Stephen W. Bomberger v. Benchmark Builders, Inc.

Citation: Not availableDocket: 11572-VCMR

Court: Court of Chancery of Delaware; August 19, 2016; Delaware; State Appellate Court

Original Court Document: View Document

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The Court of Chancery of Delaware, presided over by Vice Chancellor Tamika R. Montgomery-Reeves, addressed the motion to dismiss in the case of Stephen W. Bomberger v. Benchmark Builders, Inc. et al. The court partially granted and partially denied the defendants' motion regarding Bomberger's verified complaint.

The background reveals that Bomberger co-founded Benchmark Builders, Inc. in 1988 and entered into an employment agreement, purchasing shares at $100 each. A Shareholders Agreement from 1994 stipulated that only employees could hold shares and outlined conditions for repurchase upon termination of employment. After Bomberger's termination at age fifty-eight in May 2015, Benchmark offered to buy back his shares at $747 each, which Bomberger rejected, claiming a higher net book value of $3,925.15 per share. Benchmark later asserted its right to repurchase the shares for the original price.

Bomberger filed a complaint on October 2, 2015, with multiple claims against various defendants, including Benchmark. The court reviewed the motion to dismiss under Rule 12(b)(6), stating that the complaint could not be dismissed if the allegations could lead to relief under any reasonable circumstances. The court accepts well-pled facts as true but disregards conclusory allegations lacking specific support.

Regarding the waiver claim (Count I), the court required evidence of three elements: 1) a condition that can be waived, 2) knowledge of that condition by the waiving party, and 3) intent to waive it. The court's analysis indicated that Bomberger's claim of waiver was inadequately supported, resulting in a partial grant of the motion to dismiss on this count.

Bomberger argues that the Company waived its right to repurchase shares from Eugene based on prior interactions, citing the case of Julian v. Eastern States Construction Service, Inc. In Julian, the Court found that Benchmark had the right to demand Eugene's shares after his termination in 2003 but delayed enforcement until late 2005 or early 2006. At a February 10, 2006 board meeting, Benchmark's board, with Bomberger dissenting, voted to waive the requirement for Eugene to sell his shares at the lower of the original purchase price or net book value, opting instead for a buyback at a higher net book value.

The Court concluded that this delay and the board's decision constituted a waiver of the right to enforce the resale obligations in the Shareholders Agreement, allowing Eugene to retain his shares. Bomberger contends that the Company’s delays in repurchasing Eugene’s shares in 2003 and the February 2006 waiver apply equally to his shares. However, the Court finds that Bomberger misinterprets Julian, as Benchmark sought to repurchase his shares within three months of his termination, indicating no unreasonable delay.

Consequently, Bomberger's claim based on the 2003 Waiver is dismissed with prejudice. The status of the 2006 Waiver as a permanent waiver remains uncertain, as the Complaint does not clarify whether the board intended for it to apply to all stockholders or just Eugene. However, the Complaint does assert that the 2006 Waiver was an express waiver, leading to the dismissal of this part of Count I without prejudice.

Defendants’ motion to dismiss is partially granted regarding Bomberger's breach of fiduciary duty claim (Count II) against the Board members. Bomberger claims that his termination was age discriminatory, violating fiduciary duties and motivated by the Julian family members' control over Benchmark. As he is currently pursuing an age discrimination claim with the EEOC, the resolution of this matter is critical to his fiduciary duty claim, leading to a dismissal without prejudice for Bomberger to reassert this claim later. Additionally, Bomberger alleged that the Board's issuance of new shares to younger family members diluted minority shareholders' stock value. However, he did not adequately support this allegation in his brief, and evidence suggests he had opportunities to participate in equity offerings, resulting in dismissal of this part of the claim as well.

Conversely, the motion to dismiss Bomberger's promissory estoppel claim (Count III) is denied. Bomberger argues that Benchmark should pay him the net book value for his shares under promissory estoppel principles, requiring proof of four elements: a promise made, reasonable expectation to induce action, reasonable reliance by the promisee, and binding nature to prevent injustice. The court finds that the Complaint provides sufficient facts to support the plausibility of Bomberger's promissory estoppel claim.

The Complaint alleges that Francis made several promises to Bomberger concerning his employment status and the Board's intention to pay Bomberger the net book value of his shares. It is claimed that Francis should have anticipated that his promise would lead Bomberger to forbear from signing a proposed amendment to the Shareholders Agreement, which would have allowed Benchmark to repurchase shares at a lower price than the net book value. Bomberger communicated with Francis about amending the Shareholders Agreement, motivated by his concerns over its existing provisions.

Bomberger relied on Francis's promise to his detriment by refusing to sign the proposed amendment and halting efforts to amend the Agreement until a resolution was reached regarding Eugene's veto power. Although the proposed amendment was consistent with Bomberger's requests, he hesitated due to potential legal issues surrounding Eugene's exclusion. The Complaint argues that the Board could have repurchased Bomberger’s shares at net book value despite Eugene’s dissent.

Francis, as a director, was alleged to have had significant influence over the Board, which bolstered the authority of his assurances, aligning with the precedent set in a 2006 Waiver. The Complaint contends that enforcing Francis's promises is essential to prevent injustice, as failing to do so would force Bomberger to accept a significantly lower price for his shares. The Defendants counter that Francis only promised not to compel a resale at the original price, asserting that an offer of $747 per share was compliant with that promise. However, the Shareholders Agreement stipulates the repurchase prices, indicating that both parties likely understood the promise to imply repurchase at net book value.

Consequently, the court denies the Defendants’ motion to dismiss Count III. In Count IV, Bomberger's claim for specific performance regarding Kang Development, LLC is dismissed without prejudice since the parties agree that the request has already been satisfied. Defendants' motion to dismiss is granted in part and denied in part.