Geier v. Mozido LLC, C.A. No. 10931-VCS (Del. Ch., Sept. 29, 2016) (Slights, V.C.)
In this memorandum opinion, the Court of Chancery granted defendants’ motion to dismiss plaintiff’s action to recover damages for the value of incentive options that were allegedly promised to him by one of the defendants. The Court held that plaintiff released any claim he may have had to the options when he executed a general release of claims to settle related litigation in a New York state court.
In 2011, various representatives of Mozido LLC (“Mozido”) requested that plaintiff Philip H. Geier join Mozido’s board of directors and offered incentive options in Mozido. Geier agreed to join the board and countersigned an offer letter that referenced the incentive options. Geier also caused the Phillip H. Geier Irrevocable Trust (the “Geier Trust”) and The Geier Group, LLC (the “Geier Group”) to loan money, pursuant to a promissory note, to an affiliate of one of the board members that was a member of Mozido. Geier is a trustee of the Geier Trust and a chairman of the Geier Group. The promissory note was personally guaranteed by Michael Liberty and Richard Braddock, who were members of Mozido and of its board of directors. After default on the note, the Geier Trust and the Geier Group commenced an action in New York. Braddock executed a settlement agreement with Liberty, Mozido, and others. At the same time, the Geier Trust and the Geier Group entered into a general release (the “Release”) that did not include Geier as a signatory and did not carve out any claim Geier had against Mozido, including any claim relating to the options. Mozido assigned certain of its intellectual property rights and goodwill to Mozido, Inc. (“Inc.”), a subsidiary of Mozido. Defendants moved to dismiss Geier’s claim relating to the options, arguing, among other things, that such claim was released pursuant to the Release.
The Release was governed by New York law. Applying New York law, the Court found that the parties to the Release were sophisticated and represented by counsel, and that it was therefore appropriate to look only to the language of the Release to ascertain the parties’ intent as to its scope. New York law also requires that a general release be construed most strongly against the releasor and that any cause of action arising prior to its execution be barred, unless the releasor expressly limits the release in the release itself.
Plaintiff argued that the Release should not bar his claims relating to the options because (i) it should be read in conjunction with the documents relating to the Braddock settlement, which reflect that the Release was intended to release only claims relating to the loan, and (ii) he was not an intended releaser.
With respect to plaintiff’s first argument, the Court found that the Release did not contain any carve-outs or limitations and was not ambiguous. The Court declined to construe the Release along with the recitals in the documents related to the Braddock settlement agreement, finding that the Release and the Braddock settlement documents were executed separately, by different parties, with no indication that the parties intended that the Release not stand on its own.
The Release expressly identified the Geier Trust and the Geier Group as releasors and released claims the releasors’ affiliates had against the released parties. Plaintiff argued that he should not be considered an “affiliate” of the releasors. The Court found that because the Release was intended to effect a broad release of claims, the term “affiliate” as used therein should be interpreted similarly broadly. Applying standard dictionary definitions of “affiliate,” the Court found that the term applied to plaintiff because was in control of both the Geier Trust and the Geier Group and had a close connection and association with both entities. Therefore, the Court deemed Geier a releaser.
Finally, the Court found that although Inc. was not named as a releasee in the Release, the definition of releasee included subsidiaries of Mozido, which Inc. was. Because the Release released Geier’s claims against Mozido, it similarly released his claims against Inc. Therefore, Geier’s claims relating to the options were barred by the Release and defendants’ motion to dismiss was granted.