Delaware Business Litigation Report

District Court Denies Motion for Summary Judgment Based on Void Ab Initio Defense

Lynch v. Coinmaster USA, Inc., C.A. No. 06-365-JJF (D. Del. Mar. 30, 2009)

In this opinion, the court denied a broad application of the ultra vires doctrine. Seeking damages for breach of an employment agreement with Coinmaster USA, Inc., the plaintiff claimed that he was owed outstanding monthly pay, a termination fee, profits, and stock options. Moving for summary judgment, the defendants argued, inter alia, that the agreement was void ab initio in light of the plaintiff’s pre-existing employment agreement with Coinmaster Gaming PLC, a company related to Coinmaster USA, Inc. The defendants cited Solomon v. Armstrong, 747 A.2d 1098 (Del. Ch. 1999), noting that ultra vires acts are void ab initio. Although the court was not entirely clear on the defendants’ position, the court ascertained that the defendants were arguing that the plaintiff, by contracting with Coinmaster USA, Inc. for additional compensation, breached the Coinmaster Gaming PLC agreement and, hence, breached a fiduciary duty to Coinmaster PLC. Under Solomon, the defendants claimed that such a contract is ultra vires and, therefore, void ab initio.     

Rejecting the defendants' argument, the court found that the Coinmaster USA, Inc. agreement was not void ab initio. Delaware law severely restricts the categories of claimants who can raise the ultra vires defense. The defendants cited no cases, and the court could not identify any authority, suggesting that such a contract was ultra vires and, hence, void ab initio merely because it conflicts with a contract involving a third party. Finding that Solomon does not stand for this proposition, the court denied the defendants’ motion for summary judgment with respect to the plaintiff’s breach of contract claim.  

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