IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
THE ANSCHUTZ CORPORATION and )
LIGHTEDGE HOLDINGS, LLC, )
)
Plaintiffs, )
)
v. ) C.A. No. 2019-0710-JRS
)
BROWN ROBIN CAPITAL, LLC, )
SIERRA TWO INTERNET, INC., )
LUCAS BRAUN, RYAN ROBINSON, )
JACK D’ANGELO, BOBBY BOUGHTON )
and MICHAEL SMERKLO, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: April 8, 2020
Date Decided: June 11, 2020
Michael A. Pittenger, Esquire, Berton W. Ashman, Jr., Esquire, and David M. Hahn,
Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware; and
William M. Regan, Esquire and David R. Michaeli, Esquire of Hogan
Lovells US LLP, New York, New York; and Mark C. Hansen, Esquire and
John Thorne, Esquire of Kellogg Hansen Todd Figel & Frederick PLLC,
Washington, DC, Attorneys for Plaintiffs.
Rudolf Koch, Esquire, Kevin M. Gallagher, Esquire and Ryan D. Konstanzer,
Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware; Jack W.
Pirozzolo, Esquire and Ben Schwarz, Esquire of Sidley Austin LLP, Boston,
Massachusetts; and Christopher M. Egleson, Esquire of Sidley Austin LLP,
Los Angeles, California, Attorneys for Defendants.
SLIGHTS, Vice Chancellor
This is a dispute between a vexed buyer and an incredulous seller following
the sale of a business. The buyer alleges it is the victim of contractual breaches and
fraud; the seller maintains it sold the buyer precisely what was bargained for.
In other words, it is a version of a dispute as old and abiding as commerce itself.
In early 2018, Plaintiff, LightEdge Holdings, LLC (“LightEdge” or the
“Buyer”), initiated negotiations with Defendants, Brown Robin Capital, LLC
(“Brown Robin”), Sierra Two Internet, Inc. (“Sierra”), Lucas Braun (“Braun”), Ryan
Robinson (“Robinson”), Jack D’Angelo (“D’Angelo”) and Michael Smerklo
(“Smerklo”) (collectively, the “Sellers”), to acquire OnRamp Access, LLC
(“OnRamp” or the “Company”). In the midst of negotiations, LightEdge and its
parent company, Plaintiff, the Anschutz Corporation (“Anschutz”), were
discouraged when Sellers disclosed that OnRamp had experienced disappointing
monthly sales growth and that one of OnRamp’s largest customers was significantly
scaling back its business. Sellers assuaged these concerns by representing there were
no further material customer roll-backs, actual or threatened, and by showcasing a
promising pipeline of near-term business opportunities that OnRamp was vigorously
pursuing. Satisfied, Buyer closed the transaction on July 2, 2018, with an all-cash
purchase price of $106 million (the “Acquisition”).
Buyer’s satisfaction was short lived. Two months after closing, Yeti Coolers,
one of OnRamp’s largest customers, reduced its business with OnRamp by nearly
1
half. Sellers had never disclosed Yeti’s multiple requests for major service
reductions during the pendency of the negotiations. Adding insult to injury, Buyer
then discovered that many of the sales opportunities listed in OnRamp’s sales
pipeline had either been rejected out-of-hand by the target business well before
closing, or were far more speculative than their listed status in the pipeline data
suggested.
In the wake of these disconcerting post-closing discoveries, Buyer initiated
this action in which it brings claims against Sellers for breach of contract and fraud,
along with a slew of other alleged common law and statutory violations. Sellers
answer with the common refrain that Buyer’s claims amount to nothing more than
post-closing buyer’s remorse, and maintain that Buyer has failed to well plead any
breach of the operative transaction document, the Unit Purchase Agreement
(the “UPA”), any fraud, whether in the inducement to contract or otherwise, or any
other common law or statutory wrongdoing. They have moved to dismiss all counts
of the complaint under Chancery Rule 12(b)(6) for failure to state viable claims.
After carefully considering the complaint and the UPA, I am satisfied that:
(1) most of Buyer’s breach of contract claims are well-pled and not foreclosed by
the unambiguous language of the UPA; (2) Buyer’s fraud claims are well-pled and
not barred as bootstrapped breach of contract claims; (3) Buyer’s claims based on
extra-contractual representations are not barred by an unambiguous anti-reliance
2
provision; and (4) Buyer’s unjust enrichment claim is not barred as duplicative of its
breach of contract claims. The motion to dismiss those claims is denied.
Buyer has failed to state viable claims, however, for aiding and abetting, civil
conspiracy, conversion, Colorado statutory theft and securities fraud and Texas
statutory fraud and securities fraud. The motion to dismiss those claims, therefore,
must be granted.
I. BACKGROUND
I have drawn the facts from the well-pled allegations in the Verified
Complaint1 and documents incorporated by reference or integral to that pleading.2
For purposes of this Rule 12(b)(6) motion, I accept those well-pled facts as true.3
A. The Parties
Plaintiff, Anschutz, is a Delaware Corporation with headquarters in Denver,
Colorado.4 Anschutz owns 96% of LightEdge.5
1
Citations to the Verified Complaint are to “Compl. ¶ __.”
2
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on
a Motion to Dismiss, the Court may consider documents that are “incorporated by
reference” or “integral” to the complaint).
3
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006).
4
Compl. ¶ 14.
5
Compl. ¶ 15.
3
Plaintiff, LightEdge, is a Delaware limited liability company with
headquarters in Des Moines, Iowa.6 LightEdge is identified as the Buyer in the UPA.
Defendant, Brown Robin, is a Delaware limited liability company with
headquarters in Austin, Texas.7 Its members reside in Texas, California,
Massachusetts and New York.8 Brown Robin is managed by Braun and Robinson,
and it owned 93.2% of OnRamp’s equity at closing, making it a Seller.9
Defendant, Sierra, is a Texas corporation with headquarters in Austin,
Texas.10 Sierra is owned and controlled by OnRamp’s founder, nonparty Chad
Kissinger, and is a Seller.11
Defendant, Lucas Braun, served as CEO of OnRamp at the time of the
Acquisition.12 He is a Seller and a citizen of Texas.13
6
Compl ¶ 15.
7
Compl. ¶ 16; Defs.’ Opening Br. in Supp. of Their Mot. to Dismiss (“OB”), Ex. A
(the “UPA”) 1.
8
Compl. ¶ 16.
9
Compl. ¶¶ 17, 19.
10
Compl. ¶ 20.
11
Id.
12
Compl. ¶ 21.
13
Id.
4
Defendant, Ryan Robinson, served as Chairman and President of OnRamp at
the time of the Acquisition.14 He is a Seller and a citizen of Texas.15
Defendant, Jack D’Angelo, served as CFO of OnRamp at the time of the
Acquisition.16 He is a Seller and a citizen of Texas.17
Defendant, Mike Smerklo, is a Seller and a citizen of Texas.18 His role at
OnRamp, if any, is not pled in the Complaint.
Defendant, Bobby Boughton, was OnRamp’s Vice President of Sales and is a
citizen of Texas.19 Although Boughton is not a Seller, he received a $168,578 bonus
when the Acquisition closed and was subsequently promoted to Executive Vice
President of Sales at LightEdge.20
14
Compl. ¶ 22.
15
Id.
16
Compl. ¶ 23.
17
Id.
18
Compl. ¶ 24.
19
Compl. ¶ 25.
20
Id. I will collectively refer to Braun, Robinson, D’Angelo and Boughton as the
“OnRamp Insiders,” as they are referred to in the Complaint.
5
Nonparty, OnRamp, is a provider of IT support and hybrid computing, cloud
computing, managed services and data center services.21 It operates data centers for
its customers’ private data and IT infrastructure.22
B. The Disappointing Sales Data
Sellers began to pursue a sale of OnRamp in early 2018, and initiated an
auction process.23 LightEdge participated in the auction and, after several revised
offers, entered into a letter of intent with Sellers on May 18, 2018.24 The purchase
price was negotiated by referencing multiples of OnRamp’s adjusted EBITDA,
resulting in a final sale price of $106 million.25 Anschutz committed to provide
LightEdge with $62 million to finance the Acquisition.26
On May 4, 2018, a few weeks before the letter of intent was signed, Sellers
disclosed to LightEdge and Anschutz that a significant OnRamp customer,
Spiceworks, had cancelled its subscription for services.27 This cancellation was
21
Compl. ¶ 28.
22
Id.
23
Compl. ¶ 29.
24
Id.
25
Compl. ¶¶ 30–31.
26
Compl. ¶ 2.
27
Compl. ¶ 54.
6
projected to reduce OnRamp’s annual recurring revenue by $600,000.28 Shortly
after disclosing this cancellation, OnRamp provided Anschutz and LightEdge with
its April sales data.29 That data revealed the Company had generated only $12,000
in new monthly recurring revenue in April, less than a third of its $42,000 target.30
C. The Falsified Salesforce Pipeline Data
The Spiceworks cancellation and disappointing April sales data prompted
Buyer to reconsider whether it would continue to pursue the Acquisition.31 Before
it pulled the plug, however, Buyer wanted a clearer understanding of what
opportunities might be awaiting OnRamp down the road. Accordingly, on May 19,
Buyer requested the Company’s pipeline data from Salesforce.com (“Salesforce”),
an online listing of the Company’s sales opportunities, and scheduled a telephone
conference with Company management for the next week to discuss the data.32
OnRamp’s management agreed to the meeting; before providing the requested data,
however, under the direction of the OnRamp insiders, Company management
28
Id.
29
Id.
30
Id.
31
Compl. ¶ 55.
32
Id.
7
secretly falsified the pipeline by adding more than $6 million in illusory projected
annual revenue.33
According to the Complaint, the falsification is revealed upon close
examination of the Salesforce databank. For example, before the alleged
falsification, the pipeline did not include any active proposal to sell SAP hosting
services to Yeti.34 While the Company had solicited Yeti’s business, when it became
clear Yeti was not interested, the opportunity was originally designated as “0-Closed
Lost” in the Salesforce pipeline, reflecting no potential for a sale.35 On May 20, the
day after LightEdge requested the sales pipeline data, Braun logged into Salesforce
and manually changed the Yeti status designation from “0-Closed Lost” to
“quoted”—indicating a far more advanced stage in the sales process—even though
the Company had never provided Yeti with a quote and Yeti had already
demonstrated its lack of interest.36
Additionally, Boughton instructed the OnRamp sales team to revise the
pipeline to reflect that the Company had “quoted” the American Automobile
Association (“AAA”) a deal that would bring in $3.6 million in annual recurring
33
Compl. ¶ 57.
34
Compl. ¶ 58.
35
Id.
36
Compl. ¶ 59.
8
revenue.37 This sale, if closed, would make AAA the Company’s largest customer
by a considerable margin.38 In actuality, the Company’s entire relationship with
AAA comprised a single meeting, occurring months before the Salesforce entry,
during which OnRamp did not identify any specific services it would provide for
AAA, much less provide a quote.39
D. The Misleading Interim Financial Statements
In addition to providing false sales pipeline data, Sellers also provided
materially misleading financial statements during due diligence.40 In this regard,
LightEdge alleges certain revenues and accounts receivable listed in OnRamp’s
interim financial statements—unaudited financials covering the period from the end
of Q1 2018 until the signing of the UPA—were known to be uncollectible.41
For example, revenues and accounts receivable were listed on the interim statements
from a customer that had disconnected all services in January 2018.42 The interim
statements also treated $51,000 owed by a customer as an “account receivable” when
37
Compl. ¶ 64.
38
Id.
39
Id. The Complaint lists other examples of allegedly falsified Salesforce data.
Compl. ¶¶ 66–67.
40
Compl. ¶ 75.
41
Compl. ¶¶ 76–80.
42
Compl. ¶ 77.
9
the customer had only paid $1,000 since September 2017 and was ignoring further
collection efforts.43 Plaintiffs allege these and other misstatements inflated the
purchase price paid for OnRamp.44
E. Yeti Substantially Decreases its OnRamp Services
As of March 31, 2018, in the midst of the most active negotiations leading to
the Acquisition, Yeti was Onramp’s sixth largest customer, providing the Company
with $1,100,280 of annual recurring revenue.45 As far as LightEdge and Anschutz
were concerned, Yeti would continue to be a major source of revenue for the
Company after the Acquisition.46 Unbeknownst to Buyer, however, Yeti had
repeatedly communicated to OnRamp its intent to slash its use of the Company’s
services by nearly half.47
Specifically, on December 6, 2017, Yeti notified OnRamp in writing that it
planned to “begin reducing some of our costs” and asked OnRamp for “dates to
action for a timeline on achieving these [reductions in service.]” 48 On January 22,
43
Compl. ¶ 79.
44
Compl. ¶ 80.
45
Compl. ¶ 34. Yeti was the Company’s fourth largest customer in 2016 and fifth largest
in 2017. Id.
46
Compl. ¶¶ 35–38.
47
Compl. ¶¶ 38–45.
48
Compl. ¶ 39.
10
2018, a Yeti employee called an OnRamp employee to schedule a meeting to discuss
planned service reductions, and the next day Yeti informed the Company that it was
seeking to reduce its monthly purchases by approximately $42,000 to $48,000.49
Braun described this meeting to Boughton as “a bit tragic,” and Boughton responded
by informing Braun that, while there was a small new project for Yeti in the works,
a large project involving SAP services “was not even in the kitchen, let alone on the
back burner.”50
Over the following months, Yeti contacted OnRamp numerous times
regarding desired service reductions, including an April 23, 2018 email where Yeti
outlined requested service cuts amounting to just over $40,000 in monthly recurring
revenue.51 None of these communications were disclosed to Buyer.52 As it had been
previewing it would do for months, Yeti reduced its services by approximately
$42,000 per month in September 2018.53
49
Compl. ¶ 41.
50
Compl. ¶ 42.
51
Compl. ¶¶ 43–45.
52
Compl. ¶ 48.
53
Compl. ¶ 46.
11
F. The Unit Purchase Agreement
Buyer’s acquisition of OnRamp is memorialized in the UPA. As is typical of
a document negotiated by sophisticated parties and drafted by experienced counsel,
the UPA documents a careful allocation of risk as reflected, in part, within
assiduously delineated Seller representations and warranties about the Company.54
Important for purposes of Buyer’s claims are the representations contained in
Sections 2.6, 2.10, 2.11 and 2.20.
In Section 2.6, Sellers represent that all of the financial statements provided
to LightEdge, including interim financial statements, are accurate and in accordance
with Generally Accepted Accounting Principles (“GAAP”).55 They also represent
that OnRamp’s “books and records . . . reflect only valid transactions and are
complete and correct in all material respects.”56
In Section 2.10, Sellers represent that “the Company has conducted its
business in the ordinary course of business consistent with past practices” and that
OnRamp has not “terminated or amended in any material respect any Material
54
UPA §§ 2.1–2.23.
55
UPA § 2.6.
56
Id.
12
Contract . . . .”57 Material Contracts are then identified in the Disclosure Schedules
at Section 2.11.
In Section 2.11, Sellers represent that the Disclosure Schedules
(at Section 2.11) contain a complete list of Material Contracts to which the Company
is bound.58 They further represent that, “[o]ther than in the ordinary course of
business consistent with past practices, the Company is not participating in any
discussions or negotiations regarding any material modification of . . . any Material
Contract . . . .”59 Section 2.11(f) of the Disclosure Schedules lists Yeti as a Material
Contract, and Section 2.11(r) states that OnRamp is “[i]n discussions about a large
potential upgrade related to Yeti’s migration to a new ERP platform; as part of that
there could be additional downgrades along the way, but the upside far outweighs
the potential downgrades.”60 Plaintiffs allege this purported “upgrade” was
OnRamp’s dead-in-the-water SAP services proposal.61
57
UPA § 2.10.
58
UPA § 2.11.
59
Id.
60
OB, Ex. B (the “Disclosure Schedules”) §§ 2.11(f), (r).
61
Compl. ¶ 6.
13
In Section 2.20, Sellers represent that the Disclosure Schedules
(at Section 2.20(a)) list the Company’s twenty largest customers.62 They further
represent that, “[o]ther than as set forth on Section[] 2.20(a) [] of the Disclosure
Schedule, none of the customers listed on Section 2.20(a) of the Disclosure
Schedule . . . [has] to the Company’s Knowledge, threatened in writing to cancel,
terminate, adversely modify or decrease [] in any material respect, its commercial
relationship with the Company.”63 Section 2.20(a) of the Disclosure Schedules
identifies Yeti as one of the Company’s largest customers.64 It further lists Yeti as
downgrading its service by $4,665 per month, far less than the $40,000+ per month
reduction Yeti had specifically demanded.65
In Section 7.2, Sellers commit to indemnify Buyer for any breach of a
representation or warranty.66 Section 7.5(a), however, limits Sellers’
indemnification obligations for any breach to a maximum of $7.5 million.67 While
62
UPA § 2.20.
63
Id.
64
Disclosure Schedules § 2.20.
65
Id.; Compl. ¶ 44.
66
UPA § 7.2.
67
UPA § 7.5(a).
14
indemnification is listed as the sole remedy for breaches of the UPA, there is an
exception for claims of fraud.68 There is no cap on recovery for fraud.69
The UPA contains a Delaware choice of law provision and an exclusive
Delaware forum selection provision.70 In a related case, I held that the UPA’s forum
selection provision requires Plaintiffs to litigate all of their claims in this court.71
G. Procedural History
Plaintiffs originally filed suit in the United States District Court for the
Western District of Texas.72 They voluntarily dismissed that case and refiled in
Texas state court.73 On June 14, 2019, Defendants filed suit in this court to enforce
the UPA’s Delaware forum selection provision and enjoin Plaintiffs from
prosecuting their claims in Texas. After this Court entered a preliminary antisuit
injunction, Plaintiffs filed their Complaint in this court on September 5, 2019.74
68
UPA § 7.13.
69
UPA § 7.5(b).
70
UPA § 13.8.
71
Brown Robin Capital v. The Anschutz Corp., C.A. No. 2019-0456-JRS (Del. Ch.
Aug. 14, 2019) (TRANSCRIPT) (D.I. 41).
72
See Pls.’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss (“AB”), Ex. A.
73
See AB, Ex. B.
74
Brown Robin, C.A. No. 2019-0456-JRS, at *59; D.I. 1.
15
Plaintiffs’ Complaint comprises thirteen counts, each arising from alleged
misrepresentations concerning Yeti, the Salesforce pipeline or the interim financial
statements.75 Count I claims Sellers breached the UPA because representations
included in Sections 2.6, 2.10, 2.11 and 2.20 are false, and Sellers have failed to
indemnify Buyers for these breaches; Count II alleges a fraudulent and intentional
breach of contract;76 Count III alleges the OnRamp Insiders committed common law
fraud; Count IV alleges the OnRamp Insiders conspired to commit fraud; Count V
alleges the OnRamp Insiders aided and abetted each other’s fraud; Count VI alleges
the OnRamp Insiders fraudulently induced Plaintiffs to acquire OnRamp; Count VII
pleads constructive fraud, although Plaintiffs have withdrawn this claim;77 Count
VIII pleads unjust enrichment against all Defendants; Count IX pleads conversion
against the OnRamp Insiders; Count X alleges the OnRamp Insiders violated
Colorado’s civil theft statute; Count XI alleges the OnRamp Insiders violated the
Colorado Securities Act; Count XII alleges the OnRamp Insiders violated the Texas
75
Compl. ¶¶ 81–168.
76
Plaintiffs did not oppose Defendants’ Motion to Dismiss their “intentional [or fraudulent]
breach” claim in their answering brief or at oral argument. Accordingly, that claim must
be dismissed. Seagraves v. Urstadt Prop. Co., 1996 WL 159626, at *5 (Del. Ch. Apr. 1,
1996) (finding that plaintiff’s failure to oppose the defendant’s motion to dismiss certain
claims “merits dismissal” of those claims).
77
AB 45 n.6.
16
Securities Act; and Count XIII alleges the OnRamp Insiders violated the Texas civil
fraud statute.78
Defendants have moved to dismiss each of Plaintiffs’ claims under Chancery
Rule 12(b)(6). In support of the Motion, they argue: (1) claims asserted by Anschutz
must be dismissed because Anschutz lacks standing;79 (2) the Colorado and Texas
statutory claims must be dismissed because Delaware law applies to all of Plaintiffs’
claims;80 (3) the breach of contract claims must be dismissed because the documents
integral to the Complaint reveal that each of the representations included in Section 2
of the UPA were true at closing, and everything required to be disclosed was
included in the Disclosure Schedules;81 (4) the fraud claims must be dismissed
because they are impermissibly bootstrapped to contract claims, they are barred by
the UPA’s anti-reliance provisions and they are not pled with the particularity
required by Court of Chancery Rule 9(b);82 (5) the conspiracy and aiding and
abetting claims must be dismissed because the underlying fraud claims fail or, in the
78
Compl. ¶¶ 81–168. The Texas statutory claims are pled in the alternative to the Colorado
claims in the event this Court concludes Texas law, not Colorado or Delaware law, applies.
Compl. ¶¶ 153, 161.
79
OB 12–14.
80
OB 14, 43.
81
OB 18–25.
82
OB 26–36.
17
alternative, because agents of a single business entity cannot conspire with each
other or aid and abet other agents in the commission of a tort;83 (6) the unjust
enrichment claim must be dismissed as duplicative of the breach of contract claims;84
and (7) the conversion claim must be dismissed because Delaware law is clear that
money cannot be the object of a conversion claim.85
II. ANALYSIS
The legal standards governing a motion to dismiss for failure to state a claim
are well-settled. This court will dismiss a complaint under Rule 12(b)(6) if the
plaintiff would be unable to recover under “any reasonably conceivable set of
circumstances susceptible of proof” based on facts pled in the complaint.86 When
applying this standard, “[a]ll well-pleaded factual allegations are accepted as true[,]”
and “the Court must draw all reasonable inferences in favor of the non-moving
party. . . .”87
83
OB 40–41.
84
OB 42.
85
OB 42–43.
86
Gen. Motors, 897 A.2d at 168 (internal quotations omitted).
87
Savor, Inc. v. FMR Corp., 812 A.2d, 894, 896–97 (Del. 2002) (internal citations omitted).
18
A. Anschutz Lacks Standing
Defendants begin their multi-pronged attack on the Complaint by arguing that
Anschutz must be dismissed as a plaintiff because, having suffered no direct injury,
it lacks standing.88 They claim LightEdge, as the sole buyer of OnRamp, is the only
party that has conceivably suffered a direct injury. Accordingly, if Anschutz wishes
to recover its losses, it must look to LightEdge for redress.89 Plaintiffs respond that
Anschutz wired LightEdge $62 million to finance the purchase, meaning it has
suffered “a direct injury which [has] result[ed] in actual damages.”90
“Standing is a threshold question that must be answered by a court
affirmatively to ensure that the litigation before the tribunal is a ‘case or controversy’
that is appropriate for the exercise of the court's judicial powers.”91 “To establish
standing, a plaintiff or petitioner must demonstrate first, that he or she sustained an
‘injury-in-fact’; and second, that the interests he or she seeks to be protected are
within the zone of interests to be protected.”92
88
OB 13.
89
Id.
90
AB 52 (quoting Barkauski v. Indian River Sch. Dist., 951 F. Supp. 519, 542 (D. Del.
1996).
91
Dover Historical Soc. v. City of Dover Planning Comm’n, 838 A.2d 1103, 1110
(Del. 2003).
92
Id.
19
The United States District Court for the Southern District of New York
confronted an analogous standing issue in Jackson National Life Insurance Co. v.
Ligator.93 There, an investor had provided financing for an intermediary’s
acquisition of companies controlled by the seller defendants.94 After closing, both
the investor and the buyer sued, claiming the sellers’ misrepresentations propped up
an artificially inflated purchase price.95 As is the case here, both the investor and the
buyer’s claims rested on “the same legal theories.”96 Agreeing with the sellers that
the investor lacked standing to sue, the court held that only the buyer was directly
injured by the sellers’ alleged misconduct, and that the investor had suffered no
injury distinct from the injury suffered by the buyer.97
I endorse Ligator’s analysis and apply it here. Anschutz’s only claimed injury
is that it helped fund LightEdge’s purchase of a company whose value was
93
949 F. Supp. 200 (S.D.N.Y. 1996). While Ligator is a federal case applying federal
standing law, “[t]his Court has recognized that the [] requirements for establishing standing
under Article III to bring an action in federal court are generally the same as the standards
for determining standing to bring a case or controversy within the courts of Delaware.”
Dover Historical Soc., 838 A.2d at 1110.
94
Ligator, 949 F. Supp. at 201.
95
Id. at 203.
96
Id.
97
Id. at 205.
20
artificially inflated as a result of Sellers’ misrepresentations.98 Plaintiffs cannot
dispute that LightEdge, not Anschutz, actually acquired OnRamp. Anschutz thus
finds itself positioned identically with the investor in Ligator; it has suffered no
injury distinct from the Buyer’s, and therefore lacks standing.99 As an indirectly
injured party, Anschutz must pursue its share of any recovery LightEdge might
achieve directly from its subsidiary.100
B. Delaware Law Governs Plaintiffs’ Claims
As noted, Buyer has asserted claims for fraud and securities violations based
on Texas and Colorado statutes. The OnRamp Insiders move to dismiss those claims
on the ground that Delaware law applies to all aspects of the parties’ dispute. 101
In support of this position, they point to the Delaware choice of law provision in the
UPA and this Court’s August 2019 Transcript Ruling holding that the UPA’s
similarly phrased Delaware forum selection provision applied to all of Plaintiffs’
claims, including their extra-contractual claims.102 Buyer responds that, by its terms,
98
Compl. ¶ 2.
99
Ligator, 949 F. Supp. at 204.
100
Having found Anschutz lacks standing, the rest of this Opinion will only refer to
“Buyer’s” claims.
101
OB 14, 43.
102
See OB 14–15; Brown Robin Capital, LLC v. The Anschutz Corp., C.A. No. 2019-0456-
JRS, D.I. 41, Transcript at 62.
21
the choice of law provision applies only to the construction and interpretation of the
UPA, and therefore its other common law and statutory claims are not subject to the
provision.103
Delaware respects and generally enforces contracting parties’ selection of a
particular state’s law to govern their disputes.104 In line with this policy, the
Delaware General Assembly passed 6 Del. C. § 2708, which requires courts to
presume that, where parties have chosen Delaware law in their contract, the
transaction memorialized in the contract has a material relationship with our state.105
The question, then, is whether a choice of law provision governing
construction and interpretation of the UPA also applies to Buyer’s extra-contractual
claims. Then Vice Chancellor Strine confronted this very question when construing
a nearly identical choice of law provision in his seminal Abry Partners decision.106
103
AB 49–51.
104
See J.S. Alberici Const. Co., Inc. v. Mid-West Conveyor Co., Inc., 750 A.2d 518, 520
(Del. 2000) (“Delaware courts will generally honor a contractually-designated choice of
law provision so long as the jurisdiction selected bears some material relationship to the
transaction.”).
105
6 Del. C. § 2708(a). The $100,000 monetary floor required for the law to apply is easily
cleared here. Compl. ¶ 2.
106
Abry P’rs V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1046 (Del. Ch. 2006).
The provision in Abry stated, “[t]his Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Delaware, regardless of the Laws that might
otherwise govern under applicable principles of conflicts of law.” Id. The provision at
issue here states, “[t]his Agreement, and the Transaction Documents shall be exclusively
construed and interpreted according to the Laws of the State of Delaware, without regard
22
In holding the contract’s choice of law provision governed the Abry plaintiff’s extra-
contractual claims, including fraud, he wrote:
Parties operating in interstate and international commerce seek, by a
choice of law provision, certainty as to the rules that govern their
relationship. To hold that their choice is only effective as to the
determination of contract claims, but not as to tort claims seeking to
rescind the contract on grounds of misrepresentation, would create
uncertainty of precisely the kind that the parties’ choice of law
provision sought to avoid. In this regard, it is also notable that the
relationship between contract and tort law regarding the avoidance of
contracts on grounds of misrepresentation is an exceedingly complex
and unwieldy one, even within the law of single jurisdictions. To layer
the tort law of one state on the contract law of another state compounds
that complexity and makes the outcome of disputes less predictable, the
type of eventuality that a sound commercial law should not seek to
promote.107
This logic is persuasive and I apply it here. Like Abry, the fraud claims in this case
are entangled at a granular level with the operative contract’s allocation of risk.108
The conduct giving rise to the breach of contract claims is, with one potential
exception,109 identical to the conduct giving rise to the fraud claims.110 Additionally,
unlike Abry, this case involves a separate disagreement between the parties about
to its conflict of law provisions which would require the application of the Laws of a state
other than Delaware . . . .” Agreement § 13.8 As stated, the provisions are nearly identical.
107
Abry, 891 A.2d at 1048.
108
Id. at 1048–49.
109
I will address Buyer’s sole basis to claim fraudulent inducement later in this Opinion.
110
Compl. ¶¶ 6–13.
23
whether the UPA contains unambiguous anti-reliance language that would bar extra-
contractual fraud claims.111 To try to parse out what exactly should be decided under
Delaware law and what falls under another state’s law (e.g., Texas, Colorado or some
combination of both) would be a foolhardy endeavor almost certain to result in the
kind of confusion contractual choice of law provisions are meant to avoid.112
Buyer has pointed to two cases it claims cast doubt on Abry’s holding.113
In the first, the United States District Court for the District of Delaware found that a
narrow choice of law provision incorporated by reference into a bond instrument did
not apply to an action challenging the defendants’ alleged bad faith conduct.114
111
Abry, 891 A.2d at 1035 (noting the plaintiff did not contest that there was an anti-
reliance clause). Infra II.D.1.
112
Abry, 891 A.2d at 1048.
113
Buyer has not pointed to any decision of our Supreme Court questioning the holding in
Abry. And Abry’s approach has been endorsed consistently by this court and our sister
court. See, e.g., Transdigm Inc. v. Alcoa Glob. Fasteners, Inc., 2013 WL 2326881, at *5
(Del. Ch. May 29, 2013) (“Nevertheless, the Court in Abry concluded that the Restatement
(Second) Section 201 provides the appropriate framework for determining the law
applicable to claims for fraud in the inducement and fraudulent misrepresentation. Under
this framework, the Court found that it should apply the law the parties chose to govern
contractual rights and duties ‘unless the chosen state lacks a substantial relationship to the
parties or transaction or applying the law of the chosen state will offend a fundamental
policy of a state with a material greater interest.’ I agree. Therefore, I conclude that
Delaware law governs the issues raised by Counts II–V of Alcoa’s Counterclaim.”);
Standard Gen., LP v. Charney, 2017 WL 6498063, at *9 (Del. Ch. Dec. 19, 2017) (quoting
Abry’s choice of law analysis with approval); Change Capital P’rs Fund I, LLC v.
Volt Elec. Sys., LLC, 2018 WL 1635006, at *9 (Del. Super. Ct. Apr. 3, 2018) (same).
114
VSI Sales, LLC v. Int’l Fidelity Ins. Co., 2015 WL 5568623, at *1–3 (D. Del. Sept. 22,
2015).
24
It then applied the “most significant relationship” test to determine choice of law.115
The district court acknowledged in a footnote that Abry applied a different analysis,
but nowhere did the court cast doubt on Abry’s holding; the court simply came to a
different result on a different factual record.116 Buyer’s second case involved a
Remainder of Page Intentionally Left Blank
115
Id. at *4.
116
Id. at *3 n.5.
25
Delaware court applying English law in its choice of law analysis and is obviously
distinguishable.117 As Delaware law applies to all of Buyer’s claims, Counts X–XII,
the Texas and Colorado statutory claims, must be dismissed.118
117
Vichi v. Koninklijke Philips Elecs., N.V., 85 A.3d 725, 766 (Del. Ch. 2014).
Additionally, even assuming the choice of law provision in the contract would not apply to
the tort claims, Delaware law would still likely govern those claims. Delaware follows the
Restatement (Second) of Conflict of Laws when analyzing choice of law for tort claims.
Travelers Indem. Co. v. Lake, 594 A.2d 38, 46–47 (Del. 1991). At bottom, the Restatement
paradigm asks which state has “the most significant relationship” to the underlying conduct
giving rise to the claim. RESTATEMENT (SECOND) CONFLICT OF LAWS § 145 (2019). When
engaged in this inquiry, this court considers four factors: (1) the place of injury; (2) the
place where the conduct causing the injury occurred; (3) the domicile or place of
incorporation and place of business of the parties; and (4) the place where the relationship
of the parties is centered. Travelers, 594 A.2d at 47. Anschutz, LightEdge and Brown
Robin all have chosen to domicile in Delaware. Compl. ¶¶ 15–16; UPA 1. The individual
parties in this case are domiciled in Texas, and the business organizations have their
headquarters in Texas, Colorado and Iowa. Compl. ¶¶ 14–25. The alleged injury here
occurred in both Texas and Colorado. See Compl. ¶ 2. The conduct causing the injury
occurred in Texas. Compl. ¶¶ 1, 20–25. The relationship among the parties is grounded
by contract in Delaware, and by conduct in Texas, Colorado and Iowa. UPA § 13.8;
Compl. ¶¶ 14–25. Given that both Plaintiff entities and Brown Robin are Delaware entities
and the parties chose Delaware law to govern construction of the UPA, which necessarily
interacts with the tort claims, and no other state has a straightforward claim to the most
significant relationship to the dispute, it seems likely Delaware has the most significant
relationship to the tort claims even if the choice of law provision would not directly reach
them.
118
See Vichi, 85 A.3d at 772 (finding that where English law did not apply, a party could
not invoke an English statute).
26
C. Breach of Contract
A plaintiff pleading breach of contract must allege: (1) the existence of a
contract; (2) the breach of a contractual obligation; and (3) resulting damages.119
Sellers do not dispute that the first element (the existence of a binding contract) has
been well-pled, and only challenge the third element (resulting damages) with
respect to the breach claim relating to the allegedly falsified pipeline data.120 The
primary issue, then, concerns the second element—whether Sellers breached the
UPA.
This court may address issues surrounding “the proper interpretation of
language in a contract” on a motion to dismiss only “[w]hen the language of [the]
contract is plain and unambiguous . . . .”121 Contract language is ambiguous “when
the provisions in controversy are reasonably or fairly susceptible of different
interpretations or may have two or more different meanings.”122 Dismissal of a
plaintiff’s breach of contract claim, therefore, is appropriate only when a defendant
has offered the singular reasonable construction of the operative language as a matter
119
Pharm. Prod. Dev., Inc. v. TVM Life Sci. Ventures VI, L.P., 2011 WL 549163, at *2
(Del. Ch. Feb. 16, 2011).
120
OB 23.
121
Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006).
122
AT&T Corp. v. Lillis, 953 A.2d 241, 252 (Del. 2008) (quotations omitted).
27
of law, and that construction reveals there has been no breach.123 If the plaintiff has
proffered a reasonable construction that supports its allegation of breach, dismissal
must be denied.124
The Complaint alleges three separate breaches of the UPA by Sellers: (1) the
failure to disclose Yeti’s planned service downgrades in violation of Sections 2.10,
2.11 and 2.20;125 (2) the manipulation of Salesforce pipeline data in violation of
Sections 2.6 and 2.10;126 and (3) the disclosure of false interim financial statements
in violation of Section 2.6.127 I address each alleged breach in turn.
1. The Yeti Service Downgrades
Section 2.11 of the UPA represents that, “[o]ther than in the ordinary course
of business consistent with past practices, the Company is not participating in any
discussions or negotiations regarding any material modification of, or any material
amendment to, any Material Contract . . . .”128 Section 2.11 of the Disclosure
Caspian Alpha Long Credit Fund, L.P. v. GS Mezzanine P’rs 2006, L.P., 93 A.3d 1203,
123
1205 (Del. 2014).
124
Id.
125
Compl. ¶¶ 34–51.
126
Compl. ¶¶ 52–74.
127
Compl. ¶¶ 75–80.
128
UPA § 2.11(r).
28
Schedules lists the Yeti service agreement as a Material Contract.129 That Section
further discloses that the Company is “[i]n discussions about a large potential
upgrade related to Yeti’s migration to a new ERP platform; as part of that there could
be additional downgrades along the way, but the upside far outweighs the potential
downgrades.”130
Neither party contends Section 2.11 is ambiguous, and for good reason. The
provision is clear on its face. Instead, Sellers seek dismissal of this breach claim
because it is clear from the Complaint, and properly incorporated documents, that
Sellers did not falsely disclose the state of Yeti’s relationship with the Company as
Sellers believed, in good faith, that a potential SAP services upgrade for Yeti would
more than offset Yeti’s proposed cuts.131 Thus, Sellers argue, Buyer has not pled a
reasonably conceivable breach of contract.
I disagree. Yeti is alleged to have requested significant reductions in its usage
of OnRamp’s services on multiple occasions, including an April 23, 2018 email
specifically detailing in excess of $40,000 in demanded monthly recurring revenue
cuts.132 Buyer has well pled that this undisclosed request falls within Section 2.11’s
129
Disclosure Schedules § 2.11(f).
130
Disclosure Schedules § 2.11(r).
131
OB 19–20.
132
Compl. ¶ 44.
29
requirement that Sellers disclose “discussions or negotiations regarding any material
modification of” a Material Contract.133 Sellers may ultimately be able to prove
these cuts were reasonably anticipated to have been offset by the SAP upgrade, and
that the Disclosure Schedules were, therefore, accurate. But that is not what Buyer
has pled. Instead, the Complaint alleges the potential SAP upgrade was, at best,
speculative, while the proposed cuts were actually demanded (in writing) and
imminently forthcoming.134 That is sufficient to plead a reasonably conceivable
breach of the UPA.
Additionally, Buyer has pled that Yeti’s demanded downgrade had no
connection to any proposed SAP upgrade.135 Yet the UPA’s Disclosure Schedules
state, “as part of that [upgrade] there could be additional downgrades . . . .”136 This
statement suggests that any proposed cuts will be linked directly to a potential
upgrade. Even if Sellers could argue at this pleading stage that Schedule 2.11(r) put
Buyer on notice that Yeti was planning significant cuts, a dubious proposition in the
context of the Complaint’s well-pled facts, the Seller’s overt attempt explicitly to
link these cuts to a potential upgrade they knew “was not even in the kitchen, let
133
UPA § 2.11(r).
134
Compl. ¶¶ 42, 47, 58–59.
135
Compl. ¶ 46.
136
Disclosure Schedules § 2.11(r).
30
alone on the back burner[,]” is conceivably in conflict with the representation in
Section 2.11.137 As Buyer has adequately pled that the disclosures in
Schedule 2.11(r) are false, it follows that it has well-pled the representation in
Section 2.11 is also false.
Turning to Section 2.20, Sellers represent there that, except as disclosed in
Section 2.20(a) of the Disclosure Schedules, none of OnRamp’s twenty largest
customers has “threatened in writing to cancel, terminate, adversely modify or
decrease, in each case, in any material respect, its commercial relationship with the
Company.”138 Section 2.20 of the Disclosure Schedules lists Yeti as reducing its
monthly recurring revenue by $4,665, but makes no mention of the roughly $40,000
in monthly cuts Yeti had already threatened.139
Again, the parties have not argued this provision is ambiguous, and again, the
concession is well placed. The clear language of Section 2.20 would require Sellers
to disclose that Yeti was threatening (in writing) substantial service reductions.140
Yeti is alleged to have notified the OnRamp Insiders on multiple occasions, in
writing, that it was intent on implementing major cost cuts, including making a
137
Compl. ¶ 42.
138
UPA § 2.20.
139
Disclosure Schedules § 2.20(a).
140
UPA § 2.20.
31
detailed written request for approximately $40,000 in monthly recurring revenue
cuts.141 These pled facts easily satisfy Buyer’s burden of stating a reasonably
conceivable breach of contract claim with respect to Section 2.20.142
Buyer alleges the failure to disclose the anticipated Yeti cuts also breached
Section 2.10. Here, in my view, Buyer’s pleading falls short. As an initial matter,
Section 2.10 requires disclosure only when a customer has “terminated or amended
in any material respect any Material Contract . . . .” 143 As of closing, Yeti had not
yet amended its contract with OnRamp to implement its desired cost cuts; that
amendment did not occur until September 2018, months after the Acquisition
closed.144
In an effort to plead around this reality, Buyer focuses on the language in
Section 2.10 requiring OnRamp to operate “in the ordinary course of business
consistent with past practices.”145 Buyer alleges this covenant was breached because
Sellers resisted implementing Yeti’s desired downgrades, presumably to avoid
141
Compl. ¶¶ 39, 43–45.
142
Perhaps recognizing the strength of Buyer’s arguments, Sellers only passingly
addressed Section 2.20 in their briefs.
143
UPA § 2.10(l).
144
Compl. ¶ 46.
145
UPA § 2.10.
32
having to disclose them.146 The Complaint does not plead, however, that fighting to
keep a customer was somehow out of OnRamp’s ordinary course of business. Buyer
has failed to plead, therefore, that Sellers failing to disclose Yeti’s planned service
downgrades conceivably breached Section 2.10’s “ordinary course” covenant.
2. The Salesforce Pipeline Data
Buyer alleges Sellers breached Sections 2.6 and 2.10 of the UPA by falsifying
the Company’s Salesforce pipeline data.147 Specifically, it says the representations
in Sections 2.6 and 2.10 were rendered false when Sellers knowingly inserted
fanciful sales data into the pipeline in response to Buyer’s inquiries about future
sales prospects.148 Sellers vigorously deny Buyer’s factual allegations, but argue,
even accepting those allegations as true, that no representation in the UPA was
breached because the Salesforce pipeline data is not covered by any representation
in the UPA.149
In Section 2.6, Sellers represent that OnRamp’s financial statements are
accurate and “[t]he books and records of the Company have been maintained in
accordance with good business practices, reflect only valid transactions and are
146
AB 29–30.
147
Compl. ¶¶ 52–74.
148
AB 30–32.
149
OB 20–23.
33
complete and correct in all material respects.”150 The parties disagree on the
meaning and scope of Section 2.6. Buyer argues the Salesforce pipeline is captured
by the “books and records” language in the representation.151 Sellers respond that
the context in which this language appears in the UPA indicates it refers only to
“financial books and records,” and that Buyer’s construction is overly broad.152
Both parties have offered reasonable constructions of Section 2.6. Buyer is
correct that the provision clearly states “books and records,” not “financial books
and records,” and thus is broader than the construction Sellers have proffered.153
Sellers were free, after all, to bargain for a narrower provision.154 If Salesforce
pipeline data is covered by the phrase “books and records,” then it is reasonably
conceivable that knowingly inserting falsified data in the pipeline data disclosed to
Buyer would render the representation in Section 2.6 false.
Sellers convincingly note, however, that Section 2.6 also represents that the
books and records “reflect only valid transactions[,]” suggesting that the Salesforce
150
UPA § 2.6(a).
151
AB 31–32.
152
Oral Arg. on Defs.’ Mot. to Dismiss (“OA”) 13.
153
UPA § 2.6(a).
154
Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010) (holding that Delaware courts may
not “rewrite the contract to appease a party who later wishes to rewrite a contract he now
believes to have been a bad deal.”).
34
data, which reflects only “prospective transactions,” falls outside of the
representation.155 Because both sides have offered reasonable constructions of
Section 2.6, the provision is ambiguous, and Defendants’ Motion to Dismiss must
be denied.156
Buyer next alleges that Section 2.10’s representation that the Company had
conducted its business in the ordinary course during the Acquisition negotiations is
false in light of the alleged pipeline manipulation.157 The parties also dispute the
scope of this representation. “This Court has previously interpreted the contractual
term ‘ordinary course’ to mean the normal and ordinary routine of conducting
business.”158 These representations are common in transaction agreements and are
included to reassure a buyer that the target company has not materially changed its
business or business practices during the pendency of the transaction.159
155
OA 15.
156
Caspian, 93 A.3d 1205. See also Calesa Assocs., LP v. Am. Capital, Ltd., 2018
WL 4026976, at *1 (Del. Ch. Aug. 22, 2018) (noting that the court is not to choose which
of two reasonable constructions is more reasonable before considering extrinsic evidence).
157
AB 30.
158
Cooper Tire & Rubber Co. v. Apollo (Mauritius) Hldgs. Pvt. Ltd., 2014 WL 5654305,
at *13 (Del. Ch. Oct. 31, 2014) (quotation omitted).
159
See Akorn, Inc. v. Fresenius Kabi AG., 2018 WL 4719347, at *83 (Del. Ch. Oct. 1,
2018), aff’d, 198 A.3d 724 (Del. 2018) (TABLE).
35
Vice Chancellor Laster offered a thoughtful exegesis of the typical “ordinary
course covenant” in Akorn, Inc. v. Fresenius Kabi AG.160 There, he found
(after trial) that a target company violated the covenant post-signing by fabricating
clinical trial data that was reported to the FDA, cancelling its regular audits and
failing to investigate credible whistleblower allegations.161 Other decisions of this
court are in accord, finding that ordinary course representations either were actually
violated or were well-pled to have been violated when: seller’s employees
manipulated financial records in deviation from its past accounting practices;
a company substantially restructured its business; and employees of a company
schemed to start a competing business and redirected assets to that competing
business during the pendency of a transaction.162
It is reasonably conceivable that manipulating pipeline data in May, 2018, as
a means to quiet the concerns of an anxious buyer, is not conduct undertaken “in the
ordinary course of business consistent with past practices.”163 Sellers, therefore,
160
Id. at *83–93. While Akorn involved an ordinary course covenant, and this case
involves an ordinary course representation, the distinction does not impact my analysis.
161
Id. at *88–89.
162
See ChyronHego Corp. v. Wight, 2018 WL 3642132, at *8 (Del. Ch. July 31, 2018);
Osram Sylvania Inc. v. Townsend Ventures, LLC, 2013 WL 6199554, at *7 (Del. Ch.
Nov. 19, 2013); Ivize of Milwaukee, LLC v. Complex Litig. Supp., LLC, 2009 WL 1111179,
at *1 (Del. Ch. Apr. 7, 2009).
163
Compl. ¶ 57; UPA § 2.10.
36
conceivably breached Section 2.10’s representation that no such deviations from the
“ordinary course of business” had occurred since December 31, 2017.
Sellers’ final attempt to defeat the Salesforce pipeline data breach claim rests
on Buyer’s purported failure to plead damages causally linked to the breach.164
In this regard, they note Buyer initially offered $106 million for the Company on
May 18, 2018, before the allegedly fabricated sales pipeline data was transmitted.165
As Buyer calculated the purchase price before viewing the misleading pipeline data,
Sellers argue Buyer cannot plead or prove causal damages.166
Sellers overstate Buyer’s burden. To survive a dispositive motion on a breach
of contract claim, it is enough that a plaintiff “takes the causation of damages out of
the area of speculation; it is not necessary to show with absolute certainty that
defendant’s action caused plaintiff’s harm.”167 Buyer pleads that the Spiceworks
cancellation and disappointing April sales data caused it to reconsider the
Acquisition.168 It alleges that the millions of dollars in annual sales opportunities
164
OB 23.
165
Id.
166
Id.
167
LaPoint v. AmerisourceBergen Corp., 2007 WL 1309398, at *7 (Del. Ch. May 1, 2007)
(aff’d, 956 A.2d 642 (Del. 2008) (TABLE)).
168
Compl. ¶¶ 55–57.
37
added to the Salesforce pipeline were key to inducing it to move forward at the
previously agreed upon price and eventually close.169 This is more than sufficient to
“take[] the causation damages out of the area of speculation,” and meet Buyer’s
notice pleading burden at the Rule 12(b)(6) stage.170
3. The Interim Financial Statements
Buyer alleges Sellers breached Section 2.6 of the UPA by including revenue
and accounts receivable in the interim financial statements that they knew were
uncollectible.171 Section 2.6 represents that, “[t]he Audited Financial Statements
and the Interim Financial Statements present fairly and accurately, in all material
respects, the financial position of the Company . . . in accordance with
GAAP . . . .”172
Buyer identifies numerous allegedly misleading entries in the interim
financial statements.173 In particular, it argues the interim statements included
revenue and account receivables from Pure Healthy Back, Inc., Keona Health, Inc.
and XOR Data Exchange LLC, even though those customers had either disconnected
169
Id.
170
LaPoint, 2007 WL 1309398, at *7.
171
Compl. ¶ 76.
172
UPA § 2.6.
173
Compl. ¶¶ 76–79.
38
all OnRamp services months earlier, were shutting down operations or were
otherwise unwilling or unable to settle their accounts.174 Sellers respond that Buyer
has not well-pled a breach of Section 2.6 because it did not identify which GAAP
standard was breached in the Complaint, and Sellers did not otherwise warrant all
accounts receivable would, in fact, be collected.175
The notion that Buyer was required to plead exactly which GAAP standard
was violated by Sellers in order to state a breach of contract claim based on a
representation that interim financial statements were prepared in accordance with
GAAP finds no support in our case law and runs contrary to notice pleading as
codified in Chancery Rule 8(a). That rule requires only a short statement putting
Defendants on notice of the claims against them. 176 As the Complaint alleged the
interim financial statements did not comply with GAAP, in violation of Section 2.6
of the UPA, Sellers have been put on fair notice of the claim against them. For now,
174
Compl. ¶¶ 78–79.
175
OB 24–25.
176
Ct. Ch. R. 8(a); VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 611
(Del. 2003) (“Such a statement must only give the defendant fair notice of a claim and is
to be liberally construed.”); Michelson v. Duncan, 407 A.2d 211, 217 (Del. 1979)
(“A complaint in a civil action need only give defendant fair notice of a claim and is to be
liberally construed.”).
39
that is all that is required.177 If GAAP does not support the claim, Buyer will fail in
its burden to prove it.
D. Fraud and Fraudulent Inducement
Buyer’s fraud claims take two forms. First, it alleges the same course of
conduct underlying its breach of contract claims also gives rise to actionable fraud
claims.178 Separately, it alleges the OnRamp Insiders made extra-contractual
misrepresentations that fraudulently induced it to sign the UPA and acquire
OnRamp.179
The OnRamp Insiders argue the fraud claims should be dismissed for three
reasons. First, they argue that any fraud claims premised on extra-contractual
representations are precluded by the UPA’s anti-reliance language.180 Next, they
maintain the fraud claims based on contractual misrepresentations are impermissibly
bootstrapped breach of contract claims.181 Last, they argue the elements of fraud
177
Compl. ¶¶ 75–80.
178
Compl. ¶¶ 94–99.
179
Compl. ¶¶ 110–115.
180
OB 29–30.
181
OB 26–28.
40
have not pled with the particularity required by Court of Chancery Rule 9(b).182
I take up the arguments in that order.
1. The Extra-Contractual Misrepresentations
According to the Complaint, Buyer was fraudulently induced to agree to the
Acquisition by the OnRamp Insiders’ extra-contractual representations about the
Company.183 Here, the Complaint focuses on the disclosure of the falsified
Salesforce data to Buyer as the means by which the OnRamp Insiders brought Buyer
back to the negotiating table and ultimately induced it to sign the UPA.184
Consistent with our state’s policy of promoting the freedom of contract,
Delaware courts have consistently held that “sophisticated parties to negotiated
commercial contracts may not reasonably rely on information that they contractually
agreed did not form a part of the basis for their decision to contract.”185 With this in
182
OB 30–36.
183
Compl. ¶ 111.
184
Compl. ¶¶ 111–14. This would only be an extra-contractual representation if this Court
finds, when adjudicating Buyer’s breach of contract claims, that the UPA does not contain
a representation relating to the Salesforce data. If, upon offering a definitive construction
of the contract, this Court finds that either Section 2.06 or Section 2.10 capture the
Salesforce data, then there would be no extra-contractual representation upon which to
ground a fraudulent inducement claim.
185
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 142 n.18 (Del. Ch. 2003); see also
RAA Mgmt., LLC v. Savage Sports Hldgs., Inc., 45 A.3d 107, 118–19 (Del. 2012)
(“Abry Partners accurately states Delaware law and explains Delaware’s public policy in
favor of enforcing contractually binding written disclaimers of reliance on representations
outside of a final agreement of sale or merger.” ); ev3, Inc. v. Lesh, 114 A.3d 527, 529 n.3
41
mind, this court does not hesitate to dismiss fraud claims premised on extra-
contractual representations when the parties’ contract contains an unambiguous
mutual covenant that neither party relied upon extra-contractual promises in
connection with the transaction.186 But the anti-reliance language must be explicit
and comprehensive, meaning the parties must “forthrightly affirm that they are not
relying upon any representation or statement of fact not contained [in the
contract].”187 A standard integration clause, without more, is insufficient to disclaim
all reliance on extra-contractual statements.188
The OnRamp Insiders point to three provisions they claim, in total, amount to
unambiguous anti-reliance language. First, Section 2.23 of the UPA states, “[e]xcept
for the representations and warranties contained in this Article II . . . none of the
Company nor any Person on behalf of the Company makes any other express or
(Del. 2014) (“Delaware courts seek to ensure freedom of contract and promote clarity in
the law in order to facilitate commerce.”).
186
Abry, 891 A.2d at 1057; Kronenberg v. Katz, 872 A.2d 568, 588 (Del. Ch. 2004). This
language may be spread over multiple provisions if, in total, it can be read to disclaim
reliance. See Prairie Capital III, L.P. v. Double E. Hldg. Corp., 132 A.3d 35, 51 (Del. Ch.
2015) (“Delaware law does not require magic words. In this case, the Exclusive
Representations Clause and the Integration Clause combine to mean that the Buyer did not
rely on other information. They add up to a clear anti-reliance clause.”).
187
Kronenberg, 872 A.2d at 591; see Abry, 891 A.2d at 1059 (“[M]urky integration clauses,
or standard integration clauses without explicit anti-reliance representations, will not
relieve a party of its oral and extra-contractual fraudulent representations.”).
188
Id.
42
implied representation or warranty with respect to the Company, and the Company
disclaims any other representations or warranties . . . .”189 Second, in Section 4.7,
“Buyer acknowledges and agrees that it has made its own inquiry and investigation
into, and, based thereon, has formed an independent judgment concerning, the
Company and its business and operations, and that it has been provided with such
information about the Company and its business and operations as it has
requested.”190 Last, the UPA contains a standard integration clause.191
What is notably absent from these provisions is any disclaimer of reliance by
Buyer. In Heritage Handoff Holdings, LLC v. Fontanella,192 the court found
contractual language did not constitute unambiguous anti-reliance language, in large
part, because the “[p]laintiff did not affirmatively promise not to rely on such [extra-
contractual] representations.”193 While our law does not require “magic words” to
disclaim reliance, when the contract does not actually include a specific
acknowledgement by a party that it is only relying on information contained within
189
UPA § 2.23.
190
UPA § 4.7.
191
See UPA § 13.4 (“This agreement . . . embod[ies] the entire agreement and
understanding of the Parties hereto with respect to the subject matter hereof, and supersede
all prior and contemporaneous discussions, agreements and understandings relative to such
subject matter . . . .”).
192
2019 WL 1056270 (D. Del. Mar. 6, 2019).
193
Id. at *4.
43
the four corners of the agreement, that party is not shirking its bargain when it later
alleges that it did, in fact, rely on extra-contractual representations.194
The cases the OnRamp Insiders rely on to support their argument that the
language in the UPA amounts to an unambiguous anti-reliance provision are
distinguishable. In Prairie Capital, the buyer represented that it “understands,
acknowledges, and agrees” that the seller was disclaiming extra-contractual
representations.195 In Sparton Corp. v. O’Neil, the buyer agreed to forgo “any claim
with respect to their purported use of, or reliance on, any such [extra-contractual]
representations, warranties or statements (including by omission).”196 As noted,
Buyer made no comparable promise in the UPA not to rely on extra-contractual
representations, warranties or statements.
The OnRamp Insiders attempt to distinguish Fontanella by noting the
agreement in that case had no representation comparable to Section 4.7.197 But
Section 4.7 does not communicate any anti-reliance commitment, much less an
194
See Abry, 891 A.2d at 1058 (“To fail to enforce non-reliance clauses is not to promote
a public policy against lying. Rather, it is to excuse a lie made by one contracting party in
writing—the lie that it was relying only on contractual representations and that no other
representations had been made—to enable it to prove that another party lied orally or in a
writing outside the contract’s four corners.”).
195
Prairie Capital, 132 A.3d at 50.
196
2017 WL 3421076, at *4 (Del. Ch. Aug. 9, 2017) (emphasis provided).
197
Defs.’ Reply Br. in Further Supp. of Their Mot. to Dismiss (“RB”) 16.
44
unambiguous one. While Buyer represents in that provision that it had formed an
“independent judgment” about the Company, it also states it was “provided with
[requested] information about the Company and its business and operations” to reach
that judgment.198 As Buyer notes, this clause reasonably can be read to reflect that
Buyer was expressly representing it did rely on extra-contractual information.199
In the absence of an unambiguous anti-reliance provision, it cannot be said as a
matter of law that Buyer promised in the UPA not to bring its fraudulent inducement
claim. That claim, for now, survives.
2. Fraud/Breach of Contract Bootstrapping
The OnRamp Insiders next invoke the rule that fraud claims cannot be
bootstrapped to breach of contract claims as a separate ground to argue that Buyer’s
198
UPA § 4.7 (the provision makes no attempt to identify the information Buyer had been
given or to describe it as contractual or extra-contractual).
199
The OnRamp Insiders argue the Agreement in Prairie Capital contains “substantially
similar language[,]” and this Court should therefore reach the same result as the Prairie
Capital court. RB 17. But, the provision in Prairie Capital was considerably different.
It included no language about the buyer being “provided with [] information about the
Company and its business and operations as it has requested.” UPA § 4.7; see Prairie
Capital, 132 A.3d at 50. Instead, that provision notes, “[i]n making its determination to
proceed with the Transaction, the Buyer has relied on (a) the results of its own independent
investigation and (b) the representations and warranties of the [sellers] expressly and
specifically set forth in this Agreement, including the Schedules.” Id. Later in that same
provision, the buyer explicitly acknowledges that it “understands, acknowledges and
agrees, that all other representations and warranties of any kind . . . are specifically
disclaimed by the [sellers].” Id. Far from being “substantially similar,” these differences
make the contract in Prairie Capital inapposite.
45
fraud claims must be dismissed.200 Generally stated, “[f]or both a breach-of-contract
claim and a tort claim to coexist in a single action, the plaintiff must allege that the
defendant breached a duty that is independent of the duties imposed by the
contract.”201 Accordingly, “one cannot ‘bootstrap’ a claim of breach of contract into
a claim of fraud merely by alleging that a contracting party never intended to perform
its obligations.”202 “In other words, a plaintiff cannot state a claim for fraud simply
by adding the term ‘fraudulently induced’ to a complaint or alleging that the
defendant never intended to comply with the agreement at issue at the time the
parties entered into it.”203
As a general rule, the bootstrapping bar makes perfect sense. When a party
claims he was fraudulently induced into entering a contract by promises that were
then included in the negotiated language of that very contract, his remedy should be
in contract, not tort. Both claims lead to the same destination—a remedy in damages
causally related to the broken promises.
200
OB 26–29.
201
EZLinks Golf, LLC v. PCMS Datafit, Inc., 2017 WL 1312209, at *3 (Del. Super. Ct.
Mar. 21, 2017) (quotation omitted).
202
Iotex Comm’ns, Inc. v. Defries, 1998 WL 914265, at *4 (Del. Ch. Dec. 21, 1998).
203
MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *17 (Del. Ch.
Dec. 30, 2010).
46
While our courts do not hesitate to dismiss bootstrapped fraud claims, our
courts also recognize that the bootstrap rule is not absolute. For instance, in Abry,
the court held that where, as here, the plaintiff seeks a remedy for fraud based in
rescission, or rescissory damages, not compensatory damages, the plaintiff/buyer
may plead a fraud claim next to a breach of contract claim if he can plead “either:
(1) that the Seller knew that the Company's contractual representations and
warranties were false; or (2) that the Seller itself lied to Buyer about a contractual
representation and warranty.”204
Buyer’s so-called contractual fraud claims fall within the Abry exception.
Specifically, Buyer alleges the OnRamp Insiders knew the representations included
in Sections 2.6, 2.10, 2.11 and 2.20 were false, and yet made them anyway. 205 And
Buyer has explicitly prayed for rescission of the UPA to remedy the alleged fraud, a
remedy the UPA forbids for breach of contract claims.206 As the Abry court
204
Abry, 891 A.2d at 1064; see also 3M Co. v. Neology, Inc., 2019 WL 2714832, at *14
(Del. Super. Ct. June 28, 2019) (holding that fraud claim was not impermissibly
bootstrapped where plaintiff was seeking rescissory damages, “which are a remedy for
fraud, not breach of contract”); Firmenich Inc. v. Nat. Flavors, Inc., 2020 WL 1816191,
at *10 (Del. Super. Ct. Apr. 7, 2020) (noting that “Abry supports the conclusion that a
contractual limitation on damages opens the door to parallel breach of contract and fraud
claims.”).
205
Compl. ¶¶ 47–48, 62, 80, 96.
206
Compl. ¶ 99; UPA § 7.13 (limiting the remedy for breach of the UPA to indemnification
up to specified caps).
47
recognized, to hold that Buyer can recover only capped damages for knowingly false
contractual representations would be to countenance and immunize fraud.207
3. Chancery Rule 9(b)
To the extent their contract-based and bootstrapping arguments do not carry
the day, the OnRamp Insiders maintain that Buyer’s fraud claims still must be
dismissed because they have not been pled with the factual particularity required by
Court of Chancery Rule 9(b).208 Not surprisingly, Buyer disagrees.209
The elements of fraud in Delaware are: (1) a false representation of material
fact or omission of fact that the defendant had a duty to disclose; (2) the defendant
knew or believed that the representation was false when made or was recklessly
indifferent to the truth; (3) the defendant intended to induce the plaintiff to act;
(4) the plaintiff in fact acted in justifiable reliance on the representation; and (5) the
plaintiff was injured by its reliance.210 Court of Chancery Rule 9(b) requires factual
207
Abry, 891 A.2d at 1064.
208
OB 32–39; see Del. Ct. Ch. R. 9(b) (“In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with particularity.”).
209
AB 37–38.
210
DCV Hldgs., Inc. v. ConAgra, Inc., 889 A.2d 954, 958 (Del. 2005).
48
allegations in support of four of the five prima facie elements of fraud to be pled
with particularity.211 Knowledge may be “averred generally.”212
When evaluating whether a plaintiff who was the direct recipient of an
allegedly fraudulent overture has met his enhanced pleading burden for fraud under
Rule 9(b), this court has observed that the complaint should specify “(1) the time,
place, and contents of the false representation; (2) the identity of the person making
the representation; and (3) what the person intended to gain by making the
representations.”213 While the failure to plead these so-called “newspaper facts” can
be excused in circumstances where the plaintiff would have no way to know that
level of detail in advance of bringing the claim,214 it is reasonable to expect a counter-
211
Del. Ct. Ch. R. 9(b).
212
Id.
213
Abry, 891 A.2d at 1050.
214
See LVI Gp. Invs., LLC v. NCM Gp. Hldgs, LLC, 2017 WL 1174438, at *4 (Del. Ch.
Mar. 29, 2017) (noting that a failure to plead newspaper facts will not, as a matter of law,
be “fatal” to a fraudulent misrepresentation claim); Yavar Rzayev, LLC v. Roffman, 2015
WL 5167930, at *4 (Del. Super. Ct. Aug. 31, 2015) (“Delaware courts have adopted the
reasoning of the Third Circuit in [Seville Indus. Mach. Corp. v. Southmost Mach. Corp.,
742 F.2d 786 (3d Cir. 1984)] and consistently found that the date, place, and time
allegations are not required so long as the pleadings put defendants on notice of the
misconduct with which they are charged and protect defendants against false charges of
immoral or fraudulent behavior.); Sammons v. Hartford Underwriters Ins. Co.,
2010 WL 1267222, at *4 (Del. Super. Ct. Apr. 1, 2010) (“an excessive focus on
particularity . . . could impair the flexibility and the just determination of cases.”).
49
party in contractual negotiations to be able to back a fraud claim related to the
contract with detailed factual allegations.
Buyer has cleared Rule 9(b)’s particularity hurdle here. The Complaint
identifies how the contractual representations concerning Yeti were false when
made.215 To support these allegations, it alleges who communicated with Yeti
employees, who, in turn, communicated the false information regarding Yeti to
Buyer, when these communications occurred, what was communicated and why the
OnRamp Insiders were motivated to lie.216 Each of these pled facts support the
allegations that the UPA contained material misstatements, and put the OnRamp
Insiders on notice of the claims against them.
The same is true for the allegations that the Salesforce pipeline was
manipulated and the interim financial statements were fraudulent. The Complaint
specifically alleges who manipulated the Salesforce data, what data was
manipulated, when the data was changed and why the OnRamp Insiders were
motivated to lie.217 Likewise, the Complaint alleges what accounts were
uncollectible, when the OnRamp Insiders likely knew those accounts could not be
collected and why they would, nonetheless, include them as revenue and accounts
215
Compl. ¶¶ 38–49.
216
Id.
217
Compl. ¶¶ 52–80.
50
receivable on the interim financial statements.218 This is more than enough to put
the OnRamp Insiders on notice of the specific misconduct with which they are
charged.219
E. Aiding and Abetting and Conspiracy
Buyer claims the OnRamp Insiders both aided and abetted each other’s fraud
and conspired to commit fraud.220 The OnRamp Insiders respond that the aiding and
abetting and conspiracy claims must be dismissed, even if the underlying fraud
claims survive, because “officers and agents of a single business entity cannot aid
and abet or conspire with each other in the commission of a tort.”221
Whether a corporation can conspire with its subsidiaries, affiliates or agents
is an area of law that, “both inside and outside of Delaware, is more characterized
by confusion than clarity.”222 This court has, in the past, offered somewhat mixed
guidance on the issue. In In re Transamerica Airlines, Inc.223 this court held that
“a corporation generally cannot be deemed to have conspired with its wholly owned
218
Id.
219
Kahn Bros. & Co., Inc. Profit Sharing Plan and Trust v. Fishbach Corp., 1989
WL 109406, at *4 (Del. Ch. Sept. 14, 1989).
220
Compl. ¶¶ 100–09.
221
OB 41.
222
Allied Capital, 910 A.2d at 1037.
223
2006 WL 587846 (Del. Ch. Feb. 28, 2006).
51
subsidiary, or its officers and agents.”224 A few months later, however, in Allied
Capital, this court declined to hold that, “as a per se matter, commonly-controlled []
business entities cannot conspire with one another and be held liable for acting in
concert to pursue unlawful activity that causes damage.”225
Not surprisingly, Buyer likes Allied Capital. But that case decided the issue
on facts not present here.226 The plaintiff in Allied Capital alleged a conspiracy
among a “myriad of [defendant]-controlled affiliates as well as . . . those entities’
directors and officers.”227 In rejecting a per se rule that a parent cannot conspire
with its subsidiaries, the court was motivated, in large part, by a view that such a
rule would ignore that “our corporation law is largely built on the idea that separate
legal existence of corporate entities should be respected—even when those separate
corporate entities are under common ownership and control.”228
Unlike Allied Capital, Buyer here does not allege a conspiracy among a
company and its subsidiaries or affiliates; it alleges aiding and abetting and
224
Id. at *6; see also Am. Capital Acquisition P’rs, LLC v. LPL Hldgs., Inc., 2014
WL 354496, at *12 (Del. Ch. Feb. 3, 2014) (holding that the “general rule that a corporation
cannot conspire with its wholly-owned subsidiaries and officers must apply.”).
225
Allied Capital, 910 A.2d at 1037.
226
AB 46.
227
Allied Capital, 910 A.2d at 1036.
228
Id. at 1038.
52
conspiracy only against and among the individual OnRamp Insiders.229 These
claims, directed at the officers of a limited liability company, do not implicate the
issues of corporate separateness that caused the Allied Capital court to reject a per se
rule. Buyer’s reliance on Allied Capital is, therefore, misplaced.
“It is basic in the law of conspiracy that you must have two persons or entities
to have a conspiracy. A corporation cannot conspire with itself any more than a
private individual can, and it is the general rule that the acts of the agent are the acts
of the corporation.”230 Accordingly, it is entirely sensible that, as a general rule,
agents of a corporation cannot conspire with one another or aid and abet each other’s
torts.231 The only instance where this general rule will not apply is when a corporate
officer “steps out of her corporate role and acts pursuant to personal motives.”232
229
Compl. ¶¶ 100–09.
230
Amaysing Techs. Corp. v. Cyberair Commc’ns, Inc., 2005 WL 578972, at *7 (Del. Ch.
Mar. 3, 2005) (quoting Nelson Radio & Supply Co. v. Motorola, Inc., 200 F. 2d 911, 914
(5th Cir. 1952)).
231
See Cornell Glasgow, LLC v. La Grange Props., LLC, 2012 WL 2106945, at *11
(Del. Super. Ct. June 6, 2012) (“A corporation generally cannot be deemed to have
conspired with its wholly owned subsidiary, or its officers and agents . . . And, like civil
conspiracy, officers and agents cannot aid and abet their principal or each other in the
commission of a tort.”) (quotation omitted).
232
In re Transamerica, 2006 WL 587846, at *6.
53
The allegations in the Complaint offer no basis to depart from the “basic law
of conspiracy” or aiding and abetting.233 The OnRamp Insiders are alleged to have
committed fraud to inflate the value of OnRamp or earn a bonus.234 A corporate
officer does not step out of his corporate role unless he “seeks to gain a benefit
independent of their financial interest resulting from their employment by or
investment in [their employer].”235 As Buyer has not alleged the OnRamp Insiders
acted for any reason other than inflating the value of OnRamp for their principal,
there is no basis to depart from the general rule that “the acts of the agent are the acts
of the corporation.”236 Buyer’s aiding and abetting and conspiracy claims, therefore,
must be dismissed.237
233
Amaysing Techs., 2005 WL 578972, at *7; see Allied Capital, 910 A.2d at 1038
(“[O]ur state courts have noted that in cases involving the internal affairs of corporations,
aiding and abetting claims represent a context-specific application of civil conspiracy
law.”).
234
Compl. ¶ 97.
235
Amaysing Techs., 2005 WL 578972, at *8; see Coulbourne v. Rollins Auto Leasing
Corp., 392 F. Supp. 1198, 1201 (D. Del. 1975) (finding an employee was not acting for
personal reasons because “the expectation of a commission is the only basis to distinguish
him from the corporation . . . .”).
236
Amaysing Techs., 2005 WL 578972, at *7.
237
See Cornell Glasgow, 2012 WL 2106945, at *11 (dismissing conspiracy and aiding and
abetting claims in tandem).
54
F. Unjust Enrichment
In Count VIII, Buyer alleges each Defendant was unjustly enriched by the
inflated sales price of OnRamp.238 Defendants respond that the unjust enrichment
claim must be dismissed because an unjust enrichment claim cannot lie when the
parties’ relationship is controlled by an enforceable contract.239 Buyer fires back
that its unjust enrichment claim can proceed as an alternative theory of liability
because the Complaint seeks to rescind the UPA based on fraud.240
Defendants are correct that unjust enrichment claims generally will be
dismissed as duplicative when there is an enforceable contract that governs a
relationship.241 But, Buyer here maintains that the underlying contract should be
rescinded on the basis of fraud.242 “Although merely suggesting that the validity of
a contract may be in doubt is insufficient to support a claim for unjust enrichment, a
claim that the underlying agreement is subject to rescission due to fraudulent conduct
238
Compl. ¶ 126.
239
OB 42.
240
AB 47.
241
Bakerman v. Sidney Frank Importing Co. Inc., 2006 WL 3927242, at *18 (Del. Ch.
Oct. 10, 2006) (“When the complaint alleges an express, enforceable contract that controls
the parties’ relationship, [] a claim for unjust enrichment will be dismissed.”).
242
Compl. ¶ 99.
55
or omissions is sufficient to do so.”243 Having well-pled fraud that might support
rescission, Buyer’s unjust enrichment claim cannot be dismissed.
G. Conversion
Last, Buyer alleges the OnRamp Insiders “converted” the $106 million
purchase price because they have no right to that money.244 On its face, this claim
fails as a matter of law. It is settled in Delaware that “an action in conversion will
not lie to enforce a claim for the payment of money.”245 Although Delaware law has
not formally recognized any exceptions to this rule, other states allow an exception
for allegations that a defendant converted money “only when [the money] can be
described or identified as a specific chattel, but not where an indebtedness may be
discharged by the payment of money generally.”246 Assuming, for the sake of
argument, this exception would be recognized in Delaware, it is clearly inapplicable.
There is nothing distinctive about the money Buyer paid for OnRamp that would
243
Haney v. Blackhawk Network Hldgs., Inc., 2016 WL 769595, at *9 (Del. Ch. Feb. 26,
2016). Defendants half-heartedly protest that Buyer’s rescission claim is merely “an artful
way of asking for damages.” RB 23 (quoting Metro Commc’n Corp. BVI v. Advanced
Mobilecomm Techs. Inc., 854 A.2d 121, 160 n.93 (Del. Ch. 2004)). But, as discussed
above, it is at least conceivable that Buyer will be able to prove the UPA was the product
of fraud. And, because fraud is a common ground for rescission, it is then conceivable
Buyer will be able to prove at trial the contract must be rescinded. See Norton v. Poplos,
443 A.2d 1, 4 (Del. 1982). No greater showing is required at the pleading stage.
244
Compl. ¶ 132.
245
Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 889–90 (Del. Ch. 2009).
246
Id. at 890.
56
justify a characterization of that money as a “unique chattel.” Buyer, no doubt, will
be glad to accept Defendants’ money from wherever it might be sourced should
Buyer prove its case and achieve an award of damages. Accordingly, Buyer’s
conversion claim must be dismissed.
III. CONCLUSION
For the reasons stated above, Defendants’ Motion to Dismiss Counts II, IV,
V, VII and IX–XIII of the Complaint is GRANTED. Their Motion to Dismiss
Counts I, III, VI and VIII is DENIED.
IT IS SO ORDERED.
57