Roma Landmark theaters, LLC v. Cohen Exhibition Company LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
ROMA LANDMARK THEATERS, LLC )
and MCC ENTERTAINMENT LLC, )
)
Plaintiffs, )
)
v. ) C.A. No. 2019-0585-PAF
)
COHEN EXHIBITION COMPANY LLC, )
)
Defendant. )
___________________________________ )
)
COHEN EXHIBITION COMPANY LLC, )
)
Counterclaim-Plaintiff, )
)
v. )
)
ROMA LANDMARK THEATERS, LLC, )
MCC ENTERTAINMENT LLC, and )
SCHUYLER HANSEN, )
)
Counterclaim-Defendants. )

MEMORANDUM OPINION
Date Submitted: June 12, 2020
Date Decided: September 30, 2020
Garrett B. Moritz and Anne M. Steadman, ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; Marshall R. King and Hannah E. Kirshner, GIBSON,
DUNN & CRUTCHER LLP, New York, New York; Attorneys for Plaintiffs and
Counterclaim Defendants.

Kevin M. Gallagher and Angela Lam, RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware; Donald A. Harwood and Simon W. Reiff, HARWOOD
REIFF LLC, New York, New York; Attorneys for Defendant and Counterclaim
Plaintiff.

FIORAVANTI, Vice Chancellor

2
 This action arises from a disagreement over post-closing price adjustments to

a corporate acquisition. Under the parties’ purchase agreement, the company

calculated certain financial metrics to determine initial adjustments to the purchase

price and provided them to the buyer. The buyer updated the calculations after

closing to determine a final adjustment to the purchase price. The purchase

agreement detailed how the financial metrics would be calculated. The agreement

required the parties to submit any dispute over the calculations to an independent

accounting firm for a conclusive and binding determination.

The parties disagreed over post-closing adjustments and submitted their

dispute to the accounting firm. The accounting firm largely ruled in favor of the

sellers. The sellers then filed this action, requesting an order confirming the

accounting firm’s decision and requiring the buyer to release funds which had been

escrowed to satisfy any final purchase price adjustment. The buyer responded with

counterclaims, alleging that the sellers have engaged in financial disclosure

misrepresentations amounting to fraud and bad faith. The sellers have moved for

summary judgment on their affirmative claims and to dismiss the buyer’s

counterclaims.

This Opinion grants the motion to dismiss in part and denies the motion for

summary judgment.

3
I. BACKGROUND
The facts recited in this opinion are drawn from the Verified Complaint (Dkt.

1) (the “Complaint” or “Compl.”), the Answer (Dkt. 24) (the “Answer” or “Ans.”),

the Verified Amended Counterclaims (Dkt. 24) (the “Counterclaims” or

“Countercl.”), documents integral thereto, and matters of which the Court may take

judicial notice.

A. The Purchase Agreement
On December 3, 2018, Plaintiffs Roma Landmark Theaters, LLC (“Roma”)

and MCC Entertainment LLC (“MCC”) sold Landmark Acquisition Corporation

(“Landmark” or the “Company”) to Defendant Cohen Exhibition Company LLC

(the “Buyer”) pursuant to a Securities Purchase Agreement (the “Purchase

Agreement”).1 The Counterclaims allege that Counterclaim Defendant Schuyler

Hansen was the Chief Financial Officer and Manager of Roma and MCC, and the

Chief Financial Officer of the Company at the time of the sale.2 Unless otherwise

noted, Roma, MCC, and Hansen are referred to herein as the “Sellers.”

1
Compl. ¶ 12; Ans. ¶ 12. The Purchase Agreement is attached as Exhibit A to the
Complaint.
2
The record does not contain a single authoritative source establishing the titles that
Hansen held at Roma, MCC, and the Company. See Countercl. ¶ 10 (alleging that Hansen
was the Sellers’ CFO and Manager); id. ¶ 34 (alleging that Hansen was the Company’s
CFO prior to the sale); Hansen Decl. ¶ 1 (Dkt. 19) (identifying Hansen as the Manager of
Roma); Determination Letter 1 (identifying Hansen as the Chief Financial Officer of both
Roma and MCC); Purchase Agreement Schedule 1.5(b)(iv) (identifying Hansen as the
Company’s CFO and Treasurer).
4
 The Counterclaims largely implicate two categories of Purchase Agreement

provisions: (1) the purchase price adjustment mechanism; and (2) the Sellers’ and

the Company’s respective representations and warranties.

1. The Purchase Price Adjustments
Under the Purchase Agreement, Buyer agreed to purchase the Company for

$148,800,000, subject to adjustments at and after closing. Pursuant to the Purchase

Agreement, Buyer placed $3 million of the purchase price into an escrow account to

satisfy any post-closing adjustments.3 At closing, the price was adjusted based on

financial metrics in a Preliminary Closing Statement that the Company provided to

Buyer shortly before closing. The Preliminary Closing Statement contained

estimates of the Company’s Net Working Capital, Indebtedness, Cash, and

Company Transaction Expenses as of the closing date.4 After closing, pursuant to

the Purchase Agreement, the Buyer provided a Final Closing Statement to the Sellers

3
Purchase Agreement 38 (defining “Closing Payment” as the “Estimated Net Purchase
Price Amount” minus the “Adjustment Escrow Amount” and the “Adjustment Escrow
Amount” as $3,000,000); 40 (defining “Estimated Net Purchase Price Amount” as the
“Enterprise Value” taking into account the financial metrics); 39 (defining “Enterprise
Value” as $148,800,000); see also id. § 1.6; Compl. ¶ 13 (establishing $3 million escrow
for post-closing adjustments). The Escrow Agreement is attached as Exhibit C to the
Complaint.
4
Purchase Agreement § 1.3(a).

5
containing a revised price adjustment, reflecting Buyer’s updated calculations of the

same financial metrics. 5

The parties agreed that the financial metrics in the Preliminary and Final

Closing Statements would be calculated pursuant to instructions in a Company

Disclosure Letter attached to the Purchase Agreement (the “Applicable Accounting

Principles”). 6 The Applicable Accounting Principles provided that the Preliminary

and Final Closing Statements would be prepared using: (1) the terms of the Purchase

Agreement, (2) a list of “Specific Policies,” and (3) the accounting methodology

used by the Company in preparing certain prior financial statements (the “Interim

Financial Statements”). 7 If the Purchase Agreement, the Specific Policies, or the

5
Id. § 1.3(b).
6
Id. § 1.3(a) (“Estimated Net Working Capital, Estimated Indebtedness, Estimated Cash
and Estimated Company Transaction Expenses shall be calculated on a basis consistent
with Section 1.3(a) of the Company Disclosure Letter and the accounting principles,
practices, assumptions, conventions and policies referred to therein (the ‘Applicable
Accounting Principles’)”). The Company Disclosure Letter is attached as Exhibit 3 to the
Declaration of Schuyler Hansen, and the Applicable Accounting Principles are set forth at
Section 1.3 of the Company Disclosure Letter (Dkt. 19 Ex. 3). See Lou R. Kling & Eileen
T. Nugent, Negotiated Acquisitions of Companies, Subsidiaries and Divisions § 17.02 at
17–23 (2020 ed.) (discussing mechanisms to calculate post-closing purchase price
adjustments and recommending “adequate pre-signing due diligence into the accounting
principles and policies underlying the financial statements of the business being acquired
and express agreements between the parties as to any deviations from these principles and
policies that are to be applicable to the preparation of the closing date balance sheet”).
7
Company Disclosure Letter § 1.3; see also Purchase Agreement § 4.6(a) (defining
“Interim Financial Statements” as “the combined consolidated statements of operations of
the Company and its Subsidiaries, for the twelve (12) months ended December 28, 2017
and the ten (10) months ended October 25, 2018”).

6
Interim Financial Statements did not address a particular calculation, the Preliminary

and Final Closing Statements were to be prepared according to generally accepted

accounting principles (“GAAP”). 8 To further guide the process, the Purchase

Agreement attached a document illustrating how each of the financial metrics would

be calculated (the “Sample Statement”). The parties agreed in the Specific Policies

that all calculations of Net Working Capital would “include only those accounts and

line items set forth in the Sample Statement.” 9

If the parties could not resolve a dispute over the calculations in the Final

Closing Statement, the Purchase Agreement required that an independent accounting

firm would decide the dispute.10 The accounting firm’s review was limited to

determining whether the calculations had been correctly performed and whether the

calculations were made pursuant to the Applicable Accounting Principles and the

8
Company Disclosure Letter § 1.3. The parties also agreed that, in the event of any
conflict, (1) the Purchase Agreement would supersede the Specific Policies and the
methodologies used to prepare the Interim Financial Statements, and (2) the Specific
Policies would supersede the methodologies used to prepare the Interim Financial
Statements. Id.
9
Company Disclosure Letter at Specific Policy (e). The Sample Statement is attached as
Exhibit A to the Applicable Accounting Principles. It is also attached as Exhibit A to the
Purchase Agreement.
10
Purchase Agreement § 1.3(d).

7
Sample Statement.11 The accounting firm’s determination was “conclusive and

binding upon the parties” and is “not . . . subject to appeal or further review.” 12 The

parties also agreed that they would pay the costs of “any dispute resolution . . .

including the fees and expenses of the Independent Accounting Firm and of any

enforcement of the determination thereof” proportionally to the degree of their

success, as calculated by the accounting firm. 13

2. Pertinent Representations and Warranties
Article III of the Purchase Agreement contains Sellers’ representations and

warranties. Article III does not make any representations or warranties about the

accuracy of any financial statements or the Preliminary Closing Statement. In

Section 3.6 of the Purchase Agreement, Sellers expressly disclaim any

representations outside of the representations made in Article III, except as modified

11
Id. (“The scope of the disputes to be resolved by the Independent Accounting Firm shall
be limited to correcting mathematical errors and determining whether the items and
amounts in dispute were determined in accordance with the Applicable Accounting
Principles and the Sample Statement, and the Independent Accounting Firm is not to make
any other determination, including any determination as to whether the Target Net Working
Capital or any estimates on the Preliminary Closing Statement are correct, adequate or
sufficient.”).
12
Id. (“Judgment may be entered upon the written determination of the Independent
Accounting Firm in accordance with Section 8.10.”); see also id. § 8.10 (forum selection
clause selecting Delaware courts for all actions “arising out of or relating to this Agreement
or the transactions contemplated hereby”).
13
Id. § 1.3(e).

8
by the Company Disclosure Letter. 14 With respect to Article III, the Company

Disclosure Letter modifies the Sellers’ representations in Sections 3.4 and 3.5, which

are not relevant to the claims addressed in this Opinion.15

Article IV of the Purchase Agreement separately states the Company’s

representations and warranties. Section 4.6(a) makes representations and warranties

as to the Interim Financial Statements, stating that each financial statement:

(i) has been prepared based on the books and records of the Company
. . . except as may be indicated in the notes thereto, (ii) has been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as may be indicated in the
notes thereto) and (iii) fairly presents, in all material respects, the
consolidated or combined financial position and results of operations
of the Company and WSH HoldCo, Inc., and their respective
Subsidiaries (as applicable), as at the respective dates thereof and for
the respective periods indicated therein, except as otherwise noted
therein and subject, in the case of the Interim Financial Statements, to
normal year-end adjustments and the absence of notes. 16

14
Id. § 3.6 (“Neither such Seller nor any of its Affiliates, nor any of its or their respective
Representatives is making any representation or warranty on behalf of, or otherwise
relating to, such Seller of any kind or nature whatsoever, oral or written, express or implied,
except as expressly set forth in this Article III (as modified by the Company Disclosure
Letter) and such Seller hereby disclaims any such other representations or warranties.”).
15
The Company Disclosure Letter contains a table showing the Sellers’ equity interests in
the Company, as referenced in Section 3.4, and a table listing one broker entitled to a
brokerage, finder’s, or similar fee, as referenced in Section 3.5. Company Disclosure
Letter §§ 3.4, 3.5.
16
Purchase Agreement § 4.6(a).

9
 In Section 2.6 of the Purchase Agreement, Buyer agreed that it had been

“provided with full and complete access” to the Company’s books and records. 17 It

also expressly disclaimed any reliance upon any representation or warranty or

statement (including by omission) outside of Articles III and IV, as modified by the

Company Disclosure Letter. Section 2.6 states, in pertinent part:

The Buyer is a sophisticated purchaser and has made its own
independent investigation, review and analysis regarding the Company
and its Subsidiaries and the transactions contemplated hereby . . . . The
Buyer and its Representatives have been provided with full and
complete access to the . . . books and records . . . that they have
requested . . . . The Buyer has not relied and is not relying on any
statement (including by omission), representation or warranty, oral or
written, express or implied, made by or on behalf of any Seller, the
Company, or any of their respective Affiliates . . . and each of the
Sellers and the Company . . . expressly disclaim any and all liability
that may be based on such information or errors therein or omissions
therefrom, except as expressly and specifically set forth in Article III
(as modified by the Company Disclosure Letter), with respect to
representations made by a Seller as to itself, and Article IV (as modified
by the Company Disclosure Letter) with respect to representations
made by the Company as to itself and its Subsidiaries. None of the
Sellers, the Company or any of their respective . . . directors, officers,
employees, [or] equity holders . . . shall have any liability to the Buyer
or any other Person resulting from the use of, or any reliance on, any
information, documents or materials made available to the Buyer . . . .
None of the Sellers, the Company or their Affiliates, or any of their
respective directors, officers, employees, equity holders . . . has made,
directly or indirectly, any representation or warranty or statement
(including by omission) with respect to the accuracy or completeness
of any such information, documents or materials made available to (or
otherwise acquired by) the Buyer . . . . 18

17
Id. § 2.6.
18
Id.
10
 In Section 8.1 of the Purchase Agreement, the parties agreed that the parties’

representations and warranties in the Purchase Agreement expired upon closing:

The respective representations, warranties, covenants and agreements
of the Sellers, the Company and the Buyer contained in this Agreement
and any certificate delivered pursuant hereto shall terminate at, and not
survive, the Closing; provided, that this Section shall not limit any
covenant or agreement of the parties that by its terms requires
performance after the Closing. In no event following the Closing shall
the Buyer or the Company or their respective Affiliates have any
recourse against (a) any Persons who were stockholders, equity holders,
members or other direct or indirect beneficial owners of the Company
prior to the Closing with respect to matters relating to the Company or
(b) the former directors or officers of the Company or its Subsidiaries,
or any Affiliates or Representatives of any of the foregoing Persons, in
each case with respect to any representation, warranty, covenant or
agreement made by the Company in this Agreement. 19

The Buyer’s Counterclaims do not directly allege a breach of the

representations and warranties in the Purchase Agreement. Rather, Buyer alleges

that Sellers breached Sections 1.3(a) and 6.3(b) of the Purchase Agreement.20

Section 1.3(a) is part of the purchase price adjustment mechanism. It requires the

Company to prepare the Preliminary Closing Statement using good faith estimates

of the financial metrics used to calculate the price adjustments, subject to the parties’

agreement regarding the Applicable Accounting Principles and the Sample

Statement. It states, in pertinent part:

19
Id. § 8.1.
20
Countercl. ¶ 19.
11
 On or prior to the Closing Date . . . the Company shall prepare . . . and
deliver to the Buyer [the “Preliminary Closing Statement”] setting forth
(i) a good-faith estimate of the Company’s (A) Net Working Capital . .
. (B) Indebtedness . . . (C) Cash . . . and (D) Company Transaction
Expenses . . . each determined as of 11:59 p.m. on the day prior to the
Closing Date . . . based on the Company’s books and records and other
information available at the Closing and (ii) on the basis of the
foregoing, a calculation of the Estimated Net Purchase Price Amount
and the Closing Payment. Estimated Net Working Capital, Estimated
Indebtedness, Estimated Cash and Estimated Company Transaction
Expenses shall be calculated on a basis consistent with Section 1.3(a)
of the Company Disclosure Letter and [the “Applicable Accounting
Principles” therein]. An illustrative example of a Preliminary Closing
Statement and calculation of Net Working Capital, Indebtedness, Cash
and Company Transaction Expenses is set forth as Exhibit A (the
“Sample Statement”). 21

Section 6.3(b) is contained in Article VI of the Purchase Agreement, entitled

“Conditions to Closing,” and states:

The obligations of the Buyer to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at
or prior to the Closing, of each of the following conditions, any of
which may be waived in writing by the Buyer in its sole discretion:

***

(b) The Sellers and the Company shall have performed all obligations
and agreements and complied with all covenants and conditions
required by this Agreement to be performed or complied with by them
prior to or at the Closing. 22

21
Purchase Agreement § 1.3(a).
22
Id. § 6.3(b).

12
 B. The Parties Dispute the Post-Closing Adjustments.
On February 7, 2019, Buyer delivered the Final Closing Statement to the

Sellers.23 On March 7, 2019, Sellers gave notice to Buyer that Sellers disputed

certain calculations in Buyer’s Final Closing Statement. 24 The parties engaged

PricewaterhouseCoopers LLP (“PwC”) to serve as the independent public

accounting firm to resolve the disputes and submitted statements of their respective

positions to PwC. 25 PwC propounded interrogatories and document requests to the

parties to obtain additional information to assist it in its determination. 26

On June 28, 2019, PwC issued its Determination Letter resolving the Final

Closing Statement disputes.27 The Determination Letter resolved the disputes in

Sellers’ favor, except that PwC agreed with Buyer’s calculation of the Company’s

23
Compl. ¶ 14; Ans. ¶ 14.
24
Compl. ¶ 15; Purchase Agreement § 1.3(c).
25
Compl. ¶¶ 14–15; see also Compl. Ex. D (PwC’s engagement letter). The Purchase
Agreement indicates that “the Independent Accounting Firm shall be BDO Siedman or, if
such firm is unable or unwilling to act, such other independent public account firm as shall
be agreed in writing by the Sellers and the Buyer.” Purchase Agreement § 1.3(d). PwC
was retained after BDO Siedman was determined to have a conflict of interest. Cherniak
Aff. ¶ 19 (Dkt. 26).
26
Compl. Ex. B at 3.
27
PwC referred to its written decision as the “Determination Letter,” and this Opinion uses
that defined term hereinafter. The Determination Letter is attached as Exhibit B to the
Complaint.

13
cash as of the closing date. 28 Sellers requested that Buyer instruct the escrow agent

to release funds pursuant to PwC’s determination. Buyer refused. 29

C. This Action
On July 29, 2019, Sellers filed the Complaint seeking (1) a judgment

enforcing PwC’s Determination Letter as a binding arbitration award under the

Federal Arbitration Act (Compl. Count I);30 and (2) an order of specific performance

requiring Buyer to release the escrowed amounts pursuant to the Determination

Letter, plus Sellers’ costs of enforcement (Compl. Count II).31

On September 13, 2019, Buyer filed an Answer and Verified Counterclaims,

which were amended on January 13, 2020. The Counterclaims allege that Sellers,

through their fellow Counterclaim-Defendant Hansen as an officer of the Sellers and

the Company, engaged in bad faith and fraudulent conduct. Buyer alleges that

Sellers acted fraudulently and in bad faith by failing to maintain a reserve against an

accounts receivable balance for payments from Moviepass, a ticket subscription

28
Determination Letter 6–11 & 13–15 (resolving calculation disputes in Sellers’ favor); id.
at 12 (resolving the dispute regarding Closing Cash in Buyer’s favor).
29
Compl. ¶¶ 26–27.
30
Id. ¶¶ 28–35.
31
Id. ¶¶ 36–42; Request for Relief ¶ b (requesting an order “directing specific performance
of Cohen’s obligations under the Purchase Agreement and the Escrow Agreement to . . .
execute a Joint Instruction Letter releasing funds to Plaintiffs in the amount of $2,621,623,
plus any interest accrued in the Escrow Account since May 31, 2019, plus Plaintiffs’ costs
of enforcement, plus prejudgment interest”).

14
business, in the Company’s Interim Financial Statements or in the Preliminary

Closing Statement. According to Buyer, Sellers knew that Moviepass was

experiencing financial distress,32 but did not record a reserve. Buyer further alleges

that Sellers did not properly record outstanding checks from a particular bank

account (“Account #1000-035”) as accounts payable or otherwise disclose them to

Buyer as liabilities in the Preliminary Closing Statement, even though Buyer listed

outstanding checks as liabilities in its Interim Financial Statements.33

The dispute over the Moviepass receivable and outstanding checks were

among the issues previously presented to PwC. The Buyer’s Final Closing

Statement recorded a 50% reserve to the Moviepass accounts receivable and

reclassified the outstanding checks as liabilities. PwC rejected Buyer’s argument

and resolved the disagreement in Sellers’ favor. PwC determined that the Buyer’s

treatment of the Moviepass accounts receivable and the outstanding checks in the

Final Closing Statement was inconsistent with the Purchase Agreement. 34 Despite

PwC’s determination, Buyer argues that the Determination Letter does not bar its

32
Countercl. ¶¶ 7–11.
33
Id. ¶¶ 12–22.
34
Determination Letter 6–7 (determining that Buyer had not acted consistently with the
Sample Statement by reclassifying outstanding checks as accounts payable in the Final
Closing Statement and stating: “Buyer’s proposed Moviepass accounts receivable reserve
was not in accordance with the Specific Policies.”).
15
claims because PwC had no authority to determine whether Sellers acted

fraudulently or in bad faith.

The Counterclaims also assert claims that were, allegedly, not presented to

PwC. The Counterclaims allege that, after PwC issued the Determination Letter,

Buyer learned about multiple categories of liabilities that were excluded from the

Interim Financial Statements and the Preliminary Closing Statement. Specifically,

Buyer alleges that Sellers acted improperly by failing to disclose (1) more than

$750,000 of merit and incentive bonuses for field management personnel (the

“Management Bonus Liabilities”); (2) approximately $500,000 of medical claim

liabilities known to Sellers prior to closing (the “Medical Claim Liabilities”); and

(3) approximately $175,000 of under-accrued state income taxes, approximately

$60,000 worth of expense reports, and a write-off of a receivable of approximately

$40,000 (the “Miscellaneous Liabilities”).35

Buyer’s counterclaims are reflected in four separate counts: (1) breach of

contract for failure to provide good faith estimates of the Company’s financial

metrics pursuant to Section 1.3 (Countercl. Count I);36 (2) fraud (Countercl. Count

35
Countercl. ¶¶ 25–26.
36
Id. ¶¶ 27–32.

16
II); 37 (3) fraudulent concealment (Countercl. Count IV); 38 and (4) breach of the

implied covenant of good faith and fair dealing (Countercl. Count V). 39 The parties

briefed Sellers’ motion to dismiss the Counterclaims and motion for summary

judgment, and on June 12, 2020, the Court heard oral argument on the motions.

II. ANALYSIS
A. Sellers’ Motion to Dismiss
Sellers have moved to dismiss Buyer’s counterclaims in their entirety. The

pleading standards governing a motion to dismiss under Court of Chancery Rule

12(b)(6) are minimal. Central Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs.

LLC, 27 A.3d 531, 536 (Del. 2011). On a motion to dismiss for failure to state a

claim:

(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.

Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal citations and

quotation marks omitted); accord Central Mortg., 27 A.3d at 536. “[A] trial court

is required to accept only those ‘reasonable inferences that logically flow from the

37
Id. ¶¶ 33–38.
38
Id. ¶¶ 39–44. There is no Count III in the amended counterclaims.
39
Id. ¶¶ 45–51.
17
face of the complaint’ and ‘is not required to accept every strained interpretation of

the allegations proposed by the plaintiff.’” In re Gen. Motors (Hughes) S’holder

Litig., 897 A.2d 162, 168 (Del. 2006) (quoting Malpiede v. Townson, 780 A.2d 1075,

1083 (Del. 2001)). “Moreover, a claim may be dismissed if allegations in the

complaint or in the exhibits incorporated into the complaint effectively negate the

claim as a matter of law.” Malpiede, 780 A.2d at 1083.

This Opinion first addresses Buyer’s contract claims in Count I (breach of

contract) and Count V (breach of the implied covenant of good faith and fair

dealing). The Opinion then addresses Buyer’s fraud claims in Count II (fraud) and

Count IV (fraudulent concealment).

1. Buyer’s Contract Claims

a. Breach of Contract (Count I)
“To survive a motion to dismiss, a complaint stating a claim for breach of

contract must identify a contractual obligation . . . a breach of that obligation by the

defendant, and resulting damage to the plaintiff.” Moore Bus. Forms, Inc. v.

Cordant Hldgs. Corp., 1995 WL 662685, at *7 (Del. Ch. Nov. 2, 1995). “‘Delaware

adheres to the ‘objective’ theory of contracts, i.e., a contract’s construction should

be that which would be understood by an objective, reasonable third party.’” Osborn

v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting NBC Universal v. Paxson

18
Commc’ns Corp., 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)); accord

Salamone v. Gorman, 106 A.3d 354, 367–68 (Del. 2014).

Buyer does not directly allege that Sellers breached the Company’s financial

disclosures in the representations and warranties of the Purchase Agreement.

Rather, Buyer attempts to do so indirectly, alleging breaches of two other contract

provisions. 40 First, Buyer claims that Sellers breached Section 1.3 of the Purchase

Agreement, which required the Company to provide good faith estimates of financial

metrics in the Preliminary Closing Statement. Second, Buyer claims Sellers

breached a representation or covenant in Section 6.3(b) that the financial information

provided by the Company to Buyer was accurate.

In essence, Buyer argues that these provisions should serve as “backup”

representations and warranties by the Sellers regarding the Company’s finances

because Sellers did not make any representations or warranties regarding the

Company’s financial disclosures in the Purchase Agreement. Rather, in Section

4.6(a), the Company (not the Sellers) represented and warranted that the Interim

Financial Statements had been prepared “based on the books and records of the

Company” and “in accordance with GAAP applied on a consistent basis throughout

40
Defendant concedes that Hansen is not liable for breach of contract or for a breach of the
implied covenant of good faith and fair dealing because Hansen was not a party to the
Purchase Agreement. Buyer’s Ans. Br. in Opp’n to Mot. to Dismiss 42 n.2.

19
the periods indicated.” 41 In the same section, the Company further warranted that

the Interim Financial Statements “fairly present[], in all material respects, the

consolidated or combined financial position and results of operations of the

Company . . . as at the respective dates thereof and for the respective periods

indicated therein.”42 The parties expressly agreed that the representations and

warranties terminated upon closing and barred any recourse by the Buyer against the

former owners of the Company. 43

In Section 1.3, outside of the representations and warranties described in

Articles III and IV of the Purchase Agreement, the Company agreed that it would

provide the Preliminary Closing Statement to the Buyer for purposes of calculating

an initial price adjustment that would subsequently be revised by the Buyer after

closing and reflected in the Final Closing Statement. The typical purpose of post-

closing price adjustments is to “account for changes in [the] business between . . .

signing and closing.” See Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec.

41
Purchase Agreement § 4.6(a).
42
Id. See Abry P’rs V, L.P. v. F & W Acq. LLC, 891 A.2d 1032, 1041–42 (Del. Ch. 2006)
(analyzing a purchase agreement in which the “key representation and warranty” was
“made only by the Company and not by the Seller”). In Abry Partners, this Court held that
it was “legitimate for the Seller to create exculpatory distance between itself and the
Company” by dividing the representations in this manner so that the buyer would be
required to “hold the Company and its speaking managers exclusively responsible for their
own misstatements of fact.” Id. at 1063.
43
Purchase Agreement § 8.1.
20
Co. LLC, 166 A.3d 912, 928 (Del. 2017); see also id. (“Buyers want protection

against value depletion before they take over the business, and, at the same time,

sellers want to ensure that they will be compensated for effectively running the

business.”).

i. The Counterclaims Do Not State a Claim for
Breach of Section 1.3 of the Purchase
Agreement.
Section 1.3(a) requires the Company, rather than Sellers, to prepare the

Preliminary Closing Statement. It states:

[T]he Company shall prepare, or cause to be prepared, and deliver to
the Buyer a statement (the “Preliminary Closing Statement”) setting
forth (i) a good-faith estimate of the Company’s (A) Net Working
Capital (the “Estimated Net Working Capital”), (B) Indebtedness (the
“Estimated Indebtedness”), (C) Cash (the “Estimated Cash”) and (D)
Company Transaction Expenses (the “Estimated Company Transaction
Expenses”) [as of the closing date]. 44

Section 1.3(a) does not obligate the Sellers to prepare the Preliminary Closing

Statement or to provide good faith estimates of the Company’s financial metrics.

The obligations of Sellers and the Company are not interchangeable in the Purchase

Agreement. See Abry, 891 A.2d at 1063 (noting that parties to an agreement

apportioned representations between the company and the seller of the company

because “[t]he Seller did not necessarily possess the same information as the

managers of the Company”). Having agreed that the Company owed the obligation

44
Purchase Agreement § 1.3(a).
21
to prepare the Preliminary Closing Statement, Buyer cannot now argue that Sellers

owed the contractual obligation to prepare and deliver the Preliminary Closing

Statement pursuant to the Purchase Agreement with the attendant contractual

liability for breach.

In its briefing, Buyer’s only counterargument is that “a seller may be held

liable for the company’s fraudulent misrepresentations in a stock purchase

agreement.”45 Buyer cites no case law, however, for the proposition that a

contracting party may be held liable for breach of contract for failure to disclose

information that another party was obligated to disclose.46 To hold that Sellers owed

the contractual obligation to prepare the Preliminary Closing Statement in good faith

would be to rewrite the parties’ contract, and Buyer makes no argument that doing

so would be appropriate here. See JPMorgan Chase & Co. v. Am. Century Cos.,

Inc., 2012 WL 1524981, at *6 (Del. Ch. Apr. 26, 2012) (dismissing breach of

contract claim because plaintiffs failed to cite any term of the contract obligating

defendant to provide the disclosure allegedly required). Buyer’s claim that Sellers

breached Section 1.3(a) of the Purchase Agreement is therefore dismissed.

45
Buyer Ans. Br. in Opp’n to Mot. to Dismiss 43 (emphasis in original).
46
See Oral Arg. Tr. at 59 (counsel for Buyer confirming same) (Dkt. 70).

22
 ii. The Complaint Fails to Allege that Sellers
Breached Section 6.3(b).
Buyer alleges that Sellers breached Section 6.3(b) of the Purchase Agreement.

This claim is based on the same alleged financial misrepresentations underlying the

alleged breach of Section 1.3(a).47 Section 6.3(b) states: “[T]he Sellers and the

Company shall have performed all obligations and agreements and complied with

all covenants and conditions required by this Agreement to be performed or

complied with by them prior to or at the Closing.” 48 Buyer characterizes Section

6.3(b) as a “disclosure requirement[]” and a “representation . . . that the interim

financial statements were accurate as of the dates thereof.” See Buyer’s Ans. Br. in

Opp’n to Mot. to Dismiss 20, 44. Elsewhere, Buyer contends that “[t]he promises

made in Section 6.3(b) . . . most certainly were covenants” because it purportedly

contains a “promise that accurate disclosures in good faith would occur[.]” Id. 46–

47.

Buyer’s various characterizations of Section 6.3(b) do not sustain a claim for

breach of contract. Section 6.3(b) is a condition to closing, not (as Buyer claims) a

representation and warranty of financial disclosures or a covenant that accurate

47
See Countercl. ¶ 19 (“In agreeing to close, Buyer relied on the truth and accuracy of the
interim financial statements and the Preliminary Closing Statement and that Sellers would
abide by their obligation under Section 1.3(a) of the Purchase Agreement to prepare such
statements in good faith, as well as their representation under Section 6.3(b) that the interim
financial statements were accurate as of the dates thereof.”).
48
Purchase Agreement § 6.3(b).
23
financial disclosures would be provided. “[T]he non-occurrence of a condition is

not considered a breach unless the party promised that the condition would occur.”

TravelCenters of Am. LLC v. Brog, 2008 WL 5272861, at *3 (Del. Ch. Dec. 5, 2018).

Here, Buyer has neither pleaded nor demonstrated through briefing how Section

6.3(b)—either by its terms or by reference to other provisions in the Purchase

Agreement—obligates the Sellers to provide true and accurate representations

regarding the Company’s financial disclosures.

In alleging claims for breach of Sections 1.3(a) and 6.3(b), Buyer has sought

to circumvent the clear contractual limitations that prevent a direct claim for breach

of the Company’s financial representations. Under the Purchase Agreement, the

Company, rather than the Sellers, provided representations and warranties regarding

the Company’s financial statements.49 The truth and correctness of the

representations and warranties were part of a condition to closing in Section 6.3(a),

49
Purchase Agreement § 4.6(a)(iii) (representing that financial statements “fairly present[],
in all material respects, the consolidated or combined financial position and results of
operations”). Cf. Abry, 891 A.2d at 1041–44 (analyzing a situation in which a Stock
Purchase Agreement contained a representation regarding financial statements by the
company rather than the seller).

24
rather than Section 6.3(b). 50 In addition, the Company’s representations, warranties,

and covenants terminated upon closing.51 Having agreed to those terms, Buyer

cannot create new free-floating contractual protections that it did not bargain for

through an unrelated provision of the Purchase Agreement. Nemec v. Shrader, 991

A.2d 1120, 1126 (Del. 2010) (“Parties have a right to enter into good and bad

contracts, the law enforces both.”). Buyer has not stated a claim that Sellers

breached the Purchase Agreement.

b. Breach of the Implied Covenant (Count V)
Count V asserts a claim for breach of the implied covenant of good faith and

fair dealing. Buyer alleges the Sellers breached the implied covenant by “providing

misleading financial metrics, which significantly overstated the Company’s

50
Purchase Agreement § 6.3(a) (“The representations and warranties of the Sellers and the
Company contained in Articles III and IV shall be true and correct both when made and as
of the Closing Date, except that in the case of representations and warranties that are made
as of a specified date, such representations and warranties shall be true and correct as of
such specified date, except where the failure to be so true and correct (without giving effect
to any limitation or qualification as to ‘materiality’ (including the word ‘material’), ‘Seller
Material Adverse Effect’ or ‘Material Adverse Effect’ set forth therein, other than those
limitations and qualifications contained in Section 4.7(b) and Section 4.17(a)) would not
have or reasonably be expected to have a Seller Material Adverse Effect or Material
Adverse Effect, as applicable.”).
51
Purchase Agreement § 8.1. “‘[W]here the contract expressly provides that the
representations and warranties terminate upon closing . . . the parties have made clear their
intent that they can provide no basis for a post-closing suit seeking a remedy for an alleged
misrepresentation. That is, when the representations and warranties terminate, so does any
right to sue on them.’” Chicago Bridge, 166 A.3d at 932–33 (quoting GRT, Inc. v.
Marathon GTF Tech., Ltd., 2011 WL 2682898, at *13 (Del. Ch. July 11, 2011)).

25
Accounts Receivable, and grossly understated its Accounts Payable, both in the

interim financial statements and in the Preliminary Closing Statement.” 52

The implied covenant of good faith and fair dealing inheres in every contract

governed by Delaware law and requires “‘a party in a contractual relationship to

refrain from arbitrary or unreasonable conduct which has the effect of preventing the

other party to the contract from receiving the fruits’ of the bargain.”53

“[T]he implied covenant only applies where a contract lacks specific language

governing an issue and the obligation the court is asked to imply advances, and does

not contradict, the purposes reflected in the express language of

the contract.” Alliance Data Sys. Corp. v. Blackstone Capital P’rs V L.P., 963 A.2d

746, 770 (Del. Ch.), aff'd, 976 A.2d 170 (Del. 2009) (TABLE). “The doctrine thus

operates only in that narrow band of cases where the contract as a whole speaks

sufficiently to suggest an obligation and point to a result, but does not speak directly

enough to provide an explicit answer.” Airborne Health, Inc. v. Squid Soap, LP, 984

A.2d 126, 146 (Del. Ch. 2009); see also Oxbow Carbon & Minerals Hldgs., Inc. v.

Crestview-Oxbow Acq., LLC, 202 A.3d 482, 504 n.93 & 506–07 (Del. 2019)

(discussing the application of the implied covenant of good faith and fair dealing).

52
Countercl. ¶ 47.
53
Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005) (quoting Wilgus
v. Salt Pond Inv. Co., 498 A.2d 151, 159 (Del. Ch. 1985)).
26
 Buyer neither alleges in its Counterclaims nor argues in its brief that there is

a contractual gap or unanticipated development in the Purchase Agreement that

should be addressed through application of the implied covenant of good faith and

fair dealing. Rather, Buyer argues that its implied covenant claim should survive as

an alternative to its primary breach of contract claim because “Delaware courts

routinely deny dismissal of breach of covenant of good faith and fair dealing claims

. . . prior to discovery.” 54

Claims for the implied covenant of good faith and fair dealing are not immune

from dismissal at the pleadings stage, especially where, as here, the claimant has not

alleged an implied obligation or a contractual gap. See Winshall v. Viacom Int’l.,

Inc., 76 A.3d 808, 816 (Del. 2013) (affirming dismissal of an implied covenant claim

at the motion to dismiss stage because “no such obligation can be implied under” the

contract); Dunn v. FastMed Urgent Care, P.C., 2019 WL 4131010, at *5 (Del. Ch.

Aug. 30, 2019) (dismissing an implied covenant claim because plaintiff “does not

allege the implied covenant fills a gap, nor . . . any misuse of a granted discretionary

power”). In Fortis Advisors, this Court dismissed an implied covenant claim

because the plaintiff had failed to “identif[y] an ambiguity or potential gap in a

contract that could be filled by the implied covenant,” and noted that the “right to

54
Buyer’s Ans. Br. in Opp’n to Mot. to Dismiss 49–50.
27
plead alternative claims . . . does not obviate the need to provide factual support for

each theory.” Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371,

at *5 (Del. Ch. Jan. 30, 2015) (internal citations omitted). The same rationale holds

here, and the implied covenant claim is therefore dismissed.

2. Buyer’s Fraud Claims
Although Buyer cannot assert breach of contract claims against Sellers based

upon any misrepresentations by the Company, Delaware law recognizes that a seller

can, under certain circumstances, be held liable for fraud based on the company’s

misrepresentations. Abry, 891 A.2d at 1064; Prairie Capital III, L.P. v. Double E.

Hldg. Corp., 132 A.3d 35, 60–62 (Del. Ch. 2015); ChyronHego Corp. v. Wight, 2018

WL 3642132, at *10 (Del. Ch. July 31, 2018). The Buyer must, nevertheless, satisfy

the heightened pleading standard for fraud. A key element of that analysis involves

the extent to which a buyer has disclaimed reliance on representations, thus negating

an essential element of a claim for fraud. Here, Buyer has asserted two claims

sounding in fraud: fraud, and fraudulent concealment.

a. Fraud (Count II)
In Count II (Fraud), Buyer alleges that Sellers “including by and through

Hansen, the Company’s then CFO and a Manager of Sellers, made false and

28
misleading statements of material facts concerning the calculation of Closing Net

Working Capital and/or actively concealed such material facts.”55

To state a claim for fraud, Buyer must plead: (1) that Counterclaim

Defendants made a false representation, usually one of fact; (2) with the knowledge

or belief that the representation was false, or with reckless indifference to the truth;

(3) with an intent to induce Buyer to act or refrain from acting; (4) that Buyer’s

action or inaction was taken in justifiable reliance upon the representation; and (5)

damage to the plaintiff as a result of Buyer’s reliance on the representation. Fortis

Advisors, 2015 WL 401371, at *6; accord GreenStar IH Rep, LLC v. Tutor Perini

Corp., 2017 WL 5035567, at *10 (Del. Ch. Oct. 31, 2017), aff’d, 186 A.3d 799 (Del.

2018) (TABLE). To plead fraud, Buyer must also satisfy the heightened pleading

standard of Court of Chancery Rule 9(b). Rule 9(b) states that “the circumstances

constituting fraud or mistake shall be stated with particularity. Malice, intent,

knowledge and other condition of mind of a person may be averred generally.” Ct.

Ch. R. 9(b). “Speculative conclusions unsupported by fact do not allege fraudulent

conduct.” Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 210 (Del.

Ch. 2006), aff’d sub nom. Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438 (Del.

2007).

55
Countercl. ¶ 34.
29
 Buyer’s fraud claims are based on the Interim Financial Statements and the

Preliminary Closing Statement. According to Buyer, Counterclaim Defendants

knowingly provided false representations about the Company’s financial condition

in the Interim Financial Statements and the Preliminary Closing Statement, which

induced Buyer to enter into the Purchase Agreement.

i. Fraud Claims Based upon the Interim Financial
Statements
Buyer’s fraud claim arising from alleged misrepresentations in the Interim

Financial Statements are not barred by the terms of the Purchase Agreement. The

Interim Financial Statements are the subject of a contractual representation that the

parties agreed Buyer relied on in entering into the Purchase Agreement. Section 2.6

states that the Buyer has not relied on any representation or warranty “except as

expressly and specifically set forth in Article III . . . and Article IV.” 56 In Article IV,

Section 4.6(a) of the Purchase Agreement, the Company represented that the Interim

Financial Statements would “fairly present[], in all material respects, the

consolidated or combined financial positions and results of operations of the

Company.” 57 Even though Section 4.6(a) relates to a representation and warranty

provided by the Company, Sellers may nevertheless be liable for the Company’s

56
Purchase Agreement § 2.6.
57
Id. § 4.6(a).
30
fraudulent misrepresentations in a contractual representation or warranty. See Abry,

891 A.2d at 1064 (holding that sellers may be held liable for fraud arising from the

company’s contractual representations and warranties); Prairie Capital, 132 A.3d

35 at 60–62 (discussing the same).

Counterclaim Defendants acknowledge the foregoing principles and concede

that Buyer’s fraud claim arising from alleged misrepresentations in the Interim

Financial Statements “could theoretically survive the contractual terms.”58

Counterclaim Defendants argue, however, that Buyer has not pleaded fraud with the

requisite particularity. 59 As the Court observed in Prairie Capital, “[w]hen a party

sues based on a written representation in a contract . . . it is relatively easy to plead

a particularized claim of fraud” because:

The plaintiff can readily identify who made what representations where
and when, because the specific representations appear in the contract.
The plaintiff likewise can readily identify what the defendant gained,
which was to induce the plaintiff to enter into the contract. Having

58
Sellers’ Reply Br. in Supp. of. Mot. to Dismiss 16 n.14 (“The Counterclaim Defendants
have maintained that Cohen’s fraud claims related to the Interim Financial Statements are
not expressly precluded by the Purchase Agreement and therefore may be considered by
the Court, but should be dismissed because they are not adequately pleaded.”). The parties
did not argue, and this Opinion does not address, whether the fraud claim arising from the
Interim Financial Statements is barred as a consequence of the parties’ agreement that all
representations and warranties terminate upon closing. See Pilot Air Freight, LLC v.
Manna Freight Systems, Inc., 2020 WL 5588671, at *20–21 (Del. Ch. Sept. 18, 2020)
(rejecting “heretofore-uncharted” argument that expiration of a survival provision
regarding representations and warranties precluded fraud claim based on expired
representation because the contract contained a provision “preserv[ing the] right to bring
intentional fraud claims at any time”) (internal quotations omitted).
59
Sellers’ Reply Br. in Supp. of. Mot. to Dismiss 2, 15–21.
31
 pointed to the representations, the plaintiff need only allege facts
sufficient to support a reasonable inference that the representations
were knowingly false.

Prairie Capital, 132 A.3d at 62; see also Abry, 891 A.2d at 1064 (holding that a

party may obtain damages where the buyer can show that “the Seller knew that the

[Company’s] contractual representations and warranties were false”); id. at 1050

(“While knowledge may be pled generally, when a plaintiff pleads a claim of fraud

that charges that the defendants knew something, it must allege sufficient facts from

which it can reasonably be inferred that this ‘something’ was knowable and that the

defendants were in a position to know it.”).

The Counterclaims allege that Sellers committed fraud through the Interim

Financial Statements by (1) failing to record a reserve for Moviepass; and (2)

wrongfully excluding the Management Bonus Liabilities, the Medical Claim

Liabilities, and the Miscellaneous Liabilities. 60 As discussed below, Sellers have not

stated a claim for fraud arising from Sellers’ alleged conduct regarding Moviepass

or the Miscellaneous Liabilities. The Counterclaims, however, do state a claim that

60
The Counterclaims do not allege that the outstanding checks were fraudulently omitted
from the Interim Financial Statements because it appears that they were included in those
statements. See Countercl. ¶¶ 13–15 (alleging that the outstanding checks were included
in the 2017 audited financial statements and the Company’s 2018 balance sheet); Purchase
Agreement § 4.6(a) (defining the “Balance Sheet” as the “unaudited combined
consolidated balance sheet of the Company and its Subsidiaries, as of October 25, 2018”
and the “Interim Financial Statements” as “the combined consolidated statements of
operations of the Company and its Subsidiaries, for the twelve (12) months ended
December 28, 2017 and the ten (10) months ended October 25, 2018”).
32
Sellers acted fraudulently by excluding the Management Bonus Liabilities and the

Medical Claim Liabilities from the Interim Financial Statements.

a. Claims Based upon the Failure to Record
a Reserve for Moviepass
Buyer alleges that Counterclaim Defendants committed fraud because the

Company failed to record a reserve for the Moviepass accounts receivable in the

Interim Financial Statements. Setting a reserve is a matter of judgment that “requires

management to perform a series of ongoing estimates using its best judgment.”

Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 574 (Del. Super. 2005).

To state a claim of fraud relating to statements about a company’s expected future

financial performance, it is necessary to plead “contemporaneous fact[s] supporting

an inference [defendant] knew its statements were false when made or lacked a good

faith belief in their truth.” Mooney v. E.I. du Pont de Nemours and Co., 2017 WL

5713308, at *6 (Del. Super. Nov. 28, 2017).

In support of its claim that Sellers acted fraudulently by failing to record a

reserve for Moviepass, Buyer alleges that (1) “there was a decline in payments that

the Company received from Moviepass in the months prior to the closing”; (2) the

Company’s “practice [was] to estimate reserves for doubtful accounts”; and (3) “[i]n

internal email correspondence prior to the Closing the Company made clear its

33
concern regarding the Moviepass receivable.” 61 In its briefing, Buyer argues that its

“reference to intracompany emails” reflecting knowledge of risks relating to the

Moviepass accounts receivable is sufficient to plead a claim of fraud. 62

These allegations are not sufficient to sustain a claim of fraud arising from an

estimate of the Company’s future financial performance. The Counterclaims are

conspicuously devoid of any allegation linking Sellers to the Company’s “concern”

regarding Moviepass, as allegedly reflected in Company emails. 63 The

Counterclaims also do not contain particularized allegations regarding the timing or

61
Countercl. ¶¶ 7–11.
62
Buyer’s Ans. Br. in Opp’n to Mot. to Dismiss 33.
63
At oral argument, when confronted with the absence of additional facts regarding the
emails in Buyer’s possession evidencing the Company’s “concern” regarding Moviepass,
Buyer argued that, “to the extent the fraud claim as to Moviepass is dismissed, perhaps it
would be dismissed without prejudice to repleading.” Oral Arg. Tr. at 43–44 (arguing that
“we certainly can plead that these emails were post-closing, that these were not . . .
something that we could have discovered prior to the closing, because they were not made
available to us”). Dismissal without prejudice with leave to amend is not appropriate here.
Buyer stood on its Amended Counterclaims by filing an answering brief pursuant to Court
of Chancery Rule 15(aaa), and Buyer has not established good cause for the Court to
provide leave to amend. See Mooney, 2017 WL 5713308, at *8 (“The parties went through
full briefing and argument, yet Mooney did not once identify any additional allegations
that might bolster his claim. Mooney’s failure to identify any misstatements of fact on
which he relied or any contemporaneous fact suggesting DuPont’s statements were false
when made are not defects easily resolved through an amended complaint. If Mooney
possessed such facts, he had ample opportunity to identify them.”); see also Larkin v. Shah,
2016 WL 4485447, at *21 (Del. Ch. Aug. 25, 2016) (“Plaintiffs’ conditional request to
amend is not a procedurally proper motion to amend. More importantly, Plaintiffs have
not shown, or even attempted to show, good cause as to why dismissal with prejudice
would be unjust.”).

34
magnitude of Moviepass’s deterioration, nor do they allege any fact from which the

Court could reasonably infer that Sellers knew that the Company would no longer

receive any payments owed by Moviepass. On the contrary, while not dispositive,

Buyer’s Final Closing Statement reflected a 50% reserve against the outstanding

Moviepass balance, indicating that the Buyer believed the Company reasonably

expected to obtain at least some payments from Moviepass and that the amount of

any reserve remained a question of judgment. 64 Because Buyer has not pleaded

“contemporaneous fact[s] supporting an inference [defendant] knew its statements

were false when made or lacked a good faith belief in their truth,” the fraud claim

relating to the Moviepass receivable fails. Mooney, 2017 WL 5713308, at *6.

64
Comparing the allegations in the Counterclaims to the allegations in Anschutz Corp. v.
Brown Robin Capital, LLC, 2020 WL 3096744 (Del. Ch. June 11, 2020), is instructive. In
Anschutz, this Court denied a motion to dismiss a fraud claim based on “allegedly
misleading entries in the interim financial statements” because the statements included
accounts receivable from customers from which the company could no longer expect to
receive payment. See id. at *12 (plaintiff alleging that the interim financial statements
included accounts receivable from customers that had “disconnected all . . . services
months earlier, were shutting down operations or were otherwise unwilling or unable to
settle their accounts”). In Anschutz, plaintiff pleaded factual circumstances from which it
was reasonably inferable that the preparer of the interim financial statements knew that it
would no longer receive payments from customers. By contrast, in the present case, Buyer
has only alleged that Moviepass paid less to the Company at some point prior to closing,
without any supporting allegations.
35
 b. Claims Based upon the Management
Bonus Liabilities, the Medical Claim
Liabilities, and the Miscellaneous
Liabilities
Buyer alleges that the Interim Financial Statements support a claim of fraud

because Sellers knowingly excluded liabilities from the financial statements in order

to induce Buyer to close. As noted above, “it is relatively easy to plead a

particularized claim of fraud” “based on a written representation in a contract,”

because the allegedly false contractual representation satisfies much of the

requirement to plead a claim of fraud with particularity. Prairie Capital, 132 A.3d

at 62. The only remaining allegations necessary are “facts sufficient to support a

reasonable inference that the representations were knowingly false.” Id. In Abry

Partners, the Court held that, to plead knowledge in this context, the plaintiff must

“allege sufficient facts from which it can reasonably be inferred that [the falsity] was

knowable and that the defendants were in a position to know it.” Abry, 891 A.2d at

1050. “Generally, it may be said that an allegation of fraud is legally sufficient under

Rule 9(b) if it informs defendants of the precise transactions at issue, and the fraud

alleged to have occurred in those transactions, so as to place defendants on notice of

the precise misconduct with which they are charged.” Kahn Bros. & Co., Inc. Profit

Sharing Plan & Tr. v. Fischbach Corp., 1989 WL 109406, at *4 (Del. Ch. Sept. 19,

1989) (internal citations omitted); accord Bamford v. Penfold, L.P., 2020 WL

967942, at *12 (Del. Ch. Feb. 28, 2020). “Given that state of mind and knowledge
36
may be averred generally when pleading fraud, an allegation that a contractual

representation is knowingly false typically will be deemed well pled (even if

ultimately difficult to prove).” Pilot Air Freight, 2020 WL 5588671, at *24.

Under the circumstances of this case, the Counterclaims have pleaded a claim

of fraud arising from the failure to include the Management Bonus Liabilities and

the Medical Claim Liabilities in the Interim Financial Statements, which the

Company represented and warranted “fairly present[ed], in all material respects, the

consolidated or combined financial positions and results of operations of the

Company” at Section 4.6(a) of the Purchase Agreement. Buyer has alleged that the

Interim Financial Statements wrongly excluded “merit increases for certain field

management personnel . . . based upon defined goals and milestones, as well as

incentives based on performance targets.”65 The Counterclaims allege that incentive

bonuses in 2018 approximated $750,000, and merit increases effective in 2019

approximated $144,000.66 Similarly, the Counterclaims allege that Sellers knew of

the Medical Claim Liabilities prior to the closing of the transaction, which

approximated $500,000.67

65
Countercl. ¶ 25.
66
Id.
67
Id. ¶ 26.
37
 These liabilities were “knowable,” and given Hansen’s role as the CFO of the

Company and as the Manager of Sellers, as well as the nature and magnitude of the

liabilities, it is reasonably inferable that Hansen was in a position to know of these

liabilities excluded from the Interim Financial Statements. Abry, 891 A.2d at 1050

(holding that knowledge is adequately pleaded where the claimant alleges “sufficient

facts from which it can reasonably be inferred that [the false information] was

knowable and that the defendants were in a position to know it”); EMSI Acq., Inc. v.

Contrarian Funds, LLC, 2017 WL 1732369, at *13 (Del. Ch. May 3, 2017) (quoting

the same and rejecting an argument to adopt a “more stringent pleading standard for

common law fraud”); see also Prairie Capital, 132 A.3d at 59–61 (holding that the

sellers and the directors of the sellers may be liable, at the pleading stage, for

representations made by the company in a contract). Although the allegations

supporting Buyer’s claims for fraud arising from the Management Bonus Liabilities

and the Medical Claim Liabilities are thin, they are sufficient to plead a claim under

Court of Chancery Rule 9(b).

Buyer’s fraud claims arising from the failure to include the Miscellaneous

Liabilities in the Interim Financial Statements, however, do not cross the Rule 9(b)

threshold. In Paragraph 26 of the Counterclaims, Buyer alleges:

Likewise, Defendant subsequently learned of medical claim liabilities,
which were known to Sellers prior to closing, of roughly $500,000; of
under-accrued state income taxes of roughly $175,000; of expense
reports of roughly $60,000; and, an inter-company write-off of a
38
 receivable from Magnolia in an amount of roughly $40,000, among
others. These items expressly should have been included as part of the
Preliminary Closing Statement because it was within the standard
practice of the Company prior to the Closing to include such items in
the Company’s financial statements, and certainly should have been
included as part of the Company’s interim financial statements. None
of them were included. 68

There are no additional substantive allegations as to the Miscellaneous Liabilities.

In sum, Buyer alleges that there were a few miscellaneous line items that were not

included in the Interim Financial Statements that should have been included. That

is not enough to state a claim for fraud. Buyer does not allege that Sellers knew of

the under-accrued state income taxes, expense reports, or write-off.69 Because the

Counterclaims do not allege that Sellers knew of the Miscellaneous Liabilities, a

fraud claim cannot survive regarding their purported omissions from the Interim

Financial Statements.

ii. The Fraud Claim Based upon the Preliminary
Closing Statement
The parties sharply dispute whether Buyer has disclaimed reliance upon the

Preliminary Closing Statement under Section 2.6 of the Purchase Agreement. Even

assuming that Buyer has not disclaimed reliance upon the Preliminary Closing

Statement, however, Buyer has not adequately pleaded a claim of fraud arising from

68
Countercl. ¶ 26.
69
Id.

39
the accounting treatment of the outstanding checks, which is the only category of

alleged financial misrepresentation unique to the Preliminary Closing Statement and

that this Opinion has not already resolved. 70 Under the Purchase Agreement, the

parties agreed that the calculation of the Company’s Net Working Capital would

“include only those accounts and line items set forth in the Sample Statement.”71

Account #1000-035 was not included in the list.72 Because Buyer agreed that

Account #1000-035 would not be included in calculations of Net Working Capital,

Buyer cannot now claim that it was defrauded by the exclusion of that account. Abry,

891 A.2d at 1058 (“For the plaintiff in such a situation to prove its fraudulent

70
See supra n.59 (discussing the inclusion of outstanding checks in the Interim Financial
Statements).
71
Applicable Accounting Principles § 1.3(a) at Specific Policy (e). Buyer also agreed that
the Specific Policies, which require the accounts in the Sample Statement to be used to
calculate Net Working Capital, would govern in the event of any conflict between the
Specific Policies and the Interim Financial Statements. Applicable Accounting Principles
§ 1.3(a) (“For the avoidance of doubt, in the event of any conflict . . . section (ii) shall take
precedence over sections (iii) and (iv)[.]”). Section (ii) requires the Preliminary and Final
Closing Statements to be prepared in accordance with the Specific Policies. Id. Section
(iii) requires the Preliminary and Final Closing Statements to be prepared in accordance
with the Interim Financial Statements “to the extent not addressed in section (ii).” Id. The
Specific Policies state that “[t]here should be no change in the classification . . . to a current
liability of any liability that has not previously been characterized as a current liability.”
Id. The Sample Statement contained specific account numbers and a description of each
and whether each account was or was not included in “Working Capital.” Purchase
Agreement Ex. A.
72
Even if Sellers subsequently determined that the outstanding checks in Account #1000-
035 were not classified correctly, the parties agreed that Sellers could not reclassify “any
liability that has not previously been characterized as a current liability” “to a current
liability.” Applicable Accounting Principles § 1.3(a) at Specific Policy (e).

40
inducement claim, it proves itself not only a liar, but a liar in the most inexcusable

of commercial circumstances: in a freely negotiated written contract . . . . To allow

the buyer to prevail on its claim is to sanction its own fraudulent conduct.”). Further,

as discussed below, there is no well-pleaded allegation that Sellers concealed

Account #1000-035 from Buyer, or that Buyer was prevented from obtaining due

diligence regarding Account #1000-035. Buyer’s claim for fraud arising from the

outstanding checks therefore fails.

Buyer’s fraud claim based on the Preliminary Closing Statement fails for the

independent reason that Buyer agreed that it was not relying on any statement,

representation, or warranty by the Sellers or the Company except as set forth in

Article III and Article IV. 73 Section 2.6 expressly states that Buyer has “not relied

and is not relying on any statement (including by omission), representation or

warranty . . . except as expressly and specifically set forth in Article III (as modified

by the Company Disclosure Letter) . . . and Article IV (as modified by the Company

Disclosure Letter).”74 The parties further agreed that Sellers disclaimed liability

based on “any and all liability that may be based on . . . information or errors . . . or

omissions” from any representations outside of Articles III and IV, as modified by

73
Purchase Agreement § 2.6.
74
Id.

41
the Company Disclosure Letter.75 The Preliminary Closing Statement is neither

referenced in nor part of any representation or warranty by the Sellers in Article III

or the Company in Article IV, as those articles are modified by the Company

Disclosure Letter. 76 Thus, by the contract’s terms, Buyer agreed that it was not

relying on the Preliminary Closing Statement and cannot claim justifiable reliance

on it.

Delaware law enforces such agreements. Abry Partners analyzed Delaware

jurisprudence on anti-reliance clauses and held that “this court has . . . honored

contracts that define those representations of fact that formed the reality upon which

the parties premised their decision to bargain.” Abry, 891 A.2d at 1058; see also

Prairie Capital, 132 A.3d at 51 (“If a party represents that it only relied on particular

information, then that statement establishes the universe of information on which

that party relied.”); FdG Logistics LLC v. A&R Logistics Hldgs., Inc., 131 A.3d 842,

858 (Del. Ch. 2016) (“Delaware law enforces clauses which identify the specific

75
Id. Section 2.6 contains language disclaiming claims arising from omissions and, as a
result, Buyer’s claims relating to allegedly fraudulent omissions are barred. See Pilot Air
Freight, 2020 WL 5588671, at *22 n.215 (discussing disclaimer of fraudulent omission
claims). That is not to say, however, that express language disclaiming claims based on
omissions is required to preclude a claim based upon an alleged omission. See Prairie
Capital, 132 A.3d at 52–55 (holding an exclusive presentations clause need not “use magic
words like ‘omissions’” to preclude claims based upon alleged omissions).
76
Buyer does not argue that the Preliminary Closing Statement is part of any representation
in Article III or IV, as modified by the Company Disclosure Letter, and has waived any
argument to the contrary.
42
information on which a party has relied and foreclose reliance on other

information.”); ChyronHego, 2018 WL 3642132, at *1 (“Where the parties in

language that is clear provide that they eschew reliance on any facts but those recited,

they will be held to that representation, notwithstanding prior knowingly false

statements made by one party to the other.”). Accordingly, “[t]he net effect of an

enforceable non-reliance provision and carefully negotiated representations and

warranties”—both elements of which are present in the Purchase Agreement—“is to

define what information the Buyer relied upon in deciding to execute the [contract].”

Pilot Air Freight, 2020 WL 5588671, at *23 (internal quotations omitted).

Buyer does not contend that the contractual language is not sufficiently

specific to preclude any claim that Buyer relied on representations and warranties

outside of Articles III and IV. Rather, Buyer argues that Delaware law generally

does not permit disclaimer of any representation “within” the contract and that it was

entitled to rely on the Preliminary Closing Statement. Buyer’s Ans. Br. in Opp’n to

Mot. to Dismiss 36 (quoting RAA Mgmt., LLC v. Savage Sports Hldgs., Inc., 45 A.3d

107, 117 (Del. 2012)). Buyer’s argument appears to be that, under Delaware law,

parties to a contract cannot disclaim reliance on any document referenced in the

contract.

This argument fails for multiple reasons. First, RAA does not stand for the

proposition that the parties may not disclaim reliance upon any document referenced

43
in the contract. In RAA, the Delaware Supreme Court considered a non-disclosure

agreement in which a company represented that it was not making “any

representation or warranty” regarding information provided to a prospective

purchaser through due diligence. RAA, 45 A.3d at 110.77 The parties had

“terminated negotiations . . . before the parties executed a final sale agreement.” Id.

at 109. RAA quoted Abry Partners for the proposition that “fraud claims based on

‘false representation[s] of fact made within the contract itself’ . . . cannot be

disclaimed.” Id. at 117. In both RAA and Abry Partners, however, the anti-reliance

clauses drew the dividing line at the four corners of the contract, and those cases

analyzed the effect of the anti-reliance clauses consistent with their express terms.78

RAA and Abry do not, as Buyer argues, impose a broader rule that parties to a

contract may not disclaim reliance on anything “within” the contract, regardless of

77
In RAA, the Delaware Supreme Court “assume[d] that New York law applies, but
conclude[d] that the outcome would be the same under Delaware law.” RAA, 45 A.3d at
112.
78
RAA, 45 A.3d at 110 (“Only those representations or warranties that are made to a
purchaser in the Sale Agreement . . . shall have any legal effect.”); Abry, 891 A.2d at 1041
(“Acquiror . . . agrees that neither the Company nor the Selling Stockholder has made any
representation or warranty . . . except as expressly set forth in this Agreement”).

44
the language of the parties’ anti-reliance provision. 79

Second, permitting Buyer to rely on a document outside Articles III and IV

would render the references to Articles III and IV in the anti-reliance provision

surplusage, effectively requiring the Court to rewrite the parties’ agreement as to the

universe of contractual representations that Buyer relied upon. Buyer has not cited

any case in which the Court has done so. See Osborn, 991 A.2d at 1159 (“We will

read a contract as a whole and we will give each provision and term effect, so as not

to render any part of the contract mere surplusage. We will not read a contract to

render a term meaningless or illusory.”) (internal quotations and citations omitted).

Third, adopting Buyer’s reasoning and abandoning the parties’ agreed-upon

definition of the representations and warranties in the Purchase Agreement would

defeat the purpose of anti-reliance clauses. As the Court held in Abry, “[t]his sort of

definition minimizes the risk of erroneous litigation outcomes by reducing doubts

about what was promised and said, especially because the contracting parties have

79
In this context, terms such as “extra-contractual” can be viewed as distinguishing
between the information that a party has agreed it relied upon in entering into the contract,
and the information that the contracting parties agreed that a party has not relied upon. See,
e.g., ChyronHego, 2018 WL 3642132, at *4–5 (discussing “extra-contractual”
representations and warranties in the context of “clauses that identify the specific
information on which a party has relied”) (internal citations omitted); see also FdG
Logistics, 131 A.3d at 858 (“Delaware law enforces clauses which identify the specific
information on which a party has relied and foreclose reliance on other information.”)
(citing RAA, 45 A.3d at 116–17). Buyer’s position would restrict generally the parties’
ability to disclaim reliance upon the representations and warranties of their choosing.

45
defined that in writing in their contract.” Abry, 891 A.2d at 1058. Permitting Buyer

to advance a fraud claim based on the Preliminary Closing Statement would

introduce the exact kind of uncertainty that anti-reliance clauses are intended to

foreclose.80 Thus, having disclaimed reliance upon the Preliminary Closing

Statement, Buyer cannot now claim that it justifiably relied upon the Preliminary

Closing Statement in entering into the Purchase Agreement. See Abry, 891 A.2d at

1058 (noting that failing to enforce anti-reliance clauses would “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”). Buyer’s fraud

claim arising from the Preliminary Closing Statement therefore is dismissed.

b. Fraudulent Concealment (Count IV)
Count IV (Fraudulent Concealment) alleges that Counterclaim Defendants

“deliberately concealed material facts from [Buyer] in relation to the calculation of

Closing Net Working Capital and with respect to the financial position of the

Company prior to or at closing.” Countercl. ¶ 40.

To allege fraudulent concealment, the Buyer must allege that Counterclaim

Defendants “took some action affirmative in nature designed or intended to prevent,

and which does prevent, the discovery of facts giving rise to the fraud claim, some

80
See ChyronHego, 2018 WL 3642132, at *7 (dismissing an “attempt to bootstrap a dog’s
breakfast of extra-contractual fraud claims onto contractual misrepresentations” because
the alleged misrepresentations were outside the company’s “ordinary course of business”).
46
artifice to prevent knowledge of the facts or some representation intended to exclude

suspicion and prevent inquiry.” Metro Commc'n Corp. BVI v. Advanced

Mobilecomm Techs. Inc., 854 A.2d 121, 150 (Del. Ch. 2004) (internal citations

omitted); accord Corp. Prop. Assocs. 14 Inc. v. CHR Hldg. Corp., 2008 WL 963048,

at *7 (Del. Ch. Apr. 10, 2008). As with fraud, to plead fraudulent concealment,

Buyer must also satisfy the heightened pleading standard of Court of Chancery Rule

9(b).

Buyer’s allegations of concealment are conclusory and lack particularity. See,

e.g., Countercl. ¶ 4 (“Sellers[,] including Hansen, . . . acted fraudulently so as to

intentionally conceal financial information from Buyers [sic], with respect to the

calculation of Closing Net Working Capital, so as to significantly overstate the

Company’s current assets, and, grossly understate its current liabilities.”); ¶ 9

(“Upon information and belief, Sellers, including at the express direction of and by

and through Hansen, and on behalf of the Company, intentionally concealed and

withheld information concerning the degradation of the carrying value of the

Moviepass account, from both the financial statements disclosed to [Buyer] prior to

closing as well as from the Preliminary Closing Statement.”); ¶ 10 (“In internal email

correspondence prior to the Closing the Company made clear its concern regarding

the Moviepass receivable. Thus, there was a degradation of the carrying value of

the account prior to the Closing of which Sellers—and their CFO and Manager,

47
Hansen—were well aware, and yet intentionally ignored and/or withheld such

information, including by failing to estimate a sufficient reserve for the Moviepass

account in the financial statements furnished to [Buyer] prior to closing . . . .”); ¶ 17

(“Sellers, including by and through Hansen, intentionally withheld such information

concerning the outstanding checks of which they were well aware at the time of

closing . . . .”); ¶ 18 (“Sellers and Hansen obviously knew about the outstanding

checks but intentionally and fraudulently did not advise and concealed them from

Buyer, so as to understate the Company’s Accounts Payable.”); ¶ 25 (“Following the

[Determination Letter], Buyer learned of additional bad faith conduct and fraud by

Sellers who, upon information and belief, have intentionally concealed information

that ‘past practices’ as well as unsigned agreements, provide for merit increases” and

bonuses for certain management).

Buyer has not met its pleading burden as to any of the financial information

forming the basis of the fraudulent concealment claim. Buyer does not allege with

the required particularity a single fact of concealment. See Bay Ctr. Apts. Owner,

LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *12 (Del. Ch. Apr. 20, 2009)

(dismissing fraudulent concealment claim based upon allegations that “defendants

failed to share with [plaintiff] important information that the defendants knew by

virtue of their positions as the day-to-day managers of the Project. But it cannot be

reasonably inferred from the Complaint that the defendants made any effort to hide

48
this information from [plaintiff] through subterfuge or other artifice.”); cf. Swipe

Acq. Corp. v. Krauss, 2020 WL 5015863, at *3 (Del. Ch. Aug. 25, 2020) (sustaining

fraud claim upon allegations that President and CEO told employees that if buyer

learned of the impending loss of a major customer “the deal would be ‘over’” and

detailing how CEO orchestrated a due diligence call so as to limit buyer’s ability to

learn of the loss of the major customer).

To be sure, before closing, the Buyer was provided with “full and complete

access to the Representatives, properties, offices, plants and other facilities, books

and records of the Company and its Subsidiaries and other information that they

have requested in connection with their investigation of the Company and its

Subsidiaries.” Purchase Agreement § 2.6. After closing, Buyer owned the Company

and its records, possessed its emails, and had access to its employees, yet Buyer has

not alleged any specific act designed to prevent Buyer’s discovery of the financial

information underlying the fraud claim. 81 The particularity requirement of Rule 9(b)

is “applied in light of the facts of the case, and less particularity is required when the

facts lie more in the knowledge of the opposing party than of the pleading party.”

H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 146 (Del. Ch. 2003). In light of

the facts of this case, Buyer does not get the benefit of having to plead with “less

81
See Oral Arg. Tr. at 43–44 (counsel for Buyer acknowledging Buyer’s possession of the
Company’s emails).
49
particularity.” Nor can the Buyer satisfy its burden to plead with particularity by

alleging an act of concealment based upon “information and belief.” Countercl. ¶¶ 9,

10, 25; Metro Comm’cn, 854 A.2d at 149 n.57; Nutt v. A.C. & S., Inc., 466 A.2d 18,

23 (Del. Super. 1983), aff’d sub nom. Mergenthaler v. Asbestos Corp. of Am., 480

A.2d 647 (Del. 1984); cf. Wexford, 832 A.2d at 146 (acknowledging that intent and

knowledge pleaded upon information and belief can satisfy Rule 9(b)).

B. Sellers’ Motion for Summary Judgment
Sellers have moved for summary judgment in their favor on all counts of their

Complaint, which seeks an order confirming the Determination Letter as a binding

arbitration award and for specific performance compelling release of the escrow

pursuant to the Determination Letter.

Under Court of Chancery Rule 56, summary judgment may be granted if

“there is no genuine issue as to any material fact and . . . the moving party is entitled

to judgment as a matter of law.” Ct. Ch. R. 56(c). As with the motion to dismiss,

the Court “must view the evidence in the light most favorable to the non-moving

party.” 82 “A motion for summary judgment is the ‘common [method] for this court

to determine whether to vacate or confirm an arbitration award.’” TD Ameritrade,

Inc. v. McLaughlin, Piven, Vogel Sec., Inc., 953 A.2d 726, 730 (Del. Ch. 2008)

82
Merrill v. Crothall-Am., Inc., 606 A.2d 96, 99 (Del. 1992).
50
(quoting Beebe Med. Ctr., Inc. v. InSight Health Servs. Corp., 751 A.2d 426, 431

(Del. Ch. 1999)).

The parties agree that the Court’s decision to confirm or vacate the

Determination Letter is governed by the Federal Arbitration Act. 83 Under the

Federal Arbitration Act, a court designated to confirm the award in the contract must

grant an application to confirm the award “unless the award is vacated, modified, or

corrected as prescribed in sections 10 and 11” of the FAA. 84 Buyer argues that the

Determination Letter should be vacated pursuant to 9 U.S.C. § 10(a)(1) as an award

“procured by . . . fraud, or undue means.” 85

Because Buyer has pleaded a claim for fraud arising from the Management

Bonus Liabilities and the Medical Claim Liabilities, there is a material issue of fact

preventing entry of summary judgment. Specifically, it is possible that the

Determination Letter was procured by fraud to the extent that the omission of the

Management Bonus Liabilities and the Medical Claim Liabilities from the Interim

83
See Buyer’s Ans. Br. in Opp’n to Summ. J. 38 (“Defendant’s basis for seeking vacatur
of the PwC Award is the FAA, 9 U.S.C. § 10(a)(1)”); Sellers’ Reply Br. in Supp. of Summ.
J. 1 (arguing that Buyer has not timely filed a motion to vacate and that Buyer has not
demonstrated the award was procured by fraud).
84
9 U.S.C. § 9. The parties specified that “[j]udgment may be entered upon the written
determination of the Independent Accounting Firm in accordance with Section 8.10.”
Purchase Agreement § 1.3(d). Section 8.10 is a forum selection clause selecting the Court
of Chancery as the forum of first resort. Id. § 8.10.
85
Buyer’s Ans. Br. in Opp’n to Summ. J. 38–39.

51
Financial Statements formed part of the calculations relied upon by PwC in its

Determination Letter. 86 In addition, “further development of the factual record and

the parties’ legal arguments would help clarify the application of the law to the

circumstances of the case.” Bouchard v. Braidy Indus., Inc., 2020 WL 2036601, at

*16 (Del. Ch. Apr. 28, 2020).87 Accordingly, the Motion for Summary Judgment is

denied without prejudice.

86
It is not clear from the limited record before the Court to what extent PwC evaluated the
Management Bonus Liabilities and Medical Claim Liabilities before issuing the
Determination Letter. Buyer alleges that the Management Bonus Liabilities and Medical
Claim Liabilities were “learned of” “following the [Determination Letter].” Countercl.
¶¶ 25–26. At page 14 of the Determination Letter, however, Buyer appears to have
disputed “[a]n underaccrual of accounts payable related to medical claims.” Determination
Letter 14. PwC ruled in the Sellers’ favor on this issue because the medical claim liabilities
referenced in the Determination Letter were not included in the Final Closing Statement.
Id. at 14–15. As discussed above, additional development of the facts will assist the Court
in determining whether summary judgment is appropriate for confirmation of the
Determination Letter.
87
In their Reply Brief in Support of their Motion for Summary Judgment, Sellers argued,
for the first time, that Buyer did not timely file a motion to vacate the Determination Letter
because Buyer did not file a motion to vacate the Determination Letter within 90 days
pursuant to 9 U.S.C. § 12. The Court recognizes that this issue arose in an awkward
procedural context due to the Buyer’s filing of amended counterclaims and altering its legal
theory after Sellers filed their opening brief. Nevertheless, because Sellers raised the issue
for the first time in their reply brief, Buyer did not have the opportunity to respond in its
Answering Brief. “Normally, this court does not entertain arguments raised for the first
time in a reply brief.” Pryor v. IAC/InterActiveCorp., 2012 WL 2046827, at *6 n.71 (Del.
Ch. June 7, 2012). Having determined that there is a genuine issue of material fact
preventing summary judgment, the Court concludes that the Buyer should be permitted to
appropriately address the procedural challenge to its attempt to vacate the Determination
Letter pursuant to 9 U.S.C. § 12.
52
III. CONCLUSION
For the foregoing reasons, the Counterclaim Defendants’ Motion to Dismiss

the Counterclaims is granted as to Counts I, IV, and V, and granted in part and denied

in part as to Count II. Plaintiffs’ Motion for Summary Judgment is denied without

prejudice.

IT IS SO ORDERED.

53