Judge LeGrow Finds Allegations of Personal Benefit Insufficient to Void Corporate Transaction

March 30, 2021

Publication| Commercial Litigation

In The American Bottling Company v. Repole, et al., C.A. No. N19C-03-048 AML CCLD, Judge LeGrow considered a motion to dismiss two counts of a second amended complaint.  Defendants Mike Repole and BA and Sports Nutrition, LLC (“Bodyarmor,” together with Repole, the “Moving Defendants”) moved to dismiss a claim for tortious interference with contract asserted against Repole, Bodyarmor’s CEO, and a claim for promissory estoppel against Bodyarmor. 

The dispute arose out of a 2015 distribution agreement entered into between distributor The American Bottling Company (“ABC”) and Bodyarmor (the “Distribution Agreement”), which granted ABC exclusive distribution rights to Bodyarmor’s energy drink in the United States for 10 years.  Subsequently, in 2018, ABC’s parent company, Dr. Pepper Snapple Group, Inc., announced a merger with Keurig Green Mountain, Inc.  Repole’s initial reaction to the merger was to congratulate individuals on both sides of the transaction.  Despite this reaction, Bodyarmor terminated the Distribution Agreement in August 2018, claiming that the merger constituted a transfer of ABC’s duties under the Distribution Agreement without Bodyarmor’s consent as required by Section 10.2 of the Distribution Agreement.  Bodyarmor subsequently granted exclusive distribution rights to Coca-Cola’s affiliates (“Coke”) in exchange for a $300 million investment.  This investment funded a distribution to Repole and Bodyarmor’s management. 

In response, ABC filed this action alleging (1) that Repole tortiously interfered with the Distribution Agreement to pursue a personal benefit in the form of a distribution from Coke’s investment, and (2) promissory estoppel because Bodyarmor indicated it would continue to operate under the Distribution Agreement after the merger based upon Repole’s initial reaction.  The Moving Defendants responded with the first of their motions to dismiss.  In response to this initial motion, the Court dismissed the tortious interference claim because the allegations were insufficient, but granted leave to amend.  As for the promissory estoppel claim, the Court denied the motion, finding that the allegations of an unambiguous promise to continue to operate under the Distribution Agreement and detrimental reliance were sufficient to meet the pleading standard. 

Thereafter, ABC filed a first amended complaint (“FAC”) introducing new allegations that Repole’s self-interest drove his decision to terminate the Distribution Agreement to support its tortious interference claim.  Later, ABC filed a second amended complaint (“SAC”) asserting a tortious interference claim against Coke and revising the allegations underlying ABC’s tortious interference and promissory estoppel claims.  The Moving Defendants moved to dismiss again, arguing that the tortious interference claim failed because the SAC did not allege Repole acted outside the scope of his authority as CEO and that the promissory estoppel claim should be dismissed because ABC “walk[ed] back” its allegations in the original complaint by alleging that Repole merely “endorsed” the merger, whereas the prior claim alleged that he “consented to or approved” the merger.

The Court again dismissed the tortious interference claim.  In so holding, the Court found that Delaware law presumes that corporate officers’ actions are for the benefit of the corporation and that the allegations of the SAC failed to overcome this presumption.  The Court also considered the revised promissory estoppel allegations and again denied the motion, finding that the allegations had not changed in any material way from the prior iteration. 

Analysis: In this case, Judge LeGrow reaffirmed Delaware’s long-standing deference to decisions made by corporate fiduciaries.  Allegations that a corporate officer obtained a personal benefit from a transaction are insufficient on their own to overcome the presumption that officers act for the benefit of the corporation. Judge LeGrow affirmed that an officer of a Delaware entity cannot be held liable for tortious interference unless the officer acts beyond the scope of their agency and for their personal interests.  Rather, the allegations must indicate how the decision was motivated by some purpose to harm the corporation.

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