Kelly v. Riverside Partners, LLC

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

GREGORY KELLY, )

)

Plaintiff, ) CIVIL ACTION NO.

) 16-11694-DPW

v. )

)

RIVERSIDE PARTNERS, LLC, and )

STEVEN KAPLAN, )

)

Defendants. )

MEMORANDUM

AND

ORDER FOR JUDGMENT

July 25, 2019

Plaintiff, Gregory Kelly, brought this action against

Defendants, Riverside Partners, LLC and Steven Kaplan, based on

an alleged $1 million signing bonus agreement he had with them.

Defendants denied the existence of such an agreement and, in

turn, asserted an indemnification counterclaim against Mr. Kelly

for pursuing this litigation. Mr. Kelly responded with his own

counterclaim against the Defendant for breach of a settlement

agreement.

Cross-motions for summary judgment were presented to me by

the parties as to the Defendants’ counterclaim, and Defendant

separately sought summary judgment as to Plaintiff’s claims and

counterclaim. I orally granted Defendants’ motion for summary

judgment and now, following further briefing, award $250,000

damages, with pre- and post-judgment interest, to Riverside.

This Memorandum fully provides my reasons for these

determinations.

I. BACKGROUND

A. Factual Background

1. The Entities Involved in the Transaction

In 2006, Vermont Fiberlink, LLC (“VFL”), an entity

principally owned by Scott Pidgeon, Kenneth Pidgeon, and Alan

Pidgeon (collectively “the Pidgeons”), and TelJet, Inc., formed

an entity called TelJet Longhaul, LLC (“TelJet”). TelJet built,

managed, leased, and maintained a fiber optic communications

network and offered telecommunications services, custom

solutions for Internet service, point-to-point circuits, and

leasing of dark fiber. Plaintiff, Gregory Kelly, served as

president of TelJet.

Tech Valley Holdings, LLC (“Tech Valley”), is a portfolio

company of Defendant, Riverside Partners, LLC (“Riverside”), a

Boston-based private equity firm.

TVC Albany, Inc., a/k/a Tech Valley Communications (“TVC”),

was a wholly-owned subsidiary of Tech Valley until TVC was sold

on September 7, 2016.

TJL Acquisition Company, LLC (“TJL Acquisition”), was a

wholly-owned subsidiary of TVC until TJL Acquisition dissolved

in May 2013.

2. The Transaction

Around the Fall of 2010, Riverside identified TelJet as a

potential acquisition target for its portfolio company, Tech

Valley. TelJet had substantial debt, including trade and

infrastructure debt, which led to the decision to sell the

company.

In 2011, Ian Blasco and Defendant, Steven Kaplan (an

employee of Riverside who served on the boards of various

entities at issue, including Tech Valley and TVC), met with Mr.

Kelly and the Pidgeons in Burlington, Vermont to discuss

TelJet’s performance and the potential for Tech Valley to invest

in TelJet.

In 2012 and 2013, Mr. Kaplan and Mr. Blasco had several

meetings with Mr. Kelly to discuss both the potential

acquisition of TelJet by Tech Valley and Mr. Kelly’s post-

acquisition role. Discussions regarding Mr. Kelly’s post-

acquisition role began on November 8, 2012.

On December 14, 2012, Mr. Kelly (and others) executed a

letter of intent (“LOI”) with Riverside affiliates outlining a

non-binding proposal for the purchase of the assets of TelJet.

The non-binding proposal was said to be “on behalf of Tech

Valley [], a portfolio company of Riverside,” with the ultimate

“Bidding Entity” to be TVC. The LOI set forth a “potential

transaction structure” of $6.5 million for the purchase of

TelJet’s assets ($4.2 million cash and $2.3 million equity

shares), subject to completion of due diligence, execution of a

definitive Asset Purchase Agreement, and execution of mutually

acceptable employment agreements designed to keep TelJet

management, including Mr. Kelly, at the combined TVC-TelJet

company post-transaction. The LOI was signed by Mr. Kaplan and

Mr. Kelly.

On March 27, 2013, pursuant to an Asset Purchase Agreement

(“APA”), TelJet’s assets were sold to Tech Valley. The

transaction closed on June 28, 2013.

As contemplated in the APA, in conjunction with the closing

of the TelJet transaction, Mr. Kelly entered into an employment

agreement with TVC. Under his employment agreement, Mr. Kelly

was to receive an annual salary of $124,000 and an “annual bonus

of up to $25,000.”

3. The APA and its Relevant Provisions

Defendants Riverside and Steven Kaplan were never parties

to the APA. The APA initially defined “Purchaser” as TJL

Acquisition.

Shortly after the APA was entered into, an Amendment to the

APA was executed, with this to be effective at the closing of

the sale. Among other things, this Amendment amended and

restated the preamble of the APA. The “Purchaser” was now to be

TVC. Mr. Kelly, Kenneth Pidgeon, Mr. Kaplan, and Douglas Hyde

signed the Amendment.

Effective as of March 28, 2013, an Assignment and

Assumption Agreement (“AAA”) was entered into between TJL

Acquisition and TVC. Pursuant to this AAA, TJL Acquisition

“assign[ed] all of its rights and obligations under the [APA]

. . . .” The AAA stated that “[f]or the avoidance of doubt,

references to the “Purchaser” in the [APA] shall be deemed to be

references to TVC . . . .” Mr. Kelly,Mr. Kaplan, and Kenneth

Pidgeon signed the AAA.

Section 3.26 of the APA provided that “Affiliate” would

have the meaning ascribed to it in Rule 405 of the Securities

Act of 1933, which defines the term as “a person that directly,

or indirectly through one or more intermediaries, controls or is

controlled by, or is under common control with, the person

specified.” 17 C.F.R. § 230.405. Rule 405 further provides,

“[t]he term control (including the terms controlling, controlled

by and under common control with) means the possession, direct

or indirect, of the power to direct or cause the direction of

the management and policies of a person, whether through the

ownership of voting securities, by contract, or otherwise.” Id.

Article 2 of the APA dealt with representations and

warranties concerning the Sellers, of which Mr. Kelly was one by

terms of the preamble paragraph of the APA Specifically,

Section 2.1 provided that “[t]he execution, delivery and

performance of this [APA] . . . will not . . . be in conflict

with . . . or cause the acceleration of any obligation . . .

under any . . . agreement [or] contract . . . to which the

Seller is a party . . . .” Section 3.23(f) provided that “[t]he

consummation of the Transactions contemplated by this [APA] will

not . . . (iii) increase the amount of compensation or benefits

due to any individual.”

Article 9 of the APA provided for indemnification for any

breaches of the covenants or representations and warranties.

Specifically, Section 9.1 states that “[n]o action for a breach

of the representations and warranties contained herein shall be

brought more than eighteen months following the Closing Date,

except for (a) claims arising out of the representations and

warranties contained in ARTICLE 2 or Sections 3.4(a), 3.11(b)-

(c) or 3.26, which shall survive indefinitely after the Closing

. . . and (d) claims based upon fraud.”

Section 9.4(a) directed that:

The Selling Entities and the Sellers shall jointly and

severally indemnify and hold the Purchaser and its

Affiliates (the “Purchaser Indemnified Parties”)

harmless from and against all claims, liabilities,

obligations, costs, damages, losses and expenses

(including reasonable attorneys’ fees and costs of

investigation) of any nature (collectively, “Losses”)

arising out of or relating to (i) any breach or

violation of the representations or warranties of any

of the Sellers (other than those set forth in ARTICLE

2) or the Selling Entities set forth in this [APA]

(including the Schedules hereto) or in any certificate

or document delivered pursuant to this [APA], (ii) any

breach or violation of the covenants or agreements of

the Selling Entities set forth in this [APA], (iii)

any breach or violation of the covenants or agreements

of the Sellers set forth in this [APA] . . . .

Section 9.4(b) stated that “[e]ach Seller shall severally,

but not jointly, indemnify and hold the Purchaser Indemnified

Parties harmless from and against all Losses arising out of or

relating to (i) any breach of violation of the representations

or warranties of such Seller in ARTICLE 2 of this [APA] . . . .”

Section 9.3, however, set limitations on indemnifications.

Section 9.3 provides that:

If the Closing occurs, the Purchaser Indemnified

Parties (as hereinafter defined) shall not be entitled

to recover any Losses (as hereinafter defined) for

breach of the representations and warranties of the

Sellers and/or the Selling Entities contained herein

(a) unless and until the Purchaser Indemnified

Parties’ aggregate claims therefor exceed $50,000, in

which event the Purchaser Indemnified Parties shall be

indemnified for all such Losses in excess of, but not

including such $50,000 (the “Basket”), or (b) for an

aggregate amount in excess of $3,000,000 (which amount

includes the Escrow) (the “Cap”) . . . provided, that

claims based upon fraud or for breach of the Uncapped

Representations [i.e., the representations and

warranties contained in ARTICLE 2] shall not be

subject to the foregoing limits, including the Cap and

Basket . . . .

Section 10.2 of the APA provided that the APA:

[S]hall be governed by and construed in accordance

with the internal laws of the State of Delaware

applicable to agreements executed and to be performed

solely within such State. Any judicial proceeding

arising out of or relating to this [APA] shall be

brought in the courts of the State of Delaware, and,

by execution and delivery of this [APA], each of the

parties to this [APA] accepts the exclusive

jurisdiction of such courts, and irrevocably agrees to

be bound by any judgment rendered thereby in

connection with this [APA].

4. Post-Closing Issues and Settlement Agreement

On October 8, 2013, Tech Valley and TVC gave Notice of

Claims for Indemnification under the APA against TelJet, VFL,

and the Pidgeons, for alleged breaches of certain

representations and warranties contained in the APA. Tech

Valley and TVC did not give formal notice at that time of any

claim for indemnification against Mr. Kelly.

The dispute which was the subject of the October 8, 2013

Notice was settled on July 31, 2014 with a settlement agreement.

The settlement agreement sets out the parties as:

Tech Valley Holdings, LLC, and TVC Albany, Inc., n/k/a

FirstLight Fiber (collectively, the “Tech Valley

Parties”) on the one hand, and TelJet Longhaul, LLC,

TelJet, Inc., Vermont Fiberlink, LLC, Alan Pidgeon,

Scott Pidgeon, Kenneth Pidgeon, and Douglas Hyde

(collectively “TelJet Parties”), on the other hand.

The Tech Valley Parties and the TelJet Parties are

hereinafter referred to collectively as the “Parties”

and each individually as a “Party.”

The parties to this settlement agreement thus were

expressly only Tech Valley and TVC, and TelJet, VFL, the

Pidgeons, and Douglas Hyde.

Section IV.A of the settlement agreement contained mutual

general releases and covenants not to sue. This section

provided that:

Each of the Tech Valley Parties, on behalf of

themselves and each of their respective subsidiaries,

predecessors, successors and assigns (collectively the

“Tech Valley Releasing Parties”), hereby:

1. Fully finally and forever acquit, waive, release,

and forever discharge all of the TelJet Parties and

each of their respective predecessors, successors,

affiliates, shareholders, equity holders, partners,

members, managers, officers, directors, agents,

investors, trustees, administrators, executors, heirs,

family members, attorneys, assigns and insurers

(collectively the “TelJet Released Parties”) from and

against any and all claims, demands, suits, orders,

decrees, complaints, counterclaims, cross-claims,

arbitrations, actions, counts, third-party actions,

rights, benefits, liabilities, duties, requests,

letters, notices, subpoenas, lawsuits, administrative

proceedings, inquiries, directives, appraisals,

notices, statutory or regulatory duties or

obligations, claims of any entity, mediations, causes

of action and any other assertions of cost or

liability of any kind, nature of type whatsoever,

whether legal or equitable, and whether currently

known or unknown, fixed or contingent, mature or

unmatured, liquidated or unliquidated, direct or

consequential, foreseen or unforeseen and whether

sounding in tort, contract, contribution

indemnification, subrogation, equity, negligence,

strict liability or any statutory, regulatory,

administrative or common law cause of action, duty or

obligation of any sort (collectively, “Claims”) that

any of the Tech Valley Releasing parties has, had

and/or may in the future have against any of the

TelJet Released Parties arising from, involving the

subject matter of and/or relating in any way to any

act and/or omission of any type, nature or description

that occurred or allegedly occurred at any time

. . . .

Importantly, at no time were either Defendant Riverside or

Defendant Kaplan a subsidiary, predecessor, successor, or assign

of Tech Valley or TVC.

Section IV.D of the settlement agreement provided:

Notwithstanding anything to the contrary above,

insofar as the releases and covenants described in

Sections A and B above extend to or otherwise include

persons who are current or former employees of any of

the Tech Valley Parties, such releases and covenants

(i) shall extend only to affirmative Claims made by

any Party relating to and/or arising out of the APA,

and (ii) shall not prevent any Party from asserting

defenses or counterclaims relating to and/or arising

out of the APA against any current or former employees

of any of the Tech Valley Parties in the event any

such person first commences a lawsuit, arbitration

proceeding or other formal legal claim against the

Party.

On August 22, 2014, Mr. Kelly voluntarily1 resigned from

TVC. On September 12, 2014, Mr. Kelly rejected an offered

separation agreement and did not sign any release, nor did he

receive any severance payments from TVC.

B. Procedural History

On August 19, 2016, Mr. Kelly filed the Complaint in this

action. The Complaint sought redress against Riverside and Mr.

Kaplan for: (i) breach of contract by Riverside; (ii) fraud by

Riverside and Mr. Kaplan; (iii) quantum meruit from Riverside;

1 Although Mr. Kelly appears to dispute that he “voluntarily”

resigned, any such dispute is belied by his Complaint which

alleges — and thus admits — that he did in fact “voluntarily”

resign.

(iv) promissory estoppel by Riverside; (v) unfair or deceptive

acts or practices by Riverside; (vi) aiding and abetting fraud

by Mr. Kaplan; and (vii) civil conspiracy by Mr. Kaplan.

On January 27, 2017, in an amended answer, Defendants added

a counterclaim for indemnification against Mr. Kelly.

On February 17, 2017, in an answer to Defendants’

counterclaim, Mr. Kelly filed his own counterclaim for breach of

the settlement agreement against the Defendants.

On August 4, 2017, the Defendants filed a motion for

summary judgment on all claims and counterclaims. On the same

day, Mr. Kelly filed a motion for summary judgment as to

Defendants’ counterclaim.

At the conclusion of the hearing on December 19, 2017

regarding the parties’ motions for summary judgment, I granted

Defendants’ motion for summary judgment, and denied Plaintiff’s

motion for summary judgment and motion to strike and exclude

evidence. On the issue of damages, however, I requested further

briefing. Supplemental submissions on damages were received

shortly thereafter.

I held a hearing on February 28, 2018 regarding the issue

of damages. As a result of issues developed at the hearing, I

requested further materials concerning attorneys’ fees. The

parties filed their responses and replies in due course.

II. STANDARD OF REVIEW

Under Fed. R. Civ. P. 56(a), a “court shall grant summary

judgment if the movant shows that there is no genuine dispute as

to any material fact and the movant is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(a). “An issue is ‘genuine’

if the evidence of record permits a rational factfinder to

resolve it in favor of either party.” Borges ex rel. S.M.B.W.

v. Serrano-Isern, 605 F.3d 1, 4 (1st Cir. 2010). “A fact is

‘material’ if its existence or nonexistence has the potential to

change the outcome of the suit.” Id. at 5.

“The moving party bears the initial burden of informing the

trial court of the basis for his motion and identifying the

portions of the pleadings, depositions, answers to

interrogatories, admissions, and affidavits, if any, that

demonstrate the absence of any genuine issue of material fact.”

Id. After the moving party has met this threshold, “the burden

shifts to the nonmoving party, who must, with respect to each

issue on which she would bear the burden of proof at trial,

demonstrate that a trier of fact could reasonably resolve that

issue in her favor.” Id. “If the nonmovant fails to make this

showing, then summary judgment is appropriate.” Id. In ruling

on the motions, I “constru[e] the record in the light most

favorable to the nonmovant and resolv[e] all reasonable

inferences in that party’s favor.” Rochester Ford Sales, Inc.

v. Ford Motor Co., 287 F.3d 32, 38 (1st Cir. 2002) (citation

omitted).

When presented with cross-motions for summary judgment, I

must “consider each motion separately, drawing all inferences in

favor of each non-moving party in turn.” Green Mountain Realty

Corp. v. Leonard, 750 F.3d 30, 38 (1st Cir. 2014) (quoting D & H

Therapy Assocs., LLC v. Boston Mut. Life Ins. Co., 640 F.3d 27,

34 (1st Cir. 2011)).

III. ANALYSIS

At the outset, I must take up two threshold issues: the

relevance of the APA’s forum-selection clause and Mr. Kelly’s

Motion to Strike evidence presented by Defendants for

consideration in connection with the summary judgment motions.

A. Forum Selection Clause

The inclusion of a forum-selection clause in Section 10.2

of the APA presents the issue whether this court is the proper

forum for resolving this dispute and, if it is, what substantive

law should be applied. Mr. Kelly contends that, pursuant to the

forum-selection clause, the Defendants’ counterclaim must be

brought in Delaware and therefore must be dismissed in this

litigation.

Generally, a valid forum-selection clause should be

enforced “in all but the most exceptional cases.” Atl. Marine

Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 571 U.S.

49, 60 (2013) (citation and internal quotation marks omitted).

Enforcing a forum-selection clause protects the parties’

“legitimate expectations and furthers vital interests of the

justice system.” Id. at 63 (citation and internal quotation

marks omitted).

The Supreme Court has recognized that a forum-selection

clause may, however, be found unenforceable where:

(1) the clause was the product of “fraud or overreaching,”

(2) “enforcement would be unreasonable and unjust,” (3)

proceedings “in the contractual forum will be so gravely

difficult and inconvenient that [the party challenging the

clause] will for all practical purposes be deprived of his

day in court,” or (4) “enforcement would contravene a

strong public policy of the forum in which suit is brought,

whether declared by statute or by judicial decision.”

Huffington v. T.C. Grp., LLC, 637 F.3d 18, 23 (1st Cir. 2011)

(quoting The Bremen v. Zapata Off–Shore Co., 407 U.S. 1 (1972))

(internal citations omitted; alterations in original).

Forum-selection clauses are generally given effect through

transfer to the contractually selected forum pursuant to 28

U.S.C § 1404(a). Atl. Marine Const. Co., 571 U.S. at 59.

However, if the forum-selection clause points to a state or

foreign tribunal to which transfer is not possible, the

appropriate mechanism to enforce the clause is through the

doctrine of forum non conveniens. Id. at 60.

As to interpretation, the forum-selection clause in the APA

mandatorily states proceedings “shall” be brought in “the courts

of the State of Delaware.” This raises the question whether

“courts of the State of Delaware” is limited to state courts or

also encompasses federal courts situated in Delaware. Federal

courts by definition are not “courts of” the state in which they

are situated; consequently, I read the forum-selection clause as

limited to Delaware state courts. See, e.g., LFC Lessors, Inc.

v. Pac. Sewer Maint. Corp., 739 F.2d 4, 7 (1st Cir. 1984)

(phrase “courts of the Commonwealth of Massachusetts” means

Massachusetts state courts); see also Doe 1 v. AOL LLC, 552 F.3d

1077, 1081–1082 (9th Cir. 2009) (per curiam) (“Courts of

Virginia” means the state courts of Virginia, and “does not also

refer to federal courts in Virginia.”); American Soda, LLP v.

U.S. Filter Wastewater Group, Inc., 428 F.3d 921, 926 (10th Cir.

2005) (courts “of Colorado” exclusively refers to state courts

because “a federal court located in Colorado is not a court of

the State of Colorado but rather a court of the United States of

America.”); Dixon v. TSE Intern. Inc., 330 F.3d 396, 398 (5th

Cir. 2003) (per curiam) (same with regard to “Courts of Texas”).

I cannot transfer a case initiated in this court to a state

court, even if I were to find the forum-selection clause

enforceable. Consequently, whether dismissal is appropriate

would ordinarily be analyzed pursuant to the doctrine of forum

non conveniens. However, I need not reach that issue because I

find that the forum-selection clause as to Defendants’

counterclaim unenforceable by Plaintiff for two main reasons.

First, Mr. Kelly himself chose to file his suit in this

jurisdiction despite the fact that his claims appear themselves

to be governed by the forum-selection clause in the APA because

they invoke a “judicial proceeding arising out of or relating to

[the APA]”. But for the APA, his claim would not have arisen;

his alleged $1 million side-deal is based on arranging and

consummating the APA and TelJet transaction. See Kebb Mgmt.,

Inc. v. Home Depot U.S.A., Inc., 59 F. Supp. 3d 283, 289 (D.

Mass. 2014) (the terms “relating to” or “in connection with” are

“generally construed quite broadly”); Somerville Auto Transp.

Serv., Inc. v. Auto. Fin. Corp., 691 F. Supp. 2d 267, 272 (D.

Mass. 2010) (“[T]he present litigation could not have occurred

absent the pertinent agreements” and therefore were actions

“relating to” the contract and therefore governed by the forum-

selection clause).

In light of Mr. Kelly’s own disregard of the forum-

selection clause in initiating this case, I concluded that he

had waived the enforcement of the clause. Mr. Kelly may not

selectively seek to enforce a forum-selection clause that he has

already violated and ignored. See, e.g., Jalin Realty Capital

Advisors, LLC v. A Better Wireless, NISP, LLC, No. CIV. 11-0165

JRT/LIB, 2012 WL 838439, at *3 (D. Minn. Mar. 12, 2012)

(“[P]laintiff waives venue privileges with respect to any

counterclaim, either permissive or compulsory, when he commences

an action in a forum where venue otherwise would not lie”)

(citation and internal quotation marks omitted); Electro-Mech.

Corp. v. Riter Eng'g Co., No. 2:10-CV-975 TS, 2011 WL 2118704,

at *4 (D. Utah May 25, 2011) (forum-selection clause waived

where Plaintiff “chose to bring its claim in a separate forum

and only sought to enforce the clause after counterclaims were

brought against it under the Agreement”); In re Rationis

Enterprises, Inc. of Panama, No. 97 CV 9052 (RO), 1999 WL 6364,

at *2 (S.D.N.Y. Jan. 7, 1999) (“[F]orum selection clause will be

deemed waived if the party invoking it has taken actions

inconsistent with it, or delayed its enforcement, and other

parties would be prejudiced”) (citation and internal quotation

marks omitted).

Second, and more practically, enforcing the forum-selection

clause at the ultimate dispositive motion stage of this

litigation and thereby dismissing the entire case would be

“unreasonable and unjust,” especially since the full course of

discovery and several rounds of motion practice have proceeded

in this court. Forcing the parties to start over ab initio in

Delaware state court at this stage would be an unreasonably

unjust and belated exercise in moving the horse to a different

barn at the instance of a party who chose the initial barn to

contain it in the first place. This is an exercise that hardly

conduces to securing a just, speedy and inexpensive

determination of this action. C.f. Fed. R. Civ. P. 1.

For these reasons, insofar as it relates to venue (as

opposed to choice-of-law, which clearly looks to the law of

Delaware, a proposition neither party disputes), I concluded the

forum-selection clause in the APA was unenforceable in this

litigation by the time the issue was raised by Mr. Kelly.

B. Plaintiff’s Motion to Strike

In his motion to strike, Mr. Kelly claimed that Defendants

failed to produce any evidence of alleged damages during

discovery, and that this deprived him of an opportunity to

inquire into this essential element of Defendants’ counterclaim.

Mr. Kelly argued that Defendants should not be permitted to

rely on documentary evidence produced two months after the close

of discovery and requested that I strike the portions of

Defendants’ motion “that rely on invoices and other records

supposedly supporting Defendants’ attorneys’ fees, as Defendant

refused to produce such documents in discovery, without

substantial justification.”

Under Rule 37 of the Federal Rules of Civil Procedure, a

court, of course, has the power to preclude a party from

introducing evidence and strike pleadings in whole or in part

for a party’s failure to comply with discovery. Furthermore,

Rule 26, in relevant part, provides that:

[A] party must, without awaiting a discovery request,

provide to the other parties . . . a computation of each

category of damages claimed by the disclosing party — who

must also make available for inspection and copying as

under Rule 34 the documents or other evidentiary material,

unless privileged or protected from disclosure, on which

each computation is based, including materials bearing on

the nature and extent of injuries suffered.

Fed. R. Civ. P. 26(a)(1)(A)(iii).

Under the governing scheduling order, fact discovery

concluded on June 16, 2017. Mr. Kelly contended that

“Defendants delayed for more than two months after the close of

discovery to produce invoices and bills that supposedly support

their damages (i.e., attorneys’ fees)” (emphasis removed).

It is undisputed that on September 2, 2017, Defendants’

filed several exhibits, specifically invoices, detailing the

attorneys’ fees which had not been produced prior to that

filing. The exhibits were filed in conjunction with Defendants’

opposition to Mr. Kelly’s motion for summary judgment.

Notwithstanding Rule 26, on January 20, 2017 in Mr. Kelly’s

first set of discovery requests, Mr. Kelly asked for “[a]ll

Documents or Communications Concerning Mr. Kelly in connection

with the indemnification claim asserted by You, Tech Valley, or

TVC with respect to the APA.” Then on May 12, 2017 in Mr.

Kelly’s second set of discovery requests, Mr. Kelly requested

Defendants “[d]escribe in detail the complete basis for any

indemnity claim made with respect to the APA or the Sale by You,

Tech Valley, or TVC.” Defendants responded to this

interrogatory on May 31, 2017. Part of their response included

that “Riverside and Kaplan ha[d] suffered and continue[d] to

suffer Losses as defined in Section 9.4 of the APA, including

but not limited to their attorneys’ fees incurred in response to

Mr. Kelly’s Complaint and Counterclaim, plus interest and

associated costs.” The response further asserted that “[t]he

recoverable Losses incurred to date include[d] Riverside and

Kaplan’s expenditure of legal fees in excess of $250,000, which

will exceed the $250,000 deductible under their insurance

policy, and such other legal fees and other expenses for which

insurance recovery ultimately [wa]s not obtained.” Mr. Kelly

never specifically requested attorneys’ fees invoices during

discovery.

Additionally, Defendants, in their statement of undisputed

material facts in support of their motion for summary judgment

plainly asserted that Mr. Kaplan and Riverside expended

recoverable losses of at least $250,000 in attorneys’ fees and

costs. Moreover, on June 15, 2017, an email from Defendant’s

counsel to Mr. Kelly’s counsel made clear that Mr. Kaplan

contended “Riverside ha[d] to date paid $250,000.00 in

attorneys’ fees and related costs to cover the deductible on its

insurance policy[,]” which was produced to counsel. The email

explained that “[t]he remainder of the bills ha[d] been

submitted to the insurer for coverage and payment, but ha[d] not

been paid.” The email included that “although [Mr. Kelly’s]

interrogatory did not ask specifically for costs, Riverside

ha[d] also received separate bills totaling $29,541.44 from a

third-party document collection and production vendor” and that

“Riverside ha[d] paid 924,582.43 of those costs directly to help

meet the $250,000.00 deductible.” This email was sent before

the end date of discovery.

In my view, these timely disclosures were enough for Mr.

Kelly to have been on notice to ask for more specific

disclosures from Defendants if he chose to do so. There was no

prejudice to Mr. Kelly that was not self-inflicted by his

failure to follow up. In any event, the invoices that were

provided offered adequate support for Defendants’ claim of

meeting the alleged damages threshold in the APA. Moreover, in

supplemental submissions I ordered during consideration of the

cross motions for summary judgment, Mr. Kelly was provided with

all further discovery that he could have needed. There was no

good reason to grant Mr. Kelly’s motion to strike; consequently,

I denied it.

C. Cross-Motions for Summary Judgment as to Indemnity Claim

Both Mr. Kelly and the Defendants sought summary judgment

on the Defendants’ counterclaim for indemnification.

1. Defendants’ Status as “Affiliates”

The APA requires that the Sellers and Selling Entities

indemnify “the Purchaser and its Affiliates” for their breaches

of their representations and warranties. Therefore, the

threshold issue for Defendants’ indemnity claims is whether

Defendants, Riverside and Mr. Kaplan, meet the APA’s definition

of the Purchaser’s “Affiliates”.

Section 3.26 of the APA defined the term “Affiliate,”

directing attention to the definition in SEC Rule 405 under the

Securities Act of 1933. Under Rule 405, the time for qualifying

as an “Affiliate” is at the time of the relevant transactions.

See SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1089

(9th Cir. 2010) (“We hold that Intermedia was an affiliate of

Platforms at the time of the transactions”) (emphasis added).

Under Rule 405, an “affiliate” is “a person that directly,

or indirectly through one or more intermediaries, controls or is

controlled by, or is under common control with, the person

specified.” 17 C.F.R. § 230.405. Rule 405 explains that “[t]he

term control (including the terms controlling, controlled by and

under common control with) means the possession, direct or

indirect, of the power to direct or cause the direction of the

management and policies of a person, whether through the

ownership of voting securities, by contract, or otherwise.” Id.

Accordingly, “[c]ontrol is not to be determined by

artificial tests, but is an issue to be determined from the

particular circumstances of the case. Under Rule 405 . . . it

is not necessary that one be an officer, director, manager, or

even shareholder to be a controlling person. Further, control

may exist although not continuously and actively exercised.”

Platforms Wireless Int’l Corp., 617 F.3d at 1087 (quoting

Pennaluna & Co. v. SEC, 410 F.2d 861, 866 (9th Cir. 1969))

(internal quotation marks omitted; omission in original).

However, “a person who serves as a director or executive officer

for a corporation, or who occupies a comparable position for

other business entities, is a strong candidate for affiliate

status.” In re Asian Yard Partners, Nos. 95-333-PJW, 95-334-

PJW, 1995 WL 1781675, at *17 (Bankr. D. Del. Sept. 18, 1995)

(citation omitted). Furthermore, “[o]wnership is one means of

control, but it is not the only means, and multiple persons can

exercise control simultaneously.” Platforms Wireless Int’l

Corp., 617 F.3d at 1088. What is essential to establish control

is that a “plaintiff must show that the defendant actually

participated in, or exercised control over, the operations of

the corporation in general and had the power to control the

specific transaction in question.” Bray v. R.W. Tech., Inc.,

Civ. A. No. 88-0470-Z, 1990 WL 44084, at *1 (D. Mass. Apr. 3,

1990).

For example, in Waldman ex rel. Elliott Waldman Pension

Trust v. Riedinger, a settlement agreement was approved for “all

persons and entities that purchased shares of common stock of

Olsten Corporation” within a specific time period. 423 F.3d

145, 147 (2d Cir. 2005). However, certain categories of

stockholders were excluded, including affiliates of the

defendants. Id. The Second Circuit held that Riedinger did not

qualify as an affiliate of the defendants “because he neither

controlled nor was controlled by any of the defendants.” Id. at

151. The Second Circuit reasoned that although Riedinger was

the trustee of numerous trusts connected to the defendants, he

was a merely a “trustee in name,” having never been consulted as

to the actions of the trusts or even informed as to any of the

meetings of the trustees; he was essentially ignored by the

other trustees. Id.

In this case, both Defendants contend that each was, at all

relevant times (from signing of the APA up until at least the

filing of Mr. Kelly’s complaint), an “Affiliate” of the

“Purchaser” (both TVC2 and TJL Acquisition) because Riverside and

2 Mr. Kelly attempts to make an argument that TVC was never a

“purchaser” under the APA due to alleged deficiencies in the AAA

between TJL Acquisition and its parent, TVC. Regardless of the

merits of this argument — about which I am dubious — because I

Mr. Kaplan “directly controlled” both TVC and TJL Acquisition

and the TelJet transaction. Specifically, Mr. Kaplan, who

served as Chairman of the Board (of Managers) of Tech Valley and

Chairman of the Board (of Directors) of TVC, and others at

Riverside, at all times orchestrated and controlled the

decisions of those companies as to whether and on what terms to

sign the APA, purchase the TelJet assets, and enter into

employment terms with Mr. Kelly. Significantly, Tech Valley and

TVC entirely controlled TVC’s wholly-owned subsidiary, TJL

Acquisition. TVC was the sole member of TJL Acquisition and Mr.

Kaplan, as Chairman of the Board of Tech Valley and TVC, was

specifically authorized to sign agreements for TJL Acquisition

exercising all of TJL Acquisition’s rights, powers, and

privileges with respect to the APA and the TelJet transaction.

Additionally, Mr. Kaplan, in an affidavit, averred without

contradiction that “Riverside through its employees thereby

controlled the Board and company decisions of both Tech Valley

and TVC.” Tech Valley’s Limited Liability Company Agreement

provided that “any Manager who is also an employee of Riverside

Partners, LLC is sometimes referred to herein as a ‘Riverside

Manager.’” It further stated that “[i]f at any time the current

Riverside Manager(s) constitute less than a majority of the

find that the Defendants were affiliates of both TVC and TJL

Acquisition, I need not definitely resolve the issue.

Managers then in office, the Riverside Manager(s) shall be

deemed to have a sufficient number of votes to constitute a

majority of the Board.” Such a provision allows for Riverside

to retain the majority vote. Similarly, the TJL Acquisition’s

Limited Liability Company Agreement stated that TVC is the sole

Member and that “[t]he management of [TJL Acquisition] and its

business and affairs shall be vested solely in [TVC].”

Accordingly, the undisputed facts in the record

demonstrate that Defendants actually participated in, or

exercised control over, the operations of the Purchaser in

general and had the power to control execution of the APA.

Defendants also contend that Riverside, Mr. Kaplan, Tech

Valley, TVC, and TJL Acquisition were all ultimately under the

“common control” of David Belluck, because Mr. Belluck owned and

controlled all of Riverside, its employees, Tech Valley, TVC,

and TJL Acquisition through a series of Riverside entities

owning Tech Valley. He is also the managing member of, and

controls, Riverside Partners IV, LLC. Riverside Partners IV,

LLC is the general partner of, and controls, Riverside Partners

IV, L.P. Riverside Partners IV, L.P., in turn, is the general

partner of, and controls, Riverside Fund IV, L.P. (and Riverside

Fund IV Offshore L.P.). Riverside Fund IV, L.P. (and Offshore

L.P.) own(s) and control(s) Tech Valley through the ultimate

ability to appoint Tech Valley’s Board of Managers. This chain

of command establishes Mr. Belluck’s common control of the

Purchaser, i.e., TVC and TJL Acquisition, and Affiliates of the

Purchaser, such as the Defendants.

The summary judgment record thus establishes as a matter of

law that Defendants “directly, or indirectly through one or more

intermediaries, control[ed] or [were] controlled by, or [were]

under common control with” the Purchasers of the APA.

Consequently, Defendants are Affiliates pursuant to the APA and

are entitled to bring an indemnity claim against Mr. Kelly.

2. Breach of APA Warranty or Representation

To bring a claim for indemnification under the APA, there

must be a breach of a warranty or representation.

Defendants contend Mr. Kelly’s alleged $1 million oral

signing bonus deal (which would have required disclosure in the

APA) was not disclosed in the APA or anywhere else. As a

result, by the allegations in his complaint (and subsequent

testimony under oath), Mr. Kelly admitted breach of the

warranties in Sections 2.1 and 3.23(f) of the APA because he

purported to be in the position — when he signed the APA — of

having an undisclosed, oral side-deal with Riverside to be paid

a $1 million signing bonus upon closing of the APA.

Defendants contended that Mr. Kelly’s breaches of Sections

2.1 and 3.23(f) of the APA, evidenced by the admissions in his

pleadings, were both intentional and fraudulent. Defendants

thus contended that their indemnity counterclaim constituted a

complete defense to Mr. Kelly’s claims, regardless of their

merit.

Under APA Section 2.1, Mr. Kelly, as a Seller, agreed to a

warranty that “[t]he execution, delivery and performance of this

[APA] . . . w[ould] not . . . be in conflict with . . . or cause

the acceleration of any obligation or loss of any agreement [or]

contract . . . to which the Seller is a party . . . .” He also

agreed to a warranty under Section 3.23(f) that “[t]he

consummation of the Transactions contemplated by this [APA] will

not . . . (iii) increase the amount of compensation or benefits

due to any individual.”

Mr. Kelly’s admitted side-deal breached these explicit

warranties. Mr. Kelly’s belief, at the time he entered into the

APA, was indisputably that he would be entitled to a $1 million

signing bonus upon the consummation of the TelJet transaction

because of the oral contract he had with Riverside. Such a

side-deal conflicted with Section 2.1 because the consummation

of the TelJet transaction and the APA “cause[d] the

acceleration” of Riverside’s purported obligation to pay Mr.

Kelly the $1 million signing bonus.

The side-deal also conflicted with Section 3.23(f) because

the $1 million signing bonus must be deemed “compensation or

benefits.” According to Black’s Law Dictionary, compensation is

“[r]emuneration and other benefits received in return for

services rendered.” Compensation, Black’s Law Dictionary (10th

ed. 2014). Benefits is defined as “[p]rofit or gain.” Benefit,

Black’s Law Dictionary (10th ed. 2014). There is no dispute

that the alleged $1 million signing bonus, if received, would be

remuneration, profit, or gain for Mr. Kelly.

As a further matter, Mr. Kelly’s suggestion that Riverside

and Mr. Kaplan knew of his alleged side-deal did not abrogate

the warranties in the APA or preclude the Defendants’ indemnity

counterclaim. Delaware law follows the majority rule that a

party cannot defend against a claim of breach of warranty by

contending that the plaintiff knew of the breach pre-closing.

See Gloucester Holding Corp. v. U.S. Tape & Sticky Prods., LLC,

832 A.2d 116, 127-28 (Del. Ch. 2003) (“Reliance is not an

element of claim for indemnification.”); Akorn, Inc. v.

Fresenius Kabi AG, No. CV 2018-0300-JTL, 2018 WL 4719347, at *76

(Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018).

Additionally, Section 9.8 of the APA expressly stated that

“[t]he rights to indemnification . . . shall not be affected by

(a) any investigation or finding by or on behalf of any party or

any knowledge acquired by any party, whether before or after the

date of this Agreement of the Closing Date . . . .” Therefore,

Mr. Kelly cannot avoid indemnity for his breaches of warranty by

suggesting Defendants had knowledge of the alleged side-deal

because that would be irrelevant under both the Delaware law and

the parties’ written agreement.

3. Prerequisite Losses for Indemnification

Mr. Kelly contended he was entitled to summary judgment on

the indemnification counterclaim because Defendants had not

incurred losses and thus were not entitled to indemnification.

In order to be eligible for indemnification under the APA,

pursuant to Section 9.3, the aggregate claims ordinarily must

exceed $50,000. However, the $50,000 threshold does not apply

for “claims based upon fraud or for breach of the Uncapped

Representations,” the latter term being defined as

representations and warranties contained in Article 2 and other

enumerated sections.

Mr. Kaplan testified that he had not paid any monies or

otherwise incurred any legal expenses as a result of Mr. Kelly

commencing this action. Riverside, however, contended that it

had paid $250,000 in attorneys’ fees and costs to satisfy its

insurance deductible.

Here, Defendant Riverside’s indemnity claim falls within

the exception to the $50,000 limitation in Section 9.3 because

they are claims based on Article 2 and upon fraud (since Mr.

Kelly believed when he signed these warranties that he had an

unwritten and inconsistent side-deal for $1 million).

4. Time Bar on Indemnification Claims

Mr. Kelly also contended he was entitled to summary

judgment on the basis that Defendants’ indemnity counterclaim

was time-barred.

Section 9.1 of the APA provides, in relevant part, that

“[n]o action for a breach of the representations and warranties

contained herein shall be brought more than eighteen months

following the Closing Date, except for” claims arising out of

“the representation and warranties contained in Article 2” and

“claims based upon fraud”, which shall survive indefinitely.

I have found Riverside’s indemnity claim arises from

Article 2 and is independently based on fraud. Thus, they are

not time barred.

Mr. Kelly urged me to reject as improper Riverside’s

attempt to circumvent the survival clause by phrasing their

breach of warranty claim as fraud. For this proposition, Mr.

Kelly cites to Microstrategy Inc. v. Acacia Research Corp.,

where the court noted “Delaware law holds that a plaintiff

cannot bootstrap a claim of breach of contract into a claim of

fraud merely by alleging that a contracting party never intended

to perform its obligations.” No. 5735-VCP, 2010 WL 5550455, at

*17 (Del. Ch. Dec. 30, 2010) (internal quotation marks omitted).

However, the Microstrategy approach is inapplicable here where

Riverside did not plead a separate fraud claim. Instead,

Riverside’s indemnity claim is based upon breaches of APA

warranties by means of fraud and therefore qualify as breach of

contract “claims based upon fraud”.

As a consequence, I concluded Riverside’s indemnity claims

were not time-barred either as based on Article 2 warranties and

representations on fraudulent breach of those warranties.

5. The Settlement Agreement

Mr. Kelly argued he was entitled summary judgment because

the indemnity counterclaim was released by the July 2014

settlement agreement that releases the TelJet Parties and their

affiliates, officers, and directors, including him.

However, neither Riverside nor Mr. Kaplan were parties to

the settlement agreement. Moreover, they are not “subsidiaries,

predecessors, successors and assigns” of the Tech Valley

Parties. Notably, the settlement agreement does not bind Tech

Valley “affiliates.”3 Therefore, the settlement agreement did

not bind the Defendants.4

3 This is in contrast with Section IV.B. which binds “TelJet

Parties” and their “subsidiaries, predecessors, successors,

affiliates, trustees, administrators, executors, heirs, family

members, attorneys, assigns and insurers” (emphasis added).

4 The fact that there is a later Section titled “MISCELLANEOUS”

that says “[t]his agreement shall be binding upon and shall

insure to the benefit of each Party, its successors, assigns,

affiliates, agents, officers, directors, and representatives” is

immaterial. That general Section does not override the specific

language of Section IV.A — language that does not include

affiliates of the Tech Valley Parties — that designates with

particularity the parties bound by the settlement agreement.

Moreover, even if Defendants were bound by the settlement

agreement, they would be saved by Section IV.D. Section IV.D

provides that insofar as the releases and covenants not to sue

“extend to or otherwise include persons who are current or

former employees of any of the Tech Valley Parties” such

releases and covenants extend only to “affirmative claims made

by any Party relating to and/or arising out of the APA,” and

“shall not prevent any Party from asserting defenses or

counterclaims relating to and/or arising out of the APA against

any current or former employees of any of the Tech Valley

Parties in the event any such person first commences a lawsuit

. . . .” The indemnity counterclaim fell squarely within this

savings clause. It is not an affirmative claim; instead, it is

a counterclaim “relating to and/or arising out of the APA”

against a former employee of Tech Valley Parties, Mr. Kelly,

deriving from a lawsuit initiated by Mr. Kelly against the

Defendants.

Consequently, the settlement agreement does not bind

Defendants and, even if it did, it would not bar Defendants’

indemnity counterclaim because of Section IV D.

To give effect to the general would otherwise be to ride

roughshod over the specific. See DCV Holdings, Inc. v. ConAgra,

Inc., 889 A.2d 954, 961 (Del. 2005) (“Specific language in a

contract controls over general language, and where specific and

general provisions conflict, the specific provision ordinarily

qualifies the meaning of the general one.”)

Necessarily, in addition to permitting Defendants’

counterclaim for indemnification, these conclusions also mean

that the Defendants are entitled to summary judgment regarding

Mr. Kelly’s counterclaim for breach of the settlement agreement.

6. Ripeness of the Indemnity Counterclaim

Mr. Kelly argued that Defendants’ counterclaims were not

ripe because, under Delaware law, indemnification claims do not

accrue until an underlying breach is established.

“The test to be applied in ripeness analysis is whether

there is a substantial controversy, between parties having

adverse legal interests, of sufficient immediacy and reality

. . . .” McInnis-Misenor v. Me. Med. Ctr., 319 F.3d 63, 70 (1st

Cir. 2003) (quoting Lake Carriers’ Ass’n v. MacMullan, 406 U.S.

498, 506 (1972)) (internal quotation marks omitted). This

determination “involves a dual inquiry: evaluation of ‘both the

fitness of the issues for judicial decision and the hardship to

the parties of withholding court consideration.’” Id. (quoting

Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967)). “The

fitness inquiry ‘typically involves subsidiary queries

concerning finality, definiteness, and the extent to which

resolution of the challenge depends on facts that may not yet be

sufficiently developed.’” Id. (quoting Stern v. U.S. Dist.

Court, 214 F.3d 4, 10 (1st Cir. 2000)). “The hardship prong

evaluates ‘the extent to which withholding judgment will impose

hardship—an inquiry that typically turns upon whether the

challenged action creates a ‘direct and immediate’ dilemma for

the parties.’” Id. (quoting Stern, 214 F.3d at 10).

Purporting to rely on Delaware case law, Mr. Kelly cites

LaPoint v. AmerisourceBergen Corp., 970 A.2d 185 (Del. 2009),

for the proposition that “[a]s a general rule, decisions about

indemnity should be postponed until the underlying liability has

been established because a declaration as to the duty to

indemnify may have no real-world impact if no liability arises

in the underlying litigation.” Id. at 197. The LaPoint court

also noted that this is a “general rule” and not “absolute.”

Id. Mr. Kelly’s reliance on Delaware state case law for an

inquiry concerning this court’s subject matter jurisdiction is

misplaced.

The Seventh Circuit in Bankers Trust Co. v. Old Republic

Ins. Co., 959 F.2d 677 (7th Cir. 1992), “considered the

following factors to determine whether the duty to indemnify

claim was ripe: the likelihood that the insured would be liable

in the underlying litigation; the high amount of damages for

which the insured was likely to be liable; the insured’s

inability to pay those damages if found liable; the likelihood

that no other insurance policy would cover the damages.” Molex

Inc. v. Wyler, 334 F. Supp. 2d 1083, 1087 (N.D. Ill. 2004).

“Because the court [in Bankers Trust] found a high likelihood

that the insured would be held liable in the underlying action

for an amount that the insured could not afford to cover, the

Seventh Circuit found that the harm was sufficiently probable to

allow a declaratory judgment on the duty to indemnify before the

question of the insured’s liability was resolved.” Id. That is

the case here.

The indemnity counterclaim is a complete defense against

Mr. Kelly’s underlying claims; Mr. Kelly’s claims cannot prevail

without a demonstration he breached his warranties. If Mr.

Kelly were to lose on his claim, he remained obligated to

Defendants for damages in the nature of attorneys’ fees and

costs. Therefore, notwithstanding any determination as to the

existence of Mr. Kelly’s alleged $1 million oral contract with

Defendants, the Defendants’ indemnity claims are appropriate.

D. Defendants’ Motion for Summary Judgment on Plaintiff’s

Claims

Further, the Defendants seek summary judgment against all

of Plaintiff’s claims, namely (i) breach of contract by

Riverside; (ii) fraud by Riverside and Mr. Kaplan; (iii) quantum

meruit from Riverside; (iv) promissory estoppel by Riverside;

(v) unfair or deceptive acts or practices by Riverside; (vi)

aiding and abetting fraud by Mr. Kaplan; and (vii) civil

conspiracy by Mr. Kaplan.

The Defendants’ indemnity counterclaims are a complete

defense to all such claims. This is because Mr. Kelly cannot be

successful on his claims without having breached his own

warranties and thus owing indemnity for the same amounts. As a

result, the Defendants are entitled to summary judgment as to

all of these claims. Ultimately, the dispute between the

parties turned on indemnification. Having found Mr. Kelly

liable for indemnification, I turn to the damages question.

IV. INDEMNIFICATION DAMAGES

Under Section, 9.4 of the APA, Defendants are entitled to

be indemnified and held harmless against “all claims,

liabilities, obligations, costs, damages, losses and expenses

(including reasonable attorneys fees and costs of investigation)

of any nature.” Having found Defendants are entitled to summary

judgment on their counterclaim for indemnification, I must

determine the quantum of damages payable by Mr. Kelly. As

noted, only Riverside has established actual damages.

A. Legal Fees in Dispute

While Riverside incurred over $900,000 in legal fees and

costs, it seeks damages to cover lawyers’ fees and costs only up

to the $250,000 insurance deductible.5

5 Section 9.10 of the APA states that “[t]he amount of any

Losses for which indemnification . . . shall be net of any

amounts actually recovered under insurance policies . . . .”

The fees and costs in dispute were rendered between August

2016 and July 2017 by Defendants’ counsel, Daniel Winston and

John Calhoun of Choate, Hall & Stewart LLP (“Choate”). During

this time period, Choate and its database provider billed

$1,081,697.19, and the insurer subsequently approved $919,103.

The insurer paid the approved amount, net of the $250,000

deductible that Riverside had already paid.

On March 24, 2017, and April 25, 2017, Riverside made

unreimbursed payments respectively of $20,815.57 and $3,766.86

directly to OpenText (third-party database provider for

discovery management).6

On May 18, 2017, Riverside made a further payment of

225,417.57 to Choate for their legal services and costs.

In light of the fact Riverside expended $250,000 before

reaching their deductible, I hold Riverside’s payment of

$225,417.57 to Choate is apportionable to the first $225,417.57

of approved legal services rendered by Choate. According to the

evidence submitted, Choate invoiced the following approved

amount of legal services for the following periods before the

May 18, 2017 payment was made:

Riverside’s insurer has paid Riverside’s attorneys’ fees for

fees incurred above the deductible.

6 Mr. Kelly does not appear to dispute these sums paid to

OpenText, the third-party database provider.

 September 1, 2016, to October 31, 2016 (Invoice

1575771) - $85,287.00

 November 1, 2016, to November 30, 2016 (Invoice

1580773) - $8,482.50

 December 1, 2016, to December 29, 2016 (Invoice

1583590) – 56,441.00

 January 3, 2017, to February 28, 2017 (Invoice

1587896) - $210,982.51

Thus, I treat Riverside’s May 18, 2017 payment of

$225,417.57 to Choate as reflecting the services rendered in the

first three invoices (which total $150,210.50) in their

entireties and up to $75,207.07 from the services referenced in

the fourth invoice as together constituting the legal fees and

costs of the deductible paid directly to Choate. Based on my

analysis of the insurer’s audit report and the underlying

billing data provided by Choate, I find this deductible

apportionment extends through line item entry 36 for services

rendered on January 25, 2017. I will not consider the legal

services rendered after January 25, 2017 because — the

deductible having been reached — they were not paid by

Riverside, but rather the insurer.

Mr. Kelly disputes whether the lawyers’ fees and costs

claimed by Riverside are “reasonable”.

Under Delaware law, where attorneys’ fees are owed pursuant

to a contract, a court must independently evaluate the

reasonableness of the fees sought using the relevant factors set

forth in the Delaware Professional Conduct Rules, Rule 1.5(a).

Council of Wilmington Condo. v. Wilmington Ave. Assocs., L.P,

No. CIV.A.94C-09-004, 1999 WL 1223792, at *3 (Del. Super. Ct.

Nov. 3, 1999) (citing General Motors Corp. v. Cox, 304 A.2d 55,

57 (Del. 1973)); PVI, Inc. v. Ratiopharm GmbH, 253 F.3d 320, 330

(8th Cir. 2001) (applying Delaware law). The factors include:

the time, labor, and skill required; the novelty and difficulty

of claim; the fees customarily charged in locality; the amount

involved and results obtained; the experience, reputation, and

ability of the lawyer or lawyers performing the services. See

DELAWARE PROFESSIONAL CONDUCT RULES, Rule 1.5(a).

I reject Riverside’s categorical contention that having

incurred over $900,000 in legal fees and costs, the fact they

are merely seeking $250,000 (their deductible) means their fees

are per se reasonable. Instead, I analyze the legal services

and costs actually paid by Riverside in light of the

Professional Conduct Rules factors to assess reasonableness.

First, as to the hourly rate charged, Mr. Kelly takes issue

with the rate charged by Riverside’s counsel and claims it was

excessive. Two attorneys primarily worked on the case for the

Defendants: Mr. Winston, a partner at Choate, had rates of $950

per hour (for period until January 2017) and $1,020 per hour (in

and after January 2017); and Mr. Calhoun, an associate, had

rates of $425 per hour (for period until January 2017) and $550

per hour (in and after January 2017).7 In light of the

education, experience, and ability of Mr. Winston and Mr.

Calhoun, and my knowledge of the customary market rates for

large commercial law firms in the Boston area during this time

period, I find the hourly rates charged by Choate to be

reasonable.

Secondly, Mr. Kelly argues that Riverside is only entitled

to recover legal fees for claims as to which it is entitled to

indemnification. Mr. Kelly re-asserts that the Defendants’

claims under Article 3 of the APA are time barred and therefore

any attorneys’ fees attributable to those claims are not

indemnifiable. This argument was addressed above and rejected.

See supra Section III.C.4.

Third, I turn to certain of the specific time-entries

objected to by Mr. Kelly. I pause to note that Riverside’s

legal fees have been audited by Riverside’s insurer; pursuant to

this audit, certain time entries were objected to and resulted

in a reduction in legal fees. The fact that a third-party

insurer, with an incentive to limit fees, has audited the

7 Another attorney, Jean Paul Jaillet, spent 30.9 hours on the

matter, and a paralegal also worked on the case.

invoices, made specific objections, and ultimately paid the fees

gives support to a finding of reasonableness.

Specifically, Mr. Kelly objects to the amount of time

Defendants’ counsel spent preparing for Mr. Kelly’s deposition.

However, this preparation occurred after January 25, 2017 and is

therefore not relevant to the services I am considering under

the deductible apportionment.

Additionally, Mr. Kelly objects to Defense counsel spending

14.2 hours on preparing, researching, and conferring with

opposing counsel and their client for the Local Rule 16.1 Joint

Statement filed on December 5, 2016. Considering the research

and strategy that goes into identifying and refining schedule

issues of the character dealt with in the Joint Statement in a

case with dimensions like this, I am satisfied after reviewing

the pertinent time entries that the hours expended were

reasonable.

Mr. Kelly also takes issue with the fact that Defendants’

counsel spent approximately 66.9 hours on the motion to dismiss

I denied on December 13, 2016. Considering the number of causes

of action that Mr. Kelly asserted in his Complaint, and the

complexity of the issues that consequently needed to be

researched and addressed, I do not find the hours billed to be

unreasonable. Nor do I find the eventual denial of the motion

to dismiss to be determinative; Defendants were entitled —

indeed duly bound — to defend themselves vigorously at all

stages of dispositive motion practice, so long as their

submissions were not frivolous or otherwise without colorable

merit. The Defendants’ litigation activity did not fall in that

category. Moreover, the early research plainly became helpful

when reframed in the successful summary judgment context which

this Memorandum addresses.

In conclusion, I find that Riverside is entitled to the

$250,000 it has expended on reasonable attorneys’ fees and

costs.

B. Pre-judgment Interest

Under Delaware law, awarding pre-judgment interest is

within the Court’s discretion. Stonington Partners, Inc. v.

Lernout & Hauspie Speech Prod., N.V., No. CIV.A. 18524-NC, 2003

WL 21555325, at *5 (Del. Ch. July 8, 2003), judgment entered sub

nom. Stonington Partners, Inc. et al., v. Lernout & Hauspie

Speech Products, N.V., (Del. Ch. 2003), aff'd in part, rev'd in

part sub nom. Hauspie v. Stonington Partners, Inc., 945 A.2d 584

(Del. 2008). The legal interest rate under Delaware law for

pre-judgment interest is the Federal Discount Rate plus 5%. See

6 Del. C. § 2301. Here, I exercise my discretion to award pre-

judgment interest on the $250,000 Mr. Kelly caused Defendants to

incur as costs, to begin running respectively as to each of the

separate payments aggregated to meet the deductible. This award

of the time value of money paid out is necessary to make

Riverside whole by putting it in the same position it would have

been in if it had not been forced to divert funds to payment of

the deductible.

V. CONCLUSION

For the reasons set forth above, Defendants’ motion for

summary judgment was granted and Plaintiff’s motion for summary

judgment and motion to strike were denied.

On the basis of further submissions thereafter, the Clerk

is now directed to enter judgment for Riverside in the amount of

$250,000, with pre-judgment interest as to: $20,815.57 to run

from March 24, 2017, $3,766.86 to run from April 25, 2017, and

$225,417.57 to run from May 18, 2017. Post-judgment interest

shall be in accordance with 28 U.S.C. § 1961.

/s/ Douglas P. Woodlock_________

DOUGLAS P. WOODLOCK

UNITED STATES DISTRICT JUDGE