Winklevoss Capital Fund, LLC, Tyler Winklevoss, and Cameron Winklevoss v. Stephen Shaw, The Westerman Trust U/T/D February 25, 2011, and Treats!, LLC ( 2019 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
WINKLEVOSS CAPITAL FUND, :
LLC, a Delaware Limited Liability :
Company, TYLER WINKLEVOSS, :
and CAMERON WINKLEVOSS, :
:
Plaintiffs, :
:
v. : C.A. No. 2018-0398-JRS
:
STEPHEN SHAW, THE :
WESTERMAN TRUST U/T/D :
FEBRUARY 25, 2011, and :
TREATS!, LLC, a Delaware Limited :
Liability Company, :
:
Defendants. :
MEMORANDUM OPINION
Date Submitted: January 14, 2019
Date Decided: March 1, 2019
P. Clarkson Collins, Jr. and Albert J. Carroll, Esquire of Morris James LLP,
Wilmington, Delaware and Charles J. Harder, Esquire of Harder LLP, Beverly Hills,
California, Attorneys for Plaintiffs.
Richard G. Placey, Esquire of Montgomery McCracken Walker & Rhoads, LLP,
Wilmington, Delaware; Carlos F. Gonzalez, Esquire of Rimon, P.C., Coral Gables,
Florida; and Matthew Pace, Esquire of Rimon, P.C., New York, New York,
Attorneys for Defendants.
SLIGHTS, Vice Chancellor
Plaintiffs, brothers Tyler and Cameron Winklevoss, through Winklevoss
Capital Fund, LLC, made a substantial investment in an upstart magazine operated
by Defendant, Treats! LLC, and founded by Defendant, Stephen Shaw. Plaintiffs
allege they have not achieved the return on investment promised them by Defendants
and that Shaw’s mismanagement of Treats! is to blame. Defendants deny the
allegations of mismanagement and bring counterclaims against the Winklevoss
brothers in which they allege the brothers breached commitments to allow Treats! to
announce and capitalize on the publicity surrounding the brothers’ investment.
According to the counterclaims, the brothers made their investment in Treats! soon
after the release of the movie The Social Network in which their association with the
social networking site, Facebook, was depicted. Shaw allegedly accepted the
investment, in part, based on the brothers’ commitment that Treats! could announce
(presumably with some fanfare) that the brothers had selected Treats! as one of the
first investments of their newly created firm, Winklevoss Capital Fund, LLC. The
counterclaims purport to state claims for fraud, fraudulent inducement, “fraudulent
misrepresentation” and promissory estoppel.
Defendants have moved to dismiss the counterclaims on multiple grounds,
including that the claims are barred by laches and by a fully integrated contract
governing the parties’ relationship that makes no mention of the brothers’ alleged
commitment to promote Treats!. In rare circumstances, the Court may apply laches
1
at the pleadings stage to bar a claim when it is clear on the face of the claim that it
is untimely and that equity would not be offended by the claim’s dismissal. This is
especially so when the claimant brings common law claims and seeks common law
remedies after the applicable statute of limitations has expired. That is what
Defendants/Counterclaim Plaintiffs have done here. Accordingly, Plaintiffs’
Motion to Dismiss Defendants’ Counterclaims as time barred must be granted.
I. BACKGROUND
I draw the facts from the allegations in the counterclaims, documents
incorporated by reference or integral to that pleading and judicially noticeable facts.1
As I must, I have accepted as true the counterclaims’ well-pled factual allegations
and have drawn all reasonable inferences from those allegations in Defendants’
favor.2
1
See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (quoting
In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 69 (Del. 1995) (noting that on a
motion to dismiss, the Court may consider documents that are “incorporated by reference”
or “integral” to the complaint)); D.R.E. 201–02 (codifying Delaware’s judicial notice
doctrine); In re Am. Int’l Gp., Inc., 965 A.2d 763, 776 (Del. Ch. 2009).
2
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
2
A. The Parties
Plaintiffs and Counterclaim Defendants, Cameron and Tyler Winklevoss
(“Cameron” and “Tyler,” respectively),3 are businessmen, investors and
entrepreneurs. Plaintiff, Winklevoss Capital Fund, LLC (“WCF”), is their
investment firm.4 WCF is a Delaware limited liability company with its principal
place of business in New York.5
Defendant and Counterclaim Plaintiff, Stephen Shaw, is a professional
photographer and the founder and manager of Defendant and Counterclaim Plaintiff,
Treats!, LLC.6 Treats! is a Delaware limited liability company with its principal
place of business in Los Angeles, California.7 Its members are located in California
and New York.8 Treats!, founded in April 2010, owns and operates Treats!
3
Since the brothers share the same last name I refer to them here by first names, intending
no disrespect.
4
Winklevoss Ver. Compl. for Breach of Contract and Fiduciary Duty (“Compl.”) ¶¶ 6–7,
18–19.
5
Compl. ¶ 5.
6
Compl. ¶¶ 1, 14; Defs.’ Answer (“Answer”) ¶ 14; Shaw Verified Countercl. for Common
Law Fraud, Fraudulent Inducement and Misrepresentation, and Promissory Estoppel
(“Countercl.”) ¶¶ 2, 10, 12.
7
Answer ¶ 4.
8
Id.
3
magazine, a print and digital magazine depicting nude and semi-nude photography
of models and celebrities.9
Shaw is the settlor, trustee and sole beneficiary of Defendant and
Counterclaim Plaintiff, The Westerman Trust u/t/d/ February 25, 2011 (the
“Trust”).10 In March 2011, Shaw transferred his entire interest in Treats! to the
Trust.11
B. WCF Invests in Treats!
In early 2011, a mutual friend introduced Shaw to Cameron and Tyler. When
they met Shaw, Cameron and Tyler were seeking to strengthen their Los Angeles
network. Shaw, a professional photographer well known to many celebrities, opened
the door to his social circle for Cameron and Tyler by introducing them to his friends,
inviting them to exclusive dinners and parties and photographing their various
girlfriends.12
When Cameron and Tyler learned about Treats!, they were intrigued and
offered to invest in the company. They emphasized to Shaw the potential
significance of the fact that Treats! would be the first investment they made through
9
Compl. ¶¶ 1, 15; Answer ¶¶ 2, 15; Countercl. ¶ 12.
10
Compl. ¶ 9; Answer ¶ 9; Countercl. ¶ 3.
11
Compl. ¶ 17; Answer ¶ 17.
12
Countercl. ¶ 11.
4
their newly-formed investment firm, WCF. Shaw believed Treats! would develop
into a lifestyle brand and he thought a partnership with WCF would provide the
perfect launch pad. The notoriety of the Winklevoss brand following the release of
the blockbuster film, The Social Network, in which the brothers were depicted, was
the main attraction for Shaw as he sought to secure their investment in, and
promotion of, Treats!.
By July 2011, Cameron, Tyler and Shaw were deciding how publicly to
announce WCF’s forthcoming Treats! investment. In late 2011, Tyler wrote Shaw
to report that he had “toured treats [sic] with my parents. . . . My parents loved it,
they totally got it and were hooked (especially my dad lol). We all concluded that
treats [sic] is the worlds [sic] best kept secret . . . its [sic] time for everyone to know
about it!”13 Tyler concluded, “our brand can help in a lot of ways.”14
On August 15, 2012, WCF invested $1,310,000 in Treats! in exchange for
1,310,000 series A preferred units under a written Purchase Agreement by and
between WCF, Treats! and the Trust (the “Purchase Agreement”), to which an
Amended LLC Agreement for Treats! (the “Amended LLC Agreement”) was
appended.15 Both the Purchase Agreement and Amended LLC Agreement contain
13
Countercl. ¶ 15.
14
Id.
15
Compl. ¶ 24; Answer ¶ 24; Countercl. ¶ 16.
5
integration clauses stating that the contracts contain the entire agreement among the
parties and requiring that any additional agreements be set forth in separate writings
signed by all parties (Treats!, WCF and the Trust).16 On October 26, 2012, Treats!
delivered a written promissory note to WCF reflecting a loan to Treats! in the amount
of $20,000 (the “October 2012 Promissory Note”).17
C. The Parties’ Relationship Quickly Unravels
Following WCF’s investment, the parties’ relationship was marked by a
consistent refrain. Shaw pressed the brothers to promote Treats! while the brothers
pressed Shaw to enhance their personal and professional profiles. For example,
Defendants allege that, on October 4, 2012, Tyler asked Shaw to arrange a “special
casting” with multiple women he selected from Facebook and a modeling agency’s
16
Compl. ¶¶ 3, 26–28; Answer ¶¶ 26–28. Specifically, Section 15.06(a) of the Amended
LLC Agreement states the Amended LLC Agreement, along with certain other attachments
to the Purchase Agreement “constitutes the sole and entire agreement of the parties with
respect to the subject matter contained herein and therein and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written
and oral . . . .” Compl. ¶ 26; Answer ¶ 26. Section 6.1 of the Purchase Agreement (which
includes the Amended LLC Agreement) provides, in pertinent part: “This Agreement and
the documents referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein.” Compl. ¶ 27;
Answer ¶ 27. Section 15.09 of the Amended LLC Agreement provides, in pertinent part,
that the agreement can only be amended or modified by an instrument in writing executed
by all parties (Treats!, WCF and the Trust). Compl. ¶ 28; Answer ¶ 28.
17
Compl. ¶ 25; Answer ¶ 25.
6
website.18 Tyler followed this request on October 17, 2012, with further direction
to Shaw: “[d]on’t hire any of them . . . get their details and call the hot ones up, invite
them, and then I can shag them ;).”19 Shaw refused.
On June 4, 2012, Cameron wrote to Shaw thanking him for offering to speak
to actor Kevin Spacey about doing a voice-over for Zum-Zero, a website the brothers
were promoting that they hoped would host the world’s largest on-line investor
community.20 On November 13, 2012, Tyler asked Shaw and his team at Treats! to
promote Hukkster, another of the brothers’ investments. Treats!’s then-Chief
Operating Officer, Farley Cahen, responded: “until [Cameron and Tyler] announce
publicly that they have invested in . . . Treats!, I think promoting sites like Hukkster
or other ‘off-brand’ sites will fall on deaf ears . . .”21 Both Cameron and Tyler
initially indicated that they agreed with this sequencing, but then pressed Shaw again
to promote Huckster without having yet taken any steps to promote Treats!.22 On
November 14, 2012, Tyler asked Shaw to connect him with television and radio
18
Countercl. ¶ 19.
19
Countercl. ¶ 20.
20
Countercl. ¶ 24.
21
Countercl. ¶ 25.
22
Countercl. ¶ 29.
7
personality, Ryan Seacrest, so that Tyler could inquire whether Seacrest might be
willing to assist the brothers in promoting the Winklevoss brand.23
As the brothers sought Shaw’s assistance to promote their own profiles, Shaw
continued to solicit the brothers’ assistance in promoting Treats!.24 After failing to
make any progress on this front, and then having heard from the brothers that they
no longer wished to be a part of Treats!, on December 11, 2012, Shaw emailed Tyler
to express his frustration:
An express condition of the sale to you was that I would be able to
announce your investment to the World.
***
Now you are telling me [you] not only do not want me to announce, but
you wish to sell your shares and any reasonable offer will be
entertained.
***
If [y]ou are adamant that I do not make such an announcement and ‘that
seems to be the case’ then kindly, by return, make me a proposal that
will involve ultimately, us entering into a confidentiality agreement to
protect the secrecy of your investment that seems to suddenly have
become a priority to you both.25
23
Countercl. ¶ 30.
24
Countercl. ¶ 32–35.
25
Countercl. ¶ 36.
8
Shaw’s frustration grew in 2013, as the brothers continued in their refusal to
promote Treats!. In an email to the brothers dated June 17, 2013, Shaw wrote, “you
promised to announce your involvement & strung me along milking it for months
until you made it clear that you did not want to tell anyone that you were my partners
and my investors.” He concluded that email by noting that the brothers’ failure to
honor their commitment had adversely affected him and Treats!: “Now I’m not the
first investment. I’m just some mug who got you into a scene you wanted to be in
and have been totally suppressed and financially effected [sic].”26
As Shaw was accusing the brothers of failing to honor their promise to
promote Treats!, the brothers were accusing Shaw of mismanagement and failing to
grow Treats! as promised.27 According to Plaintiffs, while Shaw promised them that
Treats! would be published at least quarterly, Shaw only managed to get the
magazine published twice per year.28 And rather than strengthen the online
readership and advertising revenue, it is alleged that Defendants spent money on
Shaw’s personal entertainment, food, travel and gifts.29
26
Countercl. ¶ 38.
27
Compl. ¶ 30.
28
Id.
29
Compl. ¶¶ 1, 30, 31.
9
Plaintiffs first raised their concerns about mismanagement in November 2012.
Thereafter, from December 2012 through June 2013, the parties exchanged attacks
and ripostes with Plaintiffs alleging mismanagement and Defendants alleging breach
of the brothers’ promises to promote Treats!.30 The brothers proposed that Shaw
buy them out at a price that would allow them to achieve some positive return on
their investment. Shaw rejected that proposal and countered that he would buy-out
WCF at a deep discount. That proposal was rejected.31 The parties then threatened
each other with legal action.32
While the brothers declined to make any conciliatory overtures toward Shaw
at any time from 2013 through 2018, they also did not take steps to break the
relationship. For his part, Shaw approached at least two companies to help raise
capital in an effort to continue operations and ultimately reorganize the company.33
He also periodically would inquire whether WCF was willing to redeem its interest
in Treats! at a discount, including a rebuffed proposal in 2018.34
30
Compl. ¶ 32; Countercl., ¶¶ 32, 36, 38.
31
Compl. ¶¶ 2, 33–35; Answer ¶ 35; Countercl. ¶¶ 36–38, 42.
32
Compl. ¶ 37.
33
Countercl. ¶ 40.
34
Countercl. ¶ 42.
10
D. Procedural Posture
Plaintiffs filed their Complaint on June 1, 2018, in which they assert four
causes of action: (Count 1) Breach of the Amended LLC Agreement based on
Defendants’ mismanagement of the assets of Treats!; (Count 2) Breach of the
October 2012 Promissory Note based on Treats!’s failure to repay the amount owed
to WCF under the Note; (Count 3) Breach of Fiduciary Duty based on Shaw’s and
the Trust’s misappropriation of Treats!’s funds and/or assets; and (Count 4)
Declaratory Relief for a judicial determination that Plaintiffs have no contractual
obligations to Defendants to market or promote Treats!.35
On July 11, 2018, Defendants filed an Answer and Counterclaims in which
they assert five causes of action against all Plaintiffs: (Count 1) Common Law Fraud;
(Count 2) Fraudulent Inducement; (Count 3) Fraudulent Misrepresentation;
(Count 4) Common Law Fraud; and (Count 5) Promissory Estoppel. Each of these
claims arise out of the brothers’ alleged promise at the outset of their association
with Treats! that they would “publicly announce their investment in Treats! and use
their personal brand to help grow the company” as a means “to induce Mr. Shaw and
35
Compl. ¶¶ 40–61; Countercl. ¶¶ 36–38.
11
Treats! to partner with [Plaintiffs] and to perform numerous personal and
professional favors for [Plaintiffs].”36
Plaintiffs moved to dismiss Defendants’ counterclaims on July 31, 2018.
II. ANALYSIS
The standards governing a motion to dismiss for failure to state a claim are
well-settled. “[D]ismissal is inappropriate unless the ‘plaintiff would not be entitled
to recover under any reasonably conceivable set of circumstances susceptible of
proof.’”37 When deciding a motion to dismiss, the Court must read the complaint
liberally, accept as true all well-pled allegations and draw all reasonable inferences
in favor of the non-moving party.38 Even still, the trial court is not required blindly
to accept as true all conclusory allegations “without specific supporting factual
allegations.”39
36
See Countercl. ¶¶ 1, 17–18, 36, 38, 45–67.
37
Gen. Motors (Hughes), 897 A.2d at 168 (quoting Savor, Inc. v. FMR Corp., 812 A.2d
894, 896–97 (Del. 2002)).
38
Gen. Motors (Hughes), 897 A.2d at 168.
39
Santa Fe Pac. Corp., 669 A.2d at 65–66.
12
A. The Proper Application of Laches to the Counterclaims
Defendants are correct that the laches defense is often fact-intensive and,
therefore, not readily susceptible to adjudication at the pleadings stage.40 But
“[t]here is no rule barring [laches] as the basis for dismissal under Rule 12(b)(6)
where ‘it is clear from the face of the complaint that [laches] exists and that the
plaintiff can prove no set of facts to avoid it.’”41
In cases where the asserted claims are common law claims seeking common
law remedies, this court has made clear that a “plaintiff ‘should not be placed in a
potentially better position [having filed in Chancery] to seek to avoid a statute of
limitation than if she had filed in a Delaware court of law by invoking the more
flexible doctrine of laches.’”42 Indeed, “a filing after the expiration of the analogous
limitations period is presumptively an unreasonable delay for purposes of
40
See, e.g., Stewart v. Wilm. Trust SP Servs., Inc., 112 A.3d 271, 295 (Del. Ch.), aff’d, 126
A.3d 1115 (Del. 2015) (noting that the “defense of laches is not ordinarily well-suited for
treatment on a Rule 12(b)(6) motion.”) (internal quotation marks omitted); Reid v. Spazio,
970 A.2d 175, 183 (Del. 2009) (explaining that in “ruling on a motion under Court of
Chancery Rule 12(b)(6), the Court is generally limited to facts appearing on the face of the
pleadings. Accordingly, affirmative defenses, such as laches, are not ordinarily well-suited
for treatment on such a motion. Unless it is clear from the face of the complaint that an
affirmative defense exists and that the plaintiff can prove no set of facts to avoid it,
dismissal of the complaint based upon an affirmative defense is inappropriate.”).
41
Reid, 970 A.2d at 183–84.
42
BioVeris Corp. v. Meso Scale Diagnostics, LLC, 2017 WL 5035530, at *5 (Del. Ch.
Nov. 2, 2017), aff’d, 2019 WL 244619 (Del. Jan. 17, 2019) (TABLE) (quoting Kraft v.
WisdomTree Invs., Inc., 145 A.3d 969, 976 (Del. Ch. 2016)).
13
laches . . . and prejudice to defendants is thus presumed.”43 In such cases, “absent
some unusual circumstances, a court of equity will deny a plaintiff relief when suit
is brought after the analogous statutory period.”44
Delaware’s statute of limitations for claims sounding in fraud or promissory
estoppel claims is three years.45 And “[t]he statute of limitations [in such cases]
begins to run when a plaintiff’s claim accrues, which occurs at the moment of the
wrongful act and not when the effects of the act are felt.”46 Thus, a claim for
43
Baier v. Upper New York Inv. Co. LLC, 2018 WL 1791996, at *11–12 (Del. Ch. Apr. 16,
2018). See also CMS Inv. Hldgs., LLC v. Castle, 2016 WL 4411328, at *2 (Del. Ch.
Aug. 19, 2016) (“[T]he Court will bar claims outside the limitations period absent tolling
or extraordinary circumstances, even in the absence of demonstrable prejudice.”) (internal
quotations omitted).
44
U.S. Cellular Inv. Co. of Allentown v. Bell Atl. Mobile Sys., Inc., 677 A.2d 497, 502
(Del. 1996); see also Daugherty v. Highland Capital Mgmt., L.P., 2018 WL 3217738, at *7
(Del. Ch. June 29, 2018) (courts need not engage in traditional laches analysis for a
presumptively late complaint, and where “a claim is brought in Chancery that would be
barred by a statutory limitation if brought at law, the same claim will be barred here by
analogy to the statute, absent ‘extraordinary circumstances.’”); de Adler v. Upper New York
Inv. Co. LLC, 2013 WL 5874645, at *12 (Del. Ch. Oct. 31, 2013) (“Where a party files a
claim after the presumptive period, the claim is likely time-barred except in the rare and
unusual circumstance that a recognized tolling doctrine excuses the late filing. . . . The
Court does not need to engage in a traditional laches analysis for a presumptively late
complaint.”) (internal quotations omitted); Albert v. Alex. Brown Mgmt. Servs., Inc., 2005
WL 1594085, at *12 (Del. Ch. June 29, 2005) (“[W]here the analogous statute of
limitations at law has run, a plaintiff is barred from bringing suit without the necessity of
the court engaging in a traditional laches analysis.”).
45
10 Del. C. § 8106; Chrysler Corp., (Del.) v. Chaplake Hldgs., Ltd., 822 A.2d 1024, 1035
(Del. 2003); Furnari v. Wallpang, Inc., 2014 WL 1678419, at *4 n.50 (Del. Super. Apr. 16,
2014); Solow v. Aspect Res., LLC, 2004 WL 2694916, at *3 (Del. Ch. Oct. 19, 2004).
46
Van Lake v. Sorin CRM USA, Inc., 2013 WL 1087583, at *6 (Del. Super. Feb. 15, 2013)
(quoting Airport Bus. Ctr. V LLLP v. Sun Nat’l Bank, 2012 WL 1413690, at *7 (Del. Super.
14
common law fraud accrues on the day the misrepresentation is made.47 Similarly,
“[a] claim for fraudulent inducement accrues when the fraudulent statements were
made, which must be on or before the date when the parties entered into the
contract.”48 A claim for promissory estoppel accrues when the alleged promise
behind the claim is broken.49
When “‘a complaint asserts a cause of action that on its face accrued outside
the statute of limitations,’ the plaintiffs have the burden to plead facts ‘leading to a
reasonable inference that one of the tolling doctrines adopted by Delaware courts
applies.’”50 The doctrines of fraudulent concealment, inherently unknowable
injuries and equitable tolling will toll the applicable limitations period only when
“the facts underlying a claim were so hidden that a reasonable plaintiff could not
Mar. 6, 2012)). Accrual starts “even if the plaintiff is ignorant of the cause of action.” Wal-
Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 319 (Del. 2004).
47
Van Lake, 2013 WL 1087583, at *7; Winner Acceptance Corp. v. Return on Capital
Corp., 2008 WL 5352063, at *14 (Del. Ch. Dec. 23, 2008). I note, contrary to Defendants’
argument on pages 23–26 of their Answering Brief, that their fraud and promissory
estoppel claims accrued as of the date of fraud, not as of some event during the continuum
of performance of the parties’ governing contract. Thus, the “continuing contract” accrual
analysis is not applicable because the counterclaim does not assert a breach of contract
claim. See Pivotal Payments Direct Corp. v. Planet Payment, Inc., 2015 WL 11120934,
at *4 (Del. Super. Dec. 29, 2015); Chrysler Corp. (Del.), 822 A.2d at 1035–36.
48
Pivotal Payments Direct, 2015 WL 11120934, at *4.
49
Chrysler Corp. (Del.), 822 A.2d at 1035–36.
50
Commonwealth Land Title Ins. Co. v. Funk, 2014 WL 8623183, at *6 (Del. Super.
Dec. 22, 2014) (quoting Winner Acceptance Corp., 2008 WL 5352063, at *14).
15
timely discover them.”51 “In order to toll the statute of limitation under the
fraudulent concealment exception, [therefore], the plaintiff must allege some
affirmative act by the defendant that either prevented the plaintiff from gaining
knowledge of material facts or led the plaintiff away from the truth.”52 Similarly, to
invoke the doctrine of inherently unknowable injuries, the plaintiff must allege facts
that would allow an inference that “it would be practically impossible for [him] to
discover the existence of a cause of action. . . . [and] that he was ‘blamelessly
ignorant’ of both the wrongful act and the resulting harm.” 53 Equitable tolling,
likewise, is not available to a plaintiff after he “knew or had reason to know of the
facts constituting the wrong.”54
B. Laches Bars The Counterclaims
The allegations in the counterclaims reveal that Defendants’ claims accrued
for statute of limitations (and laches) purposes no later than June 17, 2013.55 Each
51
See Krahmer v. Christie’s Inc., 903 A.2d 773, 778 (Del. Ch. 2006).
52
Jeter v. RevolutionWear, Inc., 2016 WL 3947951, at *10 (Del. Ch. July 19, 2016)
(quoting Smith v. Mattia, 2010 WL 412030, at *5 (Del. Ch. Feb. 1, 2010)) (internal
quotations omitted).
53
Vichi v. Koninklijke Philips Elecs., N.V., 85 A.3d 725, 788–89 (Del. Ch. 2014) (quoting
In re Tyson Foods, Inc., 919 A.2d 563, 584–85 (Del. Ch. 2007)).
54
Seiden v. Kaneko, 2015 WL 7289338, at *8 (Del. Ch. Nov. 3, 2015) (quoting Tyson
Foods, Inc., 919 A.2d at 585).
55
Countercl., ¶¶ 31–32, 38.
16
of Defendants’ four fraud claims arise from the Winklevoss brothers’ allegedly false
promise to “publicly announce their investment in Treats! and use their personal
brand to help grow the company” as a means “to induce Mr. Shaw and Treats! to
partner with [Plaintiffs] and to perform numerous personal and professional favors
for [Plaintiffs].”56 According to Defendants, this false representation convinced
them to enter into the written Purchase Agreement, including the Amended LLC
Agreement, on August 15, 2012, and then to assist the brothers in their desire to gain
entrée into Shaw’s social circles for their personal and business purposes. 57 Shaw
questioned the veracity of the brothers’ promise to promote Treats! as early as
December 11, 2012, when he emailed Tyler to confirm that the brothers had
informed him they would not promote Treats! and to express his frustration with this
development.58 By June 17, 2013, Shaw’s frustration had turned to an appreciation
that the brothers had “[taken] what [they] wanted” from Shaw but had no intention
of honoring their commitment to Treats!.59
56
See Countercl. ¶¶ 1, 17–18, 45–62.
57
See Countercl. ¶ 45 (“As part of the negotiations, the Winklevoss twins falsely
represented to Mr. Shaw that they would use their personal brand to promote
Treats! . . . .”); see also Countercl. ¶¶ 1, 13, 17, 46, 51, 56, 61.
58
Countercl. ¶ 36.
59
Countercl. ¶ 38.
17
Defendants argue the statute of limitations should be tolled because “repeated
efforts over many years to get the Winklevoss twins to [promote Treats!] were met
with excuses, delay, and further promises which, ultimately, turned out to be
untrue.”60 While the counterclaims do not allege anything about “further promises”
by the Winklevoss brothers to promote Treats! beyond their initial commitment at
or around the time of their investment, even if there were “further promises,” it
“became clear” to Defendants at least as early as June 17, 2013, that Plaintiffs had
no intention to promote Treats! then or ever.61 Thus, the fraud and promissory
estoppel claims accrued no later than June 17, 2013.62
60
Countercl. ¶ 46; see also Countercl. ¶¶ 51, 55, 61.
61
Countercl. ¶ 38 (“you made it clear you wouldn’t say anything of your investment in
Treats!”). In addition, Defendants’ counterclaims also quote a December 11, 2012 email
from Shaw to Tyler and Cameron, demonstrating Defendants discovered the falsity of
Plaintiffs’ alleged representations by that date. Countercl. ¶ 36 (“Now you are telling me
not only do you not want me to announce [WCF’s investment in Treats!]. . . . If you are
that adamant that I do not make such an announcement and ‘that seems to be the
case’ . . . .”).
62
Defendants’ Answering Brief reasserts these dates and again concedes that Shaw
discovered the alleged facts underlying Defendants’ claims no later than June 17, 2013.
Defs.’ Answering Br. in Opp’n to Pls.’ Mot. to Dismiss (“Defs.’ Answering Br.”) at 1
(Defendants state Shaw wrote to Plaintiffs regarding their alleged refusal to publicly
announce their investment in Treats! four months after “going into business” with Plaintiffs
in 2012.); Defs.’ Answering Br. 7 (Defendants allege, “by June of 2013 . . . Mr. Shaw
believed that they were breaching their agreement by failing to personally promote and
help grow Treats!.”).
18
The statute of limitations governing each of the counterclaims expired no later
than June 17, 2016.63 They were filed more than two years later, on July 11, 2018,
and are, therefore, time-barred absent tolling.64
C. Defendants Have Failed to Demonstrate “Unusual Conditions” or
“Extraordinary Circumstances”
In the realm of laches, a late-filed claim may be excused in “rare” instances when
the claimant can demonstrate “unusual conditions” or “extraordinary
circumstances.”65 While these terms have not been precisely defined,66 our courts
have consistently considered certain factors when determining whether to excuse
late-filed claims as a matter of equity, including: (1) whether the plaintiff brought
his claim, through litigation or any other means, before the statute of limitations
expired; (2) whether the delay in filing suit can be explained by a material and
unforeseeable change in the parties’ personal or financial circumstances; (3) whether
63
See, e.g., BioVeris Corp. v. Meso Scale Diagnostics, LLC, 2017 WL 5035530, at *5
(Del. Ch. Nov. 2, 2017).
64
See, e.g., Maddox v. Collins, 2015 WL 5786349, at *1 (Del. Super. Oct. 5, 2015)
(granting motion to dismiss and holding “[b]ecause all facts that plaintiff is alleging in this
case were known to him more than three years prior to the filing of this action, the statute
of limitations period has expired and this action [including the plaintiff’s fraud claim] must
be dismissed with prejudice.”); Airport Bus. Ctr. V LLLP, 2012 WL 1413690, at *1
(“[P]laintiffs’ claims for fraud, negligent misrepresentation, and breach of lease are barred
by the statute of limitations and those claims will therefore be dismissed with prejudice.”).
65
See Levey v. Brownstone Asset Mgmt., LP, 76 A.3d 764, 772 (Del. 2013);
IAC/InterActiveCorp v. O’Brien, 26 A.3d 174, 179 (Del. 2011).
66
Levey, 76 A.3d at 770; Stewart, 112 A.2d at 293–94, aff’d, 126 A.3d 1115 (Del. 2015).
19
the delay in filing suit can be explained by a legal decision in another jurisdiction;
(4) whether the defendant knew of, or participated in, any prior proceedings; and
(5) whether, at the time the litigation began, a genuine dispute existed regarding the
soundness of the claim.67
Defendants maintain that the application of these factors mandate the
conclusion that their otherwise time-barred claims should survive dismissal.
I disagree. As explained below, there are no “unusual conditions” or “extraordinary
circumstances” present here.
1. Defendants Did Not Pursue Their Counterclaims Before the Statute of
Limitations Expired
Defendants argue this factor is satisfied because: (a) Shaw “sent numerous
communications to [Cameron and Tyler] regarding their fraudulent
misrepresentations” and “to notify them of his claims”;68 (b) Shaw’s attorney sent a
letter on April 24, 2018, in which he advised the Defendants that Plaintiffs were
preparing to file suit;69 and (c) Shaw’s attorney sent additional correspondence some
time thereafter in which he described the evidence that would support the
67
O’Brien, 26 A.3d at 178; Levey, 76 A.3d at 770.
68
Defs.’ Answering Br. 19; Countercl. ¶ 38. Defendants reference the email Shaw sent to
Cameron and Tyler on June 17, 2013, as support for this contention.
69
Compl. ¶ 37.
20
Defendants’ claims.70 Of these communications, only the June 17, 2013 email was
sent before the statute of limitations expired on Defendants’ counterclaims. Yet
even this communication does not reflect that Defendants had pursued their claims
“through litigation or otherwise” as contemplated by O’Brien.71 In BioVeris Corp.,
the plaintiff argued that it satisfied the first O’Brien factor by sending two letters to
defendants demanding payment and then initiating negotiations to resolve the
plaintiff’s claims before expiration of the limitations period.72 The court rejected the
argument and held that sending letters stating legal positions and proposing
settlement “was not sufficient pursuit of the claims to qualify under the first”
O’Brien factor.73 The court went on to say, “[t]hese two letters do not rise anywhere
near the same level of diligence exercised by the plaintiffs in Levey . . . .”74 BioVeris
is directly on point. Shaw’s expressions of frustration with Defendants in 2012 and
2013 are a far cry from actually pursuing claims against them.
Indeed, in each of the cases cited by Defendants where the courts found
“unusual conditions” or “extraordinary circumstances” under the first O’Brien
70
Compl. ¶¶ 38, 39. See Defs.’ Answering Br. 19–20.
71
O’Brien, 26 A.3d at 178.
72
BioVeris Corp., 2017 WL 5035530, at *11–12.
73
Id. at *11–12.
74
Id. at *12.
21
factor, the claimant took clear steps to pursue their claims, either by filing a lawsuit
in another forum or initiating an arbitration action before the limitations period
expired.75 Defendants had every opportunity to do just that, but they inexplicably
chose not to until after Plaintiffs filed this lawsuit well beyond the expiration of the
statute of limitations on the counterclaims. They have failed, therefore, to meet the
first O’Brien factor.
2. No Material and Unforeseeable Change in Defendants’ Personal or
Financial Circumstances Caused the Delay in Filing Suit
Defendants argue they meet this second O’Brien factor because the
negotiations relating to Plaintiffs’ separation from Treats! broke down after the
75
Levey, 76 A.3d. at 766–67, 771 (Plaintiff—Levey—satisfied the first factor before the
limitations period expired by: (1) previously asserting the same claim by filing a
counterclaim against the defendants in an action brought by the defendants in the Southern
District of New York; (2) sending a letter to the defendants one year later requesting
payment and warning pursuit of legal remedies; (3) filing a motion to stay the Southern
District of New York case and compelling defendants to submit to arbitration; and (4) after
the court granted this motion, filing a formal demand for arbitration before the Financial
Industry Regulatory Authority); O’Brien, 26 A.3d. at 175, 176–77, 178 (Plaintiff O’Brien
met the first factor in an action for indemnification against IAC, which was the parent
company of PRC, by: (1) seeking identical indemnification from PRC in a prior arbitration
matter; (2) filing suit in Florida against PRC for indemnification while the arbitration was
still pending; and (3) appealing the ruling on PRC’s motion for summary judgment related
to the indemnification claim in the Florida case); Stewart, 112 A.3d at 293–95 (Plaintiff, a
receiver, adequately pursued its breach of contract, breach of fiduciary duty and negligence
claims against the defendants before the statute of limitations expired by: (1) serving
process on the defendants in a related liquidation action; (2) conducting “extensive
litigation activity” in the liquidation action, which was necessary before the receiver could
sufficiently plead its claims against defendants in the instant action; and (3) engaging in
“an extensive investigation” related to the defendants’ conduct, which included obtaining
and reviewing documents from some of the defendants.).
22
statute of limitations expired. After it became clear Plaintiffs would not honor their
promise to promote Treats!, Shaw attempted to negotiate a buy-out of Plaintiffs’
interests.76 The brothers never budged from their position that they would not
separate from Treats! for any less than their $1.3 million initial investment.77 Shaw
steadfastly refused to pay that much, repeatedly reminding Plaintiffs that he had put
his “heart, soul, and every penny” into Treats! and that he had been “totally
suppressed and financially effected” by their failure to honor their promise to
promote the magazine.78
Nothing in this history suggests that Defendants were prevented from
asserting their counterclaims by “a material and unforeseeable change in the parties'
personal or financial circumstances.” The parties’ negotiating positions did not
waiver before the statute of limitations expired; they did not waiver after. All of
Defendants’ settlement overtures were “to no avail.”79 There was no “unforeseeable
change in the parties’ . . . circumstances.”80
76
Defs.’ Answering Br. 20.
77
Id.; Countercl. ¶ 37.
78
Defs.’ Answering Br. 20–21; Countercl. ¶ 38. See also Countercl. ¶¶ 41, 42 (recounting
failed attempts to buy-out WCF).
79
Id.
80
O’Brien, 26 A.3d. at 178. In O’Brien, the court found material and unforeseeable
circumstances supporting O’Brien’s delay in filing suit because: (1) O’Brien could not in
good faith proceed against IAC when his appeal against IAC’s subsidiary, PRC, remained
23
3. No Legal Decision Prevented the Filing of the Counterclaims
Defendants wisely make no argument that “the delay in filing suit can be
explained by a legal decision in another jurisdiction.”81 This is the only litigation
the parties have pursued against one another and there has been no decision in
unrelated litigation in another jurisdiction that would have prevented Defendants
from timely pursuing their counterclaims.
4. There Have Been No Prior Proceedings
Defendants maintain this factor justifies their untimely filing because they
were aware of, and filed their counterclaims in response to, a “prior proceeding” as
contemplated by the fourth O’Brien factor, namely this proceeding as initiated by
Plaintiffs on June 1, 2018.82 Setting aside the fact that the instant proceeding can
hardly be characterized as a “prior proceeding” under any reasonable construction
of that phrase, to invoke this factor, the untimely claimant must identify prior
proceedings that were initiated before the limitations period expired.83 This action,
pending for over a year; and (2) PRC unexpectedly declared bankruptcy. Id. Nothing like
this has been alleged here.
81
O’Brien, 26 A.3d at 178.
82
Defs.’ Answering Br. 21–22.
83
See Levey, 76 A.3d at 766–67, 771 (the prior Southern District of New York proceedings
and the arbitration proceedings both took place before the limitations period for Levey’s
claims expired); O’Brien, 26 A.3d at 176, 178 (the prior arbitration proceedings, Florida
action and the appeal all occurred before O’Brien’s claims expired); Stewart, 112 A.3d at
24
“prior” or not, was initiated well after the statute of limitations on the counterclaims
had run.
5. There Was No Bona Fide Dispute Regarding the “Soundness” of
Defendants’ Claims at the Time of Filing
Defendants maintain “there is a bona fide dispute as to the validity of
Mr. Shaw’s claims.”84 Of course, they do not elaborate on this point beyond simply
parroting the fifth O’Brien factor.
“The Supreme Court interprets a ‘bona fide dispute’ to mean that the claim
would survive a motion to dismiss or, in other words, is not futile.” 85 In application,
this factor is most commonly fulfilled by a previous affirmative court finding that
the untimely claims are valid.86 No such finding has been made with respect to the
counterclaims. Moreover, even if there had been a prior finding that Defendants
294–96 (the related liquidation action and the receiver’s extensive investigation both
occurred before the expiration of the statute of limitations).
84
Defs.’ Answering Br. 22.
85
Daugherty, 2018 WL 3217738, at *7, citing Levey, 76 A.3d at 771–72.
86
See O’Brien, 26 A.3d at 179 (finding this factor satisfied because the Florida trial and
appellate courts had both previously found O’Brien’s indemnification claim to be
meritorious); Levey, 76 A.3d at 771–72 (holding Levey’s indemnification claim, which had
been brought earlier in the Southern District of New York and in arbitration, would survive
a motion to dismiss).
25
possessed “sound” counterclaims, this alone would be insufficient to excuse
Defendants’ failure to file the claims on time.87
D. Equitable Tolling Does Not Apply Here
Defendants maintain that the brothers’ “repeated misstatements of fact”
triggers equitable tolling.88 Delaware courts will apply equitable tolling in rare cases
“where the facts underlying a claim were so hidden that a reasonable plaintiff could
not timely discover them.”89 When the claimant alleges that tolling is justified
because defendants’ fraud obscured the existence of the claim, the tolling doctrine
of fraudulent concealment, not equitable estoppel, provides the proper analytical
framework.90 That doctrine permits tolling only where the plaintiff has pled the
87
See BioVeris Corp., 2017 WL 5035530, at *12 (“The mere existence of a bona fide
dispute at the time the suit was filed does not justify a finding of extraordinary
circumstances when the weight of the other factors cuts against such a finding.”).
88
Defs.’ Answering Br. 27.
89
Krahmer v. Christie’s Inc., 903 A.2d 773,778 (Del. Ch. 2006). I note that equitable
tolling typically applies to salvage untimely claims for breach of fiduciary duty. See Albert,
2005 WL 1594085, at *19 (“Under the theory of equitable tolling, the statute of limitations
is tolled for claims of wrongful self-dealing, even in the absence of actual fraudulent
concealment, where a plaintiff reasonably relies on the competence and good faith of a
fiduciary.”). No such claim has been alleged in the counterclaims, and for good reason.
See Kuroda v. SPJS Hldgs., L.L.C., 2010 WL 925853, at *7 (Del. Ch. Mar. 16, 2010)
(dismissing defendant’s breach of fiduciary duty counterclaim against plaintiff because
“[plaintiff] was neither a manager of [defendant LLC] nor a controlling member, and he
thus has no fiduciary duties.”).
90
Jeter v. RevolutionWear, Inc., 2016 WL 3947951, at *10 (Del. Ch. July 19, 2016)
(quoting Smith v. Mattia, 2010 WL 412030, at *5 (Del. Ch. Feb. 1, 2010) (internal
quotations omitted) (“In order to toll the statute of limitation under the fraudulent
concealment exception, the plaintiff must allege some affirmative act by the defendant that
26
conditions comprising the fraudulent concealment, and how such conduct prevented
him from discovering his claim, with the same particularity as would be required to
plead an affirmative claim of fraud.91
Defendants have not carried their burden under any of the tolling theories they
have proffered for the simple reason that facts giving rise to their counterclaims were
never hidden from them.92 This is clearly revealed in Shaw’s own words in 2013
when he acknowledged that Plaintiffs had “made it clear” they did not intend to
promote Treats!.93 Thereafter, Plaintiffs consistently turned down each of
Defendants’ offers to buy-out WCF’s interest.94 No facts have been pled in the
counterclaims that would allow a reasonable inference that Plaintiffs somehow
concealed Defendants’ potential fraud and promissory estoppel claims from them.
either prevented the plaintiff from gaining knowledge of material facts or led the plaintiff
away from the truth.”).
91
See CMS, 2016 WL 4411328, at *4, citing Boeing Co. v. Shrontz, 1992 WL 81228, at *3
(Del. Ch. Apr. 20, 1992) (“The allegations of fraudulent concealment necessary to toll the
statute of limitations must be set forth with the particularity required by Chancery Court
Rule 9(b).”).
92
First State Towing, LLC v. Div. of State Police, 2016 WL 2621137, at *4 (Del. Ch.
May 5, 2016) (quoting Capano v. Capano, 2014 WL 2964071, at *9 (Del. Ch. June 30,
2014)); Owens, 2013 WL 5496821, at *2 (holding that equitable tolling assumes the
plaintiff “was prevented in some extraordinary manner from timely asserting his rights”).
93
Countercl. ¶ 38.
94
Defs.’ Answering Br. 29–30; Countercl. ¶ 42.
27
Defendants were well aware of these potential claims; they simply failed to file them
on time.
III. CONCLUSION
For the reasons stated above, I am satisfied Defendants’ counterclaims must
be dismissed as time-barred because they were filed after the expiration of three-
year statute of limitations and no tolling doctrine applies. With that said, Defendants
may present evidence of Plaintiffs’ alleged fraud and broken promises in order to set
off any potential damages arising from the affirmative claims asserted against
them.95 In this regard, I note that Defendants have asserted as affirmative defenses
fraud, fraudulent inducement, fraudulent misrepresentation, and unclean hands,
among others, based on the same facts alleged in the counterclaims. I can discern
no basis to restrict Defendants from presenting evidence of the Defendants’ failure
to honor agreements to promote Treats! as grounds to defend against Plaintiffs’
95
King Const., Inc. v. Plaza Four Realty, LLC, 2012 WL 3518125 at *4 (Del. Super.
Aug. 7, 2012) (“Ordinarily a defendant may amend a pleading to assert an affirmative
defense even where the statute of limitations or other considerations would bar the assertion
of a substantially similar counterclaim.”); PNC Bank, Del. v. Turner, 659 A.2d 222, 225
(Del. Super. 1995) (permitting an affirmative defense of recoupment where the defendant’s
proposed counterclaim would have been barred by the statute of limitations, finding “the
underlying policy of the statute of limitations is not promoted by suppressing a valid
defense arising out of a transaction” and the “purpose of statutes of limitation is to bar
actions and not to deny matters of defense. As a general rule, such statutes are not
applicable to defenses, but only where affirmative relief is sought. [. . .] It would therefore
be appropriate for [defendant] to plead her claims [. . .] defensively whether or not they
would be barred if pleaded affirmatively.”).
28
claim that Defendants have not delivered all that was promised. Counterclaims
based on this evidence, however, are time-barred.
For the foregoing reasons, the Motion to Dismiss Defendants’ Counterclaims
must be GRANTED.
IT IS SO ORDERED.
29