Jencap Group, LLC v. Adams ( 2023 )

SUPERIOR COURT
OF THE
STATE OF DELAWARE
PAUL R. WALLACE LEONARD L. WILLIAMS JUSTICE CENTER
JUDGE 500 N. KING STREET, SUITE 10400
WILMINGTON, DELAWARE 19801
(302) 255-0660
Date Submitted: June 7, 2023
Date Decided: July 7, 2023
Ryan P. Newell, Esquire Kaan Ekiner, Esquire
Emily V. Burton, Esquire COZEN O’CONNOR, P.C.
Tanner C. Jameson, Esquire 1201 North Market Street, Suite 1001
YOUNG CONAWAY STARGATT Wilmington, Delaware 19801
& TAYLOR, LLP
100 North King Street Mitchell J. Edlund, Esquire
Wilmington, Delaware 19801 Corey T. Hickman, Esquire
COZEN O’CONNOR P.C.
123 North Wacker Drive, Suite 1800
Chicago, Illinois 60606
RE: Jencap Group, LLC et al. v. James E. Adams et al.
C.A. No. N22C-12-212 PRW CCLD
Defendants’ Motion to Dismiss
Dear Counsel:
The Court provides this Letter Opinion and Order in lieu of a more formal
writing1 to resolve the Adams Parties’ Motion to Dismiss the Complaint (D.I. 6). For
the reasons explained below, the Rule 12(b)(6) Motion is GRANTED.
THE PARTIES
Plaintiff Jencap Group, LLC is a Delaware LLC with its principal place of
1
The Court crafts this somewhat abbreviated decision keeping in mind the parties’ full
understanding of and familiarity with the factual background and operative agreements mentioned
herein.
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business in New York, New York.2 Jencap is the successor by merger to JenCap,
Inc.3 and is a “holding company for various managing general agencies and
wholesale brokerage companies, including” Jencap Insurance Services, Inc.
(“JCIS”).4
Plaintiff JCIS is a Georgia corporation with its principal place of business in
Atlanta, Georgia.5 JCIS is the successor by merger to MJ Kelly of Arkansas, Inc.
(“MJ Kelly”).6 JCIS is a managing general agency and wholesale brokerage
company.7
James E. Adams is a former shareholder of MJ Kelly and MJ Kelly Company
(the “MJ Entities”) and is a citizen of Missouri.8 Jon S. Adams is a former
shareholder of the MJ Entities and is a citizen of Arkansas.9 Paul D. Adams is a
former shareholder of the MJ Entities and is a citizen of Missouri.10 The
Paul D. Adams Revocable Trust (together with James E. Adams, Jon S. Adams, and
2
Compl. ¶ 8 (D.I. 1).
3
Id. at 1.
4
Id. ¶ 8.
5
Id. ¶ 9.
6
Id.
7
Id.
8
Id. ¶ 10.
9
Id. ¶ 11.
10
Id. ¶ 12.
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Paul D. Adams, the “Adams Parties”), through the citizenship of its beneficiary and
trustee, is a citizen of Missouri.11
THE STOCK PURCHASE AGREEMENT
On September 15, 2016, Jencap and the Adams Parties entered into a Stock
Purchase Agreement (“SPA”) by which Jencap acquired the MJ Entities from the
Adams Parties.12 The Adams Parties agreed to indemnify and hold Jencap and its
affiliates harmless against certain claims and liabilities.13
Specifically, SPA Section 7.2 states:
The Selling Stockholders (collectively, the “Seller Indemnifying
Parties”) shall jointly and severally indemnify the Buyer Parties and
save and hold each of them harmless against and pay on behalf of or
reimburse such Buyer Parties for any Losses which any such Buyer
Party may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of . . . (iii) any
Liability of the Seller Entities not reflected on the Estimated Closing
Balance Sheet or included in Final Net Working Capital, . . . (v) any
acts or omissions by the Seller Entities’ employees, agents and
contractors which arise out of the conduct of their professional
activities as Producers that occurred prior to the Closing excluding,
however, any claim or matter relating to (A) any Material Contract or
11
Id. ¶ 13.
12
Id. ¶¶ 17-18.
13
Id. ¶ 19
Under the clear terms of the Agreement, the Adams Parties agreed to indemnify
and hold Jencap and its affiliates, including MJ Kelly, harmless against all claims
asserted against them for the acts or omissions of MJ Kelly’s employees arising out
of their conduct as insurance producers that occurred prior to the Closing Date, as
well as for the liabilities maintained by the Adams Parties under the Agreement.
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other agreement or commitment entered into in the Ordinary Course of
Business, or (B) any Liability of any Seller Entity reflected on the
Estimated Closing Balance Sheet or included in Final Net Working
Capital.”14
In addition, the SPA limits the period for bringing certain claims. As relevant
here, SPA Section 7.1(c) provides in pertinent part:
“[t]he representations and warranties in this Agreement and the
Schedules attached hereto . . . shall survive the Closing as follows: . . .
(c) all . . . representations and warranties [not specified in (a) and (b)]
shall terminate on the date that is twenty four (24) months after the
Closing Date; provided that any representation, warranty or covenant
in respect of which indemnity may be sought under Section 7.2, and the
indemnity with respect thereto, shall survive the time at which it would
otherwise terminate pursuant to this Section 7.1 if notice of actual
breach thereof giving rise to such right or alleged right of indemnity
shall have been given to the party against whom such indemnity may
be sought prior to the time that such representation or warranty would
otherwise terminate pursuant to this Section 7.1.15
THE ADAMS PARTIES’ PURPORTED BREACH OF THE SPA
On November 23, 2021, Jencap demanded the Adams Parties indemnify and
hold Jencap and MJ Kelly harmless against all claims asserted against them with
respect to the “Heritage Litigation.”16 That litigation concerned a “commercial
14
Reply Br., Ex. 1 (“SPA”) § 7.2(a) (D.I. 11).
15
Id. § 7.1 (underlining in original).
16
Compl. ¶ 30
By letter dated November 23, 2021, and pursuant to Article VII of the Agreement,
Jencap first demanded that the Adams Parties, jointly and severally, indemnify and
hold Jencap and its affiliate MJ Kelly harmless against all claims asserted against
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property policy placed by MJ Kelly’s employees and issued by Penn-Star Insurance
Company (“Penn-Star”) to Heritage . . . prior to the Closing Date, and makes
allegations of misconduct relating to the MJ Kelly employees’ cancellation of the
Policy.”17
The Adams Parties refused to indemnify and hold Jencap and its affiliates
harmless, thus purportedly breaching the SPA.18
PROCEDURAL BACKGROUND
Jencap filed its Complaint seeking one declaratory judgment and alleging two
breaches: Count I asks for a declaration under the SPA that the Adams Parties are
required to indemnify and hold harmless Jencap and its affiliates; Count II (Jencap
against the Adams Parties) charges a breach of the SPA for failure to indemnify and
hold harmless Jencap and its affiliates; and Count III (JCIS against just James E.
Adams) alleges a breach of a General Agency Agreement (“GAA”) for failure to
them by Heritage in connection with the placement of the Penn-Star Policy,
including, without limitation, the claims asserted against each of them in the State
Court Litigation and the Federal Court Litigation. Jencap also sought
reimbursement of the attorneys’ fees that Jencap and MJ Kelly have incurred in the
Heritage Litigation.
On June 15, 2022, Jencap separately demanded the Adams Parties “indemnify and hold Jencap
and MJ Kelly harmless from all damages arising out of the Penn-Star Claim, including
reimbursement of Jencap’s attorneys’ fees.” Id. ¶ 32.
17
Id. ¶ 3.
18
Id. ¶ 7.
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indemnify and hold harmless Jencap and its affiliates.19
The Adams Parties moved to dismiss the Complaint under Superior Court
Civil Rule 12(b)(6).20
The Court heard oral argument on the motion.21 At argument, JCIS conceded
that Count III failed to state a claim. So, the Court need only address Counts I and
II here.
THE PARTIES’ CONTENTIONS
The Adams Parties say that Counts I and II should be dismissed because the
claims are barred by a contract-defined limitations period for bringing them and
because they, the Adams Parties, are not obligated to indemnify Jencap and its
affiliates for the Heritage Litigation.22
Jencap says its claims are not time-barred because its indemnification claims
challenge the SPA’s covenants and agreements—not its representations and
warranties—and thus its claims are not subject to the shortened limitations period.23
Second, Jencap says the Heritage Litigation is not a liability reflected on the
19
Id. ¶¶ 35-50.
20
Mot. to Dismiss at 11 (D.I. 6).
21
D.I. 18.
22
Mot. to Dismiss at 12-18.
23
Pls.’ Answering Br. at 18-21 (D.I. 9).
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Estimated Closing Balance Sheet or included in the Final Net Working Capital, and
is an act “that arose out of those employees’ activities as insurance producers and
that occurred prior to Jencap’s purchase of MJ Kelly,”24 meaning the Adams Parties
have a duty to indemnify.
STANDARD OF REVIEW
“Under Superior Court Civil Rule 12(b)(6), the legal issue to be decided is,
whether a plaintiff may recover under any reasonably conceivable set of
circumstances susceptible of proof under the complaint.”25 Under that Rule, 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.26
“If any reasonable conception can be formulated to allow Plaintiffs’ recovery,
the motion must be denied.”27 Indeed, “[d]ismissal is warranted [only] where the
24
Id. at 1, 12-18.
25
Vinton v. Grayson, 189 A.3d 695, 700 (Del. Super. Ct. 2018) (quoting Super. Ct. Civ. R.
12(b)(6)).
26
Id. (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535
(Del. 2011)).
27
Id. (citing Cent. Mortg. Co., 27 A.3d at 535).
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plaintiff has failed to plead facts supporting an element of the claim, or that under
no reasonable interpretation of the facts alleged could the complaint state a claim for
which relief might be granted.”28 In addition, a time-limitations defense may be
decided at the Rule 12(b)(6) stage.29
COUNTS I AND II ARE TIME-BARRED
Under SPA Section 7.1(c), Jencap had two years from the SPA’s Closing Date
(September 15, 2016) to provide notice of a claim for breach of a representation or
warranty.30 Because Jencap waited until November 23, 2021, its claims are barred
by the two-year contract-defined limitations period for bringing such.31
SPA Section 7.1(c) provides, in relevant part, that representations and
warranties made in Article V (Representations and Warranties of the Seller Parties)
28
Hedenberg v. Raber, 2004 WL 2191164, at *1 (Del. Super. Ct. Aug. 20, 2004).
29
Gadow v. Parker, 865 A.2d 515, 519 (Del. 2005) (“The Superior Court Civil Rules expressly
permit a defendant to raise the defense of limitations in a motion to dismiss or in a first responsive
pleading to the complaint.” (citations omitted)).
30
SPA § 7.1(c).
31
Compl. ¶ 30
By letter dated November 23, 2021, and pursuant to Article VII of the Agreement,
Jencap first demanded that the Adams Parties, jointly and severally, indemnify and
hold Jencap and its affiliate MJ Kelly harmless against all claims asserted against
them by Heritage in connection with the placement of the Penn-Star Policy,
including, without limitation, the claims asserted against each of them in the State
Court Litigation and the Federal Court Litigation. Jencap also sought
reimbursement of the attorneys’ fees that Jencap and MJ Kelly have incurred in the
Heritage Litigation.
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terminate two years after the Closing Date.32 Section 14 of Article V, and the
corresponding Schedule 5.14, lists all open E&O claims, including the Heritage
Litigation.33
SPA Section 7.2(a)(iii) says the Adams Parties need not indemnify Jencap for
“any Liability of the Seller Entities not reflected on the Estimated Closing Balance
Sheet or included in Final Net Working Capital.”34 While the parties quibble over
which document is the “Estimated Closing Balance Sheet” contemplated by the
SPA, the Final Net Working Capital is given a precise definition in SPA Exhibit C
(Revenue and Working Capital Methodology sheet). Specifically:
Net Working Capital shall include (i) a $25,000 liability for the Seller
Entities’ anticipated insurance deductible payment for pending E&O
claims; the foregoing shall in no way limit the Seller Entities’ liability
for such claims, (ii) the accrued and unpaid amounts due for the Tail
Policies for the Coverage Period, and (iii) the amount due Western
Heritage.35
Jencap first protests that the $25,000 amount listed in the Revenue and
Working Capital Methodology sheet “does not reflect the ‘Liability’ for the Heritage
Litigation or any other claim, but rather only reflects a $25,000 total anticipated
32
SPA § 7.1(c).
33
SPA Schedule 5.14 No. 4 (Heritage Hospitality – PAV0070513 – Effective Date 10/6/2015).
34
SPA § 7.2(a)(iii).
35
SPA, Ex. C (“Revenue and Working Capital Methodology”). SPA § 2.2(c)(i) states that Final
Net Working Capital is determined by Exhibit C. SPA § 2.2(c)(i).
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deductible payment for all E&O claims.”36 And second, Jencap points out the
Revenue and Working Capital Methodology sheet specifically notes that “the
foregoing shall in no way limit the Seller Entities’ liability for such claims,” and
“does not reflect or limit the ‘Liability’ in any way.”37 Neither argument rescues
Jencap’s claims.
Jencap confuses “Liability” with total amount due. But that’s not how the
SPA reads. SPA Exhibit A defines Liability as:
[A]ny liability, debt, obligation, commitment, deficiency, interest, Tax,
penalty, fine, demand, judgment, cause of action or other loss
(including incidental, consequential and punitive damages and
Liabilities based upon multiple of profits and loss profits and interest,
penalties, loss of benefit), cost or expense of any kind or nature
whatsoever, whether asserted or unasserted, absolute, or contingent,
known or unknown, accrued or unaccrued, liquidated or unliquidated,
and whether due or to become due and regardless of when asserted.38
SPA Section 7.2(a)(iii) obligates the Adams Parties to indemnify “any Liability”
“not . . . included in Final Net Working Capital.”39 And Final Net Working Capital
“include[s]” a sum for the Adams Parties’ “anticipated insurance deductible payment
for pending E&O claims.”40 That is enough. While far from the total liability, the
36
Answering Br. at 14 (emphasis in original).
37
Id. at 14-15.
38
SPA, Ex. A (definitions) at A-5.
39
SPA § 7.2(a)(iii).
40
SPA, Ex. C.
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Heritage Litigation deductible is included in Final Net Working Capital and is thus
a Liability.
But, says Jencap, because the Revenue and Working Capital Methodology
sheet states “the foregoing shall in no way limit the Seller Entities’ liability for such
claims,” the $25,000 amount listed “does not reflect or limit the ‘Liability’ in any
way” or the Heritage Litigation.41
Jencap asks the Court to read the Revenue and Working Capital Methodology
sheet statement that the $25,000 amount “in no way limit[s] . . . liability” to mean
the Heritage Litigation is not “included in Final Net Working Capital.”42 But the
fact that the “Net Working Capital shall include (i) a $25,000 liability for the Seller
Entities’ anticipated insurance deductible payment for pending E&O claims” and
that this provision “shall in no way limit the Seller Entities’ liability for such claims”
does not mean that the Heritage Litigation is not included in the calculation. 43 At
most, it means the Seller Entities’ liability is not limited to the $25,000 deductible—
41
Answering Br. at 14-15. SPA § 7.2(a)(iii) uses the term “included” in reference to the Final
Net Working Capital and “reflected” is used in reference to the Estimated Closing Balance Sheet.
SPA § 7.2(a)(iii).
42
See Answering Br. at 14-15.
43
SPA, Ex. C.
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it does not operate to bar inclusion of the Heritage Litigation from the Final Net
Working Capital.44
CONCLUSION
While Jencap tries to frame this litigation otherwise—it says it brought
“covenant-breach” claims—in reality, Jencap is challenging the SPA representations
and warranties. Those challenges were limited to a bargained-for and defined two-
year limitations period that expired in September 2018. Because Jencap waited until
November 23, 2021, to make its demands,45 those claims are time-barred.
Accordingly, the Adams Parties’ Motion to Dismiss the Complaint under Rule
12(b)(6) is GRANTED.
IT IS SO ORDERED.
_______________________
Paul R. Wallace, Judge
cc: All Counsel via File and Serve
44
In re Solera Ins. Coverage Appeals, 240 A.3d 1121, 1131 (Del. 2020) (“Delaware courts will
not ‘destroy or twist’ the words of a clear and unambiguous insurance contract.” (citation
omitted)); Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del.
1992) (“Courts will not torture contractual terms to impart ambiguity where ordinary meaning
leaves no room for uncertainty.” (citation omitted)); see Sycamore P’rs Mgmt., L.P. v. Endurance
Am. Ins. Co., 2021 WL 4130631, at *19 (Del. Super. Ct. Sept. 10, 2021) (when addressing an
undefined word or term in a contract, the Court accepts what it “most naturally means” in the given
context).
45
Compl. ¶ 30.