IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
SIMON OGUS, )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0869-AGB
)
SPORTTECHIE, INC., TAYLOR )
BLOOM, FRANCESCA BODIE )
(A.K.A. FRANCESCA LEIWEKE- )
BODIE), DANIEL KAUFMAN, AND )
OAK VIEW GROUP, LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: October 10, 2019
Date Decided: January 31, 2020
T. Brad Davey and Mathew A. Golden, POTTER ANDERSON & CORROON LLP,
Wilmington, Delaware; Gregory A. Markel, SEYFARTH SHAW LLP, New York,
New York; Tonya M. Esposito, SEYFARTH SHAW LLP, Washington D.C.;
Attorneys for Plaintiff Simon Ogus.
Art C. Aranilla, MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN,
P.C., Wilmington, Delaware; Attorney for Defendants Taylor Bloom, Francesca
Bodie, and Daniel Kaufman.
Brian M. Rostocki, Benjamin P. Chapple, and Justin M. Forcier, REED SMITH
LLP, Wilmington Delaware; Michael S. Leib, REED SMITH LLP, Chicago,
Illinois; Attorneys for Defendants SportTechie, Inc. and Oak View Group, LLC.
BOUCHARD, C.
In this action, Simon Ogus asserts that defendants conspired to remove him
from SportTechie, Inc., a company he co-founded, eliminate his 44.5% interest in
the company through a multi-step plan in order to enrich themselves, and transfer
control of the company to Oak View Group, LLC, a private equity and venture fund.
Pending before the court is defendants’ motion to dismiss seven claims for fraud,
breach of fiduciary duty, aiding and abetting, civil conspiracy, and breach of
contract. For the reasons explained below, the court grants the motion in part and
denies it in part.
I. BACKGROUND
The facts recited in this opinion come from the Verified Amended Complaint
(the “Complaint”) and documents incorporated therein. Any additional facts are
either not subject to reasonable dispute or are subject to judicial notice.
A. The Parties
SportTechie, Inc. (“SportTechie” or the “Company”) is a Delaware
corporation with its principal place of business in Washington, D.C.1 SportTechie
is a news source that reports on the technology aspects of sports. Plaintiff Simon
Ogus is a founder of SportTechie and was its Chief Operating Officer until March
8, 2017.
1
Unless otherwise noted, the court refers to SportTechie, Inc. and its predecessor entities
as “SportTechie” or the “Company” for simplicity.
1
Defendant Taylor Bloom is a founder, stockholder, director, and officer of
SportTechie. He is currently the Chief Executive Officer of SportTechie.
Defendant Daniel Kaufman is an employee, officer, and stockholder of
SportTechie. He was the sole in-house attorney at SportTechie at all relevant times
and currently serves as Managing Director of SportTechie.
Defendant Oak View Group, LLC (“Oak View”) is a Delaware limited
liability company that is a controlling investor in SportTechie.2 Defendant
Francesca Bodie is a director of SportTechie as a designee of Oak View, and is
currently the President of Business Development for Oak View.3
B. The Origins of SportTechie
In early 2012, Ogus founded the predecessor of SportTechie with Josh Folk,
who left the Company in 2014.4 In April 2012, Ogus hired defendant Bloom to write
content for the company.5
In August 2013, SportTechie became a District of Columbia limited liability
company.6 Around this time, Bloom received an ownership share in SportTechie.7
2
Am. Verified Compl. (“Compl.”) ¶ 21 (Dkt. 30).
3
Id. ¶ 19, 140.
4
Id. ¶¶ 22, 24.
5
Id. ¶ 23.
6
Id. ¶ 24.
7
Id.
2
In October 2015, SportTechie became a Delaware limited liability company.8
In 2016, Bloom and Ogus revised SportTechie’s Operating Agreement (the “2016
Operating Agreement”) and renegotiated their ownership of the Company so that
Bloom would receive 55.5% of the units and Ogus would receive 44.5% of the units
of SportTechie.9
Under the 2016 Operating Agreement, Ogus was the sole manager of
SportTechie and had a right as a member to block “Major Decisions” by the
Company (the “Veto Right”), which needed “the approval of all the Members.”10
The 2016 Operating Agreement also provided that a member, including Ogus, only
could be expelled if a court found that such member engaged in certain acts of
serious misconduct:
A Member may be expelled only if such Member has been found by a
court of competent jurisdiction to: (a) be guilty of wrongful conduct
that adversely and materially affects the business or affairs of the
Company; (b) have willfully or persistently committed a material
breach of the articles of the organization of the Company or this
Agreement; or (c) have otherwise breached a duty owed to the
Company or to the other Members to the extent that it is not reasonably
practicable to carry on the business or affairs of the Company with the
Member.11
8
Id. ¶ 27.
9
Id. ¶ 28.
10
Id. ¶ 6, 29; id. Ex. A §§ 6.1, 6.5.
11
Id. Ex. A § 8.2.
3
In July 2016, SportTechie hired defendant Daniel Kaufman as a Managing
Director.12 Kaufman became the sole in-house attorney for SportTechie in which
capacity he advised Ogus and Bloom on legal issues.13
In August 2016, Vintage Capital invested $75,000 in SportTechie in the form
of a convertible note.14 Kai Sato, a friend of Bloom, had formed Vintage Capital as
a venture capital company.15 Sato introduced the Company to Francesca Bodie, Vice
President of Business Development of the Oak View, a large venture capital firm.16
In October 2016, Oak View invested $675,000 in SportTechie in the form of
a note convertible into common stock.17 One condition of Oak View’s investment
was that it would have the “right to [have] a representative on SportTechie’s yet-to-
be formed Board.”18 Ogus consented to Oak View’s investment in SportTechie,
although the precise form of that consent and what Ogus knew when he did so is
unclear from the Complaint.19
12
Compl. ¶ 33.
13
Id.
14
Id. ¶ 38.
15
Id. ¶ 36.
16
Id. ¶ 39.
17
Id. ¶ 41.
18
Id.
19
See id. ¶ 42.
4
C. SportTechie Converts Into a Delaware Corporation and the
Shareholders Agreement is Executed
In October 2016, Kaufman, Bloom, and Bodie started an internal campaign to
convert SportTechie from an LLC to a Delaware corporation and to create a board
of directors (the “Board”) with Bloom and Bodie making up a majority of the
Board.20 Ogus’ approval of the conversion was necessary given his Veto Right under
the 2016 Operating Agreement.21
On or about December 29, 2016, Kaufman sent Ogus certain documents to
implement the conversion.22 On December 31, 2016, Ogus signed the conversion
documents, and SportTechie became a Delaware corporation.23 Also on December
31, Ogus signed a written consent of the stockholders of the new corporation
“establishing the Board and appointing Mr. Bloom as the first director.”24 The
Complaint contains no allegations suggesting that the Company’s certificate of
incorporation contained any provisions limiting the ability of the Board to manage
the business and affairs of the corporation, including its authority to hire and fire
20
Id. ¶ 44.
21
Id.
22
Id. ¶ 50.
23
Id. ¶ 52.
24
Id. ¶ 122.
5
officers and employees.25 From December 31, 2016 until February 1, 2017, Bloom
was the only member of the Board.26
On February 1, 2017, Ogus signed a written consent of stockholders
appointing Bodie and Sato to the Board, which expanded the Board to three
members.27 Bloom had nominated Sato to serve on the Board and Bodie joined as
the designee of Oak View under its convertible note agreement.28
On January 31, 2017, Bloom and Ogus executed a Shareholders Agreement.29
The Shareholders Agreement gave SportTechie an option to purchase Ogus’ shares
within ninety days after the termination of his employment—“for any reason or for
no reason”—at a purchase price “equal to the fair market value (as determined in
good faith by the Board) of the Shares sold.”30
The day after Ogus executed the Shareholders Agreement, Kaufman entered
into a Restricted Stock Purchase Agreement with SportTechie to purchase 611,112
shares of the Company on the terms that allegedly were very favorable to Kaufman.31
25
After oral argument, Ogus submitted a copy of the Company’s certificate of
incorporation and confirmed that it “did not contain relevant provisions limiting the
Board’s authority to manage the business and affairs of the Company.” Dkt. 59 at 3.
26
Compl. ¶ 53.
27
Id. ¶ 122.
28
Id. ¶¶ 58-59.
29
Id. ¶ 67.
30
Id. Ex. C. §§ 6.1, 6.2.
31
Compl. ¶ 69.
6
D. Ogus’ Employment is Terminated and SportTechie Repurchases
His Shares
In February 2017, Bloom and Kaufman engaged a valuation service provider,
Derivitas LLC, to determine the fair market value of Ogus’ shares in SportTechie to
facilitate a potential buyout of his shares.32 On March 8, 2017, Bloom and Bodie,
acting by written consent on behalf of the Board, removed Ogus from his position
as an officer of the Company and terminated his employment without cause.33 The
next day, Bloom handed Ogus a termination letter and several other documents,
including an agreement to purchase Ogus’ stock.34 The termination letter stated that
the value of the Company was $2.2 million, which “was at the low end of the
Derivatas range of values.”35
On May 9, 2017, SportTechie purported to repurchase all of Ogus’ shares in
the Company for a total of $819,951.35, with a check for ten percent of the
consideration ($82,000) and a promissory note for the remaining balance
($737,951.35).36 Ogus has not accepted any payments for his shares.37
32
Id. ¶ 72.
33
Id. ¶¶ 88, 93, 158; see id. Ex. F.
34
Compl. ¶¶ 90-91.
35
Id. ¶ 94.
36
Id. ¶¶ 99, 102; see id. Ex. G.
37
Compl. ¶ 102.
7
II. PROCEDURAL HISTORY
On November 30, 2018, Ogus filed his original complaint in this action, which
he amended on March 5, 2019 (as defined above, the “Complaint”). The Complaint
asserts ten claims, for fraud (Count I), breach of fiduciary duty (Counts III and IV),
aiding and abetting (Counts II and V), civil conspiracy (Count VI), wrongful
termination (Count VII), declaratory relief (Count VIII), breach of contract (Count
IX), and breach of the implied covenant of good faith and fair dealing (Count X).
On March 19, 2019, defendants filed a motion to dismiss the Complaint in its
entirety under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief.
In connection with briefing and argument of the motion to dismiss, Ogus dropped
three of his claims: Counts VII, VIII, and X.38
III. ANALYSIS
The standards governing a motion to dismiss under Court of Chancery Rule
12(b)(6) for failure to state a claim for relief are well settled:
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are “well-pleaded” if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and ([iv]) dismissal is inappropriate
unless the “plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible to proof.”39
38
Pl.’s Opp’n Br. 57 n.11 (Dkt. 43); Dkt. 59 at 5.
39
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (internal citations omitted).
8
A. Count I: Fraud Against Bloom and Kaufman
Count I of the Complaint asserts a claim for fraud in the inducement against
Bloom and Kaufman for making “misrepresentations and omissions of material facts
in order to induce [Ogus] to (1) agree to converting SportTechie from an LLC to a
corporation, (2) agree to a five-person Board, initially comprised of Bloom, Sato,
and Bodie, and (3) execute the Shareholders Agreement.”40 During briefing, Ogus
identified ten misrepresentations and six omissions that allegedly were part of this
scheme.41
To state a claim for fraud in the inducement, a plaintiff must allege: “(i) a
false representation, (ii) the defendant’s knowledge of or belief in its falsity or the
defendant’s reckless indifference to its truth, (iii) the defendant’s intention to induce
action based on the representation, (iv) reasonable reliance by the plaintiff on the
representation, and (v) causally related damages.”42
Under Court of Chancery Rule 9(b), “[i]n all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be stated with particularity.” 43
“The relevant circumstances are ‘the time, place, and contents of the false
40
Compl. ¶ 107.
41
See Pl.’s Opp’n Br. 18-20.
42
Prairie Capital III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 49 (Del. Ch. Nov. 24,
2015) (citing Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983)).
43
Ch. Ct. R. 9(b).
9
representations; the facts misrepresented; the identity of the person(s) making the
misrepresentation; and what that person(s) gained from making the
misrepresentation.’”44 The key to determining whether a plaintiff has alleged
circumstances with particularity to satisfy Rule 9(b) is that “the plaintiff must allege
circumstances to fairly apprise the defendant of the basis of the claim.”45
Defendants argue that Count I should be dismissed because Ogus failed to
plead fraud with particularity under Rule 9(b). They further contend that certain
alleged misrepresentations are non-actionable statements of opinions and that Ogus
has failed to allege facts sufficient to establish justifiable reliance given that the
Shareholders Agreement he signed “contains express provisions allowing
SportTechie to repurchase Ogus’ shares following his termination as an employee
of the Company for ‘any reason or no reason.’”46
Ogus’ fraud claim relies on essentially three separate actions: (i) converting
the LLC into a corporation on December 31, 2016, which eliminated Ogus’ ability
to veto major corporate actions and gave the Board the authority to terminate officers
and employees, including Ogus; (ii) creating and expanding the Board from
44
Prairie Capital, 132 A.3d at 62 (quoting Trenwick Am. Litig. Tr. v. Ernst & Young LLP,
906 A.2d 168, 207-08 (Del. Ch. 2006), aff’d sub nom. Trenwick Am. Litig. Tr. v. Billett,
931 A.2d 438 (Del. 2007)).
45
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003).
46
Defs.’ Opening Br. 16 (Dkt. 36).
10
December 31, 2016 to February 1, 2017, which excluded Ogus and deprived him of
having a voice in Board decisions; and (iii) executing the Shareholders Agreement
on January 31, 2017, where Bloom and Ogus agreed that the Company could
repurchase their shares upon the termination of their employment from the
Company.
Although these three actions allegedly were conceived as part of an overall
plan to eliminate Ogus’ ownership interest in the Company, they can be considered
separately in analyzing Ogus’ fraud claim because they were not necessarily
dependent on each other and had different consequences. For example, even after
agreeing to convert the LLC into a corporation, which resulted in the elimination of
Ogus’ Veto Right, Ogus could have refused to enter into the Shareholders
Agreement and prevented the Company from having the ability to purchase his
shares after termination of his employment. For the reasons discussed next, the court
finds that the Complaint states a reasonably conceivable claim of fraud against
Bloom and Kaufman with respect to the first two actions described above but fails
to do so with respect to the third.
First, the Complaint alleges specific facts demonstrating that Bloom and
Kaufman induced Ogus to approve converting SportTechie from an LLC to a
corporation by promising him—falsely—that he would retain the managerial role he
11
had with the Company as an LLC and the Veto Right he had under the 2016
Operating Agreement:
On or about noon on December 29, 2016, Mr. Kaufman sent Mr. Ogus
the conversion documents. At this time, during conversations with Mr.
Bloom and Mr. Kaufman, Mr. Ogus was told that he would retain his
managerial authority as COO, and remain involved in the day-to-day
management of the Company. As co-founder and one of the two
stockholders, Mr. Ogus was told he would retain the Veto Right over
major Company decisions he had possessed before the conversion. . . .
Mr. Kaufman further pressured Mr. Ogus by asserting that (i) Mr. Ogus
would inhibit Company business if he did not approve the conversion
documents in the short turn-around time, and (ii) Mr. Ogus would be
personally responsible for any fall-out caused by his delay in giving his
consent.47
The court disagrees with defendants’ contention that this aspect of the alleged
fraudulent scheme is not plead with particularity. The allegations quoted above and
other allegations in the Complaint48 provide sufficient details to apprise the
defendants of the basis for this aspect of Ogus’ fraud claim. Specifically, the
allegations detail the content of the false representations; the time frame in which
they were made; the identity of the persons making them; and what Bloom and
47
Compl. ¶ 50.
48
See id. ¶¶ 46 (“Mr. Kaufman lied to Mr. Ogus by telling him that, under the proposed
structural change, Mr. Ogus and Mr. Bloom would continue to lead SportTechie from a
creative and operational standpoint after the conversion to a corporation and as a
stockholder, Mr. Ogus would continue to maintain his Veto Right.”); 47 (“Mr. Kaufman
misrepresented to Mr. Ogus that under the proposed structure, any major business decision
would require unanimous approval of all stockholders, including Mr. Ogus. Mr. Kaufman
also advised Mr. Ogus that outside counsel agreed with him on the meaning and effect of
the conversion documents.”).
12
Kaufman gained from making the statements, i.e., to terminate Ogus’ employment
with the Company and, assuming Ogus later would sign the Shareholders
Agreement, to force him “to sell his equity interest at a price far below fair market
value.”49
Second, the Complaint alleges that Bloom and Kaufman falsely assured Ogus
from November 2016 to February 2017 that he would be added to the Board of the
Company shortly after the conversion:
In November 2016, Mr. Kaufman and Mr. Bloom had initially proposed
a three-person Board consisting of Mr. Bloom, Ms. Bodie and Mr. Sato.
Mr. Ogus resisted being excluded from the Board which had a majority
of Company outsiders. . . . Importantly, Mr. Kaufman promised Mr.
Ogus that he would be added to the Board shortly after the conversion.50
In January 2017, Mr. Bloom and Mr. Kaufman again falsely promised
Mr. Ogus that he would become a member of the Board and would soon
be joining Mr. Sato, Ms. Bodie, and Mr. Bloom as members of the
Board.51
In January 2017, Bloom and Kaufman promised Mr. Ogus for at least
the third time that he would become a member of the Board and
maintain his Veto Right.52
In February 2017, Mr. Ogus asked Mr. Kaufman and Mr. Bloom who
would be a good fit to be the fifth member of the SportTechie Board,
assuming that based on prior promises, Mr. Ogus would be the fourth
directors (the existing three seats were occupied by Mr. Bloom, Ms.
49
Id. ¶ 2.
50
Id. ¶¶ 47-48.
51
Id. ¶ 54.
52
Id. ¶ 60.
13
Bodie, and Mr. Sato). In response, Mr. Kaufman and Mr. Bloom
continued to misrepresent that Mr. Ogus would be made a member of
the Board.53
The practical effect to Ogus of this aspect of his fraud claim is unclear given that the
Complaint contemplates that Ogus would be only one member of a five-member
Board, which could out vote him on any given matter, including the termination of
his employment. Nonetheless, this aspect of the claim is pled with sufficient
particularity to apprise the defendants of the basis for the claim.
With respect to the procuring Ogus’ approval of the conversion and his
exclusion from the Board, the Complaint goes on to plead the other elements of
fraud. Specifically, the Complaint sufficiently alleges (i) that Bloom and Kaufman
knew the above-referenced statements were false because they intended to fire Ogus
and to eliminate his Veto Right and they did not intend to place Ogus on the Board;
(ii) that Bloom and Kaufman nevertheless made the statements to induce Ogus to
approve the conversion and to sign written consents approving appointments to the
Board; (iii) that Ogus reasonably relied on their representations, which “were made
by the Company attorney Mr. Kaufman and by [Ogus’] longtime partner Mr. Bloom”
and, insofar as his Veto Right was concerned, because “the approval of stockholders
for major decisions was consistent with the then-operative LLC agreement;” and
53
Id. ¶ 71.
14
(iv) that these representations harmed Ogus by facilitating his termination from the
Company and, ultimately, the repurchase of his shares at an allegedly unfair price.54
Focusing on the third action making up the alleged fraudulent scheme—
execution of the Shareholders Agreement—Ogus has failed to state a reasonably
conceivable claim for fraud. Although the Complaint is not a model of clarity, Ogus’
grievance appears to be that Kaufman “withheld the fact that the purpose of the
Shareholders Agreement was to make it possible for . . . the Board to terminate Mr.
Ogus without cause and repurchase his shares.”55
As an initial matter, the Shareholders Agreement did not “make it possible”
for the Board to terminate Ogus as an officer or employee of the Company—with or
without cause. The Board’s authority to take such action post-conversion arose from
its authority under the Delaware General Corporation Law and the Company’s
certificate of incorporation and bylaws.56 The Shareholders Agreement simply
54
Id. ¶¶ 110-11, 114-15, 117-18, 121-23.
55
Id. ¶ 65. The Complaint further alleges that “Mr. Kaufman conveyed to Mr. Ogus that
he needed the new Shareholders Agreement to ‘button up’ as SportTechie progressed as a
Company.” Id. This statement is not actionable because it is vague and, at most, is an
expression of opinion. See Vichi v. Koninklijke Philips Elecs., N.V., 85 A.3d 725, 775 (Del.
Ch. 2014) (“[P]laintiff generally cannot rely . . . on . . . expressions of mere opinion.”)
(citations omitted).
56
See, e.g., 8 Del. C. § 141(a) (“The business and affairs of every corporation . . . shall be
managed by or under the direction of a board of directors, except as may be otherwise
provided in this chapter or in its certificate of incorporation.”)
15
provides that “[u]pon the termination of [Ogus’] employment from the Company . . .
(for any reason or for no reason),” the Company shall have the option to purchase
his shares on the terms and conditions specified therein.57 By its plain terms, this
provision means that the Company could repurchase Ogus’ shares once his
employment was terminated, however that termination came about (e.g., if the Board
fired Ogus or if he resigned voluntarily), but does not create the right of the Board
to terminate Ogus’ employment.
More to the point, insofar as Ogus contends that Kaufman concealed that the
Shareholders Agreement permitted the Company to repurchase his shares, such a
contention cannot support a claim for fraud because this right is expressly set forth
in the Shareholders Agreement that Ogus signed. As this court has held, “[i]t is
unreasonable to rely on oral representations when they are expressly contradicted by
the parties’ written agreement.”58 The same logically holds true when purporting to
rely on an alleged omission that contradicts the plain language of the contract at
issue. Here, to repeat, the Shareholders Agreement expressly allowed the Company
to repurchase Ogus’ shares upon the termination of his employment with the
57
Compl. Ex. C § 6.1 (emphasis added).
58
Flores v. Strauss Water, Ltd., 2016 WL 5243950, at *7 (Del. Ch. Sept. 22, 2016) (quoting
Carrow v. Arnold, 2006 WL 3289582, at *11 (Del. Ch. Oct. 31, 2006), aff’d, 993 A.2d
1249 (Del. 2007)); see also MicroStrategy Inc. v. Acacia Research Corp., 2010 WL
5550455, at *14 (Del. Ch. Dec. 30, 2010) (granting motion to dismiss fraud claim based
on three oral statements that were expressly contradicted by a later contract).
16
Company. Thus, Ogus cannot complain that he was fraudulently induced to enter
into the Shareholders Agreement based on Kaufman’s alleged failure to disclose that
his shares could be repurchased.
*****
In sum, the motion to dismiss Count I is granted in part and denied in part in
the manner explained above.
B. Count II: Aiding and Abetting Fraud Against Bodie and Oak View
Count II is an aiding and abetting claim against Bodie and Oak View for
“substantially assist[ing] Defendants Bloom and Kaufman’s fraudulent conduct”
“[a]s set forth in Count I.”59 The elements of aiding and abetting fraud are: “(i)
underlying tortious conduct, (ii) knowledge, and (iii) substantial assistance.”60
Ogus has satisfied the first element for the reasons discussed in the previous
section. More specifically, Ogus sufficiently has pled two underlying instances of
fraud: “misrepresentations and omissions of material facts in order to induce Mr.
Ogus to (1) agree to converting SportTechie from an LLC to a corporation [and] (2)
agree to a five-person Board, initially comprised of Bloom, Sato, and Bodie.”61 Ogus
has failed, however, to plead sufficient facts to satisfy the second element of the
59
Compl. ¶¶ 131, 142.
60
PR Acqs., LLC v. Midland Funding LLC, 2018 WL 2041521, at *15 (Del. Ch. Apr. 30,
2018) (internal citations and quotation marks omitted).
61
Compl. ¶ 107.
17
claim, i.e., that either Bodie or Oak View had knowledge of the alleged
misrepresentations and omissions that form the basis of the fraud claim alleged
against Bloom and Kaufman.
Citing paragraph 133 of the Complaint, Ogus asserts that “Count II alleges
that Bodie and Oak View were aware of and participated in the entirety of
Defendants’ fraudulent conduct from October 2016 through March 2017.”62 The
text of paragraph 133, however, is conclusory. It does not allege any facts
demonstrating that Bodie or Oak View were aware of any false representations that
Bloom and/or Kaufman made to Ogus or of any material omissions arising from
their discussions. Rather, paragraph 133 states, in its entirety, that: “During the
period from October 2016 through March 2017, Bodie and Oak View Group had
knowledge of and actively participated in the fraudulent scheme detailed above and
summarized in this count.”63
Ogus argues that the “terms of the [convertible] note Bodie signed expose part
of Bodie’s and Oak View’s knowledge and participation in the fraudulent scheme,
as it specifically refers to the Board seat she would occupy . . . as well as the equity
award to Kaufman.”64 But signing a document reflecting that Oak View would have
62
Pl.’s Opp’n Br. 26-27.
63
Compl. ¶ 133; see also id. ¶ 137 (asserting without supporting facts that “Bodie and Oak
View Group were consulted often about managing the details of the fraudulent scheme”).
64
Pl.’s Opp’n Br. 27.
18
a representative on the Board as a condition of its investment in the Company—an
unremarkable provision for a private equity firm investing in a startup—and that
Kaufman would receive an equity award does not equate to knowledge of fraudulent
conduct.65
At bottom, Ogus argues the court should infer that Bodie and Oak View were
aware of the fraud that Bloom and Kaufman allegedly perpetrated because Oak View
wanted to “obtain a controlling financial interest” in the Company.66 Oak View
allegedly accomplished this objective through a plan that involved (i) the conversion
of the Company from an LLC to a corporation, (ii) the creation of a new Board that
excluded Ogus, and (iii) the implementation of the Shareholders Agreement.
Once again, the flaw in Ogus’ aiding and abetting theory is the absence of any
well-plead facts demonstrating that Bodie or Oak View had knowledge of the alleged
misrepresentations and omissions that form the basis of the fraud claim in Count I.
Defendants contend, and perhaps the record will show, that the steps that ultimately
65
Ogus contends that Kaufman’s receipt of an equity award “the day after the Shareholders
Agreement was fraudulently procured is more than sufficient at the pleadings stage to
support an inference of knowledge and substantial assistance.” Pl.’s Opp’n Br. 27
(emphasis in original). In support of this contention, Ogus cites Great Hill Equity Partners
IV, LP v. SIG Growth Equity Fund I, LLLP, 2018 WL 6311829, at *23-24 (Del. Ch. Dec.
3, 2018). Putting aside that Ogus has not sufficiently alleged a claim of fraud with respect
to his execution of the Shareholders Agreement for the reasons discussed previously, the
cited section of Great Hill addresses the issue of substantial participation and not the issue
of knowledge. See 2018 WL 6311829, at *23-24.
66
Pl.’s Opp’n Br. 28 (citing Compl. ¶¶ 137-38).
19
led to Ogus’ termination from the Company and the repurchase of his shares
occurred in a completely above board manner. Insofar as Bodie and Oak View are
concerned, Ogus simply fails to plead facts demonstrating that they were aware of
the allegedly fraudulent conduct by Bloom and Kaufman that states a claim for relief
under Count I.67 Accordingly, Count II fails to state a claim for relief.
C. Count III: Breach of Fiduciary Duty Against Kaufman
Count III asserts that Kaufman breached his fiduciary duty as an officer and
the in-house attorney of SportTechie in two ways. First, Ogus asserts that Kaufman
“pressured and threatened [Ogus] to cause him to execute conversion and other key
documents under arbitrary time constraints and without the advice of independent
counsel.”68 Second, Ogus asserts that Kaufman “intentionally misrepresented
information and omitted material information . . . regarding what the effect was on
Mr. Ogus of documents he was asking Ogus to sign relating to [his] role at the
Company.”69
The second aspect of Count III is a reprise of the fraud claim against Kaufman
and states a claim for relief to the same extent that fraud claim survived as to him.
67
Given the court’s conclusion that Count II fails based on the element of knowledge, the
court does not consider whether the Complaint sufficiently pleads “substantial assistance.”
68
Compl. ¶ 149.
69
Id. ¶ 150.
20
More specifically, Ogus has pled sufficiently that Kaufman breached his fiduciary
duty by making misrepresentations and omitting material facts when asking Ogus to
sign documents approving (i) the conversion of SportTechie from an LLC to a
corporation and (ii) the appointment of directors to the Board.70 Count III, however,
fails to state a claim for breach of fiduciary duty insofar as it asserts that Kaufman
defrauded Ogus concerning the effect the Shareholders Agreement could have on
his interests. This is because, as discussed previously, the plain terms of the
Shareholders Agreement made it clear that the Company had the option to
repurchase Ogus’ shares upon the termination of his employment with the Company.
As to the first aspect of Count III, the Complaint alleges that (i) Kaufman sent
Ogus documents to implement the conversion around noon on December 29, 2016
and demanded that he sign them by 2:30 p.m. the next day, (ii) Kaufman (and
Bloom) told Ogus “[a]t this time . . . that he would retain his managerial authority as
70
See Part III.A. Defendants cite York Linings v. Roach, 1999 WL 608850 (Del. Ch. July
28, 1999) for the proposition that the portion of a fiduciary duty claim based on fraud must
be pled with particularity. As discussed above, the two aspects of the fraud claim that
survive here were pled with particularity. Defendants also ask the court to dismiss the
fiduciary duty claim to the extent that it is duplicative of the fraud claim. Although the
misrepresentation and omission component of the breach of fiduciary duty claim overlaps
with the fraud claim in Count I, the court will allow both claims to proceed. See Bay Center
Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *11 n.59 (Del Ch.
2009) (“I recognize that allowing a fraud claim to proceed because of a fiduciary duty claim
generates redundancy[,] . . . [but] this sort of redundancy has been permitted in our
jurisprudence.”) (citing Zirn v. VLI Corp., 621 A.2d 773 (Del. 1993); Shamrock Hldgs. of
Cal., Inc. v. Iger, 2005 WL 1377490 (Del. Ch. June 6, 2005)).
21
COO, and remain involved in the day-to-day management of the Company,” (iii)
Ogus also was told he “would retain the Veto Right over major Company decisions
he had possessed before the conversion,” (iv) Kaufman told Ogus he “would inhibit
Company business if he did not approve the conversion documents in the short turn-
around time” and that “Ogus would be personally responsible for any fall-out caused
by his delay in giving his consent,” (v) the conversion was the first step in a three-
step plan that culminated with Ogus’ execution of the Shareholders Agreement, and
(vi) the day after the Shareholders Agreement was signed, Kaufman entered into an
agreement to purchase 611,112 shares of the Company’s common stock “on very
favorable terms” that Bloom signed on behalf of the Company.71 Based on these
allegations, it is reasonably conceivable that Kaufman, motivated by obtaining a
personal benefit if the alleged plan to eliminate Ogus was consummated, breached
his fiduciary duty of loyalty by making threats against and bringing undue pressure
on Ogus so that he would sign the documents to implement the critical first step of
that plan.
Defendants argue that Ogus fails to state a claim with respect to the first aspect
of the fiduciary duty claim because “Ogus admits that he was aware of the fact of
the proposed conversion at least two months before it occurred” which “contradicts
71
Compl. ¶¶ 45, 50, 69, 157.
22
his allegation of being ‘pressured and threatened’ to convert the Company.” 72 In
particular, defendants focus on how in October 2016, “Mr. Kaufman told Mr. Ogus
that the 2016 Operating Agreement was inadequate and urged Mr. Ogus to agree to
. . . convert[] [SportTechie] to a Delaware corporation,”73 and in November 2016,
Kaufman and Ogus continued to discuss the potential conversion.74 But these
discussions of a “conversion” are described in vague terms that do not explain the
significance of the potential change in the Company’s form. Thus, they do not
negate the reasonable conceivability of a claim that Kaufman improperly threatened
and pressured Ogus to approve the conversion shortly after he provided documents
to Ogus presumably reflecting the actual terms and potential implications of the
transaction.
*****
The motion to dismiss Count III is granted in part and denied in part in the
manner stated above.
D. Count IV: Breach of Fiduciary Duty Against Bodie and Bloom
Count IV asserts that Bodie and Bloom breached their fiduciary duties as
directors of SportTechie in essentially three respects, by (i) “withholding
72
Defs.’ Opening Br. 23 (emphasis in original).
73
Compl. ¶ 44-45
74
See id. ¶ 47.
23
information about their plan to strip [Ogus] of authority within the Company,”
(ii) “improperly purporting to terminate [Ogus’] employment,” and (iii) purporting
“to repurchase his shares at a price well below fair market value.”75 The court
addresses each of these three components of Count IV, in turn, below.
1. Withholding Information
The first component of Count IV—withholding information—is a second
reprise of the fraud claim, this time against Bloom, which states a claim for breach
of fiduciary duty against Bloom for the same reasons and to the same extent that this
claim survived against Kaufman.76 In other words, it is reasonably conceivable that
Bloom breached his fiduciary duty by making misrepresentations and omitting
material facts in connection with asking Ogus to approve the conversion of
SportTechie from an LLC to a corporation and the appointment of directors to the
Board, but Count IV fails to state a claim concerning Ogus’ execution of the
Shareholders Agreement.
75
Id. ¶ 156. The header for Count IV asserts a breach of fiduciary duty claim only against
Bodie and Bloom but the body of this section of the Complaint references Kaufman several
times. See id. ¶¶ 155-57, 159. Ogus explains in his opposition brief that whether
Kaufman’s “conduct is considered as part of Count III or Count IV is of no substantive
moment.” Pl.’s Opp’n Br. 37. The court analyzed the allegations concerning Kaufman’s
alleged breach of fiduciary duty in discussing Count III above, and will not repeat that
analysis here.
76
See Part III.C.
24
As to Bodie, Count IV fails to state a claim for breach of fiduciary duty
because the alleged withholding of information from Ogus with respect to his
approval of the conversion and of the appointment of directors to the Board—
including the appointment of Bodie—occurred before Bodie became a director of
the Company on February 1, 2017.77 Relying on Noerr v. Greenwood,78 Ogus argues
that “[p]rospective directors . . . can be liable for disclosure violations committed in
connection with solicitation of equity-holder approval of their election to the
board.”79 Although one of the defendants in Noerr had been nominated but not yet
elected as a director when the challenged proxy statement was circulated,80 the court
did not address whether a director can be subject to fiduciary duties before actually
becoming a director. In the absence of any such analysis, the court declines to find
that Bodie owed fiduciary duties before her appointment to the Board when she had
no legal authority to serve as a director of the Company at that time.
2. The Termination of Ogus’ Employment
The second component of Count IV asserts that “Bodie and Bloom breached
their fiduciary duties to Ogus by signing the consents to terminate [Ogus] without
77
See In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 758 (Del. Ch. 2005) (“Delaware
law does not require directors-to-be to comply with their fiduciary duties.”).
78
1997 WL 419633 (Del. Ch. July 16, 1997).
79
Pl.’s Opp’n Br. 38.
80
1997 WL 419633, at *1 n.2.
25
cause.”81 Citing Dweck v. Nasser,82 defendants argue that this conduct “cannot be a
breach of fiduciary duty” because, “[t]o the extent Ogus claims his termination was
wrongful, that is a wrongful termination claim, not a breach of fiduciary duty
claim.”83 The court does not read Dweck to provide such a categorical rule.
In Dweck, the court held that Gila Dweck’s allegations of wrongdoing
concerning her termination as president and CEO of Kids International Corporation
by the company’s director and controlling stockholder (Nasser) “are insufficient to
support a claim for breach of fiduciary duty.” 84 In reaching this conclusion,
however, the court seemed to rely on the lack of any allegations suggesting that
Nasser or any other director of the company was acting against the company’s best
interests in firing Dweck such that there was no reason to interfere with their ability
to change the management of the company. As the court stated: “Apart from the
unenforceable stockholders agreement, there is nothing to suggest that Nasser or any
director of Kids’ had a fiduciary obligation to leave the management of the business
to Dweck.”85
81
Compl. ¶ 158.
82
2005 WL 5756499 (Del. Ch. Nov. 23, 2005).
83
Defs.’ Reply Br. 22 (Dkt. 49).
84
2005 WL 5756499, at *5.
85
Id. The “unenforceable stockholders agreement” refers to a draft agreement governing
Dweck’s rights as an officer and director of the company that the court found to be
unenforceable. Id. at *2.
26
The court’s analysis concerning another personnel decision in that case
supports this reading of Dweck. Specifically, the court declined to dismiss a claim
for breach of fiduciary duty against Nasser for hiring his nephew (Djemal) to replace
Dweck. Based on allegations that Djemal was “unsuited to the job,” “ha[d] caused
substantial disruption at the company,” and “ha[d] injured the company’s business
and prospects,” the court concluded that “the complaint sufficiently pleads that the
controller did not act in the best interest of the company when he replaced the
plaintiff with his allegedly unfit nephew.”86
Here, the Complaint alleges that Ogus “never received a negative review of
his work from his fellow employees nor was he otherwise notified that his
performance was lacking,” never received “any further explanation for his
termination,” and was fired “for the sole and improper purpose” of “buy[ing] his
shares at a below market price.”87 Ogus also alleges that his “efforts led to increased
visibility for the Company, increased readership and partnerships, such as with
Sports Illustrated.”88 Based on these allegations, and giving Ogus all reasonable
inferences as the court must at this stage of the proceedings, it is reasonably
conceivable that Bloom and Bodie terminated Ogus’ employment in bad faith simply
86
Id at *1, 6.
87
Compl. ¶¶ 93, 179(k), 188, 191; see also id. ¶¶ 71, 88.
88
Id. ¶ 189.
27
to eliminate his ownership position in the Company for unfair value. This states a
claim for breach of fiduciary duty.
3. The Repurchase of Ogus’ Shares
The third component of Count IV asserts that Bodie and Bloom breached their
fiduciary duty by “repurchas[ing] [Ogus’] shares at a price well below fair market
value.”89 Defendants argue that the gravamen of this aspect of Count IV is that Ogus
received less than fair value for his shares, which should be dismissed because the
theory “is precisely the same as” Ogus breach of contract claim in Count IX.90 The
court agrees.
In Nemec v. Shrader, our Supreme Court affirmed the dismissal of a breach
of fiduciary duty claim involving the redemption of two former officers’ shares of
the company, finding that the claim was foreclosed by a contract that expressly
addressed the parties’ dispute even though the company’s directors made the
decision to redeem the shares:
It is a well-settled principle that where a dispute arises from obligations
that are expressly addressed by contract, that dispute will be treated as
a breach of contract claim. In that specific context, any fiduciary claims
arising out of the same facts that underlie the contract obligations would
be foreclosed as superfluous.
*****
89
Id. ¶ 156.
90
Defs.’ Opening Br. 28.
28
Even though the Directors caused the Company to redeem the
plaintiffs’ shares when it did, the fiduciary duty claim still arises from
a dispute relating to the exercise of a contractual right—the Company’s
right to redeem the shares of retired nonworking stockholders. That
right was not one that attached to or devolved upon all the Company’s
common shares generally, irrespective of a contract. Rather, that right
was solely a creature of contract, and attached only to those shares that
retired stockholders acquired under the Stock Plan. As a consequence,
the nature and scope of the Directors’ duties when causing the
Company to exercise its right to redeem shares covered by the Stock
Plan were intended to be defined solely by reference to that contract.
Any separate fiduciary duty claims that might arise out of the
Company’s exercise of its contract right, therefore, were foreclosed.91
Here, Section 6 of the Shareholders Agreement expressly provides that upon
the termination of Ogus’ employment from SportTechie, the Company has the
option to purchase his shares for “an amount equal to the fair market value (as
determined in good faith by the Board) of the Shares.”92 The alleged breach of this
contractual obligation is the subject of Count IX, discussed below. This is not to say
that the Board’s decision to terminate Ogus’ employment cannot form the basis of a
fiduciary duty claim. As discussed in the previous section, Ogus has stated such a
claim. Insofar as the question is whether Ogus received fair value for his shares,
however, that dispute is squarely addressed by the terms of the Shareholders
Agreement—which has a built in requirement that the directors determine fair value
91
Nemec v. Shrader, 991 A.2d 1120, 1129 (Del. 2010) (citations omitted, emphasis in
original).
92
Compl. Ex. C § 6.2.
29
in good faith—and cannot form the basis of a separate fiduciary duty claim under
the reasoning of Nemec.93 For this reason, this aspect of Count IV fails to state a
claim for relief.
*****
The motion to dismiss Count IV is granted in part and denied in part in the
manner stated above.
E. Count V: Aiding and Abetting Against Oak View
Count V of the Complaint asserts that Oak View aided and abetted Bodie in
breaching her fiduciary duties in the manner set forth in Count IV.94 The elements
93
See also Gale v. Bershad, 1998 WL 118022, at *5 (Del. Ch. Mar. 4, 1998) (“[B]ecause
the contract claim addresses the alleged wrongdoing by the Board, any fiduciary duty claim
arising out of the same conduct is superfluous.”); Madison Realty Partners 7, LLC v. Ag
ISA, LLC, 2001 WL 406268, at *6 (Del. Ch. Apr. 7, 2001) (dismissing a fiduciary duty
claim because “the contract and fiduciary claims overlap completely since they are based
on the same underlying conduct . . . [and] ‘relate[s] to obligations ‘expressly treated . . . ’
by contract’”); Blue Chip Capital Fund II Ltd. P’ship v. Tubergen, 906 A.2d 827, 833-34
(Del. Ch. 2006) (dismissing a fiduciary duty claim when “the complaint asserts contractual
and fiduciary duty claims that arise from the same alleged facts and underlying conduct”
because “contract, and not fiduciary, principles should govern the analysis”); Stewart v. BF
Bolthouse Holdco, LLC, 2013 WL 5210220, at *13-15 (Del. Ch. Aug. 30, 2013)
(dismissing a fiduciary duty claim because it is “duplicative of, and foreclosed by, their
breach of contract claims”).
94
In its opposition brief, Ogus asserts that Oak View “participated in the breaches by
Kaufman and Bloom as well—including encouraging Kaufman’s misconduct by promising
him a cut of the benefits in the 2016 note.” Pl.’s Opp’n Br. 46. Fairly read, the allegations
of Count V focus only on Bodie’s conduct and seeks to impute only her conduct to Oak
View. See, e.g., Compl. ¶¶ 165 (“Bodie breached her fiduciary duties to Plaintiff.”), 166
(“The actions and knowledge of Ms. Bodie is imputed to Oak View for the reasons detailed
earlier herein. Thus, Oak View actively participated in the breach of fiduciary duty.”).
30
of a claim for aiding and abetting a breach of fiduciary duty are: “(1) the existence
of a fiduciary relationship, (2) a breach of the fiduciary’s duty, (3) knowing
participation in that breach by the defendants, and (4) damages proximately caused
by the breach.”95
As previously discussed, Count IV contains three components: (i) the
withholding of information, (ii) the termination of Ogus’ employment, and (iii) the
Company’s repurchase of Ogus’ shares. Because Count IV fails to state a claim for
breach of fiduciary duty against Bodie with respect to the first and third
components,96 Count V fails to state a claim for aiding and abetting against Oak
View as to those two components as well.
With respect to the second component, for which Ogus has stated a claim
against Bodie for breach of fiduciary duty for the reasons discussed in Part III.D and
for which defendants do not contest the element of damages,97 the only open question
is whether the Complaint sufficiently alleges that Oak View knowingly participated
Accordingly, the court analyzes Count V only with respect to Bodie’s alleged breach of
fiduciary duty.
95
Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001) (citations, internal quotations,
and alterations in original omitted).
96
See Part III.D.
97
Because defendants did not challenge the damages element of the aiding and abetting
claim in their briefs, they have waived the issue. See Emerald Partners v. Berlin, 726 A.2d
1215, 1224 (Del. 1999) (issues not briefed are deemed waived).
31
in Bodie’s alleged breach of fiduciary duty. “A claim of knowing participation need
not be pled with particularity,” but “there must be factual allegations in the complaint
from which knowing participation can be reasonably inferred.”98
The Complaint sufficiently alleges that Bodie knowingly participated in the
termination of Ogus’ employment by signing a written consent of the Board to
remove Ogus as an officer of the Company effective March 8, 2017.99 “A director’s
knowledge and participation in a breach may be imputed to a non-fiduciary entity
for which that director also serves in a fiduciary capacity.” 100 Ogus alleges, and
defendants do not dispute, that Bodie was serving in a fiduciary capacity at Oak
View when she signed the written consent, which follows from the Complaint’s
allegations that Bodie “served as an officer” of Oak View and was its Vice President
of Business Development in 2017.101 Accordingly, Bodie’s knowing participation
in the termination of Ogus’ employment may be imputed to Oak View. Count V
thus states a claim against Oak View for aiding and abetting Bodie’s breach of
fiduciary duty with respect to terminating Ogus’ employment at SportTechie.
98
In re Gen. Motors (Hughes) S'holder Litig., 2005 WL 1089021, at *24 (Del. Ch. May 4,
2005) (citation and internal quotation marks omitted).
99
Compl. ¶¶ 88, 93; see id. Ex. F.
100
Carr v. New Enter. Assocs., Inc., 2018 WL 1472336, at *16 (Del. Ch. Mar. 26, 2018)
(citing Carlson v. Hallinan, 925 A.2d 506, 542 (Del. Ch. 2006); Khanna v. McMinn, 2006
WL 1388744, at *27 (Del. Ch. May 9, 2006)).
101
Compl. ¶¶ 19, 162.
32
*****
The motion to dismiss Count V is granted in part and denied in part in the
manner stated above.
F. Count VI: Civil Conspiracy Against Bodie, Bloom, Kaufman and
Oak View
Count VI asserts that Bodie, Bloom, Kaufman, and Oak View engaged in a
civil conspiracy to allow Oak View to gain control of SportTechie through Oak
View’s purchase of a secured convertible note and the subsequent implementation
of a multi-step plan that forced Ogus out of the Company and allowed it to
repurchase his shares “at below market price.”102 The elements for civil conspiracy
are: “(i) a confederation or combination of two or more persons; (ii) an unlawful act
done in furtherance of the conspiracy; and (iii) damages resulting from the action of
the conspiracy parties.”103
With respect to the first element, “[e]ven to prevail at trial the [plaintiff does]
not need to prove the existence of an explicit agreement; a conspiracy can be inferred
from the pled behavior of the alleged conspirators.”104 “[T]o survive a motion to
102
Id. ¶¶ 178-80.
103
Great Hill, 2014 WL 6703980, at *20.
104
In re Am. Int’l Grp., Inc., 965 A.2d 763, 806 (Del. Ch. 2009) (citing Empire Fin. Servs.,
Inc. v. Bank of N.Y., 900 A.2d 92, 97 n.16 (Del. 2006)); see also LVI Grp. Invs., LLC v.
NCM Grp. Holdings, LLC, 2018 WL 1559936, at *16 (Del. Ch. Mar. 28, 2018).
33
dismiss, all that is needed is a reasonable inference that [the defendant] was part of
this conspiracy.”105
Here, the Complaint alleges, in sum, that: (i) Oak View, through Bodie,
invested in SportTechie in October 2016 expecting to make a further investment in
and obtain control of the Company;106 (ii) Bodie publicly stated in November 2016
that members of Oak View would have “first dibs” on SportTechie;107 (iii) Bloom,
Kaufman, and Bodie (acting together in various combinations) thereafter (a)
converted the LLC into a corporation, which eliminated Ogus’ Veto Right and gave
the Board the authority to terminate Ogus’ employment; (b) created a Board friendly
to Oak View that excluded Ogus; (c) procured a Shareholders Agreement allowing
the Company to repurchase Ogus’ shares upon the termination of his employment;
(d) terminated Ogus’ employment; and (e) repurchased his shares at an allegedly
unfair price.108 These allegations, and the rather rapid pace at which the sequence of
events necessary to implement the alleged plan occurred, support a reasonable
inference of a confederation among Bodie, Bloom, Kaufman, and Oak View.109
105
Am. Int’l Grp, 965 A.2d at 806.
106
Compl. ¶¶ 40-41, 77.
107
Id. Ex. B at 5.
108
Compl. ¶¶ 45, 47, 48, 65, 67, 88, 94, 102.
109
Defendants devote several pages downplaying the significance of certain events, asking
the court to draw different inferences about them, and challenging the alleged conspiracy
as “nonsensical” and “farfetched.” See Defs.’ Reply Br. 28-30. Defendants make many
34
The second element of a civil conspiracy claim—an unlawful act in
furtherance of the conspiracy—also has been pled sufficiently. As discussed above,
Ogus has stated claims for fraud and/or breach of fiduciary duty against each of the
three individual defendants concerning various acts they each took (acting together
in various combinations) in furtherance of the alleged conspiracy.110 Finally, Ogus
alleges he has suffered damages as a result of the conspiracy,111 which defendants
do not challenge in their briefs.112
For the foregoing reasons, the motion to dismiss Count VI of the Complaint
is denied.
G. Count IX: Breach of the Shareholders Agreement Against
SportTechie
Count IX asserts that the Company “breached the Shareholders Agreement by
failing to determine in good faith the fair market value of the Company in connection
valid points. The procedural posture of the motion, however, only requires that Ogus plead
facts to support a reasonable inference of a confederation, which he need not do with
particularity. Great Hill, 2014 WL 6703980, at *20 (“The existence of a confederation
may be pled by inference; it is not subject to the specificity requirement of Rule 9(b).”).
Ogus has satisfied that hurdle, albeit not overwhelmingly.
110
See Parts III.A, C, D.
111
Ogus alleges he “has suffered, and will continue to suffer, harm” as a result of the
conspiracy, which led to his termination and the resulting acquisition of his 44.5% equity
interest in SportTechie “at below market prices.” Compl. ¶¶ 177, 183.
112
See Emerald Partners, 726 A.2d at 1224 (issues not briefed are deemed waived).
35
with the . . . repurchase of [Ogus’] shares.”113 Focusing on the Derivatas report, the
Complaint alleges that it “contained notations and assumptions that were
inconsistent with Defendants’ own representations regarding the treatment of
$750,000 of convertible notes, SportTechie’s relationship with Oak View Group and
its future investments, and the overall value of the Company.”114
As discussed above, under Section 6 of the Shareholders Agreement, the
Company had the option to purchase Ogus’ shares upon the termination of his
employment from the Company for “an amount equal to the fair market value (as
determined in good faith by the Board).”115 Noting that the Complaint refers to the
Derivatas report that set the price for Ogus’ shares, defendants argue that Count IX
should be dismissed because, even if there were flaws in the report, the Board
members were entitled to rely on it under 8 Del. C. § 141(e).116
By invoking Section 141(e), which can protect directors of Delaware
corporations from liability if the directors reasonably rely in good faith on the
opinion of expert advisers,117 the Company essentially is asserting an affirmative
113
Compl. ¶ 214. Count IX is asserted in the alternative “if the Shareholders Agreement
is found not have been induced by fraud.” Id.
114
Id. ¶ 218.
115
Id. Ex. C § 6.2 (emphasis added).
116
Defs.’ Opening Br. 49-50.
117
Section 141(e) provides, in relevant part, that “[a] member of the board of directors . . .
shall, in the performance of such member’s duties, be fully protected in relying in good
36
defense against its own potential liability under the Shareholders Agreement. The
Company thus should bear the burden of proof to demonstrate that the directors’
reliance on the Derivatas report was reasonable and done in good faith.118
Defendants have not put forward evidence to make this showing, which is a fact-
intensive inquiry that is not appropriate for disposition in the context of a motion to
dismiss under Court of Chancery Rule 12(b)(6).
On the issue of the Board’s good faith in determining the purchase price for
his shares, Ogus alleges that the Derivitas report stated that “there has been no
contact with any potential investors” to raise additional funds but that the defendants
knew that this assumption was false.119 This is so, according to Ogus, because
“Derivatas had been told that there had been no contact with investors or
arrangements with them for investments after the investments made in October
2016,” when in fact, “between 2017 and 2018 [SportTechie] had discussions with
faith upon the . . . opinions, reports or statements presented to the corporation by any . . .
person as to matters the member reasonably believes are within such . . . person’s
professional or expert competence and who has been selected with reasonable care by or
on behalf of the corporation.” 8 Del. C. § 141(e).
118
See Medek v. Medek, 2008 WL 4261017, at *10 n.88 (Del. Ch. Sept. 10, 2008)
(“Defendants have the burden of proof on each of their affirmative defenses.”) (citing Penn
Mart Supermarkets, Inc. v. New Castle Shopping LLC, 2005 WL 3502054, at *5 n.40 (Del.
Ch. Dec. 15, 2005)).
119
Compl. ¶ 74.
37
‘numerous potential investors.’”120 The omission of this information allegedly
“lowered the valuation.”121 Based on these allegations, it is reasonably conceivable
that the Board knew that the Derivatas report contained a false assumption such that
the Company’s purchase of Ogus’ shares did not satisfy the good faith standard
embedded in Section 6 of the Shareholders Agreement.122 Accordingly, Count IX
states a claim for relief.
IV. CONCLUSION
For the foregoing reasons, the court grants in part and denies in part
defendants’ motion to dismiss the seven claims in the Complaint discussed above.
Counsel are directed to confer and to submit a form of implementing order consistent
with this decision within five business days.
IT IS SO ORDERED.
120
Id. ¶¶ 74, 80. Although the Complaint is not a model of clarity, the court infers that this
assumption came from discussions Bloom and/or Kaufman had with Derivatas. See id.
121
Id. ¶ 80.
122
Defendants contend that Ogus’ allegations that the Company had been in contact with
investors is erroneous because a complaint the Company filed in the United States District
Court for the District of Maryland, which is cited in paragraph 74 of the Complaint as
factual support for Ogus’ allegations, only refers to contacts with investors occurring after
Ogus’ termination. See Defs.’ Opening Br. 33-34. This assertion presents a factual dispute
that cannot be resolved at this stage of the case because it is unclear from the Complaint
that this was the only source for Ogus’ allegations of contacts with investors.
38