IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`
`
`PEPPERJAM LLC,
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`
`
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`v.
`
`Plaintiff,
`
`
`GARY ACKERMAN,
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`Defendant,
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`:
`:
`:
`:
`:
`:
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`:
`
`C.A. No. 2019-0687-AGB
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`
`
`
`
`
`
`PLAINTIFF PEPPERJAM LLC’S ANSWERING BRIEF IN
`OPPOSITION TO DEFENDANT’S MOTION TO DISMISS OR STAY
`
`HEYMAN ENERIO
`GATTUSO & HIRZEL LLP
`Samuel T. Hirzel, II (# 4415)
`Aaron M. Nelson (# 5941)
`300 Delaware Avenue, Suite 200
`Wilmington, DE 19801
`Attorneys for Plaintiff Pepperjam LLC
`
`
`
`
`Dated: November 19, 2019
`
`
`
`EFiled: Nov 19 2019 03:07PM EST
`Transaction ID 64445316
`Case No. 2019-0687-AGB
`
`
`
`
`
`
`
`

`

`
`
`TABLE OF CONTENTS
`
`PAGE
`
`PRELIMINARY STATEMENT ............................................................................... 1
`
`STATEMENT OF RELEVANT FACTS .................................................................. 4
`
`A.
`
`Pepperjam is a Manager-Managed LLC ..................................... 4
`
`B. Ackerman is Designated Chief Revenue Officer ........................ 5
`
`C.
`
`Pepperjam Discovers Further Breaches of Fiduciary Duty ........ 7
`
`D.
`
`Pepperjam Files the Delaware Action ......................................11
`
`ARGUMENT ...........................................................................................................14
`
`I.
`
`THE DELAWARE ACTION SHOULD NOT BE DISMISSED
`OR STAYED. ......................................................................................14
`
`A.
`
`The Actions are not “functionally identical” ............................17
`
`1.
`
`2.
`
`The Parties and Claims are Materially Different ............18
`
`The Damages and Liability Theories Are Materially
`Different. .........................................................................24
`
`3.
`
`Ackerman’s Self-Help Should Not Be Countenanced. ..29
`
`B. Dismissal is Unwarranted .........................................................29
`
`CONCLUSION ........................................................................................................31
`
`
`
`
`
`
`
`i
`
`

`

`TABLE OF AUTHORITIES
`
`
`
`CASES PAGES
`
`
`
`Actrade Fin. Techs. Ltd. v. Aharoni,
`2003 WL 22389891 (Del. Ch.) ...................................................................... 16, 27
`
`Armstrong v. Pomerance,
`423 A.2d 174 (Del. 1980) .....................................................................................15
`
`AT & T Corp. v. Prime Security Distribs., Inc.,
`1996 WL 633300 (Del. Ch.) .................................................................................17
`
`Berdel, Inc. v. Berman Real Estate Mgmt., Inc.,
`1995 WL 632030 (Del. Ch.) ................................................................................... 3
`
`Biondi v. Scrushy,
`820 A.2d 1148 (Del. Ch. 2003) ............................................................................15
`
`Burris v. Cross,
`583 A.2d 1364 (Del. Super. Ct. 1990) ..................................................................21
`
`Carlton Investments v. TLC Beatrice Int’l Holdings, Inc.,
`1995 WL 694397 (Del. Ch.) ..................................................................... 19-21, 26
`
`In re Chambers Dev. Co. S’holders Litig.,
`1993 WL 179335 (Del. Ch.) .................................................................................15
`
`Choice Hotels Int'l, Inc. v. Columbus-Hunt Park DR. BNK Inv’rs, L.L.C.,
`2009 WL 3335332 (Del. Ch.) ...............................................................................18
`
`Cohen v. Gulfstream Training Acad., Inc.,
`2007 WL 2904150 (S.D. Fla. Oct. 3, 2007) .................................................. 27, 28
`
`Conoco Inc. v. El Paso Nat. Gas Co.,
`1989 WL 44036 (Del. Ch.) ............................................................................ 16, 24
`
`Cornerstone Techs., LLC v. Conrad,
`2003 WL 21003402 (Del. Ch.) .............................................................................14
`
`ii
`
`

`

`County of York Emps. Ret. Plan v. Merrill Lynch & Co., Inc.,
`2008 WL 4824053 (Del. Ch.) ...............................................................................19
`
`Diedenhofen-Lennartz, v. Diedenhofen,
`931 A.2d 439 (Del. Ch. 2007) ..............................................................................17
`
`DuPont v. DuPont,
`85 A.2d 724 (Del. 1951) .......................................................................................27
`
`Eichenberg v. Salomon,
`1983 WL 103257 (Del. Ch.) .................................................................................19
`
`In re Elecs. for Imaging, Inc. S’holder Litig.,
`C.A. No. 2797-VCL (Del. Ch. June 28, 2007) .....................................................29
`
`Feeley v. NHAOCG, LLC,
`62 A.3d 649 (Del. Ch. 2012) ............................................................................7, 20
`
`Glen Rose Petroleum Corp. v. Langston,
`2010 WL 2734621 (Del. Ch.) ...............................................................................21
`
`Gramercy Emerging Markets Fund v. Allied Irish Banks, P.L.C.,
`173 A.3d 1033 (Del. 2017) ...................................................................................17
`
`Hall v. Maritek Corp.,
`182 A.3d 113 (Del. 2018) .....................................................................................15
`
`In re HealthSouth Corp. S’holders Litig.,
`847 A.2d 1121 (Del. 2004) ...................................................................................15
`
`HFTP Invs., L.L.C. v. ARIAD Pharm., Inc.,
`752 A.2d 115 (Del. Ch. 1999) ................................................................................ 3
`
`Hipcricket, Inc. v. mGage, LLC,
`2016 WL 3910837 (Del. Ch.) ................................................................................. 6
`
`Holley v. Nipro Diagnostics, Inc.,
`2014 WL 7336411 (Del. Ch.). .................................................................. 17-18, 20
`
`Joyce, on Behalf of CTC Minerals, Inc. v. Cuccia,
`1997 WL 257448 (Del. Ch.) ................................................................................... 1
`
`
`
`
`iii
`
`

`

`Karmel v. Great Lakes Chem. Corp.,
`1981 WL 15078 (Del. Ch.) ...................................................................................17
`
`Macklowe v. Planet Hollywood, Inc.,
`1994 WL 586835 (Del. Ch.) .................................................................................23
`
`McKennon v. Nashville Banner Pub. Co.,
`513 U.S. 352 (1995) ..............................................................................................25
`
`McQuaide v. McQuaide,
`2005 WL 1288523 (Del. Ch.) ........................................................................ 17, 18
`
`McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co.,
`263 A.2d 281 (Del. 1970) ............................................................................. passim
`
`Merritt v. Colonial Foods, Inc.,
`1980 WL 6421 (Del. Ch.) .....................................................................................17
`
`Metro Storage Int’l LLC v. Harron,
`2019 WL 3282613 (Del. Ch.) ................................................................................. 7
`
`Nielsen v. EBTH Inc.,
`2019 WL 4755865 (Del. Ch.) ................................................................................. 6
`
`O’Day v. McDonnell Douglas Helicopter Co.,
`79 F.3d 756 (9th Cir. 1996) ..................................................................................25
`
`OTK Assocs., LLC v. Friedman,
`85 A.3d 696 (Del. Ch. 2014) ................................................................................19
`
`Parfi Holding AB v. Mirror Image Internet, Inc.,
`817 A.2d 149 (Del. 2002) .....................................................................................19
`
`Personal Touch Holding Corp. v. Felix Flaubach, D.D.S.,
`C.A. No. 11199-CB (Del. Ch. Feb. 12, 2016) ................................................ 22-23
`
`QVT Fund LP v. Eurohypo Capital Funding LLC I,
`2011 WL 2672092 (Del. Ch.) ...............................................................................20
`
`Rapoport v. Litig. Tr. of MDIP Inc.,
`2005 WL 3277911 (Del. Ch.) ...............................................................................15
`
`
`
`
`iv
`
`

`

`Raymond Revocable Trust v. MAT Five LLC,
`2008 WL 2673341 (Del. Ch.) ...............................................................................24
`
`Schnell v. Porta Systems Corp.,
`1994 WL 148276 (Del. Ch.) .................................................................................30
`
`Total Holdings USA, Inc. v. Curran Composites, Inc.,
`999 A.2d 873 (Del. Ch. 2009) ..............................................................................15
`
`Utilipath, LLC v. Hayes,
`2015 WL 1744163 (Del. Ch.) ...............................................................................19
`
`Winshall v. Viacom Int’l, Inc.,
`76 A.3d 808 (Del. 2013) ......................................................................................... 4
`
`Statutes
`
`6 Del. C. § 18-402 ...................................................................................................... 4
`
`6 Del. C. § 18-109(a)(ii) ........................................................................................1, 7
`
`D. Wolfe & M. Pittenger, Corporate and Commercial Practice in the Delaware
`Court of Chancery (2018) .....................................................................................29
`
`
`
`
`v
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`

`

`Plaintiff Pepperjam LLC (“Pepperjam” or the “Company”) submits this
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`answering brief in opposition to Defendant Gary Ackerman’s (“Ackerman” or
`
`“Defendant”) Motion to Dismiss or Stay (the “Motion”) the Verified Complaint
`
`(“Complaint” or “Compl.”).
`
`PRELIMINARY STATEMENT
`
`Gary Ackerman, a former officer and an acting manager of a Delaware limited
`
`liability company, Pepperjam, breached his fiduciary duties and engaged in
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`egregious acts of self-dealing. His misconduct caused the Company to incur
`
`millions of dollars of damages. Ackerman does not want this Court (or any court)
`
`to adjudicate these claims against him even though he concedes that (a) he was an
`
`acting manager of Pepperjam under 6 Del. C. § 18-109(a)(ii); (b) he consented to
`
`personal jurisdiction before this Court; (c) Delaware is a convenient forum to litigate
`
`this dispute; (d) he was properly served with process of the Delaware Complaint;
`
`and (e) he owed fiduciary duties to Pepperjam under Delaware law. Ackerman has
`
`waived any argument to the contrary. Ct. Ch. R. 12(h).1
`
`Ackerman offers no substantive or jurisdictional defense to any of the claims
`
`asserted against him. Rather, without citing a single allegation in the Complaint,
`
`
`1
`Accord Joyce, on Behalf of CTC Minerals, Inc. v. Cuccia, 1997 WL 257448,
`at *2 (Del. Ch.) (“The Court concludes that Cuccia’s motion to dismiss on
`jurisdictional and process-related grounds should be denied. Rules 12(g) and (h)
`explicitly state that a failure to include these defenses in the original motion operates
`as a waiver.”).
`
`
`
`

`

`Ackerman asserts that this action (the “Delaware Action”) should be dismissed or
`
`stayed under McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co.,
`
`263 A.2d 281 (Del. 1970) (hereinafter, “McWane”) in favor of his wrongful
`
`termination action pending in the Commonwealth of Pennsylvania (the “PA
`
`Action”).
`
`Ackerman’s Motion should be denied.
`
`First, although styled as a motion to dismiss or stay, Ackerman takes the
`
`extreme and inconsistent position that no court should hear Pepperjam’s breach of
`
`fiduciary duty claims against him.2 Having conceded the sufficiency of these claims,
`
`Ackerman’s position is untenable. Delaware has an interest in providing a forum to
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`enforce the equitable and legal duties owed by officers and managers of Delaware
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`entities, like Ackerman. This internal affairs dispute should be allowed to proceed.
`
`Second, Ackerman fails to meet his burden to show that a stay is warranted.
`
`He (a) fails to cite any precedent for the proposition that fiduciary duty claims
`
`against a manager of a Delaware LLC should be stayed in favor of kitchen sink
`
`employment claims; and (b) fails to engage in any comparison of the claims and
`
`theories of liability in the Delaware and PA Actions. Ackerman simply attaches the
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`Pennsylvania complaint to his Opening Brief and asks Pepperjam and the Court to
`
`
`2
`Ackerman’s Opening Brief (“OB”) at 7-8. Citations to OB are to Ackerman’s
`untimely revised Opening Brief, see Trans. ID 64368449.
`
`2
`
`

`

`do his work for him. Ipse dixit is insufficient to support a stay.3
`
`When a proper comparison of the Delaware and PA Actions is conducted, it
`
`becomes clear that the claims, parties, damages, and liability theories in the
`
`Delaware and PA Actions are materially different. The Pennsylvania court is not
`
`deciding whether Ackerman breached his fiduciary duties to Pepperjam. Nor is it
`
`capable of awarding Pepperjam damages resulting therefrom. Accordingly,
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`McWane does not apply.
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`Third, this action should proceed and permit Pepperjam to pursue the
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`affirmative relief it requests without further gamesmanship by Ackerman.
`
`Ackerman seeks to use the progression of the PA Action to his favor but ignores his
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`dilatory conduct to date in the Delaware Action. He similarly ignores that Pepperjam
`
`discovered his most financially damaging misdeeds well after its responsive
`
`pleading was due in the PA Action. Pepperjam diligently pursued its fiduciary duty
`
`claims once the extent of damage Ackerman had done to the business was known.
`
`It was Ackerman, in an effort to delay this proceeding, who filed a one-page motion
`
`
`3
`HFTP Invs., L.L.C. v. ARIAD Pharm., Inc., 752 A.2d 115, 125 (Del. Ch. 1999)
`(denying McWane motion and noting that the defendant’s “contention” that a similar
`action was pending elsewhere “[wa]s little more than ipse dixit.”); Berdel, Inc. v.
`Berman Real Estate Mgmt., Inc., 1995 WL 632030, at *6 (Del. Ch.) (“The cursory
`quality of the defendants’ … arguments, the vituperative tone of their opening
`brief, and the clear demerit of the arguments supporting their motion to stay, raise
`concerns as to whether the dismissal briefs were intended more as a vehicle to hurl
`invective than as a measured, reasoned justification for the relief requested.”).
`
`3
`
`

`

`to dismiss without an accompanying brief, negotiated for nearly a month to file his
`
`brief, and then on the day his brief was due filed an amended motion to dismiss
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`which dropped his original defenses and proceeded to file a cursory 8-page brief.
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`Similarly, it was Ackerman who has refused to substantively respond to Pepperjam’s
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`discovery requests served on October 11, 2019 and awarded himself a unilateral stay
`
`of discovery. Ackerman did not file a motion to stay discovery, he simply refused
`
`to respond and forced Pepperjam to file a motion to compel in hopes that he could
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`avoid responding until his McWane Motion is heard.
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`Ackerman’s thinly-veiled efforts to slow the Delaware Action to a crawl
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`should not be countenanced or allowed to be used as a basis for a stay.
`
`STATEMENT OF RELEVANT FACTS
`
`A.
`
`Pepperjam is a Manager-Managed LLC
`
`Pepperjam is a Delaware LLC conducting national and international business
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`and has operations in California, Pennsylvania, New York, and Toronto. (Compl.
`
`¶ 2). Its LLC Agreement is governed by Delaware law. (Id.; Ex. A § 8.4).4
`
`Pepperjam is a manager-managed LLC. Its formal manager pursuant to 6 Del. C.
`
`§ 18-402 is MSTech, LLC (“MSTech”), also a Delaware LLC. (Ex. A § 2.1).
`
`Formal management of Pepperjam is “vested solely” in MSTech. (Id.). MSTech is
`
`
`4
`The LLC Agreement is incorporated by reference into the Complaint.
`Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 818 (Del. 2013).
`
`4
`
`

`

`permitted to “designate one or more persons to be officers of the Company,” (id.
`
`§ 2.2), and it need not act by resolution. (Id. § 2.1). The LLC Agreement provides:
`
`Unless [MSTech] decides otherwise, if the title is one
`commonly used for officers of a business corporation
`formed under the [DGCL], the assignment of such title
`shall constitute the delegation to such person of the
`authorities and duties that are normally associated with
`that office.
`
`(Id. § 2.2) (emphasis added). The LLC Agreement does not address fiduciary duties
`
`in any other way. Accordingly, the officers designated by MSTech who, like
`
`Ackerman, meaningfully participate in the management of Pepperjam owe default
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`fiduciary duties under Delaware law. (Compl. ¶ 2).
`
`B. Ackerman is Designated Chief Revenue Officer
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`From December 2015 through December 2016, Ackerman served as the
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`Senior Vice President and Head of Global Sales for Pepperjam. (Compl. ¶ 3). In
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`December 2016, Ackerman became the Executive Vice President and Chief
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`Revenue Officer (“CRO”) of the Company. (Id.). As CRO, Ackerman participated
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`in the highest levels of management of Pepperjam. (Id. ¶ 4). He reported directly
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`to the Company’s managing board (the “Board”), and personally presented to and
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`attended in-person and telephonic Board meetings. (Id.). He served as Pepperjam’s
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`CRO until his termination on March 2, 2018. (Id. ¶ 3).
`
`A CRO is a relatively new, but critical C-Suite position, especially for digital
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`5
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`

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`marketing companies like Pepperjam.5 Ackerman, as CRO, was responsible for all
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`revenue generation processes within the Company, including marketing, sales,
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`customer interfacing and support, pricing, business generation and valuation, and
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`revenue management. In other words, he led all of the efforts around bringing new
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`business and new contracts into the Company. (Compl. ¶ 4).6 Critically,
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`Ackerman’s role included how to structure and value the revenue streams which the
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`business could expect to receive from these new contracts. (Id. ¶ 10). This
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`information provided the data on which sales bonuses were paid and future staffing
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`needs were made. (Id.). Overstating the values of these contracts would mean the
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`Company was overpaying for the new business coming in, committing existing
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`resources to unprofitable relationships, and overstaffing to meet overstated future
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`service needs. Pepperjam’s profitability and growth strategy were thus highly
`
`
`5
`See, e.g., https://venturebeat.com/2015/04/26/the-rise-of-the-cro-silicon-
`valleys-new-secret-sauce/ (last visited Nov. 1, 2019);
`https://www.kaplanexec.com/blog/why-you-need-a-chief-revenue-officer (last
`visited on Nov. 1, 2019).
`
`Although a fairly recent addition to the C-Suite, Delaware courts are seeing more
`cases involving the position of CRO. See Nielsen v. EBTH Inc., 2019 WL 4755865,
`at *16 (Del. Ch.) (awarding advancement to Chief Revenue Officer); Hipcricket,
`Inc. v. mGage, LLC, 2016 WL 3910837, at *16 (Del. Ch.) (discussing role of Chief
`Revenue Officer in misappropriating trade secrets).
`
`6
`Even Ackerman states, in his LinkedIn profile, that he was “responsible for
`aligning all top line revenue departments of Pepperjam” including “marketing, Sales,
`Channel, Sales and Marketing Ops, Customer Service and Customer Success.” Id.
`
`6
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`

`

`dependent on Ackerman acting with integrity and adhering to the fiduciary duties he
`
`owed as an officer of a Delaware entity.
`
`It is therefore not surprising that Ackerman concedes he was an “acting
`
`manager” of Pepperjam under 6 Del. C. § 18-109(a)(ii);7 that he consented to
`
`personal jurisdiction in Delaware;8 and that he owed fiduciary duties to Pepperjam.9
`
`In light of his waiver of these substantive and jurisdictional defenses, Ackerman’s
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`statement that this Court “would have to decide specific issues regarding the scope
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`of Ackerman’s employment at Pepperjam” is inapposite. (OB at 8).
`
`C.
`
`Pepperjam Discovers Further Breaches of Fiduciary Duty
`
`As stated above, Ackerman served as Pepperjam’s CRO until he was
`
`terminated on March 2, 2018. (Compl. ¶ 3). He was terminated for cause after the
`
`Board learned that Ackerman had hired his wife, Valerie Ackerman, to provide
`
`
`7
`See Metro Storage Int’l LLC v. Harron, 2019 WL 3282613, at *6 (Del. Ch.)
`(“The first category of persons identified in Section 18-109(a)—formal managers—
`encompasses persons who have been officially named as managers in or designated
`pursuant to the entity’s governing documents. The second category of persons—
`acting managers—encompasses other persons, not formally named as managers,
`who nevertheless ‘participate[ ] materially in the management of the limited liability
`company.’”) (emphasis added).
`
` 8
`
`See id. at *20 (“Section 18-109(a)(ii) … enable[s] Delaware courts to exercise
`
`personal jurisdiction over individuals who participate materially in the business of
`an LLC, regardless of title, for claims relating to their actions.”).
`
` 9
`
`See Feeley v. NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012) (“[E]quitable
`
`fiduciary duties will apply by default to a manager … of a Delaware LLC.”).
`
`7
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`

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`recruiting services to the Company, and had Pepperjam pay her—not by
`
`commission—but under an unusual $10,000 per month retainer. (Id. ¶ 20).
`
`Ackerman was expressly required to disclose this conflict of interest to the Board
`
`under the terms of his employment agreement.10 (Ex. B § 3.b.). He never did.
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`Instead, he discussed it with his long-time, close, personal friend, and Pepperjam’s
`
`former chief executive officer, Michael Jones.11 (Compl. ¶ 18).
`
`Ackerman responded by filing the PA Action on March 23, 2018. (OB, Ex.
`
`1; Compl. ¶ 3). Ackerman sued seven parties in the PA Action, including:
`
`
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`
`
`
`
`
`
`
`
`
`
`
`
`(OB, Ex. 1).
`
`Pepperjam;
`
`Un-named individuals on Pepperjam’s Board of Directors;
`
`MSTech;
`
`Banneker Partners, LLC (a Delaware LLC and an investor in
`Pepperjam),
`
`Permira Advisors, LLC (a California LLC and an investor in
`Pepperjam); and,
`
`Messrs. Stephen Davis and Adrian van Schie.
`
`Ackerman alleged eleven counts in the PA Action:
`
`
`10 Ackerman’s employment agreement is attached hereto as Exhibit B.
`
`11
`Pepperjam and Michael Jones were involved in and ultimately resolved a
`separate litigation before the Court. See Pepperjam LLC v. Michael Jones, C.A. No.
`2018-0123-AGB (Del. Ch.).
`
`8
`
`

`

`Count I for Breach of Contract against Pepperjam and MSTech;
`
`Count II for Breach of Implied Contract against Pepperjam and
`MSTech;
`
`Count III for alleged violations of the Family and Medical Leave
`Action against Pepperjam, MSTech, and Davis;
`
`Count IV for alleged violation of Pennsylvania’s Wage and
`Payment and Collection Law against Pepperjam and MSTech;
`
`Count V for alleged violations of Delaware’s Wage Payment and
`Collection Law against Pepperjam and MSTech;
`
`Count VI against the Board, Davis and van Schie for allegedly
`breaching their fiduciary duties owed to Pepperjam and “its
`officers … including [Ackerman]”;
`
`Count VII for Intentional Interference with Contract against
`Pepperjam’s Board, Davis, and van Schie;
`
`Count VIII for Defamation against Davis and van Schie;
`
`Count IX for Intentional Infliction of Emotional Distress against
`Davis and van Schie;
`
`Count X for Civil Conspiracy against the Board, Davis and van
`Schie; and
`
`Count XI for Vicarious Liability against Pepperjam, MSTech,
`Bannekar, and Permira.
`
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`
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`Relevant here, Pepperjam, in its answer, asserted an affirmative defense of
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`after-acquired evidence in the PA Action. (See Ex. C ¶196). As described more
`
`fully below (see Section I.A.2 infra), the doctrine of after-acquired evidence is an
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`affirmative defense that bars certain claims and damages an employment plaintiff
`
`9
`
`

`

`may have.
`
`From April 2019 through June 2019, while investigating Mr. Ackerman’s
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`claims in the PA Action, Pepperjam discovered further serious breaches of fiduciary
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`duty and acts of self-dealing on the part of Ackerman while he was serving as
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`Pepperjam’s CRO. (Compl. ¶ 6). Despite his $250,000 base salary, a generous grant
`
`of equity options, and his eligibility for a large yearly performance-based bonus,
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`Ackerman wanted more. (Id. ¶ 9; Ex. B §§4.a-c.). Pepperjam discovered that
`
`Ackerman had sought and obtained reimbursement for extensive unauthorized first-
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`class travel (over $43,000 in 2017 and 2018), and lavish accommodations and
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`unauthorized personal expenses while Pepperjam’s CRO. (Compl. ¶ 23).
`
`He also used his position as CRO to trump up the values of new contracts to
`
`levels he knew were unobtainable so that he would get credit and reap large six figure
`
`commissions.12 (Id. ¶¶ 11-14).13 Ackerman thus put his self-interest ahead of those
`
`of the business of which he was a fiduciary. His gross inflation of contract values
`
`caused significant lasting damage to Pepperjam. In addition to the unwarranted
`
`commissions paid to Ackerman and others, Ackerman’s breaches of fiduciary duties
`
`and self-dealing caused two major long-term problems for Pepperjam. It created a
`
`
`12 Ackerman completely ignores this claim in his Opening Brief.
`
`13 He also knew this would enhance his status within the Company to position
`himself for promotion, additional areas of control and renegotiation of his
`employment terms (including equity grants).
`
`10
`
`

`

`significant legacy pipeline of customers who tied up the resources of the business
`
`yet could never produce profitable business relationships for the Company, and it
`
`caused Pepperjam to engage in significant unnecessary hiring. (Id. ¶ 15).
`
`As stated above, Ackerman hired his wife to fill these new (and unnecessary)
`
`positions and paid her a lucrative $10,000 a month retainer to do so. (Id. ¶¶ 17-18).
`
`Ackerman knew his actions were wrongful and decided not to disclose this atypical
`
`arrangement to the Board. Once the Board learned of it, Ackerman was terminated.
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`What Pepperjam did not understand at the time of Ackerman’s termination was the
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`extent of his fiduciary breaches and self-dealing. (Id. ¶ 6).
`
` The ongoing process of unwinding Ackerman’s breaches of fiduciary duty
`
`and self-dealing has cost Pepperjam millions of dollars in damages. Pepperjam
`
`seeks to hold Ackerman accountable for those damages and disgorgement of his ill-
`
`gotten gains. (Id. ¶ 1). Although his self-dealing may serve to bar certain of
`
`Ackerman’s alleged claims and damages in the PA Action under the doctrine of
`
`after-acquired evidence, Pepperjam cannot be made whole for the damage
`
`Ackerman has caused without pursuing affirmative claims.
`
`Pepperjam Files the Delaware Action
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`D.
`
`In July 2019, Pepperjam, through the undersigned counsel, provided
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`Ackerman with notice of Pepperjam’s affirmative claims. Without revealing the
`
`substance of the conversations, the parties were in discussions about these claims
`
`11
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`

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`throughout the months of July and August.
`
`On August 29, 2019, Pepperjam filed this action asserting two counts against
`
`Ackerman: breach of fiduciary duty and unjust enrichment. On October 2, 2019,
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`Ackerman filed a one-page motion to dismiss or stay pursuant to Court of Chancery
`
`Rules 12(b)(2) and 12(b)(3). (Trans. ID 64267203). Ackerman then requested until
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`October 28, 2019 to file his opening brief, which was memorialized by stipulation
`
`and order. (Trans. ID 64305814). On October 11, 2019, Pepperjam served its
`
`discovery requests on Ackerman. (Trans. ID 64308508). On October 28, 2019,
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`Ackerman filed an amended motion to dismiss or stay and an opening brief, which
`
`withdrew his defenses under Rules 12(b)(2) and 12(b)(3) and proceeded solely under
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`McWane. He filed his revised Opening Brief two days later. Ackerman served his
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`non-substantive objections to the discovery requests on November 12, 2019. (Trans.
`
`ID 64421907). After Ackerman confirmed that he is refusing to provide substantive
`
`responses to the discovery requests, Pepperjam filed a motion to compel against
`
`Ackerman on November 15, 2019. Ackerman has not yet responded to the motion
`
`to compel.
`
`The hearing on Ackerman’s McWane motion is schedule for February 7, 2020,
`
`at 9:15 a.m.
`
`In sum, the parties and claims in the Delaware and PA Actions are as follows:
`
`
`
`12
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`

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`DELAWARE ACTION
`
`PA ACTION
`
`Parties:
`1. Pepperjam (as plaintiff)
`2. Ackerman
`
`Claims:
`1. Breach of Fiduciary Duty
`2. Unjust enrichment
`
`
`
`
`
`
`
`Parties:
`1. Ackerman
`2. Pepperjam (as defendant)
`3. Pepperjam’s Board of Directors
`4. MSTech
`5. Banneker Partners, LLC
`6. Permira Advisors, LLC
`7. Stephen Davis
`8. Adrian van Schie
`
`Claims:
`1. Breach of Contract
`2. Breach of Implied Covenant
`3. Violations of FMLA
`4. Violations of PA WPCL
`5. Violations of DE WPCL
`6. Breach of Fiduciary Duty
`7. Intentional Interference with
`Contract
`8. Defamation
`9. Intentional Infliction of
`Emotional Distress
`10. Civil Conspiracy
`11. Vicarious Liability
`
`13
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`

`

`ARGUMENT
`
`I.
`
`THE DELAWARE ACTION SHOULD NOT BE DISMISSED OR
`STAYED.
`
`
`
`
`
`
`
`
`
`
`
`
`This action involves the internal affairs of a Delaware entity, and its ability to
`
`seek redress from acts of serious self-dealing by its former officer and acting
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`manager, Ackerman. Ackerman concedes that the claims against him are
`
`sufficiently pled. He nevertheless contends that no court should adjudicate them.
`
`He pays lip service to McWane by insisting that the Pennsylvania court “can provide
`
`prompt and complete justice for the claims between Pepperjam and Ackerman,” but
`
`simultaneously asserts that Pepperjam waived its breach of fiduciary duty claims by
`
`not bringing them as counterclaims in the PA Action.14 Ackerman cannot have it
`
`both ways.15 Accordingly, the Delaware Action should proceed.
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`Delaware has an interest in providing a forum for Pepperjam to litigate issues
`
`
`14 OB at 8 (asserting claims “arise[ ] from the same transaction or occurrence”
`and “Pepperjam should have raised its two Delaware claims … as counterclaims”).
`
`15
`Cornerstone Techs., LLC v. Conrad, 2003 WL 21003402, at *3 (Del. Ch.) (“I
`expect that Conrad - having taken the position that all these issues should be litigated
`in one place - will not object if the plaintiffs attempt to expand the Pennsylvania
`action to include the claims pled in this case and to litigate them on the same
`schedule and at the same trial. After all, he has known about the bulk of these claims
`since last summer and has expressed a desire to defend them in Pennsylvania. If he
`does so object, then I will entertain, as quickly as practicable, a motion from the
`plaintiffs to lift the stay. If, however, the plaintiffs do not seek to expand the
`Pennsylvania action, the stay previously ordered shall remain in effect.”) (emphasis
`in original).
`
`14
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`

`

`regarding its internal affairs.16 It “has an interest in opening its courts to Delaware
`
`entities ... in order to provide a forum in which they may seek justice.17 It also has
`
`“a ‘significant and substantial’ interest in ‘overseeing the conduct of those owing
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`fiduciary duties to shareholders of Delaware corporations.”’18 Indeed, Pepperjam’s
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`LLC Agreement is governed by Delaware law and Ackerman owed default fiduciary
`
`duties to Pepperjam under Delaware common law.
`
`When parties choose to form a Delaware entity and utilize
`Delaware’s system of laws and dispute resolution, they are
`bargaining for a valuable array of reliable services relating
`to their entity’s internal affairs. That they choose to
`manufacture all the widgets the entity makes elsewhere
`and have its accounting done elsewhere does not render
`less important the legally-designated home of the entity
`for purposes of (1) its existence as an entity, and, most
`critically, (2) its relations among itself, its governing
`fiduciaries, and its investors.”19
`
`Ackerman’s position that no court can adjudicate Pepperjam’s breach of fid