Sheehan

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

Stafford Sheehan,

25-CV-932 (ARR) (PK)

Plaintiff,

NOT FOR ELECTRONIC

-against- OR PRINT PUBLICATION

Air Company Holdings, Inc., OPINION & ORDER

Defendant.

ROSS, United States District Judge:

Plaintiff, Stafford Sheehan, Ph.D., brings this action against his former employer

defendant Air Company Holdings, Inc. (“AirCo”). In his complaint, Dr. Sheehan brings claims

for unlawful termination and retaliation under New York Labor Law, breach of contract, and

breach of the covenant of good faith and fair dealing. Following consolidation of this action with

an action brought by defendant AirCo, AirCo now brings counterclaims alleging that

Dr. Sheehan breached his duty of loyalty, duty of care, and contract terms governing disclosure

of proprietary information. Furthermore, AirCo seeks a declaratory judgment determining its

rights and obligations under stock option agreements entered between Dr. Sheehan and AirCo.

Pending before me is Dr. Sheehan’s motion to dismiss AirCo’s counterclaims. For the

reasons below, Dr. Sheehan’s motion is granted in part and denied in part.

BACKGROUND

I. Factual Background

In early 2017, Dr. Sheehan and Gregory Constantine founded AirCo, which was

incorporated in Delaware on August 14, 2017. Counterclaims ¶ 2, ECF No. 24. Mr. Constantine

served as AirCo’s Chief Executive Officer. Id. AirCo’s mission is to create products from carbon

dioxide, such as hand sanitizer, perfume, industrial chemicals, and fuels. Id. ¶¶ 4–5. Dr. Sheehan

was employed as AirCo’s Chief Technology Officer (“CTO”) from August 2017 until December

30, 2024, and served as a director of the company from October 2020 until January 9, 2025.

Answer ¶ 3, ECF No. 24. As part of his employment, Dr. Sheehan and AirCo executed the

Proprietary Information Agreement (“PIA”), which categorized Dr. Sheehan as an at-will

employee. Counterclaims ¶ 3.1 As relevant here, Sheehan agreed to “not disclose or use any

Proprietary Information, except as such disclosure or use may be required in connection with my

work for the Company.” PIA at 2. The PIA defined “proprietary information” as “all confidential,

trade secret and/or proprietary knowledge, data or information of the Company,” including “non-

public information regarding Company personnel.” Id.

In August 2024, a member of AirCo’s Board of Directors (the “Board”) suggested that

Mr. Constantine should be removed from his role as AirCo’s CEO. Counterclaims ¶ 14. At the

time, Dr. Sheehan was AirCo’s Chief Technology Officer and a member of its Board. Id. ¶ 11.

That suggestion led the company to commence an internal investigation and review of leadership

dynamics within AirCo. Id. ¶ 15. The investigation revealed various instances of misconduct by

Dr. Sheehan. Id. ¶ 16.

First, employees reported that Dr. Sheehan was a difficult boss and poor manager. Id. ¶¶

20–25.

1 While AirCo states that the PIA is attached as Exhibit A to the Counterclaims, Counterclaims

¶ 3, it appears from the docket that its filing contained no attachments. In his motion to dismiss,

Dr. Sheehan attached a copy of the PIA, see ECF No. 25-3, Ex. A (“PIA”), which I consider for

purposes of deciding the instant motion. See Arkansas Pub. Emps. Ret. Sys. v. Bristol-Myers

Squibb Co., 28 F.4th 343, 352 n.3 (2d Cir. 2022) (“[D]istrict courts may permissibly consider

documents other than the complaint for the truth of their contents if they are attached to the

complaint or incorporated in it by reference . . . A document that is integral to the complaint and

partially quoted therein may be incorporated by reference in full.”) (quotation marks and

citations omitted).

Second, the investigation revealed that in September of 2024, Dr. Sheehan falsely

represented to a significant investor that Mr. Constantine would be removed as the Company’s

CEO, despite no Board vote approving that action. Id. ¶ 26. Dr. Sheehan made the same false

representation, which AirCo characterizes as “non-public, confidential, proprietary information,”

to “at least two employees” and “at least four separate investors.” Id. ¶¶ 28–29.

Third, Sheehan had misrepresented to the same significant investor that the Company had

“plans” for an office in Connecticut. Id. ¶ 26. The investor, “as an explicitly listed condition

precedent to their investment,” required “that the Company have firm plans to maintain physical

office space in Connecticut.” Id. ¶ 27. Due to that condition, the Company’s investment advisor

had recommended that AirCo not move forward with this investor. Id. However, Dr. Sheehan,

who “had been entrusted to take the lead” on negotiations with this investor, ignored the

recommendation and instead “deliberately misrepresented” to the investor through a side letter

that the Company had plans to maintain Connecticut office space. Id. Side letters are “peripheral

terms proposed by an investor, in addition to their original investment terms, which augment the

same and frequently provide that investor with certain levels of added access into the Company

and its operations.” Id. ¶ 31. At the same time, Dr. Sheehan “took efforts to conceal or minimize

this representation from the Company when the investment was raised in discussions with the

Board.” Id. ¶ 27. Ultimately, the investor learned of the misrepresentations, and the Company

returned the investor’s investment and made a settlement payment. Id.

Fourth, in September of 2024, “Sheehan agreed to giv[e] a potential investor an observer

seat on the Company’s Board without Company approval.” Id. ¶ 30. AirCo had previously

directed Dr. Sheehan to “provide full disclosure of any and all side letters to the Company for

leadership to review” before entering into such letters. Id. ¶¶ 30–31. Dr. Sheehan falsely

represented to a Company employee that he had obtained Company approval for this side letter.

Id. ¶ 32. AirCo did not learn about the Board observer commitments Dr. Sheehan made with the

potential investor until sometime “after Sheehan was placed on leave,” requiring the company to

renegotiate terms with that investor. Id.

Fifth, in September 2024, Dr. Sheehan retained an attorney on behalf of the Company

without Board authorization. Id. ¶ 33. Sheehan “represented to that attorney that he had Board

support to remove Mr. Constantine and negotiate a severance package.” Id. That attorney later

terminated his engagement with AirCo. Id.

On October 5, 2024, as a result of AirCo’s initial findings, the Board voted to place Dr.

Sheehan on paid administrative leave until January 1, 2025. Id. ¶ 17. While on administrative

leave in October and November of 2024, Dr. Sheehan directed an AirCo employee to tell a

company IT employee that he might lose his job if he released Dr. Sheehan’s emails to AirCo. Id.

¶¶ 18–19, 34. As a result, that IT employee refused to produce Dr. Sheehan’s emails. Id. ¶ 35.

On December 30, 2024, the Board voted to terminate Dr. Sheehan’s employment for

cause and remove him as an officer. Id. ¶ 37. On January 9, 2025, the Common Stockholders

voted to remove Dr. Sheehan from the Board. Id. ¶ 38.

II. Procedural History

On February 12, 2025, AirCo filed suit against Dr. Sheehan in the Delaware Court of

Chancery. Mem. in Supp. of Mot. to Transfer at 5, ECF No. 11. On February 18, 2022, Dr.

Sheehan initiated the present action in this district. See Complaint, ECF No. 1. AirCo’s case in

the Delaware Court of Chancery was removed to the United States District Court for the District

of Delaware, and was then transferred to this district. See Electronic Order of May 5, 2025.

Following the May 6, 2025 order consolidating the transferred action with the instant case, see

Electronic Order of May 6, 2025, AirCo’s claims in the Delaware action were filed as

counterclaims in the present action. See Answer and Counterclaims, ECF No. 24.

In its first counterclaim, AirCo asserts that Dr. Sheehan owed a duty of loyalty to the

company as an officer and director, and that he breached those duties by (1) misrepresenting

AirCo’s plans to open a Connecticut office to an investor; (2) misrepresenting to four investors

that Mr. Constantine would be removed as CEO; (3) entering into a side letter agreement with an

investor to give the investor an observer seat on AirCo’s Board without review and approval; and

(4) “[d]irecting an employee to pressure an IT employee away from releasing Sheehan’s emails.”

Counterclaims ¶¶ 51, 52. Second, AirCo asserts that Dr. Sheehan owed a duty of care “[a]s a

director and officer of the Company . . . in his role as Chief Technology Officer,” and that he

breached those duties. Id. ¶¶ 57, 58. Third, AirCo claims that Dr. Sheehan breached the PIA by

disclosing “non-public, confidential information about the Company” to both “unauthorized

internal employees” and at least four external investors. Id. ¶ 68.

Dr. Sheehan moved to dismiss AirCo’s counterclaims on July 7, 2025. See Mot., ECF No.

25-1. On July 18, 2025, AirCo filed a memorandum in opposition. See Opp., ECF No. 27.

Finally, Dr. Sheehan submitted his reply papers on July 29, 2025. See Reply, ECF No. 29.

DISCUSSION

When a case is transferred under 28 U.S.C. § 1404, “the transferee district court must . . .

apply the state law that would have been applied if there had been no change of venue.” Van

Dusen v. Barrack, 376 U.S. 612, 639 (1964). The parties agree that Delaware law applies to the

fiduciary duty claims. See Mot. at 5 n.5; Opp. at 3–4. The parties also agree that New York law

applies to the breach of contract claims. See Mot. at 5 n.5; Opp. at 10–11. Finally, New York law

governs the breach of contract because Section 15 of the PIA provides that “[t]he laws of the

State of New York shall govern this Agreement.” PIA at 5.

I. Duty of Care

Dr. Sheehan argues that AirCo’s duty of care claims against him fail because the

exculpation clause in the company’s certificate of incorporation protects directors from personal

liability for monetary damages caused by breach of fiduciary duty. Mot. at 6–7.

“[O]fficers of Delaware corporations, like directors, owe fiduciary duties of care and

loyalty,” and “the fiduciary duties of officers are the same as those of directors.” Gantler v.

Stephens, 965 A.2d 695, 708–09 (Del. 2009). “To plead a care-based damages claim . . . , the

plaintiff must plead facts supporting a reasonable inference that the defendant acted with gross

negligence.” Firefighters’ Pension Sys. of City of Kansas City, Missouri Tr. v. Presidio, Inc., 251

A.3d 212, 254 (Del. Ch. 2021). However, Delaware law provides that “[a] corporation may adopt

a provision in its certificate of incorporation exculpating its directors from monetary liability for

an adjudicated breach of their duty of care.” Gantler, 965 A.2d at 709 n.37 (Del. 2009) (citing

8 Del. C. § 102(b)(7)). Where directors “are protected by [an exculpation clause], . . . the

complaint must be dismissed against the directors unless the plaintiffs have successfully pled

non-exculpated claims for breach of the duty of loyalty against them.” In re Synthes, Inc.

S’holder Litig., 50 A.3d 1022, 1032 (Del. Ch. 2012). By contrast, an exculpation clause may not

shield a corporation’s officers. Id.

The parties agree that AirCo’s Certificate of Incorporation includes a clause exculpating

its directors “[t]o the fullest extent permitted by law,” Mot. at 7; Opp. at 4–5, and that the clause

shields AirCo’s directors from duty of care claims, see id. However, the parties disagree on

whether that clause shields Dr. Sheehan’s conduct because he served as both an officer and

director in the company at all relevant times. AirCo contends that the exculpation clause does not

shield actions taken in a dual capacity as a director and officer, and that its counterclaims may

proceed because they do not “relate[] to actions Sheehan took solely as director.” Opp. at 5. Dr.

Sheehan contends that the exculpation clause shields actions taken in a dual capacity, and that the

counterclaims must be premised on actions taken solely in his capacity as an officer. Mot. at 7.

Dr. Sheehan has the better of the argument. Under Delaware law, an exculpation clause

prohibits duty of care liability against an officer-director defendant for actions taken in a dual

capacity. For a duty of care claim not to be shielded by an exculpation clause, the challenged

conduct must have been taken solely in the defendant’s capacity as an officer. See Arnold v.

Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1288 (Del. 1994) (“where a defendant is a director

and officer, only those actions taken solely in the defendant’s capacity as an officer are outside

the purview of Section 102(b)(7)” (citing R. Franklin Balotti & Jesse A. Finkelstein, Delaware

Law of Corp. & Business Org. § 4.19, at 4–335 (Supp. 1992)). Thus, a duty of care claim cannot

proceed where the allegations “fail[] to highlight any specific actions [the officer-director]

undertook as an officer (as distinct from actions as a director).” Arnold, 650 A.2d at 1288.

Critically, AirCo’s Counterclaims do not differentiate between Dr. Sheehan’s dual roles.

AirCo’s duty of care claim is expressly premised on duties that Dr. Sheehan owed “[a]s a director

and officer of the Company.” Counterclaims ¶ 57. Although AirCo alleges that Dr. Sheehan

breached those duties “in his role as Chief Technology Officer,” that statement is wholly

conclusory, as it is unsupported by any facts indicating that the challenged actions were “taken

solely in [his] capacity as an officer.” Arnold, 650 A.2d at 1288 (quotation marks omitted). For

example, AirCo does not delineate Dr. Sheehan’s responsibilities in each role by, for example,

citing to its certificate of incorporation, bylaws, or employment contracts.

Instead of offering such facts, AirCo argues that I may infer the capacity in which the

challenged conduct was undertaken based on the general principle that “the board through

bylaws and resolution delegates day-to-day authority to officers.” Opp. at 4 (quotation marks

omitted). Because AirCo’s “allegations center directly on the day-to-day process of running

AirCo,” rather than the “high-level oversight [to which] directors are typically confined,” AirCo

contends that its “well-plead [sic] allegations” fall outside the exculpation clause. Id. However,

that argument is mistaken. In evaluating the present motion to dismiss, I must determine whether

AirCo has alleged sufficient facts regarding its operations and the capacities in which Dr.

Sheehan acted. AirCo cannot satisfy that standard by speculating that Dr. Sheehan’s challenged

conduct would “typically” be undertaken by an officer based on general observations about how

corporations “typically” divide duties between their officers and directors. Id. Even if it were

possible to determine whether the challenged actions would “typically” be undertaken by an

officer or director, AirCo’s argument rests on the assumption that its division of roles followed

that of the “typical” corporation. Such “speculation is insufficient to withstand a motion to

dismiss.” MECO Elec. Co. v. Siemens Indus., Inc., No. 21-CV-09166, 2022 WL 4085832, at *8

(S.D.N.Y. Sept. 6, 2022).

In sum, AirCo has failed to allege any actions taken solely in Dr. Sheehan’s capacity as an

officer. Since actions taken in a dual officer-director capacity fall within the scope of AirCo’s

exculpation clause, I agree with Dr. Sheehan that AirCo has failed to allege any non-exculpated

duty of care claims. Therefore, I dismiss AirCo’s duty of care claims without prejudice.

II. Duty of Loyalty

Dr. Sheehan next argues that AirCo’s duty of loyalty claims should be dismissed because

he did not act in bad faith or receive a personal benefit from his actions. Mot. at 8–9.

Under Delaware law, directors and officers owe a fiduciary duty of loyalty to the

corporation, which “mandates that the best interest of the corporation and its shareholders take[ ]

precedence over any interest possessed by a director, officer or controlling shareholder and not

shared by the stockholders generally.” In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 33

(Del. Ch. 2014) (quotation marks omitted). Encompassed within that duty is the “requirement to

act in good faith, which is a subsidiary element . . . of the fundamental duty of loyalty.”

Quadrant Structured Prods. Co., Ltd. v. Vertin, 115 A.3d 535, 549 (Del. Ch. 2015) (quotation

marks omitted). A director or officer acts in bad faith “where the fiduciary intentionally acts with

a purpose other than that of advancing the best interests of the corporation, where the fiduciary

acts with the intent to violate applicable positive law, or where the fiduciary intentionally fails to

act in the face of a known duty to act, demonstrating a conscious disregard for his duties.” In re

Walt Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006) (citations omitted). In short, the duty

of loyalty and good faith require “specific allegations . . . sufficient to permit a finding that the

director [or officer] faced a conflict” or “intentionally act[ed] with a purpose other than that of

advancing the best interests of the corporation.” Quadrant Structured Prods. Co., Ltd. v. Vertin,

102 A.3d 155, 189–190 (Del. Ch. 2015).

AirCo advances five arguments in support of why Dr. Sheehan breached his duty of

loyalty.

First, AirCo claims that Dr. Sheehan breached his duty of loyalty by “deliberately

misrepresent[ing] to [an investor] . . . that the Company did have plans to maintain Connecticut

office space.” Counterclaims ¶ 27. “Delaware law explicitly rejects the notion that a board of

directors can act loyally by consciously deciding to violate positive law in pursuit of greater

profits.” Lebanon Cnty. Employees’ Ret. Fund v. Collis, 287 A.3d 1160, 1207–08 n.21 (Del. Ch.

2022). Accordingly, allegations that a fiduciary made “statements that were knowingly false and

caused investors to invest in the Company” are sufficient to plead that the fiduciary acted in bad

faith and thereby violated his duty of loyalty. Jeter v. RevolutionWear, Inc., No. CV 11706, 2016

WL 3947951, at *13 (Del. Ch. July 19, 2016); see also In re Am. Int’l Grp., Inc., 965 A.2d 763,

798 (Del. Ch. 2009) (holding that director and officer breached his fiduciary duty of loyalty by

engaging in fraudulent schemes), aff’d sub nom., 11 A.3d 228 (Del. 2011). Here, AirCo alleges

that one of its investors, “as an explicitly listed condition precedent to their investment, . . .

required that the Company have firm plans to maintain physical office space in Connecticut,”

and that Dr. Sheehan “deliberately misrepresented” to that investor “that the Company did have

plans to maintain Connecticut office space.” Counterclaims ¶ 27. Based on these allegations,

AirCo argues that Dr. Sheehan fraudulently induced an investment into AirCo, and thereby

“acted with a purpose other than that of advancing the best interests of the Company.” Jeter,

2016 WL 3947951, at *13.

Dr. Sheehan contends that AirCo’s allegations do not demonstrate bad faith because

AirCo failed to “allege that the Company had not discussed potentially opening up a Connecticut

office” or that Dr. Sheehan acted “without the knowledge of the Chairman of the Board and other

Board members.” Mot. at 12. However, neither of those allegations is required to state a claim in

this context. AirCo alleges that the investor in question required “firm plans to maintain physical

office space in Connecticut,” Counterclaims ¶ 27 (emphasis added), and therefore Dr. Sheehan’s

representation that AirCo had such plans would remain knowingly false regardless of whether

the Board had engaged in inchoate discussions about the possibility of opening a Connecticut

office. Furthermore, Board knowledge of Dr. Sheehan’s misrepresentations would not cleanse his

conduct, as “Delaware law provides no safe harbor to high-level fiduciaries who group together

to defraud.” In re Am. Int’l Grp., Inc., 965 A.2d at 807 (Del. Ch. 2009); see also United States v.

Sullivan, 118 F.4th 170, 219 (2d Cir. 2024) (observing generally that “it does not cleanse fraud if

the fraudster manages to get a corporate endorsement where the defendant knew that his

practices were fraudulent” (quotation marks omitted and alterations adopted)). Thus, it is

unnecessary for AirCo to allege that other Board members were unaware of Dr. Sheehan’s

fraudulent inducement. Indeed, their knowledge would demonstrate, at most, that those Board

members also violated their duty of loyalty. See Hampshire Grp., Ltd. v. Kuttner, No. CIV.A.

3607, 2010 WL 2739995, at *30 (Del. Ch. July 12, 2010) (observing that “no officer or

employee has the right to make a corporation a law breaker”). Therefore, AirCo’s duty of loyalty

claim may proceed under this argument. Of course, if discovery demonstrates that AirCo had

plans to open a Connecticut office or that Dr. Sheehan had a reasonable basis to believe that such

plans existed or would materialize, then AirCo’s duty of loyalty claim under this argument fails.

Second, AirCo claims that Dr. Sheehan breached his duty of loyalty by “agree[ing] to

giv[e] a potential investor an observer seat on the Company’s Board without Company

approval,” despite directives from AirCo that “any and all [side] letters should be proposed and

reviewed by leadership before being entered into.” Counterclaims ¶¶ 30, 31. Although

allegations that an officer or director “knowingly exceeded [his] authority are sufficient to state”

a duty of loyalty claim, AirCo has failed to allege that Dr. Sheehan did so here. Garfield on

behalf of ODP Corp. v. Allen, 277 A.3d 296, 330 (Del. Ch. 2022). AirCo concedes that Sheehan

was “entrusted to take [the] lead” on “negotiations” with investors, and AirCo does not allege

that Dr. Sheehan entered into a contract on behalf of AirCo granting that investor an observer

seat or that Dr. Sheehan’s agreement legally bound AirCo. Counterclaims ¶¶ 27, 30–32. Absent

such allegations, the Counterclaims merely allege that Dr. Sheehan negotiated preliminary terms,

as he was entrusted to do. In that context, Dr. Sheehan’s “agree[ment] to giving a potential

investor an observer seat,” indicates only that Dr. Sheehan agreed to later present that term to

AirCo. Id. ¶ 30. Critically, the Counterclaims allege that Dr. Sheehan was required to obtain

leadership approval before “enter[ing] into,” i.e., executing, a side letter term. Id. ¶ 31. It does

not allege that Dr. Sheehan was required to obtain such approval before negotiating a term with a

prospective investor. Nor is that a reasonable inference, as that interpretation envisions a

redundant process in which Dr. Sheehan was required to obtain approval to negotiate a term and

to then present that term again for approval once it had been negotiated. AirCo is, of course, free

to clarify the nature of its directives to Dr. Sheehan upon amendment.

Furthermore, AirCo’s allegation that Dr. Sheehan “falsely misrepresented” to a

“Company employee [that] he had obtained Company approval for this particular side letter”

does not establish bad faith. Counterclaims ¶ 32. Again, AirCo does not allege that Dr. Sheehan

“entered into” a side letter. Instead, the Counterclaims suggest that Dr. Sheehan agreed to a

preliminary term that would later be presented to AirCo for its approval. Id. ¶ 31. Given that Dr.

Sheehan was entrusted to “lead” negotiations with investors, I cannot infer that he acted in bad

faith in claiming that he was authorized to negotiate such preliminary terms. Therefore, AirCo

fails to allege that Dr. Sheehan violated that directive because there is no indication that any such

term providing for an observer seat was executed. Moreover, the Board’s disagreement with the

proposed preliminary terms, and subsequent decision to “renegotiate with that investor for

granting information rights instead of a formal observer seat,” does not establish that Dr.

Sheehan acted in bad faith by negotiating in a preliminary, non-binding fashion. Id. ¶ 32.

Third, AirCo claims that Dr. Sheehan breached his duty of loyalty by misrepresenting to

“four investors that Mr. Constantine would be stepping down as CEO, despite knowing the

Board had made no decision to this effect.” Id. ¶ 52. Alternatively, AirCo argues that those

statements “[d]isclosed non-public, confidential information . . . about the Company.” Id. Neither

formulation states a claim.

Where a corporate fiduciary “speaks outside of the context of soliciting or recommending

stockholder action, such as through public statements made to the market [or] statements

informing shareholders about the affairs of the corporation,” the fiduciary owes a duty not to

speak falsely. See In re Wayport, Inc. Litig., 76 A.3d 296, 315 (Del. Ch. 2013) (quotation marks

omitted). However, breach of that duty requires that the fiduciary “deliberately minsinform[ed]”

or “knowingly disseminate[d] false information.” Id. Moreover, under Delaware law,

“[s]tatements of opinion and predictions about the future usually are not actionable,” and may

only be considered a misrepresentation where the statements “were known to be false when

made or were made with a lack of good faith . . . . belief in their truth.” Mooney v. E. I. du Pont

de Nemours & Co., No. CV N17C-01-374, 2017 WL 5713308, at *6 (Del. Super. Ct. Nov. 28,

2017), aff’d, 192 A.3d 557 (Del. 2018); see also Metro Commc’n Corp. BVI v. Advanced

Mobilecomm Techs. Inc., 854 A.2d 121, 148 (Del. Ch. 2004) (“That a statement of opinion did

not prove to be an accurate forecast of the future does not mean that the predicting party

misstated any actual fact.”).

AirCo repeatedly alleges that Dr. Sheehan’s statements were knowingly false because the

Board had not made a formal decision or voted to remove Mr. Constantine. See, e.g.,

Counterclaims ¶ 29. However, Dr. Sheehan is not alleged to have represented to investors that

the Board had taken such an action. Instead, Dr. Sheehan allegedly stated that Mr. Constantine

“would be removed as CEO,” which is a prediction about forthcoming action. Counterclaims ¶

29 (emphasis added). AirCo’s allegations do not demonstrate that Dr. Sheehan’s predictions were

knowingly false or made without a good faith basis. Indeed, AirCo acknowledges that at least

one other Board member had “raised the suggestion that Mr. Constantine should be removed as

CEO.” Id. ¶ 14. Moreover, at the time that Dr. Sheehan stated that Mr. Constantine would be

removed, AirCo was conducting “an investigation and internal review to assess the leadership

dynamics within the Company” in response to that Board member’s suggestion. Id. ¶ 15. While

Dr. Sheehan’s predictions that Mr. Constantine would be removed proved to be incorrect, AirCo

has failed to allege that those predictions were baseless or that Dr. Sheehan “conjured up lies.”

Opp. at 9.2

AirCo’s secondary argument, that Dr. Sheehan’s statements improperly disclosed

“confidential information” to investors, fares no better. Counterclaims ¶ 52. “A fiduciary

breaches its duty of loyalty by improperly using confidential information . . . to advance [its]

own personal interests and not those of its beneficiary.” Metro Storage Int’l LLC v. Harron, 275

A.3d 810, 858 (Del. Ch. 2022) (quotation marks omitted). AirCo’s bareboned allegations fail to

state a claim. To the extent that Dr. Sheehan’s statements can be understood as disclosing

confidential information, they revealed the existence of an internal effort to terminate Mr.

Constantine. However, AirCo does not allege any facts describing the context in which Dr.

Sheehan made his statements to investors, and therefore fails to allege that his disclosure of a

predicted shakeup in company leadership was an improper use of that confidential information.

2 The sole case cited by AirCo in support of its misrepresentation theory, Hoch v. Alexander, No.

11-CV-217, 2011 WL 2633722 (D. Del. July 1, 2011), is totally inapposite. In that case, the court

held that the plaintiff-shareholder had stated a duty of loyalty claim by alleging that defendant

board members had prepared a “false proxy statement” containing “a material misstatement

[that] interfered with the voting rights of shareholders.” Id. at *6. However, it is well-settled

under Delaware law that proxy statements and other requests for shareholder action are subject to

heightened standards of disclosure and candor that are inapplicable outside of that context. See In

re Wayport, Inc. Litig., 76 A.3d at 314–15.

In other words, AirCo alleges no facts suggesting that Dr. Sheehan sought “to advance [his] own

personal interests, rather than those of the corporation.” Sorrento Therapeutics, Inc. v. Mack, No.

2021-0210, 2023 WL 5670689, at *24 n.213 (Del. Ch. Sept. 1, 2023).3 For example, AirCo does

not allege that Dr. Sheehan engaged in any self-dealing with respect to the investors, usurped any

corporate opportunities, or had any personal interest conflicting with that of the Corporation. Nor

have I found any Delaware authority for the proposition that informing investors about potential

changes to a company’s leadership is inherently wrongful, especially where those investors are

not alleged to have been affiliated with the fiduciary.

In any event, AirCo’s claim that Dr. Sheehan violated his duty of loyalty is preempted by

its breach of contract claim. Delaware law “hold[s] that a claim for breach of contract occupies

the field and preempts overlapping claims for breach of duty against corporate fiduciaries.” New

Enter. Assocs. 14, L.P. v. Rich, 295 A.3d 520, 562–63 (Del. Ch. 2023) (“[I]f the contract claim

addresses the alleged wrongdoing by the director, any fiduciary duty claim arising out of the

same conduct is superfluous.”) (collecting cases). AirCo’s third cause of action asserts that Dr.

Sheehan’s statements to investors breached its contractual confidentiality agreement (the PIA)

and is therefore coextensive with AirCo’s breach of loyalty claim premised on that conduct. The

contract claim therefore supersedes the duty of loyalty claim. See Seibold v. Camulos P’rs LP,

No. CIV.A 5176, 2012 WL 4076182, at *21 (Del. Ch. Sept. 17, 2012) (“It is settled that an agent

may not misuse the confidential information of its principal. Here, however, Camulos’ claim that

Seibold breached his fiduciary duty by misusing confidential information alleges facts identical

3 Indeed, AirCo’s brief does not even attempt to argue or cite any authority in support of that

point. Instead, AirCo’s arguments rest on its theory that Dr. Sheehan “spread[] falsehoods under

the guise of sharing confidential information,” which I have rejected above. Opp. at 9.

to Camulos’ claim that Seibold breached his contractual duties by misusing Confidential

Information, and is thus foreclosed as superfluous.” (cleaned up)).

Fourth, AirCo contends that Dr. Sheehan violated his duty of loyalty by “[d]irecting a

Company employee to advise a Company IT employee that . . . the production of Sheehan’s

emails was improper,” which “necessitated the placing of the IT employee on investigatory leave

due to that employee’s refusal to produce Sheehan’s emails.” Counterclaims ¶¶ 34–35. I agree

with AirCo that, to the extent that Dr. Sheehan had engaged in prior wrongdoing in breach of his

fiduciary duties, Dr. Sheehan’s efforts “seeking to obstruct AirCo from . . . evidence” of that

wrongdoing was against the best interest of AirCo and in breach of his duty of loyalty. Opp. at

10. This violation, nevertheless, is contingent on Dr. Sheehan’s alleged breach of fiduciary duty.

Finally, AirCo argues that all of the above actions were part of Dr. Sheehan’s “shadow-

campaign to oust [AirCo’s] CEO” and that he “prioritized his own desire to control AirCo.” Opp.

at 6, 7. That argument fails, as “the duty of loyalty is owed to the corporation and the

stockholders at large, not to [its CEO].” OptimisCorp v. Waite, No. CV-8773, 2015 WL 5147038,

at *61 (Del. Ch. Aug. 26, 2015), aff’d, 137 A.3d 970 (Del. 2016). Directors and officers are

permitted—and even required—to remove a corporation’s CEO if they believe that removal is in

the corporation’s best interest. Id. at *58 (holding that directors did not breach duty of loyalty to

corporation by collaborating to remove its CEO “based on a belief that he was doing a poor

job”). Thus, “a takeover scheme” is not inherently a breach of the duties of loyalty and good

faith. Id. at *59. For a takeover scheme to breach these duties, it must have been animated by a

“motive or interest not shared with the other stockholders generally,” and that motive or interest

must “conflict,” rather than merely “coincide[],” with the best interests of the corporation. Id.

(emphasis added). AirCo cannot state a claim by simply alleging that Dr. Sheehan “disliked [the

CEO] and sincerely wanted him gone;” it must allege that Dr. Sheehan pursued removal based on

an underlying motivation that conflicted with the company’s best interests. Id. at 58.

AirCo has failed to allege any facts permitting such an inference. Its sole allegation is that

another board member “coordinat[ed] with Sheehan” to “raise[] the suggestion that

Mr. Constantine should be removed as CEO.” Counterclaims ¶ 14. However, no facts indicate

that Dr. Sheehan had an improper purpose for doing so. For example, AirCo does not allege that

Dr. Sheehan maneuvered to install himself as CEO, harbored personal animus against

Mr. Constantine, or otherwise derived some personal financial benefit that did not inure to all

shareholders generally. And while AirCo argues in briefing that it has “specifically alleged” that

Dr. Sheehan “prioritized his own desire to control AirCo,” Opp. at 6, that allegation is absent

from the Counterclaims and therefore cannot be raised in an opposition to a motion to dismiss.

See Crianza v. Holbrook Plastic Pipe Supply, Inc., No. 22-CV-7685, 2024 WL 216696, at *3

(E.D.N.Y. Jan. 19 2024). In any event, that allegation would be conclusory, and is unsupported

by any facts indicating that removing Mr. Constantine would have provided Dr. Sheehan with

greater control over AirCo or that Dr. Sheehan even sought to pursue that objective. Accordingly,

AirCo has failed to allege that Dr. Sheehan “intentionally act[ed] with a purpose other than that

of advancing the best interests of the corporation.” Stone ex rel. AmSouth Bancorporation v.

Ritter, 911 A.2d 362, 369–70 (Del. 2006).

III. Breach of Contract

The PIA “prohibit[ed] Sheehan from disclosing Proprietary Information,” which was

defined as “all confidential, trade secret, and/or proprietary knowledge, data or information of

the Company.” Counterclaims ¶¶ 65–66. The PIA further provided that “Proprietary

Information” includes “non-public information regarding Company Personnel.” Id. ¶ 67. AirCo

claims that Dr. Sheehan breached the PIA by “disclosing non-public, confidential information

about the Company, the Company’s Board of Directors, and the Company’s business to both

non-executive, unauthorized internal employees as well as third parties, including at least four

investors.” Id. ¶ 68. Specifically, Dr. Sheehan “falsely represented” that Mr. Constantine would

be removed as AirCo’s CEO to “at least two [AirCo] employees” and to “at least four separate

investors.” Id. ¶¶ 29, 68.

To state a claim for breach of contract under New York law, a plaintiff must sufficiently

allege “(1) the existence of an agreement, (2) adequate performance of the contract by the

plaintiff, (3) breach of contract by the defendant, and (4) damages.” Spotlight Ticket Mgmt. Inc.

v. Daigle, No. 23-CV-10035, 2025 WL 1295069, at *2 (S.D.N.Y. May 5, 2025) (quoting Harsco

Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996)). I agree with Dr. Sheehan that AirCo has failed

to sufficiently allege breach and damages.

A “cause of action for breach of contract composed entirely of conclusory allegations

unsupported by factual assertions fails even the liberal standard of Rule 12(b)(6).” Boccardi Cap.

Sys., Inc. v. D.E. Shaw Laminar Portfolios, L.L.C., No. 05-CV-6882, 2009 WL 362118, at *3

(S.D.N.Y. Feb. 9, 2009) (quotation marks omitted), aff’d, 355 F. App’x 516 (2d Cir. 2009).

Accordingly, defendant’s allegation that Dr. Sheehan breached the PIA by “disclosing non-

public, confidential information about the Company, the Company’s Board . . . , and the

Company’s business” is far too vague and conclusory to state a plausible claim. Counterclaims

¶ 68. Defendant cannot tautologically allege that Dr. Sheehan breached his contractual duty to

not disclose non-public confidential information by disclosing non-public, confidential

information. See Boccardi Cap. Sys., Inc., 2009 WL 362118, at *4 (dismissing contract claim for

breach of confidentiality agreement where plaintiff failed to “identify any facts or categories of

confidential information that defendant used in contravention of that agreement”).

The Counterclaim’s specific allegation, that Dr. Sheehan “falsely represented” to internal

employees and external investors that “Mr. Constantine would be removed as CEO,” fares no

better. Counterclaims ¶¶ 29, 68. AirCo’s impending termination of Mr. Constantine cannot be

understood as “confidential, trade secret, and/or proprietary knowledge, data or information of

the Company,” nor can it be understood as “non-public information regarding Company

Personnel,” precisely because this proposition was false. Id. ¶¶ 65–67. Indeed, confidential

information has been defined as “[k]nowledge or facts not in the public domain but known to

some.” CONFIDENTIAL INFORMATION, Black’s Law Dictionary (12th ed. 2024). Here, Mr.

Constantine’s removal is neither knowledge nor fact, and was instead a failed prediction.

Interpreting the PIA to protect falsities would “strain the contract language beyond its reasonable

and ordinary meaning.” Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458,

467 (2d Cir. 2010) (quotation marks omitted and alterations adopted).4 Indeed, AirCo cites no

authority, nor have I found any, that an employer’s proprietary information include falsities. In

any event, Dr. Sheehan’s prediction that Dr. Constantine “would be removed” was not knowingly

false.

Even if Mr. Constantine’s impending removal as CEO (or lack thereof) constitutes

Proprietary Information, AirCo has failed to allege that Dr. Sheehan’s disclosure of that

information breached the PIA. As Dr. Sheehan argues, the PIA permitted “disclosure or use” of

4 AirCo’s interpretation of the PIA to protect both truths and falsities would lead to absurd

results. To take an extreme example, a statement that Mr. Constantine was secretly two children

in a trench coat would constitute Proprietary Information belonging to AirCo, as that purported

identity is “non-public” and “regarding Company Personnel.” Counterclaims ¶ 67.

Proprietary Information as “may be required in connection with [his] work for the Company,”

and AirCo fails to allege any acts demonstrating that Dr. Sheehan’s disclosures were not “in

connection with [his] work.” PIA at 2. Nor is that a reasonable inference from the sparse

allegations provided. AirCo acknowledges that Dr. Sheehan was “entrusted to take lead” on

negotiations with some (or perhaps all) investors. See, e.g., Counterclaims ¶ 27. AirCo makes no

allegations that Dr. Sheehan’s statements were not “in connection with” those negotiations. PIA

at 2.

Finally, defendant has failed to plead damages. Although AirCo argues that it spent “vast

amounts of money, time, and resources” to fix “reputation [sic] and operational risks” caused by

Dr. Sheehan’s breach, Opp. at 12, “[d]amages to reputation generally are not recoverable in a

breach of contract action under New York law,” Smith v. Positive Prods., 419 F. Supp. 2d 437,

453 (S.D.N.Y. 2005) (collecting cases). Reputational damages are available “only in exceptional

cases when the plaintiff proves specific business opportunities lost as a result of its diminished

reputation.” Id. (quotation marks omitted). AirCo fails to make such allegations here. Although

AirCo alleges that “Sheehan’s misrepresentations” to four investors “jeopardized the Company’s

ability to generate further investment from these investors,” AirCo does not allege that it lost any

investments from those investors. Counterclaims ¶ 29. AirCo’s “strained” relationship with those

investors, id., is insufficient to state a claim. See Soto v. Federal Express Corp., No. 06–CV–

5413, 2008 WL 305017, at *7 (E.D.N.Y. Feb. 1, 2008) (“It is well-settled in New York that a

claim for loss of reputation arising from a breach of contract is not actionable.”).

AirCo also contends that it suffered damages when another investor “ultimately withdrew

a potential investment as a result of Sheehan’s baseless lawsuit”—i.e. the present litigation. Opp.

at 12. That argument is meritless. AirCo does not even argue, much less allege, that the filing of

this suit breached the PIA. See Opp. at 10–12. Nor could it. The PIA provides that “an individual

who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may

. . . use the trade secret information in the court proceeding.” PIA at 2. Under New York law, “a

plaintiff may recover only for damages that are directly and proximately caused by a defendant’s

breach of contract,” and therefore “causation is an element—and a crucial one—of the plaintiff’s

prima facie case.” Nat’l Mkt. Share, Inc. v. Sterling Nat. Bank, 392 F.3d 520, 526 (2d Cir. 2004)

(quotation marks omitted and alterations adopted). AirCo cannot seek damages arising from

conduct that is entirely district from Dr. Sheehan’s purported breach. Any damages caused by the

filing of this suit are therefore irrelevant to the breach of contract claim.

CONCLUSION

For the foregoing reasons, plaintiff’s motion to dismiss defendant’s counterclaims is

GRANTED in part and DENIED in part. Plaintiff’s motion to dismiss defendant’s counterclaim

alleging breach of the duty of loyalty (Count I) is denied as to Dr. Sheehan’s alleged

misrepresentations regarding Connecticut office space and directive to withhold his company

emails.

Defendant’s counterclaims for breach of the duty of loyalty (Count I) are dismissed

without prejudice as to allegations regarding the promised board observer seat, representations

made regarding Mr. Constantine’s possible removal, and Dr. Sheehan’s alleged campaign to oust

Mr. Constantine. Defendant is granted leave to amend these counterclaims. Defendant’s

counterclaim for breach of the duty of care (Count II) is also dismissed with leave to amend.

Defendant’s counterclaim for breach of contract (Count III) is dismissed.

SO ORDERED.

/s/

Allyne R. Ross

United States District Judge

Dated: November 10, 2025

Brooklyn, New York