GWO Litigation Trust v. Sprint Solutions, Inc. ( 2018 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
THE GWO LITIGATION TRUST, )
)
Plaintiff/Counterclaim Defendant, )
)
v. )
)
SPRINT SOLUTIONS, INC., )
)
Defendant/Counterclaim Plaintiff. )
) C.A. No. N17C-06-356 PRW
___________________________________ ) CCLD
)
SPRINT EWIRELESS, INC., )
)
Third-Party Plaintiff, )
)
v. )
)
THE GWO LITIGATION TRUST, )
)
Third-Party Defendant. )
Submitted: July 19, 2018
Decided: October 25, 2018
Upon Defendant Sprint Solutions, Inc.’s Motion to Dismiss
Counts Three through Seven of the Amended Complaint,
DENIED in part; GRANTED in part.
Upon Plaintiff GWO Litigation Trust’s Partial
Motion to Dismiss Defendant’s Amended Counterclaims
and Sprint eWireless, Inc.’s Third-Party Claim,
DENIED in part; GRANTED in part.
MEMORANDUM OPINION AND ORDER
Richard M. Beck, Esquire, Sean M. Brennecke, Esquire, Klehr Harrison Harvey
Branzburg LLP, Wilmington, Delaware, John D. Byars, Esquire (pro hac vice),
Joseph C. Smith, Jr., Esquire (pro hac vice) (argued), Bartlit Beck Herman Palenchar
& Scott LLP, Chicago, Illinois, Attorneys for Plaintiff.
Steven L. Caponi, Esquire, Matthew B. Goeller, Esquire, K&L Gates LLP,
Wilmington, Delaware, David I. Swan, Esquire (pro hac vice) (argued),
McGuireWoods LLP, Tysons, Virginia, Brian A. Kahn, Esquire (pro hac vice)
(argued), McGuireWoods LLP, Charlotte, North Carolina, Attorneys for Defendant
and Third-Party Plaintiff.
WALLACE, J.
I. INTRODUCTION
Sprint Solutions, Inc. (“Sprint”) entered into a series of contracts with General
Wireless Operations, Inc. (“General Wireless”) in early 2015 for the purpose of
revitalizing the bankrupt RadioShack Corporation (“RadioShack”) through unified
Sprint/RadioShack store locations, referred to in the agreements as the “Store-
Within-A-Store” (“SWAS”) model.
The General Wireless Organization Litigation Trust (“GWO Trust”), the
successor-in-interest to General Wireless, now brings suit against Sprint on seven
counts: two counts of breach of contract; and one count each of breach of the implied
covenant of good faith and fair dealing, misappropriation of trade secrets,
conversion, unfair competition, and tortious interference with prospective business
relations. Sprint moves to dismiss all but the breach-of-contract claims.
Sprint brings five counterclaims against GWO Trust: two counts of breach of
contract; one for declaratory relief regarding limitation of liability; an attorney’s fees
request under the Delaware Uniform Trade Secret Act (“DUTSA”) for a bad faith
claim of trade secret misappropriation; and an indemnification claim. Third-party
plaintiff Sprint eWireless, Inc. (“eWireless”) also claims breach of contract against
GWO Trust. GWO Trust moves to dismiss three of Sprint’s counterclaims and
eWireless’s third-party claim.
II. FACTUAL AND PROCEDURAL BACKGROUND
The essential facts are undisputed in this action. While GWO Trust and Sprint
each present its version of the story in its respective pleadings, the basic facts are as
follows.
A. RadioShack Bankruptcy and the Parties Involved.
RadioShack, founded around 1920, was once an iconic name with a
nationwide retail footprint in electronics, computer, and cellphones.1 From 2011 to
its bankruptcy filing in 2015 (“First RadioShack Bankruptcy Case”), RadioShack’s
revenue declined due to increasingly competitive market conditions. 2
General Wireless, an entity formed by New York-based hedge fund Standard
General LP, was created to acquire the strongest parts of RadioShack’s business
from bankruptcy and to revitalize the retailer.3 General Wireless, Inc. (“GWI”) is
the ultimate parent entity of General Wireless.4
1
Amended Complaint [hereinafter “Am. Compl.”] ¶ 12; Amended Counterclaims and
Third-Party Claim [hereinafter “Am. Countercls. & Third–Party Cl.”] ¶ 1.
2
Am. Compl. ¶ 13.
3
Id. ¶¶ 7, 14.
4
Although not directly pleaded in GWO Trust’s Amended Complaint, the parties’ briefing
has illustrated the interdependency and affiliation between General Wireless and GWI. For
example, Sprint asserted “that it meant to name GWI, the signatory and General Wireless’s
ultimate parent, instead.” Def.’s Sur-Reply to Pl.’s Reply in Supp. of its Partial Mot. to Dismiss
Def.’s Am. Countercls. and eWireless’s Third–Party Cl. [hereinafter “Def.’s Sur-Reply”] ¶ 2.
-2-
Sprint, controlled by the Japanese wireless and internet conglomerate
SoftBank Corp. since June 2013, is incorporated in Delaware and sought to expand
its business in the United States’ wireless market which had been predominated by
AT&T and Verizon. 5 eWireless, an affiliate of Sprint, is a Kansas corporation.
B. Strategic Alliance Agreement; Investor Rights Agreement
In 2015, Sprint was seeking to expand its footprint in the American market.
And RadioShack, while owning many retail stores nationwide, was suffering from
weakened finances and the on-going proceeding in the First RadioShack Bankruptcy
Case.6 So the parties negotiated various mutually beneficial agreements as part of
the first bankruptcy case.
On April 1, 2015, General Wireless and Sprint entered into the Amended and
Restated Master Strategic Retail Alliance Agreement (the “Alliance Agreement”)
under which the parties would establish co-branded retail stores—using the SWAS
format—to sell RadioShack products and Sprint products exclusively. 7 A week
later, the parties entered into the Operation, Management, and Staffing Agreement
(“OMS Agreement”), as well as numerous other related agreements, including but
not limited to master leases and subleases, a distribution agreement, a retailer
5
Am. Compl. ¶ 18.
6
Id. ¶¶ 22–23.
7
Id. ¶ 23; Am. Compl. Ex. 1 (Alliance Agreement) [hereinafter “Alliance Agreement”].
-3-
agreement, and an Investor Rights Agreement (the “Investor Rights Agreement” or
“IRA,” collectively, the “Related Agreements”).8 The OMS Agreement detailed
matters not specified in the Alliance Agreement. 9
Under the SWAS model, the parties were to use commercially reasonable
efforts to meet an agreed-upon schedule in opening co-branded stores, setting up
joint signage, staffing and training employees, and maintaining inventory. 10
Specifically, with respect to the cost of signage, Sprint would be responsible for 60%
and General Wireless for 40%.11
The SWAS model didn’t produce the expected market results.12 Four months
into the Alliance Agreement, only about one-quarter of the SWAS model locations
were completed. 13 Progress stalled due to the parties’ failure to provide funding,
collaborate on signage, and maintain adequate inventory. 14
8
Am. Countercls. & Third–Party Cl. ¶ 18.
9
Am. Compl. Ex. 2 [hereinafter “OMS Agreement”].
10
Alliance Agreement §§ 2.2, 7.2, and 9.1.
11
Am. Countercls. & Third–Party Cl. ¶ 24; Alliance Agreement § 9.1(a) (“Sprint and
[General Wireless] will each bear their pro rata costs for all such Exploitation Materials assuming
a 60%/40% split of signage space and Exploitation Material brand presence.”).
12
Am. Compl. ¶ 25.
13
Id. ¶ 27.
14
Id. ¶¶ 25–27; Am. Countercl. & Third–Party Cl. ¶¶ 4, 24–28.
-4-
As mentioned, along with the Alliance Agreement, eWireless, GWI, and
certain GWI affiliates entered into the Investor Rights Agreement.15 The IRA was
meant to protect eWireless as an investor and shareholder by granting eWireless the
rights to receive stock warrants, observe the board, and have General Wireless
maintain minimum levels of capital and liquidity. 16 In addition, eWireless would
have a claim against GWI 17 in the amount of $60 million less the amount of
commissions General Wireless earned from the ongoing sale of Sprint products (the
“Sprint Investor Reimbursement”), referred to as the “Threshold” under Schedule
4.2 of the Alliance Agreement. 18 Schedule 4.2 set forth a fees and payment
arrangement that required the parties to “negotiate in good faith to modify the
application of the Threshold” if General Wireless experienced a negative cash
flow.19
15
Am. Countercls. & Third–Party Cl. ¶ 21.
16
Id.
17
Id. (the Court notices that eWireless alleged “General Wireless”–which is not the signatory
party, but as discussed, the Court treats it as mere inadvertent error with the understanding that
eWireless meant to refer to “GWI”).
18
Id.
19
See Am. Compl. ¶ 30; Am. Countercls. & Third–Party Cl. ¶ 22; and Alliance Agreement §
Schedule 4.2 (Commission Fees).
-5-
For the eight months before February 2016, General Wireless did suffer
continuous monthly negative cash flow.20 The parties negotiated and hired outside
consultants between December 2015 and March 2016 in an attempt to address that
cash flow problem. 21 And in April 2016, General Wireless and Sprint executed an
amendment to the Alliance Agreement (the “Fourth Amendment”). 22 Thereunder,
Sprint was to increase its cash payment to General Wireless and provide additional
support to SWAS locations.23
C. Termination of the Alliance Agreement and the Second Bankruptcy
Case.
The RadioShack/Sprint SWAS model didn’t take off. And so, around
February 2017, General Wireless and Sprint commenced negotiations to wind down
the Alliance Agreement.24 On March 5, 2017, General Wireless and Sprint executed
a Mutual Settlement and Release, Operations Wind Down, and Bankruptcy
Cooperation Agreement (the “Settlement Agreement”).25 Three days later, General
20
Am. Compl. ¶ 31.
21
Am. Countercls. & Third–Party Cl. ¶¶ 33–42.
22
Id. ¶ 44.
23
Id.
24
Id. ¶ 52.
25
Id. ¶ 53.
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Wireless filed for bankruptcy (the “Second Bankruptcy Case”). 26 The Bankruptcy
Court appointed a statutorily required committee of unsecured creditors (the
“Committee”) to act in the jointly-administered First RadioShack Bankruptcy Case
and the Second Bankruptcy Case.27
Under the Settlement Agreement, Sprint was to: make a “wind-down
payment” of $17 million to General Wireless, of which $12 million was to be paid
before General Wireless commenced the Second Bankruptcy Case, and set aside a
$5 million holdback (“Holdback”) during an “investigation period” if General
Wireless’s creditors agreed to the mutual releases between Sprint and General
Wireless. 28 But if the creditors filed a claim against Sprint, Sprint forfeited the
Holdback.29 The Settlement Agreement also contemplated a joint release of claims
between General Wireless and Sprint. 30 An estimated $18 million of the Sprint
Investor Reimbursement owed to eWireless was excepted from the release of
claims. 31
26
Am. Compl. ¶ 44; Am. Countercls. & Third–Party Cl. ¶ 59.
27
Am. Countercls. & Third–Party Cl. ¶ 9.
28
Id. ¶¶ 55–58.
29
Id. ¶ 58.
30
Id. ¶ 56.
31
Id.
-7-
General Wireless sought approval of the Settlement Agreement from the
Bankruptcy Court.32 And on May 11, 2017, the Bankruptcy Court approved the
Settlement Agreement (the “Settlement Approval Order”).33
GWO Trust filed the original Complaint in this case in June 2017, asserting
two counts of breach of contract and one count of misappropriation of trade secrets.34
GWO Trust’s Amended Complaint with additional claims was filed nine months
later, 35 followed the next day by Sprint’s Amended Counterclaims and Third-Party
Claims. 36
Now before the Court are the parties’ cross-motions to dismiss. Sprint moves
to dismiss Counts Three through Seven of GWO Trust’s Amended Complaint.
GWO Trust seeks to dismiss Counts I, II and VI of Sprint’s Amended
Counterclaims. GWO Trust also seeks dismissal of Count V—eWireless’s third-
party claim.
32
Id. ¶ 59.
33
Id. ¶ 60.
34
See Compl.
35
See Am. Compl.
36
See Am. Countercls. & Third–Party Cl.
-8-
III. STANDARD OF REVIEW
When considering a Civil Rule 12(b)(6) motion to dismiss for failure to
adequately state a claim, the Court will:
(1) accept all well pleaded factual allegations as true, (2)
accept even vague allegations as “well pleaded” if they
give the opposing party notice of the claim, (3) draw all
reasonable inferences in favor of the non-moving party,
and (4) [not dismiss the claims] unless the plaintiff would
not be entitled to recover under any reasonably
conceivable set of circumstances.37
The Court must accept as true all well-pleaded allegations.38 And every
reasonable factual inference will be drawn in the non-moving party’s favor. 39 But
the Court will “ignore conclusory allegations that lack specific supporting factual
allegations.” 40 Dismissal is warranted when a party either fails to plead facts
supporting an element of its claim (or counterclaim), or where under no reasonable
interpretation of the facts alleged could its complaint (or answer) be read to state a
claim (or counterclaim) for which relief might be granted. 41 If the Court engages
37
Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 535 (Del.
2011).
38
Id.39
Wilmington Sav. Fund Soc’y, FSB v. Anderson, et al., 2009 WL 597268, at *2 (Del. Super.
Ct. Mar. 9, 2009) (citing Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005)).
40
Anderson v. Tingle, 2011 WL 3654531, at *2 (Del. Super. Ct. Aug. 15, 2011).
41
Otto’s Candies, LLC v. KPMG, LLP, 2018 WL 1960344, at *3 (Del. Super. Ct. Apr. 25,
2018).
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these well-accepted standards and finds the claimant (or counter-claimant) may
recover, the Court must deny the motion to dismiss.42
IV. DISCUSSION
A. Sprint’s Motion to Dismiss Counts Three through Seven of the
Amended Complaint.
GWO Trust asserts: in Count Three—breach of the implied covenant of good
faith and fair dealing; in Count Four—misappropriation of trade secrets; in Count
Five—conversion; in Count Six—unfair competition; and, in Count Seven—tortious
interference with prospective business relations. Sprint moves to dismiss them all
on multiple grounds. Upon careful consideration of each argument raised, the Court
GRANTS, in part, and DENIES, in part, Sprint’s motion as to Count Three;
GRANTS its motion as to Counts Five, Six, and Seven; and DENIES its motion as
to Count Four.
1. Counts Three, Five, Six, and Seven Are Not Time-Barred.
Sprint’s first argument rests on its attempt to interpret the Settlement Approval
Order. According to Sprint, the Settlement Approval Order preserves only those
pre-bankruptcy claims against GWO Trust that are “timely” filed (each a “Timely
Challenge”). A pre-bankruptcy claim, or “pre-petition” claim, is one that was or is
deemed to have been filed prior to the bankruptcy petition. Sprint contends that
42
Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
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because Counts Three, Five, Six, and Seven were not “timely” filed, they are time-
barred.43
Under the Settlement Approval Order, a Timely Challenge is defined as “a
claim [filed] against any Sprint … prior to July 1, 2017.”44 That definition has
import to the release of liabilities under the Settlement Agreement, and accordingly,
General Wireless’s right to receive the $5 million Holdback. 45 In the event of a
Timely Challenge, GWO Trust “shall be deemed to forfeit and [will] not receive any
portion of the Holdback.”46
The Settlement Approval Order expressly provides “[n]otwithstanding
anything to the contrary in the Motion or the Settlement Agreement, all Chapter 5
and state law claims related to any Sprint Party’s prepetition acts or omissions are
fully preserved, if any such claims as to any Sprint Party are included in a Timely
Challenge . . .”47 Sprint reads this language to mean “… state law claims … are
43
Def. Sprint’s Opening Br. in Supp. of its Mot. to Dismiss Counts Three Through Seven of
the Am. Compl. [hereinafter “Def.’s Br.”] ¶¶ 9–14.
44
Pl.’s Answering Br. in Opp’n to Def.’s Mot. to Dismiss [hereinafter “Pl.’s Opp’n”] Ex. B
(hereinafter “Settlement Approval Order”) § 7.
45
Settlement Approval Order § 7; Pl.’s Opp’n Ex. A (hereinafter “Settlement Agreement”)
§ 8.1.
46
Settlement Approval Order § 11.
47
Id. § 8 (emphasis added).
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preserved, [only if] such claims are included in a Timely Challenge.”48 So, Sprint
says, because Counts Three, Five, Six, and Seven were not asserted prior to July 1,
2017, as Timely Challenges, they are time-barred.49
GWO Trust counters that under the Settlement Approval Order so long as
“any” claim is filed as a Timely Challenge, “all” prepetition and state law claims are
preserved. 50 Hence, Counts Three, Five, Six, and Seven could be added anytime
because the original Complaint was filed prior to July 1, 2017, and preserved GWO
Trust’s right to bring any and all new claims. 51
So the Court must determine whether only specific claims filed as Timely
Challenges are preserved, or if the filing of a single Timely Challenge sufficed to
preserve the right to add the new claims thereafter. To resolve this contract
construction question, the Court must “interpret clear and unambiguous terms
according to their ordinary meaning.”52
48
Def.’s Br. ¶ 9.
49
Def.’s Br. ¶¶ 9–14 (for example, Sprint repeatedly emphasizes “[Settlement Approval
Order] require[s] all state law claims to be brought before July 1, 2017 and effectively releasing
Sprint from any claims that were not part of a Timely Challenge[.]”).
50
Pl.’s Opp’n ¶¶ 9–11.
51
Id. ¶¶ 10–11.
52
GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del.
2012).
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Here, the Court finds no ambiguity in the terms of either the Settlement
Agreement or the Settlement Approval Order. Section 8 of the Settlement Approval
Order reads “all prepetition and state law claims are preserved, if any such claims
are included in a Timely Challenge.” This language clearly provides that if any
claim is filed as a Timely Challenge, all claims are preserved and can be
subsequently asserted.
The parties don’t dispute that the initial Complaint, filed on June 28, 2017, is
a Timely Challenge. And the Settlement Approval Order in plain language provides
that the filing of the initial Complaint preserved General Wireless’s right to assert
additional prepetition and state law claims, as it has done in Counts Three, Five, Six,
and Seven of the Amended Complaint. Accordingly, Sprint’s time-bar argument
fails.
2. Count Three—Breach of the Implied Covenant Claim Must Be
Dismissed.
Sprint moves to dismiss Count Three–Breach of the Implied Covenant of
Good Faith and Fair Dealing–contending that the conduct complained-of is covered
by the express terms of the Alliance Agreement and the OMS Agreement. Thus,
Sprint says, GWO Trust cannot assert an “implied” contract claim in lieu of or in
addition to those based on express contract provisions. 53
53
Def.’s Br. ¶¶ 14–15.
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According to GWO Trust, the conduct alleged to have breached the implied
covenant includes: (i) opening competing Sprint stores in close proximity, (ii)
diverting customers away from co-branded stores to Sprint stores, and (iii) failing to
adequately train its employees working in the co-branded stores. 54 GWO Trust
complains that Sprint’s breach caused reduced customer traffic, and decreased sales,
revenue, and cash flow at the co-branded stores.55
Under Delaware law, the implied covenant of good faith and fair dealing
attaches to every contract. 56 However, implying a covenant not contracted for by
the parties is a “cautious enterprise” that “should be [a] rare and fact-intensive”
exercise, governed solely by “issues of compelling fairness.”57
The baseline in these matters—existing contract terms control. 58 The implied
covenant cannot be used to re-write the agreement,59 “to circumvent the parties’
54
Am. Compl. ¶ 76.
55
Id. ¶ 79.
56
Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441–42 (Del. 2005).
57
Id. at 442 (citing, e.g., E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 443
(Del. 1996); Cincinnati SMSA Ltd. Pshp. v. Cincinnati Bell Cellular Sys. Co., 708 A.2d 989, 992
(Del. 1998) (“Delaware Supreme Court jurisprudence is developing along the general approach
that implying obligations based on the covenant . . . is a cautious enterprise.”)).
58
Dunlap, 878 A.2d at 441; see also Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del.
Ch. Apr. 15, 2009) (holding that in any event, an implied covenant claim cannot be “invoked to
override the express terms of [a] contract.”).
59
Nationwide Emerging Managers, LLC v. NorthPointe Hldgs., LLC, 112 A.3d 878, 897
(Del. 2015).
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bargain, or to create a free-floating duty unattached to the underlying legal
document.”60 When a sophisticated party “could have easily drafted the contract to
expressly” provide a specific contractual protection, the failure to do so cannot be
remedied by employing the implied covenant.61
The Court will resort to the implied covenant only when a contract is truly
silent with respect to the contested issue. And then only when the Court finds that
the parties’ expectations on the issue were so fundamental that they clearly would
not need to negotiate about nor memorialize them. 62 Recognizing the “occasional
necessity” of implying contract terms to ensure the parties’ “reasonable
expectations” are fulfilled,63 the Court “must assess the parties’ reasonable
expectations at the time of contracting and not rewrite the contract to appease a party
who later wishes to rewrite a contract he now believes to have been a bad deal.”64
A claimant may only invoke the protections of the covenant when it is clear
from the underlying contract that the contracting parties would have agreed to
60
Dunlap, 878 A.2d at 441–42.
61
Winshall v. Viacom Int'l Inc., 76 A.3d 808, 816 (Del. 2013); Nationwide Emerging
Managers, LLC, 112 A.3d at 897.
62
Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1032–33 (Del. Ch. 2006).
63
Dunlap, 878 A.2d at 442.
64
Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010).
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proscribe the act later complained of.65 To maintain an implied covenant claim, the
factual allegations underlying the implied covenant claim must differ from those
underlying an accompanying breach-of-contract claim. 66 If the contract at issue
expressly addresses a particular matter, “an implied covenant claim respecting that
matter is duplicative and not viable.”67
Here, the Court finds Sprint’s conduct purportedly giving rise to GWO Trust’s
implied covenant claim is, in part, governed by express contractual terms negotiated
by the parties, and in part, not duplicative of the parties’ express contractual
obligations.
i. Sprint’s Opening of Nearby Competing Stores.
GWO Trust’s first complaint is that Sprint opened competing stores proximate
to co-branded stores. 68 Sprint posits that the Alliance Agreement and OMS
Agreement—heavily negotiated contracts between sophisticated commercial
parties—extensively and comprehensively detail the operations and locations of the
co-branded SWAS stores. 69 According to Sprint, there can be no undefined non-
65
Winshall v. Viacom Int’l, Inc., 55A.3d 629, 637, aff’d, 76 A.3d 808 (Del. 2013).
66
Cent. Mortg. Co., 27 A.3d at 539.
67
See Edinburgh Hldgs., Inc. v. Educ. Affiliates, Inc., 2018 WL 2727542, at *9 (Del. Ch.
June 6, 2018) (dismissing the implied covenant claim as entirely duplicative of the contract claim).
68
Am. Compl. ¶ 76(a).
69
Def.’s Br. ¶¶ 16–17.
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compete zone written in via the implied covenant. 70 And so, Sprint says, because
the conduct in this regard is governed by express contract terms, the implied
covenant claim must be dismissed.
GWO Trust concedes that the Alliance Agreement did deal with SWAS
locations, but argues that the allegation here arises from Sprint’s implied duty not to
open nearby competing stores; not from Sprint’s express duty to open (or to
cooperate in opening or re-tooling) stores at designated SWAS locations.71
The Court is mindful that the implied covenant cannot be used to inflict free-
floating obligations on a party simply because the claimant fails to secure a
protection through contract during the negotiations.72 Disfavor of the implied
covenant shall not, however, preclude the claim when a contract is truly silent on a
matter, and when the expectations of the parties thereon were so fundamental that
one would expect the alleged offending behavior would need be neither negotiated
over nor scrivened.73 Thus, to determine whether the implied covenant applies, the
70
Id. ¶ 16.
71
Pl.’s Opp’n ¶ 13.
72
See generally Dunlap, 878 A.2d at 441–42; Nationwide Emerging Managers, LLC, 112
A.3d at 896; Winshall, 55 A.3d at 637.
73
Allied Capital Corp., 910 A.2d at 1032–33.
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Court must employ a factual inquiry into the conduct complained-of and discern the
parties’ “reasonable expectation” given the factual backdrop of the case.
The Court finds that the Alliance Agreement and the OMS Agreement, taken
as a whole, do indeed address the locations of the co-branded stores, and are silent
as to any restrictions on Sprint opening competing stores. But when assessing the
parties’ expectations, the Court must consider the totality of the convoluted factual
background of these agreements: General Wireless and Sprint entered into a strategic
business relationship, executed a series of agreements to materialize the details, and
implemented—albeit unsuccessfully—the SWAS model. Under the SWAS model,
the co-branded stores would sell RadioShack and Sprint products exclusively.
Implicit to this exclusivity was RadioShack/General Wireless’s forbearance from
selling Sprint competitors’ products. Commercial profitability is achieved, in many
instances, by increasing the competitiveness, and/or limiting the competition.
Taking these commonsensical business considerations and the unique facts of this
case, the Court finds General Wireless would reasonably expect Sprint to forbear
from opening competing Sprint-stores carrying the exact same products in proximity
to the co-branded stores.
The Court finds that, though indeed absent from the express terms of the
Alliance Agreement and Related Agreements, the reasonable expectation here was
sufficiently fundamental for the Court to infer such an obligation derived from the
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parties’ relationship, and such inference does not override or conflict with the
contracts’ express terms: Sprint’s duty to open co-branded stores at the agreed-upon
locations is sufficiently different from Sprint’s implicit duty to refrain from opening
nearby competing Sprint-alone stores. Under the specific facts alleged here, the
implied covenant claim is not foreclosed as being duplicative of the express breach-
of-contract claim.
ii. Diverting Customers.
GWO Trust next claims Sprint, directly or indirectly, diverted customers away
from co-branded stores. 74 Sprint argues that the complained-of conduct is covered
by the Alliance Agreement’s Section 7.2(b) and, therefore, warrants dismissal. 75
Section 7.2 of the Alliance Agreement says that each party will “maintain a
commercially reasonable” inventory level of their respective products, and ensure
their products at the co-branded stores are substantially similar to their own branded
stores. 76 And Section 4.3 of the OMS Agreement allows personnel in a co-branded
store to set up appointments in other Sprint locations when need be.77 In other
74
Am. Compl. ¶ 76(b).
75
Def.’s Br. ¶¶ 17–18.
76
Alliance Agreement § 7.2(b).
77
OMS Agreement § 4.3 (“… Sprint will assist RadioShack employees, or provide training,
on accessing Sprint.com, the store locator and information on appointment setting for customers
at other Sprint locations.”).
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words, some “diversion” of customers was anticipated. Accordingly, the Court finds
the alleged wrongdoing—“diverting” customers away from co-branded stores—is
the subject of the contracts’ express terms. The Court declines to infer some other
implied contractual obligation into the well-delineated, bargained-for exchange
between the parties on this “diversion” claim.
iii. Training of Store Personnel.
Last, GWO Trust argues that Sprint breached the implied covenant by failing
to adequately train those working in the co-branded stores.78 Again, Sprint says the
issue of employee training is governed by specific contractual terms. 79
Section 7.5 of the Alliance Agreement provides that “ . . . each [party] will
be responsible for staffing and managing such [p]arty’s respective operations in each
[co-branded store].” 80 And OMS Agreement Section 4.3 explicitly states that each
party is responsible for training its respective employees regarding its own products
and services. 81 To the extent Sprint assists or provides training to
RadioShack/General Wireless employees, such assistance and training is limited to
78
Am. Compl. ¶ 76(c).
79
Def.’s Br. ¶ 18.
80
Alliance Agreement § 7.5.
81
OMS Agreement § 4.3.
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“accessing Sprint.com, the store locator and information on appointment setting for
customers at other Sprint locations.” 82
Again, express contract terms cover the complained-of conduct. Thus, GWO
Trust’s implied covenant claim on lack of employee training must be dismissed.
In sum, Sprint’s motion to dismiss Count Three for Breach of the Implied
Covenant of Good Faith and Fair Dealing is GRANTED with respect to the alleged
diversion of customers and failure to adequately train employees; it is DENIED on
the proximate-competing-stores allegation.
3. Count Four—Misappropriation of Trade Secrets.
GWO Trust alleges in Count Four that Sprint misappropriated its trade secrets,
including store-level data, retail tickets, and gross margin for RadioShack
products.83 Sprint seeks dismissal of Count Four, on three grounds: (i) it is merely
duplicative of Count Two; 84 (ii) it is not subject to DUTSA;85 and (iii) it violates
Delaware law’s well-settled principle of honoring contracts.86
82
Id.
83
Am. Compl. ¶¶ 83, 88–89.
84
Def.’s Br. ¶ 19.
85
Id. ¶¶ 21–23.
86
Id. ¶¶ 24–27.
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Given that GWO Trust alleges the trade secrets misappropriation under the
DUTSA, the Court first addresses its applicability. The Court then considers
Sprint’s remaining arguments.
i. DUTSA is Applicable—Count Four Will Not Be Dismissed as
Duplicative.
Sprint first asserts that the “trade secret” alleged in Count Four is no different
than the “Confidential Information” referenced in Count Two, a breach-of-contract
claim. 87 And, Sprint posits, a DUTSA claim for trade secret misappropriation must
be dismissed when duplicative of a contractual claim for breach of confidentiality. 88
DUTSA expressly provides that it displaces conflicting tort, restitutionary and
other Delaware law that may provide civil remedy for misappropriation of a trade
secret.89 The statute does not, however, affect:
(1) Contractual remedies, whether or not based upon
misappropriation of a trade secret;
(2) Other civil remedies that are not based upon
misappropriation of a trade secret; or
(3) Criminal remedies, whether or not based upon
misappropriation of a trade secret.90
87
Id. ¶ 19.
88
Id. ¶¶ 19–20.
89
DEL. CODE ANN. TIT. 6, § 2007(a) (West 2018).
90
DEL. CODE ANN. TIT. 6, § 2007(b) (West 2018) (emphasis added).
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The statute unequivocally provides that the existence of a contract claim does
not preclude or otherwise affect a DUTSA claim, whether or not the contract claim
arises from alleged misappropriation of a trade secret. Thus, that aspect of Sprint’s
argument is meritless.
With respect to other civil remedies, however, the statute does provide
preemption to the extent those other remedies are based upon misappropriation of a
trade secret. The determinant is whether “the same facts are used to establish all
elements” of the common law claim and the DUTSA trade secret claim. 91
GWO Trust, in asserting Count Four, seems to base its claim on both the
common law 92 and DUTSA. 93 Inferring facts favorably to GWO Trust, as the Court
must, 94 to the extent GWO Trust alleges misappropriation under both common law
and DUTSA, the common law claim might be preempted by DUTSA; but any
misappropriation-of-trade-secret claim is still preserved under DUTSA.
Accordingly, GWO Trust’s DUTSA trade secret claim is not foreclosed merely
91
Overdrive, Inc. v. Baker & Taylor, Inc., 2011 WL 2448209, at *4 (Del. Ch. Mar. 11, 2011)
(citing Accenture Global Servs. GMBH v. Guidewire Software Inc., 631 F. Supp. 2d 504, 508 (D.
Del. 2009)).
92
Am. Compl. ¶¶ 83, 86–87 (“Sprint misappropriated General Wireless’s trade secret by
breaching its confidentiality requirements … [and] by disclosing and using them without express
or implied consent by General Wireless.”).
93
Id. ¶ 89 (“Sprint’s action violated the applicable trade secrets act and the independent duties
not to misappropriate trade secrets memorialized therein.”).
94
Wilmington Sav. Fund Soc’y, FSB, 2009 WL 597268, at *2.
- 23 -
because GWO Trust simultaneously asserts a contract-based breach-of-
confidentiality claim.
But, while GWO Trust may legally assert a DUTSA-grounded trade secret
claim, it still must do so under the applicable pleading standard. In Section
IV.A.3.iii, infra, the Court addresses the sufficiency of GWO Trust’s allegations.
ii. Sprint’s Policy Argument is Groundless.
Sprint additionally argues that Count Four should be dismissed because it
violates the long-standing policy of honoring well-negotiated contracts between
sophisticated commercial parties.95
Sprint’s assertion, however, is predicated on its previous argument of
DUTSA’s inapplicability and is just as unpersuasive.
iii. GWO Trust Sufficiently Alleges a Trade Secret
Misappropriation Claim.
Having concluded that GWO Trust’s trade secret misappropriation claim is
not preempted, the Court now addresses whether GWO Trust sufficiently alleges
that claim. 96
95
Def.’s Br. ¶ 24–25.
96
Notably, Sprint does not argue insufficiency of the claim’s factual allegations. But for its
complaint to withstand a Rule 12(b)(6) dismissal motion, the claimant must plead sufficient factual
support to plausibly state the contested claim upon which relief may be granted. Del. Super. Ct.
Civ. R 12(b)(6).
- 24 -
To survive a motion to dismiss a DUTSA claim under Rule 12(b)(6), the
complaint must plead four elements:
(i) A trade secret exists;
(ii) The plaintiff communicated the trade secret to the
defendant;
(iii) The communication was made pursuant to an express
or implied understanding that the defendant would
maintain the secrecy of the information; and
(iv) The trade secret has been misappropriated within the
meaning of that term as defined in the DUTSA. 97
To make out a DUTSA trade secret misappropriation claim, the claimant must
show the subject information qualifies as a “trade secret.” DUTSA defines a trade
secret as “information” that “[d]erives independent economic value, actual or
potential, from not being generally known to, and not being readily ascertainable by
proper means by other persons who can obtain economic value from its disclosure
or use,” and that “[i]s the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.” 98 Information can be confidential and
protected by a contractual provision, yet fail to be considered a “trade secret” under
97
Alarm.com Hldgs., Inc. v. ABS Capital P'rs Inc., 2018 WL 3006118, at *7 (Del. Ch. June
15, 2018) (citing Wayman Fire Prot., Inc. v. Premium Fire & Sec., LLC, 2014 WL 897223, at *13
(Del. Ch. Mar. 5, 2014)).
98
DEL. CODE ANN. TIT. 6, § 2001(4) (West 2018); see also Beard Research, Inc. v. Kates, 8
A.3d 573, 589 (Del. Ch. 2010), aff’d sub nom. ASDI, Inc. v. Beard Research, Inc., 11 A.3d 749(Del. 2010).
- 25 -
DUTSA. 99 The reverse is also true: a trade secret can be protected by DUTSA absent
any express contract provision.100
On a motion to dismiss, the Court accepts as true all well-pleaded
allegations, 101 and draws all factual inferences in favor of the non-moving party.102
But the Court need not accept “conclusory allegations that lack specific supporting
factual allegations.”103
GWO Trust has pleaded sufficient facts to allege a claim for misappropriation
of trade secrets. The information relating to store-level data on traffic, retail tickets,
and gross margins are conceivably of independent economic value for General
Wireless, and/or its competitors in the industry, to be used for competition purposes
such as determining pricing and marketing strategies, or for other business-related
uses. Such information is not readily available to one outside this SWAS
partnership, or one who is not otherwise privileged to its access.
99
EDIX Media Grp., Inc. v. Mahani, 2006 WL 3742595, at *5 (Del. Ch. Dec. 12, 2006) (“Not
all confidential information is a trade secret.”).
100
The Court notices that, as GWO Trust correctly points out, allegations in Count Four do
not squarely overlap with those under Count Two, and Count Two does not rely on the
misappropriated information found to be a trade secret. Pl.’s Opp’n ¶ 22, n.8.
101
Cent. Mortg. Co., 27 A.3d at 535.
102
Wilmington Sav. Fund. Soc’y, FSB, 2009 WL 597268, at *2.
103
Anderson, 2011 WL 3654531, at *2.
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GWO Trust, by entering into the Alliance Agreement, undertook sufficient
reasonable measures to keep the information confidential. The “reasonable efforts”
requirement for a trade secret claim is not a high bar. Bare legally conclusive
assertions are inadequate;104 confidentiality provisions or policies intended to
prevent unauthorized disclosure are sufficient.105
In the Alliance Agreement, the Confidentiality provision sets forth, in detail:
the definition of the subject information; the restriction and limitation on its
disclosure and use; and the remedies available when a breach occurs. That satisfies
DUTSA.
Lastly, GWO Trust must also plead facts demonstrating Sprint’s
“misappropriation.” Under DUTSA, “misappropriation” is defined as “disclosure
or use . . . without express or implied consent by a person who . . . at the time of
disclosure or use, knew or had reason to know … that [his] use … derived from [a]
person who owed a duty [to] maintain its secrecy or limit its use.”106 As
104
MHS Capital LLC v. Goggin, 2018 WL 2149718, at *14 (Del. Ch. May 10, 2018) (holding
that the allegations are insufficient where the plaintiff simple alleged “[plaintiff] made efforts to
maintain the secrecy of the [i]nformation, and these efforts were reasonable under the
circumstances.”).
105
Wayman Fire Prot., Inc. v. Premium Fire & Sec., LLC, 2014 WL 897223, at *15 (Del. Ch.
Mar. 5, 2014) (observing that “[i]n prior trade secrets cases …This Court [] has found that
reasonable efforts were taken to preserve confidentiality when a company had implemented
specific policies to prevent disclosure of information to outsiders or the company was in an
industry where custom dictated that certain information be kept confidential.”).
106
DEL. CODE ANN. TIT. 6, § 2001(2)(b)(2)(C) (West 2018).
- 27 -
confidentiality was consented to by the parties via the Alliance Agreement, Sprint
knew or must have known the information was expected to be kept secret. GWO
Trust has pleaded sufficient facts to allege a claim for misappropriation of trade
secrets under DUTSA.
4. Count Five—Conversion and Count Six—Unfair Competition.
GWO Trust alleges in Count Five a claim for Conversion of proprietary
confidential business information.107 In Count Six, it brings a claim for Unfair
Competition complaining that Sprint improperly used confidential business
information, diverted customers away, and interfered with existing landlord
relationships. 108
Sprint moves for dismissal on two grounds. First, Sprint argues—again, on
the ground of duplication—that Counts Five and Six are mere repackaging of Count
Two and not based on a duty independent of the contract.109 Second, Sprint avers
that Counts Five and Six are preempted by DUTSA. 110 GWO Trust maintains that
107
Am. Compl. ¶¶ 93–99.
108
Id. ¶¶ 102–11.
109
Def.’s Br. ¶¶ 19–21.
110
Id. ¶¶ 27–29.
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the duties underlying Counts Five and Six do not derive solely from the contract,
and are, therefore, not duplicative of Count Two. 111
i. Counts Five and Six Are Duplicative of Count Two.
Both conversion and unfair competition are common law remedies. While a
claim based entirely on the breach of contractual terms generally must be sued in
contract, and not tort, 112 a tort claim can be sustained alongside a contract claim
where the same conduct constitutes a breach of contract, and a violation of an
independent duty imposed by law. 113 Thus, the crux of the question here is: whether
GWO Trust’s conversion and unfair competition claims are based entirely on a duty
deriving from the contract, or is there a potential violation of a duty imposed by law
separate and apart from the contractual obligations.
Conversion is defined as “any distinct act of dominion wrongfully exerted
over the property of another, in denial of his right, or inconsistent with it.”114 It is
111
Pl.’s Opp’n ¶¶ 22–25.
112
Data Mgmt. Internationale, Inc. v. Saraga, 2007 WL 2142848, at *3 (Del. Super. Ct. July
25, 2007).
113
Id.114
Id. (citing Drug, Inc. v. Hunt, 168 A. 87, 93 (Del. 1933)).
- 29 -
an intentional tort, hence, a general duty to refrain from converting another’s
property is implied under tort law. 115
In the present case, GWO Trust’s conversion claim is based on Sprint’s
alleged exertion of dominion over the purported confidential business information
discussed earlier—i.e., the data relating to store traffic, retail tickets, and gross
margin for RadioShack products. 116 Again, that information was labeled and treated
as “Confidential Information” in the Alliance Agreement, which not only defines,
but also limits the use and disclosure of the information to limited persons for limited
purposes.117 In other words, that information would not have been entitled to
confidential treatment by the parties had it not been for the Alliance Agreement.
Sprint’s duty, if any, to treat and keep such information confidential and not to
wrongfully exert dominion over or misuse it, derives entirely from the Alliance
Agreement. Absent the Alliance Agreement, Sprint had no separate duty with
respect to that information. With no duty independent of that from the contract,
GWO Trust’s Count Five must be dismissed.
115
Id. (emphasis added) (recognizing that a claim for conversion does not require “specific
proof of an independent duty to refrain from conversion where breach of contract was also
alleged.”).
116
Am. Compl. ¶¶ 93–96.
117
Alliance Agreement §§ 11.2, 11.4.
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The Court now turns to Count Six, a claim of unfair competition. Delaware
law defines “unfair competition” with less clarity.118 It has been said that the
essential distinction between legitimate market participation and “unfair
competition” is “unfair action” by a defendant that prevents “the plaintiff from
legitimately earning revenue.” 119 To state a claim for unfair competition, a plaintiff
must allege “a reasonable expectancy of entering a valid business relationship, with
which the defendant wrongfully interferes, and thereby defeats the plaintiff’s
legitimate expectancy and causes him harm.” 120
GWO Trust alleges that Sprint’s unfair action was Sprint improperly using the
aforementioned confidential business information, diverting customers away, and
interfering with landlord relationships.121
Although General Wireless might conceivably claim to have reasonable
expectations with respect to those business relationships, its unfair competition
claim must fail for the same reason as Count Five. The duties purportedly giving
118
Triton Const. Co. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *19 (Del. Ch. May
18, 2009), aff'd, 988 A.2d 938 (Del. 2010) (citing EDIX Media Group, Inc. v. Mahani, 2006 WL
3742595, at *11 (Del. Ch. Dec. 12, 2006) (“Delaware courts have struggled to define the
boundaries of a claim for unfair competition under the common law.”)).
119
Triton Const. Co., 2009 WL 1387115, at *19.
120
Agilent Techs., Inc. v. Kirkland, 2009 WL 119865, at *5 (Del. Ch. Jan. 20, 2009) (citing
Rypac Packaging Mach. Inc. v. Poges, 2000 WL 567895, at *8 (Del. Ch. May 1, 2000)).
121
Am. Compl. ¶¶ 102, 104, 106–07.
- 31 -
rise to the claim derive entirely from the Alliance Agreement. GWO Trust pleads
that Sprint interfered by improperly using “[GWO Trust’s] Confidential Business
information”122—a duty wholly imposed by and wholly arising from the Alliance
Agreement. Thus, failing to allege a duty independent of those contract duties
dooms GWO Trust’s unfair competition claim and Count Six must be dismissed.
ii. Preemption by DUTSA.
With respect to Counts Five and Six, Sprint additionally argues for their
dismissal based on preemption by DUTSA. 123 While this argument is moot given
the Court’s discussion above, the Court agrees that the conversion and unfair
competition claims would also be dismissed because of DUTSA preemption.
DUTSA expressly provides that a trade secret claim “displaces conflicting
tort, restitutionary and other law of this State providing civil remedies for
misappropriation of a trade secret.”124 The exceptions are criminal remedies,
contractual remedies, and “other civil remedies that are not based on
misappropriation of a trade secret . . .” 125
122
Id. ¶ 102.
123
Def.’s Br. ¶¶ 27–29.
124
DEL. CODE ANN. tit. 6, § 2007(a) (West 2018); see also Savor, Inc. v. FMR Corp., 812 A.2d
894, 898 (Del. Super. Ct. 2002).
125
DEL. CODE ANN. tit. 6, § 2007(b) (West 2018).
- 32 -
But the foundation of GWO Trust’s conversion and unfair competition claims
is that the information Sprint used comprised of trade secrets. The same as that
grounding the DUTSA trade secret misappropriation claim. While the latter
survived, the former must be dismissed.
5. Count Seven—Tortious Interference with Prospective Business
Relations.
In Count Seven, GWO Trust alleges tortious interference with prospective
business relations with retail customers and existing landlords. 126 Sprint argues that
the claim should be dismissed because GWO Trust is a party to the contract
complained-of, 127 and that GWO Trust’s allegations are inadequate. 128
Sprint’s first argument fails. GWO Trust complains not of the Alliance
Agreement (to which it and Sprint are indeed parties), but the prospective business
relations not yet formalized that Sprint allegedly interfered with.129 But are these
allegations sufficiently pleaded?
A claim for tortious interference with prospective business relations requires
a plaintiff to show: (i) the reasonable probability of a business opportunity;
126
Am. Comp. ¶ 113–18.
127
Def.’s Br. ¶ 29.
128
Id. ¶¶ 30–33.
129
Am. Comp. ¶ 113; Pl.’s Opp’n ¶ 30.
- 33 -
(ii) intentional interference with that opportunity by a defendant; (iii) proximate
causation; and (iv) damages.130 These factors must be evaluated “in light of a
defendant’s privilege to compete or protect his business interests in a fair and lawful
manner.”131
To allege “a reasonable probability of a business opportunity,” the plaintiff
must “identif[y] a specific party who was prepared to enter into a business
relationship but was dissuaded from doing so by the defendant.” 132 The threshold
for specificity does not require detailing the party by name, 133 but “mere perception”
of the prospect of a business relation 134 or reliance on generalized allegations of harm
will not suffice. 135
Here, the Court finds, even after viewing all the facts and drawing all
inferences favorable to GWO Trust, GWO Trust fails to plead facts sufficient to
130
De Bonaventura v. Nationwide Mut. Ins. Co., 428 A.2d 1151, 1153 (Del. 1981).
131
Id.132
Agilent Techs., 2009 WL 119865, at *5 (citing Lipson v. Anesthesia Servs. P.A., 790 A.2d
1261, 1285 (Del. Super. Ct. 2001)).
133
Id. at *6–8 (finding two of the four instances of defendant’s purported interferences
sufficiently support claims for unfair competition and tortious interference when under these two
instances, the potential customers substantively inquired about the products, indicating a high
probability of entering into a business relation).
134
World Energy Ventures, LLC v. Northwind Gulf Coast LLC, 2015 WL 6772638, at *7 (Del.
Super. Ct. Nov. 2, 2015).
135
Agilent Techs., 2009 WL 119865, at *7 (citation omitted).
- 34 -
support a claim for tortious interference with prospective business relations. Rather
than identifying specific prospective business relationships with a high degree of
probability, 136 GWO Trust’s complaint is nothing more than generalized allegations
of harm based on ostensible interference with speculative business relations.137
Sprint’s motion to dismiss Count Seven is GRANTED.
B. GWO Trust’s Motion to Dismiss Sprint’s Amended Counterclaims
and Sprint eWireless’s Third-Party Claim.
Sprint brings five counterclaims against GWO Trust: (i) Count I—breach of
Alliance Agreement for General Wireless’s rejection of the Alliance Agreement and
Related Agreement; 138 (ii) Count II—breach of the Alliance Agreement and Related
Agreements for General Wireless’s alleged failure to assume the signage cost pro
rata, maintain adequate inventory, pay for basic utilities, and ensure minimum
internet connectivity; 139 (iii) Count III—declaratory relief regarding limitation of
liability; 140 (iv) Count IV—seeking GWO Trust’s attorney fees for purportedly
136
Id. at 7-8.
137
See, e.g., Am. Comp. ¶ 113 (Count Seven) (“General Wireless had a reasonable probability
of business opportunities with retail customers and existing landlords.”); Am. Compl. ¶ 107 (Count
Six) (“Sprint interfered with this reasonable expectation when it used … Confidential Information
to directly compete… for [retail] space [with landlord.]”).
138
Am. Countercls. & Third–Party Cl. ¶¶ 63–69.
139
Id. ¶¶ 71–83.
140
Id. ¶¶ 85–99.
- 35 -
bringing the misappropriation claim in bad faith;141 and (v) Count VI—seeking
indemnification by GWO Trust under the Alliance Agreement and Related
Agreements.142
eWireless brings, in Count V, a third-party claim against GWO Trust for
breach of the Investor Rights Agreement. 143
GWO Trust moves for partial dismissal of Count I, Count II (to the extent the
claim is based on the breach of the implied covenant of good faith and fair dealing),
Count IV, and Count V.
For the following reasons, GWO Trust’s motion is GRANTED in part, with
respect to Count II; DENIED without prejudice, on Count VI; and DENIED on
Count I, and Count V.
1. Counterclaim Count I—Breach of Contract by Rejection of the
Alliance Agreement.
Sprint asserts in Counterclaim Count I that GWO Trust breached the Alliance
Agreement and Related Agreements by rejecting the Alliance Agreement and
Related Agreements.144 GWO Trust’s motion to dismiss is two-fold: first, it argues
141
Id. ¶¶ 101–11.
142
Id. ¶¶ 131–37.
143
Id. ¶¶ 113–29.
144
Id. ¶ 65.
- 36 -
that Sprint misapprehends the Bankruptcy Code because the Bankruptcy Code
cannot be the basis for a breach-of-contract claim—only state law can be used to
define a claim’s substance;145 second (expanding on the first argument), GWO Trust
says that under applicable Delaware law, Sprint fails to meet the pleading standard
to put GWO Trust on notice as to the claims asserted and damages sought.146 Sprint
maintains that Count I survives as a matter of law.147
i. Bankruptcy Code.
Section 365 of the Bankruptcy Code relates to executory contracts and
unexpired leases. It allows a trustee, subject to the approval of the Bankruptcy Court,
to assume or reject any executory contract.148 More specifically, Subsection 365(g)
provides that “the rejection of an executory contract” constitutes “a breach of such
contract.”149 Although § 365 does not define “executory contract,” according to its
145
Pl.’s Opening Br. in Support of its Partial Mot. to Dismiss Def.’s Am. Countercls. & and
Sprint eWireless. Inc.’s Third-Party Cl. [hereinafter “Pl.’s Br.”] ¶ 4.
146
Pl.’s Br. ¶¶ 4–5; see also Mots. O.A. Tr. (argued May 24, 2018; filed July 19, 2018) 38
(“…failure to identify an obligation that was breached as opposed to a contract.”); id. (“So we’re
really left without being on notice of this breach of…”); id. at 40 (“… not on notice of …[w]hat
kind of damages could they be talking about?”).
147
Def.’s Br. in Opp’n to Pl.’s Br. [hereinafter “Def.’s Opp’n”] ¶¶ 3–9.
148
11 U.S.C. § 365(a) (2018).
149
11 U.S.C. § 365(g) (2018).
- 37 -
legislative history, the term “generally includes contracts on which performance
remains due to some extent on both sides.”150
To treat claims arising from such rejected contracts as pre-petition claims, as
opposed to post-petition claims, the Bankruptcy Code in Section 502(g) creates the
fictional date upon which the breach is deemed to have occurred:
(1) [a] claim arising from the rejection, under section 365 … of an
executory contract … that has not been assumed shall be determined,
and shall be allowed … as if such claim had arisen before the date of
the filing of the petition; (2) [a] claim for damages calculated in
accordance with section 562 shall be allowed … or disallowed … as if
such claim had arisen before the date of the filing of the petition.151
Courts have held that, reading Sections 365 and 502 together, “rejection of an
executory contract constitutes a breach” that is deemed to have occurred “on the date
immediately before the date of filing for bankruptcy and creates a pre-petition claim
for breach of contract.” 152 However, the “bankruptcy breach” does not extinguish
150
3 Collier on Bankruptcy ¶ 365.02 (16th 2018) (citing legislative history that adopts
Professor Countryman’s definition of “executory contract,” expressed as “[a] contract under which
the obligation of both the bankrupt and the other party to the contract are so far unperformed that
the failure of either to complete performance would constitute a material breach excusing
performance of the other.”).
151
11 U.S.C. § 502(g) (2018) (emphasis added).
152
Cinicola v. Scharffenberger, 248 F.3d 110, 119 n.8 (3d Cir. 2001); see also In re HQ Glob.
Hldgs., Inc., 290 B.R. 507, 513 (Bankr. D. Del. 2003) (rejection of an executory contract is
“equivalent to a non-bankruptcy breach”) (citation omitted); Stewart Title Guar. Co. v. Old
Republic Nat. Title Ins. Co., 83 F.3d 735, 741 (5th Cir. 1996) (citing 11 U.S.C. §§ 365(g)(1),
502(g)).
- 38 -
the parties’ substantive rights and claims relating to, or arising from, the rejected
contract.153
There is no dispute that the Alliance Agreement is an executory contract
within the meaning of § 365(g), and that General Wireless rejected the Alliance
Agreement pursuant to the Settlement Approval Order.154 Under § 365(g) of the
Bankruptcy Code, that rejection constitutes a breach of the rejected contract, and
hence, gives rise to Sprint’s claim of General Wireless’s breach of the Alliance
Agreement under Bankruptcy Code § 502(g).
On this ground, the Court finds GWO Trust’s motion to dismiss Counterclaim
Count I must be DENIED.
ii. Specificity of Sprint’s Claim.
GWO Trust’s argument that Sprint fails to plead its breach-of-contract claim
under state law is premised on Sprint’s failure when alleging its “bankruptcy
breach.” Having concluded that Sprint’s Counterclaim Count I withstands dismissal
on the “bankruptcy breach” ground, the Court addresses the sufficiency of Sprint’s
pleading.
153
See, e.g., Cinicola, 248 F.3d at 119 n.8; In re Fleming Cos., Inc., 2007 WL 788921, at *3
(D. Del. Mar. 16, 2007) (“[R]ejection of an executory contract does not alter the substantive rights
of the parties.”) (quotation omitted).
154
Am. Countercls. & Third–Party Cl. ¶¶ 60, 65–66.
- 39 -
To plead a claim for breach of contract, Sprint must allege sufficient facts
supporting (1) the existence of the contract, (2) the breach of an obligation imposed
by the contract, and (3) the resultant damage.155 “Delaware is a notice pleading
jurisdiction and the complaint need[s] only give general notice as to the nature of the
claim asserted against the defendant in order to avoid dismissal for failure to state a
claim.” 156 “In alleging a breach of contract, a plaintiff need not plead specific facts
to state an actionable claim.” 157
GWO Trust complains that Sprint does not describe “specific” obligations
breached by General Wireless, and therefore, fails to put GWO Trust on adequate
notice. 158 The Court cannot agree. Sprint meets the “notice pleading” standard. The
string of arrangements and events Sprint describes—including, the Alliance
Agreement and Related Agreement, the negotiation and entering of the Settlement
Agreement, the Bankruptcy Court’s Settlement Approval Order, and GWO Trust’s
155
VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).
156
Nye v. Univ. of Delaware, 2003 WL 22176412, at *3 (Del. Super. Ct. Sept. 17, 2003);
Superior Court Rule 8(a)(1).
157
VLIW Tech., 840 A.2d at 611.
158
Pl.’s Br. ¶ 5 (“Sprint does not identify the breach of any specific obligation imposed by the
Alliance Agreement or any of the Related Agreements …”); (“Sprint’s allegations thus fail to give
Plaintiff fair notice of a claim.”).
- 40 -
rejection of the Alliance Agreement—can hardly be said to fail to put GWO Trust
on notice of Sprint’s breach-of-contract claim.
GWO Trust’s motion to dismiss Counterclaim Count I is DENIED.
2. Counterclaim Count II—Breach of the Implied Covenant of Good
Faith and Fair Dealing.
In Count II of the Counterclaims, Sprint asserts against GWO Trust breach of
several express terms of the Alliance Agreement and Related Agreements, as well
as, a breach of the implied covenant of good faith and fair dealing.159 GWO Trust
moves for dismissal, to the extent the claim is based on breach of the implied
covenant. GWO Trust argues that the implied covenant claim is duplicative of the
underlying contract claims and arises from the obligations expressly contracted
for.160
The conduct that allegedly breached the implied covenant is General
Wireless’s failure to: (i) maintain adequate funding and the capitalization required
by the Investor Rights Agreement; (ii) adequately staff the SWAS stores; and (iii)
provide information to Sprint regarding negotiations of leases in 2016. Sprint
159
Am. Countercls. & Third–Party Cl. ¶¶ 77–78.
160
Pl.’s Br. ¶¶ 7–8.
- 41 -
alleges General Wireless acted “in an arbitrary or unreasonable” manner that
adversely affected Sprint’s ability to “receive the benefits of the bargain.”161
As the Court discussed in Section IV.A.2, supra, resort to the implied
covenant of good faith and fair dealing is a cautious enterprise used to “handle
developments or contractual gaps,”162 but not to re-write or override express terms
of a contract. 163 Only when a contract is truly silent with respect to the contested
matter will the Court allow an implied covenant claim, and that is only when the
expectations of the parties are found to be sufficiently fundamental.164 Where the
questioned contract expressly addresses a particular matter, “an implied covenant
claim respecting that matter is duplicative and not viable.”165
The Court, on this present motion to dismiss, even upon taking all Sprint’s
factual allegations as true and drawing all inferences in its favor, finds its implied
covenant claim must fail. The conduct allegedly violating the implied covenant is
squarely addressed by the contract.
161
Am. Countercls. & Third–Party Cl. ¶¶ 77–78.
162
Nemec, 991 A.2d at 1125.
163
See, e.g., Nationwide Emerging Managers, LLC, 112 A.3d at 897; Kuroda, 971 A.2d at
888.
164
Allied Capital Corp., 910 A.2d at 1033.
165
Edinburgh Hldgs., Inc., 2018 WL 2727542, at *9.
- 42 -
The funding requirements are provided in Sections 10(b) and 20 of the
Investor Rights Agreement. 166 The obligation to adequately staff the SWAS stores
is contracted for in Section 7.5 of the Alliance Agreement, 167 and in more detail in
the OMS Agreement. 168 The alleged failure to share information relating to the
negotiation of leases is well within the defined terms of Section IV (Rent and
Overhead Payments; Fees; Payment) and Section VI (Reporting; Audits) of the
Alliance Agreement. By way of example, under Section 6.1, each party shall provide
monthly “an accounting of all percentage rent payments…”; Section 6.3 provides
each party with general inspection rights, i.e., rights to visit and inspect each co-
branded store during regular business hours. 169
Where the now-contested matters are based on express contractual rights or
obligations, an implied covenant claim premised on the same subject matter must
fail. Thus, the Court GRANTS GWO Trust’s motion to dismiss Counterclaim
Count II—the alleged breach of the implied covenant of good faith and fair dealing.
166
Pl.’s Br. Ex. 1 (Investor Rights Agreement) [hereinafter “Investor Rights Agreement”] §
10.2 ([General Wireless]’ Capital Investment), §20 (Representations Regarding Initial
Capitalization of [General Wireless] and Corporate Structure).
167
Alliance Agreement § 7.5 (Staffing and Management; Operation of Co-Branded Stores).
168
OMS Agreement § 4.
169
Alliance Agreement § 6.3.
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3. Counterclaim Count VI—Sprint’s Right to Indemnification by GWO
Trust.
Sprint’s next counterclaim, in Count IV, is that the Alliance Agreement,
together with certain Related Agreements, provides Sprint with broad
indemnification rights that entitle Sprint to be reimbursed by GWO Trust for
Damages (as defined in Section 13.1(a) of the Alliance Agreement). 170 GWO Trust
argues that none of the specific provisions asserted by Sprint provides Sprint with a
right of indemnification related to the present action. 171 GWO Trust’s main
argument rests on Sprint’s alleged failure to plead facts triggering the
indemnification rights under either the Alliance Agreement or Retailer
Agreement. 172 Part of GWO Trust’s contention is that the only triggering event
identified by Sprint is the breach of contract, pleaded in Count I, thus, the entire
claim for indemnification is dependent on the outcome of Count I, rather than well-
pleaded allegations of facts. 173
170
Am. Countercls. & Third–Party Cl. ¶¶ 132–37 (alleging, specifically, that “sections 12(e),
13(d), 15(a)(4)(b) and 17 of the Retailer Agreement and section 13.1(b) of the Alliance
Agreement” provide Sprint with broad indemnification rights that obligate GWO Trust to
reimburse Sprint for Damages, including attorney fees).
171
Pl.’s Br. ¶ 12.
172
Id. ¶¶ 13–17.
173
Mots. O.A. Tr. 42–43 (“The filing of the complaint they said triggers the
indemnification.”); id. at 43 (“So I think not only their ultimate justification of these claims not
pleaded …”).
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In response to GWO Trust’s motion to dismiss, Sprint concedes that it does
not allege facts supporting indemnification claims under Sections 12(e), 13(d), and
15(a)(4)(b) of the Retailer Agreement, and withdraws those claims accordingly.174
Sprint further agrees to “amend Court VI to clarify [that] the basis for its
indemnification is General Wireless’s breaches of the Alliance Agreement and
Retailer Agreement and strike the reference to Sections 12(e), 13(d) and 15(a)(4)(b)
of the Retailer Agreement.” 175 GWO Trust complains that Sprint purports to amend
its pleading through briefing.176
As an initial matter, the Court must decide whether Sprint is permitted, in its
concession in the answering brief, to strike indemnification claims based on 12(e),
13(d) and 15(a)(4)(b) of the Retailer Agreement; if so, whether the concession
constitutes an amendment to its counterclaims. With respect to the rules governing
amendment to pleadings, unlike the applicable rule in the Court of Chancery, 177
174
Def.’s Opp’n ¶ 18, n.11.
175
Id.
176
Pl.’s Reply in Supp. of its Partial Mot. to Dismiss Def.’s Am. Countercls. & eWireless’s
Third-Party Cl. (hereinafter “Pl.’s Reply”) ¶ 16.
177
See Ch. Ct. R. 15(aaa) (providing, in its relevant parts, “[n]otwithstanding subsection (a)
of this Rule, a party that wishes to respond to a motion to dismiss under Rule 12(b)(6) or 23.1 by
amending its pleading must file an amended complaint … no later than the time such party's
answering brief in response to either of the foregoing motions is due to be filed.”). See also, e.g.,
Stern v. LF Capital P'rs, 820 A.2d 1143, 1146 (Del. Ch. 2003) and In re EZCORP Consulting
Agreement Deriv. Litig., 130 A.3d 934, 941 (Del. Ch. 2016) for a discussion and application of
Ch. Ct. R. 15(aaa). GWO Trust urges the Court to disallow Sprint’s purported amendment to the
pleadings “through its briefing,” citing to In re MeadWestvaco Stockholders Litig., 168 A.3d 675,
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Superior Court Civil Rule 15 usually allows non-prejudicial amendment to
pleadings, even after a responsive pleading has been filed. 178
Sprint concedes the lack of merit and factual support for its indemnification
claims based on Sections 12(e), 13(d) and 15(a)(4)(b) of the Retailer Agreement,
and informs the Court of its intention to subsequently amend its counterclaims.
Pursuant to Superior Court Civil Rule 15, permission for Sprint to do so is fully
within the discretion of the Court, and usually will be freely given if GWO Trust is
not prejudiced. So, dismissal of Count VI at this point would be premature. GWO
Trust’s motion to dismiss on the indemnification counterclaim is not yet ripe. The
Court will address the whole of any such indemnification counterclaim once the
amendment (or attempted amendment) is properly before it.
4. eWireless’s Third-Party Claim for Breach of the Investor Rights
Agreement (Count V).
eWireless, a third-party plaintiff, asserts GWO Trust breached the Investor
Rights Agreement on multiple grounds, including: (i) failure to reimburse eWireless
for an unpaid obligation in the amount of $16,922,526.25 pursuant to Section
10(c); 179 (ii) rejection of the Investor Rights Agreement in the Second Bankruptcy
n.68 (“arguments in briefs do not serve to amend the pleadings”) (citation omitted). See Pl.’s
Reply ¶ 16.
178
Chrysler Corp. v. New Castle Cty., 464 A.2d 75, 84 (Del. Super. Ct. 1983) (citation
omitted) (“Leave to amend after a responsive pleading has been filed is discretionary[.]”).
179
Am. Countercls. & Third–Party Cl. ¶ 119.
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Case as a prepetition breach; 180 and (iii) failure to invest in the co-branded stores for
renovation and improvement as required under Section 10(b). 181 eWireless also
alleges that in respect to the unpaid obligation of $16,922,526.25, it filed proofs of
claim in the Second Bankruptcy Case. 182
GWO Trust claims that Sprint and eWireless have named the wrong defendant
in Count V because “General Wireless”—the named counterparty in Count V—is
an abbreviation for General Wireless Operations Inc., while in fact it is GWI
(namely, General Wireless Inc.) that is the party to the Investor Rights Agreement.183
GWO Trust further asserts that the proofs of claim filed by eWireless are against
General Wireless Operations Inc., not General Wireless Inc.—the real signatory to
the Investor Rights Agreement.184
Sprint, in its opposition, first notes that the proofs of claim have been filed
against both General Wireless and GWI. 185 Sprint further points out that this Court
had authorized the parties’ stipulation regarding the counterclaims and third-party
180
Id. ¶ 121.
181
Id. ¶¶ 123–24.
182
Id. ¶ 120.
183
Pl.’s Br. ¶¶ 17–18.
184
Id. ¶ 18.
185
Def.’s Opp’n ¶ 16.
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claims whereby the captions and references in Count V were amended to GWI (the
“Stipulation”).186 According to Sprint, mere typographical error or misnomer cannot
be grounds for depriving a claimant of the right to remedies.187
In its reply, GWO Trust repeats its arguments that Sprint and eWireless named
the wrong party, and argues that the Stipulation changed only the caption and does
not excuse the error contained in the Amended Counterclaims and Third-Party Claim
filed post-Stipulation.188
For the first time, in its reply, GWO Trust raises party and claim joinder, 189 as
well as a set-off argument (claiming that eWireless’s third-party claim is an attempt
to set-off possible recoveries GWO Trust is expected to receive which, it says, is
impermissible absent mutuality). 190
Both parties subsequently filed respective sur replies to supplement their
arguments on the additional issues newly raised by GWO Trust relating to the set-
off argument, and the joinder of parties under Superior Court Civil Rule 19.
186
Id. ¶¶ 16–17; D.I. 28 (Stipulation Regarding Countercls. & Third-Party Claims [hereinafter
“Stipulation re Countercls.”]) ¶ 4.
187
Def.’s Opp’n ¶ 17.
188
Pl.’s Reply ¶¶ 20–21.
189
Id. ¶ 22 (raising arguments based on Superior Court rules of, by way of example, 14, 18
and 19).
190
Id. ¶¶ 22–23.
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i. eWireless’s Amendable Error of Naming the Wrong
Counterparty Does Not Warrant Dismissal.
The Investor Rights Agreement was entered on April 1, 2015, among
eWireless, GWI, and GWI’s affiliates. 191 eWireless acknowledges that General
Wireless is not a signatory party to the IRA, and that its references in Count V of the
Amended Counterclaim and Third-Party Claim are intended to describe GWI.192
eWireless says that despite the typographic error, GWO Trust is clearly on notice
that eWireless’s claim is brought against GWI. 193
The Court agrees. “Delaware is a notice pleading state” where the complaint
“needs only give general notice as to the nature of the claim” against the
defendant.194 Where a party seeks to amend its pleading by leave of court, such
leave “shall be freely given when justice so requires.”195
Here, the Court finds GWO Trust is clearly on notice of eWireless’s third-
party claim asserted in Count V. To start, the Stipulation was prompted by General
191
Investor Rights Agreement.
192
Pl.’s Reply ¶ 17; Def.’s Sur-Reply ¶ 2.
193
Pl.’s Reply ¶¶ 16–17; Pl.’s Reply ¶ 17, n.10; Def.’s Sur-Reply ¶ 2.
194
E.g., VLIW Tech., 840 A.2d at 611 (“[A] complaint for breach of contract is sufficient if it
contains ‘a short and plain statement of the claim showing that the pleader is entitled to relief.’”)
(citation omitted); Del. Super. Ct. Civ. R. 8(a)(1) (“A pleading … shall contain (1) a short and
plain statement of the claim…”).
195
Del. Super. Ct. Civ. R. 15(a).
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Wireless commencing the Second Bankruptcy Case. It expressly provides for
changing the reference of General Wireless to GWI. Moreover, soon after the
Second Bankruptcy Case was filed, the parties amended their respective Claims and
Counterclaims to reflect the changes in the caption of the present action. GWO
Trust, as the successor-in-interest of both General Wireless and GWI, clearly
understands the transactional history between and among the parties involved here,
and cannot possibly deny notice of the claim asserted against GWI.
As diligent as litigants (and the Court) might be, errors overlooked by human
eyes—while seemingly apparent—are all too common. Inflicting robotic precision
on human work product at all times, and exerting disproportionate punishment for
any negligible mistake invites injustice. Courts routinely, on motion or sua sponte,
correct or permit corrections of various types of amendable errors. 196 The Court
hereby declines to dismiss Count V merely for inadvertent typographical error.
196
See, e.g., Williams v. Delcollo Elec., Inc., 576 A.2d 683, 686 (Del. Super. Ct. 1989)
(vacating a default judgment based partially on the excusable error of “inadvertent typographical
error in the address that the materials never arrived at their intended destination.”); Stevenson v.
Del. Dep't of Nat. Ress. & Envtl. Control, 2016 WL 6768903, at *8 (Del. Super. Ct. Nov. 7, 2016)
(allowing plaintiff to correct the counterparty’s middle name from “W.” to “A.” for apparent
typographical error); Stoppel v. State Dep't of Health & Soc. Servs., 2011 WL 3558120, at *10–11
(Del. Super. Ct. Aug. 9, 2011) (recognizing that the employer, albeit omitted from the caption of
the complaint due to typographical error, is on notice of the otherwise sufficiently pleaded
complaint filed by the employee intended against both the employer and individual defendants).
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ii. eWireless is an Indispensable Party and Has Properly
Asserted a Third-Party Claim.
A party whose joinder will not deprive the Court of jurisdiction shall be joined
if: (1) complete relief among existing parties cannot be accorded in its absence;
(2) the party’s interest would be impaired or impeded if not properly joined; or
(3) exclusion would expose any of the existing parties to substantial risk of incurring
multiple or inconsistent obligations. 197
Here, the Court finds each of the above grounds supports eWireless’s joinder
in this action. First, the facts giving rise to the suit and the parties involved are
closely intertwined. GWO Trust’s claims, Sprint’s counterclaims, and eWireless’s
third-party claim all rise from the set of agreements entered to materialize the
business relations between Sprint and RadioShack/General Wireless, including but
not limited to, the Alliance Agreement, the OMS Agreement, the Retailer
Agreement, and the Investor Rights Agreement. The cross-references between and
among those agreements further demonstrate their intrinsic interdependency.
Moreover, the parties concerned are not unrelated. eWireless is an affiliate of Sprint,
and GWI is an affiliate of General Wireless. GWO Trust—the named plaintiff—is
the successor-in-interest of both General Wireless and GWI. Thus, absent
eWireless, complete relief cannot be accorded among the existing parties.
197
Del. Super. Ct. Civ. R. 19(a).
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Second, eWireless’s interest will likely be impaired if it were not allowed to
join the suit. Pursuant to the Investor Rights Agreement, eWireless could be entitled
to reimbursement in the amount of $60 million less any commission fees earned by
General Wireless. 198 The purportedly reimbursable amount is valued at
approximately $18 million. 199 In light of the ongoing bankruptcy proceeding, the
distribution of assets, and claims by other creditors, denying eWireless to assert its
claim in the present suit will potentially impair eWireless’s ability to collect the $18
million that may be owed to it.
Lastly, the practical considerations of streamlining litigation and avoiding
undue or inconsistent obligations weighs heavily in favor of eWireless’s
participation in the action. If eWireless is not allowed to join the present action, it
may subsequently file a separate action (with the correct reference to GWI) against
GWO Trust as the successor-in-interest, with the same allegations it has asserted
here and seeking the same damages. The Court would find itself adjudicating the
same set of facts and applying the same governing laws with no guarantee of
consistent outcomes. The Court finds, therefore, that eWireless is an indispensable
party for the purposes of joinder and that eWireless has properly asserted a claim
198
Investor Rights Agreement § 10(c).
199
Settlement Agreement § 8.2.
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against GWO Trust. GWO Trust’s motion to dismiss Counterclaim Count V is
DENIED.
V. CONCLUSION
For the reasons discussed above, Sprint’s Motion to Dismiss GWO Trust’s
Amended Complaint is: GRANTED, in part, and DENIED, in part, on Count
Three—Breach of the Implied Covenant; GRANTED on Count Five—Conversion,
Count Six—Unfair Competition, and Count Seven—Tortious Interference with
Prospective Business Relations; and DENIED on Count Four—Misappropriation of
Trade Secret.
GWO Trust’s Partial Motion to Dismiss Sprint’s Amended Counterclaims and
eWireless’s Third-Party Claim is GRANTED, in part, with respect to Count II—
Breach of the Implied Covenant; DENIED, without prejudice, on Count VI—
Indemnification; and DENIED on Count I—Breach of Contract by Rejection, and
Count V—eWireless’s Third-Party claim.
IT IS SO ORDERED.
/s/ Paul R. Wallace
Paul R. Wallace, Judge
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