IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
SORENSON IMPACT FOUNDATION )
and JAMES LEE SORENSON FAMILY )
FOUNDATION, )
)
Plaintiffs, )
)
v. ) C.A. No. 2021-0413-SG
)
CONTINENTAL STOCK TRANSFER )
& TRUST COMPANY, TASSEL )
PARENT INC., and GRADUATION )
ALLIANCE, INC., )
)
Defendants. )
)
MEMORANDUM OPINION
Date Submitted: December 9, 2021
Date Decided: April 1, 2022
Eric D. Selden and Anthony M. Calvano, of ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; OF COUNSEL: Cameron M. Hancock and Adam D.
Wahlquist, of KIRTON MCCONKIE, Salt Lake City, Utah, Attorneys for Plaintiffs
Sorenson Impact Foundation and James Lee Sorenson Family Foundation.
Peter B. Ladig, of BAYARD, P.A., Wilmington, Delaware; OF COUNSEL: Mark A.
Harmon and Erin N. Teske, of HODGSON RUSS LLP, New York, New York,
Attorneys for Defendant Continental Stock Transfer & Trust Company.
P. Clarkson Collins, Jr. and K. Tyler O’Connell, of MORRIS JAMES LLP,
Wilmington, Delaware; OF COUNSEL: Anna Rotman, of KIRKLAND & ELLIS
LLP, Houston, Texas, Attorneys for Defendants Tassel Parent Inc. and Graduation
Alliance, Inc.
GLASSCOCK, Vice Chancellor
Two parties contract for the sale of a chattel; say, a statuette of a falcon
covered in black enamel.1 The payment is to be in cash. Neither wishes to make the
transfer in person. Accordingly, they agree that the buyer will hire an agent who is
to deliver the bird; once delivery is made, the agent is to receive cash from the buyer,
which he is then to pay over to the seller. The first part of the transaction is
completed without incident. The buyer immediately resells the dingus to new
buyers,2 who then take it aboard a ship and out of the jurisdiction.
The agent then departs with the cash. As he is approaching the seller’s home
to complete the payment, a gunsel accosts him, and robs him of the cabbage. This
mugger, despite the subsequent best efforts of the police, is never apprehended or
even identified. Who in this scenario must bear the loss?
A similar transaction noir is alleged in the matter before me. The Plaintiffs
are former stockholders (and a noteholder) of a company purchased via merger.
They tendered their shares as called for in the merger agreement. The Defendant
buyer accepted the shares and directed its agent, also a Defendant, to make the
required payment to the Plaintiffs. Before payment was made, the Plaintiffs
appeared to have indicated to the agent (through deal counsel) that they wished the
funds sent to a different payee and address, that of a Hong Kong company.
1
See generally THE MALTESE FALCON (Warner Bros. 1941).
2
A fat man and his minions.
1
Unfortunately, the Defendant agent was unaware that this communication was in
reality from hackers, who were ultimately successful in diverting the cash
consideration to persons unknown. Thus the buyer received the stock, presumably
cancelled as part of the merger, and has paid the cash consideration, but the sellers
have delivered their shares without receiving payment. The Plaintiff sellers have
sued the Defendant agent on grounds of tort and breach of contract. The Defendant
agent seeks to dismiss on grounds of lack of personal jurisdiction, however, and I
find that, indeed, in personam jurisdiction is lacking here.
The Plaintiffs also seek recovery for breach of contract by the Defendant
buyer.3 The buyer has moved to dismiss for failure to state a claim. It is true that
the Plaintiffs’ contractual complaint against the buyer is muddled and turbid. Under
our liberal notice pleading requirements, however, and in light of the plaintiff-
friendly stage of the proceedings, I find it reasonably conceivable that the buyer
breached a payment obligation to the Plaintiffs in this scenario, arising under the
merger agreement.
The buyer also seeks dismissal based upon failure to join a necessary party,
the law firm (per the Defendant buyer) purportedly representing the seller, 4 who
3
In addition, the Plaintiffs seek recovery against the Defendants buyer and acquired company on
an unjust enrichment theory. As explained below, the motion to dismiss that equitable cause of
action awaits a record.
4
The question of whom the law firm represented is a disputed issue. See Pls. Sorenson Impact
Foundation and James Lee Sorenson Family Foundation’s Verified Am. Compl. ¶ 37, Dkt. No. 6
[hereinafter “Compl.”] (identifying the law firm as counsel for the buyer); see also Opening Br.
2
allegedly communicated directly with the hackers. 5 Because I have dismissed the
Defendant agent on jurisdictional grounds, I will allow the parties to supplement
briefing regarding the absence of the agent, as well. In the meantime, decision on
that portion of the motion is continued.
For the foregoing reasons, the motions of the Defendant buyer and of the
Defendant acquired company to dismiss are denied, except as continued. If the
Plaintiffs are to recover against the Defendant agent,6 however, it must be in a forum
where jurisdiction exists. My reasoning follows.
I. BACKGROUND
The instant case deals with diverted merger consideration. Tassel Parent Inc.
sought to acquire Graduation Alliance, Inc. (the “Merger”).7 The Plaintiffs in the
action, Sorenson Impact Foundation and James Lee Sorenson Family Foundation
(the “Plaintiffs”) tendered Graduation Alliance, Inc. stock and convertible note
holdings, along with a transmittal document called a letter of transmittal, to a paying
Supp. Defs. Tassel Parent Inc. and Graduation Alliance, Inc.’s Mot. to Dismiss Verified Compl.
14, Dkt No. 14 [hereinafter “Company Def. OB”] (identifying the law firm as counsel for the
acquired company).
5
The Plaintiffs previously brought a lawsuit in Utah against this law firm in connection with this
same transaction; that suit has been voluntarily discontinued. See Opening Br. Supp. Def.
Continental Stock Transfer & Trust Co.’s Mot. to Dismiss Verified Compl. 4–5, Dkt. No. 16
[hereinafter “CST OB”].
6
The agent, I note, also moved to dismiss for failure to state a claim, a motion I do not reach based
on its demonstration that I am without jurisdiction.
7
Compl. ¶ 1.
3
agent responsible for paying out merger consideration following the Merger’s close.8
After the Plaintiffs transmitted their legitimate documents, hackers intercepted their
email communications, assuming the identity of the Plaintiffs, and communicated
via email with unsuspecting legal counsel, ultimately seeking to have the Plaintiffs’
letters of transmittal edited such that payment would be made to the hackers’ bank
accounts instead of the Plaintiffs’ accounts. 9 The hackers were successful.10
Following the failure to receive Merger consideration, the Plaintiffs bring suit
against the paying agent (Continental Stock Transfer & Trust Company), Tassel
Parent Inc., and Graduation Alliance, Inc. (together, the “Defendants”) for various
claims, including breach of contract, unjust enrichment, negligence, and breach of
fiduciary duty. 11 The Defendants have moved to dismiss in two separate motions.
This Memorandum Opinion grants the paying agent’s motion to dismiss, but denies
the joint motion of Tassel Parent Inc. and Graduation Alliance, Inc. A fuller
recitation of the facts is outlined below.
8
See id. ¶¶ 2–3.
9
Id. ¶ 5.
10
Id. ¶ 4.
11
See generally Compl.
4
A. Factual Overview12
1. The Parties and Relevant Non-Parties
The Plaintiffs were stockholders of Graduation Alliance, Inc. at all pertinent
times.13 Plaintiff Sorenson Impact Foundation also held a convertible note issued
by Graduation Alliance, Inc. prior to the Merger.14
Defendant Graduation Alliance, Inc. (“Target”) was a Delaware corporation
purchased by Defendant Tassel Parent Inc., a Delaware corporation (“Parent” and,
together with Target, the “Company Defendants”), in the Merger. 15 Per the merger
agreement (the “Merger Agreement”), Target was merged into a subsidiary of Parent
and remains as the surviving corporation.16
Defendant Continental Stock Transfer & Trust Company (“CST” or the
“paying agent”) is the paying agent hired by Parent to help with certain logistics in
closing the Merger.17 CST is a New York corporation.18
12
Unless otherwise specified, the facts in this section are drawn from the verified amended
complaint (the “Complaint”) or exhibits attached to the Complaint. See generally id. I consider
the facts to be true as pled in the Complaint, in accordance with the applicable standard on a motion
to dismiss. This section therefore does not constitute formal findings of fact.
13
Id. ¶ 19.
14
Id. Although the Complaint here refers to plaintiff “Sorenson Impact,” I have assumed that this
discrepancy was a mere typographical error. See id.
15
Id. ¶¶ 14–15, 20.
16
Id. ¶ 20.
17
Id. ¶¶ 24–25.
18
Id. ¶ 13. The Complaint indicates that CST is a New York corporation “doing business in the
State of Utah.” Id.
5
The conflict in the instant case was caused by certain hackers (the “Hackers”),
non-parties to this case, who intercepted the email communications of legal counsel
involved with the Merger, and provided fraudulent bank information for the receipt
of the Merger consideration.19
Exhibit A, attached hereto, provides a visual rendition of these relationships.
Non-party Holland & Knight LLP (“H&K”) was counsel for the Merger. 20
The entity H&K represented is subject to dispute.21
2. The Transaction Documentation
The Merger Agreement requires the Plaintiffs to surrender their existing stock
certificates to CST and to deliver an executed letter of transmittal (“LOT”) to CST
in order to receive their portion of the Merger consideration.22 The Merger
Agreement additionally specifies that Target is responsible for providing a
“[c]onsideration [s]preadsheet” (which would outline the expected payments) to
Parent three business days prior to the close of the Merger. 23
19
See id. ¶¶ 37–38, 45–49.
20
Id., Ex. A, § 13.7 [such exhibit hereinafter “MA”]. The Merger Agreement indicates that
Parent’s counsel (and Target’s counsel following the consummation of the Merger) was Kirkland
& Ellis LLP. See id.
21
See supra note 4.
22
Id. ¶ 22. The portion of the Merger Agreement discussed in the Complaint does not discuss the
procedure for receiving consideration for the outstanding convertible note, so I assume without
deciding that such process does not change the outcome here. See id.
23
MA § 3.1(b)(i)(B). I also note as a matter of curiosity that the LOT identifies the consideration
spreadsheet as the determinative document with respect to the amounts payable to the
stockholders, rather than “Schedule A” described in the Paying Agent Agreement. See Compl.,
Ex. C, at 4 [such exhibit hereinafter “LOT”].
6
The Paying Agent Agreement includes a clause that disavows CST having
any knowledge of the contents of the Merger Agreement. 24 The clause in question
specifies that CST is “assumed to be wholly unfamiliar with, and not bound by” the
Merger Agreement.25
The LOT includes certain instructions, which the Plaintiffs contend were
“binding on the parties.”26 To repeat, Target stockholders were responsible for
submitting their stock certificates along with a completed LOT to receive Merger
consideration. The LOT additionally requires that, if a check or wire transfer were
to be received by a stockholder in a name other than the name on the certificate,
such certificate needed to be “properly endorsed,” and that signature needed to be
“medallion guaranteed” by a qualified guarantor.27 A medallion guarantee confirms
that “the signature authorizing the transaction is genuine and the signer has legal
capacity and authority to sign the document.”28
The LOT attaches the Merger Agreement as an exhibit,29 and the Paying
Agent Agreement, discussed below, attaches the LOT as an exhibit. 30
24
Compl., Ex. B, § 1.3 [such exhibit hereinafter “PAA”].
25
PAA § 1.3.
26
Compl. ¶ 31.
27
Id.
28
Id. ¶ 32.
29
See LOT, Ex. A.
30
See PAA, Ex. A. To be specific, the PAA attaches a “form of” the LOT. See id.
7
Both the Merger Agreement and the LOT are governed by the laws of
Delaware and include forum selection clauses identifying Delaware courts as the
appropriate forum for any litigation. 31
In addition to the Merger Agreement and the LOT, another pertinent
transaction document is the Paying Agent Agreement (the “PAA”), which enshrines
the contractual duties owed to Parent by CST in its role as paying agent.32 The PAA
outlines that Parent will provide to CST “Schedule A,” which includes a list of
Target stockholders and noteholders to be paid in connection with the closing of the
Merger. 33 Per the Plaintiffs’ counsel at oral argument, this Schedule A was to be put
together by Parent and CST “[p]resumably based on what Graduation Alliance
provide[d]” in the consideration spreadsheet referenced above.34
The PAA specifies that, after Schedule A is provided to CST, Parent “shall
work” with CST “to ensure the accuracy and completeness of Schedule A.” 35 Any
edits to be made to Schedule A “are to be made by Parent and delivered” to CST.36
Section 2.2 of the PAA further indicates the ways in which CST ensures the
accuracy of the payment information:
31
MA § 13.8; LOT at 5–6.
32
See Compl. ¶ 24.
33
PAA § 1.2(a).
34
Tr. of 12.9.21 Oral Arg. on Defs.’ Mots. to Dismiss, 37:17–24, 38:1–15, Dkt. No. 39 [hereinafter
“Oral Arg.”]. I have assumed that “Schedule A” and the “consideration spreadsheet” are separate
documents based on this representation.
35
PAA § 1.2(b).
36
Id.
8
The Paying Agent [CST] will examine the Letters of Transmittal,
the share certificates and/or book-entry positions for shares
delivered or mailed to the Paying Agent [CST] by [Graduation
Alliance] stockholders to ascertain that (i) the Letters of Transmittal
are properly completed and duly executed in accordance with the
instructions set forth therein . . . . In cases where the Letter of
Transmittal has been improperly completed or executed . . . or if
some other irregularity exists in connection with their surrender, the
Paying Agent [CST] shall consult with Parent on taking such actions
as are necessary to cause such irregularity to be corrected. 37
Section 2.2 also provides that CST can waive an irregularity after review of
the same with Parent and after approval in writing by certain designated officers or
agents of Parent.38 Per the Complaint, no such written approval was provided. 39
The PAA is governed by New York law.40
3. The Misdirected Merger Consideration
CST was provided with the funds owed to the Plaintiffs prior to January 30,
2020. 41 The Plaintiffs returned their copies of the LOT, pertinent stock certificates,
and convertible note to CST on or about January 30, 2020.42 The Plaintiffs also
provided the “Defendants” with wire instructions directing their consideration to be
paid to a bank account with Zions Bank in Utah.43
37
Id. § 2.2.
38
Id.
39
Compl. ¶ 64.
40
PAA § 4.11.
41
Compl. ¶ 36.
42
Id. ¶ 35.
43
Id. Defendants is included in scare quotes here as the Complaint is nonspecific with respect to
the recipient of the wire instructions and may not apply to the defined term “Defendants” as used
herein. See id. All further repetitions of the term “Defendants” in scare quotes are used in like
manner.
9
After the Plaintiffs provided their legitimate LOTs to the “Defendants,” the
Hackers intercepted the email chains between the parties, sending fraudulent emails
posing as the Plaintiffs, who were unaware of the interception.44 The Hackers
emailed H&K asking to change the “pay out account” for the Plaintiffs to “an
international account in Hong Kong.” 45 About a week later, on February 7, 2020,
the Hackers sent an email containing a revised LOT, stock certificates, and an
authorization letter updating the payment information to be paid into the Hong Kong
bank account. 46 The new beneficiary to be paid out under the revised fraudulent
documents was “Hongkong Wemakos Furniture Trading Co. Limited”—clearly a
different name than either of the Sorenson holders. 47 Despite the instructions to the
LOT, a medallion guarantee was not provided. 48
On February 21, 2020, CST told H&K that the payment instructions required
a medallion signature guarantee with respect to “the Sorenson accounts that provided
different account names for the payment instructions.” 49 The Complaint avers that
the (nonspecific) “Defendants” discussed ways to circumvent the medallion
44
Id. ¶¶ 37, 38.
45
Id. ¶ 38 (quotations omitted).
46
Id. ¶ 51.
47
Id. ¶ 52. There were apparently multiple inconsistencies regarding the new name in the Hackers’
communications, to boot. See id. at ¶¶ 52, 53, 55.
48
Id. ¶ 54.
49
Id. ¶ 57.
10
guarantee requirement and “finalize the documentation necessary to meet the closing
date under the Merger Agreement.” 50 CST provided a few options:
(a) Affix a Signature Medallion Guarantee to the Letter of
Transmittal with banking instructions; (b) provide a letter of
instruction from the authorized signatories provided in the Paying
Agent agreement that will instruct to process the account and accept
instructions without a Signature Medallion Guarantee. Note, the
hold harmless language attached would need to be included in the
instruction letter; (c) Modification of the payment schedule to
change the name of the Sorenson accounts to be “Hongkong
Wemakos Furniture Trading Co. LTD” as listed in the banking
instructions. We would look to receive new IRS forms and complete
tax reporting to this entity if this is completed; (d) Otherwise, we
would look to make payment as the shares are registered. 51
The “Defendants” allegedly chose option (c), modifying the “payment
schedule” (presumably Schedule A) to change the name on the Plaintiffs’ accounts
to “Hongkong Wemakos Furniture Trading Co., LTD.”52 In support of their
argument that the “Defendants” were subject to a “time crunch” resulting in anti-
contractual behavior, the Plaintiffs point out that the “Defendants” did not even
consult the Hackers before making the change to the payment schedule. 53 They
further contend that editing Schedule A constituted an amendment to the Merger
Agreement itself, which was invalid.54
50
Id. ¶ 59. I note that the closing date identified in the Merger Agreement (February 17, 2020)
had already passed by the time CST raised this as an issue; the Merger Agreement also provided
for a later closing date within two business days of satisfaction of applicable conditions. See MA
§ 2.2.
51
Compl. ¶ 60.
52
Id. ¶ 67.
53
Id.
54
See id. ¶ 63; see also MA § 13.9.
11
In summary, no medallion guarantee was procured and no instruction letter
was provided. Despite the instructions attached to the LOT, CST acquiesced and
did not require further assurances once the payment schedule was updated to match
the fraudulent LOT. 55 The Merger consideration due to the Plaintiffs was transferred
to the Hackers’ account on or around February 25, 2020. 56 To date, the funds have
not been recovered.57
B. Procedural History
The original complaint in this case was filed on May 11, 2021, with the
amended Complaint filed shortly after in June 2021. 58 The Defendants moved to
dismiss in two separate motions on July 27, 2021.59 CST filed a sworn declaration
by its President in support of its motion to dismiss. 60
I heard oral argument with respect to both motions to dismiss on December 9,
2021, and considered the matter fully submitted at that time. 61
55
See Compl. ¶ 69.
56
Id.
57
Id.
58
See Pls. Sorenson Impact Foundation and James Lee Sorenson Family Foundation’s Verified
Compl. for Breach of Merger Agreement and Related Contracts, Dkt. No. 1; see also Compl.
59
See Defs. Tassel Parent, Inc. and Graduation Alliance Inc.’s Mot. to Dismiss Verified Compl,
Dkt. No. 14; Def. Continental Stock Transfer & Trust Co.’s Mot. to Dismiss, Dkt. No. 15.
60
Decl. of Steven G. Nelson Pursuant to 10 Del. C. § 3927 Supp. Continental Stock Transfer &
Trust Company’s Mot. to Dismiss, Dkt. No. 16 [hereinafter “Nelson Decl.”].
61
See Oral Arg.
12
II. ANALYSIS
The movants in the instant action raise differing bases for dismissal of the
claims against them. CST raises lack of personal jurisdiction under Rule 12(b)(2)
and failure to state a claim under Rule 12(b)(6). 62 The Company Defendants raise
failure to state a claim under Rule 12(b)(6) as well as failure to name an
indispensable party under Rule 12(b)(7). 63 CST “adopts and incorporates by
reference” the Company Defendants’ arguments under Rule 12(b)(7) per their
opening brief. 64
A. Personal Jurisdiction Over CST
CST raises as a predicate issue whether this court has personal jurisdiction
over it under Rule 12(b)(2). “Plaintiffs have the burden to make out a prima facie
case establishing jurisdiction over a non-resident.” 65 In considering a motion to
dismiss under Rule 12(b)(2), I am not restricted to considering merely the allegations
contained in the Complaint,66 and I may consider “extra-pleading material,” such as
affidavits and briefs, to make my ultimate determination.67
62
See generally CST OB.
63
See generally Company Def. OB.
64
CST OB 5 n.6.
65
Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 974 (Del. Ch. 2000) (citing Hart
Holding Co. v. Drexel Burnham Lambert Inc., 593 A.2d 535, 539 (Del. Ch. 1991)).
66
Hart Holding Co., 593 A.2d at 538–39.
67
Crescent, 846 A.2d at 974.
13
To establish jurisdiction over CST, the Plaintiffs must have pled specific facts
rather than relying on “conclusory assertions,” but the record is still construed in the
light most favorable to the Plaintiffs.68
The Plaintiffs have, in their answering brief, identified two avenues via which
they claim this Court has jurisdiction over CST: (1) they contend CST is bound by
the forum selection clauses contained in the Merger Agreement and LOT; and (2)
they contend CST is subject to the Court’s jurisdiction under Delaware’s long-arm
statute.69
If, per avenue (1), CST has consented to jurisdiction via contract, no due
process analysis is required, and the party is treated as if it has expressly consented
to personal jurisdiction. 70 If, per avenue (2), personal jurisdiction is predicated on a
Delaware statute, then the Court must also conduct a constitutional due process
analysis by applying the minimum contacts test. 71
68
Mobile Diagnostic Grp. Holdings, LLC v. Suer, 972 A.2d 799, 802 (Del. Ch. 2009) (citing Sprint
Nextel Corp. v. iPCS, Inc., 2008 WL 2737409, at *5 (Del. Ch. July 14, 2008)).
69
Pls.’ Answering Br. Opp’n Defs.’ Mots. to Dismiss Verified Am. Compl. 30–38, Dkt. No. 23
[hereinafter “AB”].
70
See Neurvana Med., LLC v. Balt USA, LLC, 2019 WL 4464268, at *3 (Del. Ch. Sept. 18, 2019).
71
See Hazout v. Tsang Mun Ting, 134 A.3d 274, 278 (Del. 2016).
14
1. Personal Jurisdiction by Contract72
The Plaintiffs assert that CST is bound by the forum selection clauses in either
the Merger Agreement or the LOT, which require litigation in Delaware. However,
CST is not a party to the Merger Agreement, and is not a signatory to the LOT.
The Plaintiffs respond that the forum selection clauses in the Merger
Agreement and LOT can be imputed into the PAA, to which CST is a party, because
the PAA attaches the LOT as an exhibit.73 The LOT in turn attaches the Merger
Agreement as an exhibit. 74
This argument is unconvincing with respect to the Merger Agreement for at
least two reasons. First, as mentioned above, CST is not a party to the Merger
Agreement, and the parties have not identified any language in the PAA that
specifically “incorporate[s] by reference” the terms of the Merger Agreement
(though the Plaintiffs have argued that the Merger Agreement is, in fact,
incorporated by reference into the PAA). 75 Second, the PAA contains a provision
72
Importantly, my assessment, below, of contracts associated with the Merger is limited to a
discussion of whether personal jurisdiction exists over CST here. I make no finding as to whether
CST has some, or any, contractual duties arising from the Merger Agreement, the PAA, or the
LOT. I similarly make no finding as to whether CST has any fiduciary duties arising from its role
as paying agent, as enshrined in contract. Again, this assessment deals solely with the predicate
question of whether or not it is appropriate to subject CST to this Court’s jurisdiction.
73
See PAA, at Ex. A.
74
LOT, at Ex. A.
75
Town of Cheswold v. Cent. Del. Bus. Park, 188 A.3d 810, at 818–19 (Del. 2018) (internal
quotations omitted) (“Other documents or agreements can be incorporated by reference where a
contract is executed which refers to another instrument and makes the conditions of such other
instrument a part of it . . . . But . . . to incorporate one document into another, an explicit
manifestation of intent is required.”); see also AB 30. A fact also of some import is that, while the
15
expressly denying that CST is bound by any of the provisions of the Merger
Agreement:
Parent acknowledges that the Paying Agent is not a party to the
Merger Agreement and as such is assumed to be wholly unfamiliar
with, and not bound by, the terms contained therein. The rights and
obligations of the Paying Agent shall be governed solely by the
provisions of this [Paying Agent] Agreement. 76
Thus, the Merger Agreement’s forum selection clause cannot subject CST to
personal jurisdiction in Delaware.
This argument is also unsuccessful with respect to the LOT for similar
reasons. The LOT is only executed by the “Securityholder” per its terms and CST
is thus not a “party” thereto.77 Similarly to the Merger Agreement, the PAA does
not contain an “explicit manifestation of intent” to incorporate the LOT by reference
(though the Plaintiffs argue that it is in fact incorporated). 78 And finally, the LOT
itself does not actually constitute a contract. 79 Without more, I cannot find that CST
Merger Agreement was ultimately attached to the PAA, it was an exhibit to an exhibit (and the
question of whether CST saw the full gambit of exhibits prior to closing would almost certainly
be a disputed issue; the CST declaration indicates that they did in fact not see the Merger
Agreement before this litigation began). See Nelson Decl. ¶ 4; see also PAA, Ex. A, at Ex. A.
76
PAA § 1.3 (emphasis added).
77
See generally LOT. I do note that Section 11 of the LOT, which includes the forum selection
clause, references the term “Party”; however, such term is apparently undefined. See id. at 4–5;
see generally LOT. Moreover, introductory language prefacing the numbered paragraphs reads:
“In connection with the surrender of the above-described certificates, the Securityholder agrees as
follows:”, indicating that the following provisions bind purely the holder surrendering its shares.
See id. at 4 (emphasis added).
78
See generally PAA; Town of Cheswold, 188 A.3d at 818–19.
79
See, e.g., Cigna Health & Life Ins. Co. v. Audax Health Sols., Inc., 107 A.3d 1082, 1088–91
(Del. Ch. 2014) (determining that the letter of transmittal lacked consideration and therefore was
not an enforceable contract); Roam-Tel Partners v. AT&T Mobility Wireless Operations Holdings
Inc., 2010 WL 5276991, at *6 (Del. Ch. Dec. 17, 2010) (finding, in the context of appraisal, that
16
has consented to personal jurisdiction in Delaware by dint of contractual
arrangement. It is not dispositive, but is worthy of note, that CST is a New York
domiciliary and, with respect to the one contractual document to which it is
indisputably bound, the PAA, did not submit to Delaware jurisdiction but apparently
bargained for the application of New York law.80
2. Personal Jurisdiction by Statute
The Plaintiffs also argue that Delaware’s long-arm statute provides for
jurisdiction over CST. 81 If so, they will also need to show that CST has sufficient
minimum contacts with Delaware such that maintaining jurisdiction over CST here
would not offend due process. 82
Delaware’s long-arm statute (the “Long-Arm Statute”) allows a Delaware
court to exercise personal jurisdiction over any nonresident, or a personal
representative, who in person or through an agent “[t]ransacts any business or
performs any character of work or service in the State.”83
The Plaintiffs identify this subsection of the Long-Arm Statute as the basis for
personal jurisdiction, arguing that the PAA required CST to effectuate the Merger
between two Delaware companies in part by collecting stock certificates
there was no consideration for a stockholder’s “alleged promise to accept the merger
consideration,” and therefore no valid contract was formed).
80
See supra note 40 and accompanying text.
81
10 Del. C. § 3104; see also AB 35.
82
Neurvana, 2019 WL 4464268, at *2 (citations omitted).
83
10 Del. C. § 3104(c)(1).
17
(metaphysically based in Delaware) for the purpose of cancelling them.84 They
allege that, because cancelling stock certificates requires the filing of a Certificate
of Amendment with the Delaware Secretary of State, CST transacted business in
Delaware for purposes of the Long-Arm Statute.85 The Complaint does not
specifically aver that CST actually filed a Certificate of Amendment, however. 86 In
response, CST’s President has filed a declaration stating that every action CST took
in connection with the Merger occurred within the State of New York, including the
payment of funds and communications relating to the payments.87 That same
declaration verified that CST has never entered into any contract requiring it to act
in Delaware, including selling products, transacting business, or performing “any
other services” in Delaware. 88
At this stage, I am required to draw all inferences in favor of the Plaintiffs.89
Caselaw supports the theory that, if CST indeed sent a Certificate of Amendment to
be filed in Delaware, they would have “directly transacted business in Delaware for
purposes of Section 3104(c)(1).”90 The CST declaration—which I am permitted to
84
AB 37; see also PAA § 2.7.
85
AB 37.
86
See generally Compl.
87
Nelson Decl. ¶ 6.
88
Id. ¶ 9.
89
Sample v. Morgan, 935 A.2d 1046, 1056 (Del. Ch. 2007) (citation omitted).
90
See, e.g., id. at 1057 (citing Benihana of Tokyo, Inc. v. Benihana, Inc., 2005 WL 583828, at *6,
*8 (Del. Ch. Feb. 4, 2005); then citing Gibralt Cap. Corp. v. Smith, 2001 WL 647837, at *6 (Del.
Ch. May 9, 2001)); Hartsel v. Vanguard Grp., Inc., 2011 WL 2421003 (Del. Ch. June 15, 2011)
18
consider given the procedural posture of this motion 91—suggests no such filing was
made, though it does not precisely aver that CST did not make a filing with
Delaware.92 I need not directly resolve this issue, though, for I find in any event that
minimum contacts do not exist here so as to make exercise of personal jurisdiction
over CST appropriate.
Ohrstrom v. Harris Trust Company of New York is instructive. 93 This Court
of Chancery case dealt with an almost identical question of personal jurisdiction—
whether Delaware had personal jurisdiction that ought to extend over the Harris
Trust Company of New York, a New York corporation acting as a transfer agent,
exchange agent and stock registrar for two Delaware corporations.94 In that case,
due to certain bookkeeping difficulties, Harris Trust registered certain previously
issued shares, causing a share over-issue of 10,954 surplus shares, then cancelled
approximately 4,600 shares to remedy the over-issuance.95 The plaintiffs in
Ohrstrom argued that Harris Trust was really acting as the alter ego of a Delaware
(“Plaintiffs do not assert, however, that any Individual Defendant took any tangible action in
Delaware, such as . . . filing or helping to file any document in the State . . . .”).
91
Crescent, 846 A.2d at 974.
92
See id. (citing Hart Holding Co., 593 A.2d at 539) (“All allegations of fact concerning personal
jurisdiction are presumed true, unless contradicted by affidavit.”)
93
Ohrstrom v. Harris Tr. Co., 1998 WL 8849 (Del. Ch. Jan. 8, 1998).
94
Id. at *1. Harris Trust worked in different capacities for the two different Delaware entities. See
id.
95
Id.
19
corporation, and therefore the Long-Arm Statute ought to reach Harris Trust (and
due process would not be offended by its doing so). 96
The Court disagreed. 97 It declined to find that Harris Trust was the “alter ego”
of any Delaware corporation, citing the “unalterable fact” that Harris Trust
transferred and registered shares from its New York offices, and that therefore it did
not conduct business in Delaware. 98 The Court further opined that, even if the Long-
Arm Statute were satisfied, the plaintiffs’ arguments for due process would have
failed, as Harris Trust had never had “continuous and systematic general business
contacts with Delaware,” and Delaware had no especial interest in adjudicating a
dispute between the plaintiffs and the transfer agent, as it was “merely a commercial
dispute.”99 Further, Harris Trust had not purposely “availed itself” of the laws of
Delaware by entering a contract to perform transfer agent duties for a Delaware
corporation.100 The only connection between Harris Trust and Delaware was the
fact that the pertinent corporations were incorporated in Delaware. 101
96
Id. at *2.
97
Id.
98
Id. at *3. In support, the opinion also cites the fact that Harris Trust had no place of business in
Delaware, no telephone number in Delaware, no post office box or mailing address in Delaware,
and no agent for service of process in Delaware. See id. CST’s declaration avers the same, except
that it does not disavow having an agent for service of process in Delaware. See generally Nelson
Decl.
99
Ohrstrom, 1998 WL 8849, at *5 (internal quotations omitted).
100
See id.
101
Id.
20
Much of this analysis is on point here. CST has submitted evidence that it
conducted all of its activities as paying agent from its offices in New York, and that
the contract retaining its services selected New York as its governing law and
directed notice to CST in New York. 102 Furthermore, CST has indicated that it does
not maintain any facility, property, or separate business in Delaware, has not held
any physical meetings of its board of directors or shareholders in Delaware, has not
entered into any contract requiring it to perform services in Delaware, and has never
had any telephone number, mailing address or bank account in Delaware.103 To the
extent there is any connection between CST and Delaware, it is due to its contract
with Parent, a Delaware corporation. This, as in Ohrstrom, is insufficient to confer
personal jurisdiction over CST, as it fails to establish business connections between
the agent and the State of Delaware. 104 The nature of the contract, being a
commonplace commercial contract, embodying New York law, bolsters this
conclusion, as the action does not seek to vindicate Delaware-specific law.105
102
See Nelson Decl. ¶¶ 6–7.
103
See id. ¶¶ 8–10.
104
See Ohrstrom, 1998 WL 8849, at *5; see also Hartsel, 2011 WL 2421003, at *14 (finding that
due process would have been offended had personal jurisdiction been exercised over the
defendants under similar circumstances).
105
See Ohrstrom, 1998 WL 8849, at *5; see also BAM Int’l, LLC v. MSBA Grp. Inc., 2021 WL
5905878, at *10 (Del. Ch. Dec. 14, 2021).
21
CST’s motion to dismiss for lack of personal jurisdiction should be granted.
Because I so find, I do not reach the question of whether the Plaintiffs have stated a
viable claim against CST.
B. The Company Defendants’ 12(b)(6) Argument
The standard applicable to a Rule 12(b)(6) motion for failure to state a claim
is as follows: (1) all well-pled factual allegations are accepted as true; (2) even vague
allegations are well-pled if they put the opposing party on notice of the claim; (3) the
Court draws all reasonable inferences in favor of the non-moving party; and
(4) dismissal is only appropriate where the Plaintiffs are not entitled to recover under
“any reasonably conceivable set of circumstances susceptible of proof.”106
1. Breach of Contract Theory
This amended Complaint pushes the Court to the limits of the leniency
inherent in the modern doctrine of notice pleading. The Plaintiffs have pled in their
first cause of action in the Complaint a breach of contract theory against Parent.
Certain paragraphs of this count have been reproduced below:
72. The Merger Agreement, its associated and/or incorporated
agreements, forms and instructions, and Plaintiffs’ Written Consent
and Agreement of Stockholders are valid and enforceable contracts.
...
75. Instruction 4(a) of the Letter of Transmittal, which was
promulgated pursuant to Section 3.3(i) of the Merger Agreement,
required Tassel Parent and its agents to obtain a Medallion
Guarantee before wiring Merger consideration to a name different
than that on the relevant stock certificates.
...
106
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (citations omitted).
22
77. Tassel Parent’s agents H&K and Continental willfully failed to
comply with the unambiguous terms of the [LOT], and transferred
Plaintiffs’ share of the Merger consideration to the Hackers’
Chinese account without obtaining a Medallion Guarantee. 107
As mentioned briefly above, the LOT is not a contract. The LOT represents,
pertinently, a procedural device for assigning payment, by CST to stockholders.
Parent was not a signatory or party to the LOT. Parent’s duties are defined in the
Merger Agreement negotiated with Target, by the Paying Agent Agreement, and by
Section 251 of the Delaware General Corporation Law.108 Delaware caselaw
supports the finding that the LOT itself is not an enforceable contract; the Court of
Chancery addressed this issue squarely109 in Cigna Health and Life Insurance
Company v. Audax Health Solutions, Inc. in 2014.110 Cigna argued that there was a
lack of consideration affiliated with the applicable letter of transmittal, and therefore
the basic elements of an enforceable contract (offer, acceptance, consideration) were
not satisfied.111 Cigna’s theory was that payment of the merger consideration was a
“pre-existing duty” that did not stem from the letter of transmittal, but was a statutory
107
See Compl. ¶¶ 72, 75, 77 (emphasis added).
108
I note that the Plaintiffs have not asserted a statutory claim under Section 251. 8 Del C. § 251.
109
I note that the issue in Cigna was whether the LOT imposed contractual duties on its signatory
stockholders; here, the issue is whether the LOT imposes rights on the stockholders, and duties
upon the non-signatory Parent. See generally 107 A.3d 1082 (Del. Ch. 2014).
110
See id.
111
Id. at 1088.
23
right under Section 251 following the consummation of the merger.112 The Court
agreed.113
Cigna relied on Roam-Tel Partners v. AT&T Mobility Wireless Operations
Holdings Inc., a 2010 Chancery case which similarly held that in the context of an
appraisal, a stockholder’s return of a letter of transmittal did not constitute a binding
and enforceable contract because of a lack of consideration.114
The Plaintiffs have pled that the “Merger Agreement, its associated and/or
incorporated agreements, forms and instructions,” which presumably encompasses
the LOT, were valid and enforceable contracts, 115 but I am not required to accept
this, as the statement is a legal conclusion rather than a recitation of fact. 116 Given
that there is no consideration associated with the LOT, unless its terms were adopted
in a separate agreement, it did not create duties enforceable in contract. In any event,
the Plaintiffs have failed to explain how the LOT bound Parent. It is of course true
that a contract can incorporate the terms of a non-contractual document, though as
discussed above, finding that such incorporation has occurred requires an explicit
manifestation of intent.117 But Parent is not charged in the Complaint with breach
112
Id. at 1088–89.
113
Id. at 1091.
114
2010 WL 5276991, at *6 (Del. Ch. Dec. 17, 2010).
115
Compl. ¶ 72 (emphasis added).
116
And in the remainder of this discussion, I make no finding as to whether the LOT, the Merger
Agreement, and the PAA are or are not incorporated into one another, or any variation on that fact
pattern.
117
See supra notes 75–78 and accompanying text.
24
of the PAA. 118 As the quoted portion of the Complaint, above, makes clear, the
Plaintiffs allege that Parent is liable for breach of the LOT by its agents, H&K and
CST.119 But vicarious liability does not attach for a non-tortious breach of contract,
as I explain below. The Plaintiffs’ arguments are predicated on the assumption that
Parent must be responsible for CST’s acts under an agency law theory, and that
CST’s acts breached the LOT. Although they fail to make the argument explicit in
the Complaint, the Plaintiffs in briefing and argument attempt to allege that Parent’s
agents breached other contractual provisions as well, including provisions in the
PAA. 120 However, assuming—which I do for purposes of this analysis—that an
agency relationship existed between principal Parent, agent CST, and non-party
H&K, the theory of vicarious liability in Delaware caselaw does not extend to breach
of contract. 121 This issue was addressed in Wenske v. Blue Bell Creameries, Inc., in
which the Court of Chancery found that “Delaware law recognizes no theory under
which a principal can be vicariously liable for its agent’s non-tortious breach of
contract.”122 The Wenske court, providing additional clarification on its finding
118
Compl. ¶¶ 70–79.
119
Id. ¶ 77.
120
AB 24–26; see also Oral Arg., 71:3–15 (stating that CST was required, under the PAA, to
ensure the medallion guarantee was complied with).
121
2018 WL 3337531, at *16 (Del. Ch. July 6, 2018).
122
Id. at *16, *16 n.132 (collecting cites). The Wenske opinion collected cites based on civil
conspiracy and ultimately summarized its finding as follows: “[t]hat is, if ‘[c]ivil conspiracy
[liability] is vicarious liability,’ . . . and a non-tortious ‘breach of contract . . . can[not] give rise to
a civil conspiracy claim,’ . . . it follows that a non-tortious breach of contract cannot give rise to
vicarious liability.” Id. at n.132 (citing Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL
25
following a motion for reargument, pointed to the Restatement (Third) of Agency as
support for the proposition that “a principal may be liable for torts committed by an
agent . . . where the agent’s tortious conduct is undertaken pursuant to the agency
relationship.”123 That section of the Restatement does not posit contractual liability
befitting the scenario at hand, however, and “Delaware follows the Restatement of
Agency.”124
The Plaintiffs’ contract claims against Parent for its agents’ breach of the LOT
(or the PAA) fail.125 My analysis does not end there, however.
The Merger Agreement imposes duties on Parent, and it is reasonably
conceivable that it also provides rights to the Plaintiffs (as third-party beneficiaries)
here. The Plaintiffs’ “First Cause of Action (Breach of Contact—against Tassel
Parent)” recites generally that the Merger Agreement entitles Parent to receive the
2130607, at *11 (Del. Ch. Aug. 26, 2005); then citing NACCO Indus., Inc. v. Applica Inc., 997
A.2d 1, 35 (Del. Ch. 2009); and then citing Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 892
(Del. Ch. 2009)). In a later opinion addressing a motion for reargument, the Wenske court clarified
that its discussion of civil conspiracy liability was predicated on the fact that civil conspiracy
liability is a species of vicarious liability and was therefore instructive with respect to the broader
genus of vicarious liability. See Wenske v. Blue Bell Creameries, Inc., 2018 WL 5994971, at *3
n.26 (Del. Ch. Nov. 13, 2018). At least one Delaware Superior Court opinion has followed the
Wenske court’s holding. See B&B Fin. Servs., LLC v. RFGV Festivals, LLC, 2019 WL 5849770,
at *3 (Del. Super. Ct. Nov. 7, 2019).
123
Wenske v. Blue Bell Creameries, Inc., 2018 WL 5994971 (citing RESTATEMENT (THIRD) OF
AGENCY § 7.03 (2006)).
124
Wenske, 2018 WL 5994971, at *4 n.32 (citing Pisano v. Del. Solid Waste Auth., 2006 WL
3457686, at *9 (Del. Ch. Nov. 30, 2006)) (internal quotations omitted).
125
Notably, the Plaintiffs did plead a tort claim against CST, though they chose not to plead a
vicarious liability claim against Parent, CST’s principal, associated with the tort. The Complaint
fails to allege that Parent is liable by reason of CST’s negligence via the doctrine of vicarious
liability.
26
Plaintiffs’ stock (and note) “in exchange for payment as set forth in the Merger
Agreement,” 126 and further that the Plaintiffs had complied with the conditions
precedent in order to receive Merger consideration, and became “automatically
entitled to receive their pro rata portion of the Merger consideration . . . pursuant to
Section 3.3(i) of the Merger Agreement . . . .” 127
That Section of the Merger Agreement includes a provision explaining the
conditions precedent for consideration to be paid, to which the Plaintiffs cite in
averring that they have met those conditions precedent.128 Once that happens, under
Section 3.3(i), the stockholder is “entitled” to receive the Merger consideration.129
The Section goes on to explain the duties of Parent thereafter: to pay the sum due to
each such compliant stockholder to the Paying Agent. 130 Per the Complaint, it
appears that both the Plaintiffs’ conditions precedent to payment and Parent’s
payment obligation were completed. 131 Read holistically, is it reasonably
conceivable that the Merger Agreement imposes an obligation on Parent to do more
than make a payment to its agent, that is, to ensure payment to the “entitled”
stockholders and noteholders? The language can be read that way, so the answer at
the pleading stage is “yes.”
126
Compl. ¶ 71.
127
Id. ¶ 73 (emphasis added).
128
See MA § 3.3(i).
129
Id.
130
See id. (emphasis added).
131
See Compl. ¶¶ 35–36.
27
The more difficult question remains: in light of the Plaintiffs’ pleading, basing
liability of Parent specifically (and unsuccessfully) on a vicarious breach of the LOT,
have the Plaintiffs nonetheless generally stated a breach of contract claim against
Parent for breach of the Merger Agreement? Delaware is a notice pleading
jurisdiction, and our Supreme Court has instructed that, in the particular context of
pleading a breach of contract case, a plaintiff can make out a sufficient claim “if [the
complaint] contains ‘a short and plain statement of the claim showing that the
pleader is entitled to relief.’”132 Specific facts need not be pled in order to make out
an “actionable claim,” and assessment of the stated claim should be “liberally
construed” so long as the defendant has “fair notice” of the claim. 133 Upon review
of the entire Complaint, as well as the language of the first cause of action, referring
generally to breach of all pertinent agreements and specifically citing Section 3.3(i)
of the Merger Agreement, I find that the Complaint gives sufficient notice to Parent
that it is being sued for failure to pay over the Merger consideration due the Plaintiffs
in violation of the Merger Agreement.134 Accordingly, Parent’s motion to dismiss
the first cause of action for breach of contract is denied.
132
VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003) (citation omitted).
133
See id.; see also In re Infousa, Inc., 2007 WL 3325921, at *26 (Del. Ch. Aug. 13, 2007) (“Rule
8(a) does not demand, however, that plaintiffs present a paragon of the well-organized
complaint.”).
134
See Wood v. Rodeway Inn, 2015 WL 994855, at *2 (Del. Super. Ct. Mar. 4, 2015) (“Although
the sparseness of Plaintiffs’ pleading is readily apparent, their Complaint, barely, meets
Delaware’s notice pleading standard.”).
28
2. Unjust Enrichment Theory
The Plaintiffs have pled an unjust enrichment claim against the Company
Defendants. 135 Unjust enrichment occurs where there is an “unjust retention of a
benefit to the loss of another, or the retention of money or property of another against
the fundamental principles of justice or equity and good conscience.”136
The elements of an unjust enrichment claim are as follows: “(1) an
enrichment, (2) an impoverishment, (3) a relation between the enrichment and
impoverishment, (4) the absence of justification, and (5) the absence of a remedy
provided by law.”137
It is difficult to see how Parent can have liability apart from breach of
contract here. However, mindful of the alternative nature of the claims, I repeat
my recent holding in Lockton v. Rogers, bow under the weight of precedent, and
decline to dismiss the unjust enrichment claim against the Company Defendants at
this time. 138
Accordingly, the Company Defendants’ motion to dismiss is denied, and the
equitable claim is left for consideration on a record.
135
See Compl. ¶¶ 80–86. This claim is pled in the alternative to the first cause of action, the breach
of contract claim against Parent, but this claim is also levied against Graduation Alliance. See id.
136
Nemec v. Shrader, 2009 WL 1204346, at *6 (Del. Ch. Apr. 30, 2009), aff’d, 991 A.2d 1120
(Del. 2010) (citation omitted).
137
Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010).
138
See Lockton v. Rogers, 2022 WL 604011, at *16–17 (Del. Ch. Mar. 1, 2022).
29
C. The Company Defendants’ 12(b)(7) Argument
The Company Defendants have moved to dismiss for failure to join H&K,
allegedly a necessary party here. I expect that, having dismissed CST on
jurisdictional grounds, this argument should be supplemented regarding CST before
consideration. Accordingly, consideration of this issue is continued.
III. CONCLUSION
I have found above that the Complaint does not prima facie prove personal
jurisdiction over CST; CST’s motion to dismiss is accordingly GRANTED. The
Company Defendants’ motion to dismiss is DENIED IN PART and CONTINUED
IN PART. The parties should provide an appropriate form of order.
30
EXHIBIT A