Personal Touch Holding Corp. v. Felix Glaubach, D.D.S.

• Court: Court of Chancery of Delaware
• Decided: February 25, 2019
• Docket: CA 11199-CB
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PERSONAL TOUCH HOLDING CORP., ) ) Plaintiff, ) ) v. ) C.A. No. 11199-CB ) FELIX GLAUBACH, D.D.S., ) ) Defendant ) FELIX GLAUBACH, D.D.S., ) ) Counterclaim Plaintiff, ) ) v. ) ) PERSONAL TOUCH HOLDING CORP., ) ) Counterclaim Defendant. )

MEMORANDUM OPINION

Date Submitted: November 15, 2018 Date Decided: February 25, 2019

Blake Rohrbacher, Brian F. Morris, and John M. O’Toole, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Jonathan C. Sullivan and John A. DeMaro, RUSKIN MOSCOU FALTISCHEK, P.C., Uniondale, New York; Attorneys for Plaintiff-Counterclaim Defendant Personal Touch Holding Corp.

Theodore A. Kittila and James G. McMillian, III, HALLORAN FARKAS KITTILA LLP, Wilmington, Delaware; Attorneys for Defendant-Counterclaim Plaintiff Felix Glaubach, D.D.S.

BOUCHARD, C. This action involves a series of disputes between Personal Touch Holding

Corp., a provider of home healthcare services, and one of its co-founders, Felix

Glaubach. In April 2015, after tensions had been mounting between Glaubach and

his fellow directors for some time over the company’s management, Glaubach

announced to the company’s board of directors that he had purchased a building the

company was interested in acquiring (the “AAA Building”) and then offered to lease

the building to the company. About two months later, the company terminated

Glaubach’s employment agreement and removed him as President of the company

for allegedly usurping a corporate opportunity and other reasons. Personal Touch

then filed this action, seeking a declaration that Glaubach was validly removed from

office, damages for his alleged breaches of fiduciary duty, and disgorgement of three

years of his compensation under the New York faithless servant doctrine.

In this post-trial decision, the court concludes that Glaubach breached his

fiduciary duty of loyalty in several respects, including through his usurpation of the

opportunity to acquire the AAA Building, and that the company is entitled to a

declaration that Glaubach was validly removed as President of the company and to

$2,735,000 in damages. With respect to a number of other claims the company

advanced against Glaubach, the court concludes that Glaubach did not breach his

fiduciary duties and that disgorgement of his compensation under the faithless

servant doctrine is not warranted.

1 I. BACKGROUND

The facts recited in this opinion are my findings based on the testimony and

documentary evidence presented at a four-day trial held in June 2018. The record

includes stipulations of fact made in the Pre-Trial Stipulation and Order (“PTO”),

nearly 700 trial exhibits, thirty-five depositions, and live testimony from six fact

witnesses and one expert witness.

A. The Parties and Relevant Non-Parties

In 1974, Felix Glaubach, an orthodontist, and non-party Robert Marx, a

lawyer, co-founded the organization that later became Personal Touch Holding

Corp. (“Personal Touch” or the “Company”).1 In the beginning, Glaubach became

involved in Personal Touch’s business and continued his orthodontic practice part-

time, while Marx devoted most of his time to his law practice and his investments.2

They later became equal partners in the business.

Personal Touch is a Delaware corporation with its principal place of business

in Lake Success, New York.3 The Company provides home healthcare services,

including nursing, physical therapy, and long-term care. It currently operates

through various subsidiaries with locations in seven different states.4

1 PTO ¶ 10; Tr. 210-12 (Glaubach); 622-23 (Marx). 2 Tr. 212-13 (Glaubach). 3 PTO ¶ 9. 4 PTO ¶ 10; Tr. 8 (Goff). 2 Glaubach served as President of the Company from December 13, 2010 until

June 24, 2015, when he was terminated from that position.5 Glaubach, together with

his wife and family trusts, currently holds approximately 27% of the Company’s

outstanding common stock.6 At the time of trial, Glaubach was about eighty-eight

years old, and had been married to his wife for over fifty-eight years.7

Glaubach and Marx currently serve as special directors of the Company’s

board of directors (the “Board”), entitling them to three votes each.8 The Board has

four other members, each of whom is entitled to one vote.9 They are: John L.

Miscione, John D. Calabro, Lawrence J. Waldman, and Robert E. Goff (collectively,

the “Outside Directors”).10 Marx is Chairman of the Board and the Company’s

Senior Legal Officer.11

Two other individuals prominent in this action are David Slifkin and his wife,

Dr. Trudy Balk.12 Slifkin joined the Company in 1990 and served as its CEO from

5 PTO ¶¶ 21, 23. 6 PTO ¶ 11. 7 Tr. 209-10 (Glaubach). 8 PTO ¶¶ 15-16. 9 JX 24 at 6. 10 PTO ¶ 16. 11 Tr. 623 (Marx). 12 PTO ¶ 34. 3 January 31, 2011 until December 7, 2015.13 Slifkin resigned as CEO on the heels of

an internal investigation that uncovered his central role in a tax evasion scheme

involving many Company employees. Balk joined the Company in 1980 and was

its Vice President of Operations when she left the Company in July 2014.14

B. The Provision of Healthcare Services to Giza Shechtman

Giza Shechtman is Glaubach’s sister-in-law and was an early equity owner in

an affiliate of the Company, holding a five-percent stake.15 In or around 1996, after

suffering a stroke, Shechtman began to receive healthcare services from the

Company.16 According to Glaubach, shortly after Shechtman suffered her stroke,

Glaubach, Marx, and Shechtman entered into an oral agreement for the Company to

provide Shechtman with healthcare services at no cost as long as she needed them.17

Marx denies entering into this agreement.18

Whatever the initial arrangements may have been, they were superseded by a

letter agreement that Glaubach, Marx, and Shechtman each signed in December

2001 (the “Services Agreement”).19 The Services Agreement describes an

13 PTO ¶ 20; JX 364 at 1. 14 PTO ¶ 46. 15 Tr. 211, 444 (Glaubach); Tr. 633 (Marx). 16 Tr. 431-32 (Glaubach). 17 Tr. 214-15, 432 (Glaubach). 18 Tr. 635 (Marx). 19 JX 8; Tr. 432-33 (Glaubach); Tr. 635 (Marx). 4 arrangement under which Shechtman would reimburse the Company for healthcare

services it provided to her in the future. More specifically, the cost of the services

would, in the first instance, come out of distributions she was entitled to receive as

an equity owner:

This is to confirm our understanding regarding the amount of your entitlement for your share of family benefits paid out of Personal Touch Home Care of N.Y., Inc.

It is understood that you shall be entitled to 5% of this entitlement. Said amount shall be computed within two (2) months from the end of each fiscal year. This entitlement shall operate only as long as the undersigned are the sole owners of the Personal Touch Metro offices.

It is further understood that at the end of each fiscal year when the computation has been made as per your entitlement, a deduction shall be made for any Nursing/Home Health Aide services which you may have incurred within the year at cost. If there is any money due in the computation it shall be paid to you upon the presentation of the computation.20

The Services Agreement further provided that “[i]n the event of a dispute as to the

amount of [Shechtman’s] entitlement, Mr. David Slifkin, our Chief Financial

Officer, shall be the sole arbiter of said amount.”21 As Marx testified, the basic deal

was “that Giza Shechtman herself will pay for her own services providing we pay

20 JX 8. It appears that the intent of the Services Agreement was that Shechtman would reimburse the Company for the cost of healthcare services that exceeded her five-percent entitlement, although the language of the Services Agreement is confusing on that point. See id. (“If the cost of Nursing/Home Health Aide services that you have incurred exceed[s] the 5% of entitlement, then the excess shall be deducted from your 5% ownership distribution.”). 21 Id. 5 five percent of all the operations in the metropolitan area, which included Nassau,

Suffolk, Westchester, the CHHA in Brooklyn, and the CHHA in Westchester.”22

C. The ESOP Is Formed and Glaubach Becomes President

Glaubach and Marx were the controlling stockholders of the various Personal

Touch companies until December 2010.23 At that time, they implemented two major

changes to both grow the Company and plan for succession.24

First, they established an employee stock ownership plan (“ESOP”) and

reorganized the Company’s corporate structure into its current form.25 Glaubach and

Marx sold a substantial portion of their shares to a trust created for the ESOP for

about $30 million each.26 The ESOP trust now holds 31% of the Company’s shares

and is its largest stockholder.27

Second, Glaubach, Marx, and other stockholders entered into a stockholder

agreement on December 13, 2010, that, among other changes, expanded the Board

to up to eight members.28 Glaubach and the Company simultaneously entered into

22 Tr. 635 (Marx). 23 PTO ¶ 12. 24 Tr. 17 (Goff). 25 PTO ¶ 12. 26 PTO ¶ 13; Tr. 107 (Goff). 27 PTO ¶ 13. 28 PTO ¶ 14; JX 703 § 6.1. 6 an employment agreement (the “Employment Agreement”) under which Glaubach

would serve as President of the Company until December 2015 for an annual salary

of approximately $650,000.29

In 2011, Miscione joined the Board from the investment firm of Duff &

Phelps, which advised the Company on the formation of the ESOP.30 Calabro, who

spent many years at Heller Financial and Healthcare Finance Group, joined the

Board in March 2014.31 In July 2014, Waldman and Goff joined the Board.32

Waldman is an accountant and Goff a healthcare executive, each with extensive

experience in his respective field.33

D. The AAA Building Becomes Available to Purchase

On or about February 28, 2013, Jim Clifford, the Director of Management

Services at AAA New York (“AAA”), informed Mike Macagnone, the Director of

Employee Services at the Company, that the building located next door to one of the

Company’s subsidiaries in Jamaica, New York (as defined above, the “AAA

Building”) was for sale. The Company had been seeking additional office space in

Jamaica, New York for several years and was especially interested in the AAA

29 PTO ¶¶ 21-22; JX 26. 30 PTO ¶ 17. 31 PTO ¶ 18. 32 PTO ¶ 19. 33 Tr. 9, 15 (Goff). 7 Building due to its location.34 Management believed that the AAA Building could

be used to relocate the Company’s corporate offices, to expand the Company’s

operations in the area, as additional office space for one of the Company’s

subsidiaries, or as storage.35

On March 4, 2013, Slifkin emailed Marx and Glaubach stating that the AAA

Building “is up for sale and the asking price seems reasonable.”36 Two days later,

Marx, Glaubach, and Macagnone met with Clifford to see the building and discuss

a price.37 Marx told Clifford that the Company was “very interested” in the property

but that the asking price of $1,200,000 was “a little high.”38 Marx then offered

Clifford $1 million in cash for the building.39 A few days later, Clifford responded

that AAA was concerned about the tax implications of the sale, which prompted

Marx to offer to pay AAA’s tax obligation as part of the transaction.40

Less than one month later, Clifford informed Marx that AAA could not

proceed with a sale at that time because its relocation plans had fallen through.41

34 PTO ¶ 105. 35 PTO ¶ 106; see also Tr. 392 (Glaubach). 36 PTO ¶ 104. 37 PTO ¶ 108. 38 PTO ¶ 109. 39 Tr. 625 (Marx). 40 Tr. 625 (Marx). 41 Tr. 626 (Marx). 8 Marx continued to inquire with Clifford about the AAA Building for several

months.42 During one of those inquiries, Clifford told Marx that AAA wants “to

move and we’ll call you as soon as we have anything.”43

E. The Shechtman Payment and the Jamaica Property

On July 22, 2013, Glaubach caused the Company to issue a check in the

amount of $133,177 to Shechtman because he thought that Shechtman had been

“shortchanged” in an equity distribution by the Company.44 Leon Reimer, a certified

public accountant who had been hired by the Company, provided the $133,177

figure to Glaubach.45 Slifkin, believing that Glaubach had “the authority to request

the check,” instructed Anthony Castiglione, the Company’s Treasurer at the time, to

“cut the check” to Shechtman.46

On November 1, 2013, one of the Company’s subsidiaries entered into a five-

year lease with Personal Touch Realty LLC to rent a property in Jamaica, New York

(the “Jamaica Property”).47 Marx and Glaubach each owned fifty percent of

42 Tr. 626-27 (Marx). 43 Tr. 627 (Marx). 44 JX 56; JX 708 at 1; Tr. 446 (Glaubach). 45 Tr. 223, 285 (Glaubach). Reimer had been hired by the law firm of Schlam Stone & Dolan LLP to assist the Company in connection with audits that the Internal Revenue Service and New York State were conducting for the 2010 tax year. JX 316 at 1-2, 4. 46 Slifkin Dep. 424 (Sept. 28, 2017). 47 JX 58; PTO ¶ 139. 9 Personal Touch Realty LLC at all relevant times.48 Only Marx and Glaubach signed

the lease—Marx for Personal Touch Realty LLC and Glaubach for the Company.49

Marx set the rental rate for the Jamaica Property.50

F. Glaubach Hires Reich and Pursues the AAA Building for Himself

On or around January 1, 2014, Glaubach hired David Reich as “Assistant to

the President” with a salary of $100,000 per year.51 Glaubach asserts he hired Reich

primarily to assist him in exposing fraud that he suspected was occurring within the

Company.52 Reich was an employee of the Company from January 8, 2014 until

April 15, 2015, during which time he was paid a total of approximately $209,440.53

Also during this time period, Reich assisted Glaubach in acquiring the AAA

Building for himself.

In 2014, Glaubach instructed Reich to contact Clifford to see whether AAA

was ready to sell the AAA Building.54 Reich and Clifford discussed the sale of the

building during the summer of 2014. Both were under the impression at the time

48 PTO ¶ 140; JX 653. 49 JX 58 at 5, 7. 50 Tr. 279, 289 (Glaubach); JX 717 at 3. 51 PTO ¶ 117; JX 712 at 1. 52 Tr. 284 (Glaubach). 53 PTO ¶¶ 119-20. 54 PTO ¶ 112. 10 that they were negotiating the sale of the building to the Company. 55 Clifford

continued to have this impression until September 24, 2014.56

At some point before September 24, Glaubach told Reich that he wanted to

buy the AAA Building himself in order to develop it or sell it for a profit.57 Glaubach

did not want anyone at the Company to know about his negotiations regarding the

AAA Building and made efforts to keep them secret.58 Reich thus stopped using his

Company email account and began using a personal one in his communications

about the AAA Building.59 Reich also suggested meeting with Clifford in a

conference room in Reich’s temple rather than on Company grounds because there

were “a lot of blabbermouths” in the Company’s offices.60

G. The Controversy About Balk’s Severance Package

In February 2013, Glaubach purported to fire Trudy Balk, Vice President of

Operations, for “unprofessional behavior and poor performance.”61 Despite

Glaubach’s efforts to fire her unilaterally, Balk remained in her position until she

decided to leave the Company in July 2014. That event precipitated a controversy

55 PTO ¶ 113. 56 JX 713. 57 PTO ¶¶ 114, 116. 58 Tr. 397, 403 (Glaubach). 59 Tr. 589-90 (Reich). 60 JX 154 at 1. 61 JX 47. 11 about paying Balk severance and allegations of tax fraud involving her husband

(Slifkin) that ultimately led to his departure from the Company in December 2015.

On July 24, 2014, the Board met and unanimously adopted a resolution

creating a special committee consisting of the Outside Directors (the “First Special

Committee”).62 The First Special Committee was charged with negotiating a

severance package with Balk and reviewing related-party transactions.63 The First

Special Committee also was empowered to amend and, if necessary, terminate any

related-party transaction it discovered.64 Relatedly, the Board resolved that “the

Company shall not enter into” such a transaction “without the prior authorization of

the [First] Special Committee.”65

On July 29, 2014, Glaubach sent letters to two of the Outside Directors

(Miscione and Goff) criticizing Balk’s performance in her role as Vice President of

Operations. In the letter to Miscione, Glaubach asserted that Balk had failed to

exercise diligence with respect to certain of her professional duties.66 In the letter to

Goff, Glaubach made a range of allegations against Balk, including that she poorly

supervised her employees, “violated federal laws/IRS regulations using Personal

62 PTO ¶ 38. 63 PTO ¶¶ 38-40. 64 PTO ¶ 41. 65 PTO ¶ 42. 66 PTO ¶ 49. 12 Touch as a vehicle for her transgressions,” and “conspired” to steal “one million

airline points” from his American Express credit card account.67 From Glaubach’s

perspective, the First Special Committee did not listen to any of the concerns he

expressed to them.68

On August 15, 2014, Glaubach sent a letter to a third Outside Director

(Waldman) regarding Balk’s departure, stating the following:

Since the full board determined that the Independent board members should make this decision, I’ll accept whatever you decide in order to further promote the growth of the company as soon as possible. I was told that Dr. Balk will resign as of October 1, 2014. I can accept that and I am willing to pay her full salary plus benefits until that time. After that date, you suggest that she be able to serve as a consultant until April 1, 2015 and be paid on a per-diem basis. Although I am disappointed, I can accept that with the proviso that whatever she earns be included as part of her severance package and that no benefits whatsoever be paid to her after October 1, 2014. David [Reich] told me that you are suggesting a severance package of $466,000.00. I feel that that is a bit steep and if I have to live with it I will . . . .69

Elaborating on his views about the amount of Balk’s severance, Glaubach explained

that “the highest we’ve ever given for eighteen years of service was $55,000.”70

On September 5, 2014, the First Special Committee agreed to pay Balk

approximately $466,000 in severance, equating to approximately eighteen months

67 JX 116 at 2-3. 68 Tr. 252 (Glaubach). 69 PTO ¶ 50; JX 136 at 2. 70 Tr. 253 (Glaubach). 13 of her compensation.71 In support of this decision, the First Special Committee cited

Balk’s long tenure with the Company and asserted that the severance was “consistent

with the past practices of the Company with regard to the separation of senior

executives” as well as the practices of other companies.72

On September 8, 2014, Glaubach and Balk had an argument that allegedly

resulted in Glaubach slamming the door to Balk’s office and Balk crying.73

Glaubach admits he told Balk that “she was worthless to the Company” but denies

slamming the door.74 Goff heard about this incident from Irvin Brum, a lawyer with

the Company’s outside counsel (Ruskin Moscou Faltischek, P.C.), and from “other

employees that were on the floor” at the time.75

On September 16, 2014, Slifkin sent Glaubach an email with the subject line

“I SURRENDER - you won.”76 Slifkin stated in the email that “Trudy [Balk] and I

will be 100% gone by the end of the year” and that he would “have a full

71 PTO ¶ 52. 72 PTO ¶ 53; JX 100 at 1. 73 Tr. 52-53 (Goff). 74 Tr. 254 (Glaubach). 75 Tr. 171 (Goff). 76 JX 152 at 2. 14 management team in place” in the near future.77 He also offered to cover the cost of

Balk’s severance package by giving up shares in the Company.78

On September 22, 2014, about a week after sending the email to Glaubach,

Slifkin wrote to the Board saying that the email to Glaubach “should not be

construed as a resignation” and that he intended to remain with the Company “as

long as the Board of Directors believes that me working as the CEO is in the best

interest of the Company.”79 Before Slifkin sent this letter, the Outside Directors had

strongly encouraged him to stay on.80

In or around October 2014, Glaubach initiated a search for a new CEO to

replace Slifkin without the involvement of anyone else on the Board.81 Glaubach

reached out to two recruiting agencies that the Company had used previously and

began interviewing candidates.82 Glaubach explained to the recruiting agencies that

he “needed backup in case something goes wrong here.”83 Justifying his actions,

77 JX 152 at 2. 78 Id. 79 JX 156. 80 JX 152 at 1. 81 PTO ¶¶ 56, 58. 82 PTO ¶ 57. 83 Tr. 282 (Glaubach). 15 Glaubach explained: “I didn’t feel as President of the Company I had to ask anyone.

If they’re telling me there’s a problem, it’s my job to solve that problem.”84

H. The Board Investigates Sexual Harassment Claims Against Glaubach

On or about September 16, 2014, Rachel Hold-Weiss, the Company’s

Associate General Counsel and Chief Compliance Officer at the time, informed

Brum that she and two other female employees had alleged that Glaubach sexually

harassed them by making inappropriate comments.85 The other two employees were

Josephine DiMaggio, an Administrative Assistant, and Pauline Vargas, Director of

Purchasing and Web Development.86 About one week later, the Company hired the

law firm of Klein Zelman Rothermel Jacobs & Schess LLP (“Klein Zelman”) to

investigate the sexual harassment allegations.87 When Glaubach first heard from

DiMaggio that he was the target of the investigation, he replied, “Me? You got to

be nuts.”88

On October 23, 2014, Brum and his colleague informed Glaubach—who had

been abroad for several weeks—about the sexual harassment investigation.89 They

84 Tr. 282-83 (Glaubach). 85 PTO ¶¶ 54-55; Hold-Weiss Dep. 8, 136. 86 PTO ¶ 54. 87 PTO ¶ 59. 88 Tr. 257 (Glaubach). 89 PTO ¶ 60. 16 emphasized that the investigation had to be kept confidential and that Glaubach was

prohibited from retaliating in any way against the complainants. 90 Glaubach took

umbrage over the investigation, believing that Hold-Weiss “organized the false

sexual harassment allegations against” him.91 At a Board meeting on October 30,

2014, Glaubach told Hold-Weiss that he would “spend any amount of money to clear

my name.”92

Also on October 30, 2014, Glaubach sent a letter to the Board with the subject

line “J’accuse, J’accuse.”93 In the letter, Glaubach contended that the Outside

Directors had breached their fiduciary duties by approving Balk’s severance

package, which he described as “outrageous” and “ill-conceived.”94 He further

stated that he would “throw in a bombshell regarding a historic pattern of

misappropriation of funds and sexual misconduct, to put it nicely, on the part of the

hierarchy of our company.”95 Glaubach also demanded that the Board rescind Balk’s

severance package and ask Slifkin to resign as CEO effective immediately,96 and

90 Tr. 451 (Glaubach). 91 Tr. 260 (Glaubach). 92 Tr. 458 (Glaubach). 93 PTO ¶ 71; JX 180 at 1. 94 PTO ¶ 72; JX 180 at 1. 95 Id. 96 PTO ¶ 74. 17 asserted that, in light of the circumstances, his giving up control of the Company

was “definitely a grave mistake.”97

On November 21, 2014, Klein Zelman issued a report concerning the sexual

harassment allegations against Glaubach.98 By agreement of the parties, the

underlying allegations of sexual harassment were not the subject of testimony and

are irrelevant to the issues that were tried, which focused only on the Company’s

allegation that Glaubach retaliated against the three complainants.99

On November 25, 2014, Glaubach instructed an employee of the Company to

hang a painting of a red, jewel-encrusted hand grenade in the lobby of the

Company’s corporate offices.100 The painting was created by Anton Skorubsky

Kandinsky, a contemporary artist who was “noted for his grenade pictures” that

“hang in museums all over the world.”101 Referring to the painting, Glaubach told

an employee that there “is an explosive situation” within the Company and that “he

does not know when it is going to blow up.”102

97 JX 180 at 1. 98 PTO ¶ 61; JX 195. 99 See Personal Touch Hldg. Corp. v. Glaubach, C.A. No. 11199-CB, at 14-16, 24 (Del. Ch. June 7, 2018) (TRANSCRIPT) (Dkt. 144); see also Dkt. 82 ¶ 25. 100 PTO ¶ 75; JX 217 at 2. 101 Tr. 267 (Glaubach). 102 PTO ¶ 76; see also Tr. 270 (Glaubach). 18 Glaubach, who collects art and had a practice of hanging art around the office,

testified that he brought the grenade painting into the office “because I like that piece

of art.”103 Slifkin removed the painting and emailed Glaubach stating that a “picture

of a grenade is inappropriate to place in the work environment. Employees feel

uncomfortable particularly in light of the degree of animosity that is currently

occurring at the company.”104 Glaubach thereafter directed an employee to re-hang

the painting.105

I. The Board Suspends Glaubach

Later on November 25, 2014, all the Board members except Glaubach held an

emergency phone conference during which they unanimously agreed to suspend

Glaubach with pay pending further Board action.106 Slifkin and Marx emailed

Glaubach about the Board’s decision, giving the following rationale:

Despite being told on numerous occasions that you are not to retaliate in any way toward any complainant, you have ignored the Company’s directives and continue to act in ways contrary to the Company’s handbook and severely detrimental to its interests. Further, your placing a picture of a grenade in front of Mr. Marx’s office, and your refusal to permit its removal, is interpreted as an act of intimidation towards Mr. Marx and others at the Company.107

103 Tr. 268 (Glaubach); PTO ¶ 75. 104 PTO ¶ 77. 105 PTO ¶ 78. 106 PTO ¶¶ 79-80. 107 PTO ¶ 80. 19 On December 4, 2014, Klein Zelman issued a supplemental report relating to

the sexual harassment allegations.108 On December 23, 2014, Glaubach sent a letter

addressed to Slifkin stating that a “recent review of the Company’s records going

back several years has revealed that excessive reimbursements were made to you

and other employees for Continuing Education expenses.”109 Glaubach also stated

in the letter that he would “resort to further action” if Slifkin did not return the funds

that were allegedly misappropriated.110

J. The Board Begins to Investigate Glaubach’s Allegations of Tax Fraud While Glaubach Purchases the AAA Building

On February 10, 2015, during a regularly scheduled meeting, the Board

ratified its decision to suspend Glaubach with pay and extended his suspension for

thirty days.111 The Board also adopted resolutions (i) to create an audit committee

(the “Audit Committee”), a corporate governance committee, and a compliance

committee; and (ii) to authorize the Audit Committee to investigate the Company’s

compliance with financial and tax regulations, including with respect to allegations

that Glaubach had made against Slifkin.112

108 PTO ¶ 68; JX 231. 109 PTO ¶ 28. 110 PTO ¶ 29. 111 PTO ¶ 87. 112 PTO ¶ 83. 20 During the February 10 Board meeting, Marx “reported on . . . conversations

that he had ongoing with the owners of the AAA Building.”113 Glaubach attended

the meeting with his personal counsel but remained silent when Marx mentioned the

AAA Building.114 The next day, on February 11, 2015, Glaubach closed on his

purchase of the AAA Building for $1.8 million plus six months’ free rent for

AAA.115 Glaubach personally paid Reich $25,000 for his work on the deal.116

K. Glaubach Files a Lawsuit in New York and Tensions Continue to Rise Between Glaubach and the Rest of the Board

On March 31, 2015, Glaubach filed a derivative lawsuit in the New York

Supreme Court against Marx, the Outside Directors, Slifkin, Balk, and four other

employees (the “New York Action”).117 On January 15, 2016, Glaubach amended

his complaint in the New York Action to add the Company and two of its subsidiaries

as nominal defendants. The amended complaint alleges that Marx and other

defendants “stole” millions of dollars from the Company and wrongly characterized

the money they stole as reimbursement for continuing education expenses.118 It

113 Tr. 100 (Goff). 114 PTO ¶ 84; Tr. 101 (Goff); JX 274. 115 PTO ¶ 115. 116 Tr. 532 (Reich); Tr. 284 (Glaubach). 117 PTO ¶ 89; Glaubach v. Slifkin, Index No. 702987/2015 (N.Y. Sup. Ct. Aug. 15, 2018). 118 PTO ¶ 90. 21 further alleges that the Outside Directors breached their fiduciary duties by “fail[ing]

to act with respect to Glaubach’s claims with any urgency.”119

On April 29, 2015, the Board held what turned out to be a highly contentious

meeting. Glaubach, represented by his personal counsel, asserted that he was being

denied access to Company information.120 The Board responded by saying that

procedures had been established to provide Glaubach with information if requested

in writing.121 Glaubach asked whether Heller Financial and Healthcare Finance

Group, one of the Company’s lenders, was aware of the New York Action, and

Slifkin said it was.122 Glaubach accused one of the directors of committing graft,

called Slifkin a “liar” and “philanderer,” and stated that he was considering creating

“dossiers” on all of the attorneys present and threatened to file grievances against

them.123 He also asserted he would not sign a written consent for the purchase of

certain assets the Company had been considering acquiring unless Slifkin’s name

was removed from it.124

119 PTO ¶ 91. 120 PTO ¶ 96. 121 PTO ¶ 96. 122 PTO ¶ 97. 123 PTO ¶ 98; Glaubach Dep. 774-75 (Sept. 8, 2017). 124 PTO ¶ 99. 22 During the April 29 Board meeting, Glaubach announced that he had

purchased the AAA Building and then offered to lease it to the Company.125 This

“surprised” Goff because the Company previously had been negotiating to purchase

the AAA Building.126 Months later, in a letter to Marx dated August 11, 2015,

Glaubach again offered to lease the AAA Building to the Company.127 Marx replied

ten days later, asserting that Glaubach’s purchase of the property “constituted a

breach of your fiduciary duties as a director of the Company.”128

L. Glaubach Is Terminated as President

On May 27, 2015, the Board created another special committee (the “Second

Special Committee”) that was empowered to decide all matters on which the

Company or the Board may be adverse to Glaubach.129 Specifically, the Second

Special Committee was authorized to determine the Company’s position on: (i) the

allegations of sexual harassment, retaliation, and breaches of fiduciary duty

involving Glaubach; (ii) claims made by Glaubach against the Company or its

125 Tr. 101 (Goff); Tr. 407 (Glaubach); PTO ¶ 100; JX 309 at 8. 126 Tr. 101 (Goff). 127 JX 326. 128 JX 329. 129 PTO ¶ 101. 23 officers, directors, or employees; and (iii) actions to be taken against Glaubach

regarding his professional relationship with the Company and related litigation.130

On June 22, 2015, the Second Special Committee voted to terminate Glaubach

as President of Personal Touch.131 The Company sent an official termination letter

two days later, on June 24, which specified, among other reasons for the decision,

that Glaubach had retaliated against the sexual harassment complainants, defied the

Board by unilaterally initiating a search for a new CEO, interfered with the

Company’s purchase of the AAA Building, and misappropriated Company assets by

having Reich work on personal matters and hiring a personal driver.132 Also on June

24, 2015, the Company filed this action.133

M. The Audit Committee Investigates Glaubach’s Allegations of Tax Fraud and the Services Provided to Shechtman

On May 8, 2015, the Audit Committee, through its counsel James Alterbaum

of the law firm of Moses & Singer LLP, hired Friedman LLP, an accounting firm,

to perform a forensic investigation of the financial records of the Company to

determine whether any directors or employees had received improper payments or

130 PTO ¶ 101. 131 PTO ¶ 102. 132 JX 322 at 1. 133 Dkt. 1. 24 other benefits.134 From August 27 to November 9, 2015, Friedman LLP issued a

series of reports to the Audit Committee.135 The reports focused primarily on: (i)

certain payments the Company made to employees that were classified as

“continuing education” expenses; and (ii) healthcare services that the Company had

provided to Shechtman.

With respect to the first topic, Friedman LLP found that, from 2008 to 2011,

dozens of employees of the Company, including Slifkin and Balk, received

payments for bonus compensation that were characterized improperly in the

Company’s financial records as expense reimbursements for “continuing education”

courses that were never taken.136 Friedman LLP did not conclude that any of the

recipients actually evaded taxes,137 although the evident purpose of the scheme was

to mischaracterize compensation as “continuing education” expenses in order to

reduce the taxable wage income of certain employees.138

Friedman LLP found that the Company made a total of approximately

$519,965 of mischaracterized “continuing education” payments in 2008, $698,485

134 JX 310 at 1. 135 JX 346; JX 347; JX 348; JX 350; JX 351; JX 354. 136 JX 348 at 3-4 (2008); JX 350 at 3-4 (2009); JX 346 at 3 (2010); JX 354 at 3 (2011); PTO ¶¶ 31-32; see also Tr. 222 (Glaubach) (“There was no such thing as [continuing education]. This was not done once.”). 137 Tr. 754 (Miano); see JX 346; JX 348; JX 350; JX 351; JX 354. 138 See Tr. 133-34 (Goff). 25 in 2009, $844,194 in 2010, and $123,000 in 2011.139 Slifkin was the biggest offender

by far, receiving improperly classified “continuing education” payments of

$107,754 in 2008, $220,000 in 2009, and $527,105 in 2010.140

Friedman LLP did not determine who was responsible for the

mischaracterizations, apparently because that issue was outside the scope of its

assignment,141 but the record reflects that, at a minimum, Slifkin condoned the

practice.142 On December 7, 2015, about one month after Friedman LLP issued its

last report, Slifkin resigned as an officer and director of the Company, effective

immediately.143 The Company’s outside auditor, PricewaterhouseCoopers, also

terminated its relationship with the Company after learning about the “continuing

education” expense scandal.144

With respect to the healthcare services provided to Shechtman, Friedman LLP

concluded that, from January 2010 to June 2014, the Company provided her with

healthcare services and that “invoices were generated, but none of them were

actually sent to Ms. Schectman [sic] for payment.”145 Instead, “revenue and

139 PTO ¶ 32. 140 JX 351 at 1, 3; JX 346 at 3; PTO ¶ 31. 141 Tr. 755 (Miano). 142 Tr. 193 (Goff); Tr. 756 (Miano). 143 JX 365. 144 Tr. 194 (Goff). 145 JX 347 at 1-2. 26 accounts receivable were recorded to the [Personal Touch] general ledger for the

services rendered to Ms. Schectman [sic] but were subsequently reversed and not

reflected in the Personal-Touch Home Care and Affiliates Audited Combined

Financial Statements.”146 Friedman LLP’s memorandum states that “Joann

Piervinanzi, Director of Reimbursement, and Tom McNulty, A/R Manager,

indicated that they believe the practices were initially approved by David Slifkin

prior to the start of their employment with the Company.”147

N. Glaubach Anonymously Sends Letters to the Other Directors and Various Employees

Beginning in March 2016, at least sixteen different individuals affiliated with

the Company received anonymous letters.148 Recipients of these letters included

Marx, each of the Outside Directors, Brum, Castiglione, DiMaggio, Macagnone, and

some of their spouses.149 Many of the letters contained biblical references and

intimated that the recipients were sinners.150

146 Id. at 2. 147 Id. 148 Tr. 141 (Goff); see JX 374; JX 397; JX 398; JX 401; JX 402; JX 403; JX 405; JX 406; JX 407; JX 408; JX 410; JX 411; JX 415; JX 416; JX 417; JX 418; JX 419; JX 420; JX 421; JX 422; JX 445; JX 446; JX 447; JX 457; JX 458; JX 460; JX 461; JX 467; JX 473; JX 490; JX 495; JX 500; JX 501; JX 503; JX 504; JX 515; JX 640. 149 PTO ¶¶ 121-24. 150 PTO ¶ 125; Tr. 141 (Goff). 27 For example, one letter sent to Marx and others stated in red bold letters: “To

all sinners BLOOD was the first plague[,] nine to follow, repent before its [sic] too

late.”151 Another letter was sent to an employee after one of her parents had recently

fallen and broken several bones.152 It contained a picture of a doctor holding an x-

ray of a broken bone and stated: “Who in your family is going to be stricken next

as a result of your sins? REPENT BEFORE ITS [sic] TOO LATE!”153 The same

day that letter was sent out, Reich had emailed Glaubach asking him to “[p]ick which

picture you like.”154 Other anonymous letters warned that the recipients would be

reported to the IRS, prosecuted, or imprisoned.155

Glaubach’s testimony concerning his role in sending the anonymous letters

shifted during this case. In a verified interrogatory, Glaubach attested that “he

prepared and disseminated each of the” anonymous letters “with assistance from

David Reich and Sase Dihal.”156 When deposed, Glaubach denied any involvement

in preparing and sending the letters.157 In an errata sheet to his deposition testimony,

Glaubach sought to change many of his answers, including to say he “was aware” of

151 PTO ¶ 126; JX 387; JX 389; JX 495. 152 Tr. 145 (Goff). 153 PTO ¶ 131; JX 467. 154 JX 471 at 1. 155 PTO ¶¶ 128-29. 156 JX 486 at 4. 157 Glaubach Dep. 37, 40-41 (Apr. 27, 2018). 28 the letters and “approved most” of them.158 At trial, Glaubach testified that he did

not actually send any of the anonymous letters, but that he composed some of them

as a way “of blowing off steam.”159 He further testified that Reich asked to send the

letters and that he told Reich that “[i]f it’s not illegal and you think it might help,

send them out.”160 Reich testified at trial that he “helped prepare” the letters and

“sent them” at Glaubach’s instruction.161 I credit Reich’s testimony, which is

consistent with Glaubach’s initial interrogatory response, and find that Glaubach

orchestrated the preparation and dissemination of all of the letters with the help of

others, including Reich.

O. The Jamaica Property Lease

In May 2016, after the Audit Committee identified the Jamaica Property lease

as a related-party transaction, the Company obtained an appraisal, which indicated

that the Company was paying above-market rent to Personal Touch Realty LLC, the

158 JX 903 at 1. 159 Tr. 293 (Glaubach). 160 Tr. 293 (Glaubach). 161 Tr. 558, 562 (Reich). 29 entity owned fifty-fifty by Glaubach and Marx.162 The appraisal indicated that the

amount of above-market rent due on the lease was approximately $1,270,000.163

Marx obtained his own appraisal suggesting that the lease was below-

market.164 Nonetheless, in May 2017, Marx entered into a settlement agreement

with the Company in which he agreed to provide $400,000 of consideration to the

Company, consisting of $100,000 in cash and a $300,000 reduction in his share of

rent that otherwise would be owed under the lease in the future.165

P. Glaubach Contacts the Company’s Lender

The Company has lines of credit with MidCap Financial Trust (“MidCap”), a

specialty lender and the Company’s primary source of credit.166 In or around July

2016, Glaubach learned through attending Board meetings that the Company had

violated certain covenants in its loan agreement with MidCap.167 The Company was

162 PTO ¶ 142. The Audit Committee also identified a related-party transaction between the Company and ABN Energy LLC, which was partly owned by Glaubach’s son (Baruch Glaubach) and which allegedly charged the Company approximately $180,000 more than Con Edison from October 1, 2014 to April 9, 2016. PTO ¶¶ 144-46, 148; Tr. 116-17 (Goff). Glaubach testified that he had “nothing to do with” the deal between ABN and the Company, Tr. 291 (Glaubach), and the Company abandoned the claim. See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”). 163 JX 717 at 166. 164 PTO ¶ 143. 165 JX 730 § 2(a)-(b). 166 Tr. 15 (Goff); PTO ¶ 135. 167 PTO ¶ 135; Tr. 416 (Glaubach). 30 trying to fix the defaults in order to preserve its financial relationship with

MidCap.168

On July 6, 2016, Glaubach wrote to two executives at MidCap, stating that “I

understand that Personal Touch Holding Corp. is presently seeking to renegotiate its

loan.”169 Glaubach also asked in his letter whether he would be repaid $10 million

that he had loaned the Company as part of the renegotiation of the Company’s loan

agreement with MidCap and whether his approval would be required for a new deal

to be effective.170

On August 15, 2016, Glaubach wrote to Brett Robinson, a managing director

at MidCap, reiterating that he had questions concerning the loan renegotiation and

asserting that “towards the end of 2014, Personal Touch was being audited by the

IRS and the NYS Department of Taxation,” that “fraudulent tax returns were filed”

due to mischaracterized “continuing education” reimbursements, and that that was

“a major reason why I had to bring a lawsuit against them in March of 2015.”171

Three days later, Glaubach sent a letter to Leon Black, chairman of Apollo

Global Management, LLC, which manages MidCap.172 Glaubach wrote that “I will

168 PTO ¶ 137. 169 JX 427. 170 Id. 171 JX 437. 172 JX 439. 31 not sign any documents with respect to the loan because I do not know the true

financial condition of the company” and “I feel they are operating at a true deficit

since they are spending excessive amounts in salaries and separation packages to

hush up some of their violations of the tax laws.”173 He concluded: “If you extend

them credit, you are doing so at your own risk.”174

At the time he sent these letters, Glaubach believed that, without credit from

MidCap, the Company would be in financial jeopardy. 175 The Company ultimately

succeeded in renegotiating its line of credit with MidCap.176

Q. Glaubach Contacts Employees

On or around October 27, 2016, a sign appeared in the window of the AAA

Building that stated: “If you work for Personal Touch and would like to speak with

Dr. Glaubach, please call [number deleted]. All calls will be kept strictly

confidential.”177 That same day, Dihal, Glaubach’s driver, delivered letters to

various administrators of the Company saying “Dr. Glaubach would like to speak to

you. Please call him at [number deleted].”178

173 Id. 174 Id. 175 Tr. 415 (Glaubach); Glaubach Dep. 13-14 (Apr. 27, 2018). 176 Tr. 511-12 (Glaubach). 177 PTO ¶ 132. 178 PTO ¶ 133. 32 In December 2016, Dihal delivered other letters to employees of the Company

at a holiday party. These letters said that:

Dr. Glaubach was unjustly removed from Personal Touch while trying to uncover fraud. He is fighting in court for the right to come back to the company he founded and was President of for over 40 years. If you have information that could help him, please call [number deleted]. All calls will be kept strictly confidential.179

R. The New York Action Progresses

As of August 15, 2018, the court in the New York Action had made a number

of rulings touching on some issues pertinent to the claims in this case. For example:

 The court granted Glaubach summary judgment against Slifkin on claims that Slifkin breached his fiduciary duties, wasted corporate assets, and unjustly enriched himself by directing “that misclassified income be paid to himself” and others, thus exposing the Company to tax and legal liability.180 The court noted that Slifkin could not avoid liability for these claims “merely by producing evidence that although the payments he received were misclassified to evade taxes, he did not receive more in compensation than was his contractual due.”181

 The court granted the Outside Directors summary judgment on Glaubach’s claim that they breached their fiduciary duties by failing to promptly respond when Glaubach raised the issue of misclassified payments and thus allowing the statute of limitations to run on certain of the Company’s claims.182

179 PTO ¶ 134. 180 Glaubach v. Slifkin, Index No. 702987/2015, at 5 (N.Y. Sup. Ct. July 2, 2018). 181 Id. at 6. 182 Glaubach v. Slifkin, Index No. 702987/2015, at 5 (N.Y. Sup. Ct. Aug. 14, 2018). 33  The court denied Castiglione, DiMaggio, and two other Company employees summary judgment on the claim that they had breached their fiduciary duties, finding that the employee defendants, who had received misclassified payments, failed to show “prima facie that they committed no breach of fiduciary duty.”183

 The court granted Balk and Slifkin summary judgment on Glaubach’s claim that they engaged in a conspiracy “to induce company employees to make false accusations of sexual harassment against Glaubach for the purpose of forcing him to drop his objections to the severance package.”184

 The court granted Marx summary judgment on Glaubach’s claim that Marx breached his fiduciary duties by accepting improper payments because the “forensic accounting firm found no evidence that Marx had received any payments that had been misclassified as the reimbursement of educational expenses or that Marx had issued instructions that anyone be given misclassified payments.”185

II. PROCEDURAL HISTORY

On June 24, 2015, the Company filed its original complaint in this action,

which it amended on September 18, 2017 (the “Amended Complaint”). The

Amended Complaint contains four claims. Count I asserts that Glaubach breached

his fiduciary duties in various respects. Count II asserts a claim for unjust

enrichment. Count III asserts that the Company is entitled to recover compensation

paid to Glaubach under the New York faithless servant doctrine. Count IV seeks a

183 Id. at 4. 184 Id. at 8. 185 Glaubach v. Slifkin, Index No. 702987/2015, at 3 (N.Y. Sup. Ct. Aug. 15, 2018). 34 declaration that Glaubach breached his employment agreement and was properly

and validly removed as President of the Company.

On March 18, 2016, Glaubach asserted in a counterclaim that the Company

breached Glaubach’s employment agreement by terminating him without proper

cause. Following a four-day trial held in June 2018, post-trial submissions were

completed on November 15, 2018.

III. ANALYSIS

The parties’ submissions tee up a wide-ranging mishmash of issues, which the

court will address in six parts. Sections A-C address three theories the Company has

advanced against Glaubach for breach of fiduciary duty concerning actions he took

before he was terminated as the Company’s President in June 2015, namely that

Glaubach: (i) usurped a corporate opportunity by acquiring the AAA Building; (ii)

engaged in self-dealing transactions; and (iii) engaged in certain disruptive and

retaliatory behavior. Section D addresses the Company’s request for a declaration

that Glaubach was properly terminated as President for breaching his Employment

Agreement and Glaubach’s counterclaim for damages against the Company for

breach of the same agreement. Section E addresses the Company’s claim against

Glaubach under the New York faithless servant doctrine. Section F addresses the

aspect of the Company’s breach of fiduciary duty claim against Glaubach

35 concerning certain actions he took after he was terminated as President but was still

a director of the Company.

The Company did not brief and thus waived its claim for unjust enrichment.186

Accordingly, judgment will be entered in Glaubach’s favor on Count II of the

Amended Complaint.

Unless otherwise indicated below, the proponent of each claim “ha[s] the

burden of proving each element, including damages, of each” cause of action “by a

preponderance of the evidence.”187 “[P]roof by a preponderance of the evidence

means that something is more likely than not.”188

A. Glaubach Usurped a Corporate Opportunity by Secretly Acquiring the AAA Building for Himself

The Company contends that Glaubach breached his fiduciary duty of loyalty

by usurping the corporate opportunity of acquiring the AAA Building for himself. I

agree for the reasons explained below.

Eighty years ago, in its seminal decision of Guth v. Loft, Inc., our Supreme

Court described the corporate opportunity doctrine as follows:

[I]f there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation’s business and is of

186 Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”). 187 Physiotherapy Corp. v. Moncure, 2018 WL 1256492, at *3 (Del. Ch. Mar. 12, 2018) (citation and internal quotation marks omitted). 188 Id. 36 practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self- interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself.189

The high court explained that the question of whether a usurpation of a corporate

opportunity has occurred “is not one to be decided on narrow or technical grounds,

but upon broad considerations of corporate duty and loyalty.”190 The corporate

opportunity doctrine is therefore rightly considered “a subspecies of the fiduciary

duty of loyalty.”191 That “duty has been consistently defined as ‘broad and

encompassing,’ demanding of a director ‘the most scrupulous observance.’”192

In Broz v. Cellular Information Systems, Inc., our Supreme Court more

recently explained that:

The corporate opportunity doctrine, as delineated by Guth and its progeny, holds that a corporate officer or director may not take a business opportunity for his own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation’s line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimicable to his duties to the corporation.193

189 5 A.2d 503, 511 (Del. 1939). 190 Id. 191 Eric Talley, Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine, 108 Yale L.J. 277, 279 (1998). 192 BelCom, Inc. v. Robb, 1998 WL 229527, at *3 (Del. Ch. Apr. 28, 1998) (quoting Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993)). 193 673 A.2d 148, 154-55 (Del. 1996). 37 Although these four factors are articulated in the conjunctive, the Supreme Court in

Broz emphasized “that the tests enunciated in Guth and subsequent cases provide

guidelines to be considered by a reviewing court in balancing the equities of an

individual case” and that “[n]o one factor is dispositive and all factors must be taken

into account insofar as they are applicable.”194 Consistent with this approach, the

Supreme Court previously referred to the “line of business” and “interest or

expectancy” factors in the disjunctive, suggesting that proof of either factor could

sustain a corporate opportunity claim,195 and this court has decided the viability of

corporate opportunity claims by weighing the four Broz factors in a holistic

fashion.196 With the above principles in mind, the court next considers each of the

Broz factors based on the trial record.

194 Id. at 155. 195 Equity Corp. v. Milton, 221 A.2d 494, 497 (Del. 1966) (“[W]hen there is presented to a corporate officer a business opportunity which the corporation is financially able to undertake, and which, by its nature, falls into the line of the corporation’s business and is of practical advantage to it, or is an opportunity in which the corporation has an actual or expectant interest, the officer . . . may not take the opportunity for himself.”) (emphasis added). 196 See Beam v. Stewart, 833 A.2d 961, 975 (Del. Ch. 2003) (finding that stockholder failed to state a claim for usurpation of a corporate opportunity based “[o]n balancing the four factors” enumerated in Broz), aff’d, 845 A.2d 1040 (Del. 2004); Kohls v. Duthie, 791 A.2d 772, 784 (Del. Ch. 2000) (finding that stockholders stated a corporate opportunity claim where corporation had an expectancy in repurchasing a block of its stock for a nominal price even though the opportunity was not in the corporation’s line of business). 38 1. The Company Was Financially Able to Acquire the AAA Building

Although Delaware courts have not delineated a clear standard for

determining whether a corporation is financially able to avail itself of a corporate

opportunity, our Supreme Court has opined (albeit in dictum) that this court may

consider “a number of options and standards for determining financial inability,

including but not limited to, a balancing standard, temporary insolvency standard,

or practical insolvency standard.”197 Since then, this court has applied various

standards, “including the ‘insolvency-in-fact’ test, as well as considering whether

the corporation is in a position to commit capital, notwithstanding the fact that the

corporation is actually solvent.”198

Glaubach purchased the AAA Building for $1.8 million in February 2015 and

gave AAA six months of free rent as part of the transaction. This equates, at most,

to an acquisition price of approximately $2.4 million, as discussed below.199

Applying any reasonable standard of financial ability, I am convinced that the

197 Yiannatsis v. Stephanis by Sterianou, 653 A.2d 275, 279 n.2 (Del. 1995) (declining to adopt “insolvency-in-fact” test where “the question of what test should be used to determine financial inability is not presently before the Court”). In re Riverstone Nat’l, Inc. S’holder Litig., 2016 WL 4045411, at *9 (Del. Ch. July 28, 198

2016) (citation omitted). 199 See infra Section III.A.5. 39 Company was financially able to acquire the AAA Building in this price range

during the time period when purchase discussions were occurring with AAA.

Marx and Goff (an Outside Director) both testified that they believed the

Company could afford to purchase the AAA Building, with Goff explaining that

Slifkin, the Company’s CEO at the time, reported at a February 2015 Board meeting

that the Company “could easily finance the acquisition of the AAA Building.”200

Their views are substantiated by evidence that the Company generated well over

$300 million in revenues and earned approximately $15 million in EBITDAE in

2014, had cash on hand of approximately $30.4 million as of December 31, 2014,

and that its annualized EBITDAE for “2015 and beyond” was expected as of April

2015 to increase from approximately $15 million to approximately $20 million after

a planned acquisition.201 On the other side of the ledger, the record is devoid of any

evidence indicating that the Company’s financial position was precarious when the

AAA Building was purchased, and Glaubach offered no evidence suggesting that

the Company was not financially able to purchase it for what he paid.

200 Tr. 100-01 (Goff); Tr. 628 (Marx). 201 Tr. 9 (Goff) (as of July 2014, the Company’s approximate revenues were about $320 million); JX 281 at 4 (estimating 2014 revenues and EBITDAE at approximately $372.5 million and $11.6 million, respectively); JX 309 at 3 (reporting that 2014 EBITDAE was 22% higher than previously projected); id. at 4 (noting that the Company’s cash as of December 31, 2014 was approximately $30.4 million and that its “current annualized EBITDAE” was approximately $15 million). 40 2. The Company Had a Clear Interest and Expectancy in Acquiring the AAA Building

With respect to the third Broz factor, I find that the Company clearly had an

interest and expectancy in acquiring the AAA Building. It is stipulated that the

Company “had been seeking additional office space in the Jamaica, New York area

for years and was particularly interested in the AAA Building because it was located

next door to the offices of one of the Company’s key operating subsidiaries” and

“could be used to relocate the Company’s corporate offices, for expansion of the

Company’s Jamaica operations, as offices for the Company’s other subsidiaries and

for storage.”202

The Company’s general interest in acquiring the AAA Building became an

actual opportunity in March 2013, when Slifkin learned that the AAA Building was

for sale.203 On March 4, 2013, Slifkin reported this news to Marx and Glaubach in

an email, explaining that the “asking price seems reasonable” and discussing several

ways the Company could use the property.204 Two days later, Marx and Glaubach

met with Clifford of AAA to inspect the building and negotiate a price for the

202 PTO ¶¶ 105-06. 203 JX 48. 204 PTO ¶ 104; JX 48. Glaubach makes no argument that the opportunity to acquire the AAA Building came to him in an individual rather than corporate capacity, nor could he. The Slifkin email was a corporate communication from the Company’s CEO using his corporate email address that focused on potential uses for the property that would benefit the Company. See id. 41 Company to purchase it.205 Glaubach understood at the time that it was the Company

that was the intended purchaser of the building.206 Marx’s negotiations with Clifford

stalled not because the Company lost interest in the property, but because AAA’s

plans to move to a different location fell through for a time.207 Clifford reassured

Marx, however, that “we want to move and we’ll call you as soon as we have

anything.”208

While the Company was waiting to hear back from AAA, Glaubach stepped

in to take the opportunity for himself by instructing his assistant (Reich) to contact

Clifford to see whether AAA was ready to sell the building.209 Tellingly, when Reich

and Clifford were engaged in discussions during the summer of 2014, they were both

under the impression that the Company was to be the purchaser of the building.210

And when Reich learned later that Glaubach wanted the building for himself, he took

steps at Glaubach’s direction to conceal his negotiations with AAA from others at

the Company.211

205 PTO ¶¶ 108-11. See JX 333 (letter from Glaubach to Marx stating: “The Company was unwilling to 206

meet the prior owner’s terms of sale . . . .”) (emphasis added). 207 Tr. 626 (Marx). 208 Tr. 627 (Marx). 209 PTO ¶ 112. 210 PTO ¶ 113. 211 See Tr. 400, 403, 407 (Glaubach); Tr. 589-90 (Reich). 42 The Company’s interest in acquiring the AAA Building continued right up to

the time Glaubach closed on his own purchase. As Goff testified, Marx updated the

Board about “conversations that he had ongoing with the owners of the AAA

Building” at a Board meeting on February 10, 2015—the day before Glaubach

closed on the property.212

Glaubach’s assertion that the Company lost interest in acquiring the AAA

Building is not supported by the record. To the contrary, after Marx initiated a

dialogue with AAA to acquire the building, AAA’s representative expressly told him

that he would contact Marx when AAA was ready to move forward. Glaubach used

that opening to hijack the negotiations for his own benefit while concealing from

AAA that he was acting on his own behalf (instead of the Company’s) and while

concealing from the Board his interactions with AAA up to the very end, including

at the February 2015 Board meeting. In sum, the record clearly supports the

conclusion that the Company was keenly interested in, and had a reasonable

expectation of, acquiring the AAA Building at all relevant times.

3. The Line of Business Inquiry

The second Broz factor asks whether the opportunity to acquire the AAA

Building was within Personal Touch’s line of business. Noting that the Company

historically had leased office space and that it had owned a piece of real estate only

212 Tr. 100-01 (Goff). 43 once before, Glaubach argues that owning real estate is not in the Company’s line of

business.213 Quoting the Company’s own brief, Glaubach contends that the

Company’s “two main lines of business” consist of “(i) a managed long-term

healthcare program that provides home-based services to patients who would

otherwise be in nursing homes; and (ii) a more traditional home care operation,

which is in seven states and provides home healthcare aides, nurses, physical therapy

and other home-based healthcare services.”214

The Company counters that the Company’s past practice of leasing office

space, including from Marx and/or Glaubach,215 rather than owning it does not

matter because the “line of business” inquiry should be construed broadly based “on

the current needs of the Company, not on past practices.”216 According to Personal

Touch, “the Company had significantly changed following the ESOP transaction,

because it was no longer controlled by Marx and Glaubach alone.”217

Consistent with its doctrinal moorings in the duty of loyalty, the “line of

business” concept was intended to be applied flexibly. In Guth, the Supreme Court

stated that “[t]he phrase is not within the field of precise definition, nor is it one that

213 Def.’s Opening Br. 38-39 (Dkt. 133). 214 Id. at 38 (quoting Pl.’s Opening Br. 3 (Dkt. 127)). 215 See Tr. 114 (Goff); Tr. 284 (Glaubach); JX 360 at 4-6. 216 Pl.’s Reply Br. 13 (Dkt. 135). 217 Id. at 12-13. 44 can be bounded by a set formula.”218 Rather, “[i]t has a flexible meaning, which is

to be applied reasonably and sensibly to the facts and circumstances of the particular

case,” and “latitude should be allowed for development and expansion.”219

Delaware courts accordingly have “broadly interpreted” the “nature of the

corporation’s business” when “determining whether a corporation has an interest in

a line of business.”220

In my opinion, Glaubach takes a crabbed view of the line of business inquiry

that misses the central point of the corporate opportunity doctrine. Although the

record bears out that the Company historically did not purchase real estate to house

its operations, the Company has never been engaged in the business of purchasing

and leasing real estate. Personal Touch is a healthcare provider, not a commercial

real estate venture. Applying the line of business concept flexibly, the sensible way

to consider the issue in the context of this case is that, irrespective of its past practice

of leasing office space, the Company was presented with a rare opportunity to

acquire a building with a highly desirable location that it could use to relocate or

218 Guth, 5 A.2d at 514. 219 Id. 220 Dweck v. Nasser, 2012 WL 161590, at *13 (Del. Ch. Jan. 18, 2012); see also Riverstone, 2016 WL 4045411, at *10 (“[T]he nature of the corporation’s business should be interpreted broadly, giving latitude to the corporation for development and expansion.”). 45 expand its healthcare operations. In that sense, the opportunity to acquire the AAA

Building fit within the Company’s existing line of business.

An equally sensible way to consider the issue is that the line of business test

is simply not relevant here, where (i) the Company had a clear interest and

expectancy in acquiring the AAA Building for the reasons explained previously, and

(ii) the opportunity presented concerns an operational decision about how to manage

or expand an existing business—i.e., whether it is better to buy or lease office

space—as opposed to the opportunity to acquire a new business.221 Vice Chancellor

Lamb’s decision in Kohls v. Duthie222 exemplifies this approach.

In Kohls, the court found that stockholders of Kenetech Corporation stated a

derivative claim for usurpation of a corporate opportunity where one of the

corporation’s directors purchased a block of the corporation’s stock from its largest

stockholder for a nominal price.223 The court noted that “because corporate

opportunity cases arise in widely varying factual contexts, ‘[h]ard and fast rules are

not easily crafted to deal with such an array of complex situations.’”224 The court

221 See R. Franklin Balotti & Jesse A. Finkelstein, 2 The Delaware Law of Corporations and Business Organizations § 4.16[C], at 4-154 (3d ed. 2018 Supp.) (“Where the opportunity does not involve the corporation’s existing business operations, the ‘line of business’ test is not applicable.”) 222 791 A.2d 772 (Del. Ch. 2000). 223 Id. at 786-87. 224 Id. at 784 (quoting Broz, 673 A.2d at 155). 46 then rejected the argument that the offer to purchase the stock “did not constitute an

opportunity in the company’s line of business” given that the corporation “did not

have in place any policy or plan for repurchasing its stock” and “had no share

repurchase program in effect.”225 It was sufficient, the court concluded, that the

corporation logically would have an “expectancy in being presented with an

opportunity to repurchase a large block of its own stock for little or no

consideration.”226

I agree with this reasoning. Even if the opportunity to acquire the AAA

Building could be said not to fall within the Company’s existing line of business

under a strict interpretation of that concept, that is not fatal to the Company’s claim.

To the contrary, it is sufficient that the Company had a clear interest and expectancy

in the property at the time the opportunity to acquire it arose.

4. Glaubach Acted Inimicably to His Fiduciary Duties

The fourth Broz factor prohibits a corporate officer or director from taking an

opportunity for his own if “the corporate fiduciary will thereby be placed in a

position inimicable to his duties to the corporation.”227 Elaborating on this factor,

the Supreme Court explained that “the corporate opportunity doctrine is implicated

225 Id. 226 Id. 227 Broz, 673 A.2d at 155. 47 only in cases where the fiduciary’s seizure of an opportunity results in a conflict

between the fiduciary’s duties to the corporation and the self-interest of the director

as actualized by the exploitation of the opportunity.”228 That is what occurred here.

After learning about the opportunity to purchase the AAA Building from

Slifkin, Glaubach attended the initial meeting with Marx and Clifford in March 2013

and knew full well that the Company was interested in purchasing it. Putting his

self-interest above his duty of loyalty to Personal Touch, Glaubach chose to compete

directly with the Company to acquire for himself an admittedly “vital property”

while making concerted efforts to conceal his activities from the Company until after

he had closed on the deal.229 Indeed, Glaubach did not disclose to his fellow

directors his efforts to buy the building for himself even when Marx was updating

the Board about his efforts to purchase the property for the Company in Glaubach’s

presence.230

Removing any doubt about the importance of the building to the Company

and the conflicted nature of what Glaubach did, Glaubach sought to lease the

building to the Company almost immediately after he purchased it.231 In short,

Glaubach was acutely aware of the value the opportunity to acquire the AAA

228 Id. at 157. 229 PTO ¶¶ 114, 116; Tr. 400 (Glaubach). 230 Tr. 100 (Goff); see also PTO ¶ 84; JX 274. 231 Tr. 101 (Goff); PTO ¶ 100; JX 326. 48 Building presented to the Company because of the building’s unique location and,

instead of looking out for the interests of Personal Touch, he secretly thwarted its

ability to take advantage of that opportunity so that he could profit personally by

acquiring the building for himself.

Finally, I reject Glaubach’s contention that he “did not place himself in a

position ‘inimical’ to his corporate duties by purchasing the building” based on

Section 2.2 of his Employment Agreement.232 That provision states simply that

“[t]he Company acknowledges that [Glaubach] has business interests outside of the

Company and will continue to devote a material portion of his business time,

attention and affairs to such other business interests.”233 Nothing in this provision

allows Glaubach to compete with the Company for opportunities in which it has an

interest or expectancy. Indeed, the preceding sentence in Section 2.2 states that

Glaubach “shall not engage, directly or indirectly, in any other business,

employment or occupation which is competitive with the business of the

Company.”234

*****

232 Def.’s Opening Br. 41. 233 JX 27 § 2.2. 234 Id. 49 For the reasons explained above, balancing each of the Broz factors and

considering them in a holistic fashion, the court concludes that Glaubach breached

his fiduciary duty of loyalty by usurping the opportunity to purchase the AAA

Building. I turn next to determining the damages resulting from this breach.

5. Damages for the AAA Building

In Guth, our Supreme Court explained that “[i]f an officer or director of a

corporation, in violation of his duty as such, acquires gain or advantage for himself,

the law charges the interest so acquired with a trust for the benefit of the corporation,

at its election, while it denies to the betrayer all benefit and profit.”235 Applying this

principle, this court has awarded lost profits as a measure of damages for usurpation

of ongoing business opportunities.236 More generally, Chancellor Allen once

summarized basic principles for awarding damages as follows:

The law does not require certainty in the award of damages where a wrong has been proven and injury established. Responsible estimates that lack m[a]thematical certainty are permissible so long as the court has a basis to make a responsible estimate of damages. Speculation is an insufficient basis, however. Each situation must be evaluated to know whether justice will permit an estimation of damages given the testimonial record or whether the record affords insufficient basis to fix an award.237

235 5 A.2d at 510. 236 See In re Mobilactive Media, LLC, 2013 WL 297950, at *23-28 (Del. Ch. Jan. 25, 2013); Dweck, 2012 WL 161590, at *17-18. 237 Red Sail Easter Ltd. P’rs, L.P. v. Radio City Music Hall Prods., Inc., 1992 WL 251380, at *7 (Del. Ch. Sept. 29, 1992, revised Oct. 6, 1992). 50 Here, the opportunity Glaubach usurped was not an ongoing operating

business but the opportunity to acquire a building at an attractive price that the

Company could have used to relocate and/or expand its operations with the potential

for the property to appreciate in value. The Company contends an appropriate

measure of damages is the increase in value of the building from February 2015,

when Glaubach acquired it, to the date of trial. In response, Glaubach appears to

suggest that no damages may be awarded until such time, if ever, that Glaubach

actually sells the AAA Building and realizes a profit on it.238 I reject Glaubach’s

argument, for which no legal support is provided and which would lead to the

inequitable result of affording the Company no remedy for Glaubach’s breach of

duty. In my view, the Company has advanced a logical theory for quantifying

damages that can be reasonably estimated based on record evidence.

Specifically, the Company offered the expert opinion of Matthew J.

Guzowski, a professional appraiser, who credibly testified that the value of the AAA

Building as of the time of trial was $4.5 million based on a “market valuation.”239

Glaubach offered no expert testimony of his own concerning the value of the AAA

Building. I thus use the unrebutted figure of $4.5 million to which Guzowski opined

as the current value of the AAA Building.

238 See Def.’s Opening Br. 52-53; Post-Trial Tr. 99 (Dkt. 142). 239 Tr. 803-07 (Guzowski); JX 717 at 3, 89. 51 The Company seeks $2.7 million in damages as compensation for Glaubach’s

usurpation of the opportunity to purchase the AAA Building. That amount reflects

the difference between its current value ($4.5 million) and the amount of cash

Glaubach paid to acquire it ($1.8 million). This calculation, however, overstates the

amount of damages somewhat because it fails to account for the fact that Glaubach

provided AAA with six months of free rent as part of the deal.

The record does not contain evidence of the rental value of the AAA Building

at the time in question. But the record does show that AAA “wanted $2.4 million”

for the building and only accepted Glaubach’s offer of $1.8 million after he added

six months of free rent.240 To be conservative in determining damages, I assume that

the difference of $600,000 represents a reasonable estimate of six months of rent for

the building. Using this figure, the amount of damages the court will award Personal

Touch for its corporate opportunity claim is $2.1 million, which reflects the

difference between the AAA Building’s current value ($4.5 million) and Glaubach’s

estimated acquisition price ($1.8 million + $600,000 = $2.4 million).

B. The Alleged Self-Dealing Transactions

The Company asserts that Glaubach breached his fiduciary duties by engaging

in “self-dealing” transactions that fall into four categories: (i) the provision of

240 Tr. 278 (Glaubach). 52 $422,000 worth of healthcare services to his sister-in-law, Giza Shechtman; (ii) the

issuance of a $133,177 check to Shechtman; (iii) entering into the Jamaica Property

lease; and (iv) his use of an assistant (Reich) and a driver (Dihal).

“Classic examples of director self-interest in a business transaction involve

either a director appearing on both sides of a transaction or a director receiving a

personal benefit from a transaction not received by the shareholders generally.” 241

In other words, in a typical self-dealing transaction, the fiduciary is the recipient of

an allegedly improper personal benefit, which usually comes in the form of obtaining

something of value or eliminating a liability. With this framework in mind, the court

addresses next the Company’s four categories of self-dealing claims.

1. Glaubach Did Not Engage in Self-Dealing with Respect to the Healthcare Services Provided to Shechtman

The Company seeks to hold Glaubach personally liable for $422,000 in

damages for healthcare services provided to Shechtman over a three-year period

before the filing of this action (i.e., from June 25, 2012 to June 25, 2015) on the

theory that the provision of these services constituted self-dealing by Glaubach.242

It is a strange theory because Glaubach was not the recipient of any of these

healthcare services and there is no evidence that Glaubach had a legal obligation to

241 Cede & Co., 634 A.2d at 362. 242 Pl.’s Opening Br. 50, 58. 53 pay for them. Shechtman was the beneficiary of the services, and the Company

apparently never made any effort to collect the $422,000 in question from her. In

support of this “self-dealing” claim against Glaubach, the Company advances

essentially two arguments, neither of which has merit.

First, citing Chaffin v. GNI Group, Inc.,243 the Company contends that

“[u]nder Delaware law, a fiduciary may be deemed self-interested if a family

member benefits from a transaction.”244 In Chaffin, the court denied a motion to

dismiss a stockholder challenge to a merger transaction because it “was not approved

by a majority of independent directors” and thus would not be protected under the

business judgment standard.245 The Company relies on the court’s finding that one

of the directors who approved the merger—who had a son who stood to receive

“economic and career benefits” from the transaction—“must . . . be deemed

interested” because “[i]nherent in the parental relationship is the parent’s natural

desire to help his or her child succeed.”246 Chaffin is readily distinguishable. It did

not concern self-dealing by a corporate fiduciary. The court merely considered

243 1999 WL 721569 (Del. Ch. Sept. 3, 1999). 244 Pl.’s Reply Br. 18. 245 1999 WL 721569, at *6. 246 Id. at *5. 54 whether board approval of the challenged transaction was sufficiently disinterested

and independent to warrant business judgment review.247

Second, the Company contends it “demonstrated that Glaubach—through

threats and inside dealing—prevented the Company from billing Schechtman [sic]

for the services she received.”248 This argument fails because, even if this factual

contention were true, the Company has not shown that Glaubach engaged in self-

dealing. To repeat, Glaubach was not the recipient of any of the healthcare services

at issue and had no legal obligation to pay for them. The Company has not identified

any authority where a corporate fiduciary has been found liable for self-dealing for

a benefit he did not receive personally. In the absence of such authority, I decline to

hold Glaubach personally liable for the cost of healthcare services that Shechtman

received under a theory of self-dealing.

In the interest of completeness, I note that although the Company did not

challenge Glaubach’s conduct with respect to Shechtman’s healthcare services as an

act of bad faith, the evidence would not support such a theory in any event. The

Company’s case for finding Glaubach personally liable for $422,000 in healthcare

247 The Company also relies on a statement in Grimes v. Donald, that a basis for demand excusal “would normally be that . . . a majority of the board has a material financial or familial interest.” 673 A.2d 1207, 1216 (Del. 1996). This citation is of no aid to the Company. Like the court in Chaffin, Grimes did not find self-dealing by a corporate fiduciary; the high court merely mentioned the word “familial” without any analysis. 248 Pl.’s Reply Br. 18. 55 services provided during the three-year period ending in June 2015 consists of

testimony from Glaubach and Susan Miano.249 But neither person’s cited testimony

would support a finding of bad faith conduct relating to the healthcare services

Shechtman received during the relevant period.

With respect to Glaubach, the cited testimony shows that Glaubach sent a

letter to JoAnn Piervinanzi, the Company’s Director of Reimbursement, threatening

to hold her “fully responsible” for terminating Shechtman’s healthcare services if

“something untoward happens to her as a result of the cessation of services.”250 That

letter was written, however, in September 2016 and pertained to a bill for services

rendered to Shechtman “since July 1, 2015”—after the period relevant to the

Company’s claim for $422,000 in damages.251

The cited testimony of Miano is equally if not more unhelpful to the

Company. Miano is a partner at Friedman LLP, the accounting firm that performed

a forensic analysis of the healthcare services the Company provided to Shechtman

from January 2010 to June 2014.252 She testified that Friedman LLP found that

249 Id. 250 JX 733; Tr. 437-41 (Glaubach). 251 JX 733. The questioning of Glaubach leading up to the discussion of this letter is too imprecise and ambiguous to allow the court to find that Glaubach made any threats pertaining to healthcare services provided to Shechtman before July 2015. See Tr. 437-39 (Glaubach). 252 Tr. 743, 746-50 (Miano); JX 347. 56 “there was a systematic suppression of invoicing to Giza Shechtman” but, despite

being asked the same question twice, she did not testify that Glaubach was

responsible for it.253 Nor could she credibly do so. Friedman LLP’s report never

mentions Glaubach and actually explains that not billing Shechtman was a standard

practice that apparently was approved by Slifkin:

The testing of the samples of transactions we selected revealed that 1) the health care providers were paid by the Company for their time rendered to Ms. Schectman [sic] as indicated on the Patient Activity Reports; 2) invoices were generated, but none of them were actually sent to Ms. Schectman [sic] for payment; and 3) revenue and accounts receivable were recorded to the [Personal Touch] general ledger for the services rendered to Ms. Schectman [sic] but were subsequently reversed and not reflected in the Personal-Touch Home Care and Affiliates Audited Combined Financial Statements as of, and for the years ended, December 31, 2010 through 2014. Based on interviews with various [Personal Touch] accounting and billing department personnel . . . Friedman understands that these are standard practices that have been historically conducted at the Company for many years. While Friedman has seen no written documentation indicating any approval of the reversal of the revenue and accounts receivable, Joann Piervinanzi, Director of Reimbursement, and Tom McNulty, A/R Manager, indicated that they believe the practices were initially approved by David Slifkin prior to the start of their employment with the Company.254

The fact that Friedman LLP attributed the Company’s failure to bill

Shechtman to Slifkin is not surprising because the Services Agreement that

253 Tr. 753 (Miano); see Tr. 750-51 (Miano). 254 JX 347 at 2 (emphasis added). The Friedman report further explained that this standard practice dated back to at least 2000 according to Piervinanzi. Id. at 4. 57 Glaubach, Marx, and Shechtman signed in 2001 designated Slifkin as “the sole

arbiter” in “the event of a dispute as to the amount of [her] entitlement.” 255 As

explained previously, the Services Agreement also provided that the cost of services

provided to Shechtman would be netted against distributions to which she was

entitled.256 Significantly, the Company’s damages calculation of $422,000 does not

take into account whatever distributions Shechtman was entitled to receive during

the period in question, which undermines its reliability. In any event, for the reasons

explained above, the court concludes that Glaubach did not engage in self-dealing

with respect to healthcare services Shechtman received from the Company.

2. Glaubach Did Not Engage in Self-Dealing with Respect to the $133,177 Payment to Shechtman

The Company next seeks to hold Glaubach personally liable for a payment it

made to Shechtman in July 2013. According to the Company, Glaubach “caused the

Company to issue a $133,177 check to Schectman [sic] because he claims she was

shortchanged as part of the ESOP transaction.”257 This would be improper, the

Company contends, because it would mean that Shechtman was shortchanged not

255 JX 8. The Company offered no evidence suggesting that the Services Agreement was no longer effective during the relevant period and, to the contrary, acted at trial as if it was. See Post-Trial Tr. 58. 256 See supra Section I.B; see also Tr. 635 (Marx) (testifying that, under the Services Agreement, “Shechtman herself will pay for her own services providing we pay five percent of all the operations in the metropolitan area”). 257 Pl.’s Opening Br. 50-51. 58 by the Company, but “by the participants in the ESOP transaction, including Dr.

Glaubach himself.”258

There is some confusion in the record about the reason for this payment. Goff

suggested the payment “related to the ESOP” transaction based on Glaubach’s

“J’accuse” letter.259 But that letter does not connect the check in question to the

ESOP transaction. The letter just states, without referring to the ESOP transaction,

that an accountant for the Company (Reimer) informed Glaubach that Shechtman

“was shortchanged close to $200,000.00 in distributions.”260 When the court asked

Glaubach about the check, he explained emphatically that the payment “had nothing

to do with the ESOP transaction,” and that it was made to compensate Shechtman

for an equity distribution that, according to the Company’s advisors, she should have

received from the Company before the ESOP transaction.261 I credit this testimony

and thus find that the $133,177 payment to Shechtman was not a self-dealing

transaction and that the Company otherwise has failed to prove that Glaubach should

be held liable for it.262

258 Tr. 300; see Tr. 299-300 (colloquy with Company counsel). 259 Tr. 105 (Goff). 260 JX 180 at 2. 261 Tr. 446-48 (Glaubach). 262 The Company suggests that it was Glaubach’s burden to prove that he was entitled to have the check issued to Shechtman based on a self-dealing theory that would trigger entire 59 3. Glaubach Is Liable for his Portion of the Above-Market Rent on the Jamaica Property Lease

The Company seeks to hold Glaubach liable for $635,000 in damages

representing his share of the above-market rent that was charged for a five-year lease

on the Jamaica Property. Unlike the transactions involving Shechtman, the Jamaica

Property lease is a classic example of self-dealing because Glaubach and Marx, both

fiduciaries of Personal Touch at the time, stood “on both sides” of the transaction.

On one side, Glaubach signed the lease on behalf of an affiliate of Personal Touch.263

On the other side, Marx signed the lease on behalf of the owner of the Jamaica

Property, Personal Touch Realty LLC, an entity that Marx and Glaubach co-owned

on a fifty-fifty basis.264

Glaubach argues he should be exempt from liability for the Jamaica Property

lease because Marx was the one who set the rental rate in the lease.265 The record

bears this out, but it is no defense to liability for self-dealing “[b]ecause under the

traditional operation of the entire fairness standard, the self-dealing director would

fairness review. Pl.’s Reply Br. 19. I disagree. Because the transaction was not an act of self-dealing for the reasons explained above, it does not trigger entire fairness review. 263 JX 58 at 5. 264 Id.; PTO ¶ 140. 265 Tr. 279 (Glaubach). 60 have breached his duty of loyalty if the transaction was unfair, regardless of whether

he acted in subjective good faith.”266

With respect to the measure of damages, Guzowski credibly opined that the

rental term of the Jamaica Property lease was $1,270,000 above market based on an

analysis of comparable rental rates (on a per-rentable-square-foot basis) over the

five-year period of the lease.267 Glaubach did not submit any expert opinion (or even

lay testimony) to counter Guzowski’s opinion. The court thus credits Guzowski’s

testimony and enters judgment for $635,000 in damages against Glaubach and in the

Company’s favor for his share of liability for the above-market rent the Company

was charged under the Jamaica Property lease.

4. The Company Acquiesced to Glaubach’s Personal Use of Employees Reich and Dihal

The Company’s final theory of “self-dealing” seeks damages from Glaubach

for the salaries it paid to two employees who assisted Glaubach: (i) $209,439.60

that was paid to David Reich during his tenure as a Company employee for

approximately sixteen months from January 2014 to April 2015; and (ii) $147,000

(or $49,000 per year) that was paid to Sase Dihal, Glaubach’s driver, for the three-

266 Venhill Ltd. P’ship v. Hillman, 2008 WL 2270488, at *22 (Del. Ch. June 3, 2008) (Strine, V.C.). 267 Tr. 809-11(Guzowski); JX 717 at 99, 166. Guzowski’s report was the same one that was used in connection with the Company’s negotiation of a settlement with Marx for his share of the above-market rent. See supra Section I.O. 61 year period before this action was filed.268 This is yet another odd theory of self-

dealing for which the Company cites no supporting legal authority.

Glaubach argues that “[t]he Company had knowledge of and consented to, or

acquiesced in,” the employment of Reich and Dihal.269 In response to this defense,

the Company makes no comment about Dihal and, with respect to Reich, says only

that it “was left in the dark regarding Reich’s efforts to purchase the AAA Building

for Glaubach.”270 On this point, however, the record is undisputed that Glaubach

personally paid Reich $25,000 for the work he performed concerning Glaubach’s

purchase of the AAA Building.271

“A claimant is deemed to have acquiesced in a complained-of act where he:

has full knowledge of his rights and the material facts and (1) remains inactive for a

considerable time; or (2) freely does what amounts to recognition of the complained

of act; or (3) acts in a manner inconsistent with the subsequent repudiation, which

leads the other party to believe the act has been approved.”272 In my view, the

Company acquiesced to its employment of both Reich and Dihal.

268 Pl.’s Opening Br. 59-60; PTO ¶ 119. 269 Def.’s Opening Br. 44. 270 Pl.’s Reply Br. 21. 271 Tr. 531-32 (Reich); Reich Dep. 54-58 (Sept. 18, 2017); Glaubach Dep. 144 (July 28, 2017). 272 Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1047 (Del. 2014). 62 With respect to Reich, it is beyond dispute that the Company was fully aware

of the nature of his employment by the Company. Reich had an official title

(Assistant to the President), a Company email address, and he met with Slifkin

“[e]arly on” to discuss some initial tasks he would perform for the Company.273 He

regularly attended Board meetings as Assistant to the President,274 and he directly

corresponded with Slifkin and Hold-Weiss about tasks he was working on for

them.275 The Company had full knowledge about Reich’s activities, yet there is no

evidence that anyone at the Company took issue with Reich’s work or disputed the

propriety of the Company paying his salary to assist Glaubach as the Company’s

President at any point during the time he worked for the Company. Indeed, Reich’s

employment was terminated only after Glaubach had been suspended from his duties

as President, obviating the need for an assistant for that position.276

With respect to Dihal, Glaubach testified that he and Marx agreed around the

time of the ESOP transaction that the Company would provide him with a driver—

just as it had provided Marx with a secretary for over thirty years for “private

work.”277 Marx did not testify otherwise and the Company does not suggest it was

273 Tr. 530-31 (Reich); see JX 63; JX 70; JX 77. 274 See, e.g., JX 68; JX 74; JX 104. 275 JX 70; JX 77. 276 Tr. 539-40 (Reich). 277 Tr. 287-88 (Glaubach); Glaubach Dep. 458-60 (Sept. 6, 2017). 63 unaware that it was paying Dihal to serve as Glaubach’s driver. The Company’s

grievance with paying Dihal boils down to “the fact that [Glaubach] is not entitled

to [a driver] under his Employment Agreement.”278 But nothing in that agreement

prohibits the Company from paying for a driver for Glaubach.279

In sum, the record shows that the Company was fully aware of the services

Reich and Dihal were providing to Glaubach during the time period in question and

did nothing to question or object to paying their salaries until the Company’s

relationship with Glaubach ruptured in June 2015 when it initiated this lawsuit. This

constitutes acquiescence. Accordingly, the Company’s request to recoup from

Glaubach the salaries it paid to Reich and Dihal lacks merit.

C. The Company Has Failed to Prove that Glaubach Acted in Bad Faith Before his Termination as President of the Company

The Company next advances the novel argument that Glaubach breached his

fiduciary duties by conducting a “campaign of harassment” against fellow Board

members and employees of the Company.280 In this section, the court considers that

argument with respect to events that occurred before Glaubach was terminated as

278 Pl.’s Opening Br. 51. 279 See JX 26. The Employment Agreement does entitle Glaubach to “full-time use of a Company automobile” but, to repeat, nothing in that provision or elsewhere in the Employment Agreement prohibits Glaubach from receiving the services of a driver. See id. § 3.4. 280 Pl.’s Opening Br. 46. 64 President of the Company in June 2015, which can be analyzed in two parts: (i)

Glaubach’s interactions with other Board members; and (ii) his alleged retaliation

against three employees who made complaints about sexual harassment against

Glaubach (the “Complainants”).

The Company acknowledges that “[l]imited case law exists in the corporate

context relating to harassing conduct because (in most cases) this type of behavior

is often dealt with in the criminal courts as harassment or witness tampering.”281 The

Company then relies on several cases for support, but they are inapposite. They

either involved situations where this court sanctioned a party for compromising the

integrity of a judicial proceeding282 or where the fiduciary’s conduct was motivated

by a desire to procure financial or other benefits to the detriment of the

corporation.283 Neither scenario is present here. I thus turn to first principles to

analyze this claim.

281 Id. 282 See OptimisCorp v. Waite, 2015 WL 5147038, at *2 (Del. Ch. Aug. 26, 2015) (court imposed sanctions against plaintiffs after concluding they had “threatened the integrity of this proceeding” based on findings that they “paid witnesses for the content of their testimony, threatened witnesses with criminal charges, attempted to open criminal investigations, and generally engaged in threats of civil litigation based on questionable or baseless claims, all in an effort to secure ‘evidence’ that would aid the plaintiffs in this case”). 283 See CSH Theatres, L.L.C. v. Nederlander of S.F. Assocs. 2018 WL 3646817, at *27 (Del. Ch. July 31, 2018) (finding that defendant breached her duty of loyalty and “placed her own interests above those of the Company” by refusing to approve a project unless her co-president “agreed to modify the LLC Agreement to give her more control” and by “us[ing] her fiduciary position to prevent the Company from pursuing shows she wanted 65 “Directors of a Delaware corporation owe two fiduciary duties—care and

loyalty.”284 Broadly speaking, “the duty of loyalty mandates that the best interest of

the corporation and its shareholders takes precedence over any interest possessed by

a director, officer or controlling shareholder and not shared by the stockholders

generally.”285 “The duty of loyalty includes a requirement to act in good faith . . .

.”286 “To act in good faith, a director must act at all times with an honesty of purpose

and in the best interests and welfare of the corporation.”287 “A failure to act in good

faith may be shown, for instance, where the fiduciary intentionally acts with a

purpose other than that of advancing the best interests of the corporation . . . .”288

With these principles in mind, I turn to the two categories of alleged harassment.

With respect to Glaubach’s interactions with Board members, the Company

focuses on a single meeting that occurred on April 29, 2015. Although Glaubach

for her competing business”); BelCom, Inc. v. Robb, 1998 WL 229527, at *1 (Del. Ch. Apr. 28, 1998) (finding that defendant “breached the duty of loyalty that he owed to [the corporation] by trying to extract millions of dollars from BelCom, Inc., based on frivolous invoices submitted by defendant and coupled with a dedicated campaign designed to harass and publicly embarrass BelCom and its affiliates, as well as individuals associated with these entities”). 284 In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 32 (Del. Ch. 2014). 285 Cede & Co., 634 A.2d at 361. 286 Orchard, 88 A.3d at 32. 287 In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 755 (Del. Ch. 2005), aff’d, 906 A.2d 27 (Del. 2006). 288 Walt Disney, 906 A.2d at 67. 66 engaged in inflammatory name-calling and was aggressive with his fellow directors

at that meeting,289 I find that his actions were not motivated by an intention to

procure benefits for himself at the expense of the Company or to otherwise harm the

Company so as to constitute bad faith. To the contrary, the weight of the evidence

suggests that Glaubach’s behavior, although uncivil, was motivated by a genuinely

held belief on his part that Personal Touch was being mismanaged and a sense of

frustration that his fellow directors were ignoring concerns he had been expressing

to them for many months about the Company’s management.290

The allegations of retaliation arose out of an investigation into whether

Glaubach sexually harassed three employees of the Company. The Company

retained outside counsel (Klein Zelman) to investigate that matter. The investigation

began on September 30, 2014, and is summarized in a November 21, 2014 report,

which was supplemented on December 4, 2014.291

The record evidence of retaliation is limited. Neither DiMaggio nor Hold-

Weiss testified at trial, and the Company does not rely on their deposition testimony.

Vargas is the only one of the three Complainants who testified at trial. She credibly

289 See supra Section I.K. 290 Tr. 247-52, 264-65 (Glaubach) (testifying about Board’s failure to respond to concerns he expressed in letters he sent to directors in July and October 2014). 291 See JX 195; JX 232. Glaubach objects to the admissibility of these reports on hearsay grounds. That objection is sustained, except with respect to the portions of the reports that were included in the Pre-Trial Stipulation and Order. See PTO ¶¶ 62-70. 67 testified that she felt like Glaubach was retaliating against her after she spoke to

Klein Zelman because Glaubach stopped speaking to her and publicly ignored her,

and because Glaubach’s driver (Dihal) started checking on her attendance and his

assistant (Reich) started checking on her work.292 Vargas also admitted, however,

that Glaubach never threatened to fire her or to harm her in any way after she spoke

to Klein Zelman.293

Glaubach vehemently denies retaliating against any of the Complainants,

although he admits that he did not speak to Vargas and treated her as if “[s]he doesn’t

exist” after she spoke to Klein Zelman.294 Glaubach also testified that the

investigation was retaliatory against him.295 This contention finds support in Klein

Zelman’s report, which suggests that Slifkin and Balk started the investigation in

reaction to Glaubach’s criticisms of them. The report concludes, for example, that

“it appears unlikely that Complainants would have pursued filing ‘formal’

complaints against Glaubach, or that Glaubach’s conduct would have been

investigated, but for the escalating issues between Glaubach and Balk.”296 Glaubach

292 Tr. 784-93 (Vargas). 293 Tr. 797-99 (Vargas). 294 Tr. 280-81 (Glaubach). 295 Tr. 260 (Glaubach). 296 PTO ¶ 64; JX 195 at 19. The Klein Zelman report also states that “Slifkin, Balk and [Hold-]Weiss did not decide to investigate Glaubach’s behavior until after the [September 8, 2014] door slamming incident with Balk,” and that the “Complainants generally do not 68 also points out that DiMaggio admitted that he did not retaliate against her in any

way except by naming her (along with ten others) as a defendant in the New York

Action for her involvement in the alleged tax fraud scheme.297 As mentioned above,

the court denied DiMaggio’s motion for summary judgment on this claim.298

Based on this record, I find that Glaubach acted improperly to make Vargas

feel uncomfortable at the office after he learned about the Klein Zelman

investigation, but that his conduct was directed at Vargas and was not motivated by

a desire to gain any personal benefit for himself to the Company’s detriment or to

otherwise harm the Company so as to constitute bad faith.299

In sum, although all of the conduct discussed above is troubling, it does not

constitute a breach of the duty of loyalty. None of this conduct afforded Glaubach

any personal benefit at the Company’s expense, none of it was motivated by an

document Glaubach’s behavior until late August or early September 2014 when Glaubach’s treatment of Balk seemed to significantly worsen.” Id. 297 DiMaggio Dep. 152-54. 298 See supra Section I.R. 299 No authority applying Delaware law has been brought to the court’s attention addressing a breach of fiduciary duty claim based on allegations of retaliation against employees of a corporation. Outside of Delaware, one court has held that allegations of sexual harassment would not constitute a breach of a corporate fiduciary’s duty of loyalty. See Pozner v. Fox Broad. Co., 74 N.Y.S.3d 711, 713-14 (N.Y. Sup. Ct. 2018) (concluding that a claim for breach of the fiduciary duty of loyalty against a former executive vice president based on allegations of sexual harassment was not “tenable” because the duty of loyalty “has only been extended to cases where the employee act[s] directly against the employer’s interests—as in embezzlement, improperly competing with the current employer, or usurping business opportunities”) (internal quotation marks omitted). 69 intention to harm Personal Touch, and none of it resulted in any apparent harm to

the Company. Accordingly, judgment will be entered in Glaubach’s favor with

respect to this aspect of Count I of the Amended Complaint.

D. The Company Is Entitled to a Declaration that its Termination of Glaubach’s Employment Was Proper and Valid

In Count IV of the Amended Complaint, the Company seeks a declaration that

“Glaubach’s employment was properly and validly terminated” under his

Employment Agreement.300 Reciprocally, Glaubach asserts in his counterclaim that

he was invalidly terminated and seeks $302,739.73 in damages, “representing the

remaining value due under his Employment Agreement, plus pre- and post-judgment

interest.”301

The resolution of these two claims turns on the application of Section 5.2(c)

of the Employment Agreement, which was the cited basis for the Company’s

termination of the Employment Agreement and removal of Glaubach from his

position as President of the Company.302 Section 5.2(c) states, in relevant part, that:

The Company shall . . . have the right to terminate the employment of [Glaubach] under this Agreement and [Glaubach] shall forfeit the right to receive any and all further payments hereunder . . . if [Glaubach] shall have committed any of the following acts of default:

300 Am. Compl. ¶ 213 (Dkt. 49). 301 Def.’s Opening Br. 36. 302 JX 323 at 2. 70 (c) [Glaubach] shall have committed any material act of willful misconduct, dishonesty or breach of trust which directly or indirectly causes the Company or any of its subsidiaries to suffer any loss, fine, civil penalty, judgment, claim, damage or expense . . . .303

Under New York law, which governs the Employment Agreement,304 the

“essential elements of a breach of contract cause of action are ‘the existence of a

contract, the plaintiff’s performance pursuant to the contract, the defendant’s breach

of his or her contractual obligations, and damages resulting from the breach.’”305

The element of damages is not relevant to the Company’s claim for declaratory

relief, and it is not disputed that the Employment Agreement is a valid contract and

that the Company performed its obligations under the contract. Thus, the only open

question is whether Glaubach breached Section 5.2(c) of the agreement.

The Company asserts that Glaubach breached this provision by usurping the

opportunity to purchase the AAA Building. I agree.

To establish a breach of Section 5.2(c), the Company must prove that

Glaubach committed a material act of either (i) willful misconduct, (ii) dishonesty,

or (iii) breach of trust that caused the Company to suffer a loss. Glaubach’s

usurpation of the opportunity to purchase the AAA Building clearly was a material

303 JX 26 § 5.2(c). 304 Id. § 9.5. 305 Canzona v. Atanasio, 989 N.Y.S.2d 44, 47 (N.Y. App. Div. 2014) (quoting Dee v. Rakower, 976 N.Y.S.2d 470, 474 (N.Y. App. Div. 2013)). 71 act that caused the Company to suffer a loss for the reasons discussed previously,

i.e., it involved the purchase of a building located on a property uniquely valuable

to the Company given its location, for a significant sum ($1.8 million plus six months

of free rent), and caused the Company to suffer a loss warranting an award of $2.1

million in damages. The usurpation also is of a character that fits within each of the

three types of acts that can trigger Section 5.2(c).

Glaubach’s usurpation constituted a material act of “willful misconduct”

because he intentionally violated his fiduciary duties.306 The usurpation constituted

a material act of “dishonesty” because, for months, Glaubach intentionally hid from

the Company his efforts to purchase the building for himself to ensure that the

Company did not bid on the property.307 And the usurpation constituted a material

“breach of trust” because it amounted to a flagrant breach of Glaubach’s duty of

loyalty by putting his personal self-interests ahead of Personal Touch’s corporate

interests.

In Guth itself, the Delaware Supreme Court explained that, “[w]hile

technically not trustees,” “[c]orporate officers and directors are not permitted to use

their position of trust and confidence to further their private interests” because “they

306 See supra Section III.A. 307 Tr. 397-400 (Glaubach). 72 stand in a fiduciary relation to the corporation and its stockholders.”308 Here,

contrary to the duty of loyalty he owed to Personal Touch, Glaubach willfully and

dishonestly used his position of trust as a fiduciary to further his own self-interest

by taking for himself a valuable corporate opportunity in the form of the AAA

Building. Based on that breach, the Company was warranted in terminating

Glaubach’s employment with the Company.309

For the reasons stated above, the Company is entitled to a declaration that its

termination of the Employment Agreement and removal of Glaubach from his

position as the Company’s President were proper and valid. Accordingly, judgment

will be entered against Glaubach and in the Company’s favor with respect to Count

IV of the Amended Complaint and Glaubach’s counterclaim.

E. The Company Has Failed to Prove that Glaubach’s Compensation Should Be Forfeited Under the Faithless Servant Doctrine

In Count III of the Amended Complaint, the Company seeks to recoup under

the New York “faithless servant” doctrine approximately $2 million in compensation

308 5 A.2d at 510 (emphasis added). 309 The Company also asserts that Glaubach breached Section 5.2(c) by engaging in self- dealing and retaliating against the sexual harassment Complainants. Given the court’s finding that the usurpation of the AAA Building constitutes a breach of Section 5.2(c), the court does not reach those issues. 73 Glaubach earned in the three years leading up to June 24, 2015, when he was

terminated.310 The Company has failed to demonstrate a basis for this relief.

The faithless servant doctrine is based on agency law and has roots in New

York law going back to the late 1800s.311 As the Second Circuit has explained,

“[u]nder New York law, an agent is obligated to be loyal to his employer and is

prohibited from acting in any manner inconsistent with his agency or trust and is at

all times bound to exercise the utmost good faith and loyalty in the performance of

his duties.”312

“In order to make out a claim of breach of the duty of loyalty in New York—

sometimes referred to as the ‘faithless servant doctrine’—the employer plaintiff

must show (1) that the employee’s disloyal activity was related to ‘the performance

of his duties’ . . . and (2) that the disloyalty ‘permeated the employee’s service in its

most material and substantial part.’”313 If an employee is found to be faithless, the

310 Am. Compl. ¶¶ 202-06; Pl.’s Opening Br. 56, 60; PTO ¶¶ 24-27. 311 See Carman v. Beach, 63 N.Y. 97 (N.Y. 1875); Murray v. Beard, 7 N.E. 553 (N.Y. 1886). 312 Phansalkar v. Andersen Weinroth & Co., L.P., 344 F.3d 184, 200 (2d Cir. 2003) (internal quotation marks omitted). The interplay between the faithless servant doctrine under New York law for an individual resident in New York who is an officer of a Delaware corporation and thus owes fiduciary obligations governed by Delaware law is not clear to the court. The court assumes without deciding that the doctrine can be applied in this scenario. 313 Schanfield v. Sojitz Corp. of Am., 663 F. Supp. 2d 305, 348 (S.D.N.Y. 2009) (quoting Phansalkar, 344 F.3d at 200, 203). 74 remedy is forfeiture of compensation.314 With respect to the second element of the

claim, another court has explained that, to be entitled to forfeiture under the faithless

servant doctrine, the employer must show a “persistent pattern of disloyalty.” 315

These authorities are consistent with Personal Touch’s articulation of the

operative legal standard. Citing City of Binghamton v. Whalen,316 the Company

contends that under the faithless servant doctrine, “[a]n employee who has engaged

in repeated acts of disloyalty must forfeit the compensation he received from his

employer.”317

Here, the Company has failed to prove that Glaubach engaged in a persistent

pattern or repeated acts of disloyalty in performing his duties as an officer of

Personal Touch during the three years predating his termination so as to warrant

forfeiture of the compensation he received in that capacity during that period. To be

sure, Glaubach breached his fiduciary duty of loyalty by usurping a corporate

opportunity in the form of the AAA Building. But as egregious as that conduct was,

it was an isolated incident that occurred late in Glaubach’s tenure as President of the

Company. With respect to all of the other acts identified in the Company’s post-trial

314 City of Binghamton v. Whalen, 32 N.Y.S.3d 727, 728-29 (N.Y. App. Div. 2016). 315 Bon Temps Agency, Ltd. v. Greenfield, 622 N.Y.S.2d 709, 710 (N.Y. App. Div. 1995) (quoting Schwartz v. Leonard, 526 N.Y.S.2d 506, 508 (N.Y. App. Div. 1988)). 316 32 N.Y.S.3d at 728. 317 Pl.’s Opening Br. 56. 75 briefs for application of the faithless servant doctrine—the provision of healthcare

services to Shechtman, the $133,177 payment to Shechtman, and the alleged

retaliation against the Complainants318—Glaubach did not commit any breaches of

fiduciary duty for the reasons explained above. Accordingly, judgment on Count III

of the Amended Complaint will be entered in Glaubach’s favor.

F. Glaubach Acted in Bad Faith as a Director in Two Respects After His Termination as President of the Company

The Company’s final two fiduciary duty claims concern actions Glaubach

took after he was terminated as President in June 2015 but while he was still a

director of the Company: (i) sending anonymous letters over an eight-month period

318 Id. at 56, 60; Pl.’s Reply Br. 35. In its post-trial briefs, the Company does not argue that Glaubach’s involvement in the Jamaica Property lease is relevant to its faithless servant claim, and thus waived that argument. Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”). Even if the court were to put this transaction into the mix, the outcome would not change for two reasons. First, two unrelated and distinct breaches of duty still do not amount to a persistent pattern of disloyalty so as to warrant forfeiture of one’s entire compensation. See Phansalkar, 344 F.3d at 202 (forfeiture warranted where defendant’s disloyal actions “occurred repeatedly, in nearly every transaction on which he worked”); Schanfield, 663 F. Supp. 2d at 321 (forfeiture warranted where employee “had sent hundreds of confidential or privileged SCA documents from his SCA computer to third parties”); Whalen, 32 N.Y.S.3d at 728 (forfeiture warranted where Director of Parks and Recreation admitted to “stealing more than $50,000 from plaintiff over the course of a nearly six-year period”). Second, the circumstances concerning the Jamaica Property lease are qualitatively different than those concerning the AAA Building. The Jamaica Property lease was approved by both Glaubach and Marx in November 2013—before the Company had installed an independent Board majority in 2014—and it is undisputed that the rent term was negotiated by Marx, not Glaubach. Although the court has found Glaubach liable for one-half of the amount of the above-market rent associated with the Jamaica Property lease given its self-dealing nature, Glaubach’s role in this transaction has a completely different complexion than his secret usurpation of the AAA Building. 76 extending from March to November 2016;319 and (ii) attempting to disrupt the

Company’s loan negotiations with its primary lender (MidCap) in the summer of

2016. The Company argues that each of these actions amounts to a breach of the

duty of loyalty. I agree and will address each category in turn, applying the same

fiduciary duty principles outlined above in Section III.C.

Beginning in March 2016, Glaubach orchestrated sending over fifty letters

anonymously to at least sixteen different individuals associated with the Company,

including all of the other Board members, numerous Company officers and

employees, outside counsel, and even some of their spouses.320 The letters were

addressed to the recipients’ homes; contained biblical references and disturbing

images; suggested that the recipients were guilty of crimes, infidelity, and other

offenses; and plainly were intended to provoke anxiety when they were opened.321

A sampling of the letters follows:

 Letters sent to several Board members stating: “To all sinners BLOOD was the first plague[,] nine to follow, repent before its [sic] too late.”322

319 See JX 374 (dated March 24, 2016); JX 473 (dated November 17, 2016). 320 PTO ¶ 121-24; see JX 374; JX 397; JX 398; JX 401; JX 402; JX 403; JX 405; JX 406; JX 407; JX 408; JX 410; JX 411; JX 415; JX 416; JX 417; JX 418; JX 419; JX 420; JX 421; JX 422; JX 445; JX 446; JX 447; JX 457; JX 458; JX 460; JX 461; JX 467; JX 473; JX 490; JX 495; JX 500; JX 501; JX 503; JX 504; JX 515; JX 640. 321 See supra Section I.N; PTO ¶¶ 125-31. 322 JX 387; JX 389; JX 495. 77  A letter addressed to Marx’s wife, Frances Marx, stating that her husband had engaged in “sexual indiscretions.”323

 Letters sent to multiple Board members and outside counsel for the Company (Brum) and for the Board’s Audit Committee (James Alterbaum) along with his wife, some with biblical verses and a picture of a noose,324 and others suggesting they would be stricken by biblical plagues.325

 Letters sent to Board members and Company employees suggesting they would be prosecuted and/or jailed for crimes.326

 A letter sent to a Company employee after one of her parents was injured containing an image of an x-ray of a broken bone that asked: “Who in your family is going to be stricken next as a result of your sins?”327

The letters had their intended effect. One employee explained that his wife

started crying when she opened one of the letters.328 Another employee recounted a

similar experience: “What frightened my wife the most, that we were receiving these

kinds of threatening letters at our home. Okay. I don’t need to say more.” 329 As

323 Tr. 323 (Glaubach); JX 401. 324 JX 405; JX 406; JX 407; JX 496. 325 JX 410; JX 411; JX 505. 326 See, e.g., JX 374; JX 377; JX 397; JX 398; JX 399; JX 445. 327 Tr. 145 (Goff); JX 467. 328 Calabro Dep. 171-72. 329 Waldman Dep. 223. 78 director Goff testified, the letters were “extremely distressing to everybody

involved.”330

“[T]he duty of loyalty mandates that the best interest of the corporation and

its shareholders takes precedence over” a director’s self-interest.331 Given the

intended audience, and the magnitude, nature, and duration of the anonymous letter-

writing campaign that Glaubach orchestrated, his conduct to my mind is inexplicable

as anything but an act of bad faith. The sheer pervasiveness of the letter-writing and

the inclusion of spouses as targets of his letters belie the notion that Glaubach was

merely “blowing off steam,” as he testified.332 Rather, the evidence shows that

Glaubach was engaged in a systematic effort to harass and annoy the entire

management structure of the Company, the logical and foreseeable consequence of

which was to hurt morale and create an enormous distraction of time and resources

to the detriment of the Company.333 In doing so, Glaubach exalted his own personal

interests while serving as a fiduciary of the Company above the best interests of

Personal Touch and thus acted in bad faith in breach of his duty of loyalty.

330 Tr. 147 (Goff). 331 Cede & Co., 634 A.2d at 361. 332 Tr. 293 (Glaubach). 333 See, e.g., Tr. 147 (Goff) (testifying that the anonymous letters “became an incredible disruption to the Company” as a “distraction of time and effort”). 79 I reach the same conclusion with respect to Glaubach’s letter-writing to

MidCap, the Company’s primary lender, during the summer of 2016. At that time,

the Company was negotiating to resolve certain loan covenant defaults in order to

preserve its lending relationship with MidCap. Having learned that the Company

was in the midst of these negotiations through attending Board meetings,334

Glaubach interjected himself and portrayed the Company to MidCap in a highly

negative light in a series of letters ostensibly calculated to sabotage the Company’s

relationship with MidCap in order to advance his own interests.335

In a letter addressed to a managing director of MidCap, for example, Glaubach

described as “fraudulent” the continuing education expense scheme and the

Company’s tax returns for this period:

My purpose in reaching out, was to get the answers to a couple of questions and also to inform you that towards the end of 2014, Personal Touch was being audited by the IRS and the NYS Department of Taxation. At that time, David Slifkin, our then CEO and Mr. Robert Marx hired James Sherwood, a tax attorney and Leon Reimer, a forensic accountant to do a complete review of Personal Touch’s records.

Sherwood and Reimer found that David Slifkin, Robert Marx and about 20 other employees fraudulently characterized salary payments as reimbursements for continuing education expenses. As a result, fraudulent tax returns were filed.

334 Tr. 416 (Glaubach). 335 JX 427; JX 437; JX 439. 80 Two years ago I brought this information to the attention of the board of directors and they refused to do anything. That is a major reason why I had to bring a lawsuit against them in March of 2015. As such, I will not sign any documents authorizing another amendment to the loan agreement.336

Notably, Glaubach openly admits that he was not concerned about the damage this

letter or the others he sent to MidCap might do to the Company’s relationship with

its lender:

Q. Dr. Glaubach, you sent all three of these letters in the summer of 2016. Correct?

A. Yes. 100 percent.

Q. And you weren’t concerned at all that MidCap might stop lending money to Personal Touch. Correct?

A. I wasn’t interested in that.

Q. And you weren’t at all worried that MidCap might refuse to negotiate its loan agreement with Personal Touch as a result of your letters. Correct?

A. That was not my concern.337

Relying on Odyssey Partners, L.P. v. Fleming Companies, Inc.,338 Glaubach

argues that he did not breach his duty of loyalty in communicating with MidCap

because he was only attempting to protect his interests as a creditor of the Company

336 JX 437. 337 Tr. 427 (Glaubach). 338 1996 WL 422377 (Del. Ch. July 24, 1996). 81 rather than “acting in a fiduciary capacity.”339 In Odyssey, the court commented that

“fiduciary obligation does not require self-sacrifice . . . . Thus one who may be both

a creditor and a fiduciary . . . does not by reason of that status alone have special

limitations imposed upon the exercise of his or her creditor rights.”340

Glaubach’s argument fails because his assertion that he was merely acting to

protect his interests as a creditor cannot be squared with the evidence. In his letters

to MidCap, Glaubach asked few questions relevant to his status as a creditor.

Glaubach instead made concerted efforts to place the Company in a bad light and

actively discouraged MidCap from continuing to lend to the Company. Specifically,

in a letter addressed to Leon Black, the Chairman of the company that manages

MidCap, Glaubach wrote: “If you extend them credit, you are doing so at your own

risk.”341 In that same letter, Glaubach did not even mention his status as a creditor;

the letter only said negative things about the Company’s financial condition.342

Glaubach’s letters thus cannot reasonably be understood to have been motivated by

a bona fide exercise of creditor rights.

339 Def.’s Opening Br. 45-46. 340 1996 WL 422377, at *3. 341 JX 439; Tr. 420-21 (Glaubach). 342 JX 439. 82 For the reasons explained above, the court concludes that Glaubach acted in

bad faith and breached his fiduciary duty of loyalty by (i) orchestrating the sending

of the anonymous letters and (ii) attempting (albeit unsuccessfully) to disrupt the

Company’s negotiations with MidCap. The Company does not seek damages with

respect to either of these matters, thus the only relief to be granted is a declaration

of these breaches of duty.343

G. Attorneys’ Fees

The Company requests that the court award it attorneys’ fees and costs for the

expenses it incurred in this litigation, to be paid by Glaubach. The request is denied.

Delaware follows the “American Rule,” which provides that litigants “are

generally responsible for paying their own counsel fees, absent special

circumstances or a contractual or statutory right to receive fees.”344 Special

circumstances include:

(1) the presence of a common fund created for the benefit of others; (2) where the judge concludes a litigant brought a case in bad faith or through his bad faith conduct increased the litigation’s cost; and (3) cases in which, although a defendant did not misuse the litigation process in any way, . . . the action giving rise to the suit involved bad faith, fraud, conduct that was totally unjustified, or the like and attorney’s fees are considered an appropriate part of damages.345

343 See PTO ¶ 155. 344 Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68 A.3d 665, 686 (Del. 2013) (citations and internal quotation marks omitted). 345 Id. at 687 (internal quotation marks omitted). 83 More broadly, this court “may award fees in the limited circumstances of an

individual case [that] mandate that the court, in its discretion, assess counsel fees

where equity requires.”346

The court declines to exercise its discretion to shift fees in this case. As the

prior discussion reflects, the outcome of this case is very much a split decision. The

Company won some significant claims and lost a number of others. This litigation

was protracted, hard fought, and involved some troubling conduct, but the conduct

at issue did not rise to the level of such egregiousness so as to warrant a deviation

from the American Rule. Thus, the Company’s request for an award of attorneys’

fees is denied.

IV. CONCLUSION

For the reasons explained above, judgment will be entered in the Company’s

favor on Count I of the Amended Complaint, in part, entitling the Company to an

award of damages in the amount of $2,735,000 and declaratory relief. Judgment

also will be entered (i) in the Company’s favor on Count IV of the Amended

Complaint and on Glaubach’s counterclaim, entitling the Company to declaratory

relief; and (ii) in Glaubach’s favor on Counts II, III, and the remaining parts of Count

I of the Amended Complaint.

346 Id. (internal quotation marks omitted). 84 The parties are directed to confer and to submit a form of final judgment and

order to implement this decision within five business days. The form of final

judgment and order should address pre-judgment interest,347 recognizing that the

amount of damages for the usurpation claim is based on a valuation of the AAA

Building as of the time of trial, and post-judgment interest using the Delaware legal

rate. Each party will bear its own costs.

IT IS SO ORDERED.

347 Glidepath Ltd. v. Beumer Corp., C.A. No. 12220-VCL, at 56-57 (Del. Ch. Feb. 21, 2019) (“In Delaware, pre-judgment interest is awarded as a matter of right.”) (citing Brandywine Smyrna, Inc. v. Millennium Builders, LLC, 34 A.3d 482, 485-87 (Del. 2011)). 85