to protect the public
and the court against misuse by one who, because of his conduct, has forfeited his right to
have the court consider his claims . . . . As such it is not a matter of defense to be applied
on behalf of a litigant; rather it is a rule of public policy.” 179 “[A]t bottom, the unclean
hands doctrine is a rule of public policy.”180 This court has broad authority to consider
unclean hands, and is “not bound by formula or restrained by any limitation that tends to
trammel the free and just exercise of discretion.”181
177
2 John Norton Pomeroy, A Treatise on Equity Jurisprudence § 397 (5th ed. 1941).
178
United BioSource LLC v. Bracket Hldg. Corp., 2017 WL 2256618, at *7 (Del. Ch. May
23, 2018) (quoting Pomeroy, supra n.177, A Treatise on Equity Jurisprudence § 401).
179
Skoglund v. Orgmand Indus., Inc., 372 A.2d 204, 213 (Del. Ch. 1976).
180
Morente v. Morente, 2000 WL 264329, at *3 (Del. Ch. Feb. 29, 2000) (internal quotation
marks and citations omitted).
181
Nakahara v. NS 1991 Am. Tr., 718 A.2d 518, 522–23 (Del. Ch. 1998).
32
Colleen’s proposed application of unclean hands is atypical: it is usually asserted by
a defendant when a claimant has effectively forfeited their rights to bring suit by engaging
in inequitable conduct of their own.182 Unclean hands is most often described in this
jurisdiction as a defense or an affirmative defense.183 Colleen flips this script, attempting
to use unclean hands not as a defense against an equitable claim brought against her, but
as a barrier to Thomas’s equitable defense of laches for the claims she brought against him.
Colleen cites only two cases, neither of which support her unclean hands defense.
Colleen relies on In re Niki and Darren Irrevocable Trust for the proposition that
“to the extent [unclean hands] is a defense, it is a defense belonging, not to any defendant,
but to the court of equity itself.”184 That case involved a family trust created for the benefit
of the settlor, her daughter, and her son-in-law.185 The settlor later decanted the trust corpus
into a second trust with terms benefitting her son-in-law at the expense of herself and her
daughter. Apparently recognizing the implications years later, the settlor brought suit to
declare that her decanting was unlawful and requested equitable relief reinstating the
182
Haart v. Scaglia, 2022 WL 3108806, at *16–17 (Del. Ch. May 26, 2022); see also
Gallagher v. Holcomb & Salter, 1991 WL 158969, at *4 (Del. Ch. Aug. 16, 1991) (“The
question raised by a plea of unclean hands is whether the plaintiff’s conduct is so offensive
to the integrity of the court that his claims should be denied, regardless of their merit.”)
(emphasis added).
183
Bouchard v. Braidy Industries, Inc., 2020 WL 2036601, at *12–13 (Del. Ch. Apr. 28,
2020); Claros Diagnostics, Inc. S’holders Rep. Committee v. Opko Health, Inc., 2020 WL
829361, at *6 (Del. Ch. Feb. 19, 2020); Xu Bong Bin v. Heckmann Corp., 2009 WL
3440004, at *13 (Del. Ch. Oct. 26, 2009).
184
Colleen’s Answering Post-Trial Br. at 53 (quoting In re Niki and Darren Irr. Tr., 2020
WL 8421676, at *14 (Del. Ch. Feb. 4, 2020)).
185
In re Niki and Darren Irr. Tr., 2020 WL 8421676, at *3.
33
original trust. The court dismissed the claims for unclean hands, finding that “[h]aving
previously acted in a fiduciary capacity to settle and fund a trust through what she now
asserts were illegal means, [the settlor] cannot invoke equity for relief from that action, in
her own self-interest.”186 Contrary to Colleen’s cherry-picked quotation, In re Niki and
Darren Irrevocable Trust still ultimately resulted in dismissal of the plaintiff’s claim, not
application of unclean hands against a defendant asserting an equitable defense.
Colleen also relies on Biddle v. Miller, a Delaware Supreme Court Case on appeal
from the Family Court.187 Biddle involved a dispute between divorced spouses over the
ex-husband’s state pension benefits pursuant to the parties’ division of their marital estate.
In the interim period between the divorce settlement and the pension’s vesting, the ex-
husband retired six years early after learning that his ex-wife could not force distributions
from his pension payments without a pension allocation order. When the ex-wife sued to
force payment from the pension, his only defense was laches. The Delaware Supreme
Court affirmed the Family Court’s finding that the defense of laches was unavailable
because the ex-husband had acted in bad faith.
At most, Biddle dictates that a trial court can consider foreclosing a defense of laches
upon a requisite showing of bad faith. The Supreme Court only reviewed whether the trial
court had abused its discretion. Further, the Supreme Court was aided by the finding that
the ex-husband’s “other arguments in support of his laches defense would still come up
186
Id. at *16.
187
234 A.3d 161, 2020 WL 3259299 (Del. 2020) (TABLE).
34
short.”188 As a result, unclean hands alone was not dispositive of the court’s denial of a
laches defense.
This case is more analogous to Haart v. Scaglia.189 There, the plaintiff ex-wife and
her defendant ex-husband jointly owned an entity during their marriage. The ex-wife
wanted to be equal owners, and so the ex-husband purported to transfer shares to
accomplish that goal. The ex-husband withheld a one-half share, effectively rendering
himself the bare majority owner, a reality the ex-wife later discovered and accepted. When
their relationship soured, the ex-husband removed the ex-wife as CEO. The ex-wife sued
to invalidate the removal, and her ex-husband brought mirror declaratory judgment claims.
The ex-wife asserted unclean hands, pointing to the ex-husband’s initial concealment of
the one-half share disparity. The court found that the “unclean hands doctrine does not
work here. As an initial matter, [the ex-husband] has not meaningfully brought claims
before the Court that he could forfeit.”190 Further, the court looked to the ex-wife’s own
misconduct, noting that she “was long aware of . . . the fact that [her ex-husband] had one
more preferred share than she did, going so far as to consult a lawyer who confirmed as
much.”191 The court concluded that the ex-wife had not properly invoked unclean hands.
Similar logic applies here. The only claims at issue in this bifurcated trial were
Colleen’s claims against Thomas and TDM. As in Haart, Thomas has not approached this
188
Id. at *3.
189
2022 WL 3108806 (Del. Ch. Aug. 4, 2022).
190
Id. at *17.
191
Id.
35
court seeking to vindicate a claim in equity. Also as in Haart, Colleen acknowledged the
deficiencies in the 1988 Option long ago and did her own “Google lawyering” on minority
stockholders’ rights while her husband engaged legal counsel. Even after Thomas’s
deposition, Colleen waited almost a year, until the eve of Thomas’s mediation with
Michael, to state her intention to bring counterclaims.
Ultimately, whether to apply the unclean hands doctrine is within the discretion of
the court, relying on interests of public policy.192 Even if Colleen could use this rationale
to avoid Thomas’s laches defense, equitable principles and policy concerns advise against
doing so. If Colleen’s proposed application were correct, she could knowingly delay in
bringing her claims, then turn around and claim that her own delay was justified by
Thomas’s alleged misconduct. This outcome would be inconsistent with the purpose of
laches to require claimants to vigilantly prosecute their rights.
III. CONCLUSION
This lengthy and bitter family lawsuit ends here. Colleen’s claims are barred by
laches, and judgment is entered in favor of Thomas.
192
Nakahara, 718 A.2d at 522–23; see also Merck & Co., Inc. v. SmithKline Beecham
Pharms. Co., 1999 WL 669354, at 45 (Del. Ch. Aug. 5, 1999) (“Ultimately, the doctrine is
about public policy, and the Court has the broad discretion to refuse relief if [defendant]
can establish that [plaintiff] does not meet a very basic though inexact standard: where the
litigant’s own acts offend the very sense of equity to which he appeals.”).
36