Terrance L. Erisman and David Fouts v. Peter Zaitsev and Thomas Basil and Percona, LLC, Nominal ( 2021 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TERRANCE L. ERISMAN and )
DAVID FOUTS, individually and on )
behalf of PERCONA, LLC, )
)
Plaintiffs, )
)
v. ) C.A. No. 2020-0903-JRS
)
PETER ZAITSEV and )
THOMAS BASIL, )
)
Defendants, )
)
and )
)
PERCONA, LLC, a Delaware limited )
liability company, )
)
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: September 23, 2021
Date Decided: December 29, 2021
Richard Jones, Esquire and Peter C. McGivney, Esquire of Berger Harris LLP,
Wilmington, Delaware and Brian M. Gottesman, Esquire of Gabell Beaver LLC,
Wilmington, Delaware, Attorneys for Plaintiffs Terrance L. Erisman and
David Fouts.
Daniel A. Griffith, Esquire and Quinn Griffith, Esquire of Whiteford Taylor &
Preston LLC, Wilmington, Delaware and William F. Ryan, Jr., Esquire of Whiteford
Taylor & Preston LLP, Baltimore, Maryland, Attorneys for Defendants
Peter Zaitsev, Thomas Basil and Percona, LLC.
SLIGHTS, Vice Chancellor
Plaintiffs, Terrance L. Erisman and David Fouts, two members of Percona,
LLC (“Percona” or the “Company”), bring this action against the Company’s two
directors, Defendants, Peter Zaitsev and Thomas Basil, for breaches of contract and
fiduciary duties.1 The now-operative First Amended Complaint (the “Amended
Complaint”) consists of two counts.2
In Count One, Plaintiffs assert that Defendants breached the Company’s LLC
Agreement (later defined) by (1) failing to make distributions to the Company’s
members (the “Members” or, individually, a “Member”) so that they could pay
themselves excessive “remuneration,” and (2) exposing the Members to actual and
potential adverse tax consequences by issuing inaccurate K-1s to each Member.3
The Amended Complaint also alleges that Defendants breached the LLC Agreement
and the Option Agreements (later defined) by redeeming select Members’ units at
inflated values.4
In Count Two, Plaintiffs assert that Defendants breached their fiduciary duties
to the Company and its Members by (1) paying themselves excessive remuneration
while misstating the funds available to Members for tax distributions, (2) unfairly
1
Pls.’ Verified First Am. Compl. (D.I. 12) (“Am. Compl.”) ¶¶ 1–4, 7–8.
2
Am. Compl. ¶ 1.
3
Am. Compl. ¶¶ 76–77.
4
Am. Compl. ¶¶ 77–78.
1
diluting certain Members’ interests when the Company acquired Tokutek, Inc.
(“Tokutek”), (3) falsely reporting Company valuations to the IRS to avoid paying
taxes, which resulted in the Company incurring fines, (4) manipulating financial
statements to misstate income and mispresent the Company’s revenue, which
resulted in inaccurate tax reporting for the Company and, by extension, the
Members, and (5) ignoring multiple opportunities to sell the Company at a price that
would have allowed Members to achieve a positive return on their investments.5
Defendants have moved to dismiss the Amended Complaint under Chancery
Rule 12(b)(6) (the “Motion”).6 They argue the claims are subject to dismissal as a
matter of law for failure to state viable claims, failure to bring timely claims and, as
to the purported derivative claims, failure to well-plead demand futility as required
under Chancery Rule 23.1.7
After careful consideration, I am satisfied the Motion must be granted in its
entirety. Plaintiffs’ breach of contract claims, as asserted in Count One, are not well-
pled. As for Count Two, Plaintiffs’ complaint fails to well plead non-exculpated
5
Am. Compl. ¶¶ 84–87, 89–90. Accounting for overlapping claims, as discussed below,
Plaintiffs assert five distinct claims of wrongdoing against Defendants.
6
Defs.’ Mot. to Dismiss Pls.’ First Am. Compl. (D.I. 16). I note that Defendants cite to
only Rule 12(b)(6) in their motion to dismiss but then argue for dismissal under both
Rule 12(b)(6) and Rule 23.1 in their briefs filed in support of the motion. (D.I. 16).
7
Defs.’ Opening Br. in Supp. of their Mot. to Dismiss Pls.’ First Am. Compl. (D.I. 16)
(“DOB”) at 7–27.
2
claims against either director. Because all claims are dismissed for failure to plead
viable claims, I need not address Defendants’ other theories for dismissal. For the
sake of completeness, however, I do briefly address why at least four of Plaintiffs’
five distinct claims could be dismissed as time-barred by laches.
I. BACKGROUND
I have drawn the facts from the well-pled allegations in the Amended
Complaint and documents properly incorporated by reference or integral to that
pleading.8 For purposes of this Motion, I accept as true the Amended Complaint’s
well-pled factual allegations and draw all reasonable inferences in Plaintiffs’ favor.9
A. Parties and Relevant Non-Parties
Plaintiffs and Defendants are Members of the Company.10 Plaintiff Erisman
is a resident of California,11 and Plaintiff Fouts is a resident of North Carolina.12
Fouts was the Company’s Chief Financial Officer from February 2012 to June 2014,
8
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on
a motion to dismiss, the Court may consider documents that are “incorporated by
reference” or “integral” to the complaint).
9
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).
10
Am. Compl. ¶¶ 4, 8.
11
Am. Compl. ¶ 2.
12
Am. Compl. ¶ 3.
3
its interim controller from March 2015 to September 2015, and remained with the
Company in various capacities through early 2016.13
Defendant Basil is a resident of Maryland,14 and Defendant Zaitsev is a
resident of North Carolina.15 At all relevant times, Zaitsev and Basil were
(and remain) members of the Company’s board of directors (the “Board”) and
“Managers” of the Company as defined in the Company’s operating agreements and
the Delaware Limited Liability Company Act (the “LLC Act”).16
Nominal Defendant, Percona, is a Delaware limited liability company formed
on August 21, 2012.17 The Company’s principal business is the development of
open-source electronic database solutions, including for a software platform known
as MySQL.18 Zaitsev and Basil are the only members of the Company’s Board and
generally have the power to manage the Company’s day-to-day affairs.19
13
Am. Compl. ¶¶ 3, 36.
14
Am. Compl. ¶ 7.
15
Am. Compl. ¶ 6.
16
Am. Compl. ¶ 8. See 6 Del. C. § 18-101, et seq.
17
Am. Compl. ¶¶ 5, 11.
18
Am. Compl. ¶ 12.
19
Am. Compl. ¶ 18.
4
Non-party, Eileen Doody, is the Company’s Chief Executive Officer.20 Non-
parties, Bill Schuler, Todd Spain, Nikki Morton and Robert Young (collectively,
the “Departing Series B Members”) are all former officers of the Company.21 Upon
their departure from the Company, Defendants caused Percona to redeem the
Departing Series B Members’ units at above-market prices.22
Before the Company’s April 2015 acquisition of its assets (the “Tokutek
Acquisition”), non-party, Tokutek, was a developer and distributor of enterprise-
class database solutions.23 The Tokutek Acquisition was memorialized in a
Contribution Agreement between the Company and Tokutek, dated April 7, 2015.24
B. Equity Structure and Ownership of the Company
As of April 7, 2015, the effective date of the First Amendment to Limited
Liability Company Agreement of Percona, LLC (the “First Amendment”),
20
Am. Compl. ¶ 57. I note that Ms. Doody describes herself as the Company’s CFO in her
affidavit, attached as Exhibit 1 to Defendants’ Opening Brief (“Doody Aff.”).
21
Am. Compl. ¶ 50.
22
Id.
23
Am. Compl. ¶ 31.
24
Am. Compl. ¶ 32; see generally Doody Aff. at Ex. I (the “Contribution Agreement”).
Because the documents attached to the Doody Aff. are “integral to Plaintiff[s’] claims and
incorporated by reference into the [Amended] Complaint, [they are] properly before the
Court on Defendants’ motion to dismiss.” Calma v. Templeton, 2015 WL 1951930,
at *2 n.4 (Del. Ch. Apr. 30, 2015) (citing to In re Santa Fe Pac. Corp. S’holder Litig.,
669 A.2d 59, 69 (Del. 1995)).
5
the Company had three classes of units—Series A, Series B and Series C.25
As discussed below, the different rights attached to each class are at the heart of
Plaintiffs claims and Defendants’ arguments in support of dismissal.
1. Ownership of Units
At all material times, Zaitsev has been the sole holder of Series A Units and,
as such, the only Series A Member.26 Likewise, Tokutek is the sole holder of
Series C Units and the only Series C Member.27 Plaintiffs Erisman and Fouts and
Defendant Basil are among several holders of Series B Units.28 The LLC Agreement
occasionally refers to the holders of the Company’s units as “Unitholders.”
Zaitsev acquired his Series A Units before the original LLC Agreement was
executed on August 21, 2012.29 Erisman, Fouts and Basil, like all Series B Members,
received their Series B Units as a benefit of employment with the Company.30
25
See generally Ex. A to Doody Aff. (together with all amendments,
the “LLC Agreement”). The Company’s initial Limited Liability Company Agreement
was dated August 21, 2012. See Am. Compl. ¶ 13. It was amended and restated by the
Limited Liability Company Agreement of Percona, LLC, dated November 13, 2013.
See Am. Compl. ¶ 14.
26
Am. Compl. ¶ 17; see generally the LLC Agreement.
27
First Amendment, Recitals.
28
Am. Compl. ¶¶ 19–23.
29
See the LLC Agreement.
30
Am. Compl. ¶¶ 19–23.
6
According to Plaintiffs, each Series B Member has executed substantially identical
Membership Interest Unit Option Agreements (“Option Agreements”).31
Erisman was issued one million Series B Units in December 2012 and, at that
same time, executed an Option Agreement, which gave him an option, subject to
vesting and other requirements, to acquire an additional four million Series B Units
(the “Erisman Option Units”).32 Between January 1, 2013, and July 1, 2016,
Erisman became fully vested in 2,500,000 of the Erisman Option Units.33
In August 2012, Fouts executed an Option Agreement that granted him an
option, subject to vesting and other requirements, to acquire a certain number of
Series B Units (the “Fouts Option Units”).34 Between April 1, 2013, and July 1,
31
Am. Compl. ¶ 20.
32
Am. Compl. ¶ 19.
33
Am. Compl. ¶ 22.
34
Am. Compl. ¶ 23. According to the Amended Complaint, Fouts executed his Option
Agreement in 2013. Yet, the executed copy of Fouts’ Option Agreement, attached as
Exhibit D to the Doody Aff., is dated as of August 30, 2012. Plaintiffs did not attach a
different version of Fouts’ Option Agreement bearing a 2013 execution date. In fact, the
only exhibit attached to the Amended Complaint is a blackline comparing the Amended
Complaint and the initial complaint. Without any evidence to support Plaintiffs’ proffered
execution date, it would appear Fouts entered into his Option Agreement in 2012.
Ultimately, however, the resolution of this factual dispute is unnecessary because the
outcome remains the same regardless of whether Fouts’ Option Agreement was executed
in 2012 or 2013.
7
2014, Fouts exercised rights under his Option Agreement such that his total
ownership stake in the Company increased to 562,500 Series B Units.35
Tokutek was issued three million Series C Units as partial compensation for
the Tokutek Acquisition.36 In addition to issuing the Series C Units, the Company
financed the Tokutek Acquisition by delivering a $2,000,000 promissory note to
Tokutek’s owners payable over five years and agreeing to pay Tokutek’s owners a
royalty stream based on future revenues derived from certain intellectual property
transferred in connection with the acquisition.37
2. Rights and Privileges of the Different Classes of Units
Under the LLC Agreement, the rights and privileges associated with the three
classes of units are nearly identical, with two critical exceptions: voting and
preferred payments.38 The first difference favors holders of Series A Units, while
the second favors holders of Series C Units.
a. Voting Rights
Under Section 3.1 of the LLC Agreement, each Series A Unit entitles its
holder to one vote. In contrast, Sections 3.1(c) and 8.2(a) provide that the holders
35
Id.36
See generally the First Amendment to the LLC Agreement (explaining that the
Company’s primary purpose for adopting the First Amendment was to authorize, create
and issue the Series C Units in connection with the Contribution Agreement).
37
Am. Compl. ¶ 32.
38
Am. Compl. ¶¶ 16, 33.
8
of Series B and Series C Units have no voting rights at all.39 Likewise, the LLC
Agreement does not provide any consent or approval rights to Series B Members.40
The LLC Agreement instead vests such rights primarily with the Series A Member
and, in a few circumstances, the Series C Member.41 In this regard, the Series A
Member is not obliged to provide any notice to the Series B Members before taking
any actions within the Series A Member’s authority.42
According to the LLC Agreement, the Board and officers of the Company
“have full power and authority to do all things on such terms as they may deem
necessary or appropriate to conduct, or cause to be conducted, the business and
affairs of the Company.”43 The LLC Agreement confers broad oversight authority
39
Id.40
Before the First Amendment, only the Series A Member’s approval was required to
amend, modify, supplement or restate the LLC Agreement. LLC Agreement §13.5.
The First Amendment added language that requires the Series C Member’s consent to any
amendments, modifications, supplements, restatements or waivers that would affect the
Series C Member or its rights while not affecting the other Members.
First Amendment ¶ 8. The First Amendment also provides that the Series C Member’s
consent is required for “any amendment, modification, supplement, restatement or waiver
of: (i) the number of authorized Series C Units under Section 3.1(a), (ii) Section 3.1(d),
(iii) Section 4.5, (iv) Section 6.1(e), (v) this Section 13.5, in each case as it relates to the
Series C Units or the Sole Series C Member, or (vi) any term or provision of Exhibit B.”
Id.
41
LLC Agreement § 8.4.
42
Id.
43
LLC Agreement § 8.1.
9
to the Series A Member, including the exclusive right to remove or replace any
director on the Board.44
Section 8.4(b) of the LLC Agreement expressly provides that the
authorization and approval of certain actions may not be delegated to the Board or
the Company’s officers and may be taken only if approved by the Series A Member
(i.e., Zaitsev). These include, in pertinent part, (a) any agreement to acquire assets
with a purchase price or fair market value in excess of $100,000, (b) the issuance of
additional units, and (c) any potential sale of all or substantially all of the Company’s
assets.
b. Economic Preferences
The second key difference between the membership classes is that the holders
of Series C Units are afforded preferential economic benefits. As set forth on Exhibit
B to the First Amendment, only the Series C Units are entitled to (a) a preference
payment if the Company undergoes a change in control and (b) a royalty stream
related to the assets acquired in the Tokutek Acquisition.45
44
LLC Agreement § 8.2(a).
45
Am. Compl. ¶ 33.
10
C. Plaintiffs’ Allegations
Plaintiffs’ assert a number of disjointed claims that may fairly be summarized
as follows:
• Defendants breached the LLC Agreement and their fiduciary duties when they
paid themselves excess remuneration instead of making distributions to the
Members (the “Distribution Claim”);46
• Defendants breached the LLC Agreement and their fiduciary duties when they
manipulated financial statements to misstate income and misrepresent the
Company’s financial situation, which resulted in inaccurate tax reporting by
the Company and, by extension, by the Members (the “Tax Reporting
Claim”);47
• Defendants breached the LLC Agreement and Option Agreements when they
failed to use the valuation method mandated in Section 3.2 of the Option
Agreements and instead overpaid the Departing Series B Members
(the “Redemption Claim”);48
• Defendants breached their fiduciary duties by causing the Company to enter
into the Tokutek Acquisition because the dilution the Series B Members
suffered from the issuance of the Series C Units was disproportionate to the
value the Company obtained by acquiring Tokutek’s assets (the “Dilution
Claim”);49
• Defendants breached their fiduciary duties when they caused the Company to
falsely report Company valuations to the IRS in order to avoid paying taxes,
which caused the Company to incur fines (the “Valuation Claim”);50 and
46
Am. Compl. ¶¶ 77, 84–85.
47
Id.
48
Am. Compl. ¶ 77.
49
Am. Compl. ¶ 84.
50
Am. Compl. ¶¶ 84, 86–87.
11
• Defendants violated their fiduciary duties to the Company and its Members
by ignoring multiple opportunities to sell the Company at fair market value to
at least three different qualified buyers (the “Failure to Sell the Company
Claims”).51
Unsurprisingly, many of Plaintiffs’ allegations turn on contractual rights and
obligations under the LLC Agreement or Option Agreements. In addition to the
Members’ contractual rights described above, the following provisions of the
operative contracts are relevant to my analysis.
1. The LLC Agreement
Article 8 of the LLC Agreement sets out the Company’s governance structure
and the corresponding rights, responsibilities and procedures.52 As stated above,
Section 8.1 provides that, with a few exceptions listed in Section 8.4, the Company’s
business and affairs shall be managed by the Company’s directors (the “Directors”
or, individually, a “Director”).53 And, under the Board’s direction, the Company’s
officers shall carry out the Company’s day-to-day activities.54 Sections 8.2 and 8.3
address powers, responsibilities and procedures pertaining to the Directors and
51
Am. Compl. ¶ 90.
52
See generally LLC Agreement § 8.1.
53
Id.
54
Id.
12
officers, respectively.55 Finally, Section 8.4 contains a list of all decisions that
require approval by the Series A Member, as discussed above.56
Article 9 of the LLC Agreement provides for exculpation and indemnification.
Section 9.1 is of particular relevance here. Specifically, Section 9.1(a) exculpates
the Directors from liability in a manner that parallels the exculpation codified in
8 Del. C. § 102(b)(7) by providing that the Company’s Directors (here, Zaitsev and
Basil) shall not be subject to any monetary liability “to the Company or any
Member” for “any actions taken, or actions failed to be taken” in their capacity as a
director except for:
(i) liability for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of Law, (ii) liability with
respect to any transaction from which such Person derived an improper
personal benefit, and (iii) liability from any breach of such Person’s
duty of loyalty to the Company, in each case described in clauses
(i), (ii), and (iii) preceding, as determined by a final, nonappealable
order of a court of competent jurisdiction.
55
See generally LLC Agreement § 8.2 (providing for, among other things, the composition
requirements of the Board; that “[a]ny Director may be removed with or without cause
only by the majority vote of the Series A Unitholders”; the resignation procedure for
Directors; how vacancies on the Board are handled; quorum and voting requirements for
actions taken by the Board; the timing of general and special meetings of the Board; notice;
requirements for meetings of the Board; and compensation of Directors); see generally
LLC Agreement § 8.3 (providing for, among other things, the term, appointment, removal
and resignation of any officer of the Company; that the Board decides the compensation
for officers; and job descriptions for the Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer, and Vice Presidents).
56
See generally LLC Agreement § 8.4.
13
The status of fiduciary duties under the LLC Agreement is further clarified in
Section 9.1(b), which states:
To the extent that, at Law or in equity, a Director (or its Affiliate) has
duties (including fiduciary duties) or liabilities relating thereto to the
Company or the Members, such Persons acting in connection with the
Company’ business or affairs shall not be liable to the Company or to
any Member for its good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent that they
restrict or eliminate or otherwise modify the duties (including fiduciary
duties) and liabilities of a Director or its Affiliates otherwise existing at
Law or in equity, are agreed by the Members to replace such other
duties and liabilities of such Indemnitee.
2. The Option Agreements
Section 3 of the Option Agreements, including those executed by Plaintiffs
and the Departing Series B Members, governs the transferability of the underlying
option.57 In Section 3.1, the Option Agreements provide the Company with a right
to redeem a Member’s Series B Units in the event the units will pass to a spouse by
reason of the Member’s death or a decree of a divorce court. At Section 3.2, the
Option Agreements outline a specific method by which fair market value for the
redeemed securities must be determined.58
D. The Inspection Demand
On June 17, 2019, Erisman served a books and records demand
(the “Demand”) on the Company and Defendants under Section 18-305 of the
57
Am. Compl. ¶ 21. See, e.g., Exs. B, D, E, F, G and H to Doody Aff.
58
Id.
14
LLC Act.59 Defendants responded by producing a relatively small number of
documents in late 2019, subject to Erisman entering into a Confidentiality
Agreement.60 Plaintiffs advised Defendants that Fouts, a financial professional,
would review the documents.61 Neither the Company nor Defendants objected and
Fouts proceeded to review the documents produced by the Company. 62
Plaintiffs maintain they first became aware of the grounds for this action
during the course of Fouts’ review.63 In early 2020, Erisman sought additional
clarification from the Company regarding some of the documents.64 The Company
declined to provide a substantive response. Instead, on February 5, 2020, the
Company advised Plaintiffs that no further documents would be provided.65
E. Procedural History
On October 19, 2020, Plaintiffs, both individually and derivatively on behalf
of the Company, filed their initial complaint against Defendants.66
59
Am. Compl. ¶ 71.
60
Am. Compl. ¶¶ 72–73.
61
Am. Compl. ¶ 73.
62
Id.
63
Am. Compl. ¶ 74.
64
Id.
65
Id.
66
(D.I. 1).
15
On November 30, 2020, Defendants moved to dismiss the initial complaint in its
entirety.67 Plaintiffs did not oppose the motion to dismiss, choosing instead to file
the Amended Complaint.68 On March 31, 2021, Defendants filed a motion to
dismiss the Amended Complaint in its entirety.69
II. ANALYSIS
On a motion to dismiss, the court takes well-pleaded factual allegations in the
complaint as true, draws reasonable inferences in the light most favorable to plaintiff
and dismisses a claim only when plaintiff could not “recover under any reasonably
conceivable set of circumstances susceptible of proof.”70 But a plaintiff cannot rest
on conclusory allegations.71 And “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.”72 Accordingly, the question I must answer for each of
Plaintiffs’ claims is “whether, and to what extent, the well-pleaded facts (as distinct
67
(D.I. 8).
68
(D.I. 12).
69
(D.I. 16).
70
Renco Gp., Inc. v. MacAndrews AMG Hldgs. LLC, 2015 WL 394011, at *5 (Del. Ch.
Jan. 29, 2015) (quoting Savor, 812 A.2d at 896–977 (Del. 2002) (internal quotations marks
omitted)); Ch. Ct. R. 12(b)(6).
71
Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009); see also Santa Fe Pac.
669 A.2d 59 at 65–66 (“Conclusory allegations will not be accepted as true without specific
supporting factual allegations.”).
72
Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001).
16
from conclusory statements), construed most favorably to the plaintiff[s], can be
found to state a claim.”73 When determining the answer to this question, I must
consider the extent to which Section 9.1 of the LLC Agreement—the exculpation
provision—affects Plaintiffs’ claims.
A. The Exculpation Provision
It is the explicit policy of the LLC Act “to give the maximum effect to the
principle of freedom of contract and to the enforceability of limited liability
company agreements.”74 “LLC agreements are contracts that are enforced according
to their terms, and all fiduciary duties, except for the implied contractual covenant
of good faith and fair dealing, can be waived in an LLC agreement.”75 This waiver
of duties, and related exculpation for breaches of duties, depending on the language
73
Santa Fe Pac., 669 A.2d 59 at 62.
74
6 Del. C. § 18-1101(b)
75
Kahn v. Portnoy, 2008 WL 5197164, at *3 (Del. Ch. Dec. 11, 2008) (citing to 6 Del. C.
§ 18-1101(c)); Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 290 (Del. 1999)
(“The [LLC] Act can be characterized as a ‘flexible statute’ because it generally permits
members to engage in private ordering with substantial freedom of contract to govern their
relationship, provided they do not contravene any mandatory provisions of the Act.”);
Zimmerman v. Crothall, 62 A.3d 676, 702 (Del. Ch. 2013) (holding that “the fiduciary
duties of a member, manager, or other person that is a party to or bound by a limited liability
company agreement may be expanded or restricted or eliminated by provisions in the
limited liability company agreement”) (cleaned up); 6 Del. C. § 18–1101(c) (“To the extent
that, at law or in equity, a member or manager . . . has duties (including fiduciary duties)
to a limited liability company or to another member or manager . . . , the member’s or
manager’s . . . duties may be expanded or restricted or eliminated by provisions in the
limited liability company agreement . . . .”).
17
of the operating agreement, can apply to both breach of fiduciary duty and breach of
contract claims.76
As required under Delaware law, the drafters of the Company’s LLC
Agreement made “their intent to [modify] fiduciary duties plain and
unambiguous.”77 The language of Section 9.1(b) unmistakably modifies the
fiduciary duties owed by the Directors and their “affiliates” by “replacing” those
duties with a contractual standard of care that holds directors to account when
“acting in connection with the Company’s business or affairs” only when they fail
to rely on the provisions of the LLC Agreement in good faith.78 Further,
Section 9.1(a) explicitly provides that Directors will not be held liable to the
Company or any Member for monetary damages arising from “any actions taken, or
failed to be taken, in its capacity as a Director” except for (i) “acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
76
See 6 Del. C. § 18-1101(e) (“A limited liability company agreement may provide for the
limitation or elimination of any and all liabilities for breach of contract and breach of
duties (including fiduciary duties) of a member, manager or other person to a limited
liability company or to another member or manager or to another person that is a party to
or is otherwise bound by a limited liability company agreement; provided, that a limited
liability company agreement may not limit or eliminate liability for any act or omission
that constitutes a bad faith violation of the implied contractual covenant of good faith and
fair dealing.”) (emphasis added); see generally LLC Agreement § 9.1.
77
See Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *9
(Del. Ch. Apr. 20, 2009) (holding that “the drafters of chartering documents must make
their intent to eliminate fiduciary duties plain and unambiguous.”); see also Ross Hldg.,
2014 WL 4374261, at *12 (same).
78
LLC Agreement § 9.1(b).
18
Law,” (ii) “with respect to any transaction from which such Person derived an
improper personal benefit,” and (iii) “any breach of such Person’s duty of loyalty to
the Company. . . .”79
As noted, Plaintiffs organize their claims into two counts. Count One asserts
three breach of contract claims and Count Two asserts five claims styled as breaches
of fiduciary duties owed to the Company and its Members. With the contractual
standards governing manager conduct in mind, I address each in turn.
B. Count One – Breach of Contract
In Count One, Plaintiffs assert the Distribution Claims, Tax Reporting Claims,
and Redemption Claim. As discussed above, all three claims brought under Count
One rest on allegations that Defendants breached the LLC Agreement, and the
Redemption Claim also alleges a breach of the Option Agreements. Defendants
argue that each of these claims fails as a matter of law on two grounds. First,
Plaintiffs have failed to plead a cognizable claim. And second, the claims are time-
barred by laches. I agree on both fronts.
Under Delaware law, to recover for breach of contract, a plaintiff must well
plead and then prove “a contractual obligation, whether express or implied, a breach
of that obligation by the defendant, and resulting damage to the plaintiff.”80
79
LLC Agreement § 9.1(a).
80
Moore Bus. Forms, Inc. v. Cordant Hldgs. Corp., 1995 WL 662685, at *7 (Del. Ch.
Nov. 2, 1995).
19
“[Because] [t]he construction of a contract is a question of law,”81 it is well
understood that “a motion to dismiss is a proper framework for determining the
meaning of contract language.”82 Accordingly, when assessing whether the contract
claims survive Defendants’ Motion, it is appropriate to begin with a construction of
the contracts alleged to have been breached by employing well-worn canons of
contract construction.83 As previously noted, the LLC Agreement’s exculpation
provision will also affect the viability of the breach of contract claims.
1. The Distribution Claim
Plaintiffs allege that Defendants breached unidentified contractual
commitments by “diverting Company funds to themselves in the form of excess
remuneration,” in excess of market rates, instead of making appropriate distributions
to Members.84 Plaintiffs, however, fail to plead any facts regarding the amounts of
81
77 Charters, Inc. v. Gould, 2020 WL 2520272, at *19 (Del. Ch. May 18, 2020) (internal
quotations omitted).
82
Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 581 (Del. Ch. 2006);
see also MKE Hldgs. Ltd. v. Schwartz, 2019 WL 4723816, at *9 (Del. Ch. Sept. 26, 2019)
(stating “contractual duty (if any) created by an LLC operating agreement is a matter of
contract interpretation and therefore appropriate for review on a motion to dismiss.”).
83
See, e.g., Touch of Italy Salumeria & Pasticceria, LLC v. Bascio, 2014 WL 108895, at *4
(Del. Ch. Jan. 13, 2014) (“Pursuant to this Court’s well-established principles of contract
interpretation, and recognizing that LLCs are creatures of contract, I must enforce LLC
agreements as written.”) (internal quotations omitted).
84
Am. Compl. ¶¶ 49, 77. The failure to identify specific contractual provisions in the
Amended Complaint alleged to have been breached is serial throughout the pleading and
provides a further basis for dismissal. See Coca-Cola Beverages Fla. Hldgs, LLC v. Goins,
2019 WL 2366340, at *3 (Del. Ch. June 4, 2019) (“Count I fails to state a claim for relief
under the LLC Agreement because the Amended Counterclaims do not identify any
20
the individual Defendant’s compensation, let alone any facts to support the assertion
that either of the individual Defendants was paid “excessive remuneration.”85
Further, a plain reading of Section 6.1 of the LLC Agreement unambiguously reveals
that a failure to make distributions to Members is not a breach of the
LLC Agreement.
Section 6.1 of the LLC, which governs distributions, is broken down into four
subsections.86 Subsections (a) and (d) contain general information regarding
distributions, and subsections (b) and (c) split up the distributions into one of two
categories—tax distributions and distributions made for any other reason.87 More
specifically, subsections (b) and (c) outline what, if anything, triggers each type of
distribution and how the amount of the distribution is to be calculated.88
provision of that contract that allegedly was breached.”) (citing US Ecology, Inc. v. Allstate
Power Vac, Inc., 2018 WL 3025418, at *5–7 (Del. Ch. June 18, 2018), aff’d, 202 A.3d 510(Del. 2019) (dismissing breach of contract claim under Rule 12(b)(6) for failing to identify
a contractual provision that was breached)).
85
Am. Compl. ¶ 3. Cf. Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 880 (Del. Ch. 2009)
(“Under [the Rule 12(b)(6)] standard, if [Plaintiff] pleads any set of facts that would entitle
him to relief, then the motion to dismiss must fail.”) (emphasis added).
86
See generally LLC Agreement §6.1.
87
Id. Specifically, Subsection (a) establishes that each distribution made by the Company
shall be made in accordance with Article 6 of the LLC Agreement and applicable law, and
subsection (d) states distributions shall be made to the Members of record or, in the absence
of a record date, to the Members owning the applicable units on the date of the distribution.
88
LLC Agreement §6.1(b)–(c).
21
As explained below, neither of these provisions provide a Member with an absolute
contractual right to receive a distribution.
Section 6.1(b) provides in relevant part, “the Company shall make reasonable
efforts, subject to the availability of funds, to make distributions to each Member in
amounts” intended to cover the income taxes Members incur in respect of the
Company’s taxable income so allocated to them for the immediately prior fiscal year
(the “Tax Distributions”).89 Accordingly, the Tax Distributions will only occur if
the Company makes a profit and the Company has available cash to fund the
potential Tax Distribution.
During the years when the Company operated at a loss, there would be no
distribution to cover the taxable income allocated to each Member because, again,
there would be no taxable income for a distribution to cover. Plaintiffs have
acknowledged “the Company operated at a loss almost every year that it has been in
operation.”90 According to Plaintiffs, the Company operated at a profit for tax
purposes only in fiscal years 2017 and 2019.91 Yet, the Company made
89
LLC Agreement § 6.1(b). The amount of the Tax Distribution is calculated based on the
following formula: “the sum for the immediately preceding fiscal year and for all prior
fiscal years of (i) the amount of taxable income allocated to such Member for such fiscal
years, multiplied by (ii) the maximum marginal federal, state and local tax rate . . .
applicable to an individual taxpayer pursuant to the [tax] Code and the applicable state and
local laws and regulations in Durham, North Carolina in respect of income recognized
during such immediately preceding fiscal year.” Id.
90
Am. Compl. ¶ 47.
91
Id.
22
“de minimums tax distributions” to the Members in these years, amounting to
“only 2.1% of each Member’s reported K-1 profits.”92 Even if true, that conclusory
allegation, standing alone, does not support a claim that Defendants breached a
contract by failing to make adequate distributions. Plaintiffs have pled no facts to
support an inference that the Company had sufficient funds to cover the Company’s
budgeted operational needs and make Tax Distributions equal to 100% of each
Member’s reported K-1 profits. Nor have they alleged how Defendants failed to
“make reasonable efforts.”93 Thus, even if the LLC Agreement did not provide for
exculpation, the facts pled by Plaintiffs would not be sufficient to support a claim
that Defendants breached Section 6.1(b) of the LLC Agreement.94
Plaintiffs’ breach of contract claim for failure to make adequate general
distributions does not fare any better. Section 6.1(c), which covers any distribution
made by the Company that is not a Tax Distribution, expressly allows that
“[t]he Board shall have sole discretion to determine the timing of any other
distribution and the aggregate amounts available for such distribution.” Because
subsection (c) distributions are made at the Board’s sole discretion, it is within the
92
Id.
93
LLC Agreement § 6.1(b).
94
Of course, the LLC Agreement does provide for exculpation, yet Plaintiffs have not even
attempted to plead that the failure to make distributions to Members was the product of bad
faith. This too is fatal to the claim.
23
Board’s discretion to elect not to make distributions, so long as the Board exercised
its discretion in good faith.95 And Plaintiffs have not alleged any facts that would
support a reasonable inference that the Board acted in bad faith by electing not to
make subsection (c) distributions.96
For the reasons just stated, Plaintiffs’ claim that Defendants committed a
breach of contract by not causing the Company to make adequate distributions to its
Members (whether tax or otherwise) fails under the express terms of the
LLC Agreement. Thus, the corresponding portions of Count One must be dismissed
for failure to state a claim.97
2. The Tax Reporting Claim
Plaintiffs next make the conclusory allegation that “the Defendants have
harmed Plaintiffs by . . . exposing Plaintiffs to actual and potential adverse tax
95
See Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 146–47 (Del. Ch. 2009)
(“When a contract confers discretion on one party, the implied covenant requires that the
discretion be used reasonably and in good faith.”).
96
See In re Chelsea Therapeutics Int’l Ltd. S’holders Litig., 2016 WL 3044721, at *1
(Del. Ch. May 20, 2016) (explaining that a well-pled claim of bad faith “is a rara avis
[rare bird]” as it requires well pled facts of intentional fiduciary breaches the nature of
which must allow an inference that the fiduciary knew his “action can in no way be
understood as in the corporate interest”). Had Plaintiffs pled facts supporting a reasonable
inference that the Board acted in bad faith, those same facts would likely have been enough
to overcome the exculpation clause.
97
See Fannin v. UMTH Land Dev., L.P., 2020 WL 4384230, at *21 (Del. Ch. Aug. 28,
2020) (“The Complaint does not allege facts sufficient to create a reasonable inference that
there was Cash Available for Distributions or that distributions were ceased . . . to fund the
Fiduciary Defendants’ own special interests.”).
24
consequences.”98 According to Plaintiffs, in the exercise of their unchecked control
over the Company and its finances, Defendants have caused the Company to
misstate its revenue.99 Specifically, Plaintiffs allege Defendants caused the
Company to recognize up to 50% of the revenue from certain “support contracts”
upfront and thereby deviated from Generally Accepted Accounting Principles
(“GAAP”), which recommends the recognition of revenue from such contracts every
month over the lifetime of the contract.100 The deviation from GAAP, say Plaintiffs,
was intended to make the Company appear more financially fit than it actually was
to lenders, potential investors and existing Members.101 According to Plaintiffs, “by
engaging in this systemic mismanagement of the Company and through repeated
misstatements of revenue, the Defendants intentionally misled the Company’s
Members, the Company’s lenders and the IRS.”102
While the Amended Complaint, once again, fails to identify any provision in
the LLC Agreement that requires the Company to maintain its financial books and
records in accordance with GAAP, in their Answering Brief,103 Plaintiffs point to
98
Am. Compl. ¶ 77.
99
Am. Compl. ¶ 65.
100
Am. Compl. ¶¶ 66, 85.
101
Id.102
Am. Compl. ¶ 69.
103
Of course, asserting a claim or alleging a fact for the first time in a brief filed in
opposition to a motion to dismiss a complaint is no substitute for well-pled allegations in
25
Section 10.3 of the LLC Agreement as reflecting this requirement.104 Plaintiffs’
Answering Brief then cites Section 11.1 of the LLC Agreement105 as support for the
allegation that “[b]ecause Defendants’ management of the Company’s finances did
the complaint itself. See Orman v. Cullman, 794 A.2d 5, 28 n.59 (Del. Ch. 2002); Feldman
v. AS Roma SPV GP, LLC, 2021 WL 3087042, at *7 (Del. Ch. July 22, 2021) (citing to
Sparton Corp. v. O’Neil, 2017 WL 3421076, at *5 n.36 (Del. Ch. Aug. 9, 2017) (observing
that a plaintiff “is bound to the factual allegations contained in its complaint [and] cannot
supplement the complaint through its brief.”)).
104
Pls.’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss Pls.’ First Am. Compl. (D.I. 21)
(“PAB”) at 19; LLC Agreement § 10.3 (“The Company shall keep or cause to be kept at
its principal office complete and accurate books and records of the Company, supporting
documentation of the transactions with respect to the conduct of the Company’s business
and minutes of the proceedings of the Board, any committee thereof and any of the
Members. The Company’s financial books and records shall be maintained in accordance
with GAAP. The records shall include, but not be limited to, complete and accurate
information regarding the state of the business and financial conditions of the Company;
a copy of the Articles and the Agreement and all amendments thereto; a current list of the
names and last known business, residence, or mailing addresses of all Members; and the
Company’s federal, state, and local tax returns for the Company’s six most recent
tax years.”). The paragraph in Plaintiffs’ answering brief that points to Section 10.3 of the
LLC Agreement as evidence that the Company must maintain its books and records in
accordance with GAAP falls between Plaintiffs’ arguments addressing the Distribution
Claim and the Tax Reporting Claim. It appears Plaintiffs intended the reference to
Section 10.3 to bolster their Distribution Claim but, as best I can discern, that reference
would provide the only basis to infer that the Company’s alleged divergence from GAAP
would give rise to a breach of contract for purposes of the Tax Reporting Claim.
105
Id. See also LLC Agreement §11.1 (“The Company shall prepare and timely file all
U.S. federal, state and local and foreign tax returns required to be filed by the Company.
Unless otherwise agreed by the Board, any income tax return of the Company shall be
prepared by an independent public accounting firm selected by the Board. Each Member
shall furnish to the Company all pertinent information in its possession relating to the
Company’s operations that is necessary to enable the Company’s tax returns to be timely
prepared and filed. The Company shall deliver to each Member as soon as practicable after
the end of the applicable fiscal year, a Schedule K-1 together with such additional
information as may be required by the Members in order to file their individual returns
reflecting the Company’s operations. The Company shall bear the costs of the preparation
and filings of its tax returns.”) (emphasis in original).
26
not comply with [GAAP] standards, the K-1s issued to each Company member are
inaccurate or potentially inaccurate,”106 and thus, Defendants’ actions exposed
“Plaintiffs to actual and potential adverse tax consequences.”107 As discussed below,
what those “actual and potential adverse tax consequences” are remains a mystery.
To reiterate, Plaintiffs were obliged to well plead the prima facie elements of
a breach of contract claim––a valid contract, breach of that contract and resulting
damages.108 There is no dispute that Plaintiffs have identified a valid contract––the
LLC Agreement. In Defendants’ view, Plaintiffs have failed to sustain their
Tax Reporting Claims with well-pled allegations that Defendants actually breached
any provision of that contract.109 Given Plaintiffs’ failure to identify in their pleading
any provision of the LLC Agreement that Defendants allegedly breached,
Defendants’ argument that Plaintiffs have failed to well plead breach is
persuasive.110 But the Court need not rely on that ground for dismissal because
Plaintiffs have utterly failed to plead that they have suffered cognizable harm from
any breach, much less what that harm might be.
106
Am. Compl. ¶ 58.
107
Id.
108
VLIW Tech., LLC v. Hewlett–Packard Co., 840 A.2d 606, 612 (Del. 2003).
109
DOB at 14.
110
See Coca-Cola Beverages Florida Hldgs., 2019 WL 2366340, at *3; US Ecology, Inc.,
2018 WL 3025418, at *5–7.
27
The only damages (or harm) alleged by Plaintiffs in connection with their
Tax Reporting Claim is that they were exposed to actual and potential adverse tax
consequences.111 Plaintiffs allegation “that all [M]embers have been inaccurately
reporting their personal taxes” is offered in the penultimate sentence of a paragraph
that walks through Plaintiffs’ assumptions regarding the ramifications of
Defendants’ actions described in the Tax Reporting Claim.112 But this paragraph,
and the entire Amended Complaint, are devoid of any facts to support the assumption
that Defendants have caused the Company to issue inaccurate K-1s, how any such
inaccuracies have caused the Members inaccurately to report their personal taxes, or
that Members have actually faced any harm flowing from their tax filings.113
Accordingly, because the Amended Complaint does not properly allege an essential
element of breach of contract (resulting harm) with respect to the Tax Reporting
Claim, that claim must be dismissed.114
111
Am. Compl. ¶ 77. Plaintiffs have pled the Tax Reporting Claim as a direct claim. They
specifically allege “the Defendants have harmed Plaintiffs by: (i) failing to make
distributions in general, and adequate tax distributions in particular, instead diverting
Company funds to themselves in the form of excess remuneration; (ii) failing to follow the
applicable valuation method in the Operating Agreement when determining the buyout
amount to be paid to departing Series B Unitholders; and ([iii]) exposing Plaintiffs to actual
and potential adverse tax consequences.” Id.112
Am. Compl. ¶ 59.
113
Id.114
Kuroda, 971 A.2d at 884. I note that, here again, Plaintiffs have ignored their burden
to plead a non-exculpated breach of contract. There are no facts pled that would support a
28
3. The Redemption Claim
Plaintiffs’ final breach of contract claim alleges Defendants failed “to follow
the applicable valuation method in the Operating Agreement when determining the
buyout amount to be paid to departing Series B Unitholders.” 115 Specifically,
Plaintiffs maintain that Defendants caused the Departing Series B Members “to be
bought out at greatly inflated prices.”116 This claim misses the mark because
Plaintiffs fail to recognize that the valuation method set forth in the Option
Agreements is only triggered in certain circumstances, none of which were at play
in any of the Departing Series B Members’ redemptions.
Sections 3.1 and 3.2 of the Option Agreements provide the Company with a
right to purchase Series B Units and unexercised options under a prescribed
valuation method in only two limited situations, neither of which are relevant here:
where the units or options “are transferred” on the holder’s death to a beneficiary
other than the holder’s spouse, or where the holder is living and the units or options
“are transferred” to the holder’s spouse “pursuant to a final judgment or decree of
reasonable inference that Defendants’ failure properly to report revenue was the product of
bad faith.
115
Am. Compl. ¶ 77. While Plaintiffs purport to invoke a valuation methodology
prescribed in the “Operating Agreement,” their substantive allegations actually cite to a
methodology prescribed in “Section 3.2 of the Options Agreement.” See Am. Compl.
¶¶ 50(a)–(d).
116
Am. Compl. ¶ 50.
29
divorce.”117 Plaintiffs have not alleged that any of the referenced redemptions fall
within either of these circumstances.118 And while Plaintiffs allege that Schuler’s
redemption was “within the context of an impending divorce (which would have
triggered the calculation of the fair market value of the units under Section 3.2),”
as the allegation “impending” makes clear, Plaintiffs do not allege that Schuler’s
units were transferred to his spouse “pursuant to a final judgment or decree of
divorce” as required to trigger the prescribed valuation methodology. Thus, there is
no factual basis for Plaintiffs’ allegation that Defendants breached the Option
Agreements or the LLC Agreement by failing to use a valuation method that was not
triggered by the express terms of either contract.
4. The Breach of Contract Claims Are Time-Barred
Defendants argue in the alternative that Plaintiffs’ breach of contract claims
must be dismissed because all of the alleged wrongful conduct or practices giving
rise to those claims occurred or were in place long before the three years preceding
the filing of the original Complaint on October 19, 2020.119 This time period is
relevant because, when “determining whether an action is barred by laches, the Court
of Chancery will normally, but not invariably, apply the period of limitations by
117
See, e.g., Exs. B & D to Doody Aff. at 3.1 & 3.2.
118
See, e.g., Exs. E, F, G & H to Doody Aff.
119
DOB at 36.
30
analogy,”120 and a three-year statute of limitations applies to claims of breach of
contract (and breach of fiduciary duty).121
“Under Delaware law, a cause of action accrues at the time of the wrongful
act, even if the plaintiff is ignorant of the cause of action.”122 Plaintiffs’ do not
dispute that their claims were brought after the three-year statute of limitations
expired; instead, they seek to invoke “equitable tolling.”123 Specifically, Plaintiffs
argue their claims are subject to equitable tolling because “Plaintiffs reasonably
relied upon the competence and good faith of Defendants as Fiduciaries of the
Company.”124 While they do not expressly invoke the doctrine, it appears Plaintiffs
may also be advancing a “time of discovery” argument separate from their equitable
tolling argument. Accordingly, I address both below.
As this court has explained, equitable tolling is one of several tolling doctrines
recognized in Delaware:
The equitable tolling doctrine is a subset of the time of discovery rule.
Application of the time of discovery rule delays the starter’s gun for the
statute of limitation in certain narrowly carved out limited
circumstances when the facts at the heart of the claim are so hidden that
a reasonable plaintiff could not timely discover them. These scenarios
include instances: (1) where the defendant has fraudulently concealed
120
Levey v. Brownstone Asset Mgmt., LP, 76 A.3d 764, 769 (Del. 2013).
121
10 Del. C. § 8106; Fike v. Ruger, 754 A.2d 254, 260 (Del. Ch. 2009).
122
Fannin, 2020 WL 4384230, at *11 (internal quotations omitted).
123
PAB at 26.
124
Id.31
key facts; (2) where the injury was inherently unknowable such that
discovery of its existence is a practical impossibility; and (3) where a
plaintiff reasonably relies on the competence and good faith of a
fiduciary who is alleged to have engaged in wrongful self-dealing
(also referred to as the equitable tolling doctrine).125
According to Plaintiffs, “due to the Defendants’ unchecked and plenary control over
all aspects of the Company, Plaintiffs could not have become objectively aware of
the Defendants’ misconduct and breaches until they received responses to the
Demand and subsequently continued to learn of further misconduct through the
course of this ligation.”126
Plaintiffs bear the burden of pleading facts that allow a reasonable inference
that the statute of limitations should be tolled,127 and, even then, relief from the
statute extends only to the point in time when Plaintiffs were put on inquiry notice.128
“That is to say, no theory will toll the statute beyond the point where the plaintiff
125
AM Gen. Hldgs. LLC v. Renco Gp., Inc., 2016 WL 4440476, at *15 (Del. Ch. Aug. 22,
2016) (internal quotation marks omitted) (citing In re Dean Witter P’ship Litig.,
1998 WL 442456, at *6 (“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.”)).
126
PAB at 26.
127
See Fike, 754 A.2d at 261 (“The plaintiffs bear the burden of proving that tolling is
available.”); AM Gen. Hldgs., 2016 WL 4440476, at *13 (holding plaintiff bears the burden
of pleading facts that allow a reasonable inference the statute of limitations should be
tolled).
128
See In re Tyson Foods, 919 A.2d 563, 585; Fike, 754 A.2d at 260; AM Gen. Hldgs.,
2016 WL 4440476, at *13.
32
was objectively aware, or should have been aware, of facts giving rise to the
wrong.”129 With these principles in mind, as the Court considers Plaintiffs’ tolling
arguments, it must address “three separate questions: (1) whether the discovery rule
applies because [Plaintiffs’] injury was inherently unknowable; (2) whether
[Defendants’] status as a fiduciary implicates equitable tolling; and (3) if the answer
to either of those questions is yes, when (if ever) [were Plaintiffs] on inquiry notice
of [their] claims?”130
Under Delaware law, “[f]or the limitations period to be tolled under [the
inherently unknowable] doctrine, there must have been no observable or objective
factors to put a party on notice of an injury, and plaintiffs must show that they were
blamelessly ignorant of the act or omission and the injury.”131 As described above,
Plaintiffs enjoyed information rights under the LLC Agreement and could have
requested books and records at any time.132 When a plaintiff enjoys contractual
information rights and the ability to enforce those rights summarily in this court,133
the plaintiff’s challenge to demonstrate that he made reasonable inquiry is greater.134
129
Tyson Foods, 919 A.2d at 585.
130
AM Gen. Hldgs., 2016 WL 4440476, at *14.
131
Dean Witter, 1998 WL 442456, at *5.
132
LLC Agreement, § 10.5.
133
See 6 Del. C. § 18-305.
134
See Fike, 754 A.2d at 261; AM Gen. Hldgs., 2016 WL 4440476, at *13 (holding that
with inspection rights “in hand, [a plaintiff] cannot be heard to argue that discovery of the
33
The alleged wrongs that are the subjects of each of the breach of contract
claims advanced by Plaintiffs occurred well before the three years preceding the
October 2020 filing of Plaintiffs’ original complaint and Plaintiffs’ 2019 demand to
inspect Company books and records. Plaintiffs, therefore, were obliged to plead
facts that would justify their delay in pursuing their claims. As explained below,
they have not done so.
a. The Distribution Claim Is Time-Barred
The Amended Complaint makes clear that the alleged failures to make
distributions followed a practice that had been in place in the Company for far longer
than three years before Plaintiffs filed the original Complaint.135 Section 6 of the
LLC Agreement describes, in detail, when distributions shall be made, and Plaintiffs
were or should have been aware of any rights or obligations imposed by this scheme
since becoming Members. The Amended Complaint pleads no facts that would
allow an inference that Plaintiffs made a timely inquiry regarding Tax Distributions
even though they easily could have done so.136 Because tolling stops once a plaintiff
“knew or had reason to know of the facts constituting the wrong,”137 I am satisfied
facts supporting its breach claims . . . was a ‘practical impossibility’”) (citing Dean Witter,
1998 WL 442456, at *5–6 (holding that “the running of the statute of limitations is tolled
while the discovery of the existence of a cause of action is a practical impossibility”)).
135
Am. Compl. ¶¶ 11, 19, 22, 23, 47; original Compl. ¶ 59.
136
Am. Compl. ¶ 59.
137
Dean Witter, 1998 WL 442456, at *6.
34
that both Plaintiffs were on inquiry notice of the Company’s alleged failure to make
the requisite distributions to the Members well before three years from the filing of
the original complaint.
That holds true as well for Plaintiffs’ attempt to invoke equitable tolling.
“[E]ven where defendant is a fiduciary, a plaintiff is on inquiry notice when the
information underlying plaintiff’s claim is readily available.”138 Once they became
Members, the information underlying the Distribution Claim was readily available
had Plaintiffs exercised their right to ask for it. By failing to do so under the
circumstances pled in the Amended Complaint, Plaintiffs cannot position
themselves to seek tolling of the otherwise expired statute of limitations as a matter
of law.
b. The Tax Reporting Claims Are Time-Barred
In the Tax Reporting Claims, Plaintiffs allege that the Members were provided
with misstated K-1s and therefore “all [m]embers have been inaccurately reporting
their personal taxes.”139 Plaintiffs have not alleged that the Company has recently,
or ever, altered its methodology for preparing K-1 statements. Accordingly, based
138
Id. at *8.
139
Am. Compl. ¶ 59. Fouts likely had actual notice of the Tax Reporting Claim once he
became the Chief Financial Officer of the Company in February 2012. Am. Compl. ¶¶ 3,
90. While I need not decide the laches question on that basis, I note that it comes with ill-
grace for the Company’s former CFO to feign ignorance of the Company’s accounting
practices when those practices had not meaningfully changed from the Company’s
inception to now.
35
on the pleadings, it appears the Company’s practices that resulted in potentially
incorrect K-1 statements have been in place for longer than the presumptive three-
year statute of limitations.140 To the extent these practices raised questions, Plaintiffs
had a remedy––seek information from the Company as they were contractually
entitled to do. If, as they say, Plaintiffs lacked the information needed to assert
timely Tax Reporting Claims, that “lack of knowledge was due to [their] failure to
exercise [their] right[s] to obtain information, as provided by the [Limited Liability
Company Agreement] and by law. ‘Equity aids the vigilant, not those who slumber
on their rights.’”141
As stated above, tolling stops once a plaintiff “knew or had reason to know of
the facts constituting the wrong.”142 I am satisfied that both Plaintiffs were on
inquiry notice of the Tax Reporting Claims for far longer than the statutory period
of three years. The Tax Reporting Claims are time-barred.
140
Percona was formed in 2012 and Plaintiffs Erisman and Fouts have been Members since
2012 and 2013, respectively. Fouts served as the Company’s CFO from February 2012
through June 2014, a position that would typically afford Fouts with information related to
the Company’s accounting practices. Plaintiffs have not alleged that Percona has changed
its accounting practices, including the methods it uses to prepare K-1 statements for its
Members. Instead, Plaintiffs allege that “Percona has never issued corrected K-1
statements for any prior tax year.” Am. Compl. ¶ 59.
141
See Fike, 754 A.2d at 262 (quoting Adams v. Jankouskas, 452 A.2d 148, 157
(Del. 1982)).
142
Dean Witter, 1998 WL 442456, at *6.
36
c. The Redemption Claim Is Time-Barred
Plaintiffs allege that Defendants caused the Departing Series B Members “to
be bought out at greatly inflated prices.”143 Specific dates have not been provided
for these redemptions, but the Amended Complaint does allege that the Company
bought out one of the Departing Series B Member’s options in August 2017.144
Given that Plaintiffs filed the original Complaint on October 19, 2020, under the
presumptive three-year statute of limitations, any claim resting on events that
occurred prior to October 19, 2017 would be considered untimely. Given that each
of these redemptions coincided with the departure of an officer and Member of the
Company, it would be logical that the remaining Members would be aware of such
departures and associated redemptions, especially in a closely held company such as
Percona. “A court of equity moves upon considerations of conscience, good faith,
and reasonable diligence.”145 I am satisfied that Plaintiffs have failed to act with
reasonable diligence, and so the Redemption Claim is likewise time-barred.
143
Am. Compl. ¶ 50.
144
Am. Compl. ¶ 50(b).
145
Whittington v. Dragon Gp., L.L.C., 991 A.2d 1, 8–9 (Del. 2009) (quoting Fed. United
Corp. v. Havender, 11 A.2d 331, 343 (Del. 1940)).
37
C. Count Two – Breach of Fiduciary Duty
Plaintiffs allege that “Defendants, as Managers of the Company and pursuant
to its LLC Agreement, owe a duty of loyalty to the Company and its Members” and
that “Defendants breached their fiduciary duties by engaging in a scheme over the
course of many years intended to enrich themselves at the expense of the
Plaintiffs.”146 For reasons explained above, these allegations against Defendants
must be analyzed in light of the terms of the LLC Agreement.
In the Amended Complaint, Plaintiffs attempt to characterize what fiduciary
duties, if any, are still in play under the LLC Agreement by alleging that “the
Defendants are not exculpated for ‘liability for acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of Law, (ii) liability with
respect to any transaction from which [Defendants] derived an improper personal
benefit, and (iii) liability from any breach of [Defendants’] duty of loyalty to the
Company.”147 That construction of Section 9.1 of the LLC Agreement ignores its
clear terms.
Section 9.1(a), cited by Plaintiffs in an attempt to establish the applicable
fiduciary duties, provides the Directors and their “affiliates” with exculpation
against monetary liability for certain types of claims. “It does not restrict, modify,
146
Am. Compl. ¶¶ 81, 83.
147
Am. Compl. ¶ 81.
38
or eliminate fiduciary duties.”148 But Section 9.1(b) of the LLC Agreement does
modify the fiduciary duties owed by the Directors and their “affiliates” by
“replacing” those duties with a contractual standard of care that holds directors to
account when “acting in connection with the Company’s business or affairs” only
when they fail to rely on the provisions of the LLC Agreement in good faith.149 This
requirement to act in good faith corresponds with the default standard of loyalty
under Delaware law.150 So, I will test the breach of fiduciary duty claims set forth
in Count Two against this framework.
Count Two, styled as a breach of fiduciary duty count, recasts the previously
discussed Distribution Claim and Tax Reporting Claim as breaches of fiduciary duty,
and then asserts the Dilution Claim, Valuation Claim and Failure to Sell the
Company Claims. For reasons set forth above, Plaintiffs fail to support the
Distribution Claim and Tax Reporting Claim with well-pled allegations of bad faith
and both are time-barred, so it follows that Plaintiffs cannot recycle those claims as
breach of fiduciary duty claims. I address each of the remaining three claims in turn.
148
Feeley v. NHAOCG, LLC, 62 A.3d 649, 663 (Del. Ch. 2012).
149
LLC Agreement § 9.1(b).
150
“Bad faith” is another index for the fiduciary duty of loyalty. Stewart v. BF Bolthouse
Holdco, LLC, 2013 WL 5210220, at *11 (Del. Ch. Aug. 30, 2013) (“[T]he duty of loyalty
encompasses more than interested transactions and also covers director actions taken in
bad faith.”).
39
1. The Dilution Claim
In the Dilution Claim, Plaintiffs allege that, as Series B Unitholders, they were
entitled to, but did not receive, prior notice of the issuance of the Series C Units in
connection with the Tokutek Acquisition and that the issuance resulted in the
improper dilution of their Series B Units.151 An unfair dilution claim belongs to the
entity whose equity is the subject of the claim.152 When a stockholder purports to
bring a dilution claim, he must satisfy the enhanced pleading requirements
embedded in Chancery Rule 23.1 and our jurisprudence applying that rule.153 Here,
Plaintiffs elected not to make a demand on the Board to bring their Dilution Claim
and are, therefore, required to plead facts that would support a “yes” answer to any
of the three questions posed in the now-settled three-part demand futility inquiry.154
Plaintiffs’ pleading falls well short of that mark. Nevertheless, the Court need not
undertake that analysis because the Dilution Claim, as pled, also fails to state a viable
claim under Chancery Rule 12(b)(6).
According to Defendants, Plaintiffs have made three concessions, by
allegation or omission, that are fatal to their Dilution Claim. First, the Amended
151
Am. Compl. ¶¶ 34, 37.
152
See Brookfield Asset Mgmt. v. Rosson, 261 A.3d 1251, 1278 (Del. 2021) (holding that
dilution claims are “exclusively derivative”).
153
Id.154
See United Food & Com. Workers Union v. Zuckerberg, 262 A.3d 1034 (Del. Sept. 23,
2021) (adopting “unified” three-part test for demand futility).
40
Complaint acknowledges that Plaintiff Fouts was the Company’s Controller at the
time of the Tokutek Acquisition.155 Second, the Amended Complaint fails to allege
that the Series B Unitholders were entitled to prior notice of either the Tokutek
Acquisition or the issuance of the Series C Units to fund that acquisition; rather,
Plaintiffs simply allege they were not given notice. 156 And third, Plaintiffs do not
allege that they would have been entitled to exercise any consent or blocking rights
had they received advance notice of the Tokutek Acquisition. According to
Defendants, for these reasons alone, all claims regarding the Tokutek Acquisition
and the related issuance of the Series C Units should be dismissed. I agree.
The LLC Agreement did not require that the Series B Unitholders receive any
prior notice of the Tokutek Acquisition. In fact, the LLC Agreement expressly and
exclusively vests the Series A Member with the authority to cause and approve the
issuance of additional units and the admission of any additional Member, with no
provision for notice to, or approval by, Series B Members.157 Also, Section 8.4(b)
of the LLC Agreement expressly provides that the vote of the holders of a majority
of the Series A Units (here, Zaitsev) “shall constitute the act of the Members,” and
that any action permitted by the LLC Agreement may be taken without prior notice.
155
Am. Compl. ¶ 3.
156
Am. Compl. ¶ 37.
157
LLC Agreement (Ex. A to Doody Aff.) at § 5.1.2 & 8.4(b)(iv).
41
If Defendants had no duty to provide notice, there could be no breach of contractual
fiduciary duties for failing to provide such notice.
By expressly empowering the Series A Member to authorize, create and issue
additional series of units, without any stated limitation (Section 5.1.2), the
LLC Agreement also expressly contemplates potential dilution of Series B Units
(and all units for that matter). Thus, even if Plaintiffs were diluted, such dilution
would not constitute a breach of fiduciary duty.158 This is especially so given the
Amended Complaint’s lack of any non-conclusory allegations that Defendants
engaged in the Tokutek Acquisition in bad faith or for self-interested purposes.159
158
See U.S. Cellular Inv. Co. of Allentown v. Bell Atl. Mobile Sys., Inc., 677 A.2d 497, 504
(Del. 1996) (affirming the Court of Chancery’s dismissal of fiduciary duty claim against
general partner of limited partnership as “correct as a matter of law,” stating that while the
complaint alleged that the defendant acted intentionally, it “[did] not assert that
[Defendant] acted in knowing breach of the Agreement.”).
159
See LLC Agreement. § 9.1(a) (providing that Directors will be liable only for failure to
exercise good faith in the execution of their obligations under the LLC Agreement);
LLC Agreement. § 9.1(b) (exculpating directors from liability except for allegations of bad
faith or breach of the duty of loyalty). Any suggestion in the Amended Complaint that
Basil, a Series B Member, acted against the interests of the Company and the other Series B
Members by “caus[ing] the Series B Unitholders to be diluted” rests on the unreasonable
inference that he would act against his own best interests. See Am. Compl. ¶ 84. The same
is also true with respect to Zaitsev and his Series A Unit holdings, as the Series C Units
had payment preferences to all existing units. See Am. Compl. ¶ 33. While this court will
afford a plaintiff all reasonable inferences flowing from well-pled facts, this court is not
obliged to make unreasonable inferences when assessing the strength of a pleading under
Rule 12(b)(6). See, e.g., Brehm v. Eisner, 746 A.2d 244, 257 (Del. 2000) (in affirming
Court of Chancery’s dismissal of derivative complaint for failure to set forth particularized
facts creating a reasonable doubt that the director defendants conduct was protected by the
business judgment rule, the Supreme Court agreed with this court’s finding that allegations
regarding Michael Eisner’s conduct “were illogical and counterintuitive” because the
alleged conduct “would dilute the value of Eisner’s own very substantial holdings.”);
Clinton, 977 A.2d, at 895 (holding that, in reviewing a complaint under Rule 12(b)(6), the
42
Plaintiffs also allege that “[u]pon information and belief, the degree of
dilution of the Series B Unitholders by the issuance of the Series C Units is far out
of proportion to the actual value of the Tokutek Acquisition.”160 This conclusory
allegation, however, stands untethered to any supporting facts and, as such, is
entitled to no weight.161
2. The Valuation Claims
Plaintiffs provide no specific factual allegations to support their claim that
“the Defendants . . . caused the Company to incur expense by providing false
information to the IRS in the 409A valuation created contemporaneously with the
Tokutek Acquisition.”162 This valuation purportedly was issued as of September 30,
court does not “simply accept conclusory allegations unsupported by specific facts [or]
draw unreasonable inferences in the plaintiff’s favor”); cf. In re Lukens Inc., 757 A.2d 720,
731–32 (Del. Ch. 1999) (“If a complaint merely alleges that the directors were grossly
negligent in performing their duties in selling the corporation, without some factual basis
to suspect their motivations, any subsequent finding of liability will, necessarily, depend
on finding breaches of the duty of care, not loyalty or good faith.”).
160
Am. Compl. ¶ 39.
161
See, e.g., Griffin Corp. Servs., LLC v. Jacobs, 2005 WL 2000775, at *6 (Del. Ch.
Aug. 11, 2005) (considering allegations made only on “information and belief,” and
finding that “[s]uch a bald statement, without further factual allegations to support it, is
merely conclusory and need not be accepted as true”); Neurvana Med., LLC v. Balt USA,
LLC, 2020 WL 949917 (Del. Ch. Feb. 27, 2020) (holding a claim for breach of
nondisparagement clause made merely “[u]pon information and belief” was unsupported
by well-pleaded facts) (citation omitted); Encite LLC v. Soni, 2008 WL 2973015, at *11
(Del. Ch. Aug. 1, 2008) (finding allegations “on information and belief” conclusory and
insufficient to support a claim of civil conspiracy).
162
Am. Compl. ¶ 84.
43
2014 (the “2014 409A Valuation”).163 Notably absent from the Amended Complaint
are any factual allegations regarding what either Zaitsev or Basil did to cause the
Company to submit the 2014 409A Valuation to the IRS, or what damages the
Company or Members incurred as a result of that submission. According to
Plaintiffs, Defendants “deliberately manipulated 409A valuations of the Company
Units and options to avoid paying taxes for employee compensation when issuing
LLC Unit options.”164 Yet, the Amended Complaint does not plead any facts to
support the conclusory allegation that Defendants knew the valuation contained false
information, let alone any facts regarding how Defendants deliberately manipulated
the valuation for a nefarious purpose.
As best I can discern, Plaintiffs attempt to support an inference of wrongdoing
by sewing together a series of seemingly unrelated valuation “facts.” First, Plaintiffs
allege that the Units and Unit options “were valued at $0.001 at the inception of the
LLC,” but the same securities were valued at $0.00 in the 2014 409A Valuation.165
Plaintiffs next allege that valuations “between $0.105 and $0.191 per Unit and Unit
option were created in the time frame from 2015 through 2017 but ultimately would
not be certified by independent, outside professional services firms because of the
163
Am. Compl. ¶ 53.
164
Am. Compl. ¶ 52.
165
Am. Compl. ¶ 53.
44
Company’s myriad [of] accounting issues, especially regarding revenue
recognition.”166 Of course, the higher valuations recited by Plaintiffs would support
their allegation that the 2014 409A Valuation was intentionally deceptive only to the
extent these other valuations covered the same time period as the 2014 409A
Valuation. Based on the facts pled in the Amended Complaint, however, that
connection cannot reasonably be drawn because it appears the higher valuations
were created sometime between 2015 and 2017, and it is not clear from Plaintiffs’
pleading what time periods are addressed by these valuations. The fact that the
Company’s Units and Unit options increased in value after the 2014 409A Valuation
was prepared does not support an inference that the 2014 409A Valuation was
somehow knowingly manipulated. For that reason alone, the Valuation Claims fail
as a matter of law.
Even if the Amended Complaint had adequately pled that Defendants
deliberately manipulated the 2014 409A Valuation, Plaintiffs have failed to allege
how this conduct caused any harm. According to Plaintiffs, as “a result of the
deceptive and illegal 409A valuations commissioned by the Defendants and intended
to defraud the IRS, the IRS ultimately collected approximately $90,000 in unpaid
taxes for the past issued options, based upon the knowingly incorrect $0.065
166
Am. Compl. ¶ 54.
45
valuation that was ultimately negotiated.”167 As pled by Plaintiffs, the IRS’
investigation resulted in the Company having to pay the IRS for unpaid but accrued
taxes.168 In other words, these were taxes that should have been paid by the
Company but were not; the taxes were not enhanced as a result of an inaccurate or
manipulated 409A valuation. Indeed, the Amended Complaint affirmatively pleads
that the IRS did not cause the Company to pay any fines in connection with the
unpaid employment taxes.169 There is simply no factual basis to infer causally
related harm.170
3. The Failure to Sell the Company Claims
According to Plaintiffs, Defendants breached their fiduciary duties
“by ignoring multiple opportunities to sell the Company at fair market value to at
least three different qualified buyers.”171 As a result of these alleged breaches of
fiduciary duty, Plaintiffs claim the Company and the Series B Unitholders missed
out on lucrative opportunities.172
167
Am. Compl. ¶ 55.
168
Id.169
Am. Compl. ¶ 51.
170
Malpiede, 780 A.2d at 1094.
171
Am. Compl. ¶ 90.
172
Am. Compl. ¶ 43.
46
One of the potential acquisition opportunities allegedly involved Oracle
Corporation (“Oracle”) and occurred sometime in 2013 or 2014, but the facts pled
about the other two potential opportunities are sparse.173 As for Oracle, Plaintiffs
allege that Defendants or their agents advised Oracle that the value of the Company
was $250 million.174 When Oracle responded with a due diligence request,
Defendants allegedly caused the Company to terminate the acquisition
discussions.175 Subsequently, between 2015 and the filing of the initial complaint,
the Company was approached by two different unidentified private equity firms that
were interested in acquiring the business.176 Plaintiffs assert that both transactions
failed when “the venture capitalists refused to invest in the business because of the
incompetence of the management team.”177
While Plaintiffs recognize that the LLC Agreement provides the Series A
Member, Zaitsev, sole voting authority with respect to any sale of the Company,
they argue they are entitled to discover whether Zaitsev withheld his voting authority
in violation of his fiduciary duty of loyalty to the Company.178 Of course, the
173
Am. Compl. ¶ 40.
174
Am. Compl. ¶ 41.
175
Am. Compl. ¶¶ 41–42.
176
Am. Compl. ¶¶ 60–61.
177
Am. Compl. ¶ 61.
178
PAB at 25.
47
Amended Complaint is devoid of factual allegations to support Plaintiffs’ conclusory
premise that the Company missed “out on a lucrative opportunity.”179 But even if I
were to accept the conclusory allegation as fact, the best that could be said is that
Plaintiffs have pled facts sufficient to support an inference that Defendants caused
the Company to decline acquisition overtures. This is not enough to support a breach
of fiduciary duty claim, particularly given the LLC Agreement’s contractual
standard of conduct and exculpation clause, both of which require bad faith or other
disloyalty to expose a director to potential liability.180
4. The Majority of the Claims in Count Two Are Time-Barred
For the reasons explained above, the Distribution and the Tax Reporting
Claims are time-barred. As explained below, the Dilution Claim is time-barred as
179
PAB 8; Am. Compl. ¶ 43.
180
See Desimone v. Barrows, 924 A.2d 908, 933 (Del. Ch. 2007) (holding that “because
[directors] are protected by the exculpation clause, the directors can only be held liable if
they act with a state of mind that is disloyal to their obligations to the corporation.”). I note
that a board’s decision to sell or not to sell a company is typically subject to the business
judgment rule’s presumption that the directors “acted on an informed basis, in good faith
and in the honest belief that the action was taken in the best interests of the company.”
See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984), overruled on other grounds, Brehm
v. Eisner, 746 A.2d 244 (Del. 2000); Kahn v. MSB Bancorp, Inc., 1998 WL 409355, at *3
(Del. Ch. July 16, 1998); Gantler v. Stephens, 965 A.2d 695, 706–07 (Del. Ch. 2009)
(holding that plaintiffs had pled sufficient facts to rebut the business judgment rule
presumption by well-pleading that defendant board members terminated discussions to sell
the company for self-interested reasons). Plaintiffs have pled no facts that would allow
even a pleading stage inference that the business judgment rule presumptions might be
rebutted here.
48
to both Plaintiffs, and the Failure to Sell the Company Claims is time-barred as to
Fouts.
a. The Dilution Claim Is Time-Barred
The claims arising from the Tokutek Acquisition were known or readily
knowable as of the time the terms of that transaction were publicly announced in
April 2015.181 Yet, according to the Amended Complaint, Plaintiffs did not take any
actions to rectify the alleged harm they (or the Company) suffered as a result of the
Tokutek Acquisition until Erisman instructed his counsel to serve the Company with
the Demand in June 2019.182 This court has observed that “a [complaint] fil[ed] after
the analogous statute of limitations has run cannot be justified except in the ‘rare’
and ‘unusual’ circumstance that a recognized tolling doctrine excuses the late
filing.”183 Here, there are no rare or unusual circumstances that would excuse the
late filing. Accordingly, in addition to being deficient as a matter of pleading, the
Dilution Claim is also time-barred.
b. The Failure to Sell the Company Claims Are Time-Barred as to
Fouts
The discussions with Oracle occurred at least six years before the initial
complaint was filed. Fouts was the Company’s CFO from February 2012 through
181
Am. Compl. ¶¶ 31, 32.
182
Am. Compl. ¶ 71.
183
In re Sirius XM S’holder Litig., 2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013).
49
June 2014, and the Oracle discussions occurred sometime in 2013 or 2014.
Accordingly, it is likely that Fouts was the Company’s Chief Financial officer during
the time the Company was discussing potential transactions with Oracle. Potential
acquisitions are certainly the type of information that Fouts would have known or
would have had reason to know in real-time.184 Fouts’ attempt to bring the Failure
to Sell the Company Claims outside the statute of limitations, therefore, cannot be
countenanced.185
III. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss must be
GRANTED.
IT IS SO ORDERED.
184
See Dean Witter, 1998 WL 442456, at *7 (“Inquiry notice does not require actual
discovery of the reason for the injury. Nor does it require plaintiffs’ awareness of all of
the aspects of the alleged wrongful conduct. Rather, the statute of limitations begins to run
when plaintiffs should have discovered the general fraudulent scheme”).
185
See Tyson Foods, 919 A.2d at 585 (holding that “no theory will toll the statute beyond
the point where the plaintiff was objectively aware, or should have been aware, of facts
giving rise to the wrong.”).
50