Long et al v. Lowe's Companies, Inc. et al

Motion for Partial Summary Judgment .

D. Or.December 15, 2016

Page 1 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 Timothy W. Snider, OSB No. 034577 timothy.snider@stoel.com Reed W. Morgan, OSB No. 140664 reed.morgan@stoel.com STOEL RIVES LLP 760 SW Ninth Avenue, Suite 3000 Portland, OR 97205 Tel: (503) 224-3380 Kevin M. Eckhardt, OSB 136009 keckhardt@hunton.com HUNTON & WILLIAMS LLP 550 South Hope Street, Suite 2000 Los Angeles, CA 90071 Tel: (213) 532-2000 Torsten M. Kracht (Pro Hac Vice Forthcoming) tkracht@hunton.com HUNTON & WILLIAMS LLP 2200 Pennsylvania Ave., N.W. Washington, D.C. 20037 Tel: (202) 955-1860 Ryan G. Rich (Pro Hac Vice Forthcoming) rrich@hunton.com HUNTON & WILLIAMS LLP 101 South Tryon Street, Suite 3500 Charlotte, NC 28280 Tel: (704) 378-4778 Attorneys for Defendants UNITED STATES DISTRICT COURT DISTRICT OF OREGON EUGENE DIVISION STANTON F. LONG and J. DAVID GIBBS, Plaintiffs, v. LOWE’S COMPANIES, INC.; ALACRITY HOME SERVICES, LLC; and ALACRITY RENOVATION SERVICES, LLC, Defendants. Case No:. 6:16-cv-00932-AA DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 1 of 28 TABLE OF CONTENTS Page(s) Page i - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 TABLE OF AUTHORITIES ........................................................................................................ iii LR 7-1 CERTIFICATION ............................................................................................................. 1 MOTION........................................................................................................................................ 1 INTRODUCTION ......................................................................................................................... 2 I. STATEMENT OF UNDISPUTED FACTS ...................................................................... 2 A. Formation and Sale of ARS ................................................................................... 2 B. The Contribution Agreement Expressly Defines Which Assets and Liabilities Were Assumed by ARS, and Which Assets and Liabilities Were Excluded ....................................................................................................... 4 C. The ARS Amended Operating Agreement Expressly Defines the Circumstances in Which Plaintiffs May Be Indemnified ...................................... 7 D. Former Employee Sues Long and Gibbs Claiming Right to Proceeds from Sale ......................................................................................................................... 8 E. Long and Gibbs Seek Indemnity for the Erickson Litigation ................................ 9 F. Erickson’s Lawsuit Has Been Dismissed for Lack of Subject Matter Jurisdiction, and Long and Gibbs Are Seeking Attorney Fees in That Litigation ................................................................................................................ 9 II. LEGAL STANDARD ...................................................................................................... 10 A. Choice of Law ...................................................................................................... 10 B. Summary Judgment Standard .............................................................................. 11 III. ARGUMENT ................................................................................................................... 11 A. ARS Never Agreed to Assume Liability for Plaintiffs’ Dispute with Erickson Under the Contribution Agreement ...................................................... 12 1. Erickson’s Employment Contract was not among the assets assumed by ARS ...................................................................................... 12 2. Liabilities arising from the Employment Contract were not assumed by ARS ...................................................................................... 14 3. Plaintiffs’ disclosure of Erickson’s “apparent claim” in the Contribution Agreement does not make his lawsuit, filed years later, an Assumed Liability ...................................................................... 16 4. No reference to parol evidence is needed ................................................ 17 Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 2 of 28 TABLE OF CONTENTS Page(s) Page ii - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 B. Plaintiffs Are Not Entitled to Indemnification Under the Amended Operating Agreement, Because Erickson’s Claims Did Not Arise from Plaintiffs’ Management of ARS ........................................................................... 18 IV. CONCLUSION ................................................................................................................ 21 Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 3 of 28 TABLE OF AUTHORITIES Page(s) Page iii - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 Cases 389 Orange St. Partners v. Arnold, 179 F.3d 656 (9th Cir. 1999) ...................................................................................................10 In re Bank of Am. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564 (S.D.N.Y. 2013), aff’d, 566 F. App’x 93 (2d Cir. 2014) ........................15 Bernstein v. TractManager, Inc., 953 A.2d 1003 (Del. Ch. 2007)....................................................................................19, 20, 21 Bush v. State Farm Fire & Cas. Co., 124 F. Supp. 2d 1203 (D. Or. 2000) ........................................................................................11 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) .................................................................................................................11 E.I. du Pont de Nemours & Co. v. Bayer CropScience, L.P., No. CIV.A. 3741-VCL, 2008 WL 2673376, at *4 n.28 (Del. Ch. July 2, 2008) ........................................................................................................................................11 Erickson v. Alacrity Services, LLC, No. 1:16-cv-00459 (N.D. Ga.) ......................................................................................... passim Grace v. Ashbridge LLC, No. CIV.A. 8348-VCN, 2013 WL 6869936 (Del. Ch. Dec. 31, 2013) ...................................19 Grunstein v. Silva, No. CIV.A. 3932-VCN, 2009 WL 4698541 (Del. Ch. Dec. 8, 2009) .......................................9 James v. Clackamas County, 353 Or. 431, 299 P.3d 526 (2013) ...........................................................................................17 Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs, Inc., No. CIV. A. S11C-04-013-ESB, 2011 WL 4826106 (Del. Super. Ct. Sept. 19, 2011) ............................................................................................................................12, 13, 16 Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572 (Del. Ch. 2006)..................................................................................................18 Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354 (Del. 2013) ....................................................................................................11, 17 Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 4 of 28 TABLE OF AUTHORITIES Page(s) Page iv - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 Reybold Venture Grp. XVI LLC v. Cresswell, No. CV N10C-05-078 RRC, 2014 WL 7010757 (Del. Super. Ct. Nov. 26, 2014), aff’d, 115 A.3d 1215 (Del. 2015) .................................................................................11 Seidensticker v. Gasparilla Inn, Inc., No. CIV. A. 2555-CC, 2007 WL 4054473 (Del. Ch. Nov. 8, 2007) .......................................11 Serenity Lane v. Netsmart Techs., Inc., No. 6:14-CV-00038-TC, 2016 WL 1555153, at *4 (D. Or. Mar. 20, 2016) (quoting ORS 15.350), adopted, 2016 WL 1466902 (D. Or. Apr. 13, 2016) ..........................10 Serenity Lane v. Netsmart Techs., Inc., No. 6:14-CV-00038-TC, 2016 WL 1555153 (D. Or. Mar. 20, 2016) .....................................10 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, No. CIV. A. 7994-VCN, 2013 WL 6916277 (Del. Ch. Dec. 31, 2013) ..................................12 Statutes Del. Code tit. 6, § 18-108 ...............................................................................................................18 ORS 42.230 ....................................................................................................................................17 Rules Fed. R. Civ. P. 56 .............................................................................................................................1 Fed. R. Civ. P. 56(a) ......................................................................................................................11 Other Authorities Delaware Limited Liability Company Act ....................................................................................18 Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 5 of 28 Page 1 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 LR 7-1 CERTIFICATION Counsel for Defendants Lowe’s Companies, Inc., Alacrity Home Services, LLC, and Alacrity Renovation Services, LLC (“Lowe’s,” “AHS,” and “ARS,” respectively, and “Defendants” collectively) conferred with counsel for Plaintiffs Stanton F. Long and J. David Gibbs (“Long” and “Gibbs,” respectively, and “Plaintiffs” collectively) by telephone regarding the basis for this motion, but the parties were unable to resolve the dispute. MOTION Pursuant to Federal Rule of Procedure 56, Defendants move for summary judgment against Plaintiffs and request that the Court enter an order dismissing with prejudice Plaintiffs’ declaratory judgment claim against Defendants. There are no disputed issues of material fact, and Defendants are entitled to judgment that ARS is not contractually obligated to defend and indemnify Plaintiffs for the claims and allegations asserted in the lawsuit captioned Erickson v. Alacrity Services, LLC, et al., 1:16-cv-00459-SCJ. This motion is supported by the accompanying Memorandum, the Declaration of Timothy W. Snider, and the documents already on file in this case. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 6 of 28 Page 2 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 INTRODUCTION Plaintiffs Long and Gibbs were sued by Warren Erickson, the former president of one of their companies, Genesis Solutions Design, LLC (“Genesis”). Erickson claims that Plaintiffs diluted his minority interest in Genesis; sold certain of Genesis’ assets as part of a $28 million transaction involving Defendant AHS, a subsidiary of Defendant Lowe’s, and Defendant ARS; and refused to pay Erickson his fair share of the proceeds. The question before the Court is whether the Defendants (or any of them) have a contractual obligation to indemnify Plaintiffs for any liabilities arising from Erickson’s lawsuit. The answer is no. Both sides agree that this question is ripe for summary judgment. The reason summary judgment in favor of the Defendants is appropriate is that Plaintiffs cannot point to any language, in either the Contribution Agreement or ARS’ Amended Operating Agreement, permitting them to recover from Defendants for Plaintiffs’ alleged fraud and breach of contract. To the contrary, the parties expressly defined this type of issue as an “excluded” liability in the Contribution Agreement. For that reason, and as described below, Defendants are entitled to summary judgment on Plaintiffs’ declaratory judgment action. I. STATEMENT OF UNDISPUTED FACTS A. Formation and Sale of ARS. Defendant ARS works with independent contractors and insurance companies to provide mitigation and construction services for those who have suffered property damage. Plaintiffs Long and Gibbs organized ARS in January 2013, via their wholly owned corporation Klipspringer Holdings, Inc. (“KHI”). See Alacrity Renovation Services, LLC Operating Agreement, Jan. 14, 2013, (Ex. A to Snider Decl.). Through a Contribution Agreement dated March 20, 2013 (the “Contribution Agreement”), (Ex. B to Snider Decl.), and an Option Exercise Agreement (the “Call Option”), (Ex. C to Snider Decl.), AHS acquired 100% of the Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 7 of 28 Page 3 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 ownership of ARS from Plaintiffs Long and Gibbs and their affiliated entities. Lowe’s Home Centers, LLC, a subsidiary of Lowe’s, is the sole member of AHS. Lowe’s itself, however, is not a party to the Contribution Agreement. The Contribution Agreement was the product of negotiations that spanned nine months and were conducted at arm’s-length by sophisticated parties represented by counsel. In fact, Plaintiffs Long and Gibbs both are attorneys. Pursuant to the Contribution Agreement, AHS contributed $14,280,000 to ARS in exchange for Class A Units representing 51% of the issued and outstanding membership interests of ARS. Contribution Agreement at 1. On May 7, 2013, the following entities, under the ownership and control of Plaintiffs Long and Gibbs, contributed certain acquired assets and assumed liabilities in exchange for Class B Units representing 49% of the issued and outstanding membership interests of ARS and payment from ARS of $14,280,000: Alacrity Services LLC, Genesis, Coterminus Solutions, LLC, and Gibbs & Long, LLC (collectively, the “Contributors”). Id. Pursuant to the exercise of the Call Option, on January 5, 2015, Defendant AHS acquired the Contributors’ remaining 49% interest in ARS for an additional $13,720,000. The Contribution Agreement provided that “[a]t Closing . . . KHI shall cause [ARS] to . . . make a distribution to the Contributors, by wire transfer of immediately available funds, of the Contributed Amount to a bank account designated by the Contributors.” Id. § 2.06. The distribution was allocated among the Contributors as provided in Exhibit A to the Contribution Agreement: $27,702,867 to Alacrity Services, LLC, $74,097 to Coterminus Solutions, LLC (based on the value of certain software), and $223,036 to Genesis (based almost entirely on accounts receivable). See id. at 48. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 8 of 28 Page 4 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 The Contribution Agreement does not dictate what the Contributors (including Genesis) were to do upon receipt of the funds from ARS. Neither does it describe how or if the funds would be distributed to the equity owners of the Contributors. That subsequent distribution, if any, was entirely outside the scope of the Contribution Agreement and within the sole discretion of the Contributors (including Plaintiffs Long and Gibbs, who controlled them). Similarly, when Lowe’s paid an additional $13,720,000 to the Contributors to acquire the balance of the Contributors’ 49% interest in ARS pursuant to the Call Option, the discretion and responsibility for distributing that money to the respective stakeholders of the Contributors were left entirely to Plaintiffs Long and Gibbs. B. The Contribution Agreement Expressly Defines Which Assets and Liabilities Were Assumed by ARS, and Which Assets and Liabilities Were Excluded. The Contribution Agreement defines the assets acquired (and liabilities assumed) by ARS and contains indemnification, choice-of-law, and merger clauses that are relevant to Plaintiffs’ claims. ARS’ obligations to indemnify and defend Long and Gibbs under the Contribution Agreement are primarily governed by §§ 2.01 through 2.04 of the agreement. Pursuant to § 2.01(c) of the Contribution Agreement, the Contributors contributed certain “Assigned Contracts” to ARS: Section 2.01 Contribution of Contributed Assets. Subject to the terms and conditions set forth herein, at the Closing, Contributors shall contribute, free and clear of any Encumbrances other than Permitted Encumbrances, to the Company all of each Contributor’s right, title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether now existing or hereafter acquired (other than the Excluded Assets), which relate to, or are used or held for use in connection with, the Business (collectively, the Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 9 of 28 Page 5 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 “Contributed Assets”), including the following (which the parties have agreed have a fair value as of Closing of $28,000,000: . . . . (c) all Contracts set forth on Section 2.01(c) of the Disclosure Schedules (the “Assigned Contracts”)[.] Section 2.02(a) then provides that any contracts not assigned to ARS constitute “Excluded Assets”—which the Contributors retained and did not contribute to ARS as part of the deal: Section 2.02 Excluded Assets. Notwithstanding the foregoing, the Contributed Assets shall not include the following assets (collectively, the “Excluded Assets”): (a) Contracts, including Intellectual Property Licenses, that are not Assigned Contracts (the “Excluded Contracts”) . . . . Erickson’s 2006 employment contract with Genesis, which Erickson asserts as the grounds for his claims in the Erickson Litigation, was not included among the contracts assigned to ARS pursuant to § 2.01 of the Contribution Agreement or § 2.01(c) of the Disclosure Schedules. Section 2.04(c) and (i) provide that “any Liabilities relating to or arising out of the Excluded Assets” or “Excluded Contracts” constitute “Excluded Liabilities”: Section 2.04 Excluded Liabilities. The Company [ARS] shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of Contributors or any Affiliates of a Contributor of any kind or nature other than the Assumed Liabilities (the “Excluded Liabilities”). The Excluded Liabilities shall remain the sole responsibility of Contributors, and Contributors shall, and shall cause each of its Affiliates to, pay and satisfy in due course all Excluded Liabilities which they are obligated to pay and satisfy. Without limiting the generality of the foregoing, the Excluded Liabilities shall include, but not be limited to, the following: (a) any Liabilities of Contributors arising or incurred in connection with the negotiation, preparation, investigation and performance of this Agreement, the other Transaction Documents Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 10 of 28 Page 6 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 and the transactions contemplated hereby and thereby, including, without limitation, fees and expenses of counsel, accountants, consultants, advisers and others; . . . . (c) any Liabilities relating to or arising out of the Excluded Assets; . . . . (i) any Liabilities under the Excluded Contracts or any other Contracts, including Intellectual Property Licenses, (i) which are not validly and effectively assigned to the Company pursuant to this Agreement; (ii) which do not conform to the representations and warranties with respect thereto contained in this Agreement; or (iii) to the extent such Liabilities arise out of or relate to a breach by Contributors of such Contracts prior to Closing. Section 2.03 further provides that ARS was to assume only (a) certain trade accounts payable, (b) certain assigned contracts, and (c) the liabilities set forth in § 2.03(c) of the Disclosure Schedules: Section 2.03 Contribution of Assumed Liabilities. Subject to the terms and conditions set forth herein, at the Closing, Contributors shall assign and the Company [ARS] shall assume and agree to pay, perform and discharge all the liabilities related to the Business (collectively, the “Assumed Liabilities”), but Company [ARS] shall not be liable for Excluded Liabilities as defined in Section 2.04: (a) all trade accounts payable of Contributors to third parties in connection with the Business that remain unpaid and are not delinquent as of the Closing Date and that either are reflected on the Balance Sheet Date or arose in the ordinary course of business consistent with past practice since the Balance Sheet Date; (b) all Liabilities in respect of the Assigned Contracts but only to the extent that such Liabilities were incurred in the ordinary course of business; and (c) those Liabilities of Contributors set forth on Section 2.03(c) of the Disclosure Schedules, including all liabilities related to the Allstate Agreements. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 11 of 28 Page 7 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 The Contribution Agreement contains a merger clause that provides that the agreement supersedes all prior understandings and agreements and describes how the Contribution Agreement is to be interpreted along with the Disclosure Schedules: Section 10.06 Entire Agreement. This Agreement and the other Transaction Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the other Transaction Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control. The Contribution Agreement also contains a choice-of-law provision: Section 10.10 Governing Law. With acknowledgment that the terms and conditions of this paragraph have been expressly bargained for and are an essential part of this Agreement, this Agreement and all disputes arising out of or relating thereto shall be governed by and interpreted in accordance with the laws of the State of Delaware, U.S.A., without giving effect to any choice-of- law rules that may require the application of the laws of another jurisdiction and, to the extent applicable, U.S. federal law. C. The ARS Amended Operating Agreement Expressly Defines the Circumstances in Which Plaintiffs May Be Indemnified. In conjunction with the Contribution Agreement, ARS amended its operating agreement effective May 7, 2013. See First Amended and Restated Limited Liability Company Agreement, (Ex. D to Snider Decl.) (“Amended Operating Agreement”). The Amended Operating Agreement was the product of the same negotiations as the Contribution Agreement that spanned nine months and were conducted at arm’s-length by sophisticated parties represented by counsel. ARS’ obligations to indemnify Plaintiffs under the Amended Operating Agreement are governed by § 7.1: Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 12 of 28 Page 8 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 Each Covered Person shall be indemnified by the Company against any losses, judgments, liabilities, claims, damages, costs, expenses (including reasonable legal fees and other expenses actually incurred in investigating or defending against any such losses, judgments, liabilities or claims and expenses actually incurred enforcing this Agreement) and amounts paid in settlement of any claim (approved in advance and in good faith by the Board) sustained by any of them by reason of any act or omission or alleged act or omission in connection with the activities of the Company (including any subsidiaries thereof) unless there is a final judicial determination by a court of competent jurisdiction to which all rights of appeal have been exhausted or expired that the Covered Person did not act reasonably and in good faith in his or her efforts to actively manage the business in a prudent and professional manner. . . .[1, 2] (Emphasis added.) The Amended Operating Agreement also contains a merger clause (§ 12.03) and a choice-of-law provision applying Delaware law (§ 12.7). D. Former Employee Sues Long and Gibbs Claiming Right to Proceeds from Sale. On February 12, 2016, the former president of Genesis, Erickson, filed a lawsuit against Plaintiffs and their affiliated companies in the Northern District of Georgia. See Erickson v. Alacrity Services, LLC, No. 1:16-cv-00459 (N.D. Ga.) (the “Erickson Litigation”). Erickson filed a First Amended Complaint (Ex. E to Snider Decl., “Erickson Compl.”) on February 16, 2016. In his lawsuit, Erickson alleged that he had a 20% equity interest in Genesis by virtue of his 2006 employment contract (the “Employment Contract”) with Genesis and that Genesis owed him a portion of the proceeds it obtained pursuant to the Contribution Agreement. Erickson alleged that Plaintiffs and Genesis breached the Employment Contract, and otherwise defrauded him, by intentionally diluting Genesis’ assets and transferring them to other Contributors prior to the execution of the Contribution Agreement. Erickson Compl. ¶ 19. Erickson further alleged 1 Plaintiffs cite § 2.07 of the Amended LLC Agreement in ¶ 16 of their Complaint for the defense and indemnification provisions. There is no § 2.07 in the Amended Operating Agreement. The quoted language appears in § 7.1 of the Amended LLC Agreement. 2 Solely for the purposes of this motion, Defendants accept Plaintiffs’ allegation that Plaintiffs are Covered Persons as defined by § 7.1. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 13 of 28 Page 9 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 that Genesis should have paid him—but did not—a portion of the proceeds it received from ARS under the Contribution Agreement. Plaintiffs deny Erickson’s allegations. E. Long and Gibbs Seek Indemnity for the Erickson Litigation. On May 6, 2016, Plaintiffs filed the present action in the Circuit Court of the State of Oregon. See Notice of Removal, Ex. A (Complaint), [Dkt. # 1-1]. In their Complaint, Plaintiffs seek a declaratory judgment that Defendants are contractually obligated, pursuant to both the Contribution Agreement and the Amended Operating Agreement, to defend and indemnify them in the Erickson Litigation. See Erickson Compl. ¶ 27. They also assert a claim for “Unlawful Interference with Contract,” alleging that Lowe’s tortiously interfered with their contractual relations with ARS by impermissibly directing ARS not to defend and indemnify them. Id. ¶¶ 29-38.3 On May 27, 2016, Defendants removed the present lawsuit to the District Court of Oregon. See Notice of Removal, [Dkt. # 1-1]. F. Erickson’s Lawsuit Has Been Dismissed for Lack of Subject Matter Jurisdiction, and Long and Gibbs Are Seeking Attorney Fees in That Litigation. On November 4, 2016, the Erickson Litigation was dismissed without prejudice for lack of subject matter jurisdiction on the grounds that there was not complete diversity. See Order (N.D. Ga. Nov. 4, 2016), (Ex. F to Snider Decl.). The court held that, based on Erickson’s own admissions, both Erickson and Genesis were citizens of Georgia when Erickson’s Complaint was filed. Id. at 7. The court ordered that Long and Gibbs (and their affiliated companies) recover their costs in that action. See Judgment (N.D. Ga. Nov. 4, 2016) (Ex. G to Snider Decl.). 3 As will be demonstrated should this case progress, Plaintiffs’ tortious interference claim is untenable under Delaware law, which recognizes an “interference privilege” for entities that share a common economic interest such as Lowe’s and ARS do here. See Grunstein v. Silva, No. CIV.A. 3932-VCN, 2009 WL 4698541, at *16 (Del. Ch. Dec. 8, 2009). Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 14 of 28 Page 10 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 On November 17, Long and Gibbs indicated their intention to recover their attorney fees from Erickson as well, by filing a Motion for Extension of Time to File Motion for Attorney Fees. See Mot. (N.D. Ga. Nov. 4, 2016), (Ex. H to Snider Decl.). On December 2, 2016, Erickson filed a Motion for Reconsideration of the Order dismissing his case. Erickson Mot. (N.D. Ga. Nov. 4, 2016), (Ex. I to Snider Decl.). Long and Gibbs’ motion for attorney fees is due December 16. If successful, Long and Gibbs may recover all of their litigation fees from Erickson. II. LEGAL STANDARD A. Choice of Law. A federal court sitting in diversity must apply the choice-of-law rules of the forum state to determine which state’s law applies. 389 Orange St. Partners v. Arnold, 179 F.3d 656, 661 (9th Cir. 1999). Under Oregon law “‘the contractual rights and duties of the parties are governed by the laws that the parties have chosen’ and ‘the choice of law must be express or clearly demonstrated from the terms of the contract.’” Serenity Lane v. Netsmart Techs., Inc., No. 6:14- CV-00038-TC, 2016 WL 1555153, at *4 (D. Or. Mar. 20, 2016) (quoting ORS 15.350), adopted, 2016 WL 1466902 (D. Or. Apr. 13, 2016). Here, the choice-of-law clauses in both the Contribution Agreement (§ 10.10) and the Amended Operating Agreement (§ 12.7) provide for the application of Delaware law. Thus Delaware law governs the Plaintiffs’ claims in this litigation including the parties’ rights and obligations under the Contribution Agreement and Amended Operating Agreement. See Serenity Lane, 2016 WL 1555153, at *4 (applying Illinois law to rescission claims stemming from a disputed contract). Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 15 of 28 Page 11 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 B. Summary Judgment Standard. Summary judgment is appropriate if “no genuine dispute” exists regarding any material fact and “the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The moving party must show the absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the parties agree that an issue is ripe for summary judgment because it involves the legal interpretation of a contract, the Court is to evaluate the contract as written. Reybold Venture Grp. XVI LLC v. Cresswell, No. CV N10C-05-078 RRC, 2014 WL 7010757, at *6 (Del. Super. Ct. Nov. 26, 2014), aff’d, 115 A.3d 1215 (Del. 2015); Bush v. State Farm Fire & Cas. Co., 124 F. Supp. 2d 1203, 1205 (D. Or. 2000). Where a contract is unambiguous, the Court should interpret it as a matter of law. Seidensticker v. Gasparilla Inn, Inc., No. CIV. A. 2555-CC, 2007 WL 4054473, at *3 (Del. Ch. Nov. 8, 2007). When interpreting an unambiguous contract, the Court should consider only the language of the contract itself and should not consider extrinsic evidence or affidavits as to the contract’s meaning. Id. at *2. III. ARGUMENT When interpreting a contract on a motion for summary judgment, the Court looks to the intent of the parties. Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354, 360 (Del. 2013). If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract. E.I. du Pont de Nemours & Co. v. Bayer CropScience, L.P., No. CIV.A. 3741- VCL, 2008 WL 2673376, at *4 n.28 (Del. Ch. July 2, 2008) (“‘Because Delaware adheres to the objective theory of contract interpretation, the court looks to the most objective indicia of that intent: the words found in the written instrument.’” (citation omitted)). In other words, if the contract is clearly expressed, it must be enforced as it is written, and the Court may not disregard the plainly expressed meaning of its language. Id. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 16 of 28 Page 12 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 A. ARS Never Agreed to Assume Liability for Plaintiffs’ Dispute with Erickson Under the Contribution Agreement. With very few exceptions, none of which applies here, “a purchaser of assets ‘is liable only for liabilities it expressly assumes.’” Spring Real Estate, LLC v. Echo/RT Holdings, LLC, No. CIV. A. 7994-VCN, 2013 WL 6916277, at *4 (Del. Ch. Dec. 31, 2013) (citation omitted). A company can agree to take on all of the selling company’s liabilities, but such a commitment must be made expressly without qualification. See Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs, Inc., No. CIV. A. S11C-04-013-ESB, 2011 WL 4826106, at *3 (Del. Super. Ct. Sept. 19, 2011) (stating that “pursuant to the terms of the Asset Purchase Agreement, [purchaser] only assumed some of [seller’s] debt and liabilities”). The fact that an existing or a threatened dispute is disclosed as part of an asset sale does not mean the buyer is taking on liability for the dispute. See id. (only liabilities provided for in the purchase agreement are assumed). Here, §§ 2.01 through 2.04 of the Contribution Agreement govern Plaintiffs’ claims. None of those sections provides that ARS assumed any liability for the then-speculative potential dispute with Erickson. Quite the opposite, any liability under the Erickson lawsuit falls within what the Contribution Agreement defines as “Excluded Liabilities.” 1. Erickson’s Employment Contract was not among the assets assumed by ARS. An employment contract is not included in an asset sale unless the agreement expressly provides for its inclusion. See Magnolia’s at Bethany, LLC, 2011 WL 4826106, at *4 (purchaser only assumed those contracts provided for in the purchase agreement). The same is true of any liabilities arising from such an agreement. Id. Here, the Contribution Agreement clearly distinguishes between “Contributed Assets” (§ 2.01) and “Excluded Assets” (§ 2.02). Only those contracts “set forth in § 2.01(c) of the Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 17 of 28 Page 13 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 Disclosure Schedules” are “Assigned Contracts” that were contributed to ARS. Contribution Agreement § 2.01. Although Erickson’s Employment Contract falls squarely within the Contribution Agreement’s broad definition of “Contracts,” id. at 3, it was not included in § 2.01(c) of the Disclosure Schedules. Therefore it is not an Assigned Contract as that term is defined. Magnolia’s at Bethany, LLC, 2011 WL 4826106, at *1 (purchaser only assumed seller’s liabilities stemming from uncompleted contracts and permits as provided for in purchasing agreement). Section 2.02(a) provides that all contracts not included in § 2.01(c) of the Disclosure Schedules are “Excluded Contracts.” And Excluded Contracts are a subset of the “Excluded Assets” that were not contributed to ARS under the Contribution Agreement: Section 2.02 Excluded Assets. Notwithstanding the foregoing, the Contributed Assets shall not include the following assets (collectively, the “Excluded Assets”): (a) Contracts, including Intellectual Property Licenses, that are not Assigned Contracts (the “Excluded Contracts”). Thus, Erickson’s Employment Contract was excluded from the assets contributed to ARS. In fact, Plaintiffs admitted in their underlying litigation with Erickson that Erickson’s Employment Contract was not assumed by ARS: “His employment agreement lapsed by its own terms on April 30, 2012—long before the sale of the assets of Genesis to Lowe’s—and was not renewed (and was not sold to Lowe’s, as Plaintiff alleges).” Def.’s Mem. at 7 (Mar. 8, 2016), (Ex. J to Snider Decl.). Thus there is no dispute that Erickson’s Employment Contract was an “Excluded Contract” under the Contribution Agreement. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 18 of 28 Page 14 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 2. Liabilities arising from the Employment Contract were not assumed by ARS. The Contribution Agreement clearly distinguishes between “Assumed Liabilities” (§ 2.03) and “Excluded Liabilities” (§ 2.04). The Contribution Agreement expressly defines “Excluded Liabilities” to include: • “any Liabilities relating to or arising out of the Excluded Assets,” § 2.04(c); and • “Liabilities under the Excluded Contracts or any other Contracts . . . which are not validly and effectively assigned to the Company pursuant to this Agreement,” § 2.04(i) Section 2.04 states that all “Excluded Liabilities shall remain the sole responsibility of Contributors” (§ 2.04)—not ARS. Here, Erickson’s lawsuit arises from his Employment Contract. Erickson Compl. ¶ 19. Because that contract is an “Excluded Contract,” the liabilities from it are “Excluded Liabilities.” Ignoring the express, specific terms of the Contribution Agreement, however, Plaintiffs improperly and over-broadly construe and rely on the prefatory language in § 2.03. Id. ¶ 12. But Plaintiffs are wrong for multiple reasons. First, § 2.03 expressly states that ARS “shall not be liable for Excluded Liabilities as defined in Section 2.04.” Contribution Agreement § 2.03. Thus even if § 2.03 could be interpreted as a catch-all provision (and it cannot for the reasons described below), it would not change the fact that Erickson’s Employment Contract was not among the assets contributed to ARS, and so cannot form the basis for any liabilities. Second, subsections 2.03(a), 2.03(b), and 2.03(c) expressly qualify the reference in § 2.03 to “all liabilities related to the Business.” That is not a catch-all provision. Such an interpretation would render subsections (a) through (c) meaningless. Instead, those three subsections qualify the prefatory language and specifically define the three types of liabilities that are assumed under the Contribution Agreement: certain unpaid trade accounts, liabilities Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 19 of 28 Page 15 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 arising from the Assigned Contracts, and liabilities set forth in § 2.03(c) of the Disclosure Schedules. The fact that the Contribution Agreement includes these specific categories, and does not in any way suggest that the categories are merely examples within a larger set of documents, requires that the language in § 2.03 cannot be interpreted as a catch-all as Plaintiffs are trying to do. That interpretation is contrary to the most basic rules of contract interpretation. Furthermore, nothing in subsections (a), (b), and (c) of § 2.03 allows the potential liabilities here to be defined as “Assumed Liabilities.” While § 2.03(c) of the Disclosure Schedules (Ex. K to Snider Decl.) provides that ARS assumed “[a]ll liabilities arising from the Schedule of Pending Litigation attached to this Schedule as Exhibit A,” there is no mention of the Erickson Litigation in any Exhibit A. As a practical matter, the Erickson Litigation could not have been included in an Exhibit A because it did not become “pending litigation” until he filed his lawsuit in February 2016—nearly three years after execution of the Contribution Agreement.4 See In re Bank of Am. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564, 582 (S.D.N.Y. 2013) (distinguishing disclosure of pending and threatened litigation), aff’d, 566 F. App’x 93 (2d Cir. 2014). Section 2.04(a) further provides that “any Liabilities of Contributors arising or incurred in connection with the . . . performance of this Agreement” shall be the sole responsibility of the Contributors. Here, Erickson argues that Genesis, after receiving funds from ARS pursuant to the Contribution Agreement, breached his Employment Contract by failing to pay a portion to him. To the extent Erickson’s allegations are considered to relate to Genesis’ performance under the Contribution Agreement (which Defendants deny, because nothing in that agreement 4 In fact, Exhibit A was left blank and never attached by the parties at all, because there was no pending litigation liability that the parties agreed would be assumed by ARS. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 20 of 28 Page 16 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 provides for what Genesis or any other Contributor is to do with the proceeds), the liability is that of Genesis alone, not ARS. 3. Plaintiffs’ disclosure of Erickson’s “apparent claim” in the Contribution Agreement does not make his lawsuit, filed years later, an Assumed Liability. The only reference to Plaintiffs’ dispute with Erickson is in § 4.16(a) of the Disclosure Schedules (Ex. L to Snider Decl.) that correlates to § 4.16 (“Representations and Warranties”) of the Contribution Agreement. Section 4.16 of the Contribution Agreement (“Legal Proceedings; Governmental Orders”) states: Except as set forth in Section 4.16(a) of the Disclosure Schedules, there are no Actions pending or, to Contributor’s Knowledge, threatened against or by Contributor (a) relating to or affecting the Business, the Contributed Assets or the Assumed Liabilities; or (b) that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. Contribution Agreement § 4.16(a). Thus § 4.16(a) of the Disclosure Schedules lists the “pending or . . . threatened” claims against the Contributors. The list of pending or threatened claims includes Erickson’s “[a]pparent claim regarding contingent 20% equity interest in [Genesis].”5 The mere fact that Plaintiffs disclosed Erickson’s threatened claim against one of the Contributors in the Representations and Warranties Schedule to the Contribution Agreement does not mean that ARS assumed liability for it. See Magnolia’s at Bethany, LLC, 2011 WL 4826106, at *3 (only defined liabilities were assumed). Nowhere in the Contribution Agreement does it say that ARS is assuming liabilities for all known possible claims. To the contrary, the Contribution Agreement provides that ARS assumes only those liabilities outlined in § 2.03. 5 The Contributors did not, however, disclose Erickson’s threatened claim in Disclosure Schedule § 4.20(c), which was reserved for “Actions against Contributor pending, or to the Contributor’s Knowledge, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Business.” Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 21 of 28 Page 17 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 4. No reference to parol evidence is needed. As demonstrated above, a plain reading of the Contribution Agreement reveals that the Erickson Lawsuit is an Excluded Liability. Thus, there is no need to refer to parol evidence. Under Delaware law, courts look first within the contract and only look to parol evidence if there is ambiguity: We, therefore, construe them in accordance with their terms to give effect to the parties’ intent. We give words their plain meaning unless it appears that the parties intended a special meaning. When interpreting contracts, we construe them as a whole and give effect to every provision if it is reasonably possible. Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354, 360 (Del. 2013) (footnotes omitted) (declining to consider parol evidence after finding that the contract term in dispute was unambiguous). Oregon courts also look first to the four corners of the contract, not what the parties say about the contract, to determine the intent of the parties. James v. Clackamas County, 353 Or. 431, 441, 299 P.3d 526 (2013). If there is only one reasonable interpretation of the disputed terms, then the analysis stops. Id. at 442 (finding that the term “said fund” could not be reasonably interpreted to refer to the fund created by the contract); see also ORS 42.230 (“In the construction of an instrument, the office of the judge is simply to ascertain and declare what is, in terms or in substance, contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars, such construction is, if possible, to be adopted as will give effect to all.”). Both Delaware and Oregon law require courts to adopt the interpretation that gives effect to all of the provisions of the Contribution Agreement. Those provisions unambiguously demonstrate that the Erickson Lawsuit is an Excluded Liability. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 22 of 28 Page 18 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 B. Plaintiffs Are Not Entitled to Indemnification Under the Amended Operating Agreement, Because Erickson’s Claims Did Not Arise from Plaintiffs’ Management of ARS. The analysis under the ARS Amended Operating Agreement is a similarly straightforward interpretation of the contract. ARS is a Delaware limited liability company. See Notice of Removal, Ex. A (Complaint), [Dkt. # 1-1] ¶ 9. Delaware’s Limited Liability Company Act6 “‘defers completely to the contracting parties to create and delimit rights and obligations with respect to indemnification and advancement.’” Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 591 (Del. Ch. 2006) (citation omitted). Here, Long and Gibbs claim they are entitled to indemnification under the Amended Operating Agreement. See Notice of Removal, Ex. A (Complaint), [Dkt. # 1-1] ¶ 16. But the Court must also reject that claim as contrary to the plain language of the Amended Operating Agreement. Under Delaware law, indemnification is defined as follows: Indemnification is the right to be reimbursed for all out of pocket expenses and losses caused by an underlying claim. The right is typically subject to a requirement that the indemnitee have acted in good faith and in a manner that he reasonably believed was in the best interests of the company. As a result, an indemnification dispute generally cannot be resolved until after the merits of the underlying controversy are decided because the good faith standard requires a factual inquiry into the events that gave rise to the lawsuit. Majkowski, 913 A.2d at 586 (footnotes omitted). Section 7.1 of the Amended Operating Agreement provides that Covered Persons may be indemnified for: any act or omission or alleged act or omission in connection with the activities of the Company [ARS] (including any subsidiaries 6 “Subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.” Del. Code tit. 6, § 18-108. Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 23 of 28 Page 19 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 thereof) unless there is a final judicial determination by a court of competent jurisdiction to which all rights of appeal have been exhausted or expired that the Covered Person did not act reasonably and in good faith in his or her efforts to actively manage the business in a prudent and professional manner. (Emphasis added.) Thus, Plaintiffs can seek indemnification only for liability arising from their acts and omissions “in connection with” their management of ARS. “This connection is established if the corporate powers were used or necessary for the commission of the alleged misconduct.” Bernstein v. TractManager, Inc., 953 A.2d 1003, 1011 (Del. Ch. 2007). Here, ARS’ corporate powers were not “used or necessary” in Plaintiffs’ decision not to distribute cash to Erickson as a result of his purported ownership of one of the Contributors. Under the Contribution Agreement, ARS (which was controlled by Plaintiffs Long and Gibbs at the time) was obligated to distribute all proceeds from the sale to the Contributors. ARS did so. Having distributed the sale proceeds to the Contributors, ARS had no further obligations with regard to the money. Whether the Contributors distributed the money to their stakeholders or anyone else had nothing to do with ARS. To the extent that Plaintiffs have any liability for what the Contributors (their entities) did with the money, they are liable in connection with their obligations as officers, directors, or members of the Contributors—not because of any connection with ARS. Thus, Plaintiffs’ claims for indemnification, if any, lie against the Contributors, not ARS. Where a plaintiff may be entitled to indemnity from multiple entities but asserts an indemnity claim against the wrong one (i.e., an entity other than the one from which the claim arose), the claim must be rejected. The Delaware Chancery Court reached this conclusion in Grace v. Ashbridge LLC, No. CIV.A. 8348-VCN, 2013 WL 6869936, at *1 (Del. Ch. Dec. 31, 2013): Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 24 of 28 Page 20 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 Because Plaintiff sought relief only under the operating agreement of the successor entity limited liability company even though the sole allegations in the objections involve the predecessor corporation and a related entity, the Court cannot order the limited liability company to make advancement and to indemnify based upon the alleged wrongs relating to those distinct entities. The same standard applies here. If Plaintiffs want to seek indemnity for legal costs stemming from Erickson’s lawsuit, their claim should be against KHI or one of the Contributors, not Defendants. The decision of the Delaware Chancery Court in Bernstein further demonstrates why Long and Gibbs are not entitled to indemnification. The plaintiff in Bernstein wore multiple hats in conjunction with multiple related entities. 953 A.2d at 1005. The claim against him for advancement came after he had converted his LLC (of which he was manager) to a corporation (of which he was officer and director). Id. Bernstein was also an attorney, employed by an outside firm, who provided legal services to both the original LLC and the successor corporation. Id. In the underlying action, the plaintiff’s law firm brought a fee recovery action against the successor corporation for legal services rendered to both the original LLC and the successor corporation. Id. The successor corporation brought counterclaims for malpractice, constructive trust, and unjust enrichment based on the legal services the plaintiff provided. Then the plaintiff brought an advancement action against the successor corporation. Id. The court found that defendant did not have an advancement obligation, because the allegations in the counterclaims in the underlying suit did not involve any exercise of his authority in his role as a corporate director of the successor corporation. Id. at 1013. First, the court found that any actions taken before the LLC converted to a corporation could not be attributed to the corporation—or the plaintiff’s powers as director—because they were distinctly Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 25 of 28 Page 21 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 different entities. Id. at 1010. Second, the plaintiff was acting in his role as attorney for the company, not as corporate director, during the acts alleged in the underlying suit. Id. at 1012 (“Nothing indicates that [plaintiff] used his corporate powers to draft the relevant documents, to advise [defendant] to enter into them, or to recover legal fees from [defendant].”). Here, Plaintiffs’ dispute with Erickson does not implicate any decision that Long and Gibbs made on behalf of ARS. Erickson alleges that Long and Gibbs took actions in 2011, years before the Contribution Agreement, to dilute his interest in Genesis by transferring Genesis’ assets to Coterminus Solutions, LLC. Erickson Compl. ¶¶ 59, 80-82. Those actions preceded ARS’ existence. Erickson further alleges that, following execution of the transactions set forth in the Contribution Agreement, both Coterminus Solutions, LLC and Genesis received money from the sale, id. ¶¶ 89-90, but that “Genesis breached the 2006 employment contract by not paying Erickson his 20% equity interest in the company after the . . . sale.” Id. ¶ 19. There is no dispute that ARS is not, and has never been, a member of Genesis. Plaintiffs’ liability thus stems from their relationship with Genesis, and or other entities (e.g., the Contributors) entirely under the control of Long and Gibbs, not ARS. IV. CONCLUSION The terms of the Contribution Agreement and the Amended Operating Agreement are clear. Erickson’s Employment Contract was not assumed by ARS. His threatened claim against Plaintiffs was not assumed by ARS as a liability. Further, nothing in either agreement obligates Defendants to assume liability for Plaintiffs’ alleged fraud in diluting Erickson’s interest in / / / / / / / / / Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 26 of 28 Page 22 - DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT 89981036.2 0059151-00001 Genesis or from Genesis’ alleged failure to pay Erickson out of the proceeds it received from the sale to ARS. Defendants are entitled to summary judgment. Respectfully submitted, this 15th day of December 2016. /s/Timothy W. Snider Timothy W. Snider, OSB No. 034577 timothy.snider@stoel.com Reed W. Morgan, OSB No. 140664 reed.morgan@stoel.com STOEL RIVES LLP 760 SW Ninth Avenue, Suite 3000 Portland, OR 97205 Tel: (503) 224-3380 Kevin M. Eckhardt, OSB No. 136009 keckhardt@hunton.com HUNTON & WILLIAMS LLP 550 South Hope Street, Suite 2000 Los Angeles, CA 90071 Tel: (213) 532-2000 Torsten M. Kracht (Pro Hac Vice Forthcoming) tkracht@hunton.com HUNTON & WILLIAMS LLP 2200 Pennsylvania Ave., N.W. Washington, D.C. 20037 Tel: (202) 955-1860 Ryan G. Rich (Pro Hac Vice Forthcoming) rrich@hunton.com HUNTON & WILLIAMS LLP 101 South Tryon Street, Suite 3500 Charlotte, NC 28280 Tel: (704) 378-4778 Attorneys for Defendants Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 27 of 28 Page 1 - CERTIFICATE OF SERVICE 89981036.2 0059151-00001 CERTIFICATE OF SERVICE I hereby certify that I electronically filed this MOTION FOR PARTIAL SUMMARY JUDGMENT with the Clerk of Court using the CM/ECF system which will automatically send email notification of such filing to all counsel of record. This 15th day of December 2016. /s/Timothy W. Snider Timothy W. Snider Case 6:16-cv-00932-AA Document 25 Filed 12/15/16 Page 28 of 28 Page 1 - APPENDIX OF UNPUBLISHED DECISIONS 89984026.1 0059151-00001 Timothy W. Snider, OSB No. 034577 timothy.snider@stoel.com Reed W. Morgan, OSB No. 140664 reed.morgan@stoel.com STOEL RIVES LLP 760 SW Ninth Avenue, Suite 3000 Portland, OR 97205 Tel: (503) 224-3380 Kevin M. Eckhardt, OSB 136009 keckhardt@hunton.com HUNTON & WILLIAMS LLP 550 South Hope Street, Suite 2000 Los Angeles, CA 90071 Tel: (213) 532-2000 Torsten M. Kracht (Pro Hac Vice Forthcoming) tkracht@hunton.com HUNTON & WILLIAMS LLP 2200 Pennsylvania Ave., N.W. Washington, D.C. 20037 Tel: (202) 955-1860 Ryan G. Rich (Pro Hac Vice Forthcoming) rrich@hunton.com HUNTON & WILLIAMS LLP 101 South Tryon Street, Suite 3500 Charlotte, NC 28280 Tel: (704) 378-4778 Attorneys for Defendants UNITED STATES DISTRICT COURT DISTRICT OF OREGON EUGENE DIVISION STANTON F. LONG and J. DAVID GIBBS, Plaintiffs, v. LOWE’S COMPANIES, INC.; ALACRITY HOME SERVICES, LLC; and ALACRITY RENOVATION SERVICES, LLC, Defendants. Case No:. 6:16-cv-00932-AA APPENDIX OF UNPUBLISHED DECISIONS Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 1 of 71 Page 2 - APPENDIX OF UNPUBLISHED DECISIONS 89984026.1 0059151-00001 1. E.I. du Pont de Nemours & Co. v. Bayer CropScience, L.P., No. CIV.A 3741-VCL, 2008 WL 2673376 (Del. Ch. July 2, 2008). 2. Grace v. Ashbridge LLC, No. CIV.A. 8348-VCN, 2013 WL 6869936 (Del. Ch. Dec. 31, 2013). 3. Grunstein v. Silva, No. CIV.A. 3932-VCN, 2009 WL 4698541 (Del. Ch. Dec. 8, 2009). 4. Lane v. Netsmart Techs., Inc., No. 6:14-CV-00038-TC, 2016 WL 1466902 (D. Or. Apr. 13, 2016). 5. Magnolia’s at Bethany, LLC v. Artesian Consulting Engineers, Inc., No. CIV. A. S11C- 04013ESB, 2011 WL 4826106 (Del. Super. Ct. Sept. 19, 2011). 6. Reybold Venture Grp. XVI LLC v. Cresswell, No. CV N10C-05-078 RRC, 014 WL 7010757 (Del. Super. Ct. Nov. 26, 2014), aff’d, 115 A.3d 1215 (Del. 2015). 7. Seidensticker v. Gasparilla Inn, Inc., No. CIV. A. 2555-CC, 2007 WL 4054473 (Del. Ch. Nov. 8, 2007). 8. Serenity Lane v. Netsmart Techs., Inc., No. 6:14-CV-00038-TC, 2016 WL 1555153 (D. Or. Mar. 20, 2016). 9. Spring Real Estate, LLC v. Echo/RT Holdings, LLC, No. CIV. A. 7994-VCN, 2013 WL 6916277 (Del. Ch. Dec. 31, 2013). Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 2 of 71 E.I. du Pont de Nemours and Co. v. Bayer CropScience, L.P., Not Reported in A.2d (2008) 2008 WL 2673376 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2008 WL 2673376 Only the Westlaw citation is currently available. UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Court of Chancery of Delaware, New Castle County. Re: E.I. DU PONT DE NEMOURS AND CO. v. BAYER CROPSCIENCE, L.P. C.A. No. 3741-VCL. | Submitted: June 12, 2008. | Decided: July 2, 2008. Attorneys and Law Firms P. Clarkson Collins, Esquire, Matthew F. Lintner, Esquire, Jason C. Jowers, Esquire, Morris James LLP, Wilmington, DE. Frank A. Monaco, Jr., Esquire, Kevin J. Mangan, Esquire, Womble Carlyle Sandridge & Rice, Wilmington, DE. Opinion STEPHEN P. LAMB, Vice Chancellor. *1 Dear Counsel, This letter opinion addresses the defendant's motion to dismiss the complaint for lack of subject matter jurisdiction or, alternatively, for a stay. For the reasons set forth at the hearing of June 12, 2008 and stated herein, the court finds that it has subject matter jurisdiction over this action based on the plaintiffs request for interim injunctive relief, and that a stay is not warranted given that this court is best positioned to expeditiously resolve this time- sensitive dispute. I. The plaintiff, E.I. du Pont de Nemours and Company (“DuPont”), filed its complaint on May 5, 2008 seeking specific performance, declaratory judgment, and equitable relief in the form of a temporary restraining order, a preliminary injunction, and a permanent injunction. The basis for the action is a multi-year supply agreement DuPont entered into with defendant Bayer CropScience, L.P. (“BCS”) in May 2007, pursuant to which BCS supplies DuPont with a chemical called isoxadifen ethyl (“isoxadifen”). Isoxadifen is unavailable to DuPont from any other source. The supply agreement is expressly governed by North Carolina law. DuPont alleges that on February 8, 2008, BCS wrote a letter to DuPont in which BCS expressed its concern that DuPont was in breach of the supply agreement and a separate agreement referred to as the “evaluation agreement.” Specifically, BCS complained that DuPont had filed various patent applications referencing isoxadifen without obtaining BCS's prior approval, and that DuPont had registered two products containing isoxadifen-Require Q and Resolve Q-with the United States Environmental Protection Agency even though those products allegedly exceeded the scope of DuPont's rights to use isoxadifen. DuPont responded by email denying that it was in breach, and the parties had a telephone call on the subject on March 4, 2008. Dissatisfied with DuPont's response, BCS sent another letter on March 13, 2008 stating that it “remain[ed] convinced” that DuPont was in breach of the supply agreement and evaluation agreement. 1 BCS offered DuPont 60 days to cure these alleged breaches, and stated that “[f]ailing adequate remedy within the sixty-day period, BCS will have the right to terminate [the supply agreement].” 2 BCS then outlined the actions it thought DuPont would have to take in order to cure the alleged breaches. Two weeks later, on March 26, 2008, DuPont sent BCS a purchase order for its 2009 isoxadifen requirements, and specified that the order had to ship from BCS's facility in Germany by August 4, 2008 to ensure delivery to DuPont by September 1, 2008. On April 15, 2008, DuPont also sent BCS a letter denying that it had breached any agreement, and disputing BCS's right to terminate the supply agreement. After setting out its interpretation of the relevant agreements, DuPont stated it “believes that discussing our respective positions beyond this letter would be mutually beneficial,” 3 and requested that BCS respond by April 25, 2008. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 3 of 71 E.I. du Pont de Nemours and Co. v. Bayer CropScience, L.P., Not Reported in A.2d (2008) 2008 WL 2673376 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 *2 BCS never responded, and no further discussions took place. Instead, at approximately 3 p.m. on May 5, 2008, BCS field a complaint in Superior Court in Durham County, North Carolina. On that same day at 6:44 p.m., DuPont filed a complaint in this court. BCS then filed a motion to dismiss DuPont's complaint for lack of subject matter jurisdiction or, alternatively, to stay in favor of the North Carolina action. The motion was fully briefed, and this court heard oral argument on June 12, 2008. II. The Motion To Dismiss For Lack Of Subject Matter Jurisdiction The burden of establishing the court's subject matter jurisdiction rests “with the party seeking the Court's intervention,” 4 and in reviewing the motion, the court may consider documents outside the complaint. 5 Further, the court “must examine the pleadings to determine the true substance of the relief the [plaintiff] seeks, and will not be bound by the form of relief as described [by the plaintiff.]” 6 The existence of jurisdiction is to be ascertained as of the time of the filing of the complaint. 7 As BCS notes, the jurisdiction of the Court of Chancery is limited to only those cases asserting some equitable right or seeking an equitable remedy. BCS contends that DuPont's anticipatory breach claim was unripe at the time the complaint was filed in this court, thereby abrogating DuPont's request for specific performance and other equitable relief. Without this equitable basis, BCS argues, this action is reduced to a request for declaratory judgment over which this court lacks subject matter jurisdiction. 8 DuPont contends that its anticipatory breach claim was ripe at the time the complaint was filed and, it asserts, BCS ignores its claim for interim injunctive relief over which this court has subject matter jurisdiction. The Supreme Court, in Diebold Computer Leasing, Inc. v. Commercial Credit Corp., 9 found that this court has jurisdiction over requests for interim injunctive relief necessary to maintain the status quo until it is able to determine disputed contract rights. 10 In Diebold, the plaintiff entered into a loan agreement with Commercial obligating Commercial to extend a $75 million revolving line of credit. After the agreement was signed, Diebold decided that it needed to diversify its business operations by forming affiliated corporations that would engage in new businesses. Commercial took the position that, under the loan agreement, its consent was required for Diebold to proceed with its plan. Diebold maintained that no such consent was required. Commercial told Diebold that it would not consent, and sent Diebold a notice that it would be in default of the loan agreement if it proceeded with the planned diversification. Further, under the terms of the loan agreement, merely by giving this notice of default, Commercial was allowed to, inter alia, cut off all further borrowing and declare the $70 million outstanding immediately due and payable. According to Diebold, it could not continue functioning as a business enterprise if Commercial carried out these threats. *3 Diebold filed an action seeking a declaration that its planned diversification would not breach the loan agreement, and asking this court to enjoin Commercial from acting on its threats. The court held that there was no basis for equitable jurisdiction because the “case [was] basically concerned with the construction of a business contract” and any injunctive relief “would indeed be redundant.” 11 Diebold then attempted to amend its complaint with an allegation that, due to Commerciars threats, it was unable to convince third parties to begin negotiating potential diversification plans in any meaningful way. Citing an “urgent need” to diversify, Diebold argued that damages would be an inadequate remedy and, in order for any declaratory relief to be meaningful, it needed to begin such negotiations before the court reached its decision on the meaning of the contract. Thus, Diebold requested immediate, interim injunctive relief prohibiting Commercial from cutting off further borrowing and declaring the amount outstanding immediately due and payable while Diebold began negotiations with third parties. This court denied Diebold's request for leave to amend. The Supreme Court reversed and found that (1) leave to amend should be granted, and (2) Diebold's request for interim injunctive relief gave the Court of Chancery Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 4 of 71 E.I. du Pont de Nemours and Co. v. Bayer CropScience, L.P., Not Reported in A.2d (2008) 2008 WL 2673376 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 subject matter jurisdiction over the action. The Supreme Court noted that at the time the complaint was filed, Commercial's intent to carry out its threats was “sufficiently actual, impending, and unconjectural to warrant retention of jurisdiction of the case by the [Court of Chancery].” 12 Similarly, in this case, DuPont has alleged that it takes time for BCS to manufacture isoxadifen. Therefore, DuPont alleges, even if DuPont obtains declaratory relief in this action, it is uncertain that BCS will have “sufficient supplies manufactured to in fact fill DuPont's order on or before August 4, 2008....” 13 DuPont further alleges that damages will not be an adequate remedy for such a breach because isoxadifen is a unique product that can be purchased only from BCS, DuPont will suffer irreparable harm to its goodwill if it is forced to discontinue Require Q or Resolve Q, and the products have been promoted for only one crop season, making an accurate calculation of damages impossible. As a result, DuPont alleges, “interlocutory equitable relief is necessary to preserve the status quo while this action is pending,” 14 and asks this court to enter a preliminary injunction directing BCS to perform under the supply agreement during the pendency of this action. The court finds that, at the time the complaint was filed, BCS's intent to cease performance under the supply agreement during the pendency of this action was sufficiently actual, impending, and unconjectural to warrant this court's assertion of jurisdiction over DuPont's request for interim injunctive relief. 15 Therefore, this court has subject matter jurisdiction over this entire matter. 16 III. The McWane Doctrine *4 BCS next argues that the court should stay the action because the North Carolina action was first filed. In support, BCS cites the rule outlined by McWane Iron Pipe Corp. v. McDowell-Wellman Enginneering Co., 17 that “Delaware courts should liberally exercise their discretion in favor of a stay when (1) a first-filed prior pending action exists in another jurisdiction, (2) that action involves similar parties and issues, and (3) the court in the other jurisdiction is capable of rendering prompt and complete justice.” 18 DuPont argues the court should disregard the McWane doctrine and regard the complaints as contemporaneously filed. The court declines to apply the McWane doctrine in this case. As the court in In re The Topps Company Shareholders Litigation stated, “McWane most clearly applies when an individual plaintiff sues a defendant in a convenient forum and is then met with a responsive suit by the defendant in another forum.” 19 In other words, one of the underlying principles of the McWane doctrine is that a plaintiff's choice of forum should be respected (assuming it is a proper forum) and a defendant should not be allowed to engage in forum shopping by subsequently filing its own complaint in another court. However, in this case, as BCS concedes, there is no evidence that DuPont filed its complaint in response to BCS's complaint. Rather, DuPont and BCS simply chose, by sheer coincidence, to file on the same day only hours apart. As such, the policy underlying McWane is not implicated. 20 In these circumstances, the court exercises its discretion 21 to treat the complaints as contemporaneously filed. 22 IV. Forum Non Conveniens Where multiple actions are contemporaneously filed, this court evaluates a motion to stay “ ‘under the traditional forum non conveniens framework without regard to a McWane-type preference of one action over the other.” ‘ 23 The forum non conveniens factors are: (1) the applicability of Delaware law, (2) the availability of compulsory process for witnesses, (3) the possibility of a view of the premises, (4) the relative ease of access to proof, (5) the pendency or nonpendency of a similar action or actions in another jurisdiction, and (6) all other practical problems that would make the trial of the case easy, expeditious, and inexpensive. 24 In applying the guidelines, this court considers a balancing test that “imposes no special or heightened burden of persuasion” but simply seeks to answer the question “towards which of the two competing fora do the forum non conveniens factors preponderate.” 25 However, “[i]n balancing all of the relevant [forum non conveniens ] factors, the focus of the analysis should be which forum would be the Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 5 of 71 E.I. du Pont de Nemours and Co. v. Bayer CropScience, L.P., Not Reported in A.2d (2008) 2008 WL 2673376 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 more ‘easy, expeditious, and inexpensive’ in which to litigate.” 26 Here, many of the factors are in equipoise. Both companies are Delaware corporations. Fifteen of DuPont's 19 potential witnesses are based in the Wilmington area, and a majority of DuPont's documents are in Wilmington, while 15 of BCS's 20 potential witnesses reside in North Carolina, and most of its documents are m North Carolina. The parties agree that a view of the premises is not needed. The litigation in North Carolina covers the same parties and similar actions. And, although the contract calls for application of North Carolina law, both Delaware and North Carolina have adopted the relevant articles of the UCC, 27 both follow the objective theory of contract interpretation, 28 this case does not involve any novel issues of North Carolina law, and “Delaware courts are competent ‘to wrestle with open questions of the law of sister states or foreign countries.” ‘ 29 Thus, five of the forum non conveniens factors, on balance, do not warrant the grant of a stay. *5 However, the sixth factor-practical problems that would make the trial of the case easy, expeditious, and inexpensive-weighs heavily against granting a stay. In this case, the action filed in North Carolina has not progressed much beyond the filing of the complaint. BCS has not moved for expedited treatment. To the contrary, BCS filed an amended complaint on May 16, 2008, extending DuPont's time to file an answer or dispositive motion to June 18, 2008. Further, BCS did not transfer the action to the North Carolina Business Court as allowed under N.C. Gen.Stat. § 7A-45.4(d)(l). 30 In contrast, on May 12, the court heard counsel on the motion to expedite and subsequently entered a scheduling order requiring the parties to complete a substantial part of their discovery by June 23, 2008 and appear at a preliminary injunction hearing on July 16, 2008. Despite BCS's protestations that “there is no reason to think that one of the North Carolina Business Court judges could not ... provide the parties with a date in mid-July” to hear DuPont's motion for preliminary injunction, the facts demonstrate that Delaware is the most expeditious forum in which to litigate this time- sensitive dispute. This is not to say that a North Carolina court cannot adjudicate this dispute expeditiously. Indeed, North Carolina is one of the states that has formed a special business court specifically to improve its handling of such disputes, and nothing suggests that those courts are less than adroit at performing that function. However, the Delaware action has thus far moved much more expeditiously than the North Carolina action. Balancing all of the relevant factors, five of which are in relative equipoise, the court finds that a stay of the Delaware action is unwarranted. V. The motion to dismiss for lack of subject matter jurisdiction or, alternatively, to stay is DENIED. IT IS SO ORDERED. All Citations Not Reported in A.2d, 2008 WL 2673376 Footnotes 1 Compl. Ex. B. 2 Id. 3 Id. at Ex. C. 4 Ropp v. King, 2007 WL 2198771, at *2 (Del. Ch. July 25, 2007) (citing Scattered Corp. v. Chicago Stock Exch., 671 A.2d 874, 877 (Del.Ch.1994), aff'd, 633 A.2d 372 (1993)); see also Appriva S'holder Litig. Co., LLC v. EVS, Inc., 937 A.2d 1275, 1284 n. 14 (Del.2007) (stating that ‘ “[u]nlike the standards employed in Rule 12(b)(6) analysis, the guidelines for the Court's review of [a] Rule 12(b)(1) motion are far more demanding of the non-movant. The burden is on the Plaintiffs to prove jurisdiction exists.’ ”) (quoting Phillips v. County of Bucks, 1999 WL 600541, at *1 (E.D.Pa. Aug. 9, 1999)). 5 NAMA Holdings, LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 n. 15 (Del. Ch.2007); see also Sloan v. Segal, 2008 WL 81513, at *6 & n. 25 (Del. Ch. Jan. 3, 2008). 6 Zeneca, Inc. v. Monsanto Co., 1996 WL 104254, at *4 (Del. Ch. Mar. 7, 1996). 7 Diebold Computer Leasing, Inc. v. Commercial Credit Corp., 267 A.2d 586, 588 (Del.1970). Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 6 of 71 E.I. du Pont de Nemours and Co. v. Bayer CropScience, L.P., Not Reported in A.2d (2008) 2008 WL 2673376 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 5 8 BCS also contends that specific performance is not available as a remedy for anticipatory breach. In support, BCS cites to Carteret Bancorp, Inc. v. Home Group, Inc., in which the court held that “a promisee who seeks specific enforcement of a contract, rather than damages, fails to state a claim upon which such relief may be granted unless he can allege that the defendant is under a present legal obligation to perform the contract and has wrongfully failed to do so.” 1988 WL 3010, at *5 (Del. Ch. Jan. 13, 1988) (“In other words, an anticipatory repudiation theory will not support specific performance relief prior to the time the parties themselves agreed that the performance was due”). The court need not address the merits of this argument to resolve the present dispute. 9 267 A.2d 586. 10 Id.; Travelers Cas. & Sur. Co. of America v. Colonial Sch. Dist., 2001 WL 287482, at *3 (Del. Ch. Mar. 16, 2001) (citing Jefferson Chem. Co. v. Mobay Chem. Co., 253 A.2d 512, 514 (Del. Ch.1969)). 11 Id. at 589-90. 12 Id. at 591. 13 Compl. ¶ 44. 14 Id. at ¶ 89. 15 Travelers Cos., 2001 WL 287482, at *3 (citing Jefferson, 253 A.2d at 514); Diebold, 267 A.2d 586. DuPont's concern was alleviated by a letter agreement executed by the parties on May 9, 2008 under which BCS agreed not to take any action impairing its ability to supply DuPont isoxadifen by September 1, 2008. However, this letter has no effect on this court's jurisdiction because that jurisdiction is “to be ascertained ... as of the time of the filling of the action.” Diebold, 267 A.2d at 591. 16 Amer.App., Inc. v. State, ex rel. Brady, 712 A.2d 1001, 1003 (Del.1998) (noting that the Court of Chancery, in its discretion, may hear and decide pendent legal claims under the “equitable clean-up” doctrine); see also Certain Underwriters at Lloyd's, London v. Nat'l Installment Ins. Servs., Inc., 2007 WL 1207106, at *3 (Del. Ch. Feb. 8, 2007). 17 263 A.2d 281 (Del.1970). 18 Enodis Corp. v. Amana Co., 2007 WL 1242193, at *2 (Del. Ch. Apr. 26, 2007). 19 924 A.2d 951, 956 (Del. Ch.2007); see also HFTP Invs., L.L.C. v. Ariad Pharm., Inc., 752 A.2d 115, 121 (Del. Ch.1999) (stating the policy underlying McWane is “to prohibit the party seeking a stay from defeating the plaintiff's legitimate choice of forum”). 20 Courts will also sometimes decline to apply the McWane doctrine in derivative and representative actions. The underlying reasoning is that “[a] shareholder plaintiff does not sue for his direct benefit. Instead, he alleges injury to and seeks redress on behalf of the corporation. Further, ... any shareholder with standing may represent the injured party. Thus, this Court places less emphasis on the celerity of such plaintiffs and grants less deference to the speedy plaintiff's choice of forum. [Therefore], this Court proceeds cautiously when faced with the question of whether to defer to a first filed derivative suit, examining more closely the relevant factors bearing on where the case should best proceed, using something akin to a forum non conveniens analysis .” Ryan v. Gifford, 918 A.2d 341, 349 (Del. Ch.2007) (citing Biondi v. Scrushy, 820 A.2d 1148, 1159 (Del. Ch.2003)); see also In re Bear Stearns S'holder Litig., 2008 WL 959992, at *5 (Del. Ch. Apr. 9, 2008); In re Topps, 924 A.2d at 956-57. Obviously, the current case does not implicate these considerations. 21 In re Bear Stearns, 2008 WL 959992, at *5 (citing Adirondack GP, Inc. v. Am. Power Corp., 1996 WL 684376, at *6 (Del. Ch. Nov. 13, 1996)); see also Gen. Foods Corp. v. Cryo-Maid, Inc., 198 A.2d 681, 683 (Del.1964) (noting that the court's discretion to issue a stay is “inherent in every court and flows from its control over the disposition of causes on its docket”). 22 Azurix Corp. v. Synagro Techs., Inc., 2000 WL 193117, at *4 (Del. Ch. Feb. 3, 2000) (finding it “fair” to treat lawsuits alleging breach of contract as contemporaneous when filed only days apart because “since the difference in time of filing is so close”); see also HFTP Invs., 752 A.2d at 121 (treating lawsuits alleging breach of contract as contemporaneous where they were filed a few minutes apart and “neither lawsuit was filed in reaction to the other”). 23 In re Bear Stearns, 2008 WL 959992, at *5 (quoting Rapaport v. Litig. Trust of MDIP Inc., 2005 WL 3277911, at *2 (Del. Ch. Nov. 23, 2005)). 24 Id. at *5 (citing Ryan, 918 A.2d at 351); HFTP Invs., 752 A.2d at 121 (citing First Bus. Credit Corp. v. 1500 Locust L.P., 669 A.2d 104, 108(1995)). 25 HFTP Invs., 752 A.2d at 122; see also Azurix, 2000 WL 193117, at *4 (stating that “when a party seeks only to stay the contemporaneously filed action, the issue is simply whether on balance, the forum non conveniens factors warrant the grant of a stay”); Friedman v. Alcatel Alsthom, 752 A.2d 544, 553 (Del. Ch.1999). 26 HFTP Invs., 752 A.2d at 122; see also NRG Barriers, Inc. v. Jelin, 1996 WL 377014, at *6 (Del. Ch. July 1, 1996) (refusing to stay a Delaware lawsuit in favor of a previously filed California action because it was unlikely that the California court could rule before the closing of a merger six weeks later). Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 7 of 71 E.I. du Pont de Nemours and Co. v. Bayer CropScience, L.P., Not Reported in A.2d (2008) 2008 WL 2673376 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 6 27 See 6 Del. C. § 2-101, et seq.; N.C. Gen.Stat. § 25-2-101, et seq. 28 Compare Sassano v. CIBC World Mkts. Corp., 2008 WL 2267008, at *5 (Del. Ch. Jan. 17, 2008) (“When interpreting a contract, the court's ultimate goal is to determine the parties' shared intent. Because Delaware adheres to the objective theory of contract interpretation, the court looks to the most objective indicia of that intent: the words found in the written instrument.”), with State v. Philip Morris USA Inc., 618 S.E.2d 219, 225 (N.C.2005) (“Interpreting a contract requires the court to examine the language of the contract itself for indications of the parties' intent at the moment of execution. If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract.”) (citations omitted). 29 See Sun-Times Media Group, Inc. v. Royal & Sunalliance Ins. Co. of Canada, 2007 WL 1811266, at *6 (Del.Super. June 20, 2007) (quoting Taylor v. LSI Logic Corp., 689 A.2d 1196, 1200 (Del.1997)). 30 This statute provides that a transfer to the business court may be requested by the plaintiff upon filing the complaint or by the defendant within 30 days of receiving a pleading. End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 8 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2013 WL 6869936 Only the Westlaw citation is currently available. UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Court of Chancery of Delaware Charles B. Grace, Jr., Plaintiff, v. Ashbridge LLC, a Delaware limited liability company, Defendant. C.A. No. 8348-VCN | Date Submitted: September 5, 2013 | Date Decided: December 31, 2013 Attorneys and Law Firms R. Montgomery Donaldson, Esquire and Lisa Zwally Brown, Esquire of Montgomery, McCracken, Walker & Rhoads, LLP, Wilmington, Delaware, and Gregory M. Harvey, Esquire of Montgomery, McCracken, Walker & Rhoads, LLP, Philadelphia, Pennsylvania, Attorneys for Plaintiff. Christopher J. Curtin, Esquire of MacElree Harvey, Ltd., Wilmington, Delaware, and Alfred A. Gollatz, Esquire of MacElree Harvey, Ltd., West Chester, Pennsylvania, Attorneys for Defendant. MEMORANDUM OPINION NOBLE, Vice Chancellor *1 Plaintiff is the co-trustee of a family trust that held, among other assets, the shares of a Delaware corporation that was later converted into the Defendant, a Delaware limited liability company. Plaintiff also is, and was, the chairman, a member of the governing boards, and a member or shareholder of the limited liability company and its predecessor corporation. When the trustees of the family trust filed two accountings in a Pennsylvania court, family member beneficiaries of the trust filed objections that in part alleged breaches of fiduciary duty by the trustees and diminution in value of the trust's interest in the corporation due to imprudent investments, improper loans, and self-dealing transactions by Plaintiff. Because of the offices Plaintiff held in the Defendant and its predecessor corporation, Plaintiff asserts he is entitled to advancement and indemnification from the Defendant for his defense to the objections, a failed mediation, and the present action. Plaintiff's amended complaint is a patchwork of facts and allegations that provides an outline of what transpired but omits certain key details. In response to Plaintiff's initial complaint, which was even scarcer in detail, the Defendant moved for a more definite statement to understand better the grounds upon which Plaintiff claimed his rights to advancement and indemnification. Although Plaintiff clarified certain allegations, the Court cannot, as a matter of law, grant relief upon those grounds as set forth in his amended complaint. Because Plaintiff sought relief only under the operating agreement of the successor entity limited liability company even though the sole allegations in the objections involve the predecessor corporation and a related entity, the Court cannot order the limited liability company to make advancement and to indemnify based upon the alleged wrongs relating to those distinct entities. Plaintiff's complaint is dismissed for the reasons that follow. 1 I. BACKGROUND Charles B. Grace, Jr. (“Grace” or the “Plaintiff”) became one of several co-trustees of a family trust (the “Residuary Trust”) settled upon the death of his father, Charles B. Grace, in 1969. The Residuary Trust included cash, real property, and preferred and common shares of the family- owned Heintz Investment Company. Heintz Investment Company was renamed the Ashbridge Corporation in 1981. 2 Ashbridge Corporation, a Pennsylvania corporation, merged with and into Ashbridge Partners, LLC, a Delaware limited liability company, on December 31, 2008. On that same day, it changed its name to Ashbridge LLC (the “Defendant”). 3 Grace is a member of Defendant and was a shareholder of Ashbridge Corporation before its merger into Defendant. Grace also serves on the Board of Managers and as chairman of Defendant; he likewise was the chairman and a member of the governing board of the predecessor entity, Ashbridge Corporation. 4 Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 9 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 *2 The trustees of the Residuary Trust filed two accountings to which its beneficiaries, Eugene G. Grace, III, Eugene G. Grace, IV, Andrea Grace, and Alexandra Grace (the “Beneficiary Objectors”), filed objections on September 4, 2012 (the “Objections”) in the Court of Common Pleas of Chester County, Pennsylvania, Orphans' Court Division (the “Orphans' Court Proceeding”). 5 The Objections asserted 1. As set forth above, the trustees breached their fiduciary duty in directing, approving, consenting to and/or acquiescing in the formation and operation of AIM; [ 6 ] 2. Objectants object to the diminution in value of the trust's ownership interest in Ashbridge Corporation as reflected in the Accounting as a result of trustee Charles Grace's imprudent investments, improper loans and/or reckless and wanton self- dealing transactions, all of which were made in complete disregard to the rights and interests of the trust's beneficiaries, and all of which the remaining trustees failed to prevent, monitor, and/or remedy. 3. Objectants object to BNY Mellon's fees and commissions in the amount of $154,826.99 in regard to BNY Mellon's breaches of fiduciary duty concerning trustee Charles Grace's imprudent investments, improper loans and reckless and wanton self-dealing transactions to the substantial detriment of the assets of the trust. 7 The Objections also describe various background transactions, including that AIM was founded in 1992; that in or about 2001, Ashbridge Corporation was induced to make cash transfers to AIM in a variety of ways; and that in or about April 2010, a private wealth management and family services company acquired the assets of AIM with consideration to have been delivered around April 2013 based on the performance of the AIM assets. 8 The Objections only refer to the actions of Grace, Ashbridge Corporation, and AIM. Ashbridge Corporation's successor entity, the Defendant, is not mentioned even once. Although the dispute primarily concerns the Objections, Grace also sought reimbursement of expenses from the Defendant before the Objections were filed. On June 8, 2011, Grace purportedly provided an undertaking to the Defendant as required by Section 10.4 of its operating agreement; 9 however, Grace does not explain why or upon what grounds he sought advancement and indemnification on that occasion. 10 On December 23, 2011, counsel to Defendant's Board of Managers (the “Board”) wrote to Defendant's long-time outside counsel (“Reed Smith”) stating the Board would not pay Reed Smith for legal services performed after June 15, 2011, and that Reed Smith had represented both Defendant and Grace without obtaining the informed consent of the Board. 11 *3 After retaining new counsel, Grace contacted the Board's counsel again in November 2012 regarding advancement and indemnification. On December 6, 2012, the Board's counsel advised the Board that it was not obligated to authorize advancement and indemnification to Grace. At the December 19, 2012 meeting of the Board, it declined to consider Grace's request for advancement and indemnification. On February 22, 2013, Grace filed a laconic initial complaint in this Court seeking advancement and indemnification under Ashbridge LLC's operating agreement. In response, the Defendant sought a more definite statement which might clarify the theory under which Grace claimed his entitlement to advancement and indemnification. Grace filed a Verified Amended Complaint on April 12, 2013 (the “Amended Complaint”) and on that same day provided a hand-delivered undertaking for expenses in the Orphans' Court Proceeding, this current action, a failed mediation, and “any other litigation claims asserted against [Grace] by [the Beneficiary Objectors].” 12 Defendant Ashbridge LLC moved to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted. Earlier this month, Grace moved for leave to file a verified amended and supplemented complaint (the “Motion to Supplement”) based upon additional developments in the Orphan's Court Proceeding. 13 II. CONTENTIONS Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 10 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 Grace argues he is entitled to advancement and indemnification under Section 10.4 of Ashbridge LLC's operating agreement 14 for attorneys' fees and other costs in this Delaware action and in the Orphans' Court Proceeding. 15 Grace further asserts he is entitled to indemnification for “other expenses in a mediation that was conducted pursuant to leave granted by the Judge of the Orphans' Court Division” 16 and that his “substantive rights” to advancement and indemnification “are supported by” the bylaws of Ashbridge Corporation. 17 *4 The Defendant argues that Grace has failed to state a claim for advancement or indemnification because he was made a party to the Orphans' Court Proceeding “by reason of the fact” that Grace is a co- trustee of the Residuary Trust and that Defendant's operating agreement does not extend advancement or indemnification rights to predecessor entities or affiliates. 18 The Defendant further argues that Grace cannot seek indemnification or advancement for certain actions taken in his “personal,” as opposed to his “official,” capacity and that certain expenses Grace claims have not been identified or described in the Amended Complaint. 19 III. ANALYSIS The Defendant has moved to dismiss Grace's Amended Complaint pursuant to Court of Chancery Rule 12(b)(6). In assessing such a motion, the Court should accept all well-pleaded factual allegations in the Complaint as true, accept even vague allegations in the Complaint as “well pleaded” if they provide the defendant notice of the claim, draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof. 20 The reasonable conceivability standard asks whether there is a “possibility” of recovery. 21 However, the Court need not “accept conclusory allegations unsupported by specific facts or ... draw unreasonable inferences in favor of the non-moving party.” 22 Failure to plead facts supporting an element of a claim precludes entitlement to recovery and constitutes grounds to dismiss that claim. 23 Furthermore, “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.” 24 Limited liability companies are broadly authorized under 6 Del. C. § 18–108 to grant indemnification rights through their operating agreements. 25 Similarly, the Delaware Limited Liability Company Act confers upon contracting parties “nearly unfettered contractual discretion in determining whether to grant advancement.” 26 When interpreting advancement and indemnification provisions in a limited liability company agreement, a Delaware court will follow ordinary contract interpretation principles. Thus, “[w]hen the language of a ... contract is clear and unequivocal, a party will be bound by its plain meaning, because creating an ambiguity where none exists could, in effect, create a new contract with rights, liabilities and duties to which the parties had not assented....” 27 A. Does Ashbridge LLC's Operating Agreement Require Advancement and Indemnification for Ashbridge Corporation or AIM? *5 Because the advancement and indemnification obligations of a limited liability company are determined by its operating agreement, the Court must evaluate Section 10.4 of the Defendant's operating agreement upon which Grace bases his claim. The Defendant argues Section 10.4 does not require indemnification for the Orphans' Court Proceeding because Grace requests advancement and indemnification for acts taken on behalf of predecessor and affiliate organizations, rather than for acts taken on behalf of Ashbridge LLC. 28 Because the Objections make allegations involving only Ashbridge Corporation and AIM, Grace must demonstrate that the Defendant's advancement and indemnification provision retroactively applies to predecessor entities or affiliates in order to prevail on his Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 11 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 claims under Defendant's operating agreement. The plain language of the agreement prevents Grace from doing so. The pertinent terms of the operating agreement provide: 10.4 Indemnification. Any Person made, or threatened to be made, a party to any action or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such Person is or was (i) a Member or Manager, or (ii) an employee, officer, director, manager, shareholder or partner of the Company or any Member or Manager (collectively, the “Indemnified Persons”), shall be indemnified by the Company for any losses or damage sustained with respect to such action or proceeding, and the Company shall advance such Indemnified Person's reasonably related expenses to the fullest extent permitted by law.... The Company may indemnify other Persons of the Company.... The Company shall pay the expenses (including attorneys' fees and disbursements) incurred in good faith by an Indemnified Person in advance of the final disposition of any action or proceeding, upon receipt of an undertaking by or on behalf of the Indemnified Person to repay the amount if it is ultimately determined that such person is not entitled to be indemnified by the Company pursuant to this Section 10.4.... 29 The operating agreement defines “the Company” to encompass only Ashbridge LLC, 30 and such definition does not include predecessor entities. Thus, under the plain terms of the agreement, Grace must plead that he held a specific office or otherwise had a relationship with Ashbridge LLC or with one of its managers or members. The Objections for which Grace claims he is entitled to advancement and indemnification do not mention Ashbridge LLC, but instead assert various acts of mismanagement related to Ashbridge Corporation and AIM. 31 *6 The plain language of Defendant's operating agreement requires a party seeking advancement or indemnification from Ashbridge LLC to demonstrate some relationship to the limited liability company. 32 The allegations in the Objections do not even mention the Defendant, and thus the plain language of Section 10.4 does not require advancement or indemnification for the Orphans' Court Proceeding. Case law supports this result. Successor corporate entities are generally not liable for the actions of the corporate officers of predecessor entities or affiliates, when a fundamental change in identity has occurred. For the purposes of advancement and indemnification, Delaware law considers a conversion from a limited liability company to a corporation to be a “fundamental change in identity.” 33 Underpinning this conclusion is the logic that “[l]imited liability companies and corporations differ in important ways, most pertinently in regard to indemnification: mandating it in the case of corporate directors and officers who successfully defend themselves, but leaving the indemnification of managers or officers of limited liability companies to private contract.” 34 Thus, the Bernstein court held that a party seeking advancement, who was a former manager of the limited liability company and current director of the corporation, was only entitled to advancement under the terms of the corporation's bylaws. The bylaws did not retroactively create such a right for that person during his tenure as a member of the predecessor limited liability company. 35 The logic motivating Bernstein is dispositive here as well. The change of the entity from Ashbridge Corporation to Ashbridge LLC was a fundamental change in identity. The advancement and indemnification scheme of Ashbridge Corporation's bylaws was re-written into contractual terms in Ashbridge LLC's operating agreement in a manner that substantially altered the rights and obligations of the parties. 36 Thus, the same result reached in Bernstein applies here, and “[t]his court will not rewrite a contract by reading words into it that the parties clearly did not intend.” 37 The Court will therefore not impose retroactive obligations on a limited liability company when the plain language of its operating agreement would not permit predecessor or affiliate liability and when the indemnification schemes of the predecessor corporation and successor limited liability company differ. 38 B. Grace's Additional Arguments Are Unpersuasive *7 Grace makes additional arguments that do not salvage his claims. 39 Grace first explains that the series of cases including Homestore, 40 Reddy, 41 and Perconti 42 articulates the broad nature and outer limits of the phrase “by reason of the fact” as used in Delaware advancement and indemnification claims. He then argues that because Ashbridge LLC uses the same term of art, it follows that Grace is entitled to indemnification. Unfortunately, Grace's accurate recitation of Delaware Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 12 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 5 law fails to acknowledge the important counterpoint to these broad rights: that Delaware law allows entities to limit the scope of advancement and indemnification rights as well. 43 Grace's argument fails because he only describes the state of the law if an entity does not tailor its advancement or indemnification provision. He does not explain how Section 10.4 entitles him to a remedy when Defendant's operating agreement is narrower than the outer boundaries of the law. Grace also argues that his substantive rights to advancement and indemnification are “supported by” the bylaws of Ashbridge Corporation and the operating agreements of Ashbridge Partners, LLC and Ashbridge LLC. 44 This “supported by” language is not an allegation which pleads a sufficient basis for recovery under the predecessor corporation's bylaws. The Amended Complaint does not explain to the Court what it means to have rights of advancement and indemnification “supported by” a corporation's bylaws, and Grace fails to explain how those documents entitle him to relief under such provisions. The Defendant, when it moved for a more definite statement of facts, clearly identified the deficiencies in Grace's initial complaint. 45 Grace, in amending his complaint, was given a full opportunity to plead his case completely. Grace did not avail himself of this opportunity, except to add a phrase to the Amended Complaint stating the rights of advancement and indemnification of the bylaws of Ashbridge Corporation are “virtually identical to the rights provided in Section 10.4” of Defendant's operating agreement. *8 Under Delaware's well-pleaded complaint standard, though a complaint need only provide “general notice of the claim asserted,” 46 it is nonetheless true that “[c]onclusions ... will not be accepted as true without specific allegations of fact to support them.” 47 Grace's argument that certain rights are “supported by” Ashbridge Corporation's bylaws is likely deficient because it fails to provide general notice of the claim asserted, though the Court's conclusion does not depend on this analysis. Grace's “supported by” language is conclusory and is not supported by specific allegations of fact explaining how Grace complied with the advancement and indemnification provisions of the Ashbridge Corporation bylaws. Plaintiff's “virtually identical” language in the Amended Complaint also fails to state a claim. The exhibit incorporated into the complaint negates Grace's claim that Ashbridge Corporation's bylaws are “virtually identical” because even a cursory comparison of the two texts reveals that they are different in a number of respects. 48 Thus, the Court must dismiss Grace's claim based upon the predecessor entity's bylaws. Plaintiff's “supported by” statements are best understood as Grace's attempt to “have it both ways.” His submissions to the Court appear to reflect a desire to avoid providing the substance of Ashbridge Corporation's bylaws, while seeking to preserve some opportunity to argue the point in subsequent briefings should Grace later find it to be expedient. 49 Finally, in a supplemental brief submitted to the Court, Grace asserts that two of the objections were stayed in the Orphans' Court Proceeding because the court there lacked jurisdiction over issues which would determine the internal affairs of business entities. Grace therefore argues that he could not have been made party to the Orphans' Court Proceeding as a result of his role as one of the trustees of the Residuary Trust. 50 This argument is also unavailing. Although the Court does not necessarily agree with Grace's conclusions, even if Grace's characterization is correct, it does nothing to contradict the clear language of Ashbridge LLC's operating agreement requiring a claim related to Defendant rather than its predecessor entity or affiliates. 51 The Court may grant a motion to dismiss where the exhibits incorporated into the complaint effectively negate the claim as a matter of law. Because the operating agreement under which Grace claims advancement and indemnification does not, by its unambiguous language, grant him the relief he seeks, the Court grants Ashbridge LLC's motion to dismiss all claims arising out of the Orphans' Court Proceeding. C. Must Ashbridge LLC Indemnify Grace for the Mediation? *9 Grace claims he is also entitled to indemnification under Defendant's operating agreement for a mediation that he has not described. Grace is not entitled to relief on this claim because he has not pleaded any facts explaining his entitlement to relief or provided notice of his claims to Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 13 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 6 Defendant. His Amended Complaint fails to describe the mediation or to make the vaguest of allegations about the factual circumstances underlying it. The first time Grace even mentions the undescribed mediation is in Count I in which he states in a conclusory manner that he is entitled to expenses for the mediation. 52 The Court need not accept these conclusory allegations unsupported by specific facts and thus dismisses this claim as well. D. Must Ashbridge LLC Pay Costs Related to the Delaware Action? Because Grace is, as a matter of law, not entitled to advancement and indemnification under the unambiguous terms of the operating agreement and because his allegations surrounding the mediation fail to state a claim, he cannot recover for the costs incurred in pursuing this action. E. Grace's Amended and Supplemented Complaint Fails to State a Claim On December 12, 2013, Grace moved to amend and supplement his Amended Complaint. 53 Court of Chancery Rule 15(d) permits the Court to allow a “party to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented,” 54 if such supplemental claims “relate to the original claims.” 55 Because leave to supplement or amend “[a]s a general rule, ... is freely given,” 56 and because the Defendant does not oppose the motion, 57 the Court grants Grace's motion. However, for the reasons that follow, his amended and supplemented complaint also fails to state a claim. This is so because the additional information he seeks to submit does not alter the Court's analysis or conclusions set forth above. In the Motion to Supplement, Grace argues that the petition to lift stay and for leave to file amended objections filed by the Beneficiary Objectors on October 2, 2013 in the Orphan's Court Proceeding is material to the instant litigation. This is so because, “although [the petition] disingenuously denies that the claims asserted against the Plaintiff concern ‘the internal affairs of Ashbridge LLC,’ [it] impliedly concedes that the claims stated by the [Beneficiary Objectors] against the Plaintiff would ordinarily be the subject of a shareholders [sic] derivative action....” 58 Grace also attaches proposed Exhibits H–K to be submitted with his proposed amended and supplemented complaint. 59 Grace does not request any modification to Count I or Count II of the Amended Complaint. *10 Grace's Motion to Supplement has two primary shortcomings. First, Grace has only directed the Court to proposed amendments to the Objections, which were denied by the Pennsylvania court. Thus, the Objections to which Grace initially directed the Court remain the Objections for which advancement and indemnification are sought. The Court need not rely on this particular issue to determine that Grace's amended and supplemented complaint fails to state a claim. The second, dispositive problem with Grace's updated complaint is that nothing within the Beneficiary Objectors' proposed objections mentions Ashbridge LLC. 60 The proposed objections are limited to issues related to Ashbridge Corporation and AIM. Thus, even if they were accepted in the Pennsylvania proceeding, Grace's modified complaint fails to state a claim. He again has not demonstrated some connection between the proposed objections and the Defendant. Grace also declined to plead a theory of successor liability based on a connection to Ashbridge Corporation. Because the exhibits and additional allegations of fact attached to or contained within Grace's proposed amended and supplemented complaint fail to state a claim under a reasonable conceivability standard, though Grace's motion to supplement is granted, his modified complaint is nonetheless dismissed. IV. CONCLUSION For the reasons set forth above, the Court grants Grace's motion to supplement and grants Ashbridge LLC's motion to dismiss. An implementing order will be entered. ORDER AND NOW, this 31st day of December, 2013, for the reasons set forth in the Court's Memorandum Opinion of even date, Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 14 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 7 IT IS HEREBY ORDERED that Defendant Ashbridge LLC's Motion to Dismiss be, and the same hereby is, granted. All Citations Not Reported in A.3d, 2013 WL 6869936 Footnotes 1 In December 2013, Grace moved to further amend and supplement his amended complaint. As discussed in Part III.E., although the Court approves his unopposed motion, his supplemental allegations do not alter the Court's conclusions. 2 Pl.'s Verified Am. Compl. (“Am.Compl.”), Exs. A, B ¶¶ I.1–5 (“Objections”). 3 Am. Compl. ¶¶ 2–3. 4 Id. ¶ 1. 5 Id. ¶ 5. 6 Grace does not explain the relationship of Ashbridge Investment Management, LLC (“AIM”) to Ashbridge LLC in his amended complaint. The Court concludes, based on the Amended Complaint and the Objections, that AIM is an affiliate of the Ashbridge entities. 7 Objections ¶¶ II.1–3. 8 Id. ¶¶ I.10–14. 9 No fully signed copy of the operating agreement of Ashbridge LLC has been located, although Grace states that the operating agreement has been effective since December 31, 2008. Counsel to Ashbridge LLC's Board of Managers provided a written opinion on the enforceability of Ashbridge LLC's operating agreement, though it is purportedly privileged. 10 This alleged fact without an explanation is a pattern in Grace's complaints. He repeatedly refers to past incidents without explaining the underlying circumstances or fully providing context. See, e.g., Am. Compl. ¶¶ 10 (“Grace ... provided an undertaking to repay,” but Grace declines to explain for what expenses he sought advancement and indemnification); 12 (“[The Board's counsel] referred to two invoices that Reed Smith had sent to Charles Grace,” but Grace declines to explain the nature of the legal services in question); 21, 26 (Grace explains his rights to advancement and indemnification are “supported by the Bylaws of Ashbridge Corporation” without explaining how or why such rights are supported by those bylaws or even quoting the pertinent sections); 21 (Grace describes “other expenses in a mediation that was conducted pursuant to leave granted by the Judge of the Orphans' Court Division,” but declines to provide any other facts about such mediation, such as when it occurred or why such mediation is indemnifiable); 14, 23 (Grace describes “claims threatened against him by Eugene G. Grace, IV,” but declines to provide any further context or explanation as to what the content of such claims was or why Ashbridge LLC should indemnify Grace for such threatened claims); supra note 6 (Grace refers to AIM in a quotation, but declines to explain what the entity is or its relationship to Ashbridge LLC). 11 In that same letter, the Board's counsel also declined to pay costs for two invoices that Reed Smith had sent to Grace and that Grace had paid and submitted to Ashbridge LLC seeking advancement and indemnification. Grace states that he does not seek judicial relief for those two invoices even though he believes he is entitled to payment because “the litigation effort required to test the validity of [the reason asserted by the Board's outside counsel] is not justified by the relatively small dollar amount of those two invoices paid by Charles Grace personally.” Am. Compl. ¶ 12. 12 Id., Ex. F. In Grace's Amended Complaint, he mentions this undertaking in what is apparently a chronologically-based narrative as though it occurred before the Board's counsel advised the Board it need not pay Reed Smith on December 23, 2011. Am. Compl. ¶ 11. However, the letter in the exhibit is dated April 12, 2013, the same date the Amended Complaint was filed in this Court. 13 Grace's motion to amend and supplement his Amended Complaint is unopposed. The supplemental allegations are considered in Part III. E. of this memorandum opinion. 14 Section 10.4, in pertinent part, provides: 10.4 Indemnification. Any Person made, or threatened to be made, a party to any action or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such Person is or was (i) a Member or Manager, or (ii) an employee, officer, director, manager, shareholder or partner of the Company or any Member or Manager (collectively, the “Indemnified Persons”), shall be indemnified by the Company for any losses or damage sustained with respect to such action or proceeding, and the Company shall advance such Indemnified Person's reasonably related expenses to the fullest extent permitted by law.... The Company may indemnify other Persons Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 15 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 8 of the Company.... The Company shall pay the expenses (including attorneys' fees and disbursements) incurred in good faith by an Indemnified Person in advance of the final disposition of any action or proceeding, upon receipt of an undertaking by or on behalf of the Indemnified Person to repay the amount if it is ultimately determined that such person is not entitled to be indemnified by the Company pursuant to this Section 10.4.... Am. Compl., Ex. C § 10.4. 15 Am. Compl. ¶¶ 21, 26. 16 Id. ¶ 21. 17 Id. ¶¶ 21, 26. 18 Def.'s Opening Br. in Supp. of its Mot. to Dismiss the Verified Am. Compl. at 16–20. 19 Id. at 20–22. 20 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.2011). 21 Id. at 537 n.13. 22 Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del.2011) (citing Clinton v. Enter. Rent–A–Car Co., 977 A.2d 892, 895 (Del.2009)). 23 Crescent/Mach I P'rs, L.P. v. Turner, 846 A.2d 963, 972 (Del. Ch.2000). 24 Malpiede v. Townson, 780 A.2d 1075, 1083 (Del.2001). 25 That section provides: Subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever. 26 Donohue v. Corning, 949 A.2d 574, 578 (Del. Ch.2008) (citing 6 Del. C. § 18–108). 27 Seaford Golf & Country Club v. E.I. duPont de Nemours & Co., 925 A.2d 1255, 1261 n.14 (Del.2007). 28 Although the Defendant makes additional arguments which may have merit, because the Court's analysis here is dispositive, the Court does not fully consider those arguments. 29 Am. Compl., Ex. C § 10.4. 30 Id. § 1.17 (“ ‘Company’ shall mean the limited liability company hereby established in accordance with this Agreement by the parties hereto, as such limited liability company may from time to time be constituted.”). The plain language of the definition functions prospectively as of the date on which the agreement was executed. 31 If the Objections had not used a defined term of “Ashbridge” to stand in for “Ashbridge Corporation,” one wonders if Grace would have filed a complaint in this Court. He either would have had to amend every quote from the Objections through the heavy use of brackets or would have made had to find an alternate legal theory, which may have been challenging given his apparent reluctance to plead directly advancement and indemnification under the bylaws of Ashbridge Corporation. 32 Even then, an analysis into whether or not the person was made a party to the suit “by reason of the fact” of her relationship to the corporate entity as opposed to her role as a trustee would be central to determining whether or not the corporate entity would be required to make advancement or to provide indemnification. 33 Bernstein v. TractManager, Inc., 953 A.2d 1003, 1009 (Del. Ch.2007) (recognizing, nevertheless, that a “highly authoritative” District of New Jersey case supported the retroactive application of advancement and indemnification rights where the only change to a reincorporated entity was to alter its state of incorporation and where such change was considered technical and without impact to the corporation's identity). 34 Id. at 1009–10. 35 Id. at 1010. 36 A cursory comparison of Ashbridge Corporation's bylaws and Ashbridge LLC's operating agreement reveals numerous differences between the two. Although not a holding, a brief inspection appears to indicate that the bylaws mandatorily indemnify only officers, directors, and other persons designated by the board (though the board may elect to indemnify others), while the operating agreement would indemnify members or managers, or employees, officers, directors, managers, shareholders or partners of Ashbridge LLC or of any member or manager; the bylaws explicitly disclaim that they will indemnify a party if he or she initiated the proceeding or was an intervenor or amicus curiae, unless the board approves it, while the operating agreement has no such disclaimer; and the bylaws have a set of provisions mandating arbitration and the operating agreement has no such arbitration requirement. Compare Am. Compl., Ex. E §§ 7.01–7.12, with Am. Compl., Ex. C § 10.4. 37 Bernstein, 953 A.2d at 1010. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 16 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 9 38 The Court expresses no opinion upon whether a successor entity could be responsible for indemnifying or granting advancement based upon the bylaws or operating agreement of a predecessor entity. As discussed in greater detail below, Grace has not alleged that Ashbridge Corporation's bylaws entitle him to advancement and indemnification and thus that issue is not before the Court. 39 Grace also argues in his answering brief that claims of excessive compensation are indemnifiable under Delaware law. Because the Court does not rely on Ashbridge LLC's argument that Grace cannot be indemnified as a result of the allegations in the Objections that Grace was excessively compensated, it need not address the issue. 40 Tafeen v. Homestore, Inc., 2005 WL 789065 (Del. Ch. Mar. 29, 2005), aff'd, 888 A.2d 204 (Del.2005). 41 Reddy v. Elec. Data Sys. Corp., 2002 WL 1358761 (Del. Ch. June 18, 2002). 42 Perconti v. Thornton Oil Corp., 2002 WL 982419 (Del. Ch. May 3, 2002). 43 See Stifel Fin. Corp. v. Cochran, 809 A.2d 555, 562 (Del.2002) (explaining that corporations are not “unduly punished” by broad advancement and indemnification provisions because they are “free to tailor” their indemnification provisions to avoid undesirable results); Paolino v. Mace Sec. Int'l, Inc., 985 A.2d 392, 401 (Del. Ch.2009) (describing broad, mandatory advancement rights that corporations continue to grant or leave in place, “despite repeated suggestions by this Court that the rights be more narrowly tailored....”). 44 Grace never seriously argues that the operating agreement of Ashbridge Partners, LLC, which existed for less than a day, entitles him to recovery. Thus, the Court directs its attention to Ashbridge Corporation's bylaws. 45 Ashbridge LLC's Motion for More Definite Statement and Motion to Dismiss reads in part: 8. Charles Grace does allege that Section 10.4 is the same provision as in an earlier Operating Agreement of a “predecessor,” of Ashbridge Partners, LLC. Charles Grace does not attach the predecessor's agreement, does not state how long that agreement was effective, and does not state why that agreement has any role in this matter. 9. With exception of one date in the Objections relating to the sale of the assets of AIM, the Objections relate to Charles Grace's conduct as a Trustee before the date of the Operating Agreement. 10. The Verified Complaint does not limit the request for advancement for matters occurring after the date of the Operating Agreement and does not provide sufficient information about the predecessors, or otherwise reveal, why advancement and indemnity applies to matters occurring before that date. Def.'s Mot. for More Definite Statement and Mot. to Dismiss NN 8–10. 46 Solomon v. Pathe Commc'ns Corp., 672 A.2d 35, 38 (Del.1996) (quoting Rabki n v. Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del.1985)). 47 Pathe Commc'ns, 672 A.2d at 38. 48 See supra note 36. 49 Grace later attempted to alter the battleground when he began justifying his rights to advancement and indemnification under the bylaws of Ashbridge Corporation, even arguing that Ashbridge LLC failed to comply with those bylaws by not moving for arbitration as the bylaws require. Pl.'s Answering Br. in Opp'n to Def.'s Mot. to Dismiss the Verified Am. Compl. at 12–13 (“AB”). Grace for the first time offered a set of arguments explaining his entitlement to indemnification under Ashbridge Corporation's bylaws in his answering brief and thus the Court cannot understand how he can argue that Ashbridge LLC should have moved to compel arbitration when that claim was not asserted in the Amended Complaint. 50 Pl.'s Supp. Br. in Further Opp'n to Def.'s Mot. to Dismiss the Verified Am. Compl. at 1–4. 51 Although the court in the Orphans' Court Proceeding referred to the entities as “Ashbridge LLC and its predecessors,” the phrase is shorthand used by the court in response to motion practice originating from the Objections. Such a reference to the different iterations of the Ashbridge entities does not change the fact that no allegation in the Objections names Ashbridge LLC which thus denies Grace his claimed relief. 52 Even in his answering brief, Grace fails to correct this deficiency, referring to the mediation only to state: “If this Court orders indemnity and advancement, Plaintiff will establish that the mediation for which indemnity is sought was directed to the factual issues alleged in the Objections involving Ashbridge Corporation and Ashbridge LLC.” AB at 8. Grace seemingly misunderstands the litigation process in that he must provide at least vague allegations of his entitlement to relief. He cannot simply promise the Court that if it orders the relief he seeks that he will then demonstrate or make an initial allegation explaining his entitlement. 53 The new allegations are supplemental because they add developments since the Amended Complaint was filed. 54 Ct. Ch. R. 15(d). 55 BabyAge.com, Inc. v. Weiss, 2009 WL 3206487, at *1 (Del. Ch. Oct. 1, 2009). 56 Blaustein v. Lord Baltimore Capital Corp., 2013 WL 1810956, at *9 (Del. Ch. Apr. 30, 2013). Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 17 of 71 Grace v. Ashbridge LLC, Not Reported in A.3d (2013) 2013 WL 6869936 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 10 57 Letter of Christopher J. Curtin, Esquire to the Court, dated Dec. 24, 2013. 58 Pl.'s Mot. for Leave to File a Verified Am. and Supplemented Compl. at 3. Grace summarizes his reason to amend and supplement as follows: The [Beneficiary Objectors'] characterization in the October 2 filings (Exhibits I and J to the proposed Supplemented Pleading) of their claims against Plaintiff as being claims that could be the subject of a shareholders derivative action is relevant and material to the issue in the above captioned action as to whether the claims asserted against Plaintiff relate to and arise from the internal affairs of Ashbridge LLC and its predecessors or whether, as contended by the Company, those claims arise only from Plaintiff's status as a co-Trustee of the Residuary Trust. Id. at 5. The Court also notes that the full quotation Grace quotes in this portion of his motion comes from the Beneficiary Objectors' petition to lift stay and for leave to file amended objections, and not the proposed amended objections, and reads “the internal affairs of Ashbridge LLC or its predecessors.” Id., Ex. I ¶ 7. The Court understands this language to be used for ease of reference in the motion practice arising from the Objections and does not alter the fact that no mention of Ashbridge LLC may be found in the proposed amended objections. 59 Those exhibits are, respectively, the Order of June 21, 2013, sustaining two jurisdictional objections of Grace against the Objections; the Petition to Lift Stay and for Leave to File Amended Objections of the Objectants, filed October 2, 2013; the proposed Amended Objections; and the Order of October 30, 2013 denying the Objectants' petition and reaffirming the prior stay. Id., Exs. H–K. Grace also attaches a clean and redlined version of his proposed amended and supplemented complaint. 60 The fact that some filings originating from the Objections refer to Ashbridge LLC and its predecessors does not alter the fact that the Objections and the proposed amended objections do not include specific allegations regarding Ashbridge LLC. End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 18 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 KeyCite Yellow Flag - Negative Treatment Distinguished by Fortis Advisors LLC v. Dialog Semiconductor PLC, Del.Ch., January 30, 2015 2009 WL 4698541 UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Court of Chancery of Delaware. Leonard GRUNSTEIN, Jack Dwyer, and Capital Funding Group, Inc., Plaintiffs, v. Ronald E. SILVA, Pearl Senior Care, LLC, PSC Sub, LLC, Geary Property Holdings, LLC, Fillmore Capital Partners, LLC, Fillmore Strategic Investors, LLC, Drumm Investors, LLC, and Fillmore Strategic Management, LLC, Defendants. C.A. No. 3932–VCN. | Submitted: July 16, 2009. | Decided: Dec. 8, 2009. West KeySummary 1 Partnership Breach of fiduciary duty Plaintiff partners' breach-of-fiduciary-duty claim was duplicative of their breach-of- contract claim and thus would be dismissed in action against defendant partner. Plaintiffs did not plead distinct harms that arose outside of the scope of the contractual relationship with defendant, and consequently, the alleged breaches of fiduciary duty would also constitute breaches of the contract. In addition, the remedies available for the breach-of-contract claim encompassed the remedies sought for the breach-of-fiduciary- duty claim. 39 Cases that cite this headnote Attorneys and Law Firms Arthur L. Dent, Esquire, Scott B. Czerwonka, Esquire, and Meghan M. Dougherty, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware; Martin Stein, Esquire of Heller Horowitz & Feit, P.C., New York, New York; and Ron S. Kaufman, Esquire and Sara M. McDuffie, Esquire of Fenigstein & Kaufman, Los Angeles, California, Attorneys for Plaintiffs. Bruce E. Jameson, Esquire and Laina M. Herbert, Esquire of Prickett, Jones & Elliott, P.A., Wilmington, Delaware; Joseph F. Donley, Esquire of Dechert LLP, New York, New York; and H. Joseph Escher III, Esquire and D. Christopher Burdett, Esquire of Dechert LLP, San Francisco, California, Attorneys for Defendants. MEMORANDUM OPINION NOBLE, Vice Chancellor. I. INTRODUCTION *1 This is an action seeking various remedies in contract, equity, and tort for the alleged breach of an oral partnership agreement to carry out the acquisition of an eldercare and rehabilitative services company. Following an amendment to the merger agreement that replaced the original acquiring entities with companies owned and controlled by only one of the three partners, that partner disclaimed the existence of an oral agreement governing the shared distribution of the acquisition proceeds. Related actions have been brought and dismissed both in this Court 1 and in the Southern District of New York. 2 In this memorandum opinion, the Court addresses the Defendants' motion to dismiss certain of the Plaintiffs' claims as well as the Defendants' motion to compel supplemental responses to interrogatories and document requests. II. BACKGROUND A. The Parties The Plaintiffs are Leonard Grunstein (“Grunstein”), a partner in the law firm of Troutman Sanders LLP (“Troutman Sanders”), Jack Dwyer (“Dwyer”), and Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 19 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 Capital Funding Group, Inc. (“CFG”), a Maryland corporation owned and controlled by Dwyer. Defendant Ronald E. Silva (“Silva”) owns and controls Defendants Pearl Senior Care, LLC (“Pearl”), PSC Sub, LLC (“PSC Sub”), Geary Property Holdings, LLC (“Geary”), and Fillmore Capital Partners, LLC (“Fillmore”), all Delaware limited liability companies. Defendant Fillmore Strategic Investors, L.L.C. (“FSI”) is a Delaware limited liability company 99% owned by the Washington State Investment Board (“WSIB”) and 1% owned by Defendant Fillmore Strategic Management, LLC (“FSM”), a Delaware limited liability company controlled by Silva and owned 100% by Silva and his wife. Silva controls FSI through FSM, which was and is the managing member of FSI. Defendant Drumm Investors LLC (“Drumm”) is a Delaware limited liability company formed by Silva and owned and controlled by FSI. B. The Partnership is Formed—Perhaps The Plaintiffs assert that, in January 2005, Plaintiffs Grunstein and Dwyer orally agreed to form a partnership for the purpose of acquiring Beverly Enterprises, Inc. (“Beverly”), then a publicly-held company that owned and/or operated approximately 345 nursing homes throughout the United States. 3 Sometime in July or August of that year, Grunstein and Dwyer invited Silva (individually and/or through Fillmore) to participate in the proposed transaction (the “Beverly Acquisition”) as an equal partner, an invitation which Silva allegedly accepted. 4 Plaintiffs assert that Grunstein, Dwyer, and Silva (the “Partners”) agreed to share profits and losses resulting from the planned acquisition of Beverly and that “each partner would share in all economic benefits received by any of them (or any entities controlled by them) resulting from the Beverly Acquisition.” 5 Further, the Partners allegedly agreed that the partnership would additionally extend to any entities that they then owned or controlled, or would own or control in the future, that were employed to carry out, or that benefited from the Beverly Acquisition. *2 Specifically, the Partners are alleged to have agreed (1) that the equity and benefits would belong equally to Grunstein, Dwyer, and Silva, and that the transaction would be carried out to maximize their joint equity and benefits; (2) that the transaction would be structured and the business operated according to the model developed by Grunstein in the Mariner acquisition (the “Mariner Model”) and that Grunstein would be involved in the management of the enterprise; and (3) that they would refinance the acquired nursing homes using HUD financing obtained through CFG—the entity controlled by Dwyer—and that they would pay CFG a minimum fee upon closing (the “Acquisition Fee,” ultimately determined to be $3.5 million), as well as 2.5% of the amount financed. 6 All of these terms (the “Partnership Agreement”) were allegedly agreed to orally and were never memorialized in a written document signed by the parties. C. The Merger Agreement and First Amendment In August 2005, North American Senior Care, Inc. (“NASC”), NASC Acquisition Corp. (“NASC Acquisition”), and SBEV Property Holdings LLC (“SBEV”), three special purpose entities then being used to facilitate the acquisition of Beverly by the Partners, entered into an agreement with Beverly (the “Merger Agreement”), pursuant to which Beverly would be acquired for approximately $2 billion. 7 The Merger Agreement was signed by NASC, NASC Acquisition, and SBEV (the “Original Acquirers”) with the consent and approval of each of the Partners, and required the Original Acquirers to pay a $7 million deposit to Beverly, which was advanced by CFG on behalf of the partnership. 8 After another suitor made a superior offer, the Partners provided a counter bid by way of an amendment to the Merger Agreement (the “First Amendment”) by which the Original Acquirers agreed to supply a $53 million letter of credit and an equity commitment letter for $350 million by September 22, 2005. Failure to meet the deadline would result in a forfeiture of the $7 million deposit. 9 The Partners allegedly agreed that Silva would be responsible for raising the equity portion of the funds needed to acquire Beverly, which Silva agreed to both orally as well as in writing. 10 Silva and Fillmore (which Silva controlled) sought to raise the necessary equity from PSP Investments (“PSP”) and WSIB, two entities with which Silva had had prior dealings. In his presentations to PSP and WSIB, Silva allegedly represented that the Beverly Acquisition would be structured according to the Mariner Model and that “the same team that was instrumental in acquiring Mariner was also going to be Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 20 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 involved in acquiring and managing Beverly.” 11 Silva represented to PSP that Grunstein was a “partner” in the acquisition. 12 Allegedly relying upon the provision in the Partnership Agreement that CFG would underwrite the portfolio of Beverly nursing homes for HUD financing and would have the opportunity to provide HUD financing for the Beverly portfolio upon completion of the acquisition, Dwyer caused CFG both to perform the underwriting and to provide its written commitment for $1.43 billion of permanent HUD financing to be used to refinance the acquired healthcare facilities . 13 Upon providing its commitment letter and at Defendants' request, CFG continued its underwriting activity and helped to structure the commercial mortgage backed (“CMBS”) loans used to complete the acquisition so that these loans could be taken out by HUD financing to be provided by CFG. 14 Nevertheless, CFG has not received the associated fees for these services. 15 Ultimately, the Defendants did not use CFG to acquire HUD financing, even though Silva had allegedly represented to PSP the Partners' intention to do so. 16 D. The Second Amendment *3 Silva failed to secure the $350 million equity commitment and $53 million letter of credit by the deadline. In order not to forgo the $7 million deposit, the Partners negotiated a second amendment to the Merger Agreement (the “Second Amendment”), which increased the deposit to $10 million. The additional $3 million for the deposit was advanced by CFG. 17 The Second Amendment also provided Beverly an equity commitment letter signed by Silva on behalf of Fillmore that agreed to provide the Original Acquirers $350 million in funding for the acquisition. 18 The source of this funding needed to be identified by November 18, 2005, or Beverly had the right to terminate the deal and retain the deposit. Around this same time, the Partners prepared a draft “Contribution Agreement” which set forth the material terms of an agreement to share expenses, profits, and losses from the Beverly Acquisition and provided, inter alia, for Silva and Fillmore to contribute funds to the partnership, including reimbursing CFG for the additional amount it had advanced for the deposit under the Second Amendment. 19 The Contribution Agreement also established that CFG would “earn its reasonable and customary fees and be reimbursed for its reasonable costs and expenses” upon the completion of the HUD insured refinancing. 20 The Contribution Agreement was ultimately not signed. At about this same time, Grunstein paid Troutman Sanders $1.5 million in legal fees toward the work done for the Original Acquirers in connection with the Beverly Acquisition. 21 Following the Second Amendment, Silva continued trying to induce WSIB to put up the $350 million in equity financing. The Plaintiffs allege that, unbeknownst to them, Silva sent a revised investment recommendation to WSIB on November 4, 2005, that “falsely” represented that Silva's company, Fillmore, had put up the “$10 million” deposit and that Fillmore had “entered into [the] merger agreement.” 22 E. The Third Amendment and the Closing of the Merger For reasons the Plaintiffs have not fully disclosed and assert are irrelevant to the lawsuit, on November 17, 2005, Silva formed and incorporated Pearl, PSC Sub, and Geary to complete the acquisition of Beverly in place of the Original Acquirers. 23 The Plaintiffs simply assert that this was done in order “to carry out the agreement of the partners.” 24 That same day, Silva formed FSI to take the place of Fillmore in providing the equity portion of the financing, and WSIB approved an investment of $350 million in FSI. 25 The following day, FSI issued a commitment letter for $350 million, signed by Silva, which satisfied the necessary condition of the Second Amendment. 26 On November 20, 2005, a third amendment to the Merger Agreement (the “Third Amendment”) was signed, which changed certain terms of the transaction with Beverly and assigned the rights and obligations of the Original Acquirers to the newly formed entities, Pearl, PSC Sub, and Geary. 27 Silva signed on behalf of Pearl and PSC Sub. The Plaintiffs assert that “[t]he substitution of these parties was based on Silva's representations and promises that Grunstein, Dwyer and Silva were still partners, and that the agreements between the Plaintiffs and Silva would be carried out by Silva's companies.” 28 Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 21 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 *4 Silva also represented to Grunstein that WSIB wanted Silva to serve as the manager of the post-acquisition entity in lieu of Grunstein, but that, otherwise, Grunstein had “virtually the same deal.” 29 The Plaintiffs contend that, following the signing of the Third Amendment, Silva continued to represent to Grunstein and Troutman Sanders that Grunstein still retained a partnership interest in the deal by way of a carried interest in Beverly. 30 Additionally, as late as March 2006, the Defendants requested—and Dwyer and CFG provided —an updated CFG underwriting in preparation for refinancing the healthcare facilities being acquired in the Beverly Acquisition, which the Plaintiffs assert is further proof that the entity Defendants created after the Partnership Agreement “ratified, approved, reaffirmed and assumed the representations, promises and commitments previously made by Defendant Silva” with respect to CFG. 31 On March 14, 2006, the Defendants completed the Beverly Acquisition. The stock of Beverly is currently owned by Pearl, which in turn is owned by Drumm. F. Plaintiffs' Claims against Defendants The Plaintiffs aver that “[e]xcept for repaying CFG for the amount it advanced for the Deposit, Defendants have retained all of the economic benefits of the Beverly Acquisition for themselves and to the exclusion of Plaintiffs.” 32 In addition, the Defendants have allegedly refused to pay CFG the Acquisition Fee, which was due when the Beverly Acquisition closed, and chose neither to refinance the acquired healthcare facilities with HUD financing obtained from CFG, nor to pay CFG 2.5% of the amount financed, as allegedly required by the Partnership Agreement. Finally, the Plaintiffs claim that the Defendants failed to utilize the Mariner Model in the transaction and have excluded Grunstein from any role in connection with the management of Beverly. The Plaintiffs assert that all of the Defendant entities are owned or controlled by Silva and are, therefore, bound by the Partnership Agreement allegedly consented to by Silva. The Plaintiffs further allege that the Defendants unfairly benefited from their involvement in the Beverly Acquisition: Because of the reputation and standing of Plaintiffs Dwyer and Capital Funding within the financial community, the CFG Commitment enhanced the credibility of the Partnership and the Original Acquirers of Beverly and of Defendants in connection with their negotiations with third parties for the acquisition and its funding, and the efforts of Capital Funding and Dwyer benefited Defendants by assisting them in obtaining the loans necessary to fund the merger transaction.” 33 In addition, the Plaintiffs attest that “[t]he underwritings and other information and advice provided to the Defendants by CFG was of substantial value to Defendants” and was used by the Defendants to set release prices for the CMBS financing, to make the CMBS loans HUD-refinanceable, and to obtain credit agency ratings for the CMBS loans so that the Beverly Acquisition could be financed by selling the CMBS loans in the market as commercial mortgage backed securities. 34 G. The Nature of the Relief Sought by Grunstein, Dwyer, and CFG *5 Because of the Defendants' alleged failure to honor the Partnership Agreement, the Plaintiffs bring suit for breach of contract, for breach of fiduciary duty, and under the doctrines of promissory estoppel, fraud, negligent misrepresentation, and tortious interference with contractual relations and prospective business advantage. The Plaintiffs seek damages in an amount to be determined by this Court, as well as an accounting from the Defendants and/or an order directing that all money or property obtained by the Defendants as a consequence of the Beverly acquisition be held in constructive trust. III. DISCUSSION A. Applicable Standard The Defendants have moved to dismiss certain of the causes of action raised in the Complaint. A motion to dismiss under Court of Chancery Rule 12(b)(6) for failure to state a claim will not be granted unless it appears with reasonable certainty that “under no set of facts which could be proved to support the claim asserted would Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 22 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 5 the plaintiff be entitled to relief.” 35 In considering a motion to dismiss, courts are required to assume the truthfulness of all well-pleaded allegations of fact in the complaint, as well as all inferences that can reasonably be drawn in favor of the plaintiff from such facts. 36 Conclusory allegations, however, are not accepted as true without specific supporting factual allegations. 37 In short, if a plaintiff may recover under any reasonably conceivable set of circumstances susceptible to proof under the complaint, the motion must be denied. 38 The Defendants challenge six of the Plaintiffs' nine causes of action through the pending motion to dismiss, specifically, the Plaintiffs' claims for: (1) breach of fiduciary duty (Count II); (2) promissory estoppel (Count III); (3) fraud (Count V); (4) negligent misrepresentation (Count VI); (5) breach of contract involving Dwyer and CFG (Count VII); and (6) tortious interference (Count IX). The Defendants also move to dismiss all claims asserted against the Defendants other than Silva and Fillmore. These contentions will be addressed seriatim. The Plaintiffs' claims for breach of the partnership agreement (Count I), for breach of contract regarding the carried interest (Count IV), and for unjust enrichment (Count VIII) are not now contested by Defendants. B. The Breach of Fiduciary Duty Claim In addition to their principal claim for breach of the Partnership Agreement, the Plaintiffs assert that Silva and, by extension, those Defendant entities that Silva controls, have breached the fiduciary duties of good faith, fairness, and loyalty owed to the partnership by: (1) taking for themselves all of the economic benefits from the acquisition of Beverly, which the Partners were to share equally among themselves; (2) failing to provide Plaintiffs with their contractual share of such benefits; and (3) having depleted the funds that should have been distributed to the Plaintiffs, such that they would not be able to pay any judgment for those damages to which Plaintiffs assert they are entitled. *6 The Defendants argue that the general rule under Delaware law, subject to only narrow exceptions, is that a plaintiff may not “bootstrap” a breach of fiduciary duty claim into a breach of contract claim merely by restating the breach of contract claim as a breach of fiduciary duty. 39 Courts will dismiss the breach of fiduciary claim where the two claims overlap completely and arise from the same underlying conduct or nucleus of operative facts. 40 The Plaintiffs, in response, point to a line of cases in which, they assert, claims for breach of fiduciary duty pleaded in conjunction with breach of contract claims have survived a motion to dismiss when additional facts and remedies distinguished the two causes of action. 41 The Court concludes that this matter falls outside of the narrow exception to Delaware case law allowing the joint pleading of breach of contract and breach of fiduciary duty claims under the same nucleus of operative facts. Accordingly, the Defendants' motion to dismiss the breach of fiduciary duty claim is granted. In determining whether a breach of fiduciary duty claim is duplicative of a corresponding breach of contract claim, the principal inquiry by Delaware courts is whether the fiduciary duty in the complaint arises from general fiduciary principles or from specific contractual obligations agreed upon by the parties. “Because of the primacy of contract law over fiduciary law, if the duty sought to be enforced arises from the parties' contractual relationship, a contractual claim will preclude a fiduciary claim.” 42 This is because a breach of fiduciary duty claim generally only survives where it may be maintained independently of the breach of contract claim. Where those rights arise from a contract that specifically addresses the matter at issue, the court evaluates the parties' conduct within the framework they themselves crafted, instead of imposing more broadly defined equitable duties. In arguing that the claim ought to survive the motion to dismiss, the Plaintiffs rely most heavily on Schuss, and suggest that the facts here are “substantially similar” to those in Schuss. 43 In Schuss, the plaintiffs alleged that the defendants had violated their partnership agreement by failing to make distributions to the plaintiffs in the full amount due as stipulated in the agreement, and that the defendants had engaged in self-dealing in depleting the funds held by the partnership and shifting losses to the plaintiffs, leaving the partnership with insufficient funds to satisfy the damages owed to the plaintiffs. There, the breach of fiduciary duty claim centering on the latter allegations persisted because the court concluded that “[a]lthough these fiduciary duty claims share a common nucleus of operative facts with Plaintiffs' breach Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 23 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 6 of contract claim, they depend on additional facts as well, are broader in scope, and involve different considerations in terms of a potential remedy.” 44 *7 The Plaintiffs attempt to bring their fiduciary duty claim within the exception delineated in Schuss by arguing that it, too, involves additional allegations not relevant to the breach of contract claim. The additional facts pleaded include that “Defendants have received management fees and other monies in connection with the Beverly Acquisition which should have been paid to Plaintiffs” and that “Defendants have depleted themselves of the funds that should have been distributed to Plaintiffs and lack sufficient money and liquid assets to pay a judgment for the damages to which Plaintiffs are entitled.” 45 The Plaintiffs also contend that, as in Schuss, the remedies they seek of an accounting and a constructive trust for the Defendants' breaches of fiduciary duty are different from the remedies sought in their breach of contract claims. The Plaintiffs' reliance on Schuss, however, is unavailing because, there, the court allowed the fiduciary duty claim to go forward because the plaintiff had plead distinct harms caused by the defendants that fell outside the scope of their contractual relationship but within their fiduciary relationship. 46 Further, the contractual obligations only implicated one of the defendants while fiduciary duties extended to the remaining defendants. Thus, it could not be said that the fiduciary duty claim asserted in Schuss was duplicative of the breach of contract claim. In contrast, the establishment of any fiduciary relationship between the Plaintiffs and the Defendants comes solely by way of the Partnership Agreement, the alleged breach thereof being the source of at least one of the Plaintiffs' breach of contract claims. Consequently, the breaches of fiduciary duty that the Plaintiffs allege would also constitute breaches of the Partnership Agreement, since the allegations ultimately amount to the failure to allocate profits and equity equally among the Partners. 47 Likewise, the remedies available for the breach of the Partnership Agreement claim would seem to encompass the remedies sought for the breach of fiduciary duty claim, an accounting and the imposition of a constructive trust. Indeed, the court in Schuss distinguished its holding from prior cases that had dismissed breach of fiduciary duty claims as duplicative of breach of contract claims by noting that those cases had “claims that either were substantially identical, such that the fiduciary duty claim would have been ‘superfluous,’ or involved remedies that were likely to be equivalent....” 48 Such is the case here. Accordingly, the Plaintiffs' breach of fiduciary duty claim is dismissed. C. The Promissory Estoppel Claim The Plaintiffs also assert a claim for promissory estoppel. A claim for promissory estoppel requires factual allegations that: (1) a promise was made; (2) it was the reasonable expectation of the promisor to induce action or forbearance on the part of the promisee; (3) the promisee reasonably relied on the promise and took action to his detriment; and (4) such promise is binding because injustice can be avoided only by enforcement of the promise. 49 The Defendants counter that Plaintiffs' claim for promissory estoppel should fail for any one of the following reasons: (1) because there is a valid written agreement; (2) because the Plaintiffs have not alleged a failure of consideration; and (3) because the Plaintiffs have not adequately pleaded reasonable reliance on any promise by the Defendants. 1. Does a Valid Contract Preclude Promissory Estoppel? *8 Defendants contend that the existence of a valid contract would function to preclude Plaintiff's promissory estoppel claim. 50 Specifically, the Defendants point to the Third Amendment, which assigned the rights and obligations of the Original Acquirers in the Merger Agreement-entities owned or controlled by Grunstein, although not by Dwyer-to Pearl, PSC Sub, and Geary. The Defendants note that the Complaint, itself, asserts that the assignment in the Third Amendment “was based on Silva's representations and promises that Grunstein, Dwyer and Silva were still partners, and that the agreements between Plaintiffs and Silva would be carried out by Silva's companies,” but contained no conditions on the Defendants' assumption of the rights and obligations of the Original Acquirers under the Merger Agreement and, further, expressly stated that Pearl Senior, PSC Sub, and Geary were not affiliates or successors of the Original Acquirers. The Plaintiffs respond that neither they nor Silva are parties to either the Third Amendment or the Merger Agreement. Thus, this contract cannot function to Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 24 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 7 preclude their promissory estoppel claim. Further, neither the Third Amendment nor the Merger Agreement was intended to delineate the rights and obligations of the Plaintiffs and the Defendants to one another, but only to describe and allocate the rights and obligations of the acquiring parties—first, the Original Acquirers and, subsequently, Pearl, PSC Sub, and Geary—and Beverly with respect to the Beverly Acquisition. As such, it would seemingly not be expected for side agreements between the Plaintiffs and the Defendants to be included in such a document, even if they were implicitly relied upon in executing the Third Amendment. The Defendants characterize the Plaintiffs' position as contending that, in order for the Third Amendment to bar the promissory estoppel claim, the provisions of the contract must expressly preclude this claim, which they assert is not the correct standard. 51 If this is Plaintiffs' assertion, they are wrong. Were promissory estoppel able to cure facially integrated written agreements that did not capture all oral promises, there would be little need for parol evidence jurisprudence. Of course, the presence of contracts governing the relationship between two parties may very well preclude promissory estoppel claims for aspects of the negotiations that were not memorialized in writing. However, Defendants are also incorrect in asserting that they need only show the presence of a contract involving the parties or those entities they own or control to preclude a promissory estoppel claim. The Third Amendment differs from those contracts held to preclude promissory estoppel claims because they directly involved the subsequently-litigating parties and, more importantly, the contours of the agreement at issue in the litigation, which the Third Amendment does not. 52 Thus, the Third Amendment does not function to preclude the Plaintiffs' promissory estoppel claim. 53 2. Is Plaintiffs' Failure to Assert Lack of Consideration Dispositive? *9 Second, the Defendants assert that promissory estoppel has the narrow purpose of functioning as a consideration substitute—not as a substitute for reaching an agreement. Yet, the Plaintiffs have not alleged a failure of consideration in their Complaint. To the contrary, the Defendants argue, the Plaintiffs have done the opposite: in order to establish a breach of contract claim, they expressly assert “the existence of consideration for the alleged partnership and ‘carried interest’ agreements alleged in the FAC.” 54 However, by contending that the Plaintiffs' assertion of the existence of consideration by way of their breach of contract claim precludes their promissory estoppel claim, the Defendants, in effect, seek to deprive the Plaintiffs of the ability to plead in the alternative. Court of Chancery Rule 8(e)(2) provides in relevant part: A party may set forth 2 or more statements of a claim or defense alternately or hypothetically, either in 1 count or defense or in separate counts or defenses.... A party may also state as many separate claims or defenses as the party has regardless of consistency. The Plaintiffs rely upon Ramone v. Lang for the principle that “[p]romissory estoppel is more accurately described as a particular application or subcategory of the general doctrine of equitable estoppel, rather than as a principle of contract law that operates as a substitute for consideration.” 55 The Defendants dismiss this as dicta from an earlier case, and assert that the court in Ramone continued to uphold the standard in Lord that “[p]romissory estoppel is more accurately viewed as a consideration substitute for promises which are reasonably relied upon, but which would otherwise not be enforceable.” 56 The Defendants seek to confine promissory estoppel to the realm of contract, and seemingly dismiss the notion that the “fundamental idea” underlying the doctrine of promissory estoppel is the prevention of injustice. 57 As Pomeroy has written: “The name ‘promissory estoppel’ has been adopted as indicating that the basis of the doctrine is not so much one of contract, with a substitute for consideration, as an application of the general principle of estoppel to certain situations.” 58 Corbin's treatise on contracts similarly notes that “in Delaware promissory estoppel has evolved and matured beyond being only a contract consideration substitute to support expectancy relief,” 59 and Delaware courts have countenanced, at least in limited circumstances, the use of promissory estoppel to avoid application of the statute of frauds . 60 Promissory estoppel has historically functioned as a consideration substitute for relied-upon promises because a bargained-for promise made with consideration functioned as an enforceable contract and eliminated Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 25 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 8 any need for an additional equitable remedy. 61 Indeed, should the Defendants prevail in asserting that no Partnership Agreement existed among the Plaintiffs and the Defendants, then, as a matter of law, any pecuniary harm to the Plaintiffs could only function as detrimental reliance on a promise, not as consideration. *10 Perhaps not surprisingly, the principal question in Delaware promissory estoppel cases is not whether the plaintiff's response to a promise constituted detrimental reliance or consideration, but, instead, whether injustice could be avoided only by an enforcement of the promise. 62 This is because courts have been unwilling to apply strict contractual interpretation on what is, at base, an equitable remedy. Accordingly, at least in the circumstances of this case, the failure to plead lack of consideration is not fatal to the Plaintiffs' promissory estoppel claim. 3. Have Plaintiffs Failed to Plead Reasonable Reliance? Finally, the Defendants maintain that the Plaintiffs' promissory estoppel claim fails because the Plaintiffs cannot prove that they reasonably relied on any promise concerning the partnership. This is because: (1) the Third Amendment contains integration and disclaimer provisions; (2) the Third Amendment gives Pearl the right, in its sole discretion, to change or modify the owners of the entities acquiring Beverly; and (3) the parties are sophisticated and the size of the transaction is very large. 63 The Defendants invoke New York law to argue that reliance is unreasonable as a matter of law when oral promises directly contradict the terms of a written agreement, 64 and assert that the integration clause included in the Merger Agreement by way of the Third Amendment functions to preclude any reliance by the Plaintiffs. Specifically, Section 9.6 of the Merger Agreement states, in relevant part: This Agreement, as amended by that certain Third Amendment ... constitute[s] the entire agreement of the Parties and supersede[s] all prior agreements and undertakings, both written and oral, between the Parties, or any of them, with respect to the subject matter hereof.... EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT ..., NONE OF PARENT [Pearl], MERGER SUB [PSC Sub] AND THE COMPANY [Beverly] MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE MERGER.... 65 Thus, the Defendants claim that “any purported assurance by Silva that he was ‘partners' with Grunstein and Dwyer contradicts the Third Amendment, which clearly assigned Grunstein's rights under the Merger Agreement (held by his entity SBEV) to defendants Pearl, PSC Sub, and Geary. “ 66 The Defendants' heavy reliance on the Third Amendment to preclude the Plaintiffs' equitable estoppel claim, however, is misplaced, at least at this stage of the proceedings. As noted earlier, it cannot be said that the Third Amendment or the Merger Agreement addressed the rights and obligations present between the Plaintiffs and Silva or his entities in any meaningful way. Although the integration clause in Section 9.6 is broad in scope, it is narrowly focused to “the subject matter” of the Merger Agreement and Third Amendment, namely the acquisition of Beverly and the assignment of the Original Acquirers' rights and obligations therein to the Silva entities, not the post-acquisition disbursement of proceeds, profits, or other benefits among the alleged Partners, none of whom was a direct party to that agreement. *11 Likewise, the language disclaiming all other representations and warranties is limited to “the execution of this agreement or the merger.” Thus, Grunstein's reliance on oral representations that his assignment of the rights and obligations of the Original Acquirers to Silva's entities would not result in the complete abolition of his partnership interest in the venture appears to fall outside of the disclaimer provided for in Section 9.2. 67 The case law that the Defendants offer in support of their claim that a contradictory written agreement precludes reliance on oral promises as a matter of law seems to limit this rule Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 26 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 9 to where the contractual terms “directly” 68 or “flatly” 69 contradict oral promises, or where there is a “ ‘meaningful’ conflict” 70 between them. This is clearly not the case here. Accordingly, reliance is not precluded as a matter of law. The Defendants also point to two other passages in the Third Amendment that, they assert, serve to preclude the Plaintiffs' promissory estoppel claim. First, Section 4.2 states that “Parent [Pearl] shall have the right in its sole discretion to change or modify in any way the equity and/ or membership interests in Parent [Pearl], Merger Sub [PSC Sub], and GPH [Geary]; provided that the Equity Commitment Letter is not amended and remains in full force and effect and any such change or modification does not and could not reasonably be expected to result in an significant delay in the Closing.” 71 The Defendants suggest that this clause served as acquiescence by the Original Acquirers that allowed the Silva entities to determine the ultimate equity claims on the acquired Beverly. Yet, this provision merely functions to prevent Beverly from contesting the acquisition should the partnership—represented in the Merger Agreement by the Silva entities—choose to modify its structure. Second, the Defendants look to Section 4.4(g), which states that: For purposes of this Section 4.4 and for the avoidance of doubt, (i) none of [Pearl], PSC Sub, and [Geary] shall be considered affiliates or successors of any of NASC, NASC Acquisition or SBEV, and none of NASC, NASC Acquisition or SBEV shall be considered affiliates or successors of [Pearl], PSC Sub or [Geary], (ii) [Fillmore], [FSI] and their affiliates shall not be considered NASC Releasing Parties.... 72 This clause, however, has no bearing on the claims of the Plaintiffs to the equity received by the Silva entities since it only applies to Section 4.4, which clarifies that neither Beverly nor the Original Acquirers breached any covenants and warranties before the assumption of the Original Acquirers' rights and obligations by the Silva entities through the Third Amendment, and that the Original Acquirers and Beverly release one another “from any all claims, demands, proceedings, causes of action and liabilities” that they may have. 73 As the Original Acquirers were asset-less entities created for the sole purpose of effectuating the Beverly acquisition, it makes sense that they would not have any ongoing obligations under the Merger Agreement following the assignment. That the Silva entities are treated as distinct from the Original Acquirers for purposes of these representations simply means that Section 4.4 does not function to release the Silva entities and Beverly from any of their claims or obligations to each other. *12 Finally, the Defendants assert that any reliance on oral representations regarding a partnership agreement would be unreasonable given the size of the transaction, sophistication of the parties, and the fact that other written agreements involving the Beverly Acquisition were executed. The fact that the Plaintiffs are not only sophisticated investors but also include an attorney at a major law firm (that helped draft many of the core documents for the transaction) certainly undermines their reasonableness in relying on oral promises alone with respect to the equity distribution of a billion dollar deal. 74 The Plaintiffs may have to confront these negative inferences later. The Complaint, however, facially alleges sufficient facts to justify reasonable reliance in this case —even among sophisticated parties—such that it would be improper to dismiss reliance-based claims at this stage. These allegations include that the parties had preexisting relationships and had collectively worked on the acquisition for nearly a year before the signing of the Third Amendment, that the Plaintiffs and Silva prepared a draft Contribution Agreement for the allocation of costs associated with preparing the acquisition, as well as the fact that Silva continued to employ the services of Grunstein and Dwyer after the signing the Third Amendment and up until the close of the acquisition, and that Silva repeatedly affirmed the nature of their relationship (i.e., that the Plaintiffs maintained a carried interest in the deal) orally and in writing, both before and after the signing of the Third Amendment. Consequently, it cannot be said that the parties' sophistication necessarily precludes any reasonable reliance on oral promises. As the elements of promissory estoppel have been sufficiently plead in the Complaint, the Defendants' motion to dismiss the Plaintiffs' estoppel claim is, therefore, denied. With respect to remedy, the Defendants maintain that the Plaintiffs ultimately seek to enforce an unenforceable oral agreement by way of promissory estoppel, instead of seeking the traditional reliance damages. 75 The Court, however, need not consider the appropriate remedy for Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 27 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 10 a promissory estoppel claim at the motion to dismiss stage. 76 D. The Fraud Claim The Plaintiffs have also asserted a fraud claim associated with Silva's representations regarding the existence of the Partnership Agreement. 77 In order for a fraud claim to survive a motion to dismiss, a plaintiff needs to allege: (1) that a defendant 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 the plaintiff to act or refrain from acting; (4) that plaintiff's action or inaction was taken in justifiable reliance upon the representation; and (5) damage to the plaintiff as a result of her reliance on the representation. 78 The Defendants seek dismissal of the Plaintiffs' fraud claim by arguing that it “improperly restates” the claim for breach of the Partnership Agreement and fails to identify “an independent misrepresentation of fact.” 79 The Defendants assert that, by hanging their fraud claim on the Defendants' misrepresentation of their “intent to perform pursuant to the alleged partnership agreement,” the Plaintiffs impermissibly attempt to bootstrap a breach of contract claim into a fraud claim. 80 *13 The Plaintiffs attempt to distinguish their fraud claim by emphasizing that Silva not only misrepresented his intent to honor the contract, but also now disclaims the very existence of a contract in the first place. Further, the Plaintiffs allege that Silva continued to advise them of the existence of the Partnership Agreement at the same time that he was engaged in activities to undermine and circumvent that very Partnership Agreement. Thus, these allegations appear distinct from an assertion that the Defendants simply “never intended to perform.” 81 This Court has held that whether an agreement has been reached “is not the type of fact that a court should consider for purposes of misrepresentation claims.” 82 This is, in part, because of the general rule that “statements which are merely promissory in nature and expressions as to what will happen in the future are not actionable as fraud.” 83 Instead, the putative misrepresentation must involve either a “past or contemporaneous fact or a future event that falsely implies an existing fact.” 84 Courts, however, will convert an unfulfilled promise of future performance into a fraud claim if particularized facts are alleged that collectively allow the inference that, at the time the promise was made, the speaker had no intention of performing. 85 Indeed, “[s]tatements of intention ... which do not, when made, represent one's true state of mind are misrepresentations known to be such and are fraudulent. This knowing misrepresentation of one's intention or state of mind is a misrepresentation of an existing fact.” 86 The reasons for this rule have been explained as follows: Representations as to what will be performed or will take place in the future are regarded as predictions and hence are not fraudulent, irrespective whether the matter is before the court as an action for damages for deceit or defensively as a ground of avoidance of a written contract. A false assertion presupposes that an event has occurred, that a duty has been performed, that a fact has intervened or that an authority exists, either or all of which may have induced the contract or prevented its being consummated. (To anticipate the future and predicate falsehood upon an act to be done or omitted at a future day would change a mere broken promise into a fraud on the part of him who was bound to fulfill the engagement, thus practically illustrating the old forms of declarations in assumpsit, wherein the defendant was always charged with fraudulently and deceitfully refusing to perform his agreement.) 87 However, “[a] party's failure to keep a promise does not prove the promise was false when made.” 88 Unlike a traditional fraud claim that allows a plaintiff to plead intent generally, because the factual predicate of a promissory fraud claim is the speaker's state of mind at the time the statement is made, a general averment of a culpable state of mind is insufficient. Instead, the plaintiff “must plead specific facts that lead to a reasonable inference that the promissor had no intention of performing at the time the promise was made.” 89 In attempting to assert that Silva had no such intention, the Plaintiffs point to two principal factual allegations: (1) that “[a]t no time from at least early September 2005 through the closing did Mr. Silva ever mention Mr. Grunstein's name to WSIB or disclose to WSIB Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 28 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 11 Mr. Grunstein's role in the Beverly Acquisition.... [A]s far as WSIB was concerned, Mr. Grunstein did not exist”; 90 and (2) that “Mr. Silva represented to WSIB in writing on several occasions ... that FCP had signed the Merger Agreement and paid the deposit to Beverly, when in fact NASC had signed the merger agreement and Mr. Dwyer had put up the deposit pursuant to the agreement between the parties.” 91 Because these representations came shortly after the formation of the purported partnership and occurred concurrently with persistent representations from Silva to the Plaintiffs that such a partnership existed, the Plaintiffs assert that Silva intended to induce efforts by the Plaintiffs without any intention of complying with their agreement. Viewing these facts in the light most favorable to the Plaintiffs, they establish an intentionally false representation on which the Plaintiffs relied to their detriment. Thus, it would be improper to dismiss the Plaintiffs' fraud claim at this stage. Nonetheless, the Plaintiffs may eventually need to rebut certain facts that appear to undercut the allegation that Silva intended to breach the Partnership Agreement from its inception in order to prevail on this claim at trial. 92 *14 In addition, the Plaintiffs have asserted a second factual representation made by Silva that could additionally give rise to a fraud claim. The Plaintiffs allege that “[s]ometime around the adoption of the Third Amendment,” Silva informed Grunstein that “WSIB desired that Silva serve as the manager,” specifically, “under the Washington rules that he had to be the manager; that he had some sort of special relationship with them....” 93 This This appears at least facially inconsistent with the Plaintiffs' other allegation that Silva never disclosed to WSIB that he had partners and that Grunstein had a role in the Beverly Acquisition, 94 and, thus, may be additional grounds for fraud, if shown to have been untrue. However, in order to prevail on a fraud claim stemming from this assertion, the Plaintiffs would need to show not only that Silva knowingly (or recklessly) misrepresented that WSIB wanted to modify the proposed structure to make him the manager, but also that Grunstein relied on this statement to his detriment. 95 In addition, the Defendants argue that the Plaintiffs' fraud claim ought to be dismissed, either because Plaintiffs have failed to plead this claim with sufficient particularity or because the integration clause in the Third Amendment precludes a finding of reasonable reliance on any misstatements. Both of these arguments also fail. Court of Chancery Rule 9(b) calls for a higher pleading standard for fraud claims, requiring “the circumstances constituting the fraud ... [to] be stated with particularity.” To satisfy the particularity requirements, “a complaint must allege (1) the time, place, and contents of the false representation; (2) the identity of the person making the representation; and (3) what the person intended to gain by making the representations.” 96 In essence, plaintiffs are required to allege the circumstances of the fraud “with detail sufficient to apprise the defendant of the basis for the claim.” 97 The Plaintiffs have more than done so here. The Plaintiffs have asserted discrete representations by Silva at specifically delineated times during the acquisition negotiations, as well as what Silva stood to gain from making such representations . 98 These representations were also sufficiently close in time to the alleged formation of the Partnership Agreement potentially to sustain an inference that Silva did not intend to honor the agreement at the time it was made. Thus, the Complaint satisfies Rule 9(b). As with the promissory estoppel claim, the Defendants' reliance on the integration clause in the Third Amendment fails in this context and does not serve to preclude reliance by the Plaintiffs as a matter of law. E. The Negligent Misrepresentation Claim The Plaintiffs attempt to plead a claim for negligent misrepresentation. Unlike traditional fraud claims, negligent misrepresentation, or equitable fraud claims do not require a knowing or intentional state of mind. A plaintiff need only allege: (1) a pecuniary duty to provide accurate information; (2) the supplying of false information; (3) failure to exercise reasonable care in obtaining or communicating the information, and (4) a pecuniary loss caused by justifiable reliance upon the false information. 99 Negligent misrepresentation, however, “cannot lie where the underlying representations take the form of promises” 100 because promissory fraud requires an intentional or knowing act. That is because the promise to honor an agreement is only a misrepresentation if the promisor knows at the time of the promise that he will ultimately breach; such a misrepresentation cannot occur unknowingly or negligently. Thus, any negligent Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 29 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 12 misrepresentation claim stemming from the Defendants' repudiation of the contract is dismissed. *15 On the other hand, the Plaintiffs' claim involving Silva's representations to Grunstein with respect to WSIB's ownership requirements for Beverly survives the motion to dismiss because it does not involve a false promise and because Plaintiffs' corresponding fraud claim —also setting forth the elements of a cause of action for negligent misrepresentation—otherwise survives. 101 F. Dwyer and CFG's Breach of Contract Claim The Defendants move to dismiss Dwyer and CFG's breach of contract claim as running afoul of Delaware's statute of frauds. Dwyer's principal responsibility under the Partnership Agreement was to underwrite, through CFG, the portfolio of Beverly nursing homes for HUD financing. CFG was also to be given the opportunity to provide HUD financing for the Beverly portfolio upon completion of the acquisition. For this, CFG was to be paid at closing an Acquisition Fee of the greater of $3.5 million or 2.5% of the amount financed. The Defendants assert that this constitutes a contract for the lending of money for an amount greater than $100,000, which Delaware's statute of frauds requires to be in writing. 102 Defendants contend, Dwyer's oral contract claim should be dismissed. The Plaintiffs respond that it is not proper to dismiss a claim at the pleadings stage on statute of frauds grounds unless it clearly is subject to the statute, there is no possible exception to the statute that might apply, and there is no possible way that compliance with the statute might be achieved. In particular, the Plaintiffs claim that Dwyer's obligation was not to lend money, but to function as an underwriter, and, thus, that the statute of frauds does not apply. Moreover, the Plaintiffs further assert that, even if Dwyer's obligations are subject to the statute of frauds, the doctrine of part performance may function as an exception to the statute, or that draft contracts and other documents that reference CFG's retention and fees may suffice as writings for statute of frauds purposes. The Defendants respond that these documents were never executed by any Defendants; thus, they cannot be bound by them. The Plaintiffs and the Defendants also dispute whether or not Delaware law is applicable to the question. 103 The Plaintiffs contend that the terms of the Partnership Agreement involving Dwyer and CFG do not constitute an agreement or commitment to loan money in an amount exceeding $100,000. Instead, it was Dwyer's obligation to provide underwriting services to the partnership for HUD financing. The Plaintiffs acknowledge that Dwyer had the option to lend HUD financing to the partnership but assert that Dwyer was not obligated to make such a loan when the opportunity was offered. According to the Plaintiffs, this absence of commitment precludes the application of the statute of frauds. The contours of Dwyer's commitments to the partnership are factual questions not to be determined on a motion to dismiss. Taking the Plaintiffs' assertions regarding the nature of the contract—that it was for underwriting services with only the option to lend funding—as true for purposes of the motion to dismiss, it would seem that Dwyer's obligations fall outside of Delaware's statute of frauds, which governs only a “contract, promise, undertaking or commitment to loan money,” not an option to do so. 104 Consequently, the Defendants' motion to dismiss Dwyer's breach of contract claim is denied, and the Court need not consider whether full or partial performance or the existence of a suitable writing cure any possible deficiencies under the statute of frauds at this time. G. The Tortious Interference Claim *16 The Plaintiffs assert a claim for tortious interference with “contractual relations and/or prospective business advantage” 105 against Fillmore, FSI, FSM, Drumm, Geary, Pearl, and PSC Sub (collectively, the “non-Silva Defendants”). 106 The Defendants move to dismiss the claim on several grounds, including that a “party to a contract cannot tortiously interfere with that very same contract,” 107 that the “[P]laintiffs have failed to allege an intentional, improper, and unjustified interference on the part of the non-Silva Defendants,” 108 and that the Plaintiffs have failed to allege any causation between the actions of the non-Silva Defendants and the breach of the Partnership Agreement. 109 Delaware generally follows the Restatement with respect to tortious interference. 110 In order to establish a claim for tortious interference with contractual relations, a plaintiff must show that there was: (1) a contract, (2) about Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 30 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 13 which defendant knew, and (3) an intentional act that is a significant factor in causing the breach of such contract (4) without justification (5) which causes injury. 111 The Plaintiffs correctly note that “intentional” interference includes circumstances in which the actor “knows that the interference is certain or substantially certain to occur as a result of his action.” 112 In other words, an action “that is incidental to the actor's independent purpose and desire but known to him to be a necessary consequence of his action” is sufficient to meet the intent requirement of tortious interference. 113 In addition, the action must also be “without justification” or “improper” in order to subject the actor to liability. Whether something is improper depends on a number of factors, chief among which is the nature of the conduct at issue. The issue is not simply whether the actor is justified in causing the harm, but rather whether he is justified in causing it in the manner in which he does cause it. 114 The question of whether an action is improper is a factual determination not readily amenable to assessment by way of a motion to dismiss. The doctrine that a party to a contract cannot tortiously interfere with that same contract includes the notion that, where an entity under the control of a contracting party is used by that party as an instrument to breach the contract, it is improper to accord it separate status as a tortfeasor. 115 Thus, if certain of the non-Silva Defendants functioned as the agents or instrumentalities of Silva to cause his breach of the Partnership Agreement, the claim must fail with respect to them. Similarly, Delaware courts have held that an “interference privilege” exists where non-parties to the contract share a “commonality of economic interests” with one of the parties and act “in furtherance of their shared legitimate business interests.” 116 To overcome this affiliate “privilege,” a plaintiff must adequately plead that the non-party “was not pursuing in good faith the legitimate profit seeking activities of the affiliated enterprises,” 117 or “was motivated by some malicious or other bad faith purpose to injure the plaintiff.” 118 *17 The Plaintiffs argue that this claim is pleaded in the alternative. That is, if this Court finds that the non-Silva Defendants were not parties to the alleged contracts, then they might have sufficient separation from these contracts to be viewed as interlopers causing tortious harm by having caused Silva's breach. However, in asserting that Silva either owns, controls, or manages each of non-Silva Defendants, the Complaint concedes that the Defendants share common economic interests. 119 Thus, the non-Silva Defendants are protected by the affiliate privilege absent allegations that they acted according to a malicious or bad faith purpose “outside of an economic interest [they] shared with” Silva, 120 or that they were not pursuing their common economic interests in interfering with the contract. Instead, the Plaintiffs have alleged the exact opposite. 121 Accordingly, the actions allegedly taken by the non-Silva Defendants are protected by the affiliate privilege and are insufficient to state a claim for tortious interference. Thus, the Defendants' motion to dismiss this claim is granted. H. The Claims against the Parties Created After the Oral Partnership Agreement The Defendants seek the dismissal of all counts asserted against the Defendants other than Silva and Fillmore on the ground that “there is no vicarious liability claim alleged against” 122 those six Defendants other than a conclusory allegation that “ ‘[u]pon information and belief, each and all of the defendants acted in concert with, as instrumentalities of, and as agents, co-ventures [sic] and/or coconspirators of each other in connection with the conduct of Defendants, as alleged in this Complaint.’ “ 123 However, the Plaintiffs have also asserted that the Partners agreed to the following: [I]f the Partnership should be successful in acquiring Beverly, each partner would share in all economic benefits received by any of them (or any entities controlled by them) resulting from the Beverly Acquisition. They agreed that the Partnership would include and would extend not only to themselves as individuals, but also to any entities that they then owned or controlled, as well as any entities that they would own and control in the future, that were used to carry out and/or receive the benefits of the Beverly Acquisition. 124 The Defendants contend that language in the Complaint stating that the entity Defendants 125 were “formed by Silva for the purpose of carrying out and/or obtaining the benefits of the Beverly Acquisition, and each of these Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 31 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 14 Defendants, along with Defendant [Fillmore], is owned and/or controlled by Silva” is conclusory and insufficient to extend the causes of action to these Defendants. 126 It is, however, clearly pleaded in the remainder of the Complaint—and apparent from the Merger Agreement and Third Amendment—that Pearl, PSC, and Geary were established to carry out the acquisition and are controlled by Silva, and that FSI, FSM, and Drumm are also either owned or controlled by Silva. *18 The Defendants argue that entities created after the supposed Partnership Agreement cannot be subject to that agreement, and point to the general rule that business entities are not liable for the contracts of their promoters prior to incorporation. However, under Delaware law, if the subsequently formed entity implicitly adopts the pre-formation agreement by accepting its benefits with knowledge of its terms, the entity may be bound by that agreement. 127 Specifically, “[o]ne who knowingly accepts the benefits intended as the consideration, coming to him or her under a contract voluntarily made by another in his or her behalf, becomes bound by reason of such acceptance to perform his or her part of the contract.” 128 Notably, as is alleged to be the case here, “courts have most frequently imputed knowledge and implied corporate adoption of a promoter's contract in situations where the promoter was, in effect, an alter ego of the corporation....” 129 The Defendants maintain that “there is no allegation that these entities did anything to adopt, accept or ratify an agreement with Grunstein and Dwyer to accept profits and losses equally or otherwise subject themselves to an oral partnership agreement ... [and] nothing that the defendants other than Silva and Fillmore Capital did is inconsistent with their rights under the Third Amendment.” 130 Courts, however, have held that a pre- incorporation contract is properly considered ratified and adopted by implication or estoppel “where an obligation running to the corporation is carried out, and the corporation accepts performance under circumstances making it inequitable to allow the company thereafter to escape the provisions of the promoters' contract.” 131 The Plaintiffs have alleged that, even after these entities were created and the Third Amendment went into effect, Silva (who acted both for himself and as an agent of the Defendant entities) continued to seek contractual performance by the Plaintiffs and to assert that the Partnership Agreement was still in place. The Defendant entities thereafter accepted the benefits of the Plaintiffs' performance under the Partnership Agreement. Because the Defendant entities had knowledge (through Silva) of the Partnership Agreement and subsequently accepted its benefits, they have implicitly agreed to be bound by the terms of that agreement, or so it has been sufficiently alleged. 132 With respect to the Plaintiffs' other causes of action, the Defendants assert that even if the Court does not dismiss the claim for breach of the Partnership Agreement against the Defendant entities, all other causes of action should be dismissed against them because “there are no allegations that these entities committed torts, agreed to a carried interest, or agreed to HUD financing.” 133 Nevertheless, many of the allegations that give rise to the Plaintiffs' other causes of action occurred after these entities were created, when Silva could properly be seen as acting as their agent. Whether Silva is properly held to be an agent of certain Defendant entities with respect to the various causes of action is ultimately a factual question outside the purview of a motion to dismiss. *19 Accordingly, the Defendants' motion to dismiss all causes of action against Pearl, PSC Sub, Geary, FSI, FSM, and Drumm is denied. IV. MOTION TO COMPEL The Defendants have also moved to compel further responses to the interrogatories and document production requests submitted to the Plaintiffs. The Defendants assert that the “Plaintiffs' responses are composed primarily of objections and general references to document requests or deposition testimony in prior actions commenced against defendants....” 134 Accordingly, the Defendants assert that (1) it is improper for the Plaintiffs to respond to discovery requests by referencing lists of documents or deposition testimony; (2) the Plaintiffs have not produced all the documents promised in their responses; and (3) the Plaintiffs' objections to discovery requests based on grounds that they are not relevant to the case, that requests call for confidential financial information or proprietary and trade secret information, that requests are “cumulative, burdensome, and oppressive,” and that the requests are premature are all without merit. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 32 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 15 The Plaintiffs respond that this motion is “premature, unnecessary, moot and without merit.” 135 The Plaintiffs point out that much of the initial dispute regarding discovery has already been resolved between the parties or through the Plaintiffs' supplemental responses and little remains from the Defendants' initial motion. All remaining requests are either covered by privilege or seek information that was already made available in the prior cases and, thus, is as equally available to the Defendants as to the Plaintiffs. A. Disputes over Plaintiffs' Use of Rule 33(d) The Defendants assert that the Plaintiffs have misused Court of Chancery Rule 33(d) with respect to certain interrogatories in an attempt to avoid giving straightforward answers and, in certain cases, to avoid admitting that they have no relevant documents. The Defendants also claim that Rule 33(d) does not include deposition testimony. The Plaintiffs reply that they have substantially responded to the Defendants' interrogatories and that the information requested is as equally available to the Defendants as it is to the Plaintiffs, and that the supplemental responses are sufficiently tailored to the Defendants' requests to serve their purpose. Accordingly, “[w]hat defendants still seek ... is either makework or is not calculated to lead to the discovery of admissible evidence.” 136 The Plaintiffs invoke Court of Chancery Rule 33(d), which provides in part: Where the answer to an interrogatory may be derived or ascertained from the business records of the party upon whom the interrogatory has been served or from an examination, audit or inspection of such business records ..., and the burden of deriving or ascertaining the answer is substantially the same for the party serving the interrogatory as for the party served, it is a sufficient answer to such interrogatory to specify the records from which the answer may be derived or ascertained.... *20 The Plaintiffs initially responded to the Defendants' interrogatories by referencing the entire document production and deposition testimony in this case and in the related cases, instead of providing direct answers to the questions. After some wrangling among the parties, the Plaintiffs reduced the volume of the documents referenced, but their supplements to three of the four objected-to initial interrogatory answers still each list more than a hundred pages of documents and deposition exhibits. The Plaintiffs' reliance upon Rule 33(d) in providing interrogatory answers has been somewhat overbroad. 137 Because these interrogatories deal with (1) the compensation received by parties to the Mariner transaction; (3) the identities of shareholders or members of those companies set up by Grunstein to effectuate the Beverly Acquisition; or (3) of those entities that owned these companies; and (4) descriptions of any governmental investigations into Mariner, it cannot be said that the burden of ascertaining the answer to these questions is “substantially the same” between the Defendants and the Plaintiffs. Indeed, the Plaintiffs have illuminated certain of the answers to the Defendants' interrogatories in their Memorandum of Law in Opposition to Defendants' Motion to Compel. Since these are all questions that should have discrete and straightforward responses that are easily produced in answer form, the Plaintiffs may not employ Rule 33(d) simply to direct the Defendants to the relevant documents. B. Disputes over Relevance Several of the contested interrogatories deal with certain relevance objections that the Plaintiffs made with respect to entities and issues best described as tangential to the central questions in this case. The Plaintiffs objected to the interrogatories on the grounds that they were “neither relevant to the subject matter of this action nor reasonably calculated to lead to the discovery of admissible evidence,” and, furthermore, “cumulative, burdensome and oppressive.” 138 Defendants counter that the standard for relevance in a discovery context is low and that these interrogatories should be permitted, and suggest certain theories of the case for which evidence obtained might be useful. Court of Chancery Rule 26 governs the scope of discovery and adopts a broad and flexible standard of relevance. Rule 26(b)(1) provides that “[p]arties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action....” 139 Any information that appears reasonably calculated to lead to the discovery of admissible evidence is discoverable. “Consequently, absent injustice or privilege, the Rule instructs the Court to grant discovery liberally .” 140 Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 33 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 16 However, the scope of discovery is “squarely within the sound discretion of this Court.” 141 As such, even where discovery is relevant, this Court may limit discovery, “recogniz[ing] that considerations of subject matter, time, and space are important to confine the scope of discovery to those matters that are truly relevant and to prevent discovery from evolving into a fishing expedition or from furthering purposes ulterior to the litigation.” 142 Indeed, Rule 26(b)(1)(iii) recognizes that the Court may, among other reasons, limit discovery that is “unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties' resources, and the importance of the issues at stake in the litigation.” 143 With these broad principles in mind, the Court turns to the specific discovery disputes at issue. 1. Information Concerning the Operations of MetCap *21 In Interrogatories 1, 2, and 3, Defendants ask questions regarding the control and operations of the MetCap entities. Specifically, Defendants seek information regarding payments between MetCap Holdings or MetCap Securities and certain individuals, including Grunstein, as well as information as to the amount, reasons for, dates of, and payer of all payments to MetCap from 2003 until the present. The Defendants argue that this information is relevant because it gets to the control and operation of MetCap. The Defendants plan to argue that Grunstein is in privity with MetCap, that MetCap serves as Grunstein's “personal investment bank,” and that, consequently, Grunstein's claim is barred through res judicata as a result of this Court's dismissal of MetCap's claims in the earlier case. 144 The Plaintiffs assert that, for purposes of MetCap's ownership, they have already disclosed each of the four stockholders in MetCap who held more than a 10 percent interest, as well as what each of these partners paid to and received from MetCap, and that the Defendants' interest in what other payments MetCap paid to or received from non-partners is not relevant. The Court agrees. The Defendants' assertion that further inquiries into the operations of MetCap will help establish a case for privity or control does not appear sufficiently likely to merit their intrusiveness. The Plaintiffs have provided evidence with respect to the ownership of MetCap as well as all payments to principles. All of the MetCap principals have been subject to depositions, while the extensive discovery material from the MetCap litigation also remains available to the Defendants. Additional information with respect to the control of MetCap and Grunstein's relationship to it does not appear likely to result from the objected-to interrogatories. Accordingly, this Court will not compel additional responses to Interrogatories 1, 2, and 3. 2. Information Concerning the Mariner Transaction The Defendants also seek to obtain additional information with respect to the Mariner transaction that Grunstein arranged before the Beverly Acquisition, and upon which the Beverly Acquisition was allegedly to be based. The Plaintiffs object to an interrogatory that seeks information on all forms of payment or compensation related to the Mariner transaction received by certain individuals, including Grunstein, Dwyer, and CFG, as well as the MetCap entities. The Plaintiffs also challenge an interrogatory requesting detailed descriptions of all instances where a governmental entity has investigated Mariner or any successor in interest, along with a document request for all documents related to such investigations. Plaintiffs object on the grounds of relevance and that the request is cumulative, burdensome, and oppressive. The Defendants assert that this information is relevant to the fact that Grunstein has asserted that one of Silva's acts that was inconsistent with the Partnership Agreement was his failure to follow the Mariner Model. Additionally, the Defendants point out that the Plaintiffs have asserted that Silva's failure to utilize the Mariner Model reduced the return that the partnership would have received from the transaction. Accordingly, the Defendants seek to introduce evidence that the Mariner Model would not have been better for the Beverly Acquisition and to see if “[m]aybe there's a problem with the ‘Mariner Model.’ “ 145 The Plaintiffs respond that the issue of the reduction in compensation to the investors stems from the model itself, not the operation thereof; specifically, how certain taxation and liability issues are treated. Thus, they assert, the only relevant governmental inquires in this case would involve tax issues, which information they have already provided to the Defendants. The Plaintiffs contend that the compensation and payment received in the Mariner transaction, as well as any subsequent operational difficulties experienced by the post-acquisition Mariner, are irrelevant to this case. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 34 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 17 *22 The Court agrees that the Defendants have neither shown why the operation of Mariner is relevant to this case nor why its relative success or failure speaks to Silva's alleged failure to implement the Mariner Model in the Beverly transaction, absent evidence that Silva was aware of operational difficulties stemming from the Mariner Model during the relevant period and that such difficulties precluded the structure's use in the Beverly Acquisition. In addition, the Defendants have not sufficiently fleshed out why information regarding governmental inquiries into the operation of Mariner will lead to relevant evidence regarding a breakdown in the relationship between Silva and Grunstein or a forfeiture of Grunstein's partnership interest based on an unrealized aspect of the Beverly transaction. Turning to the compensation received by Grunstein and his colleagues in the Mariner transaction, although not relevant to the operation of Beverly or to Silva's choice not to employ the Mariner Model, the compensation is relevant to Grunstein's claims for damages in the instant case, specifically his expectations (based on his experience in the Mariner transaction) as to what he would be entitled to receive as a result of the Beverly Acquisition. It appears, however, that the Plaintiffs have already provided the relevant information in their supplemental response to Interrogatory 4, and that increased disclosure would not reasonably lead to further admissible evidence. If more detailed information regarding compensation or governmental inquiries appears necessary as more facts are brought to light in this case, the Court will consider a later motion to compel additional disclosures. For now, the Defendants' motion to compel supplemental responses to Interrogatories 4 and 21 and Document Request No. 11 is denied. 3. Information Concerning Entities Formed by Plaintiffs for the Beverly Acquisition Defendants seek to compel answers to a series of interrogatories, along with a document request, regarding the ownership of entities formed by the Plaintiffs to effectuate the Beverly Acquisition. Specifically, the Defendants seek: (1) the identities of all shareholders or members of NASC, SBEV, 405 Lexington Holdings, and SBEV Equity, at any time; (2) if other entities owned any of the aforementioned companies, the identities of all shareholders or members of those entities; (3) a description of any transfers in ownership of the companies involved in the Beverly Acquisition; and (4) all documents related to the Plaintiffs' answers to these interrogatories. The Plaintiffs simultaneously argue a relevance exception to these interrogatories along with an assertion that they have already provided all of the pertinent documents. The Plaintiffs explain that the ownership of NASC and SBEV was provided to the Defendants during the course of the MetCap litigation and that 405 Lexington Holdings and SBEV Equity are entities that were discussed but that were never formed. The Plaintiffs contend that the Defendants' characterization of their response to Interrogatory 9 (whether there have been any transfers of ownership) as “vague and incomplete” is “disingenuous.” 146 *23 The Defendants respond that the information is pertinent to their defense that the parties never contemplated the acquisition to be accomplished pursuant to a general oral partnership. The Defendants dispute the Plaintiffs' assertion that 405 Lexington Holdings and SBEV Equity were never formed, pointing to Delaware Secretary of State filings that show that they were. Although information on the ownership of those vehicles that the Plaintiffs established to effectuate the acquisition does not seem particularly likely to bolster the Defendants' argument that the existence of these juristic entities reduces the likelihood that an oral partnership agreement was formed, it also does not appear to be at all prejudicial to the Plaintiffs, since they assert that the relevant information has already been disclosed. Accordingly, the Defendants' motion to compel information regarding the ownership breakdown of NASC, SBEV, 405 Lexington Holdings, and SBEV Equity is granted. Because of this Court's ruling with respect to the use of Rule 33(d) and its guidance for the Court's discretion under Rule 26(c), the Plaintiffs should respond to Defendants' Interrogatories 5, 7, and 9 with specific answers to the information requested instead of merely referencing prior documents or depositions in this case or related actions. 147 Insofar as the Plaintiffs' supplemental response has sufficiently responded to Document Request No. 7 (for those documents dealing with the ownership interest of these entities) and did not exclude documents based on a relevance exception, the Defendants' motion to compel additional documents is denied. 4. Information Concerning Grunstein's Compensation at Troutman Sanders Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 35 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 18 The Plaintiffs' final relevance objection addresses Defendants' Interrogatory 11, which requests the amount of compensation Grunstein received from Troutman Sanders during fiscal years 2005 and 2006. The Plaintiffs further object that this calls for confidential financial information of both Grunstein and third parties. The Defendants respond that Grunstein's salary in these years is relevant to the Plaintiffs' unjust enrichment claim. The Defendants suggest that, because Grunstein's law firm, Troutman Sanders, obtained roughly $14 million in fees with respect to the Beverly Acquisition, and that Grunstein, himself, billed a significant amount for legal work related to the transaction, this provides an explanation as to why Grunstein might have decided to forego any personal stake in the transaction with the assignment of the Original Acquirers' rights under the Third Amendment. Further, the Defendants assert that, should they be found liable for damages against Grunstein, they ought to get a set-off for the amounts that he earned as an attorney in connection with the transaction. The Defendants' motion to compel information regarding Grunstein's compensation from Troutman Sanders is denied. Grunstein's total salary at Troutman Sanders is insufficiently relevant to the case to merit such an intrusion into his personal financial affairs. The Defendants have not provided any support for how his total salary figure will provide them with any admissible evidence in this case. While Grunstein billed hours for legal work related to the Beverly Acquisition, there is no evidence that such work constituted such a materially large portion of the legal work he performed at Troutman Sanders during this time period that his total salary could in any way function as an appropriate proxy for any kind of unjust enrichment set-off. *24 Moreover, the legal work that Grunstein performed in support of the transaction was distinct from his alleged efforts as a partner in the transaction, and seems to have been unaffected by the adoption of the Third Amendment. While the line between these two roles was often a blurry one, this Court would not presume to conflate them. C. Disputes over Appropriateness ofPlaintiffs' Responses Finally, the Defendants seek to compel revised answers to certain interrogatories which, they assert, failed to answer the question presented. These interrogatories ask the Plaintiffs to identify all documents reflecting: (1) the terms of the oral partnership as alleged in the Complaint; (2) the terms of the alleged agreement to pay Dwyer or CFG $3.5 million for their work on the transaction; (3) the agreement between Silva and Grunstein that they would remain partners and Dwyer's interest would be acquired by Grunstein and Silva when CFG was retained to provide the HUD financing; and (4) the agreement to use the Mariner Model in the Beverly Acquisition. In their supplemental response, the Plaintiffs object to these interrogatories on the grounds that they are “vague, ambiguous and uncertain” as to the meaning of the word “reflecting” 148 that the interrogatories are overboard, and that they call for information that is “privileged by the attorney-client privilege, work product rule and/or other privileges, including without limitation confidential and proprietary and/or trade secret information privileges.” 149 Nevertheless, though subject to and without waiving these objections, the Plaintiffs supplemented their responses to these interrogatories with lists of documents and deposition exhibits. The Defendants assert that the Plaintiffs have “evaded responding” to these interrogatories because their supplemental response includes documents that, the Defendants assert, are “not even arguably responsive to the requests.” 150 For example, the Defendants object to the provision of various documents that imply the existence and broad contours of an agreement between the parties, but do not delineate any explicit terms of such an agreement, as requested by Interrogatories 12 and 13. The Defendants also complain that certain of the documents put forward are “contradictorily cited as reflecting the terms of the alleged oral partnership agreement, the oral contract with Dwyer (or Capital Funding), and the oral agreement concerning a carried interest between Grunstein and Silva.” 151 The Defendants argue that the Plaintiffs have liberally interpreted what documents should be deemed responsive to these interrogatories in an attempt to avoid admitting that “no documents exist.” 152 The Plaintiffs' responses to these interrogatories appear completely appropriate. They have provided the full extent of the written documentation they rely upon to contend that certain oral contracts were in place with the Defendants. As the Plaintiffs ultimately rely solely on the alleged existence of these oral agreements, it is not surprising that there is no writing that portends to fully Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 36 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 19 capture these terms. Whether these various documents, when aggregated, suggest the existence and contours of an oral agreement is, ultimately, a question of fact. The Plaintiffs were within reason to conclude that their answers to the Defendants' interrogatories “reflected” the terms and agreements at issue. The Defendants' motion to compel additional responses is, therefore, denied with respect to Interrogatories 12, 13, 16 and 17. V. CONCLUSION *25 For the foregoing reasons, Counts II and IX of the Amended Verified Complaint will be dismissed and Count VI will be dismissed in part. All other aspects of the Defendants' motion to dismiss are denied. The Defendants' motion to compel supplemental answers is granted only with respect to Interrogatories 5, 6, 7, 9, and 10. Otherwise, the Defendants' motion to compel is denied. The Plaintiffs shall provide supplemental responses within 30 days. Counsel are requested to confer and to submit an implementing order. All Citations Not Reported in A.2d, 2009 WL 4698541, 35 Del. J. Corp. L. 1040 Footnotes 1 MetCap Securities LLC v. Pearl Senior Care, Inc., 2009 WL 513756 (Del.Ch. Feb.27, 2009), aff'd, 977 A.2d 899 (TABLE), 2009 WL 2470336 (Del. Aug.13, 2009); MetCap Securities LLC v. Pearl Senior Care, Inc., 2007 WL 1498989 (Del.Ch. May 16, 2007). 2 Grunstein v. Silva, No. 07 Civ. 3712(RMB) (S.D.N.Y.); MetCap Securities LLC v. Pearl Senior Care, Inc., No. 06 CV 2336 (S.D.N.Y.). 3 Grunstein had previously been the architect of a transaction that resulted in the acquisition of another chain of nursing homes, Mariner Healthcare. Dwyer's company, CFG, is in the business of providing financing to the nursing home industry. Amended Verified Complaint (the “Compl.”) ¶ 15. 4 Compl. ¶ 16. 5 Compl. ¶ 17. 6 Compl. ¶ 18. 7 Compl. ¶ 19. 8 Id. 9 Compl. ¶ 22. 10 Compl. ¶ 21. 11 Compl. ¶ 25. 12 Compl. ¶ 26. 13 Compl. ¶¶ 27–28. In order to comply with HUD lending rules, the Partners allegedly agreed that, if CFG provided the HUD financing, Dwyer would surrender his partnership interest to Grunstein and Silva, but would retain it if HUD financing was not provided by CFG. The Partners also allegedly agreed that, regardless of whether CFG supplied the funding, CFG would be paid the Acquisition Fee upon completion of the merger. Compl. ¶ 29. 14 Compl. ¶ 34. 15 Compl. ¶ 55. 16 Compl. ¶¶ 30, 55. 17 Compl. ¶ 33. 18 Compl. ¶ 31. 19 Compl. ¶ 32. This was done by wire shortly thereafter. Compl. ¶ 33. 20 Compl. ¶ 32. 21 Compl. ¶ 33. Troutman Sanders provided much of the legal work required for the Beverly Acquisition. 22 Compl. ¶ 36. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 37 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 20 23 Compl. ¶ 37. Grunstein suggested the rationale in papers filed in one of the New York proceedings. Transmittal Certificate of Laina M. Herbert in Supp. of Defs.' Opening Br. in Supp. of their Mot. to Dismiss the First Am. Compl. (“T.C.”), DX 3 (Suppl. Decl. of Leonard Grunstein) ¶ 14. 24 Compl. ¶ 37. 25 Compl. ¶¶ 38–39. 26 Compl. ¶¶ 41–42. 27 Compl. ¶ 43. 28 Id. 29 Compl. ¶ 45 (quoting Grunstein's testimony). 30 Compl. ¶¶ 45–48. 31 Compl. ¶¶ 49–50. 32 Compl. ¶ 55. 33 Compl. ¶ 35. 34 Compl. ¶ 51. 35 Diamond State Telephone Co. v. Univ. of Del., 269 A.2d 52, 58 (Del.1970). 36 Gantler v. Stephens, 965 A.2d 695, 703 (Del.2009). 37 In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 65–66 (Del. Ch.1995). 38 Spence v. Funk, 396 A.2d 967, 968 (Del.1978); Klein v. Sunbeam Corp., 94 A.2d 385, 391 (Del.1952). 39 See, e.g., Madison Realty Partners 7, LLC v. AG ISA, LLC, 2001 WL 406268, at *6 (Del.Ch. Apr.17, 2001); Gale v. Bershad, 1998 WL 118022, at *5 (Del.Ch. Mar.4, 1998). 40 See, e.g., Schuss v. Penfield Partners, L.P., 2008 WL 2433842, at *10 (Del.Ch. June 13, 2008); Madison Realty Partners, 2001 WL 406268, at *6. 41 See, e.g., Schuss, 2008 WL 2433842, at *9–10; RJ Assoc., Inc. v. Health Payors' Org. Ltd. P'ship, 1999 WL 550350, at *9–10 (Del.Ch. July 16, 1999). 42 Solow v. Aspect Resources, LLC, 2004 WL 2694916, at *4 (Del.Ch. Oct.19, 2004). 43 Pls.' Answering Br. in Opp'n to Defs.' Mot. to Dismiss the First Am. Compl. at 14. 44 Schuss, 2008 WL 2433842, at *10. The allegation of additional facts and remedies within the breach of fiduciary duty claim is not dispositive as to whether or not the claim should be allowed to stand. The additional facts merely function as support for the notion that an established fiduciary relationship creates certain rights and obligations that extend beyond the framework of the contract. Thus, Delaware courts have allowed breach of fiduciary duty claims to survive a motion for summary judgment where the contract expressly acknowledged the existence of such duties. See, e.g., RJ Assoc., 1999 WL 550350. 45 Compl. ¶ 64. The Plaintiffs further assert that these facts are substantially similar to the distinguishing facts in Schuss. 46 These included the dumping of annual losses on plaintiffs when making the disbursement in order to enhance defendants' residual interest in the fund. Schuss, 2008 WL 2433842, at *10. 47 See, e.g., Bershad, 1998 WL 118022, at *5 (holding that breach of fiduciary duty claims should be dismissed where the same facts that underlie a plaintiff's implied contract claim also form the basis of that plaintiff's fiduciary duty claim and if the duty sought to be enforced arises out of the parties' contractual as opposed to their fiduciary relationship); Blue Chip Cap. Fund II Ltd. P'ship v. Tubergen, 906 A.2d 827, 832 (Del.Ch.2006) (same). 48 Schuss, 2008 WL 2433842, at *10. 49 Phamathene, Inc. v. Siga Techs., Inc., 2008 WL 151855, at *17 (Del.Ch. Jan.16, 2008); Lord v. Souder, 748 A.2d 393, 399 (Del.2000). 50 See, e.g., Weiss v. Nw. Broad. Inc., 140 F.Supp.2d 336, 344 (D.Del.2001) (“Because the court has determined that the [agreement] is a valid contract, [the plaintiff] cannot recover under a theory of promissory estoppel.”); Genencor Int'l, Inc. v. Novo Nordisk A/S, 766 A.2d 8, 12 (Del.2000); Lord, 748 A.2d at 400. 51 Defs.' Opening Br. in Supp. of their Mot. to Dismiss the First Am. Compl. at 11 (citing Austost Anstalt Schann v. Net Value Holdings, Inc., 2001 WL 908996, at *7 (D.Del. Aug.10, 2001) (“While plaintiffs have argued that the Agreements do not accurately represent the full and complete agreement between the parties, one thing is abundantly clear—agreements did exist. In light of this finding, the court will dismiss the plaintiffs' estoppel claim.”)). 52 Cf. Chrysler Corp. (Del.) v. Chaplake Holdings, Ltd., 822 A.2d 1024, 1033–34 (Del.2003) (holding that the presence of existing contracts between the parties governing other aspects of their relationship did not make promissory estoppel inapplicable because the relied-upon promises were made in addition to the existing relationship). Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 38 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 21 53 Although not specifically addressed by the Defendants, the Contribution Agreement (assuming that it may serve as an enforceable contract) may also be insufficient to preclude an estoppel claim, despite the fact that it involves a relationship among all relevant Plaintiffs and Defendants in the context of their rights and responsibilities in effectuating the Beverly Acquisition. Although the Plaintiffs characterize the Contribution Agreement as an agreement among the Parties “to share expenses, profits and losses from the Beverly Acquisition,” a better reading of the agreement might be that it provides for the payment and division of money before completion of the Beverly Acquisition, the division of money should the Beverly transaction fail to be completed, and the guarantee of payment of certain fees for services upon the completion of the acquisition. So read, the Contribution Agreement does not delineate, nor purport to delineate, any rights and obligations of the Plaintiffs and the Defendants as partners, and thus would not serve as a contract sufficient to preclude the Plaintiffs' promissory estoppel claim. 54 Defs.' Reply Br. in Supp. of their Mot. to Dismiss at 7. 55 Ramone v. Lang, 2006 WL 4762877, at *16 n. 83 (Del.Ch. Apr.3, 2006) (quoting Keating v. Bd. of Educ. of Appoquinimink Sch. Dist., 1993 WL 460527, at *3 n. 3 (Del.Ch. Nov.3, 1993)). 56 Lord, 748 A.2d at 400. 57 See Chrysler Corp. v. Quimby, 144 A.2d 123, 133 (Del.1958). 58 3 John Norton Pomeroy, Equity Jurisprudence § 808(b), at 212 (Spencer W. Symons, ed., 5th ed.1941). 59 3 Corbin on Contracts § 8.12, at 101 (John M. Perillo, ed., rev. ed.1996). 60 See, e.g., Borish v. Graham, 655 A.2d 831 (Del.Super.1994). See also Feinberg v. Saunders, Karp & Megrue, L.P., 1988 WL 863284, at *17 (D.Del. Nov. 13, 1998) (“The doctrine of promissory estoppel is an equitable remedy ‘designed to enforce a contract in the interest of justice where some contract formation problem would otherwise prevent enforcement.’ “ (citations omitted). But see CBA Collection Servs., Ltd. v. Potter, Crosse & Leonard, P.A., 1996 WL 527214, at *6 (Del.Super.Aug.14, 1996) (“Where promissory estoppel is used as a substitute for a required writing, the burden on the plaintiff is greater than [where] promissory estoppel is used as a substitute for consideration.”). 61 See, e.g., Lord, 748 A.2d at 404 (Lamb, V.C., concurring) (explaining that promissory estoppel analysis does not apply when the promise in question was made enforceable by a bargained-for exchange); Genencor Int'l, 766 A.2d 8 at 12 (“[B]ecause this is a dispute about enforcement of a bargained-for contract right, we conclude that the remedy Genencor seeks is not equitable estoppel.”). 62 See, e.g., Slater v. George B. Clarke & Sons, Inc., 186 F.Supp. 814 (D.Del.1960). 63 Defs.' Reply Br. in Supp. of their Mot. to Dismiss at 9. 64 See, e.g., Brinsights LLC v. Charming Shoppes of Del., Inc., 2008 WL 216969 (S.D.N.Y. Jan.16, 2008) (citing Morrissey v. Gen. Motors Corp., 21 Fed. App'x 70, 73 (2d Cir.2001)); Elliot v. Nelson, 301 F.Supp.2d 284, 288 (S.D.N.Y.2004) (“Where there is a ‘meaningful’ conflict between a written contract and prior oral representations, a party will not be deemed to have justifiably relied on the prior oral representations.”). 65 T.C., DX4 (Merger Agmt.) at 106; T.C., DX 5 (Third Amendment) at 13. 66 Defs.' Opening Br. in Supp. of their Mot. to Dismiss First Am. Compl. at 14. Though not argued by Defendants, Section 9 of the Contribution Agreement has a similar provision, which states, “This agreement supersedes all prior agreements relating to the subject matter of this agreement including, without limitation, any notes and undertakings to which SBEV, Capital Funding and/or CSFB and/or their principals are parties relating to the Deposit and the repayment thereof.” T.C., DX 6 § 9 at 6. 67 Indeed, Grunstein's allegations may best be described as charging fraudulent inducement: that he assigned his rights to the Silva entities in the Third Amendment under the assumption that he maintained the Partnership Agreement with Silva. Such claims are not precluded by a standard integration clause, but require “explicit anti-reliance representations” that “demonstrat[e] with clarity that the plaintiff had agreed that it was not relying on facts outside the contract....” Kronenberg v. Katz, 872 A.2d 568, 593 (Del.Ch.2004). This was not the case with the Third Amendment. 68 Morrissey, 21 Fed. App'x at 73. 69 Brinsights, 2008 WL 216969; Robert J. McRell Assocs., Inc. v. Insurance Co. of N. Am., 677 F.Supp. 721, 731 (S.D.N.Y.1987). 70 Elliot, 301 F.Supp.2d at 288. 71 T.C., DX 5 (Third Amendment) at 14. 72 Id. at 17. In making their claim, the Defendants omit the first part of the clause that limits this language to Section 4.4. 73 Id. § 4.4(a) at 15. Section 4.4 acts as a general disclaimer between the original acquirers, Beverly, and the Silva entities with respect to those claims and liabilities that existed before the execution of the Third Amendment. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 39 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 22 74 On the other hand, the Plaintiffs' intimate involvement with the transaction may have made the need to memorialize their agreement seem less important than under more typical conditions. 75 Defs.' Reply Br. in Supp. of their Mot. to Dismiss at 9 n. 6. 76 The lodestar with respect to damages under promissory estoppel is the “prevention of injustice.” See, e.g., Quimby, 144 A.2d at 133. Accordingly, courts have found that expectation damages may be appropriate for promissory estoppel claims, rather than simply reliance damages. 77 No one has questioned whether the Plaintiffs' fraud claim is governed by New York law or Delaware law. Consequently, until that issue is framed, the Court will assume that it is to be assessed under Delaware law and will decline the opportunity to apply New York law. See, e.g., Cougar Audio, Inc. v. Reich, 2000 WL 420546, at *6 n. 4 (S.D.N.Y. Apr.18, 2000) (discussing the “very long and very puzzling line of New York cases” establishing contradictory rules with respect to pleading promissory fraud). 78 See, e.g., Gaffin v. Teledyne, Inc., 611 A.2d 467, 472 (Del.1992). 79 Defs.' Opening Br. in Supp. of their Mot. to Dismiss First Am. Compl. at 17. 80 See, e.g., BAE Sys. N. Am. Inc. v. Lockheed Martin Corp., 2004 WL 1739522, at *8 (Del.Ch. Aug.3, 2004) (“One cannot ‘bootstrap’ a claim of breach of contract into a claim of fraud merely by alleging that a contracting party never intended to perform its obligations. Couching an alleged failure to comply with [an agreement] as a failure to disclose an intention to take certain actions arguably inconsistent with that agreement is exactly the type of bootstrapping this Court will not entertain.”) (citations omitted); Diamond Elec., Inc. v. Del. Solid Waste Auth., 1999 WL 160161, at *7 (Del.Ch. Mar.15, 1999) (“A breach of contract claim cannot be turned into a fraud claim simply by alleging the other party never intended to perform.”). 81 Diamond Elec., 1999 WL 160161, at *7. 82 See, e.g., TriState Courier and Carriage, Inc. v. Berryman, 2004 WL 835886, at *11 (Del.Ch. Apr.15, 2004); Mark Fox Group, Inc. v. E.I. duPont de Nemours & Co., 2003 WL 21524886, at *6 (Del.Ch. July 2, 2003). Notably, this Court found in Mark Fox Group that actions taken in reliance upon an alleged oral representation—later recanted—that parties had a contract, although insufficient for a fraud claim, appropriately raised a promissory estoppel claim. Id. 83 Outdoor Techs., Inc. v. Allfirst Financial, Inc., 2001 WL 541472, at *4 (Del.Super.Apr.12, 2001) (citations omitted). See also Esso Standard Oil Co. v. Cunningham, 114 A.2d 380, 383 (Del.Ch.1955) ( “Opinions and statements as to probable future results are not generally fraudulent even though they related to material matters....”). 84 Winner Acceptance Corp. v. Return on Capital Corp., 2008 WL 5352063, at *7 (Del.Ch. Dec.23, 2008). 85 Id. (citing Berdel, Inc. v. Berman Real Estate Mgmt., Inc., 1997 WL 793088, at *8 (Del.Ch. Dec.15, 1997)). This is distinct from a plaintiff's conclusory allegation of such. Cf. BAE Sys., 2004 WL 1739522, at *8; Diamond Elec., 1999 WL 160161, at *7. See also Dann v. Chrysler Corp., 174 A.2d 696, 700 (Del.Ch.1961) (“Using the word ‘fraud’ or its equivalent in any form is just not a substitute for the statement of sufficient facts to make the basis of the charge reasonably apparent.”). 86 Stevanov v. O'Connor, 2009 WL 1059640, at *12 n. 66 (Del.Ch. Apr.21, 2009) (quoting College Watercolor Group, Inc. v. William H. Newbauer, Inc., 468 Pa. 103, 360 A.2d 200, 206 (Pa.1976), cited with approval in Berdel, 1997 WL 793088, at *8). 87 9 Stuart M. Speiser et al., The American Law of Torts § 32:27 at 266–67 (2009). 88 Berdel, 1997 WL 793088, at *8. 89 Winner Acceptance, 2008 WL 5352063, at *10. Accord Berdel, 1997 WL 793088, at *8. See also Speiser et al., supra note 87, § 32:27 (“[R]elevant circumstances include a failure to perform, a failure to attempt performance, a repudiation of the promise soon after making it, and the speaker's continued assurances after it is clear the speaker does not intend to perform.”). 90 Compl. ¶ 86A. 91 Compl. ¶ 86B (emphasis in original). 92 These include, perhaps most onerously, that the original vehicles for carrying out the acquisition consisted of entities controlled by Grunstein, not Silva. Thus, Silva would presumably had to have anticipated (at the inception) an eventual restructuring of partnership obligations giving him full control over the acquisition vehicles. Moreover, the Plaintiffs may additionally have the seemingly impossible burden of also establishing that Silva anticipated that the clause assigning the obligation to pay the success fee owed to MetCap would ultimately be omitted from the Third Amendment. MetCap Securities LLC, 2007 WL 1498989, at *1. Presenting a somewhat lesser burden, the Defendants also suggest that the Plaintiffs are inconsistent in their allegations, having asserted elsewhere that “[i]n oral and written presentations to PSP and/or WSIB seeking the equity for the Beverly Acquisition, Mr. Silva ... acknowledged ... that Mr. Grunstein had been the Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 40 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 23 architect of the acquisition of Mariner Health Care.” Defs.' Reply Br. in Supp. of their Mot. to Dismiss at 16 (quoting Compl. ¶ 25). However, this fact, if proven, may tend to support, rather than undermine, the Plaintiffs' fraud claim. Besides, even if inconsistent, the Plaintiffs are allowed to plead in the alternative. 93 Compl. ¶ 45 (quoting Grunstein's testimony). 94 Compl. ¶ 86A. 95 Presumably, the Plaintiffs would contend that this statement was intended to induce Grunstein to agree to replace the Original Acquirers with the Silva entities through the Third Amendment. 96 ABRY Partners V, L.P. v. F & W Acq., LLC, 891 A.2d 1032, 1050 (Del.Ch.2006). 97 Id. (citing H–M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del.Ch.2003)). 98 The Plaintiffs also point to allegations that Silva later discussed the possibility of using other sources of HUD financing as support for the proposition that Silva never intended to adhere to the Partnership Agreement. This fact, however, does not facially help support the inference that Silva had no intention to use CFG to secure HUD financing at the time the purported partnership was established, because the Complaint does not delineate a narrow enough timeframe for when such discussions allegedly occurred. 99 Steinman v. Levine, 2002 WL 31761252, at * 15 (Del.Ch. Nov.27, 2002). 100 Winner Acceptance, 2008 WL 5352063, at *9 n. 56; Berdel, 1997 WL 793088, at *8. 101 See Zirn v. VLI Corp., 681 A.2d 1050, 1061 (Del.1996) (“To state a prima facie case for equitable fraud, plaintiff must ... satisfy all the elements of common-law fraud with the exception that plaintiff need not demonstrate that the misstatement or omission was made knowingly or recklessly.”); VGS, Inc. v. Castiel, 2003 WL 723285, at *9 n. 44 (Del.Ch. Feb.28, 2003), rearg. granted, 2003 WL 1794210 (Del.Ch. Mar.27, 2003) (characterizing negligent misrepresentation as “essentially a lesser-included offense of fraud” and granting motion for summary judgment for a negligent misrepresentation claim following summary judgment on plaintiff's fraud claim); Vague v. Bank One Corp., 2003 WL 22071564, at *6 (Del.Ch. Aug.27, 2003), rev'd on other grounds, 850 A.2d 303 (TABLE), 2003 WL 22071564 (Del. May 20, 2004) (describing negligent misrepresentation as “functionally a subset of fraud or intentional misrepresentation”). 102 6 Del. C. § 2714(b) (“A contract, promise, undertaking or commitment to loan money or to grant or extend credit, or any modification thereof, in an amount greater than $100,000, not primary for personal, family, or household purposes, made by a person engaged in the business of lending or arranging for the lending of money or the extending of credit shall be invalid unless it or some note or memorandum thereof is in writing and subscribed by the party to be charged or by the party's agent”). 103 The Plaintiffs suggest that New York law should be applied here, and the New York statute of frauds does not require agreements to loan money above a certain threshold to be in writing. N.Y. Gen. Oblig. Law § 5–701 (McKinney 2001). Thus, it would seem that this contract would not be subject to New York's statute of frauds. The Plaintiffs argue that, since none of the negotiations occurred in Delaware, it is not clear that Delaware law ought to be applied with respect to the statute of frauds. The Defendants counter that, because of the holding by the Southern District of New York that the Plaintiffs were bound by the forum selection clause in the Merger Agreement, they are also bound by the choice of law provision in the Merger Agreement that selects Delaware law as governing. The Court need not decide this question for purposes of the motion to dismiss. 104 It may be that Dwyer's obligations will ultimately be found to be subject to the statute of frauds, as the “writings” that the Plaintiffs put forward to satisfy any statute of frauds deficiencies may arguably be read to countenance a more robust commitment by Dwyer to lend funds to the partnership than the Plaintiffs assert. The memorandum prepared by Fillmore states that CFG “will [be] engaged ... to complete the underwriting, application, and completion of HUD refinancing” of Beverly, while the Contribution Agreement states that “CFG has been retained to provide a HUD insured permanent mortgage refinancing” for Beverly, and that CFG “is to earn its reasonable and customary fees” for said financing. Compl. ¶¶ 30–32. See also T.C., DX 7 (CFG Commitment Letter). 105 Compl. ¶ 106. See 44B Am.Jur.2d Interference § 49 (“The relational torts of interference with prospective economic advantage and interference with contract are closely related, except that the former requires a mere business expectancy while the latter applies only where there is a legally binding contract between the parties.”). 106 The defined term here may not be as helpful as one might hope because it may obscure the allegation that these entities are either owned or controlled by Silva. 107 Defs.' Opening Br. in Supp. of their Mot. to Dismiss First Am. Compl. at 22 (quoting Young v. W. Coast Indus. Relations, Ass'n, 763 F.Supp. 64, 76 (D.Del.1991)). 108 Id. 109 Id. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 41 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 24 110 Restatement (Second) of Torts § 766 (1979) (“One who intentionally and improperly interferes with the performance of a contract ... between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.”). 111 Irwin & Leighton, Inc. v. W.M. Anderson Co., 532 A.2d 983, 992 (Del.Ch.1987). In contrast, to establish a claim for tortious interference with a prospective economic relationship, plaintiffs need not establish the existence of an enforceable contract, but merely of a valid business relation or expectancy that had a reasonable probability of maturing into a future economic benefit to the plaintiff. 112 Restatement (Second) of Torts § 766, cmt. j. 113 Id. 114 See, e.g., id. § 767, cmt. c. 115 See, e.g., TriState Courier and Carriage, Inc. v. Berryman, 2004 WL 835886, at *12 (Del.Ch. Apr.15, 2004). See also Tenneco Auto. Inc. v. El Paso Corp., 2007 WL 92621, at *6 (Del.Ch. Jan.8, 2007) (“Because one need not be a party to a contract to be deemed not to be a stranger to the contract, officers, subsidiaries, and agents, such as lawyers, benefit from a privilege against tortious interference claims because they are so closely related to the parties to the contract.”). 116 Sherin v. E.F. Hutton Group, Inc., 652 A.2d 578, 591 n. 14 (Del.Ch.1994) (holding that a “commonality of economic interests ... underlay[s] the creation of an interference privilege”); James Cable, LLC v. Millennium Digital Media Sys., LLC, 2009 WL 1638634, at *4 (Del.Ch. June 11, 2009) (applying the Shearin framework to absolve a company's controlling stockholder and the stockholder's general partner from a tortious interference claim where the complaint conceded a commonality of economic interests). 117 Shearin, 652 A.2d at 591 (“[T]he gist of a well-pleaded complaint for interference by a corporation of a contract of its affiliate is a claim that the ‘interfering’ party was not pursuing in food faith the legitimate profit seeking activities of the affiliated enterprises.”). 118 Shearin, 652 A.2d at 591. See also Wallace ex rel. Cencom Cable Income Partners II, Inc., L.P. v. Wood, 752 A.2d 1175 (Del.Ch.1999). 119 Compl. ¶¶ 8–12. 120 James Cable, 2009 WL 1638634, at *5. 121 Pls.' Answering Br. in Opp'n to Defs.' Mot. to Dismiss the First Am. Compl. at 44 (“[P]laintiffs allege that the LLC defendants appropriate for themselves and Silva alone the opportunity to acquire Beverly in derogation of plaintiffs' contract with Silva to share in the acquisition. In taking those opportunities from plaintiffs for their own benefit, defendants' interference was unquestionably unjustified, particularly given the allegations that Silva agreed to carry out the parties' agreement through his companies.”). 122 Defs.' Opening Br. in Supp. of their Mot. to Dismiss First Am. Compl. at 23. 123 Id. (quoting Compl. ¶ 54). 124 Compl. ¶ 17. 125 The Defendants exclude Fillmore from those entities that should be precluded from vicarious liability at this stage. 126 Defs.' Opening Br. in Supp. of their Mot. to Dismiss First Am. Compl. at 24 (quoting Compl. ¶ 54). 127 Am. Legacy Found. v. Lorillard Tobacco Co., 831 A.2d 335, 350 (Del.Ch.2003). See also Spering v. Sullivan, 361 F.Supp. 282, 286 (D.Del.1973); Stringer v. Elec. Supply Co., 2 A.2d 78, 79 (Del.Ch.1938). The first question in determining whether a non-signatory can nevertheless be bound to a contract through adoption is one of contractual interpretation: “whether the original parties intended to create or permit future contractual obligations through adoption by non-signatories.” Am. Legacy, 831 A.2d at 344. Here, the Plaintiffs have clearly alleged that the Partnership Agreement explicitly sought to create future contractual obligations on those entities that would be formed to effectuate the Beverly transaction. 128 Westendorf v. Gateway 2000, Inc., 2000 WL 307369, at *4 (Del.Ch. Mar.16, 2000), aff'd, 763 A.2d 92 (Del.2000) (TABLE) (quotation and citations omitted). 129 Spering, 361 F.Supp. at 286. 130 Defs.' Reply Br. in Supp. of their Mot. to Dismiss at 28 n. 41. 131 Air Traffic & Service Corp. v. Fay, 196 F.2d 40, 42 (D.C.Cir.1952) (applying Delaware law). 132 See, e.g., In re Acadia Dairies, Inc., 135 A. 846, 848 (Del.Ch.1927) (holding that the knowledge of the organizer and promoter of the corporation, who was sole owner thereof, constituted knowledge by the corporation). 133 Defs.' Reply Br. in Supp. of their Mot. to Dismiss at 28 n. 40. 134 Defs.' Opening Br. in Supp. of their Mot. to Compel at 2. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 42 of 71 Grunstein v. Silva, Not Reported in A.2d (2009) 2009 WL 4698541, 35 Del. J. Corp. L. 1040 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 25 135 Pls.' Memo. of Law in Opp'n to Defs.' Mot. to Compel at 1. 136 Id. at 3. 137 Rule 33(d), of course, applies to business records. The Court need not resolve any debate as to whether accumulated discovery materials from related litigation constitute business records within the meaning of that rule. The Court, instead, has broad discretion to facilitate and control the course of discovery pursuant to Court of Chancery Rule 26(c). In this context, Rule 33(d) offers a convenient model to guide the Court's exercise of its general discretion in discovery matters. 138 Pls.' Resp. to Defs.' First Set of Interrogs. at 5. For certain of these objections, the Plaintiffs point to the extensive discovery already accomplished in the predecessor New York action and in the MetCap case that remains relevant here. The Plaintiffs note that, thus far, over 200,000 documents have been produced and twelve witnesses deposed in actions here and in New York. Id. 139 Ct. Ch. R. 26(b)(1). 140 Pfizer, Inc. v. Warner–Lambert Co., 1999 WL 33236240, at *1 (Del.Ch. Dec.8, 1999). 141 In re Tyson Foods, Inc. Consol. S'holder Litig., 2007 WL 2685011, at *1 (Del.Ch. Sept.11, 2007) (citing Dann, 166 A.2d at 432). 142 Plaza Sec. Co. v. Office, 1986 WL 14417, at *5 (Del.Ch. Dec.15, 1986). 143 Ct. Ch. R. 26(b)(1)(iii); see also Ct. Ch. R. 26(c) ( “Upon motion by a party ... and for good cause shown, the Court ... may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense....”). 144 Additionally, the Defendants suggest that they will attempt to show that there is some equivalency between the contracted for fee to MetCap and Grunstein's claim for carried interest in the transaction, and, presumably, that the claim for MetCap's investment banking fee dismissed in the MetCap litigation was the same as Grunstein's expected interest under the Partnership Agreement. 145 Tr. at 70. The Defendants have also recently intimated that Grunstein's proposal of a transaction involving a pharmacy supply company in the Beverly transaction, in a manner similar to the one implemented in the course of the Mariner transaction and now subject to a federal investigation, was what led to a deterioration in Grunstein's and Silva's relationship and may have caused Grunstein to forfeit his partnership interest, and is additionally relevant on these grounds. Letter of Bruce E. Jameson, Esq., Nov. 6, 2009, at 2; Ex. 2 (Silva Dep. excerpt). The Plaintiffs respond that the Defendants are merely seeking to introduce unproven irrelevant allegations in order to embarrass Grunstein and to prejudice the Court against him, and that the Defendants' allegations as to relevance are inconsistent with deposition testimony and the timeline of events. Letter of Arthur L. Dent, Esq., Nov. 16, 2009. 146 Pls.' Memo. of Law in Opp'n to Defs.' Mot. to Compel at 7. 147 The Plaintiffs' protestations notwithstanding, a response that “except as identified in their supplemental response [referencing 130 pages of documents and deposition exhibits] ... plaintiffs have no knowledge of any transfers of ownership” does seem both vague and incomplete. 148 The original interrogatory requested all documents “concerning” these matters; however, after the Plaintiffs previously objected to the use of the term “concerning” as “vague, ambiguous and uncertain” in their answer, the Defendants agreed to modify the interrogatories to request those documents “reflecting' the contractual terms. Notwithstanding this agreed modification, the Plaintiffs have renewed their objection with respect to the term “reflecting.” 149 Pls.' Suppl. Resp. to Defs.' First Set of Interrogs. at 4–5. 150 Defs.' Reply Br. in Supp. of their Mot. to Compel at 16–17. 151 Id. at 18. 152 Id. at 16. End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 43 of 71 Lane v. Netsmart Technologies, Inc., Slip Copy (2016) 2016 WL 1466902 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 1466902 Only the Westlaw citation is currently available. United States District Court, D. Oregon. Serenity Lane, an Oregon corporation, Plaintiff, v. Netsmart Technologies, Inc., a Delaware corporation, and Sequest Technoliges, Inc., an Illinois corporation, Defendants. Civ. No. 6:14-cv-00038-TC | Signed April 13, 2016 Attorneys and Law Firms Dennis W. Percell, Erin E. Gould, Arnold Gallagher Saydack Percell Roberts & Potter, Eugene, OR, for Plaintiff. Andrea D. Coit, Harrang Long Gary Rudnick P.C., Eugene, OR, Gregory T. Snyder, Hinshaw & Culbertson LLP, Rockford, IL, for Defendants. ORDER Michael McShane, United States District Judge *1 Magistrate Judge Thomas M. Coffin filed a Findings and Recommendation (ECF No. 81), and the matter is now before this court. See 28 U.S.C. § 636(b)(1)(B), Fed. R. Civ. P. 72. Although plaintiff did not file objections, I reviewed the legal principles de novo. United States v. Bernhardt, 840 F.2d 1441, 1445 (9th Cir. 1998). I find no error and conclude the report is correct. Magistrate Judge Coffin's Findings and Recommendation (ECF No. 81) is adopted and Plaintiff's First Claim for rescission in its First Amended Complaint is DISMISSED. IT IS SO ORDERED. All Citations Slip Copy, 2016 WL 1466902 End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 44 of 71 Magnolia's at Bethany, LLC v. Artesian Consulting..., Not Reported in A.3d... 2011 WL 4826106 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2011 WL 4826106 Only the Westlaw citation is currently available. UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Superior Court of Delaware, Sussex County. Re: MAGNOLIA'S AT BETHANY, LLC v. ARTESIAN CONSULTING ENGINEERS, INC. C.A. No. S11 C–04–013–ESB. | Sept. 19, 2011. Attorneys and Law Firms Sally J. Daugherty, Esquire, Salmon Ricchezza Singer & Turchi, LLP, Wilmington, DE. Michael P. Kelly, Esquire, McCarter & English LLP, Wilmington, DE. Letter Opinion E. SCOTT BRADLEY, Judge. *1 Dear Counsel: This is my decision on Defendant Artesian Consulting Engineers, Inc.'s Motion to Dismiss the complaint filed against it by Plaintiff Magnolia's at Bethany, LLC in this case involving a condominium with a leaking roof. Magnolia's complaint alleges that Artesian is the successor-in-interest to Meridian Architects and Engineers, LLC and is therefore responsible for Meridian's negligent design of the condominium developed by Magnolia's. Meridian is an architectural and engineering firm that designed the condominium for Magnolia's. Artesian purchased some of Meridian's assets and assumed some of its liabilities two years after Magnolia's completed the condominium. It did not assume Meridian's liabilities related to the condominium. Magnolia's is now the defendant in a lawsuit filed against it by the condominium's unit owners. It filed this separate lawsuit against Artesian seeking indemnification and contribution for any monies it may have to pay to the condominium's unit owners. The estimated cost to repair the condominium is $2,000,000. The general rule on successor corporate liability in a matter involving the sale of assets is that a corporation that purchases the assets of another corporation is not responsible for that corporation's liabilities. 1 There are four exceptions to this rule. 2 They apply where the purchaser assumed the seller's liabilities, the transaction was a de facto merger or consolidation, the purchaser operates as a mere continuation of the seller, and fraud. 3 Each of these exceptions consists of certain elements that must be pled. 4 I have granted Artesian's Motion to Dismiss because Magnolia's did not adequately plead in its complaint the elements of the alleged exceptions to the general rule on successor corporate liability. Statement of Facts Magnolia's is the developer of Magnolia's Resort Condominiums at Bethany, a single-building, three-story, 35 unit condominium with a swimming pool on the roof. Meridian is an architectural and engineering firm owned by Darin A. Lockwood, a licensed professional engineer. It provided architectural and engineering services to Magnolia's for the condominium. The condominium was completed in 2006. Artesian is also an architectural and engineering firm. It purchased some of Meridian's assets in 2008. The sale of assets was governed by an Asset Purchase Agreement between Artesian, Meridian and Lockwood dated June 6, 2008. Artesian acquired for $130,000 Meridian's uncompleted contracts and accounts receivable and permits related to the uncompleted contracts, computers, office equipment and furniture, motor vehicles, and the use of Meridian's name. Artesian only assumed Meridian's liabilities related to the uncompleted contracts and permits. Meridian's employees did become employees of Artesian after the asset sale closed. Lockwood signed a 10–year consulting agreement with Artesian. Meridian subleased its premises to Artesian for $5000 per month for five years. Artesian later displayed on its Facebook page a number of projects, including Magnolia's condominium, on May 12, 2009. Artesian Resources Corporation, the parent company of Artesian, on behalf of itself and a number of subsidiaries, paid Lockwood $800,000 on August 6, 2010 to terminate all contracts and agreements between Lockwood, Artesian and a number of related entities. Magnolia's, the condominium's unit owners, and the Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 45 of 71 Magnolia's at Bethany, LLC v. Artesian Consulting..., Not Reported in A.3d... 2011 WL 4826106 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 general contractor and various subcontractors for the condominium are now embroiled in separate litigation over defects in the condominium. The chief defect seems to be that water is leaking through the flat roof from the areas around and beneath the swimming pool. The condominium's unit owners filed their lawsuit against Magnolia's and the contractors on August 22, 2009. Magnolia's filed its lawsuit against Artesian on April 12, 2011. Standard of Review *2 Artesian argues that Magnolia's complaint fails to state a claim for which relief may be granted. The standards for a Rule 12(b)(6) motion to dismiss in Delaware are clearly defined. The Court must accept all well pled allegations as true. 5 The Court must then determine whether a plaintiff may recover under any reasonable set of circumstances that are susceptible of proof. 6 Dismissal will not be granted if the complaint “gives general notice as to the nature of the claim asserted against the defendant.” 7 A claim will not be dismissed unless it is clearly without merit, which may be either a matter of law or fact.” 8 Vagueness or lack of detail in the pleaded claim are insufficient grounds upon which to dismiss a complaint under Rule 12(b)(6). 9 If there is a basis upon which the plaintiff may recover, the motion is denied. 10 Discussion Magnolia's alleges in its complaint that Artesian is the successor-in-interest to Meridian because it (1) impliedly assumed responsibility for Meridian's liabilities, (2) engaged in a transaction with Meridian that amounts to a de facto merger of Meridian into Artesian, and (3) operates as a mere continuation of Meridian. In Delaware when one company sells or otherwise transfers all of its assets to another company, the buyer generally is not responsible for the seller's liabilities, including claims arising out of the seller's tortuous conduct. In limited situations, where avoidance of liability would be unjust, exceptions may apply to enable the transfer of liability to the seller. These exceptions include: (1) the buyer's assumption of liability; (2) de facto merger or consolidation; (3) mere continuation of the predecessor under a different name; or (4) fraud. 11 I will discuss each exception raised by Magnolia's separately. 1. The Buyer's Assumption of Liabilities Magnolia's complaint alleges that Artesian has impliedly assumed responsibility for Meridian's liabilities for the condominium by holding itself out publicly as the architect and engineer for the condominium. This allegation is based on a Facebook page that Artesian displayed on May 12, 2009. Artesian was advertising on its Facebook page a number of projects, one of which was Magnolia's condominium. Artesian certainly did not expressly assume Meridian's liabilities for the claims related to Magnolia's condominium, leaving Magnolia's to allege that Artesian impliedly assumed them. “Implied” is used in the law in contrast to “express” where the intention in regard to the subject matter is not manifested by explicit and direct words, but is gathered by implication or necessary deduction from the circumstances, the general language, or the conduct of the parties. 12 The subject matter in dispute is the assumption of Meridian's liabilities related to Magnolia's condominium. Artesian's Facebook page is an advertisement that was obviously designed to solicit business, not an expression of its intent to assume Meridian's liabilities for the condominium. Indeed, Artesian's Facebook page did not even mention Meridian, let alone the assumption of its liabilities. To conclude otherwise completely fails to recognize the obvious context and purpose of the Facebook page. No one would interpret it to mean that Artesian had assumed Meridian's liabilities for the condominium. Moreover, the Facebook page ran a full three months before the condominium's unit owners filed their lawsuit against Magnolia's. Thus, it is unlikely that Artesian was even aware of Meridian's liabilities at the time it allegedly assumed them. Therefore, Magnolia's has failed to state a claim of implied assumption of liabilities for which relief can be granted. 2. De Facto Merger *3 A traditional merger under Delaware law involves two or more entities existing under Delaware law merging into a single corporation. 13 Typically, the selling entity is merged into the purchasing entity and ceases to exist. 14 The elements necessary to create a de facto merger under Delaware law are the following: (1) one corporation Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 46 of 71 Magnolia's at Bethany, LLC v. Artesian Consulting..., Not Reported in A.3d... 2011 WL 4826106 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 transfers all of its assets to another corporation; (2) payment is made in stock, issued by the transferee directly to the shareholders of the transferring corporation; and (3) in exchange for their stock in that corporation, the transferee agreeing to assume all the debts and liabilities of the transferor. 15 Magnolia's has failed to allege in its complaint the elements of a de facto merger. Magnolia's does not, and can not, allege that Artesian acquired all of Meridian's assets because, pursuant to the terms of the Asset Purchase Agreement, Artesian only acquired some of Meridian's assets. Magnolia's does not, and can not, allege that Artesian transferred its stock directly to Lockwood because, pursuant to the terms of the Asset Purchase Agreement, Artesian transferred $130,000 to Meridian for its assets and no stock to Lockwood. Magnolia's does not, and can not, allege that Artesian assumed all of Meridian's debts and liabilities because, pursuant to the terms of the Asset Purchase Agreement, Artesian only assumed some of Meridian's debt and liabilities. Therefore, Magnolia's has failed to state a claim of de facto merger for which relief can be granted. 3. Continuation Theory The continuation theory of successor corporate liability has been narrowly construed by the Delaware courts. 16 Mere continuation requires that the new company be the same legal entity as the old company. “The test is not the continuation of the business operation; rather, it is the continuation of the corporate entity.” 17 Imposition of successor liability is appropriate only where the new entity is so dominated and controlled by the old company that separate existence must be disregarded. 18 The primary elements of continuation include the common identity of the officers, directors, or stockholders of the predecessor and successor corporations, and the existence of only one corporation at the completion of the transfer. 19 Magnolia's has not alleged sufficient facts to support a finding that Artesian is “the same legal person” as Meridian. Artesian and Meridian were two unrelated business entities in 2008 and remain so today. Meridian was and is owned by Lockwood. Artesian was and is a wholly-owned subsidiary of Artesian Resources. There is simply no reason to believe that the sale of Meridian's assets to Artesian was anything but an arm's length transaction between the parties. The cash consideration for the assets went from Artesian to Meridian. Artesian and Meridian signed a sub-lease, providing that Artesian would pay $5,000 per month to Meridian for its office space. The ownership of Meridian and Artesian did not change as a result of the transaction and Lockwood did not become an officer, director or shareholder of Artesian. Both Meridian and Artesian continued to exist as separate legal entities after the closing on the sale of assets. Indeed, Magnolia's and Meridian were involved with the lawsuit filed by the condominium's unit owners. The elements of the continuation theory of liability are wholly absent. Therefore, Magnolia's has failed to state a claim of continuation liability for which relief may be granted. Conclusion *4 Magnolia's has failed to adequately plead in its complaint the elements of the three allegedly applicable exceptions to the general rule on successor corporate liability. There are a core set of facts that have to be alleged in order to adequately set forth the various exceptions to the general rule that a corporation that purchases another corporation's assets is not liable for the selling corporation's liabilities. They are simply not present in this case. Artesian did not engage in any conduct that suggested it impliedly assumed Meridian's liabilities related to the condominium. Its mere running of an advertisement on a Facebook page can only be interpreted as a solicitation for new business, not the assumption of Meridian's liabilities, particularly where the advertisement did not even mention Meridian or its liabilities. Artesian did not engage in a de facto merger with Meridian because it did not acquire all of Meridian's assets, did not transfer its stock directly to Lockwood, and did not assume all of Meridian's debts and liabilities. Lastly, Artesian is not the mere continuation of Meridian because the two entities did not have common officers, directors and shareholders and because Meridian and Artesian both remained as separate legal entities after the asset sale. The facts are that Meridian and Artesian were two separate legal entities with different owners, officers and directors both before and after the asset sale. Artesian paid Meridian $130,000 for some of Meridian's assets. It did not transfer any of its stock to Lockwood. Artesian only assumed certain liabilities of Meridian's. It did not expressly assume the balance of them and it did not impliedly assume them by running an advertisement for business on a social networking site. It is these undisputed facts that make Magnolia's unable to properly plead Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 47 of 71 Magnolia's at Bethany, LLC v. Artesian Consulting..., Not Reported in A.3d... 2011 WL 4826106 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 the necessary elements for successor corporate liability. Therefore, I have granted Defendant Artesian Consulting Engineers, Inc.'s Motion to Dismiss the complaint filed against it by Plaintiff Magnolia's at Bethany, LLC. IT IS SO ORDERED. Very truly yours, /S/ E. Scott Bradley E. Scott Bradley All Citations Not Reported in A.3d, 2011 WL 4826106 Footnotes 1 Fountain v. Colonial Chevrolet Co., 1988 WL 40019, at *7 (Del.Super. April 13, 1988) (Citing Fehl v. S. W.C. Corp., 433 F.Supp. 939, 945 (D.Del.1977)); Elmer v. Tenneco Resins, Inc., 698 F.Supp. 535, 540 (D.Del.1988). 2 Id. 3 Id. 4 Superior Court Civil Rule 8. 5 Spence v. Funk, 396 A.2d 967, 968 (Del.1978). 6 Id. 7 Diamond State Telephone Co. v. University of Delaware, 269 A.2d 52, 58 (Del.1970). 8 Id. at 58. 9 Id. 10 Id. 11 Fountain v. Colonial Chevrolet Co., 1988 WL 40019, at *7 (Del.Super. April 13, 1988) (Citing Fehl v. S. W.C. Corp., 433 F.Supp. 939, 945 (D.Del.1977)); Elmer v. Tenneco Resins, Inc., 698 F.Supp. 535, 540 (D.Del.1988). 12 Black's Law Dictionary 754 (6th ed.1990). 13 8 Del. C. § 251(a). 14 In re Asbestos Litigation (Bell), 517 A.2d 697, 699 (Del.Super.1986). 15 Drug, Inc. v. Hunt, 168 A. 87, 96 (Del.1933). 16 Fountain, 1988 WL 40019, at *8. 17 Fountain, 1988 WL 40019, at *9. 18 Elmer, 698 F.Supp. at 542. 19 In re Asbestos Litigation, 517 A.2d at 699. End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 48 of 71 Reybold Venture Group XVI LLC v. Cresswell, Not Reported in A.3d (2014) 2014 WL 7010757 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2014 WL 7010757 Only the Westlaw citation is currently available. UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Superior Court of Delaware. Re: Reybold Venture Group XVI LLC v. Christopher M. Cresswell and Furniture Services Unlimited, LLC C.A. No. N10C–05–078 RRC | Submitted: October 2, 2014 | Decided: November 26, 2014 On Plaintiff Reybold Venture Group XVI LLC's Cross– Motion for Summary Judgment. DENIED. On Defendant Christopher M. Cresswell's Amended Cross–Motion for Summary Judgment. GRANTED. Attorneys and Law Firms Jeffrey M. Weiner, Esquire, The Law Offices of Jeffrey M. Weiner, P.A., 1332 King Street, Wilmington, Delaware 19801, Attorney for Plaintiff Joseph S. Naylor, Esquire, Swartz Campbell, LLC, 300 Delaware Avenue, Suite 1410, P.O. Box 330, Wilmington, Delaware 19899, Attorney for Defendant Christopher M. Cresswell Opinion RICHARD R. COOCH, RESIDENT JUDGE *1 Dear Counsel: I. INTRODUCTION Plaintiff Reybold and Defendant Cresswell have cross- moved for summary judgment. 1 The Court must determine the extent of Defendant's liability to Plaintiff under a guaranty executed by the parties. Both parties assert that the guaranty is “unambiguous,” although they interpret it differently. Defendant contends summary judgment should be granted in his favor because the guaranty at issue “unambiguously” limits Defendant's liability to the $42,000 Defendant already owes under an order of partial final judgment in this matter. 2 Plaintiff in response contends summary judgment should be granted in its favor because the guaranty at issue “unambiguously” extends Defendant's liability to $183,367.64 in unpaid base rent, plus the uncontested $42,000 sum. The Court concludes that the guaranty executed by the parties limits Defendant's liability to the $42,000 previously awarded to Plaintiff by this Court. Plaintiff's Motion for Summary Judgment is therefore DENIED. Defendant's Motion for Summary Judgment is therefore GRANTED. II. FACTUAL AND PROCEDURAL HISTORY A. Stipulated Factual and Procedural History: The parties in this case agreed to a stipulation of the factual and procedural history that was submitted to the Court. That stipulation appears in toto below: 1. Plaintiff Reybold Venture Group XVI LLC (“Reybold”) is a Delaware Limited Liability Company (paragraph 1 of the Complaint and Answer) [Pretrial Stipulation (“PTS”) Facts Admitted Without Formal Proof (“Facts Admitted”) ]. 2. Defendant Christopher M. Cresswell (“Cresswell”) is an individual residing at 2305 West 16th Street, Wilmington, Delaware 19806 [paragraph 2(a) of the Complaint and Answer] [PTS Facts Admitted Without Formal Proof (“Facts Admitted”) ]. 3. Defendant Furniture Services Unlimited, LLC (“Furniture”) is a Delaware Limited Liability Company [paragraph 2(b) of the Complaint and Answer] (PTS Facts Admitted). 4. On or about April 17, 2006, Plaintiff Reybold and Defendant Furniture entered into a Lease Agreement for Suites 106, 107, and 108 of the Basin Road Distribution Center located at 6 Bellecor Drive, New Castle, Delaware 19720 (Plaintiff Exhibit # 1) (paragraph 3 of the Complaint and Answer) (PTS Facts Admitted). A copy of the April 17, 2006 Lease is attached an incorporated herein as Exhibit A. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 49 of 71 Reybold Venture Group XVI LLC v. Cresswell, Not Reported in A.3d (2014) 2014 WL 7010757 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 5. On or about January 25, 2008, Defendant Cresswell executed a Guaranty (PTS Facts Admitted). A copy of the January 25, 2008 Guaranty is attached hereto and incorporated herein as Exhibit B. 6. As of February 1, 2010, Defendant Furniture owed Plaintiff Reybold $42,000 in outstanding amounts due under the 2006 Lease. *2 7. On or about February 1, 2010, Plaintiff Reybold and Defendant Furniture entered into a Lease Agreement for Suites 106, 107, and 108 at the Basin Road Distribution Center, 6 Bellecor Drive, New Castle, Delaware 19720 (PTS Facts Admitted). A copy of the February 1, 2010 Lease is attached hereto and incorporated herein as Exhibit C. 8. On or about February 3, 2010, Defendant Cresswell executed a Guarantee Agreement (PTS Facts Admitted). A copy of the February 3, 2010 Guaranty is attached hereto and incorporated herein as Exhibit D. 9. By letter dated April 12, 2010 (Plaintiff Exhibit # 8), Plaintiff Reybold demanded that Defendant Furniture cure its default by paying the then- outstanding balance of $21,264.14 within ten (10) days [paragraph 6(a) of the Complaint and Answer]; Defendant Furniture failed to do so. 10. On May 11, 2010, Reybold filed its first Complaint against Defendants Furniture and Cresswell. A copy of that Complaint is attached hereto and incorporated herein as Exhibit E. 11. Despite diligent efforts, Reybold was unable to lease the space through the end of the lease on October 31, 2011, resulting in a loss of $225,367.64 in rent and related expenses as set forth in Exhibit F. 12. On October 31, 2011 and on December 1, 2011, Reybold obtained default judgment in the principal amount of $42,000 against Defendant Furniture. 13. On December 20, 2012, based upon Defendant Cresswell's admission in the Pretrial Stipulation that he owed Plaintiff Reybold the Additional Rent of $42,000.00 plus pre-and post-judgment interest, plus legal fees and Court costs in connection therewith, the Court entered an Order for Partial Final Judgment. 14. Copies of these Judgment[s] are set forth in the record and are not disputed. B. Other Pertinent Contract Provisions: The recitals and the first paragraph of the 2010 Guaranty are at the center of the parties' dispute. Both the recitals and Paragraph 1 appear in toto below: WHEREAS, Guarantor warrants that he has an ownership interest and/or otherwise is an authorized officer in Furniture Services Unlimited, LLC (hereinafter FSU), a limited liability company organized under the laws of the State of Delaware. WHEREAS, FSU had entered into a Lease Agreement with a commencement date of November 1, 2006 (the “Original Lease”), with Landlord and has failed to make timely payments of rent and other amounts due under Original Lease. WHEREAS, Landlord has taken action to terminate the Original Lease in accordance with its terms and pursuant to Delaware law. WHEREAS, as a condition for Landlord to permit FSU to enter into a new lease governing the same property under different payment and duration terms (the “New Lease”), Landlord is requiring Guarantor to guaranty and become surety for the payment and performance of all the covenants, representations, obligations and liabilities, of Tenant pertaining to amounts of Additional Rent under the New Lease. NOW, THEREFORE, for and in consideration of agreeing to terminate the Original Lease and entering into the New Lease by Landlord in accordance with the terms thereof, and the covenants of Guarantor herein contained, and intending to be legally bound hereby, Guarantor hereby covenants as follows: 1. Guarantor [Cresswell] hereby irrevocably and unconditionally guarantees and becomes surety for the prompt and faithful payment and performance of all of the covenants, obligations and liabilities of Tenant [Furniture Services Unlimited, LLC], its successors and assigns, under the New Lease, pertaining to the payments of all installments of Additional Rent (as defined in Paragraph 2. B. of Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 50 of 71 Reybold Venture Group XVI LLC v. Cresswell, Not Reported in A.3d (2014) 2014 WL 7010757 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 the New Lease), all damages in the event of any Event of Default of such payments (as defined in the New Lease), and also for all representations of Tenant under the New Lease. All of such obligations are incorporated herein. 3 III. THE PARTIES' CONTENTIONS A. Plaintiff's Contentions *3 Plaintiff contends that the 2010 Guaranty extends Defendant's liability to not only the judgment amount of $42,000, but an additional $183,367.64 in damages based on unpaid base rent. Plaintiff argues that the 2010 Guaranty, specifically at Paragraph 1, holds Defendant personally responsible for the $42,000 plus the unpaid base rent, totaling $225,367.64. Plaintiff argues that the phrase “and also for all representations of Tenant under the New Lease” extends Defendant's liability to include base rent obligations left unpaid by Furniture Services. Plaintiff contends that there is no ambiguity as to this phrase's ordinary meaning and that the recitals to the contract, when read together with Paragraph 1, support its interpretation of the phrase in question. Plaintiff also argues that because Delaware adheres to an objective theory of contracts, the Court should look to “not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.” 4 Plaintiff contends that Defendant fails to read the entire contract objectively, but rather focuses on “one provision of the 2010 Guaranty, in isolation, as if the remainder of the 2010 Guaranty did not exist.” 5 B. Defendant's Contentions Defendant contends that the 2010 Guaranty unambiguously limits Defendant's liability to the $42,000 in Additional Rent for which partial final judgment has already been entered. As to Paragraph 1 of the Lease, Defendant argues that the phrase “and also for all representations of Tenant under the New Lease” refers to representation of fact as to how Furniture Services would be using the premises. 6 In the alternative, Defendant argues that four principles of contract construction prevent the Court from interpreting “all representations of Tenant under the New Lease” to include any base-rent obligations. First, Defendant argues that the Court should read and interpret the contract according to its plain meaning and proper grammatical structure. Defendant contends that reading the contract according to its plain meaning and proper grammatical structure will lead to a finding that the “unspecified representations” are non-financial in nature. Second, under Delaware law, a specific contract provision trumps a general contract provision, and “an overly broad reading of a general provision that would be inconsistent with a specific provision is not permitted.” 7 Third, a contract should be read to give effect to all the provisions of the contract and not render one provision superfluous or redundant. Fourth, the doctrine of contra preferentem should apply, requiring that any ambiguity be resolved against the drafter, Plaintiff. 8 Finally, Defendant argues that the recitals of the 2010 Guaranty are evidence of the intent to permit Furniture Services to enter into a new lease, the 2010 Lease, on the condition that Defendant personally guaranty the unpaid rent, defined under the 2010 Lease as “Additional Rent.” Defendant argues that the recitals show no intent to extend liability further than the Additional Rent payments. IV. STANDARD OF REVIEW *4 Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. 9 On summary judgment, the Court must view the facts in the light most favorable to the non-moving party. 10 Once a moving party establishes that no material facts are disputed, the non-moving party bears the burden to demonstrate a material fact issue by offering admissible evidence. 11 The non-moving party must do “more than simply show that there is some metaphysical doubt as to material facts.” 12 In cases like the instant one, “where the parties have filed cross motions for summary judgment and have not presented argument to the Court that there is an issue of Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 51 of 71 Reybold Venture Group XVI LLC v. Cresswell, Not Reported in A.3d (2014) 2014 WL 7010757 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 fact material to the disposition of either motion, the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions.” 13 “When opposing parties make cross motions for summary judgment, neither party's motion will be granted unless no genuine issue of material fact exists and one of the parties is entitled to judgment as a matter of law.” 14 V. DISCUSSION Delaware courts adhere to the objective theory of contracts. 15 In its interpretation of the 2010 Guaranty, “the Court will give priority to the parties' intentions as reflected in the four corners of the agreement.” 16 Such intent will be construed “according to the meaning it would have in the eyes of a reasonable person in like circumstances.” 17 Determining the intent of the parties will sometimes require a Court to decide whether particular contract language is ambiguous. 18 That the parties disagree regarding the meaning or proper construction of a provision does not render the provision ambiguous. 19 Rather, a contract is only ambiguous “when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.” 20 Also critical to the determination of the existence of any ambiguity is the consideration of the instrument on the whole. 21 Any particular language considered must be analyzed in the context of the “apparent purpose” of the entire contract. 22 If no ambiguity is found, the contract should be interpreted according to the “ordinary and usual meaning” of its terms. 23 *5 The parties disagree on the interpretation of Paragraph 1 and both parties contend that the recitals are further evidence that that their interpretation is the proper one. This Court finds that Paragraph 1 is unambiguous, despite the fact that the parties interpret it differently. It is clear that the first two clauses in Paragraph 1 pertain to the payment of additional rent installments. On the other hand, the last portion of Paragraph 1, which reads “and also for all representations of Tenant under the New Lease,” is not a model of clarity, but does not rise to the level of ambiguity. The plain meaning of this phrase would render Defendant personally liable for all of the representations that Furniture Services made under the 2010 Lease. That would be an unreasonable interpretation. Nothing about this contract language is ambiguous. The fact remains, however, that the phrase “and also for all representations of Tenant under the New Lease” is not entirely consistent with the first two clauses of Paragraph 1. Plaintiff argues that the language “and also for all representations of Tenant under the New Lease” extends Defendant's liability to all unpaid rent, not just to the additional rent installments. In opposition, Defendant argues that principles of contract construction preclude such a finding, specifically that the specific provisions relating to Additional Rent payments should trump the general provision just discussed. The Court must decide which construction is more reasonable and best harmonizes this last portion of Paragraph 1 with the first two clauses of Paragraph 1. 24 This Court agrees with Defendant's argument and finds that under the well-settled rules of construction in Delaware, more specific provisions will generally prevail over a more general provision. 25 The first two clauses of Paragraph 1 pertain to Defendant's liability for the payment of Additional Rent and damages in the event that Defendant was to default on the Additional Rent payments. However, the last portion of Paragraph 1 is considerably broader, and covers all representations of Tenant made under the new lease. If the broader provision of Paragraph 1 were allowed to trump the first two clauses, the first two clauses would never apply, and would essentially be read out of the agreement. “When there is an inconsistency between general and specific provisions, the specific provisions ordinarily qualify the meaning of the general ones, due to the reasonable inference that specific provisions express more exactly what the parties intended.” 26 The Court finds that to be the case here. The first two clauses of Paragraph 1 are a more specific accounting of exactly what obligations Defendant is personally responsible for. The Court further finds that the first two clauses of Paragraph 1 pertaining to the payment Additional Rent and the damages for non-payment of same are a more exacting manifestation of the parties' Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 52 of 71 Reybold Venture Group XVI LLC v. Cresswell, Not Reported in A.3d (2014) 2014 WL 7010757 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 5 intent than the more general clause “and also for all representations of Tenant under the New Lease.” Notably, the fourth recital, provides as follows: “WHEREAS, as a condition for Landlord to permit FSU to enter into a new lease governing the same property under different payment and duration terms (the “New Lease”), Landlord is requiring Guarantor to guaranty and become surety for the payment and performance of all the covenants, representations, obligations and liabilities, of Tenant pertaining to amounts of Additional Rent under the New Lease.” 27 *6 A reading of the fourth recital makes it clear that Plaintiff allowed Furniture Services to change the payment and duration terms of its original lease on the condition that Defendant personally guaranteed the Additional Rent amounts. 28 The amount of Additional Rent payments is the amount which Furniture Services owed to Plaintiff under the original lease at the time the New Lease was executed. There is no indication in the recitals that the 2010 Guaranty was executed with the intent to make Defendant personally liable for any of the base rent left unpaid by Furniture Services. Defendant's construction of the contract language produces the more reasonable and harmonious result. 29 In sum, this Court finds that the first two clauses of Paragraph 1 are controlling regarding the extent of Defendant's liability under the 2010 Guaranty and the 2010 Lease. Defendant's personal liability under the 2010 Guaranty and 2010 Lease is limited to the $42,000 in Additional Rent payments for which partial final judgment has already been entered. CONCLUSION For the foregoing reasons, Plaintiff's Cross–Motion for Summary Judgment is DENIED. Defendant's Amended Cross–Motion for Summary Judgment is GRANTED. IT IS SO ORDERED. All Citations Not Reported in A.3d, 2014 WL 7010757 Footnotes 1 For clarity, any reference to “Defendant” herein is a reference to Defendant Cresswell, unless stated otherwise. See paragraph 12, Stipulated Factual and Procedural History, infra at II. A. 2 Partial final judgment was entered against Defendant Cresswell for $42,000 on Dec. 20, 2012. Judgment by default was also entered against Defendant Furniture Services for the same $42,000 in a related matter that has since been consolidated. 3 2010 Guaranty, Ex. D., Stip. of Facts for Summary Judgment Motions (emphasis added). 4 Pltf's Answering Brief and Opening Brief at 7 (quoting Laugelle v. Bell Helicopter, Inc., 2014 WL 2699880, at *11 (Del.Super. Jun. 11, 2014) (internal quotation marks omitted)). 5 Pltf's Answering Br./Opening Br. at 7–8. 6 Def.'s Reply/Answering Br. at 4. 7 Id. 8 Def.'s Reply/Answering Br. at 4–6. 9 Super. Ct. Civ. R. 56(e). 10 Moore v. Sizemore, 405 A.2d 679, 680 (Del.1970). 11 See Super. Ct. Civ. R. 56(e); See also Phillips v. Del. Power & Light Co., 216 A.2d 281, 285 (Del.1966). 12 Brzoska v. Olson, 668 A.2d 1355, 1364 (Del.1995) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). 13 Super. Ct. Civ. R. 56(h). In addition to the record submitted with the motions, the Court requested, and the parties filed, a stipulation of facts for the summary judgment motions. 14 Emmons v. Hartford Underwriters Ins. Co., 697 A.2d 742, 745 (Del.1997) 15 See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del.2010). 16 GMG Capital Investments, LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del.2012). 17 See Black Horse Capital, LP v. Xstelos Holdings, Inc., 2014 WL 5025926, at *16 (Del. Ch. Sept. 30, 2014); Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 53 of 71 Reybold Venture Group XVI LLC v. Cresswell, Not Reported in A.3d (2014) 2014 WL 7010757 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 6 18 Twin City Fire Ins. Co. v. Delaware Racing Ass'n, 840 A.2d 624, 628 (Del.2003) 19 NBC Universal v. Paxson Commc'ns Corp., 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005) 20 Rhone–Poulenc Basic Chemicals Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del.1992) (internal citation omitted). 21 See 17A C.J.S. Contracts § 387 22 See id. 23 See Rhone–Poulenc Basic Chemicals Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del.1992). 24 See Axis Reinsurance Co. v. HLTH Corp., 993 A.2d 1057, 1063 (Del.2010) (“[W]here a contract provision lends itself to two interpretations, a court will not adopt the interpretation that leads to unreasonable results, but instead will adopt the construction that is reasonable and that harmonizes the affected contract provisions.”). 25 See Brinckerhoff v. Texas E. Products Pipeline Co., LLC, 986 A.2d 370, 387 (Del. Ch.2010). 26 Katell v. Morgan Stanley Grp., Inc., No. 1993 WL 205033, at *4 (Del. Ch. Jun. 8, 1993) (citing Statch v. Underwater Works, Inc., 158 A.2d 809, 811–12 (Del.Super.1960)). 27 2010 Guaranty, Ex. D., Stip. of Facts for Summary Judgment Motions. 28 2010 Guaranty, Ex. D., Stip. of Facts for Summary Judgment Motions. 29 Defendant also makes an argument that pursuant to the doctrine of contra preferentem, the contract should be construed against the drafter, here, Plaintiff. The Court need not reach this argument, because under Delaware law, the doctrine of contra preferentem is only implicated in cases where the contract language is found to be ambiguous. See, e.g., Twin City Fire Ins. Co. v. Delaware Racing Ass'n, 840 A.2d 624, 630 (Del.2003). End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 54 of 71 Seidensticker v. Gasparilla Inn, Inc., Not Reported in A.2d (2007) 2007 WL 4054473 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2007 WL 4054473 Only the Westlaw citation is currently available. UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Court of Chancery of Delaware. Stephen F. SEIDENSTICKER, Plaintiff, v. The GASPARILLA INN, INC., a Delaware corporation, William S. Farish, Sarah S. Farish, Laura F. Chadwick, and William R. Gotwals, Defendants. Civil Action No. 2555-CC. | Date Submitted: Nov. 8, 2007. | Decided: Nov. 8, 2007. Attorneys and Law Firms Andre G. Bouchard, Joel Friedlander, and Dominick T. Gattuso, of Bouchard, Margules & Friedlander, P.A., Wilmington, Delaware, Attorneys for Plaintiff. Lewis H. Lazarus, of Morris James LLP, Wilmington, Delaware, Attorney for Defendants. MEMORANDUM OPINION CHANDLER, Chancellor. *1 Under Delaware law, courts interpret contracts to mean what they objectively say. This approach is longstanding and is motivated by grave concerns of fairness and efficiency. 1 Before me is plaintiffs motion for partial summary judgment seeking an order declaring the meaning of several disputed provisions of a Stock Purchase Agreement. Because there is only one reasonable interpretation of these unambiguous provisions, plaintiffs motion is granted. FACTS AND BACKGROUND Before the Court is Seidensticker's second motion for partial summary judgment. In June, the Court granted his earlier motion for partial summary judgment. 2 After that decision, the parties endeavored to settle their remaining issues, and stipulated that they would submit by letter to the Court any irresolvable differences. They have now done so. Seidensticker was a longtime employee of The Gasparilla Inn who rose through the ranks to become its CEO in 1995. 3 The next year, Bayard Sharp, the sole shareholder of the Inn, transferred to Seidensticker 132 shares as a performance incentive. Because the Inn was a closely held corporation, the marketability and transferability of these shares were sharply restricted by the Stock Purchase Agreement (“SPA”). Specifically, the SPA limited the scope and means of both voluntary and involuntary transfers. An involuntary transfer was triggered under the SPA when (a few days after Sharp's death), Seidensticker's employment was terminated. Under section VI of the SPA, Seidensticker's termination triggered an involuntary transfer event that constituted a “deemed offer” by Seidensticker to sell his shares first to the Inn and then to Sharp. In its June 19, 2007 opinion, the Court held that the Inn and Sharp's estate failed to exercise their options to purchase the shares within the time period set out in the SPA. The parties are now attempting to negotiate the terms of a final order and judgment. The Inn insists that a legend be placed on the stock certificate noting that the restrictions contained in section V continue to apply. Although both parties agree that these restrictions still have some effect, the Inn contends that the triggering events defined by solely Seidensticker's name and actions are also applicable to any of his transferees. Section V of the SPA reads, “Upon the occurrence of any of the following events, Seidensticker, or his or her [sic] personal representative or successor (the ‘Deemed Offeror’) shall be deemed to have made an offer to sell [the shares].” It then goes on to list a series of seven events (the disputed provisions are underlined): 1. Commencement of federal or state bankruptcy, liquidation, or insolvency proceedings by or against the Deemed Offeror; Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 55 of 71 Seidensticker v. Gasparilla Inn, Inc., Not Reported in A.2d (2007) 2007 WL 4054473 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 2. Attachment or garnishment of, or levy or seizure upon, or execution of a judgment against the Common Stock of the Deemed Offeror; 3. Any court order transferring an interest in the Common Stock of the Deemed Offeror to a third party, including a former spouse *2 4. Any attempt to Transfer any Common Stock of the Deemed Offeror in violation of any term of this Agreement; 5. Termination of employment with Sharp for any reason; 6. Disability for a continuous period of three (3) years; or 7. Seidensticker's death. Subsection B of section V defines the date the offer is deemed to be made, and says that with respect to Seidensticker's death or disability, Common Stock is limited to the shares owned by Seidensticker. At issue now is whether paragraphs 6 and 7 of section V.A apply to Seidensticker's successors or transferees. 4 ARGUMENTS Seidensticker contends that paragraphs 6 and 7 need not be noted on the stock certificate legend going forward because they would have no applicability to transferred shares. Defendants, however, say that the purpose of the SPA was to allow the Sharp family to keep the Inn a closely held, family business. If Seidensticker's interpretation is correct, defendants contend, that purpose would be thwarted. In support of his argument, Seidensticker relies heavily on section V.B, which he says limits the scope of the shares “deemed to be offered” under triggering events 6 and 7. The relevant text reads, “In connection with Seidensticker's death or disability, the phrase ‘all of those shares of Common Stock of the Deemed Offeror subject to the event’ shall mean all shares of Common Stock owned by Seidensticker.” This provision, Seidensticker argues, renders events 6 and 7 inapplicable to any shares he transfers and, therefore, it is unnecessary to include these events in the legend on any transferred shares. Defendants offer two chief reasons supporting their interpretation. First, they cite section III of the SPA, which states that “[a]ll shares of the Common Stock which may now or hereafter be owned by Seidensticker shall be subject to the restriction on Transfer imposed by this Agreement.” Defendants contend that this language is universal and applies to any mention of common stock throughout the contract, regardless of whether or not Seidensticker still owns the stock. Second, defendants argue that the purpose of this agreement was to ensure the Inn's ownership did not become diverse. They suggest that the “plain intent” of the drafters militates against Seidensticker's interpretation. ANALYSIS Summary judgment is appropriate only when the record shows no genuine issue of any material fact and the court can rule as a matter of law. 5 While considering a motion for summary judgment, the court views the evidence in the light most favorable to the nonmoving party. 6 Where the dispute centers on the proper interpretation of an unambiguous contract, summary judgment is appropriate because such interpretation is a question of law. 7 Delaware law adheres to an objective theory of contracts, under which a court does not resort to extrinsic evidence “to interpret the intent of the parties, to vary the terms of the contract or to create an ambiguity” when the contract terms are unambiguous. 8 Contract terms are not ambiguous merely because the parties to the contract disagree; 9 rather, the court “stand[s] in the shoes of an objectively reasonable third-party observer,” and ascertains whether the contract language is unmistakably clear. 10 *3 The Supreme Court's recent decision in Appriva Shareholder Litigation Co. v. EV3, Inc. 11 does not set forth a new or different standard. There, the Supreme Court held that a trial court may not, on a Rule 12(b) (6) motion to dismiss, “choose between two differing reasonable interpretations of ambiguous provisions.” 12 Where a contract term is objectively clear and there is only one “reasonable interpretation,” it is well within the province of this Court to rule as a matter of law. The Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 56 of 71 Seidensticker v. Gasparilla Inn, Inc., Not Reported in A.2d (2007) 2007 WL 4054473 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 Supreme Court may have quoted language suggesting a subjective theory of contracts from Klair v. Reese, 13 but Appriva does not rely on a subjective theory to reach its holding. Because of this, and because the Supreme Court has-in an earlier opinion neither distinguished nor cited in Appriva-expressly “disapproved” of the “overbroad” language of Klair, I cannot determine that Appriva alters Delaware's stalwart and longstanding adherence to an objective theory of contracts. 14 Here, section V unambiguously defines certain “triggering events,” upon the occurrence of which Seidensticker, or his personal representative, or his successor shall be deemed to have made an offer to sell the shares back to the Inn. The contact language anticipates three different individuals who might be deemed to have made an offer (Seidensticker, his personal representative, or his successor). The contract provision then collectively defines the class of all three as the “Deemed Offeror.” That definitional term would be entirely superfluous if any one of the three individuals could, on its own, stand for all three. When interpreting contracts, this Court gives meaning to every word in the agreement and avoids interpretations that would result in “superfluous verbiage.” 15 The “Deemed Offeror” term would be rendered superfluous verbiage if this Court followed defendants' interpretation. Section V.B explicitly states that triggering events 6 and 7 implicate only those shares owned by Seidensticker. Seidensticker is only one of three individuals contemplated by section V; if “Common stock owned by Seidensticker” were to mean “Common Stock owned by Seidensticker, his personal representative, or his successor,” the drafters would have used “Deemed Offeror.” By saying only Seidensticker, the drafters excluded the other individuals contemplated by section V, because expressio unius est exclusio alterius. 16 Defendants' interpretation makes rational sense (in that it is rational to think that the drafters may not have wanted to allow these shares to get away from the Sharp family), but its interpretation is not reasonable in light of the indisputably clear language of the contract. Defendants' attempt to cabin the last sentence of section V.B by suggesting that it means all shares “ever” owned by Seidensticker necessarily fails: the contract does not use the word “ever.” Moreover, defendants' contention that the language in section III applies throughout the entire agreement is refuted by the familiar interpretive rule that specific provisions prevail over general provisions. 17 Defendants offer no persuasive reason that the contract means anything other than what it says, and “Common Stock” in connection with Seidensticker's death or disability means only common stock held by Seidensticker. CONCLUSION *4 Under the plain language of the SPA, no deemed offering of shares occurs upon Seidensticker's death or disability with respect to shares held by Seidensticker's transferees. Because this is the only reasonable interpretation of the SPA's language, I grant plaintiff's motion for partial summary judgment. Counsel shall confer on the terms of a final order and judgment implementing this decision and the earlier ruling. In the event counsel are unable to resolve all disagreements as to the form of final order, each side shall submit a proposed form of order for the Court's consideration. All Citations Not Reported in A.2d, 2007 WL 4054473 Footnotes 1 See Joseph M. Perillo, The Origins of the Objective Theory of Contract Formation and Interpretation, 69 FORDHAM L.REV. 427, 477 (2000) (concluding that a judicial attempt to uncover the subjective meaning of contracts would incentivize perjury and needlessly complicate litigation). 2 Seidensticker v. The Gasparilla Inn, C.A. No. 2555-CC, 2007 WL 1930428 (Del. Ch. June 19, 2007). 3 These facts are undisputed and are taken from the parties' submissions. 4 Both sides agree that because Seidensticker has already been terminated, paragraph 5 is irrelevant. 5 Ct. Ch. R. 56(c); Twin Bridges Ltd P'ship v. Draper, C.A. No. 2351-VCP, 2007 WL 2744609, at *8 (Del. Ch. Sept. 14, 2007). 6 HIFN, Inc. v. Intel Corp., C.A. No. 1835-VCS, 2007 WL 1309376, at *9 (Del. Ch. May 2, 2007). Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 57 of 71 Seidensticker v. Gasparilla Inn, Inc., Not Reported in A.2d (2007) 2007 WL 4054473 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 7 Id. 8 Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232-33 (Del.1997). 9 Id. 10 Dittrick v. Chalfant, C.A. No. 2156-VCL, 2007 WL 1039548, at *4 (Del. Ch. Apr. 4, 2007). 11 Nos. 470, 2006, 623, 2006, 2007 WL 3208783 (Del. Nov. 1, 2007). 12 Appriva, slip op. at 30, 2007 WL 3208783, at *10 (quoting VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615 (Del.2003)). 13 531 A.2d 219, 223 (Del.1987) (“The primary search is for the common meaning of the parties, not a meaning imposed on them by law.”). 14 See Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 n. 7. (Del.1997) (“Unfortunately, certain language in the Court's opinion [in Klair v. Reese ] is overbroad on the issue of when extrinsic evidence should be considered. To the extent that such language may be read to be broader than, or at variance with, the principles set forth in this opinion, it is disapproved. The Klair opinion should be construed narrowly to conform with this opinion.” (citations omitted)). 15 NAMA Holdings, LLC v. World Market Center Venture, LLC, C.A. No. 2756-VCL, 2007 WL 2088851, at *6 (Del. Ch. July 20, 2007). 16 Priest v. State, 879 A.2d 575, 584 (Del.2005). 17 Cf. Shellburne Civic Ass'n, Inc. v. Brandywine School Dist., C.A. No. 2273-N, 2006 WL 2588959, at *4 (Del. Ch. Sept. 1, 2006). End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 58 of 71 Serenity Lane v. Netsmart Technologies, Inc., Slip Copy (2016) 2016 WL 1555153 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 1555153 Only the Westlaw citation is currently available. United States District Court, D. Oregon. Serenity Lane, an Oregon corporation, Plaintiff v. Netsmart Technologies, Inc., a Delaware corporation; and Sequest Technologies, Inc., an Illinois corporation, Defendants. Civ. No. 6:14–cv–00038–TC | Signed March 20, 2016 Attorneys and Law Firms Dennis W. Percell, Erin E. Gould, Arnold Gallagher Saydack Percell Roberts & Potter, Eugene, OR, for Plaintiff. Andrea D. Coit, Harrang Long Gary Rudnick P.C., Eugene, OR, Gregory T. Snyder, Hinshaw & Culbertson LLP, Rockford, IL, for Defendants. FINDINGS AND RECOMMENDATION COFFIN, United States Magistrate Judge: *1 Defendants, Netsmart Technologies, Inc. (Netsmart), and Sequest Technologies, Inc. (Sequest), move the court for an order to dismiss the first claim brought against them in plaintiff, Serenity Lane's, First Amended Complaint. Having considered the motions and related materials, defendants' motion (Doc. 70) should be granted. BACKGROUND The underlying dispute in this case arose out of an agreement between plaintiff and Sequest, whereby Sequest agreed to provide plaintiff with totally integrated electronic medical record (TIER) software customized for plaintiff's use. Pl.'s Compl., 2. Sequest was then acquired by Netsmart in October 2011. Id. Plaintiff alleges that it paid defendants $518,308.41 for the development, licenses, and customization of the TIER software and that defendants breached the agreement by failing to deliver the TIER software. Id. On January 8, 2014, plaintiff filed a complaint with this court stating that defendants now owe it the obligations of Sequest under the agreement. Pl.'s Compl., 2. Plaintiff's complaint made four claims for relief. Plaintiff's first claim for relief sought damages of $518,308.41 for the TIER software it claims was never delivered, $654,242 for time it spent performing its obligations under the agreement, $147,937.61 for computer hardware purchases that became obsolete or unusable as the result of defendants' alleged failure to deliver the software, and prejudgment interest. Id. at 3. Plaintiff's second claim asserted that defendants violated the Uniform Commercial Code (UCC). Id. Plaintiff's third claim sought a declaration from this court stating that it was not bound to the 2006 contract because the TIER software was never delivered or received. Id. at 4. Plaintiff's fourth claim asserted that in the alternative, if the court declared that it was bound to the contract, pursuant to the terms of the contract, the TIER software was not subject to repair or replacement and defendants were, therefore, obligated to refund the amount plaintiff paid them for the TIER software in the sum of $518,308.41, plus prejudgment interest. Id. at 5. In response to plaintiff's complaint, defendants filed a Motion to Dismiss (Doc. 32) on May 15, 2014, followed by a Renewed Motion to Dismiss (Doc. 44) on January 15, 2015, to which this court entered its Findings and Recommendation on May 15, 2015, recommending that defendants' motion be granted in part and denied in part. Doc. 59 at 1. Specifically, this court found that: (1) the 2006 contract is binding on both parties; (2) the UCC does not apply; (3) Illinois law governs all questions regarding the validity and operation of the contract; and (4) plaintiff's claims for incidental and consequential damages, as well as prejudgment interest, should be dismissed. Id. at 8, 19–20. In sum, this court found that plaintiff's first, second, and third claims, as well as its demand for prejudgment interest in its fourth claim, should be dismissed. Id. at 19–20. On June 22, 2015, District Judge Michael McShane adopted this court's Findings and Recommendation in full. Doc. 63. *2 Plaintiff filed its First Amended Complaint (Doc. 68) on September 1, 2015 asserting two claims against defendants. Plaintiff's first claim seeks rescission of the contract and damages of $518,308.41 for money it paid Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 59 of 71 Serenity Lane v. Netsmart Technologies, Inc., Slip Copy (2016) 2016 WL 1555153 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 to defendants, $654,242 for time spent performing its obligations under the contract, $147,937.61 for computer hardware purchases that became obsolete or unusable as the result of the “frustration of the contract's primary purpose,” and interest of $129.58 per day. Pl.'s First Am. Compl. 3. Plaintiff's second claim, which is brought in the alternative, is for breach of contract and seeks $518,308.41 in damages, plus costs and disbursements. Id. at 3–4. On September 18, 2015, defendants moved to dismiss the first claim from plaintiff's First Amended Complaint. Def.s' Mot. to Dismiss Pl.'s First. Am. Compl. 2. STANDARD OF REVIEW Where a plaintiff “fails to state a claim upon which relief can be granted,” the court must dismiss the action. Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss, the complaint must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). For purposes of a motion to dismiss, the complaint is liberally construed in favor of the plaintiff and its allegations are taken as true. Rosen v. Walters, 719 F.2d 1422, 1424 (9th Cir.1983). Bare assertions, however, that amount to nothing more than a “formulaic recitation of the elements” of a claim “are conclusory and not entitled to be assumed true.” Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009). Rather, to state a plausible claim for relief, the complaint “must contain sufficient allegations of underlying facts” to support its legal conclusions. Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.2011), cert. denied, 132 S.Ct. 2101 (2012). DISCUSSION Defendants move the court to dismiss the first claim for rescission of contract from Plaintiff's First Amended Complaint. Defs.' Mot. to Dismiss Pl.'s First. Am. Compl. 2. Defendants also argue that “the Declaration of Erin Gould, the e-mails attached thereto, and all references to the same in plaintiff's response should be stricken” because the submission of such evidence is improper in a response to a Rule 12(b)(6) motion to dismiss and also because the documents are not relevant to plaintiff's complaint. Id. at 3. Finally, defendants argue that Illinois law, rather than Oregon law, applies to plaintiff's first claim. Id. at 5–6. I. Preliminary matters Two issues merit clarification before the court reaches the substantive merits of defendants' motion. A. Declaration of Erin Gould and the Exhibits Attached Thereto In support of its Opposition to Defendants' Motion to Dismiss (Doc. 71), plaintiff submitted a declaration from its attorney, Erin Gould, as well as two exhibits containing email correspondence and project status reports that were reportedly obtained during discovery. Decl. of Erin Gould in Supp. of Pl.'s Mem. In Opp'n to Defs.' Mot. to Dismiss Pl.'s First. Am. Compl. 1–18. Moreover, plaintiff made multiple references to the 2006 contract in its First Amended Complaint. Pl.'s First Am. Compl. ¶¶ 6–7, 9–20. “Generally, a court may not consider material beyond the complaint in ruling on a Fed.R.Civ.P. 12(b)(6) motion.” Intri–Pix Technologies, Inc. v. Crest Group, Inc., 499 F.3d 1048, 1052 (9th Cir.2007). However, “while district courts generally may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion, they may take judicial notice of documents referenced in the complaint, pleadings from other relevant proceedings, as well as matters in the public record, without converting a motion to dismiss into one for summary judgment.” Elizabeth Retail Properties, LLC, v. KeyBank Nat. Ass'n, 83 F.Supp.3d 972, 984 (D.Or.2015). Moreover, the Ninth Circuit has “extended the doctrine of incorporation by reference to consider documents in situations where the complaint necessarily relies upon a document or the contents of the document are alleged in a complaint, the document's authenticity is not in question, and there are no disputed issues as to the document's relevance.” Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir.2010). *3 Here, the evidence plaintiff submitted as attachments to the Declaration of Erin Gould was not referenced or relied upon in its First Amended Complaint. Moreover, defendants dispute the relevance of such evidence. Accordingly, this court does not consider the Declaration of Erin Gould or the exhibits attached thereto in considering defendants' motion to dismiss plaintiff's first claim. Coto Settlement, 593 F.3d at 1038; Elizabeth Retail Properties, LLC, 83 F.Supp.3d at 984. The court, however, takes judicial notice of the 2006 contract, which was repeatedly referenced throughout plaintiff's First Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 60 of 71 Serenity Lane v. Netsmart Technologies, Inc., Slip Copy (2016) 2016 WL 1555153 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 Amended Complaint and the relevance and authenticity of which, is not contested by defendant. Elizabeth Retail Properties, LLC, 83 F.Supp.3d at 984. B. Law Governing Plaintiff's First Claim for Rescission of Contract Defendants argue that Illinois law governs plaintiff's first claim for rescission of contract because the contract contains a choice-of-law provision that demonstrates that “the parties clearly intended for Illinois law to govern the relationship between them.” Defs.' Reply in Supp. of Defs.' Mot. to Dismiss 4, 6. Moreover, defendants argue that this court has already found that “Illinois law governs ‘all questions relating to the validity and operation of’ the contract” and because plaintiff seeks to rescind the contract based on an alleged frustration of the primary purpose of the contract, plaintiff's first claim “clearly invokes a question regarding the validity or operation of the contract.” Id. at 4–5 (quoting Doc. 59 at 12). Plaintiff argues that Oregon law applies to its first claim because a rescission claim based on frustration of purpose does not relate to the “validity” of the contract. Pl.'s Opp'n to Defs.' Mot. to Dismiss 7. Moreover, at the oral argument on March 15, 2016, plaintiff argued that pursuant to Or.Rev.Stat. 15.350, its claim based on frustration of purpose does not relate to the “operation” of the contract and, thus, “the terms regarding governing law stated in the contract would have no influence on [its] rescission claim.” Pl.'s Opp'n to Defs.' Mot. to Dismiss 7. Plaintiff also argues that because “the mutually understood primary purpose of the contract was substantially frustrated by the failure of [defendants] to install and implement a usable TIER software product in [its] computer system,” “under frustration of purpose and rescission, the contract and its validity are not analyzed at all” and, instead, “[t]he contract simply falls away and the moving party is restored to its position prior to entering into the contractual relationship.” Id.; Pl.'s First Am. Compl. ¶ 13. Plaintiff argues that the rationale for both arguments is “stated best” in Bennett v. Baugh, 154 Or.App. 397 (1997), which held that “ ‘if a party successfully avoids contractual responsibility under a rescission theory, the terms of the abrogated contract have no influence whatever upon the subsequent determination of the rights of the parties or the adjustment of matters growing out of it.’ ” Id. (quoting Bennett, 154 Or.App. at 402) (emphasis supplied by the court). This court finds plaintiffs argument unpersuasive. Here, Plaintiff cites Bennett for the proposition that the contract, as well as the included choice-of-law provision, simply fall away and are not analyzed at all at this stage of the proceedings. However, Bennett is distinguishable from this case. In Bennett, the court found that where a party prevails on a general verdict after espousing the affirmative defenses of rescission, estoppel, and undue influence, that party cannot subsequently argue that the verdict could not have been based on rescission. Bennett, 154 Or.App. at 403. The court in Bennett found that under such circumstances, after a plaintiff prevails on a rescission claim, the terms of the contract no longer have any influence on a party's rights. Id. Here, however, plaintiff has not prevailed on a rescission claim. Rather, plaintiff has merely pled a claim for rescission. Consequently, the holding in Bennett is inapposite and provides no basis for the court to disregard the terms of the contract, including its choice-of-law provision, when analyzing plaintiff's rescission claim. *4 Also unpersuasive is plaintiff's argument that pursuant to Or.Rev.Stat. 15.350, Oregon law informs the operation of the contract. Or.Rev.Stat. 15.350 expressly states that “the contractual rights and duties of the parties are governed by the laws that the parties have chosen” and “the choice of law must be express or clearly demonstrated from the terms of the contract.” Or.Rev.Stat. 15.350. Here, Section I, Paragraph 11.3 of the 2006 contract states that ‘[a]ll questions concerning the validity and operation of this contract shall be governed by the laws of the State of Illinois.” Defs.’ Mot. to Dismiss Pl.'s First Am. Compl., Ex. A at 6. Thus, the terms of contract clearly demonstrate the parties' clear intent to be bound by Illinois law. Accordingly, this court finds again, as it did previously in its Findings and Recommendation of May 5, 2015, that because the parties clearly intended Illinois law to govern their contractual relationship, as demonstrated by the unambiguous choice- of-law provision included in the contract, the court will not frustrate the parties' original intentions by assessing their contractual relationship under Oregon law. Doc. 59 at 7–8, 12 (quoting Capital One Bank v. Fort, 242 Or.App. 166, 171 (2011) under Oregon law, there is a “foundational premise that the intention of the parties to a contract controls a courts interpretation of it.”). As such, this court Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 61 of 71 Serenity Lane v. Netsmart Technologies, Inc., Slip Copy (2016) 2016 WL 1555153 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 finds that both of plaintiff's claims are governed by Illinois law. II. Defendants' Motion to Dismiss Defendants argue that plaintiff's first claim fails to allege all the required elements of a rescission of contract claim under Illinois law because under Illinois law, to successfully plead a claim for rescission of contract, a plaintiff must plead facts that establish that both parties can be restored to the status quo ante and here, plaintiff “does not allege that the defendants can be returned to the status quo ante.” Defs.' Mot. to Dismiss Pl.'s First Am. Compl. 2. Defendants also argue that plaintiff's first claim fails because “a party may not rescind a contract after said party has affirmed the contract and sued for damages” and plaintiff “indisputably affirmed the contract by filing its original complaint suing for breach of contract but failing to seek rescission of the contract.” Defs.' Reply in Supp. of its Mot. to Dismiss Pl.'s First Am. Compl. 7. Finally, defendants argue that even if Oregon law governs, plaintiff's first claim still fails because it does not allege that an event occurred that made performance impossible or that there was a mistake that destroyed the purpose of the contract as Oregon law requires. Id. at 7–10. Plaintiff argues that rescission of contract is appropriate here because all elements of frustration of purpose under Oregon law are present. Pl.'s Opp'n to Defs.' Mot. to Dismiss Pl.'s First Am. Compl. 5. Specifically, plaintiff argues that: (1) the primary purpose of the contract was for the use of the software license; (2) the primary purpose was mutually understood; (3) errors and defects from 2009, which defendants were aware of and failed to fully inform plaintiff of, “made the system essentially corrupted so that it would never have functioned, no matter how much [defendants] worked to try to fix [the] errors”; and (4) the frustration was the result of circumstances the parties mutually assumed would not occur. Id. at 6. Moreover, at the oral argument on March 15, 2016, plaintiff argued that pursuant to the holding in Evergreen West Business Center, LLC, v. Emmert, 354 Or. 790 (2014), its decision to initially sue under only a breach of contract theory does not preclude it from bringing its rescission claim now. To state a cause of action for rescission of contract under Illinois law, a plaintiff must allege facts which establish that: (1) there has been a substantial nonperformance or substantial breach by another party; and (2) “the parties can be placed in the status quo ante.” Wilkonson v. Yovetich, 249 Ill.App.3d 439, 446; 618 N.E.2d 1120, 1125 (1st Dist.1993) (internal citations omitted) (see also Puskar v. Hughes, 179 Ill.App.3d 522, 528; 533 N.E.2d 962, 966 (2d Dist.1989) Under Illinois law, “[r]escission is an equitable doctrine, and a party seeking rescission must restore the other party to the status quo existing at the time the contract was made.”) “The failure of the plaintiffs to establish that the equitable remedy sought is appropriate under the circumstances may operate to defeat their claim in equity.” Wilkonson, 249 Ill.App.3d at 446 (citing Luciani v. Bestor, 106 Ill.App.3d 878, 882; 436 N.E.2d 251, 255 (3rd Dist.1982)). However, a plaintiff need only “show[ ] that restitution [is] possible and describe[ ] how it could be done. Nothing more is required at the pleading stage.” Horowitz v. Sonnenschein Nath and Rosenthal, LLP, 399 Ill.App.3d 965, 975; 926 N.E.2d 934 (1st Dist.2010). *5 Here, as stated above, Illinois law governs the parties' contractual relationship. Accordingly, plaintiff's reliance on Evergreen West Business Center, an Oregon case, for the proposition that suing initially under only a breach of contract theory does not preclude it now from bringing its rescission claim, is misplaced. However, defendants also fail to cite any Illinois law to support their assertion that plaintiff's rescission claim should be precluded because it affirmed the contract by suing only for breach of contract initially. Moreover, this court can find no such law to support defendants' assertion. Accordingly, because plaintiff's motion (Doc. 67) for leave to file its First Amended Complaint was unopposed by defendants, and because this court placed no restrictions on the nature of the claims plaintiff could bring in its First Amended Complaint when it granted plaintiff's unopposed motion for leave to file its First Amended Complaint, Doc. 69, this court finds that plaintiff's first claim for rescission of contract is not precluded now simply because plaintiff failed to raise the claim initially. However, while plaintiff's claim for rescission is not precluded for the reasons stated above, it nevertheless fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6); Bell Atlantic Corp., 550 U.S. at 570. Specifically, although plaintiff's First Amended Complaint alleges facts that could possibly establish that there has been a substantial nonperformance or breach by defendants when the complaint is liberally construed in favor of plaintiff and when plaintiff's allegations are Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 62 of 71 Serenity Lane v. Netsmart Technologies, Inc., Slip Copy (2016) 2016 WL 1555153 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 5 taken as true, Rosen, 719 F.2d at 1424, plaintiff's First Amended Complaint fails to establish that both parties can be returned to the status quo ante. Rather, plaintiff's First Amended Complaint asserts only that it could be restored to the status quo ante if defendants: (1) disgorge the money plaintiff allegedly paid them for the TIER software; (2) pay plaintiffs for the time plaintiff allegedly spent performing its obligations under the contract; (3) pay for computer hardware purchases it made that became obsolete or unusable as the result of defendants' alleged failure to deliver the software; and (4) pay interest at the rate of $129.58 per day. Pl.'s First. Am. Compl. ¶ 18. In sum, plaintiff's first claim demands a judgment in the sum of $1,320,488.03, plus interest, Pl.'s First. Am. Compl. 4, but makes no argument for how this payment would also restore defendants to the status quo ante. As such, plaintiff has failed to show that restitution is possible for it, as well as defendants, and has also failed to describe how restitution could be done. Horowitz, 399 Ill. App.3d at 975. Thus, plaintiff has failed to allege sufficient facts to meet the second prerequisite for a claim of rescission under Illinois law, Wilkonson, 249 Ill.App.3d at 446, and, therefore, defendants' motion to dismiss plaintiff's first claim should be granted. CONCLUSION For the reasons stated above, defendants' motion (Doc. 70) to dismiss the first claim of plaintiffs First Amended Complaint should be granted. SCHEDULING ORDER This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. The Findings and Recommendation will be referred to a district judge. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of the district court's judgment of appealable order. Objections, if any, are due fourteen (14) days from service of the Findings and Recommendation. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due fourteen (14) days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement. Failure to timely file objections to any factual determination of the Magistrate Judge will be considered a waiver of a party's right to de novo consideration of the factual issues and will constitute a waiver of a party's right to appellate review of the findings of fact in an order or judgment entered pursuant to this recommendation. All Citations Slip Copy, 2016 WL 1555153 End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 63 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 2013 WL 6916277 Only the Westlaw citation is currently available. UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING. Court of Chancery of Delaware Re: Spring Real Estate, LLC d/b/a Spring Capital Group v. Echo/RT Holdings, LLC C.A. No. 7994–VCN | Submitted: September 11, 2013 | December 31, 2013 Attorneys and Law Firms Eric J. Monzo, Esquire, Morris James LLP, 500 Delaware Avenue, Suite 1500, Wilmington, DE 19801 John L. Reed, Esquire, Scott B. Czerwonka, Esquire, Andrew H. Sauder, Esquire, DLA Piper LLP (US), 919 N. Market Street, Suite 1500, Wilmington, DE 19801 Opinion John W. Noble, Vice Chancellor *1 Dear Counsel: Plaintiff Spring Real Estate, L L C (“Spring Capital”) 1 seeks to recover on a $99,057.50 default judgment (the “RT Default Judgment”) entered against Defendant RayTrans Distribution Services, Inc. (“RayTrans”), a dissolved Illinois corporation. 2 Before it was dissolved, RayTrans sold substantially all of its assets to Defendant Echo/RT Holdings, LLC (“Echo/RT”), a Delaware limited liability company, through an Asset Purchase Agreement dated June 2, 2009 (the “Purchase Agreement”). 3 Defendant Echo Global Logistics, Inc. (“Echo”) guaranteed the performance of certain obligations of Echo/RT, its wholly-owned subsidiary, under the Purchase Agreement. 4 Spring Capital is attempting to collect on the RT Default Judgment from Echo/RT, Echo, and RayTrans. RayTrans Holdings, Inc. (“RayTrans Holdings”) and James A. Ray (“Ray”) are named as Nominal Defendants. Spring Capital asserts two claims for declaratory judgment against Echo/RT and Echo (together, the “Echo Defendants”): first, that they have successor liability for the RT Default Judgment under the Purchase Agreement or under Delaware law (the “Successor Liability Claim”); 5 and second, that they are liable for the RT Default Judgment under the Illinois Business Corporation Act (the “Illinois Claim”). 6 Spring Capital also alleges that the Echo Defendants are liable for the RT Default Judgment because the Purchase Agreement was a fraudulent transfer under Delaware and Illinois law (the “Fraudulent Transfer Claims”). 7 The Echo Defendants have moved to dismiss all four claims under Court of Chancery Rule 12(b)(6) for failure to state a claim (the “12(b)(6) Motion”). 8 For the following reasons, the Court grants the 12(b)(6) Motion. I. BACKGROUND A. The RT Default Judgment Sierra Concrete Design, Inc., and Trevi Architectural, Inc. (together, the “Debtors”) filed for Chapter 7 bankruptcy on August 29, 2008. 9 In the ninety days preceding their bankruptcy filings, the Debtors made five payments totaling $98,807.50 to RayTrans. 10 On July 29, 2010, the trustee for the Debtors' estates filed a petition against RayTrans to recover that sum, alleging the payments were in violation of the bankruptcy laws. 11 RayTrans did not answer or otherwise respond to the petition, leading to entry of the RT Default Judgment on July 21, 2011. 12 Spring Capital purchased the RT Default Judgment from the Debtors' estates on August 20, 2012, and the RT Default Judgment remains unpaid. 13 B. The Transaction Between the Echo Defendants and RayTrans *2 Spring Capital alleges generally that Echo/RT is “jointly and severally liable” for the RT Default Judgment “[a]s RayTrans's successor in liability.” 14 The specific allegations of how Echo/RT is liable for the RT Default Judgment are not only internally inconsistent, but also in conflict with the Purchase Agreement. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 64 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 Initially, Spring Capital claims the assumption of liability was “pursuant to the June 2, 2009 Agreement,” an allegation it supports by citation to the Purchase Agreement. 15 At this point, it also recognizes that “Echo guaranteed payment and Echo/RT's performance of the June 2, 2009 Agreement.” 16 But, subsequently, Spring Capital alleges the Echo Defendants assumed RayTrans's liability through a merger, citing to a June 10, 2009, Echo press release announcing the transaction (the “Press Release”) for support. 17 Several other allegations in the Complaint suggest the transaction was a merger 18 — in fact, Spring Capital even implies that the Purchase Agreement contemplated a merger. 19 Spring Capital makes generalized allegations about the assets and liabilities Echo/RT assumed in the transaction with RayTrans. The single specific allegation is that the liabilities Echo/RT assumed included those directly relating to RayTrans's network of skilled transportation professionals and carriers that relate to RayTrans's specialty in flatbed, over-sized, auto-haul and other specific services, as well as traditional dry van brokerage, coupled with the relationships RayTrans built to service their shippers. 20 Noticeably absent from this list is an allegation that Echo/ RT expressly assumed the RT Default Judgment under the Purchase Agreement. Spring Capital does not otherwise reference, cite to, or quote from any specific provisions of the Purchase Agreement or other transactional document in support of its claims. II. ANALYSIS A. The Standard of Review When presented with this 12(b)(6) Motion, the Court accepts all nonconclusory allegations in the Complaint as true and draws all reasonable inferences from those allegations in Spring Capital's favor. 21 Conversely, the Court may disregard conclusory allegations and unreasonable inferences. 22 Thus, the Court should grant the 12(b)(6) Motion only if Spring Capital “could not recover under any reasonably conceivable set of circumstances susceptible of proof.” 23 *3 Under Court of Chancery Rule 10(c), “[a] copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes.” Accordingly, the Court will consider the Purchase Agreement and the Press Release because they were attached to the Complaint. 24 B. The Claims Against Echo/RT Viewing the Complaint and the attached documents most favorably to Spring Capital, the only reasonable inference is that the transaction between Echo/RT and RayTrans was an asset purchase governed by the Purchase Agreement, not a merger suggested by the Press Release. The allegations to the contrary are without substance. 1. The Successor Liability Claim Spring Capital contends that, under its reading of the Purchase Agreement, Echo/RT assumed “all obligations accruing, arising out of or relating to the conduct or operation of RayTrans's business”—which it argues would include the RT Default Judgment. 25 Were its contract interpretation incorrect, Spring Capital argues Echo/RT would still be liable for the RT Default Judgment under two alternate theories: either the Purchase Agreement was a de facto merger, or, after the Purchase Agreement, Echo/RT was a mere continuation of RayTrans. 26 Spring Capital further contends that it would be unjust and thus improper for Echo/RT to avoid liability for the RT Default Judgment. 27 In response, Echo/RT contends Spring Capital has failed to allege an adequate basis for the Successor Liability Claim. Echo/RT opposes Spring Capital's interpretation of the Purchase Agreement, claiming instead that, under the terms of the contract, RayTrans retained the RT Default Judgment as a legal liability arising out of its conduct and operations before the closing date. 28 Separate from the express terms of the Purchase Agreement, Echo/RT argues Spring Capital has failed to allege the elements necessary for the Court to find successor liability under the de facto merger theory 29 or the continuation theory. 30 Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 65 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 Under the Purchase Agreement, Echo/RT assumed certain liabilities, and RayTrans retained all other liabilities. 31 Section 1.3 of the Purchase Agreement provides that Echo/RT assumed, among other specifically enumerated liabilities, “all obligations accruing, arising out of or relating to the conduct or operation of the Business or the ownership of the Purchased Assets from and after the Closing Date, including all such obligations arising out of any action, proceeding or other litigation.” 32 Conversely, Section 1.4 provides that RayTrans retained all unassumed liabilities, specifically including “any Liabilities (including any future legal actions) relating to or arising out of the ownership, conduct or operation of the Business or the Purchased Assets on or prior to the Closing Date.” 33 *4 In light of the unambiguous terms of the Purchase Agreement, 34 the Court concludes that Echo/RT did not assume, and thus RayTrans retained, liability for any legal claim arising out of the conduct or operation of RayTrans on or prior to the closing date of June 2, 2009 35 — which would include liability for the five payments in 2008 that comprise the RT Default Judgment. Therefore, as a matter of law, Echo/RT did not assume the RT Default Judgment through the Purchase Agreement. 36 Nonetheless, Spring Capital contends Echo/RT has successor liability under two Delaware law-based theories namely, the de facto merger theory and the continuation theory. Almost always, a purchaser of assets “is liable only for liabilities it expressly assumes.” 37 It has been said that narrow situations, such as “where an avoidance of liability would be unjust,” may warrant an exception to this principle. 38 This Court, in discussing general jurisprudence on successor liability for asset purchasers, noted that Pennsylvania law recognizes four specific exceptions: (1) the purchaser expressly or impliedly agrees to assume such obligations; (2) the transaction amounts to a consolidation or merger of the selling corporation with or into the purchasing corporation; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability for such obligations. 39 Spring Capital believes these exceptions, particularly the de facto merger and continuation theories, are also recognized under Delaware law. 40 Echo/RT does not challenge the accuracy of Spring Capital's recitation of Delaware law; rather, it maintains that the Complaint does not state a claim that should qualify under either theory of successor liability. 41 The parties rely on a statement of Delaware law not from the Delaware Supreme Court or this Court, but instead from a federal court decision, Fehl v. S.W.C. Corp. 42 The Fehl court concluded that Delaware courts recognized, but construed narrowly, the de facto merger and continuation theories. 43 *5 Typically, Delaware does not recognize statutorily compliant asset sales as de facto mergers. 44 In other situations, when courts have recognized de facto mergers, application of the doctrine requires a corporation to have “transfer[red] all of its assets to another,” in exchange for stock consideration “issued by the transferee directly to the shareholders of the transferring corporation,” and “the transferee [to have] agree[d] to assume all the debts and liabilities of the transferor.” 45 Spring Capital did not allege that RayTrans failed to comply with the relevant asset transfer statute. In addition, as a matter of law under the unambiguous terms of the Purchase Agreement, RayTrans did not transfer all its assets; 46 Echo/RT paid consideration in cash; 47 and Echo/RT expressly did not agree to assume all of RayTrans's liabilities. 48 Thus, Echo/RT has no liability for the RT Default Judgment under this theory, regardless of its general viability. Even if the Court adopts the continuation theory here, it must acknowledge that this exception has been construed very narrowly to require the purchaser of the assets to be a continuation of “the same legal entity,” not just a continuation of the same business in which the seller of the assets engaged. 49 The “primary elements” of being the same legal entity have been said to include “the common identity of the officers, directors, or stockholders of the predecessor and successor corporations, and the Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 66 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 4 existence of only one corporation at the completion of the transfer.” 50 Spring Capital alleges generally that the Purchase Agreement “resulted in the continuity of ownership because the stakeholders of RayTrans became stakeholders in Echo/RT and/or Echo,” but it notes specifically only that the Echo Defendants have continued the business of RayTrans and that Ray is “continuing to serve in a management capacity within Echo/RT's and/or Echo's enterprises.” 51 That, as alleged, Echo/RT continued the business of RayTrans in this way is not a sufficient allegation that Echo/RT was a continuation RayTrans as a legal entity. Neither does the allegation that Ray serves in a management capacity satisfy the element of common stakeholders because there is no allegation that Echo/RT shared the same, let alone any, officers, directors, or members (or stockholders) with RayTrans. Furthermore, the Purchase Agreement contemplated that RayTrans would to continue to exist. Thus, regardless of whether the Court recognizes the continuation theory of successor liability, Spring Capital has failed to state a claim under it. 52 *6 Finally, the facts alleged do not present a situation in which, as Spring Capital argued, 53 the avoidance of liability would be unjust. The opposite is true—it would be unjust to hold Echo/RT liable for the RT Default Judgment, most obviously because it expressly did not assume that type of liability under the Purchase Agreement. 2. The Fraudulent Transfer Claims Spring Capital contends it has alleged both actual and constructive fraudulent transfer claims against Echo/RT under Delaware and Illinois law. 54 Echo/RT asserts that the relevant statutes and case law of these jurisdictions are analogous for the Fraudulent Transfer Claims. 55 Because Spring Capital has not challenged this assertion or otherwise identified how Illinois law differs from Delaware law, the Court assumes the analysis is the same for present purposes. 56 A transfer by a debtor “[w]ith actual intent to hinder, delay or defraud any creditor of the debtor” may be fraudulent. 57 A non-conclusory allegation of actual intent is necessary to survive a motion to dismiss, 58 but intent may be inferred by allegations of certain “nonexclusive factors” enumerated in the statute. 59 Spring Capital did not argue that it alleged any of the statutory factors favoring its position—in its brief, it did not even identify the existence of the factors. 60 The Court accordingly will not address them. 61 Spring Capital's allegation of intent in the Complaint is entirely conclusory. It merely alleges that “one or more of the Defendants” transferred assets, presumably by the Purchase Agreement, “with the actual intent to hinder, delay, or defraud creditors of RayTrans, including Trustee and/or Plaintiff....” 62 Spring Capital has failed to allege that Echo/RT, or even RayTrans, actually intended to defraud, by the June 2009 Purchase Agreement, a creditor under the RT Default Judgment, which did not exist until July 2011. Thus, the Complaint fails to state a claim against Echo/RT for actual fraud. A transfer may also be fraudulent if the debtor did not receive reasonably equivalent value and the debtor was rendered insolvent, or at least reasonably should have believed it would become insolvent, by the transfer. 63 Spring Capital argues it alleged RayTrans did not receive reasonably equivalent value under the Purchase Agreement because the RT Default Judgment has not been paid. 64 By the same token, it argues that RayTrans was rendered insolvent. 65 *7 The Complaint does not state a claim for constructive fraudulent transfer because these allegations are conclusory and mere recitations of the fraudulent transfer statute. 66 To the extent the allegations are not conclusory, the Complaint still fails to state a claim because it is not reasonably conceivable that the $6,050,000 paid by Echo/RT to RayTrans under the Purchase Agreement 67 was not reasonably equivalent value for the transferred assets. The Court agrees with Echo/RT's statement that, under these facts, “what a debtor like RayTrans decides to do with money it receives from the sale of assets has no bearing on whether the amount paid is a fair price or reasonably equivalent value for the assets sold.” 68 Any argument that the Purchase Agreement was not an arm's-length transaction 69 is Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 67 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 5 unsupported by specific allegations and thus without merit. Moreover, Spring Capital has not alleged any relationship between the Purchase Agreement and the RT Default Judgment—other than the obvious delay of over two years between the events. Thus, particularly when comparing the purchase price of $6,050,000 and the RT Default Judgment of $99,057.50, it is not reasonably conceivable that the unpaid RT Default Judgment demonstrates in any way that the Purchase Agreement caused RayTrans's purported insolvency or even that RayTrans reasonably should have believed the Purchase Agreement would render it insolvent. 3. The Illinois Claim In its opening brief in support of the 12(b)(6) Motion, Echo/RT argued why the Illinois Claim should be dismissed for failure to state a claim. 70 As Echo/RT subsequently noted, 71 aside from a passing citation to an apparently relevant statute, 72 Spring Capital did not mention, let alone defend the allegations in support of, the Illinois Claim in its answering brief. In this Court, a plaintiff may waive a claim if it does not brief the sufficiency of its allegations in response to a defendant's motion to dismiss. 73 Spring Capital's single citation to an ostensibly governing statute, without an accompanying legal or factual argument about the allegations of the Complaint, is an inadequate response to Echo/RT's arguments. The Illinois Claim has been waived. 74 C. The Claims Against Echo *8 In its answering brief and at oral argument, Spring Capital relied upon filings from the recent bankruptcy proceeding of RayTrans Holdings in support of its claims against Echo. 75 What those documents purport to show was not alleged in the Complaint. In testing the sufficiency of the Complaint for the 12(b)(6) Motion, the Court's inquiry is limited, with narrow exceptions, to the facts alleged in the Complaint. 76 Spring Capital has not argued that these filings, or what they purport to show, are either incorporated into the Complaint or otherwise integral to its claims. Therefore, the filings are not properly before the Court. Taking all reasonable inferences from the Complaint in Spring Capital's favor, it is not reasonably conceivable that Echo was anything more than a limited guarantor of certain of Echo/RT's obligations under the Purchase Agreement. As Spring Capital conceded at oral argument, the only facts alleged in the Complaint against Echo, other than the guaranty, are the statements in the Press Release. 77 But, the Press Release is not controlling; the Purchase Agreement is, and the terms of that contract, in which Echo was only a guarantor, “effectively negate” the Successor Liability Claim, the Fraudulent Transfer Claims, and the Illinois Claim as a matter of law. 78 As Echo effectively argued, 79 Spring Capital has not alleged or argued a theory of liability to the contrary. Thus, there is no reasonably conceivable basis for the claims against Echo. 80 III. CONCLUSION For the foregoing reasons, the Echo Defendants' 12(b)(6) Motion is granted. An implementing order will be entered. Very truly yours, /s/ John W. Noble All Citations Not Reported in A.3d, 2013 WL 6916277 Footnotes 1 Spring Real Estate, LLC operates under the registered trade name Spring Capital Group. First Am. Verified Compl. (the “Complaint” or “Compl.”) ¶ 2. 2 Id. ¶¶ 8, 25, Ex. A. 3 Id. ¶¶ 7, 9, 30, Ex. C (Purchase Agreement). The Purchase Agreement was by and among Echo/RT, RayTrans, RayTrans Holdings, Inc., and James A. Ray. Purchase Agreement Recitals, Signature Page. 4 Id. Recitals, § 11.16, Signature Page. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 68 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 6 5 Compl. ¶¶ 36–42. 6 Id. ¶¶ 59–62 (citing 805 I LCS 5/11.50(a)(5)). 7 Id. ¶¶ 43–58. 8 Spring Capital argues the 12(b)(6) Motion should be denied as untimely and improper because the Echo Defendants previously filed an answer to the original complaint. Pl.'s Opp'n to Defs. Echo/RT and Echo's Mot. to Dismiss (“Pl.'s Answering Br.”) 8. By stipulation among the parties, Spring Capital was permitted to amend the original complaint, and the Echo Defendants expressly reserved the right to move to dismiss any amended complaint. See Am. Stip. and Order Governing Pl.'s Amendment of Verified Compl. and Defs.' Resp. Thereto (Apr. 24, 2013). The 12(b)(6) Motion is therefore not procedurally improper. 9 Compl. ¶¶ 2, 16. The Debtors' estates were consolidated and administrated jointly. Id. ¶ 18. 10 Id. ¶ 21. 11 Id. ¶ 20. The Complaint incorrectly alleges the petition was filed on July 29, 2009. It was actually filed on July 29, 2010. Sauder Aff. Ex. D. at Signature. The Court takes judicial notice of the correct date. See D.R.E. 202(d)(1)(B). 12 Compl. ¶¶ 22–25. The judgment also included court costs. 13 Id. ¶¶ 3–4, 27. 14 Id. ¶ 29. 15 Id. ¶ 30 (“RayTrans transferred all or substantially all of its assets and operations to Echo/RT pursuant to the June 2, 2009 Agreement.”). 16 Id. 17 Id. ¶ 32, Ex. D (Press Release) (“Echo Global Logistics, Inc., ... has acquired RayTrans Distribution Services, Inc. .... James Ray, Jr., ... will continue as General Manager of the RayTrans Division of Echo Global Logistics.”). 18 See, e.g., id. ¶¶ 33 (“On or after the June 2009 merger, RayTrans was dissolved and no longer conducted business....”), 37 (“Echo/RT ... is liable as a result of its acquisition of RayTrans and the merger of the two entities in or about June 2009.”), 42 (“Because Echo /RT has merged with RayTrans, ... Echo/RT is the successor in liability to RayTrans....”). 19 Id. ¶ 31 (“In connection with the June 2, 2009 Agreement, Echo/RT has taken the responsibility for RayTrans's pre- merger liabilities....”). 20 Id. 21 See Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011). 22 See Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010). 23 Cent.Mortg. Co., 27 A.3d at 536. 24 See Alliance Data Sys. Corp. v. Blackstone Capital P'rs V L.P., 963 A.2d 746, 752 (Del. Ch. 2009), aff'd, 976 A.2d 170 (Del. 2009) (TABLE). 25 Pl.'s Answering Br. 12 (citing Purchase Agreement § 1.3(g)). 26 Id. 12-15 (citing Compl. ¶¶ 38-40). 27 Id. 15. 28 Defs. Echo/RT and Echo's Reply Br. in Supp. of Their Mot. to Dismiss (“Defs.' Reply Br.”) 8-9; Defs. Echo/RT and Echo's Opening Br. in Supp. of Their Mot. to Dismiss (“Defs.' Opening Br.”) 12-13. 29 Defs.' Reply Br. 9-11; Defs.' Opening Br. 9-11. 30 Defs.' Reply Br. 11-12; Defs.' Opening Br. 14-18. 31 The Court notes the Purchase Agreement provides the state and federal courts sitting in Illinois with exclusive jurisdiction to hear “[a]ny suit brought hereon and any and all legal proceedings to enforce this Agreement, whether in contract, tort, equity or otherwise.” Purchase Agreement § 11.3. Because no party raised the question of whether this action is one “brought hereon” or one to “enforce” the Purchase Agreement, the Court declines to examine this issue independently. 32 Id. § 1.3(g). 33 Id. § 1.4. 34 Illinois law governs the Purchase Agreement. Id. § 11.3. Under Illinois law, if a contract term is clear and unambiguous, the term should be interpreted according to its plain meaning. See, e.g., Owens v. McDermott, Will & Emery, 736 N.E.2d 145, 150 (Ill.App.Ct.2000). A term is ambiguous “when the language used is susceptible to more than one meaning or is obscure in meaning through indefiniteness of expression.” See, e.g., Meyer v. Marilyn Miglin, Inc., 652 N.E.2d 1233, 1238 (Ill.App.Ct.1995) (citations omitted). 35 Purchase Agreement Recitals, § 2.1, Signature Page. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 69 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 7 36 Based on the contractual language, the Court reaches this conclusion regardless of whether the preference liability arose before or after the closing date of the Purchase Agreement. In addition, under this analysis, it is irrelevant whether the transfers by the Debtors to RayTrans were in the ordinary course of business. 37 Mason v. Network of Wilmington, Inc., 2005 W L 1653954, at *5 (Del. Ch. July 1, 2005) (quoting Corporate Prop. Assocs. 8, L.P. v. AmeriSig Graphics, Inc., 1994 WL 148269, at *4 (Del. Ch. Mar. 31, 1994)). 38 Id. (quoting Fehl v. S.W.C. Corp., 433 F.Supp. 939, 945 (D.Del.1977)). 39 Corporate Prop. Assocs., 1994 W L 148269, at * 4 (quoting Knapp v. N. Am. Rockwell Corp., 506 F.2d 361, 363–64 (3d Cir.1974) (applying this principle of New York law to Pennsylvania law)). 40 Pl.'s Answering Br. 13 (“As noted by then Vice Chancellor Chandler in Corporate Properties, there are four recognized exceptions to this general rule....”). Spring Capital then focused on the de facto merger and continuation theories. 41 Defs.' Opening Br. 8–18. 42 See, e.g., Fountain v. Colonial Chevrolet Co., 1988 WL 40019, at *7 (Del.Super.Apr. 13, 1988) (“The Delaware rule on corporate successor liability was enunciated in Fehl v. S.W.C. Corp.”); see also Magnolia's at Bethany, LLC v. Artesian Consulting Eng'rs, Inc., 2011 WL 4826106, at *1 (Del.Super.Sept. 19, 2011) (citing Fountain, 1988 WL 40019, at *7); Ross v. Desa Hldgs. Corp., 2008 WL 4899226, at *4 (Del.Super.Sept. 30, 2008) (same). 43 Fehl was a case in which, to determine whether it was consistent with due process to assert personal jurisdiction over the purchaser of assets “based on specific business transactions by its predecessor,” the court deemed it appropriate to analogize to “the developing body of substantive law in the area of products liability.” Fehl, 433 F.Supp. at 943, 945. Finding Delaware's product liability jurisprudence lacking for this purpose, the Fehl court again analogized to Delaware's treatment of creditor claims against successor entities. Id. at 946–47. 44 See generally Hariton v. Arco Elecs., Inc., 188 A.2d 123, 125 (Del.1963) (“[T]he sale-of-assets statute and the merger statute are independent of each other. They are, so to speak, of equal dignity, and the framers of a reorganization plan may resort to either type of corporate mechanics to achieve the desired end.”); see also Nixon v. Blackwell, 626 A.2d 1366, 1380 (Del.1993) (noting this distinction and citing subsequent precedent); but see Orzeck v. Englehart, 195 A.2d 375, 378 (Del.1963) (citing Drug, Inc. v. Hunt, 168 A. 87 (Del.1933)) (“We do not intend to be understood as holding that the doctrine of de facto merger is not recognized in Delaware. Such is not the case for it has been recognized in cases of sales of assets for the protection of creditors or stockholders who have suffered an injury by reason of failure to comply with the statute governing such sales.”). 45 Magnolia's, 2011 WL 4826106, at *3 (citing Drug, Inc., 168 A. at 96). 46 Purchase Agreement § 1.2. 47 Id. § 1.5. 48 Id. § 1.4. 49 Fountain, 1988 WL 40019, at * 8–9 (quoting Fehl, 433 F.Supp. at 946). 50 Magnolia's, 2011 WL 4826106, at *3 (citing In re Asbestos Litig. (Bell), 517 A.2d 697, 699 (Del.Super.1986) (applying Pennsylvania law)). 51 Compl. ¶¶ 39–41. 52 The case law upon which Spring Capital relies for the continuation theory also does not have explicit support in the precedent of the Supreme Court or this Court. Rather, Spring Capital again cites to the same Superior Court decisions that relied exclusively upon Fehl. 53 Pl.'s Answering Br. 15. 54 Id. 15–21. 55 Defs.' Opening Br. 18–19. 56 Cf. Emerald P'rs v. Berlin, 726 A.2d 1215, 1224 (Del.1999). 57 Del. C. § 1304(a)(1); see also740 ILCS 160/5(a)(1). 58 See Metro Commc'n Corp. BVI v. Advanced MobileComm Techs. Inc., 854 A.2d 121, 166 (Del. Ch.2004); see also Ostrolenk Faber LLP v. Genender Int'l Imps., Inc., 2013 WL 1289130, at * 6 (Ill.App. Mar. 29, 2013) (“Proof of fraud in fact requires a showing of an actual intent to hinder creditors....”). 59 See Hospitalists of Del., LLC v. Lutz, 2012 WL 3679219, at *13–14 (Del. Ch. Aug. 28, 2012) (citing 6 Del. C. § 1304(b) (1)-(11)); see also 740 ILCS 160/5(b)(1)-(11). 60 Instead, Spring Capital stated that courts often infer intent from circumstantial evidence, citing to a bankruptcy court decision that is not controlling on this Court. Pl.'s Answering Br. 16 (citing In re Fedders N. Am., Inc., 405 B.R. 527, 545 (Bankr.D.Del.2009)). Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 70 of 71 Spring Real Estate, LLC v. Echo/RT Holdings, LLC, Not Reported in A.3d (2013) 2013 WL 6916277 © 2016 Thomson Reuters. No claim to original U.S. Government Works. 8 61 Were it to do so, the Court anticipates the factors would almost certainly not support Spring Capital's otherwise insufficient allegation of intent. 62 Compl. ¶¶ 48, 56. 63 6 Del. C. § 1304(a)(2); see also 740 I LCS 160/5(a)(2). 64 Pl.'s Answering Br. 20 (citing Compl. ¶¶ 26–27). 65 Id. 66 See Hospitalists,2012 WL 3679219, at *13 (“In the circumstances of this case, even under Delaware's minimal notice pleading standard, simply reciting the statutory or common law elements of [a fraudulent transfer], as Plaintiffs have here, is insufficient to state a claim upon which relief may be granted.”); see also Ostrolenk Faber LLP, 2013 W L 1289130, at *6. For example, the paragraphs by which Spring Capital claims it alleged that RayTrans did not receive reasonably equivalent value state, in relevant part, that “the Defendants fraudulently transferred assets held by RayTrans by ... transferring assets, without receiving reasonably equivalent value in exchange for the transfer” and that “the Defendants fraudulently transferred assets held by RayTrans without receiving a reasonably equivalent value in exchange for the transfer of said assets by ... distributing these assets to various third-parties at a time when RayTrans was insolvent or the transfer of assets rendered RayTrans insolvent.” Compl. ¶¶ 48–49, 56–57. How these allegations are more than a conclusory recitation of the statute remains unclear to the Court. 67 Purchase Agreement § 1.5. After subsequent earn-out payments, the purchase price could increase up to $12,550,000. Id. 68 Defs.' Reply Br. 14. 69 Pl.'s Answering Br. 17. 70 Defs' Opening Br. 22–23. 71 Defs.' Reply Br. 15. 72 Pl.'s Answering Br. 11 (citing 805 ILCS 5/11.50(a)(5)). 73 See Forsythe v. ESC Fund Mgmt. Co. (U.S.), Inc., 2007 WL 2982247, at * 11 (Del. Ch. Oct. 9, 2007); see also Emerald P'rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”). 74 The minimal discussion of the Illinois Claim at oral argument does not change the Court's conclusion. Oral Arg. Defs.' Mot. to Dismiss (“Oral Arg.”) 27–28. Regardless, a cursory review reveals that the cited Illinois statute governs a merger or consolidation. 805 ILCS 5/11.50(a)(5). For the reasons set forth earlier, there clearly was no merger or consolidation here. There is no reasonably conceivable basis for this claim. 75 Pl.'s Answering Br. 11; Oral Arg. 23–24, 29–30, 34, 40. 76 See Malpiede v. Townson, 780 A.2d 1075, 1082 (Del.2001); see also Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 612–13 (Del.1996) (citing In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 69–70 (Del.1995)) (describing the narrow exceptions as when a document is “integral to a plaintiff's claim and incorporated into the complaint ... [or] not being relied upon to prove the truth of its contents”). 77 Oral Arg. 33–34; see also Compl. ¶ 32. 78 See Malpiede, 780 A.2d at 1083 (noting how a court may conclude, at the motion to dismiss stage, that the exhibits to a complaint “negate the claim as a matter of law”). 79 Defs.' Reply Br. 7, 15; Defs.' Opening Br. 23–24. 80 Moreover, that Spring Capital failed to state a claim against Echo/RT, as the acquiror, supports the Court's conclusion that Spring Capital also failed to state a claim against Echo, as the guarantor. End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. Case 6:16-cv-00932-AA Document 25-1 Filed 12/15/16 Page 71 of 71