Stein v. Wind Energy Holdings, Inc.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

HOWARD M. STEIN, CATHY S. )
STEIN AND JEREMY TARK, )
)
Plaintiffs, )
)
v. ) C.A. No. N21C-09-060 CEB
)
WIND ENERGY HOLDINGS, )
INC., f/k/a UNITED WIND, INC., )
and RUSSELL TENCER, )
)
Defendants. )

MEMORANDUM OPINION

Submitted: September 27, 2022
Decided: December 13, 2022

Upon Consideration of Defendant Russell Tencer’s Motion to Dismiss
GRANTED

Jeffrey S. Cianciulli, Esquire, WEIR GREENBLATT PIERCE LLP, Wilmington,
Delaware. Attorneys for Plaintiffs Howard M. Stein, Cathy S. Stein, and Jeremy
Tark.

John A. Sensing, Esquire, POTTER ANDERSON & CORROON LLP, Wilmington,
Delaware; Jonathan L. Scher, Esquire, THE SCHER LAW FIRM, LLP, Carle Place,
New York. Attorneys for Defendant Russell Tencer.

BUTLER, R.J.
 Plaintiffs Howard M. Stein, Cathy S. Stein, and Jeremy Tark (collectively, the

“Plaintiffs”) are former noteholders of Wind Energy Holdings, Inc. (the

“Company”), formerly known as United Wind, Inc. They allege the Company’s

President and CEO, Defendant Russell Tencer, fraudulently induced them to

purchase debt from the Company that it never repaid. They also allege Tencer was

unjustly enriched by a transactional payment that the Plaintiffs believe should have

been remitted to them.

Tencer has moved to dismiss the Amended Complaint. He argues that (1) the

Plaintiffs’ fraud claim is time-barred and otherwise fails under Rule 9(b); and (2) the

unjust enrichment claim fails to state essential elements. The Court agrees.

Accordingly, the Company’s motion is GRANTED.

BACKGROUND

A. The Parties

The Plaintiffs are individual investors from New York. The Company is a

Delaware Corporation which operated in the green energy space—specifically wind

power and environmental research and development. Its primary income derived

from lease arrangements through which homeowners would pay the Company for

electricity generated by wind turbines that the Company installed on their properties.

Tencer is the Company’s President and CEO.

2
B. The Agreements

In April 2017, the Plaintiffs collectively invested $175,000 in the Company’s

convertible debt securities (the “Notes”).1 The Notes were memorialized in two

agreements—a Promissory Note Agreement2 and a Subscription Agreement3

(collectively, the “Agreements”)—which will be construed as one contract because

they were executed as part of the same transaction.4 Tencer is not a party to the

Agreements.

1. Repayment Terms

The Notes were set to mature on December 31, 2019.5 Their repayment terms,

1
Pls.’ Am. Compl., D.I. 22 ¶¶ 9–10 [hereinafter “Am. Compl.”].
2
The Plaintiff’s signed identical versions of the agreement. Ex. A to id. [hereinafter
“PNA”].
3
The Plaintiff’s signed identical versions of the agreement. Ex. B to id. [hereinafter
“SA”].
4
E.g., Restatement (Second) of Contracts § 202(2) (Am. L. Inst. 1981); accord Fla.
Chem. Co., LLC v. Flotek Indus., Inc., 262 A.3d 1066, 1081 (Del. Ch. 2021); see
Preamble to PNA (incorporating the SA by reference).
5
Preamble to PNA. Although preamble or recital language is generally “not a
necessary part of a contract,” New Castle Cnty. v. Crescenzo, 1995 WL 21130, at *3
(Del. Ch. Feb. 11, 1985), courts do consider preamble or recital language necessary
where, as here, the language defines terms used in the contract, see Intermec IP
Corp. v. TransCore, LP, 2021 WL 3620435, at *13, n.134 (Del. Super. Ct. Aug. 16,
2021), and “offer[s] insight into the intent of the parties[,]” Urdan v. WR Cap.
Partners, LLC, 2019 WL 3891720, at *15 (Del. Ch. Aug. 19, 2019), aff’d, 243 A.3d
668 (Del. 2020). E.g., Citadel Hldg. Corp. v. Roven, 603 A.2d 818, 823 (Del. 1992)
(explaining that preamble or recital language is an “obvious source for gaining
contractual intent[,]” since “it is there that the parties expressed their purposes for
executing” the contract); cf. Llamas v. Titus, 2019 WL 2505374, at *16 (Del. Ch.
June 18, 2019) (rejecting interpretation of preamble language because language was
inconsistent with contract’s substantive provisions).

3
however, were subject to conversion to equity through “Qualified Financings”6 and

“Changes of Control.”7 Separately, the Notes could be modified by the Company’s

“Required Holders.”8 These Required Holders are noteholders whose credit

comprises a majority of the Company’s outstanding debt. 9 The Plaintiffs were not

Required Holders.

a. Qualified Financing; Change of Control

The Notes’ principal and interest automatically convert to an equivalent value

of equity securities if the Company executes a “Qualified Financing.”10 Qualified

Financings are stock sales through which the Company sells $5,000,000 in equity to

a third party.11 Similarly, a “Change of Control” occurs when the Company sells all

or substantially all of its assets to a third party.12 Changes of Control that occur pre-

conversion to equity entitle noteholders to full repayment at a 1.3x multiplier.13

Changes of Control that occur post-conversion to equity entitle noteholders to a

number of shares equivalent to the accrued principal and interest on the Notes.14

6
Preamble to PNA; PNA § 1.
7
PNA § 2.
8
SA § 7.2.
9
Recitals to id.
10
PNA § 1(a); Recitals to SA.
11
PNA § 1(a).
12
Id. § 2; Recitals to SA.
13
PNA § 2.
14
Id. § 3.

4
 b. Modification

Under the Agreements, the Company could modify the Notes.15 Doing so

required approval of the Company’s Required Holders.16 Required Holders were

“those Holders who hold, collectively, at least a majority in principal amount of all

Notes outstanding.”17 Modifications approved by Required Holders were effective

against all the Notes (e.g., the Plaintiffs’ notes).18 Modifications could occur any

time post-closing. In other words, modifications did not depend on a Qualified

Financing or Change of Control.

2. Risk Representations

The Notes were “speculative.”19 They involved a “high degree of risk[.]”20

They did not have a market and the Company did not even “expect[] [one] to

develop.”21 It is no wonder there was an “economic risk of a total loss[.]”22

The Plaintiffs understood all this. They confirmed that they read the

Company’s financial disclosures, which were contained in a “Risk Factors”

15
SA § 7.2.
16
Id. § 7.2.
17
PNA § 6(b).
18
SA § 7.2; PNA § 6(c).
19
Recitals to SA.
20
Id.
21
Id.
22
Id.; see id. § 4.1(b) (same).

5
document.23 There, the Company advised that it “may never achieve profitability”

and could not give any “assurance” of success.24 It also warned that its “significant

losses . . . may force[] [it] to curtail or cease operations.”25

3. Reliance Representations

The Agreements purport to cabin sell-side representations. Prospective

investors were told that they may rely only on the Company’s representations:

NO PERSON HAS BEEN AUTHORIZED BY [THE COMPANY] TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OF ANY KIND WHATSOEVER
CONCERNING [THE COMPANY] OR THIS OFFERING OTHER
THAN THE REPRESENTATIONS CONTAINED OR REFERRED
TO HEREIN, AND, IF GIVEN OR MADE, SUCH OTHER
REPRESENTATIONS OR INFORMATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY [THE
COMPANY].26

The Company made “no representations or warranties, express or implied,”

other than those made in the Agreements.27 It also specified what it was not

representing. For example, the Company made no “representation or warranty

23
Id. § 2.6; see generally Ex. C to Def.’s Mot. to Dismiss, D.I. 24 [hereinafter “Risk
Factors”]. Although the Risk Factors are not expressly referenced in the complaint,
they are incorporated into the Agreements. So the Court may consider them. See
infra Standard of Review.
24
Risk Factors.
25
Id.; see also SA § 4.1(b) (investor representations regarding access to all
information).
26
Recitals to SA.
27
SA § 3.8.

6
concerning the value of the Note[s] or the Company.”28 Despite all this, by signing

the Subscription Agreement the Plaintiffs represented that they had “access to all the

information” they would need to make an educated investment decision.29

C. The Merger

The Company began to fail almost immediately. So it restructured itself. In

September 2018, the Company entered a term sheet with a third-party buyer, Eocycle

Technologies, Inc, that contemplated an asset sale and triangular merger (the

“Merger”). The Merger proceeded in three steps. First, Eocycle would securitize

all the Company’s operating assets. Second, the Company would sell those assets

to an acquisition entity, “NewCo.” Finally, NewCo would merge with Eocycle,

thereby forming a new entity, “18, Inc.”30 Once consummated, the Plaintiffs allege

that the Merger would grant a preference payment of 20% of the revenues generated

by the Company, less operating expenses, to Tencer.31

Following the Merger, the Notes became subordinate to debts owed to

Eocycle, Tencer, and the Required Holders. The Merger, additionally, precipitated

a Change of Control.32 A mentioned above, Changes of Control that occur pre-

28
Id. § 4.2.
29
Id. § 4.1(b); see also id. § 7.2 (integration clause).
30
Am. Compl. ¶¶ 14–15, 22–31.
31
Id. ¶ 19.
32
The Merger does not appear to be a Qualified Financing because the Company did
not receive cash from a stock sale, but rather from selling its assets to NewCo.

7
conversion require immediate repayment on the Notes with a 1.3x multiplier. To

avoid acceleration of the repayment provision, the Company sought to modify the

Notes before the Merger.

D. The Waiver Agreement

In September 2018, the Company proposed to its Required Holders a

modification of the Notes’ original terms (the “Waiver Agreement”).33 The

modification would (i) extend the Notes’ maturity date to August 29, 2028; (ii) give

the Required Holders a repayment preference over non-Required Holders; and (iii)

waive any pre-existing right to repayment that could follow from the Merger.34 The

Required Holders approved these terms. Then the Merger closed in April 2019.

E. The Fraud Allegations

The Plaintiffs objected to the Merger and the Waiver Agreement.35 This is

understandable. The Merger and Waiver Agreement deferred the Notes’ maturity

by a decade, subordinated the Notes to Eocycle, Tencer, and the Required Holders,

and cancelled their right to immediate repayment. As observed, however, the

33
Ex. F to Def.’s Mot. to Dismiss, D.I. 24 at .pdf p. 126–40 [hereinafter the “Waiver
Agreement”]. The complaint references the Waiver Agreement without attaching it.
See Am. Compl. ¶¶ 18, 23.
34
Waiver Agreement §§ 1–2; Recitals to id. § G.
35
Am. Compl. ¶ 63.

8
Plaintiffs’ views on all this did not matter—they were not Required Holders. And

modifications approved by the Required Holders are effective against all the Notes.36

Although the Company purportedly survived in some form, the Plaintiffs

never saw returns on their investments. They allege that this is due to fraud.

The Plaintiffs allege that Tencer and the Company’s “agents” misrepresented

and omitted “relevant” information about the Company’s financial status at the time

the Plaintiffs invested in the Notes.37 The Plaintiffs claim the following as

misrepresentations and omissions:

1. The Company was “viable” and set to close a “very large” institutional
investment, “which never materialized.”38

2. The Company “did not have sufficient funds to continue operations and to
pay one month of payroll.”39

3. The Company was shopping the Merger when the Plaintiffs purchased the
Notes, but did not disclose the Merger at the time.40

4. Tencer would receive a 20% preference from the (undisclosed) Merger.41

The Plaintiffs also claim a number of unspecified misrepresentations or

omissions related to the Company’s prospects for financial success.42

36
SA § 7.2; PNA § 6(c).
37
Am. Compl. ¶ 51.
38
Id. ¶ 45.
39
Id. ¶ 50(a). This allegation is restated in the next subsection using different words.
Id. ¶ 50(b).
40
Id. ¶ 50(c).
41
Id. ¶¶ 54–55.
42
See, e.g., id. ¶¶ 46–47.

9
F. The Procedural History

1. The New York Action

The Plaintiffs initially sued the Company and Tencer in New York (the “New

York Action”).43 They alleged, among other things, contractual fraud and unjust

enrichment. The Company and Tencer moved to dismiss, citing the Delaware forum

selection clauses in the Agreements. On February 8, 2021, the New York court

granted the motion and dismissed the complaint.

2. This Litigation

a. The Original Complaint

On September 9, 2021, the Plaintiffs filed their complaint in this Court. The

original complaint brought three claims: (i) breach of contract against the Company;

(ii) contractual fraud against the Company and Tencer; and (iii) unjust enrichment

against Tencer.44 The original complaint did not allege any of the specific

misrepresentations or omissions identified above.45

On November 10, 2021, the Plaintiffs moved to enter a default judgment

against the Company.46 On December 15, 2021, that motion was granted.47

43
See Ex. A to Pl.’s Answering Br., D.I. 27 (N.Y. Ct. Order).
44
Original Compl., D.I. 1 ¶¶ 33–58.
45
Compare id. ¶¶ 43–52, with Am. Compl. ¶¶ 43–58.
46
Pl.’s Mot. for Default J., D.I. 4.
47
Order Granting Default J., D.I. 11.

10
Plaintiffs were awarded $145,184.34 in breach of contract damages.48 The Company

never moved to vacate the default.

On January 21, 2022, Tencer moved to dismiss the complaint. On February

7, 2022, the Plaintiffs opposed the motion. On March 18, 2022, Tencer replied. At

that point, the motion should have been deemed submitted for decision based on the

original complaint. But the Plaintiffs had a different idea.

b. The Amended Complaint

On April 6, 2022, the Plaintiffs unilaterally amended their complaint. The

amendments arrived more than 20 days after the original complaint and without a

prior request for leave to amend from the Court. So the amended complaint was

invalid under Rule 15.49 Nevertheless, Tencer did not challenge the amendments.

Instead, he stipulated to them.50 Then he renewed his motion to dismiss.51 Because

the Court granted the stipulation to amend,52 this Opinion disregards the Rule 15

problem and treats the amended complaint as operative.

The Amended Complaint makes two claims against Tencer. The first—Count

III—is a contractual fraud claim based on the allegations recited above. The

second—Count IV—is an unjust enrichment claim alleging Tencer improperly

48
Id.
49
Del. Super. Ct. Civ. R. 15(a).
50
Def.’s Stipulation to Am. Compl., D.I. 23.
51
Def.’s Mot. to Dismiss Am. Compl., D.I. 24.
52
Order Granting Stipulation, D.I. 26.

11
received a 20% preference payment from the Merger that should have been remitted

to the Plaintiffs.

STANDARD OF REVIEW

A party may move to dismiss under Rule 12(b)(6) for failure to state a claim

on which relief can be granted.53 In considering a Rule 12(b)(6) motion, the Court

(1) accepts as true all well-pleaded factual allegations in the complaint; (2) credits

vague allegations if they give the opposing party notice of the claim; and (3) draws

all reasonable factual inferences in favor of the non-movant.54 Dismissal is

inappropriate unless “under no reasonable interpretation of the facts alleged could

the complaint state a claim for which relief might be granted.”55

Delaware’s motion to dismiss standard is “minimal.”56 It asks “whether there

is a possibility of recovery.”57 The Court, however, need not “accept conclusory

allegations unsupported by specific facts or . . . draw unreasonable inferences in

53
Del. Super. Ct. Civ. R. 12(b)(6).
54
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Holdings LLC, 27 A.3d 531, 535
(Del. 2011).
55
Unbound Partners Ltd. P’ship v. Invoy Holdings Inc., 251 A.3d 1016, 1023 (Del.
Super. Ct. 2021) (internal quotation marks omitted).
56
Cent. Mortg., 27 A.3d at 536.
57
Garfield v. BlackRock Mortg. Ventures, LLC, 2019 WL 7168004, at *7 (Del. Ch.
Dec. 20, 2019) (citing id. at 537, n.13 (“Our governing ‘conceivability’ standard is
more akin to ‘possibility,’ while the federal ‘plausibility’ standard falls somewhere
beyond mere ‘possibility’ but short of ‘probability.’”)).

12
favor of the non-moving party.”58 The Court may reject “every strained

interpretation of the allegations proposed by the plaintiff.”59

“The complaint generally defines the universe of facts that the trial court may

consider in ruling on a Rule 12(b)(6) motion . . . .”60 The Court may consider matters

outside the complaint only if “the document is integral to a plaintiff’s claim and

incorporated into the complaint[.]”61 Where a plaintiff “chooses to refer to a

document in its complaint, the Court may consider the entire document, even those

portions not specifically referenced in the complaint.”62 “[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.”63

58
Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011), overruled
on other grounds by Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255,
1277 (Del. 2018).
59
Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001).
60
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
61
Windsor I, LLC v. CWCap. Asset Mgmt. LLC, 238 A.3d 863, 873 (Del. 2020)
(internal quotation marks omitted). See In re Gardner Denver, Inc., 2014 WL
715705, at *4 (Del. Ch. Feb. 21, 2014) (“Whether a document is integral to a claim
and incorporated into a complaint is largely a fact-and-circumstances inquiry . . . .
[T]he Court may conclude a document is integral to the claim if it is the source for
the facts as pled in the complaint.” (cleaned up)).
62
Okla. Firefighters Pension & Ret. Sys. v. Corbat, 2017 WL 6452240, at *13, n.233
(Del. Ch. Dec. 18, 2017) (internal quotation marks omitted).
63
Malpiede, 780 A.2d at 1083.

13
 ANALYSIS

A. The Defendant is entitled to dismissal of Count III.

1. The Court’s analysis relies on long-standing principles of contract
interpretation.

The principles of contract interpretation are well-established and grounded on

the parties’ objective intent at the time of contracting as expressed by the plain

language contained within their agreement’s four corners.64 The Court construes a

contract as a whole, giving purpose to each provision.65 And the Court accords a

contract’s “clear and unambiguous terms . . . their ordinary meaning.”66 “A court

must accept and apply the plain meaning of an unambiguous term . . . insofar as the

parties would have agreed ex ante.”67 “If a writing is plain and clear on its face, i.e.,

its language conveys an unmistakable meaning, the writing itself is the sole source

for gaining an understanding of intent.”68

The prevailing contract interpretation must be reasonable.69 A contract

interpretation is reasonable when the contract language is “read in full and situated

64
E.g., Fletcher v. Feutz, 246 A.3d 540, 555 (Del. 2021).
65
E.g., Elliott Assocs., L.P. v. Avatex Corp., 715 A.2d 843, 854 (Del. 1998).
66
Leaf Invenergy Co. v. Invenergy Renewables LLC, 210 A.3d 688, 696 (Del. 2019)
(internal quotation marks omitted).
67
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 740 (Del. 2006).
68
City Investing Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del.
1993).
69
See, e.g., Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014) (“Contract terms
themselves will be controlling when they establish the parties’ common meaning so

14
in the commercial context between the parties.”70 Even so, “background facts cannot

be used to alter the language chosen by the parties within the four corners of their

agreement.”71 “[I]t is not the job of a court to relieve . . . parties of the burdens of

contracts they wish they had drafted differently but in fact did not.”72

2. Plaintiffs’ claims of fraud do not satisfy Rule 9(b).

To state a fraudulent inducement claim, the Plaintiffs must allege “(i) a false

representation made by the defendant; (ii) the defendant knew or believed the

representation was false or was recklessly indifferent to its truth; (iii) the defendant

intended to induce the plaintiff to act or refrain from acting; (iv) the plaintiff acted

or refrained from acting in justifiable reliance on the representation; and (v) damage

resulted from such reliance.”73

Fraud claims must satisfy Rule 9(b).74 Rule 9(b) requires that “the

circumstances constituting fraud” be pleaded with heightened particularity.75 “The

that a reasonable person in the position of either party would have no expectations
inconsistent with the contract language.” (internal quotation marks omitted)).
70
Chi. Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC, 166 A.3d 912, 926–
27 (Del. 2017); accord OptiNose AS v. Currax Pharms., LLC, 264 A.3d 629, 638
(Del. 2021).
71
Town of Cheswold v. Cent. Del. Bus. Park, 188 A.3d 810, 820 (Del. 2018).
72
DeLucca v. KKAT Mgmt., L.L.C., 2006 WL 224058, at *2 (Del. Ch. Jan. 23, 2006).
73
Valley Joist BD Holdings, LLC v. EBSCO Indus., Inc., 269 A.3d 984, 988 (Del.
2021).
74
Del. Super. Ct. Civ. R. 9(b).
75
Avve, Inc. v. Upstack Techs., Inc., 2019 WL 1643752, at *5 (Del. Super. Ct. Apr.
12, 2019) (internal quotation marks omitted).

15
factual circumstances that must be stated with particularity refer to the time, place,

and contents of the false representations; the facts misrepresented; the identity of the

person(s) making the misrepresentation; and what that person(s) gained from making

the misrepresentation.”76

In contrast, knowledge may be averred generally. Allegations “that give rise

to an inference of knowledge on the part of the pleader need not be pleaded with

particularity.”77 Given this liberal standard, pleading knowledge in the contractual

fraud context “is relatively easy.”78 It is not, however, lockstep. When a fraud claim,

“at its core,” charges a defendant with knowing something, “there must, at least, be

sufficient well-pleaded facts from which it can be reasonably inferred that this

‘something’ was knowable and that the defendant was in a position to know it.”79 A

sell-side officer cannot be liable for knowledge of fraud unless the plaintiff pleads

that he “acted with an illicit state of mind, [i.e.,] that the [he] knew that the

76
Valley Joist, 269 A.3d at 988.
77
Kahn Bros. & Co., Inc. Profit Sharing Plan & Tr. v. Fischbach Corp., 1989 WL
109406, at *5 (Del. Ch. Sept. 19, 1989); see Desert Equities, Inc. v. Morgan Stanley
Leveraged Equity Fund II, L.P., 624 A.2d 1199, 1208 (Del. 1993) (“Intent and state
of mind . . . may be averred generally because any attempt to require specificity in
pleading a condition of mind would be unworkable and undesirable.” (internal
quotation marks omitted)).
78
Prairie Cap., 132 A.3d at 62.
79
Metro Commc’n Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121,
147 (Del. Ch. 2004) (internal quotation marks omitted).

16
[company’s] representation was false and either [(i)] communicated it to the buyer

directly itself or [(ii)] knew that the company had.”80

A party “cannot pursue a fraud claim merely because business plans did not

pan out.”81 Delaware courts will dismiss fraud claims that allege, without more, (i)

expectations for future financial success;82 or (ii) reversals that occur post-closing

(i.e., “fraud by hindsight”).83 Nor can a party “bootstrap a breach of contract claim

into a fraud claim merely by adding the words fraudulently induced or alleging that

the contracting parties never intended to perform.”84 Accordingly, a plaintiff cannot

“couch[] an alleged failure to comply with a contract as a failure to disclose an

intention to take certain actions arguably inconsistent with that contract[.]”85

Count III alleges fraud based on events arising from the negotiation process

for the Notes. The complaint says that Tencer and “agents” made misrepresentations

80
ABRY Partners V, LP v. F & W Acquisition LLC, 891 A.2d 1032, 1064 (Del. Ch.
2006).
81
Mooney v. E.I. du Pont de Nemours & Co., 2017 WL 5713308, at *6 (Del. Super.
Ct. Nov. 28, 2017), aff’d, 2018 WL 3861371 (Del. Aug. 13, 2018).
82
E.g., Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 209–10
(Del. Ch. 2006).
83
E.g., Noerr v. Greenwood, 1997 WL 419633, at *4–6 (Del. Ch. July 16, 1997).
84
Swipe Acquisition Corp. v. Krauss, 2020 WL 5015863, at *11 (Del. Ch. Aug. 25,
2020) (internal quotation marks omitted).
85
Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *15 (Del. Ch.
Dec. 22, 2010); cf. Smash Franchise Partners, LLC v. Kanda Hldgs., Inc., 2020 WL
4692287, at *17 (Del. Ch. Aug. 13, 2020).

17
and omitted “relevant” facts about the Company’s financial outlook.86 The Court

addresses each allegation in turn.

a. Future Financial Success

The Plaintiffs first allege Tencer, through an agent, misrepresented that the

Company was “viable” and set to close a “very large” institutional investment,

“which never materialized.”87 But “statements regarding management’s

expectations for a company’s future performance[]” generally are not actionable in

fraud.88 Instead, “[f]orward-looking statements of opinion are actionable as

fraudulent only if they were known to be false when made or were made with a lack

of good faith.”89

Here, the Plaintiffs offer no reasonably conceivable basis from which to infer

that Tencer knew the institutional investment would not close. The Plaintiffs suggest

that Tencer should have known the investment would never materialize “given the

[alleged] dire financial condition” of the Company.90 But they fail to explain how

Tencer’s outlook was fraudulent and not merely optimistic. “[A] plaintiff may not

simply contrast a defendant’s past optimism with less favorable actual results and

86
Am. Compl. ¶¶ 44–58.
87
Id. ¶ 45.
88
Mooney, 2017 WL 5713308, at *6.
89
Id.
90
Am. Compl. ¶ 46.

18
then contend that the difference must be attributable to fraud.”91 This allegation does

just that and therefore does not support the claim.

b. Sufficient Funding & Operational Losses

The Plaintiffs next allege Tencer omitted facts about the Company’s losses

and its inability to pay its employees over the 30-day period after the Notes’

closing.92

“[A]ny claim of fraud in an arms’ length setting[,]” like the Notes’ offering,

“necessarily depends on some form of representation. A fraud claim in that setting

cannot start from an omission.”93 But the Plaintiffs offer no contemporaneous

representations from Tencer—or anyone else—guaranteeing the Company’s near-

term success. Nor do they plead contemporaneous facts from which to infer that

Tencer told the Plaintiffs to disregard disclaimers in the Agreements or Risk Factors.

Indeed, the Risk Factors, for example, disclosed that the Company already faced and

would continue to face “significant losses” that “may force[] [it] to curtail or cease

operations.”94 The Plaintiffs knew and accepted that the Company may not get out

of the blocks. There was nothing to omit.

91
Noerr, 1997 WL 419633, at *4 (internal quotation marks and alterations omitted).
92
Am. Compl. ¶ 50(a)-(b).
93
Prairie Cap., 132 A.3d at 52.
94
Risk Factors; see also Agreements §§ 2.6, 4.1(b).

19
 Perhaps this is why the Plaintiffs use the terms “relevant” and “material”

interchangeably.95 To state a fraud claim, the omitted fact must be material, not just

relevant. The Plaintiffs do not plead with particularity facts supporting a reasonable

inference that knowing about specific types of losses would have “significantly

altered the total mix of information [already] made available” to them.96

Given the absence of performance-based assurances, this allegation—like

others—posits an impermissible fraud by hindsight theory. A party cannot plead an

intent to defraud using subsequent reversals absent contemporaneous facts

supporting a reasonable inference that the defendant knew the future reversal would

happen.97 Rule 9(b)’s particularized pleading requirements “exist[] in large measure

so that defendants are not subjected to fraud claims simply because business plans

did not work out as hoped.”98

The Plaintiffs wanted returns. They did not receive any. That was due to the

Company’s risks, unclear valuation, and right to modify the Notes without the

95
Compare Am. Compl. ¶ 50, with id. ¶ 51.
96
Zirn v. VLI Corp., 681 A.2d 1050, 1056 (Del. 1996) (emphasis added) (internal
quotation marks omitted).
97
See, e.g., Mooney, 2017 WL 5713308, at *6–7 (discussing fraud by hindsight and
collecting cases); Lewis v. Austen, 1999 WL 378125, at *4–5 (Del. Ch. June 2, 1999)
(same).
98
Trenwick Am. Litig. Tr., 906 A.2d at 210–11.

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Plaintiffs’ consent. The Plaintiffs cannot use a fraud claim to rewrite the terms they

willingly accepted.99

c. The Merger

The Plaintiffs next allege that Tencer knew about the Merger in April 2017,

even though it was not negotiated until September 2018 and did not close until April

2019.100 This is another allegation of fraud by hindsight.

There are no facts from which to infer Tencer withheld (or knew about) the

Merger—and the subsequent Waiver Agreement—at the time of the Plaintiffs’

investment. To the extent the Plaintiffs claim their Notes were improperly converted

or subordinated, that allegation sounds in breach of contract. But the Company, not

Tencer, is a party to the Agreements. And the Plaintiffs cannot “bootstrap” a breach

of contract claim against the Company into a fraud claim against Tencer by baldly

alleging that Tencer knew the Company would not repay the Notes.101

99
See Urdan v. WR Cap. Partners, LLC, 244 A.3d 668, 675 (Del. 2020) (The Court
must “interpret . . . contracts as written and not as hoped for by litigation-driven
arguments.”); 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.”); DeLucca, 2006
WL 224058, at *2 (“[I]t is not the job of a court to relieve . . . parties of the burdens
of contracts they wish they had drafted differently but in fact did not.”); Wal-Mart
Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 624 (Del. Ch. 2005), (“It is not the
court’s role to rewrite the contract . . . [or] allocat[e] the risk of an agreement after
the fact . . . .”), rev’d in part on other grounds, 901 A.2d 106 (Del. 2006).
100
Am. Compl. ¶ 50(c).
101
Although the anti-bootstrapping rule applies to fraud claims made against a
contract party, it applies here by analogy. There are no particularized facts from
which to infer Tencer knew the Company’s Note representations were false. Cf.

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 d. Preferential Payment

Finally, the Plaintiffs allege that the contract term allotting Tencer a 20%

preference from the Merger was obtained through omission of material facts.102 Just

as there are no facts indicating Tencer knew about the Merger a year before it was

negotiated, there are no facts from which to infer Tencer witheld (or knew about)

the contract term granting preferential payment at the time of Plaintiff’s investment.

For that reason, it also rests on fraud by hindsight.

In sum, the Plaintiffs essentially seek to obtain remedies in fraud that they did

not secure in contract. Accordingly, Tencer’s motion to dismiss is granted as to

Count III.

B. The Defendant is entitled to dismissal of Count IV.

“Unjust enrichment is the 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.”103 Unjust enrichment has five elements:

Transdev On Demand, Inc. v. Blackstreet Inv. Hldg., LLC, 2020 WL 7027538, at *6
(Del. Ch. Nov. 30, 2020). So the fraud claim essentially tries to assert a breach of
contract claim against Tencer as an agent of the Company. But a non-party is not
liable for another’s breach. Cf. Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453
(Del. 2013) (recognizing a tortious interference with contract claim—not a contract
or fraud claim—where a non-party allegedly takes acts that cause a party to breach
its contract). This case is no exception.
102
Am. Compl. ¶¶ 54–55.
103
Nemec, 991 A.2d at 1130 (internal quotation marks omitted).

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(1) enrichment; (2) impoverishment; (3) a relationship between the enrichment and

the impoverishment; (4) lack of justification; and (5) absence of a legal remedy.104

“Courts developed unjust enrichment as a theory of recovery to remedy the

absence of a formal contract.”105 As a result, unjust enrichment claims may be

preempted where a contract “comprehensively governs the parties’

relationship[.]”106 Where a contract is “the measure of the plaintiffs’ right, there can

be no recovery under an unjust enrichment theory independent of it.”107

Unjust enrichment claims do not vary the ordinary rules prohibiting contract

parties from bringing breach of contract claims against non-contract parties.108 A

contract party “cannot use a claim for unjust enrichment to extend the obligations of

a contract to [persons] who are not parties to the contract.”109 “At bottom, an unjust

enrichment claim cannot be used to circumvent an inadequate breach-of-contract

claim.”110 “Even if the bargain they strike ends up a bad deal for one or both parties,

the court’s role is to enforce the agreement as written.”111

104
Id.
105
Fannin v. UMTH Land Dev., L.P., 2020 WL 4384230, at *26 (Del. Ch. July 31,
2020).
106
BAE Sys. Info. & Elec. Sys. Integration, Inc. v. Lockheed Martin Corp., 2009 WL
264088, at *7 (Del. Ch. Feb. 3, 2009).
107
Wood v. Coastal States Gas Corp., 401 A.2d 932, 942 (Del. 1979).
108
E.g., Vichi v. Koninklijke Phillips Elecs. N.V., 62 A.3d 26, 58–59 (Del. Ch. 2012).
109
Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 892 (Del. Ch. 2009).
110
Intermec, 2021 WL 3620435, at *17.
111
Glaxo Grp. Ltd. v. DRIT LP, 248 A.3d 911, 919 (Del. 2021).

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 These principles apply with greater force to unjust enrichment’s third

element—a relationship between the enrichment and the impoverishment. To state

this element, the plaintiff “must show that there is some direct relationship between

a defendant’s enrichment and [the] plaintiff’s impoverishment.”112 “It is not enough

that the defendant received a benefit from the activities of the plaintiff[.]”113 Instead,

“there must be a showing that the defendant was unjustly enriched by the plaintiff

who acted for the defendant’s benefit.”114 Non-party relationships generally do not

fit this paradigm. Accordingly, an unjust enrichment claim cannot be brought

against a non-contract party unless the plaintiffs plead that the non-party “knowingly

facilitate[d] and benefit[ted] from the breach of a party to the contract.”115

1. The Plaintiffs fail to state the relationship element for unjust
enrichment in their complaint.

The Plaintiffs were not Required Holders.116 So their investor status was not

essential to the Merger. Moreover, they dissented on the Merger and Waiver

Agreement.117 They did not vote for Tencer’s 20% preference or agree with the

112
Coretel Am., Inc. v. Oak Point Partners, LLC, 2022 WL 2903104, at *11 (Del.
Super. Ct. July 21, 2022) (internal quotation marks and omission omitted).
113
MetCap Sec. LLC v. Pearl Senior Care, Inc., 2007 WL 1498989, at *6 (Del. Ch.
May 16, 2007) (internal quotation marks omitted).
114
Coretel, 2022 WL 2903104, at *11 (emphases added) (alteration and internal
quotation marks omitted).
115
Id.
116
PNA § 6(b).
117
Am. Compl. ¶ 63.

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Required Holders. So they did not act for Tencer’s benefit either. Taken together,

there is no direct relationship between any enrichment and impoverishment. It is not

reasonably conceivable that Tencer benefitted from anything the Plaintiffs did.

Tencer is not a party to the Agreements. The Agreements specify the

circumstances under which the Notes could be modified. It therefore

comprehensively regulates Notes’ repayment. If the Plaintiffs’ Notes were wrongly

subordinated, then the Plaintiffs would have a breach of contract claim against the

Company. Although they failed to assert such a claim against the Company,118 they

cannot cure that deficiency by seeking remedies from a non-party like Tencer.

In sum, the Plaintiffs try to use unjust enrichment to extend the Agreements

to Tencer or to renegotiate protections they bargained away. Delaware law does not

permit this. Accordingly, Count IV is dismissed.

118
There is no allegation in the complaint that the Company wrongly converted their
Notes or that the Required Holders did not validly consent to a modification. In fact,
the opposite is true. The complaint references the Waiver Agreement, Am. Compl.
¶¶ 18, 23, which shows that the Required Holders did vote to convert the Notes, see
Ex. F to D.I. 24 at .pdf p. 126–40. Although the Plaintiffs suggest otherwise in their
brief and at oral argument, briefs and oral arguments do not amend or expand
pleadings. See Arkout v. Jarkoy, 2018 WL 3361401, at *3 n.23 (Del. Ch. July 10,
2018) (collecting cases). And a claim may be dismissed if the allegations in the
complaint or the exhibits integral to it negate the claim as a matter of law. Malpiede,
780 A.2d at 1083. That is the case here.

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 CONCLUSION

For the foregoing reasons, the Defendant’s motion to dismiss is GRANTED.

IT IS SO ORDERED

Charles E. Butler, Resident Judge

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