Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC ( 2022 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
February 10, 2022
Mark S. Casarino, Esquire Kevin M. Gallagher, Esquire
White & Williams LLP Richards, Layton & Finger, P.A.
Courthouse Square One Rodney Square
600 North King Street, Suite 800 920 North King Street
Wilmington, Delaware 19801 Wilmington, Delaware 19801
RE: Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al.,
Civil Action No. 2019-0847-MTZ
Dear Counsel:
I write in response to the motion for reargument (the “Motion”) filed by
defendant Mobile Investments Investco, LLC (“Investco”) and opposed by plaintiff
Tygon Peak Capital Management, LLC (“Tygon Peak”). 1 The Motion asserts the
Court’s January 4 memorandum opinion on the defendants’ motion to dismiss (the
“Memorandum Opinion”) 2 misapprehended the facts applicable to its discussion of
Count IV. I agree. For the reasons that follow, the Motion is granted and Count IV
is dismissed. I write for the parties and those familiar with the Memorandum
Opinion, using the terms defined therein.
1
Docket Item (“D.I.”) 104; see also D.I. 107.
2
Tygon Peak Cap. Mgmt., LLC v. Mobile Invs. Investco, LLC, 2022 WL 34688 (Del. Ch.
Jan. 4, 2022) [hereinafter “Memo. Op.”]. As in the Memorandum Opinion, citations in the
form “SAC” refer to Plaintiff’s Verified Second Amended Complaint, available at D.I. 79.
Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al.,
Civil Action No. 2019-0847-MTZ
February 10, 2022
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Count IV alleges a breach of Section 5.10(a) of the Investco LLC Agreement. 3
That provision requires supermajority consent for Investco to “enter into, amend or
modify any agreement or transaction between the LLC and any Manager, or
Member, or any Affiliate of any of them.” 4 The Investco LLC Agreement goes on
to define “Affiliate”:
“Affiliate” means, with respect to any Person: (i) any other Person
directly or indirectly controlling, controlled by or under common
control with such Person; and/or (ii) any spouse, ancestor, child
(including by adoption) or other lineal descendant, sibling or in-law of
such Person or of any other Person (who is a natural person) who is an
Affiliate of such Person and described in clause (i) above. 5
In denying the motion to dismiss Count IV, I concluded that exercising the Option
required Investco to enter into an “exchange agreement” with KMD Weiss, and with
the noteholder Voice Comm L.L.C. (“Noteholder”). 6 Investco does not take issue
with this conclusion.
3
See SAC ¶ 192.
4
Id. Ex. B. § 5.10(a).
5
Id. App. A at B-1 (emphasis added). “Person” is defined to include both natural people
and entities. See id. App. A at B-4 (“‘Person(s)’ means any individual(s) who is (or are) a
natural person, partnership(s), limited liability company (or companies), limited liability
partnership(s), limited partnership(s), corporation(s), trust(s) and any other association or
legal entity.”). The Investco LLC Agreement does not define “control.”
6
See Memo. Op. at *19. As explained infra, the Memorandum Opinion inadvertently
conflated Noteholder with Voice Comm.
Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al.,
Civil Action No. 2019-0847-MTZ
February 10, 2022
Page 3 of 7
But I also concluded KMD Weiss and Noteholder were Affiliates, such that
an agreement between Investco and either Noteholder or KMD Weiss triggered
Section 5.10(a). 7 Investco has helpfully pointed out my errors in characterizing
KMD Weiss and Noteholder. Fixing these errors means those entities are not
Affiliates, such that Investco’s agreement with them does not trigger the
supermajority consent requirement.
First, as to KMD Weiss, the Memorandum Opinion concluded its
participation in the Exchange Agreement triggered Section 5.10(a) because it was a
member of Investco. 8 That characterization was incorrect. KMD Weiss is not a
member; rather, it owns an interest in Mobile alongside Investco. 9 The figure below,
which also appeared in the Memorandum Opinion, illustrates that relationship: 10
7
See id.
8
See id.
9
See id. at *3.
10
Id.
Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al.,
Civil Action No. 2019-0847-MTZ
February 10, 2022
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Nevertheless, Tygon Peak contends KMD Weiss’s participation triggers
Section 5.10(a) because KMD Weiss is controlled by Investco and thus is still
Investco’s “Affiliate.” 11 Tygon Peak surmises that Investco controls KMD Weiss
because Investco controls Voice Comm, Weiss is Voice Comm’s CEO, and Weiss
controls KMD Weiss. 12 Assuming Section 5.10(a) is triggered if Investco’s
counterparty is an Affiliate of Investco itself, and assuming a broad construction of
11
D.I. 107 ¶ 9. Tygon Peak invokes links with Voice Comm, Weiss, and KMD Weiss, but
none of these are an Investco manager or member. Tygon Peak does not appear to assert
KMD Weiss is an Affiliate of an Investco Member or Manager. See id.
See id. (arguing Investco controls KMD Weiss “through Derek Weiss” because of
12
Weiss’s positions at KMD Weiss and Voice Comm).
Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al.,
Civil Action No. 2019-0847-MTZ
February 10, 2022
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the word “control,” Tygon Peak does not plead this theory of indirect control
anywhere in its complaint, and so that theory cannot hold up Count IV. 13
Tygon Peak’s theory of control is also unsupported. Tygon Peak has offered
no support for the conclusion that Weiss, as Voice Comm’s CEO, is controlled by
Investco, one of Voice Comm’s investors. 14 Nor has Tygon Peak supported the
conclusion that Weiss, as controller of KMD Weiss, acts only in service to Voice
Comm as its CEO. Tygon Peak has offered no basis to conclude that Investco
controls KMD Weiss, and has offered no other grounds to conclude KMD Weiss is
an Affiliate. And so, Tygon Peak has failed to plead that an agreement between
Investco and KMD Weiss triggers Section 5.10(a).
Second, as to Noteholder, the Memorandum Opinion concluded it was an
Affiliate by equating it with Investco’s operating entity, Voice Comm LLC. 15 I
agree with Investco and Tygon Peak that I erred in conflating those two entities:
13
See P&TI Acq. Co. v. Morgenthaler P’rs VII, LP, 2019 WL 2070449, at *5 (Del. Super.
May 9, 2019) (granting a motion to dismiss for failure to plead breach of a provision
requiring satisfaction of the definition of “Affiliates” where the plaintiff failed to
adequately plead that entities were under common control by an individual holding
ownership interests and managerial authority at both entities).
Indeed, Weiss’ entity, KMD Weiss, invested in Mobile alongside Investco. See Memo.
14
Op. at *3.
15
See id. at *19.
Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al.,
Civil Action No. 2019-0847-MTZ
February 10, 2022
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Noteholder (Voice Comm L.L.C.) is a separate entity, which was later renamed VC
Weiss Investments, LLC. 16 Tygon Peak does not dispute this difference. 17
Nevertheless, Tygon Peak contends Noteholder is an Affiliate because it is
controlled by Investco. Again, Tygon Peak asserts that Noteholder is owned by
Weiss; that Weiss is the CEO of Voice Comm, which Investco controls; and that
Weiss is also on Mobile’s board. 18 All of these connections to Weiss are undisputed,
but again, they fail to make Noteholder an Affiliate of an Investco member or
manager, or an Affiliate of Investco itself. For those reasons, the Motion is
GRANTED. Insofar as it asserts a claim that exercising the Option breached
Section 5.10(a), Count IV is DISMISSED.
I also write to resolve the dispute over the order implementing my decisions
in the Memorandum Opinion. 19 Tygon Peak has not yet shown good cause for an
16
D.I. 104 ¶ 6; D.I. 107 ¶ 6.
17
D.I. 107 ¶ 6. Yet Tygon Peak’s pleading appears to conflate the two entities as well.
See SAC ¶ 192 (“Similarly, in connection with the acquisition of the Tessco Assets,
Investco breached Section 5.10 of the Investco LLC Agreement by failing to obtain
Supermajority Approval before resolving to: exercise the Option together with KMD Weiss
and Voice Comm, both of which are affiliates of Investco[.]”).
18
See id. ¶ 7.
19
See D.I. 108; D.I. 109.
Tygon Peak Capital Management, LLC v. Mobile Investments Investco, LLC, et al.,
Civil Action No. 2019-0847-MTZ
February 10, 2022
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extraordinary dismissal without prejudice under Court of Chancery Rule 15(aaa). 20
If Tygon Peak believes it can do so, it must file a motion within twenty days of this
letter. Otherwise, I will look for a stipulated order reflecting the Memorandum
Opinion and this letter.
Sincerely,
/s/ Morgan T. Zurn
Vice Chancellor
MTZ/ms
cc: All Counsel of Record, via File & ServeXpress
20
See Ct. Ch. R. 15(aaa) (“In the event a party fails to timely file an amended complaint or
motion to amend under this subsection (aaa) and the Court thereafter concludes that the
complaint should be dismissed under Rule 12(b)(6) or 23.1, such dismissal shall be with
prejudice (and in the case of complaints brought pursuant to Rules 23 or 23.1 with prejudice
to the named plaintiffs only) unless the Court, for good cause shown, shall find that
dismissal with prejudice would not be just under all the circumstances.”); see also, e.g.,
Ryan v. Buckeye P’rs, L.P., 2022 WL 389827, at *15 (Del. Ch. Feb. 9, 2022) (discussing
Rule 15(aaa)’s “good cause” standard).