Restanca, LLC v. House of Lithium, Ltd. ( 2023 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
RESTANCA, LLC, a Delaware limited liability )
company, on its own behalf and in its capacity )
as Sellers’ Representative, and REBY, INC., a )
Delaware corporation, )
)
Plaintiffs, )
)
v. ) C.A. No. 2022-0690-PAF
)
HOUSE OF LITHIUM, LTD., a foreign )
corporation, )
)
Defendant. )
)
HOUSE OF LITHIUM, LTD., )
)
Counterclaim-Plaintiff, )
v. )
)
JOSEP GOMEZ TORRES, REBY, INC., and )
RESTANCA, LLC, in its corporate status and as )
purported Sellers’ Representative, )
)
Counterclaim-Defendants. )
MEMORANDUM OPINION
Date Submitted: March 30, 2023
Date Decided: June 30, 2023
Daniel A. Mason, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP,
Wilmington, Delaware; Bruce Birenboim, Jaren Janghorbani, Paul A. Paterson,
Kristina A. Bunting, Jonathan C. Day, PAUL, WEISS, RIFKIND, WHARTON &
GARRISON LLP, New York, New York; Attorneys for Plaintiffs/Counterclaim-
Defendants Restanca, LLC and Reby, Inc.
Matthew D. Perri, Raymond J. DiCamillo, Andrew L. Milam, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; Alexis Coll, GOODWIN
PROCTER LLP, Redwood City, California; Brendan Blake, GOODWIN
PROCTER LLP, Boston, Massachusetts; Attorneys for Counterclaim-Defendant
Josep Gomez Torres.
Daniel M. Silver, Sarah E. Delia, Travis J. Ferguson, Shannon D. Humiston,
MCCARTER & ENGLISH, LLP; Attorneys for Defendant/Counterclaim-Plaintiff
House of Lithium, Ltd.
FIORAVANTI, Vice Chancellor
On the evening of April 30, 2022, after being on the job as CEO of a private
equity firm for five days, Kevin Taylor electronically signed a signature page
committing the firm to acquire all of the shares of a privately held scooter business
that it did not already own. The deal had been in the works for months, heavily
negotiated by Taylor’s predecessor who had been forced out, but was still advocating
for the transaction. Taylor had agonized over the decision, but ultimately caved to
the demands of the aggressive and impatient co-founder of the target, who refused
to make last minute changes to the deal terms and had threatened to walk away.
Taylor and his private equity firm suffered a case of buyer’s remorse and searched
for a way out of the deal. The target has sued to force the buyer to close or to pay
damages for breaching the agreement. The buyer has counterclaimed, asserting
claims for fraudulent inducement, breach of contract, unjust enrichment, and
declaratory judgment. In this post-trial opinion, the court concludes the necessary
conditions obligating the buyer to close have not been satisfied, and that the buyer
has not proved its fraud and unjust enrichment claims and is otherwise not entitled
to damages.
I. BACKGROUND
The following recitation reflects the facts as the court finds them after trial.1
A. Parties
Reby, Inc. (“Reby” or the “Company”) is a privately held Delaware
corporation with its principal place of business in Barcelona, Spain.2 Reby operates
a micro-mobility business which contracts with municipalities to offer short term e-
scooter rentals through its SaaS platform. Josep “Pep” Gomez Torres, Kiran
Thomas, Cristina Castillo, and Guillem Pagès founded Reby in 2018. Since 2018,
Reby has secured contracts with over a dozen public administrations in Spain and
Italy. Reby, Inc. holds 100% of the outstanding shares of Reby Global, S.L., a
European intermediate holding entity for the Company’s operating subsidiaries,
Reby Rides, S.L., Rodea Electric Vehicles, S.L., and Reby Italia, S.R.L.3
Gomez is the chairman and sole member of the Reby board of directors.4
Restanca, LLC is Gomez’s personal investment vehicle, through which he owns
1
Citations to testimony presented at trial are in the form “Tr. # (X)” with “X” representing
the surname of the speaker, if not clear from the text. After being identified initially,
individuals are referenced herein by their surnames without regard to formal titles such as
“Dr.” No disrespect is intended. Exhibits are cited as “JX #,” and facts drawn from the
parties’ Pre-Trial Stipulation and Order are cited as “PTO ¶ #.” See Dkt. 128. Unless
otherwise indicated, citations to the parties’ briefs are to their post-trial briefs.
2
PTO ¶ 6.
3
JX 368 at 7; JX 179.
4
PTO ¶ 8; Tr. 131:6–13 (Gomez). In April 2022, Todd Benge was also a director of Reby.
Tr. 131:14–16.
2
approximately 20% of Reby’s outstanding equity.5 Gomez founded his first
company, an online ticketing platform called “Fever” in 2011, when he was 19 years
old. 6 At the time of trial, Fever was continuing to raise impressive amounts of
funding from institutional investors and was valued at approximately $1.3 billion.7
Gomez left Fever in 2018 and founded Reby the same year. 8
SOL Global Investments Corp. (“SOL”) is a Canadian private equity firm.9
SOL’s shares are traded on the Canadian Stock Exchange (“CSE”). SOL first
invested $800,000 in Reby in the first half of 2021. 10 In July 2021, SOL created
House of Lithium, Ltd. (“HOL”) as an operating subsidiary to hold SOL’s
investments in electric mobility.11 In November 2021, SOL transferred its interest
in Reby to HOL 12 and invested an additional $5 million into Reby, increasing its
stake to around 16.67% of Reby’s outstanding equity.13
5
PTO ¶¶ 7–8.
6
Tr. 7:7–21 (Gomez).
7
Id. at 8:11–15.
8
Id. at 8:17–9:5.
9
PTO ¶ 10.
Tr. 14:17–15:9 (Gomez). The record does not make clear whether this $800,000 is in
10
CAD or USD.
11
Id. at 348:4–7 (Kania); JX 12.
12
JX 12.
13
JX 13.
3
SOL’s founder is Andy DeFrancesco. 14 He served as the chief executive
officer of both SOL and HOL and as SOL’s board chairman until he left both
companies on April 25, 2022 under the cloud of a federal investigation.15
DeFrancesco holds between 20 and 25 percent of SOL’s shares.16 DeFrancesco was
replaced as SOL’s CEO and chairman by Kevin Taylor, who had joined the SOL
board in August 2021. 17
B. The Transaction Chronology
What follows is the chronology of the key events leading up to this action.
Other facts are included in the legal analysis.
1. SOL’s Early Interest in Reby
SOL first approached Reby regarding a potential acquisition in the summer of
2021.18 Initially, Reby was uninterested in being acquired, but began to warm to the
idea by the fall of 2021 as the relationship between Gomez and DeFrancesco
developed. 19 Acquisition negotiations intensified after SOL increased its equity
stake in Reby in November 2021 and moved those assets to HOL. 20
14
JX 174; Tr. 660:5–7 (Taylor).
15
PTO ¶ 15.
16
Tr. 712:8–19 (Taylor).
17
JX 174.
18
Tr. 15:10–16:8 (Gomez).
19
Id.
20
JX 12.
4
On December 10, 2021, HOL and Reby entered into a non-binding term sheet
that outlined the process for HOL to purchase all of the equity in Reby that it did not
already own (the “First Term Sheet”). 21 The First Term Sheet contemplated that
HOL would eventually be listed on a recognized stock exchange and that Gomez
would be appointed executive vice-chairman of HOL. 22 The First Term Sheet noted
the conditions precedent to closing included “satisfactory completion of due
diligence by HOL, its counsel and representatives on the business, assets, financial
condition, and corporate records of the Issuer which due diligence process shall be
concluded on or before the date of entering into the Definitive Documents” as well
as “all required regulatory and third-party consents and approvals.”23 Paul Kania,
SOL’s chief financial officer and then HOL’s sole director, signed the First Term
Sheet on behalf of HOL.24
In mid-January 2022, DeFrancesco created a WhatsApp group named “HoLi
Into Over Drive” with SOL leadership.25 Messaging the group, DeFrancesco
emphasized that “we need to accelerate the process with Reby Rides” and noted that
21
JX 18 at 1 (“HOL currently owns 16% of the issued and outstanding shares of the Issuer
(the ‘Issuer Shares’) and wishes to purchase the remaining 84% of the Issuer Shares
through the Investment.”).
22
Id. at 1–2.
23
Id. at 2.
24
Id.
25
JX 40.
5
SOL’s second highest immediate priority was to “finalize the deal with Pep & Reby
Rides.”26 HOL was represented by Canadian counsel at Gowling WLG, including
Sharagim Habibi.27
At the same time, Gomez was soliciting Reby stockholders to sell their shares
to him.28 Gomez told a colleague on January 26, 2022 that he had been “buying
from everyone I caught at $75m” based on his knowledge that the company was
worth more and would increase in value once HOL was publicly traded. 29 He
boasted: “I am buying 80% of [Kiran Thomas’s] position . . . and people like lanai
and seed investors . . . making dishonest offers, sure.”30
On January 28, 2022, HOL announced that it had entered into an agreement
to acquire Rio Verde Industries Inc. (“Rio Verde”), a publicly traded company, in a
reverse takeover.31 The press release specified that as a condition precedent to the
transaction, Rio Verde would change its name to “HoLi Technologies Inc.” 32
26
Id. at 1.
27
Tr. 28:14–15 (Gomez).
28
JX 46 at 16.
29
Id.
30
Id. at 19.
31
JX 49.
32
Id. at 2. The announcement contemplated that the resulting company would be led by
DeFrancesco as CEO, with SOL executives Paul Kania and Richard Waxman serving as
CFO and COO, respectively. Id. at 3–4.
6
On January 31, 2022, HOL and Reby entered into a second term sheet (the
“Second Term Sheet”). 33 The Second Term Sheet did not displace the First Term
Sheet, but rather amended certain provisions.34 The Second Term Sheet continued
to contemplate a transaction between HOL and Reby under which HOL would
purchase all outstanding equity in Reby that it did not already own. It included
binding provisions that required Reby to refrain from initiating, soliciting, or
discussing any outside acquisition proposals, prohibited both parties from
publicizing the transaction without consent from the other party, and provided for a
$2 million break-up fee if the transaction was not completed by March 15, 2022.35
In another binding provision, the parties agreed “that the Transaction will be
consummated by the execution of one [or] more stock purchase agreements with the
stockholders of the Issuer in substantially the form attached hereto as Exhibit A.”36
The exhibit provided for a single secondary sale agreement or “SSA,” to be signed
in March 2022 by all selling stockholders and for Restanca—Gomez’s entity—to
serve as a representative for the selling stockholders.37 It contemplated a closing
33
JX 51.
34
Id. § 8 (“Except as specifically amended hereby, the Term Sheet shall remain in full
force and effect.”).
35
Id. §§ 3–7.
36
Id. § 5.
37
Id. at Ex. A.
7
“on the date that the aggregate Purchase Price has been fully paid to the Sellers,
which is expected to be June 10, 2022, or such other date as agreed to by the Sellers
and the Buyer.”38 The form SSA contained a signature block for Kania to execute
the agreement on behalf of HOL. 39 Neither the Second Term Sheet nor the form
SSA attached to it made any reference to HoLi Technologies Inc. (“HoLi”).
On March 8, 2022, HOL’s counsel circulated a revised form of the SSA that
listed HoLi, not HOL, as the Buyer.40 Another version circulated the same day also
added what Habibi considered “standard representations and warranties for a
transaction of this type.” 41 Among the 33 new representations to be made in respect
of the Company, Habibi added a provision providing that final financial statements,
audited in accordance with International Financial Reporting Standards (“IFRS”),
had been provided for 2020 and 2021 and fairly present Reby’s financial condition.42
Habibi also added a provision which addressed Reby’s compliance with its tax
obligations.43
38
Id. at Ex. A. § 1.3.
39
Id. at 14.
40
JX 80 at 2.
41
JX 83 at 1.
42
Id. at 33.
43
Id. at 34. This section provided, in pertinent part:
8
Later that day, Gomez circulated a further revised SSA which changed the
representation and warranty pertaining to final audited financial statements to apply
only to Reby Rides, S.L., the Company’s main operating subsidiary.44 The earlier
version of the financial statement representation and warranty did not specify the
entities to which it applied. After HOL rejected most of Gomez’s edits, Gomez sent
a further revision on March 9. Of note, Gomez maintained his earlier changes to the
financial statement representation. He also restored much of the language he had
previously stricken from the “tax matters” representation, but limited the
representation about having filed tax returns and having paid assessments as to the
operating subsidiaries, not the parent, Reby, Inc. He struck language stating that the
Company had filed all tax returns and timely remitted all amounts to be paid, leaving
only a representation that the Company was not aware of any “assessments,
reassessments, actions, suits or proceedings in progress, pending or threatened,
The Company has filed all tax returns, reports and other tax filings, and has
paid, deducted, withheld or collected and remitted on a timely basis all
amounts to be paid, deducted, withheld or collected and remitted with respect
to any taxes, interest and penalties as required under all applicable tax laws.
There are no assessments, reassessments, actions, suits or proceedings in
progress, pending or threatened, against the Company, and no waivers have
been granted by the Company, in connection with any taxes, interest or
penalties.
Id.
JX 84 at 7; see also Tr. 30:11–31:4 (Gomez). Gomez’s cover email noted that the change
44
was “in[ ]line with previous standard R&W we’ve been giving.” JX 84 at 1.
9
against the Company.45 Each of these changes made it into the final versions of the
SSA that Taylor executed on April 30, 2022. 46
On March 15, 2022, Reby, HOL, and their respective counsel held a “town
hall” meeting to discuss the transaction and changes to the SSA.47 The parties
analyzed the changed terms, including representations and warranties.48 At this
time, the parties contemplated that the buyer would be a publicly traded entity and
that part of the transaction consideration would be paid in the buyer’s shares.49
On March 16, 2022, HOL and Reby entered into a third iteration of the term
sheet (the “Third Term Sheet”).50 Like the previous term sheet, it stated that the
parties agreed to undertake the transaction by executing “one or more stock purchase
agreements” in the form attached, which had been updated to reflect the parties’
negotiations. 51 The Third Term Sheet included binding terms governing the break-
45
JX 87 at 8. The provision changed the reference to “the Company” to “the Company
operating subsidiaries” and added a knowledge qualifier as to the portion of the
representation concerning pending or threatened actions against the Company. Id.
46
See JX 225 at 6.
47
JX 94.
48
Tr. 539:14–22 (Habibi).
49
Id. at 540:5–545:20.
50
JX 111.
51
Id. § 2; see JX 51 § 5.
10
up fee and exclusivity terms. 52 As to the break-up fee, the term sheet required HOL
to deposit $2 million with Reby and provided that if the transaction was not
completed by April 20, 2022, then the deposit would be applied to the first payment
of the cash consideration.53 The Third Term Sheet adjusted the closing date to fall
between April 10 and April 21, 2022 and described the transaction as the acquisition
of “all of the outstanding shares of the capital stock of [Reby] not owned by” HOL,
which was defined as the “Buyer.” The form SSA left both the date of the agreement
and the date of closing intentionally blank. 54 The transaction consideration was
described as $40 million in cash and $45 million of equity in the “Buyers Shares”
52
JX 111 §§ 7–8. Whereas the First Term Sheet had expressly disclaimed that its terms
were binding and the Second Term Sheet had identified certain provisions as binding while
disclaiming the remainder as non-binding, the Third Term Sheet stated at the conclusion
of the seventh and eighth sections that those sections were binding on the parties. Compare
JX 18 at 3 (“This Term Sheet is qualified in its entirety by the fact that it is non-binding
and with further reference to the Definitive Documents; in the event of any inconsistency
between the Definitive Documents and this Term Sheet, the Definitive Documents shall
reign supreme.”), and JX 51 § 7 (“This agreement reflects the intention of the parties, but
for the avoidance of doubt neither this letter nor its acceptance shall give rise to any legally
binding or enforceable obligation on any Party, except with regard to paragraphs 3 through
6 of this agreement.”), with JX 111 § 7 (“The foregoing provision is binding on the
parties.”), and id. § 8 (same).
53
JX 111 § 7 (“In the event that the Transaction does not complete by April 20, then the
Company and the Buyer hereby agree to apply the Deposit Amount to the purchase by the
Buyer of the Company’s at a Company valuation of US$100,000,000. The foregoing
provision is binding on the parties.”).
54
Id. at 5 (“dated as of April __, 2022”); id. at 7 (“Subject to the terms and conditions of
this Agreement, the closing of the transactions contemplated hereby and the effective
transfer of the Shares to Buyer (the ‘Closing’) shall take place on April __, 2022, or such
other date as agreed . . . and, in any event, after all of the conditions hereunder have been
satisfied or waived.”); JX 103 at 1.
11
“on such terms set out in the Definitive Agreement.”55 The Third Term Sheet further
recited: “The Company shall provide to the Buyer interim unaudited financial
statements of the Company’s operating business for 2021 financial year. The Parties
understand [that] draft Financial Statements are provisional and may be subject to
change.” 56 Although the Third Term Sheet defined the Buyer as HOL, the form SSA
defined the Buyer as HoLi.57 On March 17, 2022, HOL delivered $2 million to
Reby, which Reby used as working capital. 58
Despite signing the Third Term Sheet, HOL’s lawyers were still concerned
about the feasibility of the proposed transaction. After all, HOL planned to go public
and had filed a draft listing statement with the CSE in December 2021.59 HOL
received conditional approval of its listing statement, which described the proposed
RTO with Rio Verde, in early April 2022.60 Once HOL became a reporting
company, it would have continuous reporting obligations under Canada’s National
Instrument 51-102. 61 Under Part 8 of National Instrument 51-102, the acquisition
55
JX 111 § 4.
56
Id. § 6.
57
Id. at Ex. A.
58
PTO ¶¶ 14, 18.
59
JX 95 at 33.
60
Tr. 358:8–17 (Kania).
61
Id. at 545:1–20 (Habibi).
12
of a business such as Reby would likely trigger an obligation to disclose information
about the acquired business, including audited financial statements. 62
HOL’s officers and counsel testified that “everyone knew” that HOL would
have to complete the go-public process before the transaction could occur.63 HOL
and its counsel were concerned that Reby had not yet provided IFRS audited
financial statements for Reby. 64 In addition, HOL was aware that Reby had never
filed U.S. tax returns.65 The parties discussed alternative transaction structures, such
as the acquisition of Reby Global, the European intermediate holding company,
rather than Reby, Inc., the U.S. parent.66 In late March, HOL introduced Gomez to
MNP LLP (“MNP”), a Canadian accounting firm, to attempt to resolve the issues
with Reby’s financial and tax liability.67 MNP representatives, including Michael
62
Id.
63
Id. at 537:8–538:6. Gomez’s testimony reflects a different understanding on his part,
noting that while HOL would go public “eventually,” that it was not make or break for the
completion of the transaction. Id. at 72:10–19 (Gomez); see also id. at 635:11–24
(Shumate) (explaining that the timing of when the acquirer would go public was unclear).
Gomez’s testimony frequently interchanges references to the signing and closing of the
transaction, evincing that the distinction may not be clear from his perspective. See, e.g.,
id. at 61:1–4 (Gomez); id. at 66:21–67:5.
64
Id. at 552:8–11 (Habibi).
65
Id. at 376:21–23 (Kania).
66
JX 133; Tr. 552:4–24 (Habibi).
67
Tr. 636:21–637:1 (Shumate).
13
Shumate, spoke with Gomez and Kania on March 28 and April 26 about potential
structures to resolve concerns over the lack of audited financials.68
On March 17, 2022, Gomez emailed Habibi, copying representatives of Reby,
SOL, and HOL and indicating that he would resend the Third Term Sheet with the
“absolute final SPA attached as Exhibit A.” 69 “Once we have that, I will be able to
start circulating and gathering signatures from our shareholders, which will take
weeks anyway.” 70 Habibi did not dissuade Gomez from collecting signatures;
rather, he thought it was a good idea to begin collecting signatures due to Reby’s
large number of stockholders. 71
On April 9, 2022, Gomez began contacting Reby stockholders to obtain
signatures on the SSAs.72 The email request described the transaction as a “tender
offer to acquire up to 100% of [Reby’s] shares from HoLi Technologies (‘House of
Lithium’)” and indicated that “HOL intends to list on one of the senior recognized
exchanges in Canada in the next few weeks.” 73 Stockholders were informed that
68
Id. at 641:1–20; id. at 49:19–50:24 (Gomez); JX 477.
69
JX 115.
70
Id.
71
Tr. 607:7–24 (Habibi).
72
JX 155 at 1.
73
Id. The underlined phrases “HoLi Technologies” and “intends to list” were hyperlinks
to certain articles discussing HOL’s plans to go public. See JX 803; SOL Global Completes
14
Reby was “trying to get everyone on board, [so] no partial orders will be accepted,”
and Gomez gave them an April 12, 2022 deadline to indicate their preferred tender
option.74
2. SOL’s Management Shakeup
As the parties were trying to iron out the final terms of a deal, SOL and HOL
were forced to make a leadership change. On April 25, 2022, SOL announced that
DeFrancesco, who had learned that he was under investigation for possible
violations of federal securities laws, was removed from his board and officer
positions at SOL and HOL. 75 In connection with his termination, DeFrancesco
Disposition of Assets to House of Lithium as It Prepares for Its Upcoming Public Listing,
Bloomberg (Nov. 9, 2021, 8:00 a.m.), https://www.bloomberg.com/press-releases/2021-
11-09/sol-global-completes-disposition-of-assets-to-house-of-lithium-as-it-prepares-for-
its-upcoming-public-listing; CPE News, House of Lithium to go public on CSE by way of
RTO, Private Capital Journal (Jan. 30, 2022), https://privatecapitaljournal.com/house-of-
lithium-to-go-public-on-cse-by-way-of-rto. Gomez’s testimony that he was unaware of
the hyperlinks and that the underlining was a “design choice” was not credible in the face
of this conflicting documentary evidence. Tr. 159:2–161:10 (Gomez).
74
JX 155 at 2. HOL devoted much of its briefing to the insufficiency of information that
Gomez provided to Reby’s investors surrounding the SSAs, insinuating that the Reby
stockholders were coerced into signing the SSAs. No Reby stockholders have intervened
in this action to argue that their signature on the SSA is ineffective.
75
JX 174; Tr. 408:9–24 (Kania). In January 2023, the SEC filed a civil complaint against
DeFrancesco and others for violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934. The complaint is focused on conduct in 2018 and 2019 and does
not mention SOL or HOL. See SEC Charges Former Public Company Chairman and
Officers in Fraudulent SEC Filings and $8 Million Pump-And-Dump Scheme, SEC (Jan.
6, 2023), https://www.sec.gov/litigation/litreleases/2023/lr25610.htm.
15
entered into a separation agreement that required him to continue advising SOL,
including as to the management of SOL’s portfolio companies.76
In the same news release disclosing DeFrancesco’s departure, SOL
announced that Taylor would immediately replace DeFrancesco as chairman and
CEO of SOL.77 Taylor had joined the SOL board in 2021 and was considered to be
the only person who could step into those positions at that time. 78 Taylor had
accumulated a wealth of business experience, including involvement in mergers and
acquisitions. 79 Taylor tried to ramp up quickly in his new role, building on the
knowledge base that he had developed as a SOL director over the prior eight months.
In particular, Taylor had multiple discussions with Gomez about the impending
Reby transaction. 80 Taylor also continued to speak with DeFrancesco, who was still
urging SOL to buy Reby. 81
76
Tr. 409:9–410:18 (Kania).
77
Id. at 658:22–660:2 (Taylor).
78
Id. at 660:19–661:2.
79
Taylor had previously served as the president and general manager for a multi-billion
dollar division of Nortel Networks, a large Canadian telecommunications company. Id. at
654:7–15. He undertook a similar role with another billion-dollar company, the Musson
Group, heading its telecommunications distribution company for the Caribbean and
Central America. Id. at 654:16–22. Following his leadership roles in the
telecommunications space, Taylor joined JJR Private Capital, a merchant bank that made
investments and provided advisory services. Id. at 654:24–655:24. In these roles, Taylor
was involved in over a hundred M&A transactions. Id. at 656:1–11.
80
Id. at 661:18–662:17 (Taylor).
81
Id. at 714:9–715:12.
16
3. The Lead-up to Signing the SSAs
On April 26, 2022, Gomez met with Kania and MNP. The parties discussed
Reby’s tax issues, acknowledging that there was still no clear path forward. 82 In
meeting notes sketched contemporaneously with the meeting, Costa Tsakiris, a
partner at MNP, described Reby, Inc. as the ultimate parent, which entirely owned
Reby Global, S.L., the European holding company, which in turn owned a Spanish
operating company (Reby Rides, S.L.), an Italian company, and other entities.83 The
notes indicate that Reby, Inc. had not “filed US tax returns since 2018 (i.e. ever) ≈
reason why cannot buy.”84 Tsakiris specified that the deal contemplated a $130
million purchase price, consisting of $40 million in cash and $90 million in “HOL
Can Co stock,” or 10% of HOL’s total stock. 85
On April 29, 2022, Gomez informed Taylor that all but two of Reby’s
stockholders had signed SSAs.86 In his email to Taylor, Gomez wrote:
KT, for signing the Reby deal we will create a single bundle with all
the SPAs (100 SPAs approx) and one signature page at the end that we
will use. That way, since its all bundled you don’t have to sign 100
times.
82
Id. at 242:6–9 (Gomez) (“Q: . . . MNP did not provide you with a structure. A: They
did not provide us with a structure, no.”).
83
JX 179 at 2.
84
Id. (cleaned up).
85
Id.
86
JX 192. According to Gomez, Mauricio Diaz, the individual who connected Reby with
HOL, refused to sign an SSA transferring his Reby shares to HOL due to business issues
with HOL. Tr. 55:15–56:3 (Gomez).
17
We are only missing Mauricio [Diaz’s] signature (trying to figure out
with Andy and you what we do, let’s chat when you can) and then one
ex-employee with like 50 shares that we’re not able to track her down.
Rest is finished on the signed and agreed SPA. 87
The signed SSAs did not contain provisions governing an outside closing date
or a right to terminate. 88 Instead, Section 1.4 provided:
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated hereby and the effective transfer of the
Shares to Buyer (the “Closing”) shall take place on April __, 2022, or
such other date as agreed to by the Sellers and the Buyer and, in any
event, after all the conditions hereunder have been satisfied or waived.89
The SSAs continued to identify HoLi as the “Buyer” in the recitals of the
agreements. 90 Section 1.2, which concerned consideration, was different among the
SSAs, with Reby stockholders receiving cash, stock, or a combination of the two in
varying amounts.91 Otherwise, each SSA was the same.
87
JX 192. Diaz was among those accused of securities fraud in January 2023 along with
DeFrancesco. See SEC Charges Former Public Company Chairman and Officers in
Fraudulent SEC Filings and $8 Million Pump-And-Dump Scheme, SEC (Jan. 6, 2023),
https://www.sec.gov/litigation/litreleases/2023/lr25610.htm.
88
The SSAs do, however, contain a provision titled “Amendment” which states that “Any
term of this Agreement may be amended, terminated or waived only with the written
consent of Sellers and Buyer.” JX 225 § 7.6.
89
Id. § 1.4.
90
Id. at 1.
91
See, e.g., id. at 1–2; id. at 22–23.
18
4. Taylor Signs the SSA on April 30.
On April 30, 2022, Gomez informed Taylor that the bundle of SSAs
referenced in the prior day’s email had been sent, and he asked Taylor to sign.92
Taylor, who had been traveling across the country, replied, “Just landed. 3 hrs drive
to hotel. Will sign tonight or tomorrow morning. On West Coast.”93 Gomez
responded that there was a single signature page on the bundle, “so it’s one click.”94
Taylor replied, “Need the lawyers to ‘ok’ signature. Have you sent to Karan for
review[?]”95 Gomez responded affirmatively, adding that “they are all copied and I
also shared the folder this morning with them all,” and noting that the SSAs matched
the form approved in the term sheet, except for an earn-out approved by
DeFrancesco and Habibi.96 Taylor indicated that Habibi was still reviewing the tax
structure with MNP and would stay on them for approval. Gomez stated, “we
already did . . . and they told us how to do it and the spa allows to change the
companies and not transfer until [HOL] wants as it will take 3-4 to do what they
want to do.” 97 About six hours later, Gomez messaged again: “Kevin, I’m changing
92
JX 207 at 1.
93
Id.
94
Id.
95
Id. Karan Sodhi was SOL’s and HOL’s in-house counsel. Tr. 597:19–20 (Habibi).
96
JX 207 at 1.
97
Id. at 1–2.
19
now your signature page to say HOUSE OF LITHIUM LTD instead of HOLI so you
can sign it.”98 Taylor testified that it was his expectation at this time that he would
sign the deal with Reby and its stockholders. 99
Habibi testified that he also spoke to Gomez on April 30, reminding him that
“we could not enter into these SSAs at this time due to the issues around probable
transactions and structuring issues that remained.”100 According to Habibi, Gomez
responded that he was getting a lot of pressure from stockholders to return a signed
document, but that “he understood that there was still quite a bit of work to be done
and that the form of SSA would not, in fact, be the final form of SSA.” 101 Habibi
recounted that he knew the stockholders needed to see progress, but “that, ultimately,
this was more a good-faith show rather than actually binding the agreement.”102
Habibi proposed two alternatives. First, he suggested that the parties enter
into a letter agreement similar to the prior term sheets.103 Second, he offered to
obtain a signature on behalf of HoLi, which he would hold back until the negotiations
98
Id. at 2.
99
Tr. 717:15–718:7 (Taylor).
Id. at 558:16–560:3 (Habibi). Habibi testified that he spoke with Gomez sometime late
100
morning or early afternoon on Mountain Time.
101
Id. at 560:4–10.
102
Id.
103
Id. at 560:11–18.
20
were finished.104 Gomez did not agree to either proposal, opting instead to go
directly to Taylor and DeFrancesco. 105
On April 30, 2022, at 2:25 p.m., Habibi emailed Gomez, attaching a revised
SPA with some comments “which will get us comfortable with [sign]ing the SPA
now as opposed to waiting until all of the tax/structuring analysis has been done.”106
Habibi noted that the revised agreement reflected changes “to adjust for the fact that
it is now a private company purchase by House of Lithium Ltd. (and not a purchase
by the anticipate [sic] resulting issuer to the RTO transaction).” 107 Gomez responded
minutes later, rejecting Habibi’s offer to amend the SSAs.108 Gomez said that he
was not in a position to accept changes to the terms of the agreement, but suggested
that HOL create a side letter to implement any necessary changes. 109 Gomez replied
again, stating that he was offended by the last minute modifications and that he
expected HOL to sign the SSAs now. 110 He said they could work on a side letter
104
Id. at 560:19–561:6.
105
Id. at 561:7–9.
106
JX 217 at 3.
107
Id.
108
Id.
109
Id.
110
Id. at 2.
21
after the SSAs were signed.111 Habibi volleyed back with a three-pronged
suggestion:
1. We execute the SPA as is (The CEO will execute the DocuSign)
2. Pep signs a side letter to the SPA as Sellers’ Representative
acknowledging that certain amendments will be required to the SPA,
that the parties will work together to agree on certain amendments,
and in the even the parties can’t agree on a tax structure that is
required for House of Lithium to efficiently complete the transaction
or go [] public, then the parties may not be able to close.
3. Reby enters into an instrument that agrees that any funds that are
sent in advance of closing are convertible to Reby securities in the
event that the transaction doesn’t close. The terms of the conversion
would be the same as provided for the first $2 million that we had
in the LOI.112
Gomez refused to accept the second or third proposals.113 In regard to the third
proposal, Gomez noted that HOL was “already in default of $9,5M USD that haven’t
arrived since April 15th.”114 Gomez drew the line, insisting that he would “wait for
[Taylor] to sign the SPA as is in DocuSign where the signature page already says
House of Lithium Ltd.” 115
Taylor did not reply to Gomez, but instead removed Gomez from the email
chain and engaged in a series of emails with Habibi and inside counsel. 116 At this
111
Id.
112
Id. at 1–2.
113
Id. at 1.
114
Id.
115
Id.
116
JX 218. These emails have been withheld on grounds of attorney-client privilege.
22
stage, Taylor was located in North Bend, Oregon and Gomez was with DeFrancesco
in Alabama. 117 For purposes of clarity, the time references in the discussion of these
events will be in Pacific Time, which is two hours earlier than the time in Alabama.
At about 6:45 p.m., Taylor messaged Kania, “I’m really struggling how we
get out of this: IRS payment REBY - $8m now, $10m May 15 . . . What the hell did
I/we get myself/ourselves into.”118 Taylor and Kania traded messages about
upcoming financing commitments and the money that would need to be raised to
meet them,119 specifically the impending payment obligations to Reby.120 After
unsuccessfully calling Kania once, Taylor sent a text message to Kania around 7:15
p.m. asking if Kania would be joining a call with SOL lawyers, indicating that
117
Taylor initially testified at his deposition that he had been at his home in Florida on
April 30, 2022. JX 442 at 170:21–171:5; id. at 194:15–19. He recounted: “I was visibly
disturbed that they were calling me [at] 12 o’clock at night so I chose not to call anybody
at that time of night.” Id. at 247:10–13. Discovery revealed that Taylor had actually been
in Oregon at the time of signing, a time zone that was three hours behind that of Florida,
and that Taylor had conferred with counsel on the evening of April 30, albeit before the
series of phone calls with Gomez. Taylor sat for a supplemental deposition to correct this
earlier testimony, and at trial Taylor acknowledged his earlier mistaken recollection. See
JX 463; Tr. 700:10–708:2 (Taylor).
118
JX 221 at 2.
119
Id.
120
Tr. 723:12–724:1 (Taylor); JX 442 at 251:3–10.
23
“[e]veryone else is on.” 121 Taylor remained on this call with the company’s lawyers
for around 40 minutes, ending around 8:00 p.m. 122
After speaking to his lawyers, Taylor had a series of phone calls with Gomez
and DeFrancesco.123 Taylor said that these calls started off hostile, as Taylor was
adamant that he would not sign the SSAs.124 Gomez told Taylor that he needed a
signature that night, otherwise he and his stockholders were prepared to walk away
from the deal.125 Meanwhile, DeFrancesco was in Taylor’s ear, encouraging him
that signing the SSAs was a good idea. 126 Taylor contends that during the second
121
JX 221 at 2; Dkt. 442 at 251:11–22; see also JX 633 (sending dial-in information for
the call, which was titled “(call) Reby – SPA”).
122
Tr. 724:4–725:5 (Taylor).
123
The call log reflects four phone calls, but the first call lasted only one minute.
Accordingly, the court will discuss the exchanges that occurred in the three lengthier
exchanges that followed. JX 487 at 8. The first substantive call began at 8:07 p.m. and
lasted 27 minutes. The next call began at 8:34 p.m. and lasted 34 minutes. The final call
began at 9:08 p.m. and lasted 8 minutes. Taylor signed the SSAs at approximately 9:14
p.m. JX 205.
124
Tr. 645:17–646:7 (Taylor).
125
See id. at 66:16–67:5 (Gomez) (“Q: And what was the substance of that phone call? A:
So essentially, you know, Kevin, you know, it was a closing night, right, and essentially
Kevin said that he wanted to ideally have more time to review the documents, right, and
he just arrived here and Mr. DeFrancesco and I were pushing him, telling him that today is
the closing date, this is what we agreed, you know, and I told him if we don’t close tonight,
maybe we don’t close or maybe there’s no deal, right, because we’ve been waiting many -
- and doing many extensions, today is the day that we need to close. I understand that you
just arrived here, but, you know, your lawyers reviewed it, we gave you time, we’ve spent
six months doing this, it’s time to close.”); id. at 254:17–23 (“[W]hat happened is that I
threatened, I said to him essentially, you know, we close tonight, tonight is the closing day,
I cannot assure to you that if we don’t close tonight there’s going to be a deal.”).
126
Id. at 714:9–715:12 (Taylor).
24
call between DeFrancesco, Taylor, and Gomez, Gomez stated that he just needed
Taylor’s signature to pacify his investors and would not enforce the agreements. 127
Eventually, Taylor asked to speak with Gomez alone and Gomez took
DeFrancesco’s phone to the lobby of their hotel to continue the conversation.128
Taylor emphasized that he was “the new sheriff in town” and that Gomez would
have to be able to work under Taylor if a deal were to be successful.129 Taylor, who
was threatened by DeFrancesco’s relationship with Gomez, wanted to emphasize
that he had the final word on decisions related to HOL and SOL. 130 Gomez assured
Taylor that he understood the power dynamics and would work with Taylor going
forward. 131 According to Taylor, Gomez told him that he would not enforce the
agreement, and that upon that basis alone, Taylor signed the SSAs. 132 Gomez denies
that he represented that he would not to enforce the agreement. 133 Just before 9:14
p.m., Taylor signed the SSAs on his phone. 134
127
Id. at 731:15–732:6.
128
Id. at 67:6–14 (Gomez).
129
Id. at 68:17–68:4; id. at 252:17–24.
130
Id. at 646:13–647:7 (Taylor).
131
Id. at 68:17–68:4 (Gomez).
132
Id. at 646:8–21 (Taylor).
133
Id. at 252:14–16 (Gomez) (“Q: You told him that you wouldn’t try to enforce the
agreements, didn’t you? A: I never said that.”).
134
JX 205.
25
Early on May 1, 2022, Gomez sent the signed SSAs with Taylor’s signature
to the SOL team, including Habibi and Kania.135
C. Post-Signing Events
On Monday, May 2, 2022, Taylor and Gomez met in person to discuss their
conversation the previous Saturday night.136 Taylor said that he had “reiterated to
[Gomez] that there was a number of things that we needed to get started on, given
that we were going to -- try to move to get to an agreement that worked for both
sides. Talked about some of the outstanding issues that needed to be resolved.”137
The understanding between the parties was that they would continue to engage in
good faith negotiations to address unresolved issues. 138
1. HOL Wires Funds to Reby.
On May 4, 2022, HOL wired $1 million to Reby. 139 HOL had received these
funds from JW Asset Management (“JWAM”), an investment group that SOL had
co-invested with in the past.140 Gomez had been integrally involved in pitching
JWAM to invest in HOL and “they made the decision to invest largely because of
JX 220; JX 226. Kania forwarded the link to HOL’s in-house counsel no mention of
135
whether anyone considered the signed agreement to be binding or enforceable. JX 226.
136
Tr. 669:10–670:1 (Taylor).
137
Id.
138
Id. at 426:2–5 (Kania).
139
Id. at 84:2–15 (Gomez).
140
Id. at 671:16–20 (Taylor).
26
. . . Gomez.” 141 Gomez was aware that the payment was to be made and followed
up frequently with HOL regarding the investment.142
Habibi understood the May 4 payment to be a partial payment of the purchase
price under the SSAs.143 Taylor testified that the payment was a good faith transfer
in recognition of Gomez’s role in obtaining this $1 million investment from
JWAM.144
2. Taylor Signs a New SSA for Restanca.
After receiving the $1 million payment, Gomez realized that the SSA that
Restanca had executed did not accurately reflect the consideration to be paid to
Restanca, which was different from that being paid to other Reby stockholders.
According to Gomez, he and DeFrancesco had negotiated and agreed upon
Restanca’s larger share of the transaction consideration after the signing of the Third
Term Sheet.145 On May 10, Gomez forwarded a revised Restanca SSA to Taylor,
asking him to sign at his convenience.146 Later that day, Gomez followed up:
“[DeFrancesco] wanted me to confirm to you [in writing] that the SPA is the same
141
Id. at 671:21–672:7.
142
Id. at 672:17–23.
143
See id. at 621:14–22 (Habibi); JX 233 at 1.
Tr. 673:1–18 (Taylor) (“Q: Was that wire intended to be a payment to Reby under the
144
SSAs? A: No.”).
145
JX 259.
146
Id.
27
and the only thing that has changed is the price, as it was wrong in the previous
one.” 147 But Gomez’s email was not entirely accurate. In addition to changing the
price term, the updated SSA had removed all references to HoLi Technologies and
replaced them with references to HOL.148 Taylor signed the updated Restanca SSA
on May 10, 2022. 149
3. Gomez Publicizes the Deal.
Gomez moved quickly to announce the deal, no doubt in part to foreclose any
chance of SOL and HOL reneging on the deal. On May 3, 2022, Gomez emailed to
Taylor, Kania, and SOL’s PR consultant, Angela Trostle Gorman, a draft news
release about the deal that Gomez had prepared.150 The news release contained
quotes attributed to Taylor and Gomez. Gomez asked the recipients for comments,
indicating that they planned to issue the release on May 4th or 5th. 151 Gorman
replied, “Hi Pep, great to meet you over email. The release looks great. When is
this slated to cross the wire? I can supplement the release with direct pitching to
relevant U.S. journalists. Also, congrats!”152 Neither Taylor nor Kania responded
147
Id.
148
JX 203; JX 261.
149
Tr. 682:10–683:17 (Taylor); JX 261.
150
JX 232.
151
Id.
152
Id.
28
to the email or offered comments.153 On May 5, Gorman pitched the story to the
Wall Street Journal and Thomson Reuters on an embargoed basis. 154 After those
outlets balked, Gorman floated other possibilities, including TechCrunch, an online
publisher of news about the technology industry and startups.
On Monday, May 9, Gomez circulated a revised news release to Gorman,
copying Taylor, Kania, and others. Gomez’s email indicated that the news release
was final and the plan was “to launch it on Wednesday.” 155 The news release was
dated Wednesday, May 11, and contained quotes attributed to Taylor and Gomez.
Gomez suggested that giving exclusivity to TechCrunch “would be the best in our
opinion.” 156 Neither Taylor nor Kania responded to this email.
On May 10, Gorman pitched the story to TechCrunch.157 Later that day,
Gomez emailed the news release to a TechCrunch writer, stating: “The news goes
out at 11pm ET tonight – you can publish it then.”158 Later that night, TechCrunch
published an article announcing the deal, titled “European micromobility startup
153
Tr. 79:2–5 (Gomez).
154
JX 242; JX 245.
155
JX 250.
156
JX 249.
157
JX 256.
158
JX 257.
29
Reby acquired by PE player House of Lithium for $100M.” 159 The article included
quotes from Taylor and Gomez that were taken from the news release.160
Later that night, Gomez forwarded a link to the TechCrunch article to
DeFrancesco, Taylor, Diaz, Centner, Kania, and Waxman in a text message.161
Centner replied, “Excellent.”162 Taylor shared the link to a group chat of SOL
executives and received no response.163 As of the time of post-trial argument, the
article was still available online without correction or retraction.
4. SOL Begins to Accept Reby Shares.
The stock certificates representing the Reby shares being purchased in the
transaction were loaded onto an online share management system called “Carta.”164
Reby then directed Carta to send emails to Kania, SOL’s CFO, reflecting the transfer
of shares to HOL. To effectuate transfer under the Carta system, the recipient must
click on each email transmitting shares and certify acceptance via e-signature.165
Kania forwarded the emails to Waxman, then a senior associate at SOL, and directed
159
JX 265.
160
Id.
161
JX 266 at 2.
162
Id.
163
JX 264.
164
Tr. 492:12–19 (Waxman).
165
Id. at 449:18–23.
30
him to accept them. 166 Waxman, who was aware that the deal had been signed,167
complied. 168
On May 12 and 13, Waxman completed this process 119 times, accepting
approximately 45% of the total shares to be transferred.169 At the time of trial, HOL
continued to retain these shares.170
5. SOL Presses for More Information.
On May 18, Taylor forwarded Gomez a list of diligence requests from HOL’s
counsel. 171 Taylor told Gomez not to panic, assuring him that the information
requested was “not only critical but absolutely necessary from a securities
perspective if we are to move forward with an RTO / public listing.” 172 Gomez’s
166
Id. at 387:13–21 (Kania).
167
In a May 2, 2022, text exchange with SOL’s in-house counsel Karan Sodhi, Waxman
wrote that he had heard that HOL “closed the SPA with Pep,” over the weekend. JX 229
at 3. Sodhi replied that “[i]t was signed Saturday night.” Id. Subsequent messages in this
exchange between Waxman and Sodhi are redacted as privileged.
168
See, e.g., JX 421 at 5. Waxman testified that he had no role at HOL. Tr. 493:1–7
(Waxman). However, as an employee of SOL, Waxman reported to Kania, the CFO of
SOL. Id. at 493:8–11. At trial, Waxman vacillated on whether Kania instructed him to
accept the shares. Id. at 493:16–494:10. Notably, HOL announced in a January 28, 2022
press release that Waxman would be the COO of the resulting public issuer in the Rio
Verde transaction, suggesting that he was closely involved with the affairs of HOL. JX 50
at 3–4.
169
Tr. 492:12–19; JX 416.
170
Tr. 388:8–13 (Kania); id. at 450:14–451:4 (Waxman).
171
JX 300.
172
Id.
31
response reflected his concern that SOL’s counsel, Sharagim Habibi, was causing
trouble:
That’s all good for us to prepare for the RTO/public listing. However,
I don’t think Sharagim understands the acquisition did already happen[]
and the contracts are binding since the signature date – there is no
leeway to choose whether HoL will or will not proceed with the
transaction. It will proceed and it has been signed. . . . As long as we
all agree this is the case, and that you require this information for
RTO/public listing process only, we are fine. Based on the message
from Sharagim and the delays you guys are having on payment we
would require explicit written confirmation that this is for the
RTO/public listing in response to this message.173
Taylor and Gomez spoke later that night. Taylor claims that on this call he
reminded Gomez of his promise on April 30 not to enforce the SSAs. 174 The next
day, Taylor responded to Gomez’s May 18 email, noting: “[A]s discussed on the
phone last night, this information is required in order for us to immediately begin
engaging the lawyers and regulators as it relates to the pending RTO.” 175 Gomez’s
reply reiterated his view that the parties had a binding agreement: “Perfect. Thank
you very much for confirming that the deal already happened, and this is only for
the RTO/IPO. That way, there’s no confusion on the transaction, which all parties
173
Id.
174
Tr. 689:15–690:2 (Taylor).
175
JX 305.
32
signed and agreed on April 29th --and some payments are due and delayed, as you
know.”176
Two days later, on Friday, May 20, Taylor updated Gomez on negotiations
with HOL’s lender, Next Edge, and requested draft audited financials. 177 Gomez
replied that Reby would “do our best to help you guys pay us the money you owe to
the Company and its shareholders.”178 Gomez complained that a CAD $800,000
payment to Reby’s account had “bounced,” and that Gomez expected payment to be
made by May 23.179 Taylor had promised that the funds would be wired by May
23.180 Gomez reminded Taylor that the last word received from HOL was that the
funds required under the agreement would be wired on Tuesday or Wednesday.181
Gomez stated, “Please also urgently advise if you are no longer planning on wiring
by then. Also, can you send any proof I can send to our shareholders with regards
to the specific request of Next Edge of providing Reby’s 2021 draft audit in
exchange of giving you the money to pay us the due amount.” 182 The exchange was
tense. Taylor interpreted Gomez’s response as a threat to sue, and it marked a further
176
Id.
177
JX 312 at 2.
178
Id. at 1.
179
Id.
180
Id.
181
Id.
182
Id.
33
deterioration in parties’ relationship. 183 Afterward, Gomez noticed a change in
Taylor’s behavior and that Taylor began to avoid Gomez.184 On May 28, HOL’s
counsel sent a letter to Reby’s counsel detailing numerous alleged “material
deficiencies and breaches” and stating that HOL would not close the transaction or
make payments under the SSAs until these breaches were corrected.185
On May 30, representatives of HOL and Gomez met in person to discuss
Reby’s business and financials.186 Among those present for HOL was ALOE
Finance (“Aloe”), a transactional advisory firm.187 Gomez dialed in Benge, Reby’s
CFO, to discuss the financial statements.188 The parties met again on June 1. Gomez
was protective of the information that he shared during these meetings. HOL’s
contemporaneous notes confirm that Gomez was unwilling to provide documents to
183
Tr. 692:9–18 (Taylor).
184
Id.
185
Id.; JX 327. At trial, Defendant’s counsel objected to JX 327 as an impermissible
settlement discussion under Rule 408 of the Delaware Rules of Evidence. Defendant
briefly renews this objection in its post-trial answering brief. Def.’s Answering Br. 22
n.14. Rule 408(b) provides that evidence of compromise negotiations can be admissible
for other purposes. Del. R. Evid. 408(b). This exhibit serves only to establish when
Plaintiffs received notice that Defendant did not intend to perform under the agreement and
is admissible for this limited purpose.
186
Tr. 456:2–18 (Waxman).
187
Id. at 455:15–22.
188
Id.
34
HOL or Aloe for review. 189 They also reflect that Gomez “considers agreement
signed on April 29 as binding acquisition close. Pep thinks Andy/SOL is wanting
to renegotiate because of challenging market conditions making it hard to raise
funds.”190 On June 15, 2022, Reby’s counsel sent a letter to HOL’s counsel
demanding that HOL perform under the contract and threatening to sue regarding
the transaction.191 Taylor responded to his legal counsel and internal team, “Let’s
huddle tomorrow or early next week to determine next steps. Obviously we need to
aggressively move forward with the current restructuring plans.” 192 In June, SOL
had been contemplating different possibilities for restructuring its investments,
including HOL.193 It does not appear that a restructuring ever occurred.194
On July 6, the parties entered into a tolling and standstill agreement. In the
meantime, HOL was desperate to find any excuse to get out of the deal. On July 10,
2022, after receiving Reby’s latest financials from Gomez, Taylor forwarded them
to Waxman. He wrote: “Latest financials from Pep. I’m meeting with him on
Wednesday. Hopefully you are available. Need a kill shot or I may kill him I[’]m
189
JX 341. Gomez used a personal projector to display documents on a wall in the HOL
conference room. Tr. 458:8–21 (Waxman).
190
JX 341.
191
JX 358.
192
JX 515 at 5.
193
Tr. 772:14–773:3 (Taylor); JX 366; JX 442 at 441:12–444:8.
194
JX 442 at 447:5–7.
35
so upset with him.” 195 The next day, Taylor emailed Centner, Kania, Waxman, and
individuals from Aloe, attaching several documents received from Reby and asking
them to dig up any discrepancies in the Reby’s financials. He told them, “[t]he goal
is to negotiate our way out of this transaction, so anything will help.” 196 Waxman
asked if they should focus on the documents that Taylor had circulated or whether
Taylor wanted them to look into other issues. Taylor responded with one word:
“Everything.”197
D. Procedural History
On August 8, 2022, Restanca and Reby (“Plaintiffs”) initiated this action.198
The complaint asserted claims for breach of contract and specific performance, for
breach of the implied covenant of good faith and fair dealing, and for declaratory
judgment establishing the parties’ rights under the SSAs. The parties agreed to
expedite the proceedings and to set trial for early December 2022. 199 On August 26,
2022, HOL answered the complaint and asserted counterclaims for fraudulent
inducement against the Plaintiffs and Gomez, for unjust enrichment against Reby,
195
JX 382 at 1.
196
JX 385 at 1.
197
Id.
198
Dkt. 1.
199
Dkt. 8.
36
and for breach of contract and declaratory judgment against the Plaintiffs.200
Defendant asserted fourteen affirmative defenses, arguing that Plaintiffs’ claims fail
because Plaintiffs cannot demonstrate harm, because Plaintiffs materially breached
the SSAs, and because Plaintiffs failed to satisfy conditions precedent under the
SSAs. 201 On October 7, 2022, Defendant moved to bifurcate the liability and
damages portions of the trial. 202 After briefing, the court denied the motion.203
Prior to trial, the parties clashed over several motions in limine. Both parties
moved to exclude the other’s expert.204 Plaintiffs moved to preclude testimony from
Habibi or Shumate as untimely and violative of the sword-shield doctrine. 205 They
also moved to exclude evidence regarding the Aloe meetings and report as
impermissible evidence of compromise offers and negotiations, and to exclude
evidence regarding the TechCrunch article because it raised a sword-shield issue.206
The court denied the motions as to Habibi and Shumate, Aloe finance, and the
TechCrunch article without prejudice, allowing Plaintiffs to present them at trial and
in post-trial briefing.
200
Dkt. 18.
201
Id. at 26–28.
202
Dkt. 62.
203
Dkt. 79.
204
Dkts. 106, 108.
205
Dkt. 107.
206
Dkts. 84, 109.
37
The court held a three-day trial from December 7 to December 9, 2022. There
were over 650 trial exhibits. Six fact witnesses and two experts testified at trial. The
parties also submitted deposition transcripts from three other witnesses. The parties
completed post-trial briefing and presented post-trial argument on March 30, 2023.
II. ANALYSIS
To resolve this case, the court must answer a series of questions. First, did
the parties enter into an enforceable contract? That question is dually pronged here,
requiring the court to determine whether the parties intended to be bound and
whether the terms of the contract are sufficiently definite. If the contract is valid,
was there a breach or is any party otherwise excused from performing? Lastly, is
either party entitled to damages?
As explained below, the court concludes that the parties formed an
enforceable contract but that HOL has no obligation to close the transaction because
Plaintiffs’ representations are not true and correct.
Before turning to this flowchart of contractual queries, the court addresses
several lingering evidentiary issues.
A. Admissibility of Evidence
1. Can the court consider Habibi’s testimony?
Plaintiffs seek to preclude the testimony of HOL’s deal counsel, Sharagim
Habibi, because HOL identified him as a trial witness on the eve of trial and then
prevented Plaintiffs from obtaining discovery from him on certain issues by
38
invoking attorney-client privilege. Primarily, Plaintiffs seek to bar Habibi’s
testimony about his discussions with Gomez on April 30 and his communications
regarding the lack of authorization to disseminate the press release announcing the
transaction.207 When Plaintiffs inquired further into Habibi’s conversations with
HOL executives about these topics, Habibi followed counsel’s instruction not to
answer on grounds of privilege.208
As a threshold matter, Habibi’s testimony will not be excluded due to his late
identification as a trial witness. In expedited litigation, witnesses are sometimes
identified late in the schedule for a variety of reasons. Habibi was known to
Plaintiffs as a person with knowledge early on. 209 When he was identified as a trial
witness, he was made available for a deposition. There is no prejudice to Plaintiffs
due to the timing of his identification as a witness. For those reasons, the motion to
exclude Shumate’s testimony is also denied.
The attorney-client privilege protects confidential communications between a
lawyer and client made for the purpose of rendering legal services to the client.
Moyer v. Moyer, 602 A.2d 68, 72 (Del. 1992). The attorney-client privilege protects
“legal advice, as opposed to business or personal advice,” and communications, as
207
Pls.’ Opening Br. 27–28, 41–42.
208
See, e.g., Tr. 569:14–570:18 (Habibi); id. at 627:7–19; JX 472 at 166:4–19.
209
JX 411 at 13.
39
opposed to underlying facts. PharmAthene, Inc. v. SIGA Techs., Inc., 2009 WL
2031793, at *2 (Del. Ch. July 10, 2009). “The courts of this State have refused to
allow a party to make bare, factual allegations, the veracity of which are central to
resolution of the parties’ dispute, and then assert the attorney-client privilege as a
barrier to prevent a full understanding of the facts disclosed.” Tackett v. State Farm
Fire & Cas. Ins. Co., 653 A.2d 254, 259 (Del. 1995). Here, HOL erected privilege
as a barrier to prevent Plaintiffs from inquiring further into Habibi’s testimony on
factual issues that are central to this case. Although it is possible that some of those
communications may have been privileged, HOL’s broad assertion of privilege
prevented Plaintiffs from ascertaining purely factual information. For example,
Habibi’s communications to HOL about what Gomez may have said to Habibi on
April 30 is factual information that is discoverable. That Habibi happens to also be
a lawyer does not permit HOL to withhold those facts under a cloak of privilege.
See Cincinnati Bell Cellular Sys. Co. v. Ameritech Mobile Phone Servs. of
Cincinnati, Inc., 1995 WL 347799, at *2 (Del. Ch. May 17, 1995) (“[Plaintiff]
cannot invoke the attorney-client privilege to block [Defendant’s] inquiry into the
facts that caused [the witness] to conclude that [plaintiff] had an improper motive
for bringing this lawsuit or engaged in a regulatory violation, even though she
learned these facts from [plaintiff’s] general counsel.”). The court will not allow
such tactics, in which a party seeks to use privilege both as a “sword” and as a
40
“shield.” See Ashmore v. Metrica Corp., 2007 WL 1464541, at *1 (Del. Ch. May
11, 2007) (“Principles of waiver and fairness [prevent] a party from using the
privilege as both a sword and a shield[.]”); Sealy Mattress Co. of N.J., Inc. v. Sealy,
Inc., 1987 WL 12500, at *6 (Del. Ch. June 19, 1987) (“As a general matter, a party
cannot take a position in litigation and then erect the attorney-client privilege in order
to shield itself from discovery by an adverse party who challenges that position.”).
Accordingly, the court will not consider Habibi’s testimony that Gomez told
Habibi he would not enforce the SSAs or Habibi’s testimony concerning the May 11
news release and TechCrunch article. As for the remainder of Habibi’s testimony,
the court will give it the weight it deserves.
2. Should the court draw an adverse inference from the absence
of DeFrancesco?
Unfortunately, the evidentiary record lacks testimony from a central figure in
this dispute—DeFrancesco. DeFrancesco was the catalyst for this transaction and
served as HOL’s primary negotiator throughout the process. Although his
employment and leadership positions at SOL and HOL terminated on April 25, 2022,
his involvement in the transaction did not. 210 His separation agreement provided for
him to continue advising SOL, and he did so in connection with the Reby deal.
DeFrancesco was the critical third individual on calls between Taylor and Gomez,
210
Tr. 709:14–17 (Taylor).
41
including the April 30 call on which Gomez is alleged to have told Taylor that he
would not enforce the SSAs. Although he was not present for the last call between
Gomez and Taylor, DeFrancesco was physically present with Gomez in Alabama
and communicated with him shortly after the conversation ended. DeFrancesco also
remained involved in the process after the SSAs were signed. 211 In fact, multiple
witnesses for HOL testified that they were in contact with DeFrancesco shortly
before their testimony in this matter, 212 and at the time of trial, DeFrancesco was
required to continue advising HOL under the terms of his separation agreement. 213
Plaintiffs argue that HOL’s failure to present DeFrancesco as a witness
warrants an inference that his testimony would have been adverse to HOL’s position
at trial—specifically as to what Gomez did or did not say to Taylor on April 30.
“It is a well established principle that the production of weak evidence when
strong is, or should have been, available can lead only to the conclusion that the
strong would have been adverse.” Smith v. Van Gorkom, 488 A.2d 858, 878–79
211
Id. at 410:6–12 (Kania); id. at 710:17–23 (Taylor); JX 23; JX 355 (depicting a message
from DeFrancesco that Gomez “will re-trade the deal or we will bury him” and a message
from Centner asking DeFrancesco to “make that clear to Pep” and organizing a strategy
meeting with DeFrancesco and Taylor).
212
Tr. 410:14–412:15 (Kania) (noting that he spoke to DeFrancesco five to six days before
his deposition, one week before his supplemental deposition, and within a week of his
testimony at trial); id. at 711:18–20 (Taylor) (noting that he spoke to DeFrancesco two
days before testifying at trial).
213
Id. at 711:4–17.
42
(Del. 1985), overruled on other grounds by Gantler v. Stephens, 965 A.2d 695 (Del.
2009); accord Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110, 1118 n.7 (Del.
1994); Young v. Red Clay Consol. Sch. Dist., 159 A.3d 713, 791 n.510 (Del. Ch.
2017); Chesapeake Corp. v. Shore, 771 A.2d 293, 300–01 & n.7 (Del. Ch. 2000).
“[I]f the record lacks documentation relating to a particular event, and if it is
reasonable to expect that documentation would exist if the event took place, then the
plaintiffs are entitled to a reasonable inference that the event did not occur.” Ontario
Provincial Council of Carpenters’ Pension Tr. Fund v. Walton, 2023 WL 3093500,
at *2 (Del. Ch. Apr. 26, 2023).
HOL argues that it would be inappropriate to draw an adverse inference here
for two reasons. First, HOL contends Plaintiffs failed to properly subpoena
DeFrancesco. During discovery, Plaintiffs requested that HOL make DeFrancesco
available for a deposition. HOL did not do so. Plaintiffs then served DeFrancesco
in California with a subpoena that sought a deposition in Florida. DeFrancesco, who
was represented by HOL’s counsel, objected to the subpoena, declining to produce
documents or appear for a deposition and asserting that DeFrancesco was not a
resident of California and could not be compelled to comply with a California
43
subpoena.214 Plaintiffs did not move to enforce the subpoena or serve a new one.215
Rather, when HOL informed Plaintiffs that it did not intend to call DeFrancesco at
trial and would not make him available for a deposition, Plaintiffs chose not to
further pursue DeFrancesco’s testimony or documents.
Second, HOL argues that an adverse inference is unwarranted because
DeFrancesco is no longer within the control of HOL.216 HOL contends its inability
to control DeFrancesco distinguishes this case from those upon which Plaintiffs rely.
See Senior Housing Cap., LLC v. SHP Senior Housing Fund, LLC, 2013 WL
1955012, at *42 (Del. Ch. May 13, 2013) (noting that the failure of any employee to
testify as to their intention undercut the company’s argument); Kahn, 638 A.2d at1118 n.7 (noting that the failure of the independent committee’s chairman to testify
214
JX 628; JX 629; JX 630. In addition to objecting to the requests for document
production as overbroad and unduly burdensome, DeFrancesco argued that “HoL’s
production of documents in the litigation pursuant to the Search Parameters will satisfy
fully any obligation Mr. DeFrancesco has to produce documents in response to this
Request.” JX 630 at 8–13, 15.
215
On October 21, 2022, Plaintiffs filed a motion to compel discovery into the
circumstances surrounding DeFrancesco’s departure. Dkt. 86. Ten days later, Plaintiffs’
counsel filed a letter withdrawing the motion in light of further discovery that Defendant
had provided to moot the motion. Dkt. 95.
216
HOL also argues that Plaintiffs have forgone their right to seek an adverse inference by
relying on statements of DeFrancesco, which HOL contends are hearsay unless
DeFrancesco is an unavailable witness. Def.’s Answering Br. 57. But HOL never
challenged these statements as hearsay and that even if it had, these statements may be
admissible as non-hearsay because they are “offered against an opposing party and . . .
[were] made by the party’s agent or employee on a matter within the scope of that
relationship and while it existed.” Del. R. Evid. 801(d)(2).
44
permitted drawing an adverse inference); Chesapeake Corp., 771 A.2d at 300–01
(giving no weight to certain evidence where key insiders, including the CEO, did not
testify).
Those opinions, however, do not explicitly state that a non-testifying witness
must be an employee of the party against whom an adverse inference is drawn for
the witness’s failure to appear. Each relies on the court’s statement in Van Gorkom
that “the production of weak evidence when strong is, or should have been, available
can lead only to the conclusion that the strong would have been adverse.” Van
Gorkom, 488 A.2d at 879.
The federal courts follow the “uncalled witness” rule, which states that “‘if a
party has it peculiarly within his power to produce witnesses whose testimony would
elucidate the transaction, the fact that he does not do it creates the presumption that
the testimony, if produced, would be unfavorable.’” Herbert v. Wal-Mart Stores,
Inc., 911 F.2d 1044, 1046 (5th Cir. 1990) (quoting Graves v. United States, 150 U.S.
118, 121 (1893)). “The ‘missing witness’ rule permits, rather than compels, the
factfinder to draw an adverse inference from the absence of a witness, . . .
particularly where the factfinder concludes that the party who requested the adverse
inference failed to subpoena a witness otherwise available to testify.” Bogosian v.
Woloohojian Realty Corp., 323 F.3d 55, 67 (1st Cir. 2003). The witness must be
“peculiarly within the control” of the party against whom the inference is drawn,
45
ensuring that the inference is not drawn “against a party who, in comparison with an
adversary, lacks meaningful or pragmatic access to the witness.” United States v.
Caccia, 122 F.3d 136, 139 (2d Cir. 1997). While an employer-employee
relationship is the paradigmatic example of a control relationship, federal courts
have held that other types of close relationships may satisfy the requirement,
including the relationship between a defendant and his mother-in-law and between
a defendant and her son. Chevron Corp. v. Donziger, 974 F. Supp. 2d 362, 406 n.172
(S.D.N.Y. 2014) (citing Gaw v. Commissioner, 70 T.C.M. (CCH) 1196 (T.C. 1995),
aff’d, 111 F.3d 962 (D.C. Cir. 1997) and Fey v. Walston & Co., Inc., 493 F.2d 1036,
1053 (7th Cir. 1974)).
A witness’s availability depends on “all the facts and circumstances bearing
upon the witness’s relation to the parties, rather than merely on physical presence or
accessibility.” United States v. Rollins, 487 F.2d 409, 412 (2d Cir. 1973). Where
the witness is equally available to both parties but is not called, “the court has
discretion to (1) give no instruction and leave the entire subject to summations, . . .
(2) instruct the jury that no unfavorable inference may be drawn against either side,
. . . or (3) instruct the jury that an adverse inference may be drawn against either or
both sides.” Caccia, 122 F.3d at 139. “An adverse inference is not warranted, . . .
where the controlling or related party makes the missing witness available to its
opponent, the party seeking the adverse inference equally could obtain the missing
46
witness’s testimony, or the party seeking the adverse inference made no attempt to
obtain the witness’s testimony.” Donziger, 974 F. Supp. 2d at 701.
Both parties had some sort of relationship with DeFrancesco. Gomez and
DeFrancesco had established a tight relationship over the course of their
negotiations. DeFrancesco also continued to have a strong relationship with HOL
as an adviser and as a major SOL stockholder. After the relationship between Gomez
and HOL broke down, DeFrancesco sided decisively with HOL. 217 Plaintiffs could
have, but chose not to press for DeFrancesco’s deposition. Although it is a close
call, the court does not draw an adverse inference from DeFrancesco’s absence at
trial.
3. Can the court consider the Aloe meetings or reports?
Under Rule 408 of the Delaware Rules of Evidence, “evidence of an offer in
compromise is inadmissible if offered for the purpose of proving or disproving
liability with regard to the claim that is the subject of the settlement discussion. Such
evidence may be admissible, however, if offered for another purpose.” Grunstein v.
Silva, 2011 WL 378782, at *6 (Del. Ch. Jan. 31, 2011). “Two principles underlie
Rule 408: 1) the evidence of compromise is irrelevant since the offer may be
motivated by a desire to terminate the litigation rather than from any concession of
JX 355 (slinging profanities at Gomez and noting that Gomez “will re-trade the deal or
217
we will bury him – I don’t care[.] We come first and our home comes first”).
47
weakness of position; and 2) public policy favors compromise in settlement
disputes.” Cap. Mgmt. Co. v. Brown, 813 A.2d 1094, 1100 (Del. 2002).
Plaintiffs urge the court to exclude evidence of the Aloe meetings and report,
arguing that they are inadmissible evidence of settlement negotiations.218 While
HOL opposed the motion to exclude evidence regarding the Aloe meetings and
report before trial, it did not respond to Plaintiffs’ renewed motion after trial.219
Plaintiffs proffered evidence that the meetings were for settlement purposes.220 By
failing to respond, HOL has waived its right to oppose the motion to exclude the
testimony and evidence surrounding the Aloe meetings and findings. See Lynch v.
Gonzalez, 2020 WL 4381604, at *6 n.42 (Del. Ch. July 31, 2020) (deeming failure
to address evidentiary objection in post-trial briefing a waiver). Accordingly, the
objection is sustained and the court does not consider the evidence surrounding the
Aloe meetings or report for purposes of deciding the issues of breach.
B. Contract Formation
To prevail on a breach of contract claim, a party must prove the existence of
a contractual obligation, the breach of that obligation, and resulting harm. Under
Delaware law, “a valid contract exists when (1) the parties intended that the contract
218
Pls.’ Opening Br. 31.
219
See Dkt. 116.
220
Tr. 107:8–13 (Gomez).
48
would bind them, (2) the terms of the contract are sufficiently definite, and (3) the
parties exchange legal consideration.” Osborn ex rel. Osborn v. Kemp, 991 A.2d
1153, 1158 (Del. 2010). Plaintiffs bear the burden of proving the existence of a
contract by a preponderance of the evidence. Morton v. Evans, 1998 WL 276228,
at *2 (Del. Ch. May 15, 1998). “Proof by a preponderance of the evidence means
proof that something is more likely than not.” Martin v. Med-Dev Corp., 2015 WL
6472597, at *10 (Del. Ch. Oct. 27, 2015) (internal quotation omitted).
The parties here dispute the existence of a valid contract, focusing on the first
two elements of the test—whether the parties intended to be bound and whether the
terms of their agreement were sufficiently definite. Those issues require related but
distinct inquiries. Eagle Force Hldgs., LLC v. Campbell, 187 A.3d 1209, 1230 (Del.
2018) (“Eagle Force I”). The court must make separate factual findings as to each
element. Id. Accordingly, if the parties intended to be bound and the terms of their
contract were sufficiently definite, they will have formed an enforceable contract.
1. Intention to Be Bound
“Whether a party manifested an intent to be bound is a question of fact.”
Eagle Force Hldgs., LLC v. Campbell, 235 A.3d 727, 735 (Del. 2020) (“Eagle Force
II”). “Under Delaware law, ‘overt manifestation of assent—not subjective intent—
controls the formation of a contract.’” Black Horse Cap., LP v. Xstelos Hldgs., Inc.,
49
2014 WL 5025926, at *12 (Del. Ch. Sept. 30, 2014) (quoting Indus. Am., Inc. v.
Fulton Indus., Inc., 285 A.2d 412, 415 (Del. 1971)).
There is no dispute that Taylor signed the SSAs on behalf of HOL on April
30, 2022. That act alone is the strongest evidence of an intent to be bound. “[T]he
act of placing signatures on the signature lines at the end of a contract is so
universally recognized as the means of accepting and binding one’s self to the
contract” that in all but the most unusual case “no other act or statement is ordinarily
required.” Eagle Force II, 235 A.3d at 736. “[W]here the putative contract is in the
form of a signed writing, that document generally offers the most powerful and
persuasive evidence of the parties’ intent to be bound.” Eagle Force I, 187 A.3d at
1230. “[A] wet ink, signed version of a contract looks to be solid evidence of a
meeting of minds. But it is not evidence so powerful that it negates all other evidence
to the contrary.” Kotler v. Shipman Assocs., LLC, 2019 WL 4025634, at *17 (Del.
Ch. Aug. 21, 2019). When presented with a facially valid contract, the court will
defer to the parties’ signed writing unless there is evidence to the contrary. Malkani
v. Cunningham, 2023 WL 1383938, at *8 (Del. Ch. Jan. 31, 2023). “[W]hether in
any particular case involving oral negotiations it is ‘clearly understood’ that the
proposed contract is tentative only is a question of intention to be inferred from the
evidence. Where the evidence is conflicting and two inferences are possible, as here,
50
the question is for the [factfinder].” Chrysler Corp. v. Quimby, 144 A.2d 123, 131–
32 (Del. 1958).
In Eagle Force, the defendant successfully established on remand that it was
the signor’s practice to endorse draft contracts to acknowledge receipt, that his
signature was requested to acknowledge receipt at signing, and that the signed
document was marked as a draft. Eagle Force II, 235 A.3d at 736–37. These factors,
taken together, were sufficient to overcome the signed agreement and other
contemporaneous indicia of a binding contract. Id.
The pre-signing and contemporaneous evidence in this case tilts in the other
direction. The parties negotiated extensively, executing three term sheets during the
course of several months to memorialize their deal. 221 When Gomez communicated
to HOL that he would begin the process of obtaining stockholder signatures on the
SSAs, HOL did not object. 222 On April 29, 2022, Gomez first sent the bundle of
SSAs. 223 He would resend the document for signature two more times, later in the
same day on April 29 and again moments before Taylor signed the document.224 On
April 29, 2022, Gomez also sent a series of WhatsApp messages to Taylor, “KT the
221
See JX 18; JX 51; JX 111. HOL’s counsel, Habibi, observed in mid-March that “this
SPA has been heavily negotiated” and contains terms that are “extremely off-market and
devoid of any standard reps in favour of the purchaser.” JX 118 at 6.
222
JX 115; JX 118.
223
JX 205.
224
Id.
51
bundle has just been sent,” “if you could sign that would be great.” 225 Taylor
responded that he “[w]ill sign tonight or tomorrow.” 226 Taylor later added that he
was waiting on the company’s lawyers to “ok” the signature.227 HOL never
indicated in the days leading up to the signing of the SSAs that it did not intend to
sign them. 228 Contemporaneous communications confirm that Taylor expected to
sign the agreement and to have payment obligations under the agreement.229
On April 30, Gomez again began to press Taylor for a signature. Gomez
discussed the deal with Habibi, who offered alternatives to the current form of the
agreement, including a signature now that would not become binding until later.
Gomez rejected this proposal. Gomez likewise rejected the next two proposals from
Habibi, which included changing the terms of the SSAs and entering into a side
letter. Taylor communicated with counsel numerous times, including for at least 40
minutes on a conference call. Having conferred extensively with counsel, he then
began a sequence of phone calls with Gomez and DeFrancesco and ultimately signed
the SSAs. Taylor was an experienced and informed participant, having done many
225
JX 207.
226
Id.
227
Id.
228
Tr. 613:1–17 (Habibi).
229
JX 221 at 2.
52
M&A transactions over the course of his career. 230 He was aware of the force of his
actions—that signing a contract would make its terms binding.231 Unlike in Eagle
Force, where a party testified that it was their practice to sign draft versions of
agreements, Taylor testified that his policy was to consult with counsel before
signing any agreement.232 Taylor acknowledged that he was free to decide not to
sign the SSAs on April 30, either calling Gomez’s bluff or decisively causing HOL
to walk away from the deal. 233 He understood his fiduciary responsibility to the
230
Tr. 727:3–5 (Taylor).
231
Id. at 727:5–728:7 (“Q: And you know what it means to sign a contract, don’t you, sir?
A: I do. Q: It means a promise. Correct? A: As I received one from Mr. Gomez as well,
as you know. Q: You understand that a contract is a promise. Yes? A: I understand that
a contract is a contract, yes. Q: And you consulted with the company’s lawyers before
you signed. Correct? A: I did. . . . Q: Your testimony was that Mr. Gomez asked you to
sign to appease his investors. Correct? A: Yes. Q: To pacify and placate them. Correct?
A: That’s correct. Q: In order to appease his investors, he’d have to tell them that the deal
was signed. Correct? A: He needed a signature, correct. Q: How else was he going to
appease them other than to show them there was a signed deal? A: That’s what I just said.
He needed a signature, yes. Q: Were you intending to defraud the selling shareholders?
A: Was I? Q: Yeah. A: No. Q: You signed an agreement that you knew he was going
to show to his shareholders and say, look, they signed. Correct? A: He -- based on the
agreement that we had, correct. Q: What was your plan when the investors who you knew
he was going to be showing the signed agreement to asked to be paid? A: That was Mr.
Gomez’s issue. Q: He wasn’t the one making the payments. Correct? It was House of
Lithium. A: There would be no payments based on the agreement that Mr. Gomez and I
had. Q: Well, there were payments, sir. Correct? A: The $2 million. Q: And then
another million dollars after the signing. Correct? A: That’s correct.”).
232
Id. at 665:12–23 (“I have a policy that, you know, if I’m going to put my signature on
any sort of contractual document, that -- that it needs to be reviewed by counsel. This was
especially true in this particular case, given that I’d been on the job for five days.”).
233
Id. at 696:22–697:3 (Taylor); id. at 708:20–709:13.
53
HOL stockholders and “believed at the time that it was in the best interests of [] the
shareholders that we move forward to try to [] consummate a deal.”234
The parties vigorously debate whether Gomez told Taylor that the signature
was only to pacify Reby’s investors and that the contract would not be enforced.
Taylor contends that the statement was made and was the sole basis for his signature.
Gomez contends that he said nothing of the sort, although he did promise to work
with Taylor going forward. The only other party privy to these conversations,
DeFrancesco, did not give testimony in this case.
Having considered the evidence at trial and observed the witnesses’
credibility, I have reason to question the credibility of both Gomez and Taylor.
Gomez seems to misunderstand some basic premises of transactional law, including
the difference between signing and closing a deal. Likewise, his insistence that he
did not know that he had embedded hyperlinks in emails to his stockholders and that
the underlining was simply a decorative flourish was not credible.
Taylor’s testimony was at times internally inconsistent and is contradicted by
his later actions. Taylor’s initial recollection of the circumstances surrounding his
April 30 calls with Gomez was admittedly faulty. Taylor initially insisted that he
had those conversations while he was in Florida, and that he signed the SSAs around
234
Id. at 657:2–15.
54
midnight. 235 But he was later forced to recant, after evidence showed that he was in
Oregon on that day. 236 In addition, Taylor said that after the SSAs were signed, he
had a phone call with Gomez to remind him of his promise not to enforce the
agreement.237 But Taylor’s subsequent email does not mention this purported
promise and instead reassures Gomez that his requests for diligence concern only
the RTO transaction. 238 On balance, Gomez’s version of events, where he reassured
Taylor that the parties would work together but did not go as far as to promise that
the agreement would not be enforced, is more credible.239
HOL argues that the parties could not have intended the SSAs to be final and
binding because they contained multiple misstatements reflecting a purchase by a
public entity, HoLi, which did not yet exist. HOL also argues that Taylor could not
reasonably intend to be bound by such an agreement, which would cause HOL to be
235
JX 442 at 170:21–171:5; id. at 194:15–19.
236
See JX 463; Tr. 700:10–708:2 (Taylor).
237
Tr. 689:15–690:2 (Taylor).
238
JX 305.
239
“Deference to the factfinder’s conclusions is greatest with respect to credibility
determinations, but the factfinder ‘may insulate his findings from review by denominating
them credibility determinations, for factors other than demeanor and inflection go into the
decision whether or not to believe a witness.’” Berglund v. Horgan, 1997 WL 695568, at
*4 (Del. Ch. Oct. 17, 1997) (quoting Studiengesellschaft Kohle mbH. v. Dart Indus., Inc.,
666 F. Supp. 674, 680 (D. Del. 1987)). “Documents or objective evidence may contradict
the witness’ story; or the story itself may be so internally inconsistent or implausible on its
face that a reasonable factfinder would not credit it.” Anderson v. Bessemer City, 470 U.S.
564, 575 (1985).
55
in immediate breach of certain obligations under it. But Taylor understood that there
were terms in the agreement that conflicted with the then-existing circumstances.
Taylor discussed these terms with Gomez in their calls on April 30, before signing
the SSAs.240 He also acknowledged that HOL would owe $8 million immediately
upon signing the SSAs.241 Nevertheless, Taylor signed the agreements and did not
make any contemporaneous record that he intended anything other than to be bound
by the agreements.
On top of that, HOL has not offered any contemporaneous documentary
evidence reflecting that Gomez told Taylor that he would not enforce the SSAs.
Given the significance of such a promise, one would reasonably have expected
Taylor to have documented it in some form. 242 But there is no such evidence on this
issue among the plethora of emails and text messages exchanged between and among
the parties. The absence of such evidence further undermines Taylor’s credibility
on this issue. Accordingly, the court finds that the evidence at the time of signing
the SSAs establishes that the parties intended to be bound.
240
Tr. 649:11–650:23 (Taylor).
241
JX 221 at 2.
242
“[I]f the record lacks documentation relating to a particular event, and if it is reasonable
to expect that documentation would exist if the event took place, then the plaintiffs are
entitled to a reasonable inference that the event did not occur.” Ontario Provincial
Council, 2023 WL 3093500, at *2.
56
The Plaintiffs point to HOL’s post-signing conduct as further evidence of its
intent to be bound by the SSAs. HOL, however, insists that under Eagle Force I the
court may not consider post-signing evidence and, instead, is constrained to consider
only the parties’ communications up until the time that the contract was signed. The
court does not read Eagle Force I as establishing the rigid rule that HOL derives
from that decision.
The Delaware Supreme Court stated in Eagle Force I that in determining
whether a party intended to be bound by a contract, “the court reviews the evidence
that the parties communicated to each other up until the time that the contract was
signed—i.e., their words and actions—including the putative contract itself.” 187
A.3d at 1229–30; see id. at 1230 (“Whether both of the parties manifested an intent
to be bound is to be determined objectively based upon their expressed words and
deeds as manifested at the time rather than their after-the-fact professed subjective
intent.” (quoting Black Horse, 2014 WL 5025926, at *12 (internal quotation marks
omitted))). In Eagle Force I, the Court held that the trial court erred in collapsing
the separate inquires of intent to be bound and definiteness of the agreement. Id. at
1230–31 & n.157. The Court then concluded that it was not proper for the trial court
to consider post-signing evidence that created the specter that one side might not be
able to perform, as evidence that the terms were too indefinite. Id. at 1234–35. The
Court explained that such evidence was “a form of ‘after-the-fact professed
57
subjective intent’ that our courts typically refuse to consider.’” Id. at 1235 n.180
(quoting Sarissa Cap. Domestic Fund LP v. Innoviva, Inc., 2017 WL 6209597, at
*21 (Del. Ch. Dec. 8, 2017)).
The Supreme Court’s citation to Sarissa in Eagle Force I is instructive. In
Sarissa, the parties had reached an oral settlement agreement during a phone call.
2017 WL 6209597, at *25. Thereafter, counsel for the parties began to revise
documents reflecting the agreement. But before the documents were finalized, the
defendant sought to renege on the deal. The court rejected that gambit, confirming
that the parties had concluded an enforceable contract during their phone call. Id. at
*22. In doing so, the court specifically noted that the post-call revisions to the
settlement documents “reflect the attorneys’ shared understanding that [the parties]
had already reached a deal.” Id. at *24. In relying on post-agreement evidence, the
Sarissa court pointed to the Delaware Supreme Court’s decision in Trexler v.
Billingsley, 166 A.3d 101 (Del. 2017) (TABLE). Like Sarissa, Trexler also
considered a party’s post-agreement conduct to prevent him from reneging on a
settlement agreement. Both Sarissa and Trexler stand for the proposition that “‘[t]he
parties’ actions following the deal are also informative’ in determining whether they
mutually assented to be bound.” Sarissa, 2017 WL 6209597, at *24 n.264 (quoting
Trexler, 166 A.3d at 101); see also Restatement (Second) of Contracts § 202 cmt. g
(1981) (“The parties to an agreement know best what they meant, and their action
58
under it is often the strongest evidence of their meaning.”); 17A C.J.S. Contracts §
427 (“A party’s conduct may be evidence of its intent . . . so long as that conduct
evinces an interpretation contrary to that party’s interest.”).
Eagle Force I instructs the court to rely on evidence at the time of signing to
determine if the parties intended to be bound. It generally precludes the court from
considering a reneging party’s attempt to use post-signing evidence of a subjective
intent not to be bound. But the converse is not equally applicable. Rather, Trexler
and Sarissa confirm that a court may consider a reneging party’s post-signing
conduct if it reflects an objective manifestation of the reneging party’s intent to be
bound by the agreement.
Here, HOL’s post-signing conduct reflected an objective manifestation of its
intent to be bound by the SSAs. First, Taylor signed an amended SSA for Restanca
on May 10, 2022.243 Second, HOL accepted several Reby stock certificates on Carta
on May 12 and 13, 2022.244 This evidence further confirms the court’s finding that
HOL intended to be bound by the SSAs when Taylor signed them on April 30, 2022.
243
JX 261.
244
JX 416. Plaintiffs also point to other evidence of intent, such as the wiring of $1 million
to Reby on May 4, 2022, and HOL’s lack of any objection to the issuance of the May 10
news release and TechCrunch article. That evidence, while consistent with an intent to be
bound, is not nearly as persuasive as Taylor’s signing the amended Restanca SSA and
Waxman’s manually accepting several Reby stock certificates.
59
2. The SSAs Were Sufficiently Definite
The court must next determine whether the terms of the agreement are
sufficiently definite. Eagle Force I, 187 A.3d at 1229. “This is mostly, if not
entirely, a question of law.” Id. at 1232. “[A] contract must contain all material
terms in order to be enforceable, and specific performance will only be granted when
an agreement is clear and definite and a court does not need to supply essential
contract terms.” Ramone v. Lang, 2006 WL 905347, at *10 (Del. Ch. Apr. 3, 2006).
The terms of a contract are sufficiently definite if they provide a basis for the
existence of a breach and for giving an appropriate remedy. Eagle Force I, 187 A.3d
at 1232 (citing Restatement (Second) of Contracts § 33(2)). Put another way, “[a]
contract is sufficiently definite and certain to be enforceable if the court can—based
upon the agreement’s terms and applying proper rules of construction and principles
of equity—ascertain what the parties have agreed to do.” Id. “If the parties have
concluded a transaction in which it appears that they intend to make a contract, the
court should not frustrate their intention if it is possible to reach a fair and just result,
even though this requires a choice among conflicting meanings and the filling of
some gaps that the parties have left.” 1 Corbin on Contracts § 4.1 (1993). “[T]he
degree of certainty required may be affected by the dispute which arises and by the
remedy sought. Courts decide the disputes before them, not other hypothetical
disputes which might have arisen.” Restatement (Second) of Contracts § 33 cmt. b.
60
In Black Horse, this court held that an agreement was too indefinite to be
enforceable when the plaintiffs failed to prove that the parties reached agreement on
the definition of the asset to be transferred. 2014 WL 5025926, at *18. The parties’
differing descriptions of the asset “point[ed] to a vagueness that . . . any court would
be ill-equipped to resolve.” Id. at *19. By contrast in PharmAthene, this court found
it reasonably conceivable that a term sheet for a license agreement contained all
material terms of the parties’ agreement where it defined the nature and scope of
licenses, the parties’ objectives for their partnership, the licensing fees agreed to, and
the structure for milestone and royalty payments. PharmAthene, Inc. v. Siga Techs.,
Inc., 2008 WL 151855, at *13–14 (Del. Ch. Jan. 16, 2008) (denying defendant’s
motion to dismiss).
HOL argues that the SSAs are insufficiently definite in three major areas:
first, the SSAs name HoLi Technologies, Inc., a non-existent company, as the
“Buyer”; second, the SSAs contemplate purchase by a public entity; and third, the
consideration is not calculable when the Buyer is not publicly traded.
a. References to HoLi
The first question is whether the references to HoLi rather than HOL render
the SSAs too indefinite to be enforceable. Plaintiffs argue that the parties used HoLi
and HOL interchangeably and that HOL regarded itself as the Buyer. I agree.
61
“An offer which appears to be indefinite may be given precision by usage of
trade or by course of dealing between the parties.” Restatement (Second) of
Contracts § 33 cmt. a. The parties’ course of dealing here dispenses with any
argument that this nomenclature is ambiguous. Each of the three term sheets leading
up to the signing of the SSAs were signed by HOL. 245 The Second Term Sheet and
the version of the SSA attached to it did not mention HoLi at all, despite HOL having
publicly announced its plans for an RTO. Notes from HOL’s counsel from days
before the SSAs were signed describe the consideration for the transaction as “HOL
CanCo Stock.”246 The parties understood the references to HoLi were inaccurate
before they signed the agreement. On April 30, Habibi proposed a revised version
of the agreement to Gomez, indicating that they had “made some other changes
throughout the agreement to adjust for the fact that it is now a private company
purchase by House of Lithium Ltd. (and not a purchase by the anticipate[d] resulting
issuer to the RTO transaction).” 247 Although Gomez rejected the proposal to change
the terms of the SSAs after they had already been signed by Reby’s stockholders,
the contemporaneous understanding between the parties was that the “Buyer” was
HOL. To be sure, Taylor signed the SSAs on behalf of HOL.
245
JX 18; JX 51; JX 111.
246
JX 179.
247
JX 216 at 3.
62
HOL argues that “the record is clear that HOL and HoLi Technologies were
not understood to be interchangeable,” citing two conversations that occurred in
January 2022.248 But Defendant ignores that SOL decided to name the resulting
entity “HoLi Technologies” after it learned that naming the resulting entity “House
of Lithium, Ltd.” would create additional steps in the RTO process.249
Conversations between DeFrancesco and Waxman in late 2021 confirm that the
name HoLi Technologies Inc. was selected only because they could not use House
of Lithium, Ltd.250 HOL did not distinguish between itself and HoLi. 251
In their course of dealing, the parties understood that references to the Buyer
as “HoLi” were intended to refer to HOL. Accordingly, the misnomers in the SSAs
do not render them insufficiently definite to be enforced.
248
Def.’s Answering Br. 31.
249
Tr. 576:5–24 (Habibi). Habibi explained that Canadian law would not permit Rio Verde
to change its name to House of Lithium, Ltd. prior to the RTO, given the existence of an
identically named entity in a different province. Id. While they could have decided to
change HOL’s name to a placeholder before merging the entities, SOL decided to
streamline the process by just changing Rio Verde’s name to HoLi Technologies, Inc.
instead of House of Lithium, Ltd. Id.
250
JX 27 (“HoLi Inc should be the acronym for House of Lithium. . . . We could not get
the name House of Lithium in BC. You suggested HoLi Inc. instead. We couldn’t get that
either. We can have HOL Technologies Inc. . . . [T]his is just the corporate name.”).
251
JX 54 (“Holi tech is house of lithium”).
63
b. Section 4.9(f)
HOL points to references in the SSAs that the Buyer would be a publicly
traded entity as creating sufficient indefiniteness to establish a valid contract. Article
4 of the SSAs contains representations and warranties of the Buyer. Section 4.9 is a
representation and warranty as to the Buyer’s capital structure. Section 4.9(f) states:
The currently issued and outstanding Buyer Shares are listed and posted
for trading on the CSE and no order, agreement or memorandum of
understanding that contemplates ceasing or suspending trading of the
securities of Buyer is outstanding or in effect and no proceedings or
agreement for this purpose have been instituted or, to Buyer’s
knowledge, are pending, contemplated or threatened. 252
The parties had changed the structure of the transaction over the negotiation
period. While the First and Second Term Sheets contemplated a purchase by HOL
as a private entity, the Third Term Sheet and accompanying form of the SSAs
contemplated a purchase by a public entity, HoLi Technologies Inc. 253 Accordingly,
the SSAs incorporate terms that refer to a public company, naming HoLi
Technologies Inc. as the “Buyer,” including the Buyer’s share price on the Canadian
Securities Exchange as an input to calculate equity consideration, and representing
that Buyer’s shares were listed on the CSE. 254 But by the time that the SSAs were
to be signed, the parties’ understanding had changed again. With Gomez pushing
252
JX 225 at 1–21 (“Model SSA”); id. § 4.9(f).
253
JX 18; JX 51; JX 111.
254
Model SSA at 1; id. at §§ 1.2, 4.9(f).
64
for a signature, HOL tried to get comfortable with a private company purchase. As
explained above, at the time that the SSAs were signed, both parties understood that
HOL, not HoLi, would be the Buyer, but the SSAs were not revised to reflect this
change. 255 The court considers the references to HoLi and the flawed assumption of
the equity consideration sections separately, and addresses only the inaccurate
representation in Section 4.9(f) here.
Section 4.9(f) is inaccurate, but it does not render the agreement indefinite.
Both parties understood that it was inaccurate but nevertheless executed the
agreement. Contract terms are sufficiently definite if “they provide a basis for
determining the existence of a breach and for giving an appropriate remedy.”
Restatement (Second) of Contracts § 33(2). Section 4.9(f) is a Buyer representation,
not a Seller or Company representation. The SSAs contain no Buyer closing
condition requiring HOL’s listing as a public company. Habibi acknowledged that
the deal could go forward as a private company purchase, 256 and Kania conceded
that there was nothing to prevent HOL from going public after the signing of the
SSAs. 257 “Where the parties have intended to conclude a bargain, uncertainty as to
incidental or collateral matters is seldom fatal to the existence of the contract.”
255
JX 179; JX 216.
256
JX 352.
257
Tr. 405:11–15 (Kania).
65
Restatement (Second) of Contracts § 33 cmt. a. That a contract contains inaccuracies
does not foreclose it from being sufficiently definite. See Bryant v. Way, 2011 WL
2163606, at *4 (Del. Super. May 25, 2011) (finding that the memorialization of
terms was sufficiently definite despite containing a scrivener’s error). HOL’s
representation in Section 4.9 did not render the agreement too indefinite to be
enforceable.
c. Consideration
HOL argues that the SSAs are unworkable and are too indefinite because the
consideration to be paid for the Shares cannot be calculated without a publicly traded
purchaser. Section 1.2 provides:
Each Seller shall be entitled to receive that number of Class A common
voting shares of Buyer (the “Buyer Shares”) resulting from dividing (i)
[a certain price in USD] by (ii) the lower of (A) 15% discount on the
closing price of the Buyer Shares on the Canadian Securities Exchange
(the “CSE”) immediately preceding the date of this Agreement, and (B)
CDN $3.60 (Canadian Dollars) provided that the price of each Buyer
Share issued shall not be less than the minimum discounted price
allowable by the CSE. Amounts i[n] USD shall be converted into
Canadian Dollars (CDN) using the daily average rate of the Bank of
Canada in effect at the close of business immediately prior to Closing.
HOL contends that the absence of publicly traded equity of the Buyer renders
the SSAs insufficiently definite. Plaintiffs argue, however, that even if the Buyer
were not a public company, the court could interpret the equity consideration section
by employing the constant figure, CDN $3.60, provided by the SSAs.
66
A court will deny the existence of a contract only if the terms are so vague
that they do not provide a basis for determining the existence of a breach and
fashioning an appropriate remedy. Eagle Force I, 187 A.3d at 1232. Price is an
essential contract term. 1 Williston on Contracts § 4:30 (4th ed. 2023). “[A]lthough
the necessity for definiteness may compel the court to find that the language used is
too uncertain to be given any reasonable effect, when the parties’ language and
conduct evidences an intent to contract, and there is some reasonable means for
giving an appropriate remedy, the court will strain to implement their intent.” Id.
“If the parties have concluded a transaction in which it appears that they intend to
make a contract, the court should not frustrate their intention if it is possible to reach
a fair and just result, even though this requires a choice among conflicting meanings
and the filling of some gaps that the parties have left.” 1 Corbin on Contracts § 4.1
(1993).
In Eagle Force I, the court found that a written agreement containing blank
schedules regarding the specific contracts and equity to be transferred was
sufficiently definite because it allowed the court to ascertain the consideration to be
transferred, and to provide a remedy if one party could or did not perform. 187 A.3d
at 1233. The court noted:
Even if Campbell could not deliver all the Targeted Companies
Securities as promised, in addition to claims for breach of contract, Kay
and the Company had possible recourse through actions for possible
breaches via the warranty and/or indemnification provisions. But, . . .
67
the possibility that Campbell might not perform is a different question
than the definiteness of the putative contract’s terms.
Id.
The parties here came to a meeting of the minds regarding the consideration
payable to each stockholder, which is divided between cash and stock consideration
based on the stockholder’s election. 258 The cash consideration is set at a fixed per
share rate, which varies between SSAs.259 Section 1.2 specifically delineates the
process for calculating equity consideration, with specific inputs in subsection (i) for
each SSA. Courts will find a price term lacking for indefiniteness when it does not
provide “how much will be paid, how it will be paid, when it will be paid and to
whom it will be paid.” Litle v. Waters, 1992 WL 25758, at *6 (Del. Ch. Feb. 11,
1992). The SSAs describe how consideration should be calculated and delivered.
The parties urge the court to choose between their conflicting interpretations
of Section 1.2. It need not do so at this stage. Under the SSAs, HOL promised to
deliver stock in a public company in exchange for the Reby shares tendered. “[T]he
258
Model SSA at § 1.2. Each of the SSAs are included in JX 225 and contain slight
variations to pricing. For reference, the court will discuss the Model SSA as compared to
other SSAs in the bundle, which will be referred to using page numbers within the almost
1,997-page exhibit.
259
Compare Model SSA § 1.2(a) (“Each Seller shall be entitled to receive cash
consideration in the amount of USD $1.2074 per Share”), with JX 225 at 22 (“Each Seller
shall be entitled to receive cash consideration in the amount of USD $ 1.5851 per Share”),
and id. at 43 (“Each Seller shall be entitled to receive cash consideration in the amount of
USD $0.5639 per Share”).
68
possibility that [it] might not perform is a different question than the definiteness of
the putative contract’s terms.” Eagle Force I, 187 A.3d at 1237.
The court finds that the parties intended to conclude an agreement and that the
agreement was sufficiently definite. Having determined that the parties formed a
contract, the court now considers whether this contract is unenforceable against one
or both parties as a result of fraud in the inducement or breach.
C. Fraudulent Inducement
HOL argues that the SSAs are voidable because Plaintiffs fraudulently
induced HOL to enter into the agreements.260 The elements of fraudulent
inducement are: (1) a false statement or misrepresentation, usually one of fact, made
by the defendant; (2) that the defendant knew was false or made with reckless
indifference to the truth; (3) the statement was intended to induce the plaintiff to act
or refrain from acting; (4) the plaintiff’s action or inaction was taken in justifiable
reliance upon the representation; and (5) the plaintiff was injured as a result of the
reliance. Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983); In re
P3 Health Gp. Hldgs., LLC, 2022 WL 15035833, at *3 (Del. Ch. Oct. 26, 2022).
HOL argued that Gomez deliberately misled Taylor by representing that
Taylor’s signature would only be used to placate and pacify Reby investors, that the
agreement would not be enforced, and that the parties would continue to negotiate
260
Def.’s Opening Br. 46.
69
the transaction. As discussed above, the court does not find that Gomez represented
to Taylor that his signature would not be binding and that Gomez would not enforce
the agreement. HOL does not argue that there is an alternative basis for a finding of
fraudulent inducement.261 Having found there was no separate representation
underlying this defense, the SSAs are not voidable as a result of fraudulent
inducement.
D. Unclean Hands
Defendant argues that Plaintiffs cannot enforce these agreements because they
come to the court with unclean hands.262 “The doctrine of ‘unclean hands’ provides
that a litigant who engages in reprehensible conduct in relation to the matter in
controversy . . . forfeits his right to have the court hear his claim, regardless of its
merit.” Portnoy v. Cryo-Cell Int’l, Inc., 940 A.2d 43, 80-81 (Del. Ch. 2008). HOL’s
unclean hands defense relies on the same facts and arguments underlying HOL’s
fraudulent inducement argument. 263 HOL’s unclean hands defense fails for the same
reasons as its fraudulent inducement argument.
261
Def.’s Answering Br. 50 (“[T]he representation at issue did not relate to the terms of
the deal, but rather to a separate understanding between parties.”).
262
Def.’s Opening Br. 43–45.
263
Def.’s Answering Br. 50 n.29.
70
E. Is HOL Required to Close?
Having concluded that the parties entered into a valid contract, the court now
turns to the issues of breach and performance. Plaintiffs argue that HOL has
breached the SSAs by refusing to close the transaction. They seek a decree of
specific performance, requiring HOL to close the transaction or, alternatively, an
award of damages for breach. HOL argues that it is not required to close the
transaction because Plaintiffs have breached their representations and warranties
under the SSAs.
1. Closing Conditions.
Section 1.4 governs the time and place of closing. It is indefinite and undated,
stating that closing shall occur on “April __, 2022, or such other date as agreed to
by the Sellers and the Buyer and, in any event, after all of the conditions hereunder
have been satisfied or waived.” 264 HOL’s obligation to close is governed by Section
5.1. Plaintiffs acknowledged that Section 5.1 “clearly sets out the conditions which,
if not satisfied, relieve HOL of its obligation to complete the transaction.” 265 Section
5.1 states, in full:
264
Model SSA § 1.4.
265
Pls.’ Answering Br. 50; see also Pls.’ Opening Br. 11 (noting that among the closing
conditions under Section 5.1 was that “‘[e]ach of the representations and warranties of
Sellers and Company contained in [the SSA], respectively’ be ‘true and correct through the
date of [the SSA] and as of the Closing.’”).
71
Conditions to Obligations of Buyer. The obligation of Buyer to
complete the transactions contemplated hereby are subject to the
conditions that on or before the Closing:
(a) Each Seller shall deliver or cause to be delivered to Buyer an
executed Stock Power.
(b) Each of the representations and warranties of Sellers and Company
contained in Article 2 and Article 3, respectively, hereof shall be
true and correct as through the date of this Agreement and as of the
Closing.
(c) There is no prohibition at law against the completion of the
transactions contemplated in this Agreement.266
Section 5.1 does not contain a materiality qualifier. This is a “flat” bringdown
condition that “required Sellers to maintain their . . . [r]epresentations [and
warranties] at closing in all respects.” HControl Hldgs. LLC v. Antin Infrastructure
P’rs S.A.S., 2023 WL 3698535, at *5 (Del. Ch. May 29, 2023); see Level 4 Yoga,
LLC v. CorePower Yoga, LLC, 2022 WL 601862, at *12 n.136 (Del. Ch. Mar 1,
2022) (“A closing condition expressly makes the truth of the representation(s) a
condition to closing.”). A bargained for allocation of risk between sophisticated
parties must be enforced. See Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347,
at *60 (Del. Ch. Oct. 1, 2018) (“When parties have ordered their affairs voluntarily
through a binding contract, Delaware law is strongly inclined to respect their
agreement, and will only interfere upon a strong showing that dishonoring the
contract is required to vindicate a public policy interest even stronger than freedom
of contract.” (internal quotations omitted)), aff’d, 198 A.3d 724 (Del. 2018)
266
Model SSA § 5.1.
72
(TABLE); see Personnel Decisions, Inc. v. Bus. Planning Sys., Inc., 2008 WL
1932404, at *6 (Del. Ch. May 5, 2008) (“Delaware is a freedom of contract state,
with a policy of enforcing the voluntary agreements of sophisticated parties in
commerce.”).
If the Sellers’ or the Company’s representations and warranties were not true
and correct, HOL has no obligation to close. See Akorn, 2018 WL 4719347, at *63
(“‘From a business point of view, the condition that the other party’s representations
and warranties be true and correct at closing is generally the most significant
condition for Buyers.’” (quoting Lou R. Kling & Eileen T. Nugent, Negotiated
Acquisitions of Companies, Subsidiaries and Divisions §14.02[1], at 14-9 (2018 ed.)
(“Kling & Nugent”))). “‘[O]ne critical condition almost always found is that the
other party’s representations and warranties be true at closing. If this is not the case,
the party need not close.’” Id. at *45 n.512 (quoting Kling & Nugent § 1.05[4], at
1-41).267
2. The Representations and Warranties at Issue
a. Section 3.9.
In Section 3.9, Restanca, the Sellers’ representative, issued the following
representation and warranty to Buyer with respect to the Company: “Authorized and
267
Delaware courts regularly rely on the Kling & Nugent treatise as “an authoritative
source on M & A practice.” Akorn, 2018 WL 4719347, at *53 n.558 (collecting cases).
73
Issued Capital. Other than the Shares, there are no issued, outstanding or authorized
securities of the Company.”268 The parties disagree as to the meaning of this
provision. That dispute centers on the definition of the term “Shares” and is further
complicated by the fact that HOL signed nearly 100 SSAs with individual
stockholders of Reby. That issue requires consideration of the first two paragraphs
of the SSAs. They read as follows:
THIS SECONDARY SALE AGREEMENT, dated as of April __, 2022
(the “Agreement”), by and among the undersigned persons (each, a
“Seller” and collectively, the “Sellers”), HoLi Technologies Inc. (the
“Buyer”) and Reby, Inc., a Delaware corporation and its successors and
assigns (the “Company”).
WHEREAS, each Seller desires to sell to the Buyer and the Buyer
desires to purchase from such Seller all of Seller’s shares of capital
stock of the Company owned by such Seller (collectively, the
“Shares”) subject to the terms and conditions set forth in this
Agreement (the “Secondary Sale”).269
This language appears to be a vestige of earlier drafts in which it was
contemplated that all Reby stockholders would sign a single SSA. Instead, however,
the parties changed plans and proceeded with each selling stockholder executing and
delivering individual SSAs. Therein lies the interpretational dispute.
HOL argues that Section 3.9 has not been satisfied in two respects. First,
“Shares” is defined as each individual Seller’s shares of Reby stock, but no
268
Model SSA § 3.9.
269
Id. at 1.
74
individual stockholder held all issued, outstanding, or authorized securities of the
Company.270 Consequently, the representation and warranty in Section 3.9 was not
satisfied as to each Seller who returned an SSA. Second, not all Reby stockholders
delivered signed SSAs.271 Therefore, the collective total of all SSAs does not
constitute all issued and outstanding shares of Reby stock. Literally read, Section
3.9 is not satisfied.
Plaintiffs argue that HOL’s reading of Section 3.9 leads to an absurd result
and must be rejected. First, if Section 3.9 required a single seller of shares, then it
could never be satisfied because the existence of more than one SSA “would render
each SSA null ab initio.”272 Second, Section 3.9 could never be satisfied because
HOL itself is a Reby stockholder, and HOL is not selling its shares. To avoid this
absurd result, Plaintiffs urge the court to construe Section 3.9 to mean that as to each
SSA, “the particular Selling Shareholder itself does not own any ‘issued, outstanding
or authorized securities of the Company’ apart from those that it is conveying to
HOL.”273 This, according to Plaintiffs, would make the representation accurate.
“Delaware adheres to the objective theory of contracts, i.e., a contract’s
construction should be that which would be understood by an objective, reasonable
270
Id.
271
Id.; Def.’s Answering Br. 44.
272
Pls.’ Opening Br. 55.
273
Id.
75
third party.” Osborne, 991 A.2d at 1159 (internal quotations omitted). “Where . . .
the plain language of a contract is unambiguous i.e., fairly or reasonably susceptible
to only one interpretation, we construe the contract in accordance with that plain
meaning and will not resort to extrinsic evidence to determine the parties’
intentions.” BLGH Hldgs. LLC v. enXco LFG Hldg., LLC, 41 A.3d 410, 414 (Del.
2012). “The true test is not what the parties to the contract intended it to mean, but
what a reasonable person in the position of the parties would have thought it meant.”
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196
(Del. 1992). “‘[W]hen the language of a[] contract is clear and unequivocal, a party
will be bound by its plain meaning because creating an ambiguity where none exists
could, in effect, create a new contract with rights, liabilities and duties to which the
parties had not assented.’” Id. (quoting Hallowell v. State Farm Mut. Auto. Ins. Co.,
443 A.2d 925, 926 (Del. 1982)). “[E]xtrinsic, parol evidence cannot be used to
manufacture an ambiguity in a contract that facially has only one reasonable
meaning.” United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810, 830 (Del. Ch.
2007).
Plaintiffs argue that the court must construe the contract to avoid absurd
results and “give each provision and term effect and not render any terms
76
meaningless and illusory.” 274 Furthermore, “‘a particular portion of an agreement’
cannot be construed in a manner that ‘runs counter to the agreement’s overall scheme
or plan.’” 275 Plaintiffs’ argument suggests the court can resolve the conflicting
interpretations here without resort to extrinsic evidence. “If parties introduce
conflicting interpretations of a term, but one interpretation better comports with the
remaining contents of the document or gives effect to all the words in dispute, the
court may, as a matter of law and without resorting to extrinsic evidence, resolve the
meaning of the disputed term in favor of the superior interpretation.” Wills v. Morris,
James, Hitchens & Williams, 1998 WL 842325, at *2 (Del. Ch. Nov. 6, 1998) (citing
E.I. du Pont de Nemours, 498 A.2d at 1113).
Regardless of whether the court considers extrinsic evidence, Plaintiffs’
proffered construction of Section 3.9 is not reasonable and does not harmonize the
contract as a whole. First, Plaintiffs’ construction would mean that HOL would be
required to close as long as the individual stockholders who signed SSAs conveyed
all of their Reby securities. Under that reading of the agreement, if only five
stockholders owning just 10% of all Reby shares submitted SSAs, HOL would be
required to close. That would lead to an absurd result and “runs counter to the
274
Id. (quoting Manti Hldgs., LLC v. Authentix Acq. Co., Inc., 261 A.3d 1199, 1208 (Del.
2021)).
Id. (quoting E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113
275
(Del. 1985)).
77
agreement’s overall scheme or plan,” E. I. du Pont de Nemours, 498 A.2d at 1113,
which is for HOL to acquire all Reby securities it does not already own. The court
need look no further than Section 3.10, the very next representation and warranty,
which states, in pertinent part: “No person has any written or oral agreement or
option or any right or privilege . . . capable of becoming an agreement or option,
including securities, warrants or other convertible obligations of any kind, for . . .
the purchase of any securities of the Company.” 276 Reading Section 3.9 in light of
Section 3.10, the meaning of Section 3.9 becomes clear. HOL bargained for
representations and warranties that there would be no other Reby securities, or rights
to acquire Reby securities, outstanding at the time of closing. Stated positively, HOL
obtained unqualified representations and warranties that it was acquiring all
outstanding Reby securities without the risk of someone coming forward to claim a
right to acquire Reby securities after closing. Cf. HControl, 2023 WL 3698535, at
*27 (finding a contractual provision which required the sellers’ capitalization
representation to be “true and correct in all respects” to be unqualified when brought
down to closing without materiality qualifier).
Plaintiffs’ interpretation would further ignore the basic features of the SSA.
The bundle of SSAs that Taylor signed on April 30 contained separate agreements
276
Model SSA § 3.10(a).
78
from 92 Reby stockholders, totaling almost 2,000 pages in length. 277 The recitals of
each SSA recognize that while the individual agreement governs the rights of the
specific Seller who signs it, the specific agreement must be read in conjunction with
the 91 other SSAs. They define “the undersigned persons” as “each, a ‘Seller’ and
collectively, the ‘Sellers.’”278 In defining the “Shares,” the SSA notes that “each
Seller desires to sell to the Buyer . . . all of Seller’s shares of capital stock of the
Company owned by such Seller (collectively, the ‘Shares’).” 279 The inclusion of
the word “collectively” in enumerating the scope of the defined term “Shares” would
make no sense here unless it was meant to include the total of all shares that each
Seller were to convey to the Buyer.280
277
JX 225.
278
Model SSA at 1.
279
Id.
280
See Collectively, Dictionary.com, https://www.dictionary.com/browse/collectively
(defining collectively: “as a whole group rather than as individual persons or things”) (last
visited June 30, 2023); Collective, Merriam-Webster, https://www.merriam-
webster.com/dictionary/collectively (last visited June 30, 2023) (defining collective as
“denoting a number of persons or things considered as one group or whole”); cf. WBCMT
2007 C33 Office 9720, L.L.C. v. NNN Realty Advisors, Inc., 844 F.3d 473, 482–83 (5th Cir.
2016) (noting that where the term “Borrower” was defined to include the borrowing entities
“individually or collectively as the context may require” and where interpreting Borrower
as a single entity would create “various absurdities,” it was unambiguous in referring to
the collective entities in appropriate contexts).
79
Section 3.9 is not a representation by an individual Seller, but is rather a
representation by Restanca in respect of Reby as an entity.281 The only reasonable
reading of Section 3.9 is that it requires all Sellers, collectively, to own all
outstanding shares of Reby that HOL does not already own. Indeed, that would be
the natural reading of the SSAs if all of the selling stockholders had executed a single
SSA, as the parties had originally planned.
If Section 3.9 were deemed to be ambiguous, then extrinsic evidence would
confirm this interpretation. The Third Term Sheet dated March 16, 2022, that
Gomez executed and delivered to HOL, described the transaction as follows: “The
Buyer will acquire all of the outstanding shares of capital stock of the Company not
owned by the Buyer, which represent on or about 83.33% of the Company’s shares
of capital stock outstanding (the “Purchased Shares”) from the Company’s
stockholders for Cash Consideration of US$40,000,000, and Equity Consideration
payable in Buyer Shares valued at US$45,000,000 on such terms set out in the
Definitive Agreement.” 282 Thus, the only reasonable construction of Section 3.9 is
that there were no other securities of Reby issued, outstanding or authorized other
281
See Model SSA § 3 (“With respect to the Company, Restanca LLC hereby represents
and warrants to the Buyer as follows that at the time of the execution of this Agreement
and at the time of the Closing”); see, e.g., id. § 3.1 (representing that Reby has “the
necessary corporate power, authority and capacity to enter into and perform its obligations
under this Agreement”); id. § 3.2 (representing that “the Agreement” is a valid and binding
obligation of the Company).
282
JX 111.
80
than those held by HOL and those being acquired pursuant to all of the SSAs that
were bundled and delivered to HOL.
i. Section 3.9 Does Not Have a Materiality
Qualifier.
Plaintiffs argue that HOL’s obligation to close cannot be excused unless the
breach of Section 3.9 is material. A materiality qualifier can appear in two places.
The representation itself can be qualified, or the bring-down condition can be
materiality-qualified. Neither is the case here. As explained above, Section 3.9 is
unqualified. Section 5.1 is also unqualified. 283
Plaintiffs’ attempt to impart a
materiality qualifier to the bring-down provision in Section 5.1 is contrary to the
plain meaning of the contract. See Ainslie v. Cantor Fitzgerald, L.P., 2023 WL
283Section 5.1 enumerates a condition precedent to closing and will be enforced by its
terms. See 1 Williston on Contracts § 38:6 (4th ed. 2023) (“As a general rule, unless the
performance is waived, excused, or prevented by the other party, or unless it repudiates the
contract, conditions which are either express or implied in fact must be literally met or
exactly fulfilled, or no liability can arise on the promise qualified by the conditions. The
reason for this is obvious. The promisor can only be held liable according to the terms of
the promise it makes. . . . [I]f a party makes a promise to do an act on condition that it will
receive $5.01, it cannot be required to perform on being paid $5.”). Stock purchase
agreements will often require “flat” or full compliance with capitalization and other
fundamental representations. See ABA Mergers & Acqs. Comm., Model Stock Purchase
Agreement with Commentary 248 (2d ed. 2010) [hereinafter Model Stock Purchase
Agreement] (“Certain of Sellers’ representations may be so fundamental that Buyer will
want to retain the ability to terminate the acquisition if they are inaccurate in any respect.”).
Requiring full compliance with the capitalization requirement serves to avoid the “highly
undesirable” situation of acquiring a target that “has even one minority shareholder, no
matter how insignificant the percentage interest represented by those shares.” Id. By
requiring compliance with the representation, unmodified by materiality, the seller
forecloses an argument by the buyer that the non-delivery of a small number of shares is
not material. Id.
81
106924, at *15 (Del. Ch. Jan. 4, 2023) (“To require that the condition be material
would undermine the very purpose of including such conditions in contracts, and our
law imposes no such requirement.”); ev3, Inc. v. Lesh, 114 A.3d 527, 529 (Del. 2014)
(“Delaware law is clear that parties should not be bound by terms other than those
they ultimately assent to in a complete agreement”); CC Fin. LLC v. Wireless Props.,
LLC, 2012 WL 4862337, at *6 (Del. Ch. Oct. 1, 2012) (“Equity . . . will not rewrite
a contract to save a party from its own negligence.”); Related Westpac LLC v. JER
Snowmass LLC, 2010 WL 2929708, at *6 (Del. Ch. July 23, 2010) (“Delaware law
respects the freedom of parties in commerce to strike bargains and honors and
enforces those bargains as plainly written.”); Hexion Specialty Chems., Inc. v.
Huntsman Corp., 965 A.2d 715, 794 (Del. Ch. 2008) (declining to account for
circumstances that the parties could have contracted around, but did not, in the
context of conditions precedent); see also Eagle Force I, 187 A.3d at 1233 (“The
text of the agreement defines which contracts should be delivered as all means all.”).
Plaintiffs next argue for an implied materiality qualifier based on Section 3.29.
That provision states:
Disclosure. No representation or warranty or other statement made by
Restanca LLC respecting the Company in this Agreement or otherwise
in connection with the transactions contemplated by this Agreement
contains any untrue statement of material fact or omits to state a
material fact necessary to make those statements, in light of the
circumstances in which they were made, not misleading.
82
This provision does not operate as a materiality qualifier for Section 3.9 or Section
5.1.
Section 3.29 is a general representation and warranty covering a much broader
category of statements beyond the specific representations and warranties. By
contrast, Section 3.9 is a specific representation and warranty covering Reby’s
capital structure. As Plaintiffs acknowledge elsewhere: “Under black letter law,
‘[s]pecific language in a contract controls over general language, and where specific
and general provisions conflict, the specific provision ordinarily qualifies the
meaning of the general one.’”284 Here, Section 3.9 speaks specifically to
representations about the Company’s capital structure and does not contain a
materiality qualifier. The general provision in Section 3.29 cannot add a materiality
qualifier to Section 3.9. If the parties wanted to include a materiality qualifier in
Section 3.9, they could have done so, as they did with other representations and
warranties.285
Section 3.29 of the SSAs is nearly identical to that contained in Section 3.29
of the ABA Mergers & Acquisitions Committee’s Model Stock Purchase
284
Pls.’ Opening Br. 57 (quoting AM Gen. Hldgs LLC v. Renco Gp., Inc., 2020 WL
3484069, at *4 (Del. Ch. June 26, 2020)).
285
See, e.g., Model SSA § 3.17 (representing that the Company is “in material compliance”
with each of its property and asset leases); id. § 3.26 (representing that the Company is not
in default “under any material term or condition of any of [its] insurance policies”).
83
Agreement. 286 The commentary to that provision confirms that this representation
“is intended to fill any disclosure gaps and cover a fact or circumstance that might
have fallen outside the scope of other Article 3 representations.” 287 Section 3.29 is
not intended to add qualifiers to the other Article 3 representations.
ii. The Anti-Sandbagging Argument.
Plaintiffs insist that HOL cannot rely on a breach of Section 3.9 to avoid its
obligation to close because it knew at the time of signing that not all Reby
stockholders had executed SSAs. 288 For this, Plaintiffs rely solely on Arwood v. AW
Site Services, LLC, 2022 WL 705841, at *31–32 & n.301 (Del. Ch. Mar. 9, 2022).
Model Stock Purchase Agreement at 189. Section 3.29 of the Model Stock Purchase
286
Agreement provides:
No representation or warranty or other statement made by Seller in this
Agreement, the Disclosure Letter, any supplement to the Disclosure Letter,
the certificate delivered pursuant to Section 8.3, or otherwise in connection
with the Contemplated Transactions contains any untrue statement of
material fact or omits to state a material fact necessary to make the statements
in this Agreement or therein, in light of the circumstances in which they were
made, not misleading.
Id. As this court noted in HControl, “‘[i]n an M&A transaction, agreements are not created
from scratch. Instead, they are based on provisions negotiated in prior deals and past
practices’ and lawyers ‘negotiate provisions with knowledge of these past practices.’”
2023 WL 3698525, at *24. The court concluded in that case that it was appropriate to
consider custom and practice when evaluating the plain language of a merger
agreement. Id.287
Model Stock Purchase Agreement at 190; see also Daniel R. Avery, 10(b)(5) & Full
Disclosure Representations, Goulston & Storrs, https://www.goulstonstorrs.com/whats-
market-blog/10b5-full-disclosure-representations (noting that this type of representation is
often included in order to give buyers an indemnification claim for violations of Section
10b-5 of the Securities Exchange Act of 1934).
288
Pls.’ Opening Br. 56.
84
Plaintiffs’ reliance is misplaced. Arwood was a post-closing fraud and breach of
contract case where the seller argued that the buyers could not rely on representations
in the purchase agreement when they knew pre-closing that the representations were
false or were recklessly indifferent to their truth. Id. at *3. Arwood rejected that
defense, both as a matter of law and fact, concluding that “Delaware is, or should
be, a pro-sandbagging jurisdiction.” Id. Thus, Arwood is contrary to Plaintiffs’
position.289
As Arwood confirmed: “Delaware is more contractarian than most states, and
our law respects contracting parties’ right to enter into good and bad contracts. Our
289
Unlike in Arwood, this case does not present the classic case of “sandbagging.”
Sandbagging, in the context of a business acquisition, “refers to a buyer who is or becomes
aware that a specific representation and warranty made by the seller is false, yet instead of
alerting the seller to this fact, the buyer consummates the transaction, despite its knowledge
of the breach, and seeks post-closing damages against the seller for breach.” Arwood, 2022
WL 705841 at *29. Here, the buyer has refused to close due to false representations and
warranties. As Arwood and other cases have held, Delaware is a pro-sandbagging
jurisdiction. Id. at *28–31 (surveying Delaware law and concluding that, absent definitive
guidance from our Supreme Court, Delaware is a “sandbagging state”); see Akorn, 2018
WL 4719347, at *77–78 (“Having contractually promised [the buyer] that it could rely on
certain representations, [the seller] is in no position to contend that [the buyer] was
unreasonable in relying on [the seller’s] own binding words.”); Cobalt Operating, LLC v.
James Crystal Enters., LLC, 2007 WL 2142926, at *28 (Del. Ch. July 20, 2007) (“[A]
breach of contract claim is not dependent on a showing of justifiable reliance. . . . Having
contractually promised [the buyer] that it could rely on certain representations, [the seller]
is in no position to contend that [the buyer] was unreasonable in relying on [the seller’s]
own binding words.”), aff’d, 945 A.2d 594 (Del. 2008) (TABLE); but see Eagle Force I,
187 A.3d at 1236 n.185 (“acknowledg[ing] the debate over whether a party can recover on
a breach of warranty claim where the parties know that, at signing, certain of them were
not true”). Here, the buyer has not closed on the transaction. Instead, it has refused to
close due to inaccurate representations and warranties.
85
courts enforce[] both.” 2022 WL 705841, at *29 (internal quotations omitted).
Section 3.9 is an unqualified representation concerning Reby’s capital structure, and
Section 5.1 is a flat bring-down condition that Plaintiffs’ representations and
warranties be true at closing in all respects. HControl, 2023 WL 3698535, at *5.290
Holding Plaintiffs to that unqualified representation as a condition to HOL’s
obligation to close is entirely consistent with Delaware law and the allocation of risk
that sophisticated deal planners choose in drafting their agreements. As Vice
Chancellor Laster reasoned in Akorn:
From my perspective, the real question is whether the risk allocation in
the contract controls, or whether a more amorphous and tort-like
concept of assumption of risk applies. To my mind, the latter risks
having cases routinely devolve into fact disputes over what was
provided or could have been provided in due diligence. The former
seems more in keeping with Delaware’s contractarian regime,
particularly in light of Delaware’s willingness to allow parties to restrict
themselves to the representations and warranties made in a written
agreement.
Akorn, 2018 WL 4719347, at *77 n.756; accord Arwood, 2022 WL 705841, at *30.
Holding Plaintiffs to their unqualified representations does not create an
unjust result. There were several possible alternatives that Plaintiffs could have
negotiated to avoid this outcome. For example, Plaintiffs could have made either
the capitalization representation or the bring-down condition expressly subject to a
290
See Kling & Nugent § 14.02 (observing that to have a material qualifier in a bringdown
would be inappropriate for representations concerning matters such as capitalization,
authorization, and title to stock).
86
materiality condition. Or Plaintiffs could have negotiated for a provision saying that
the shares represented all shares of the Company except for those listed on a
disclosure schedule. Of course, Plaintiffs also could have negotiated for a different
transactional structure to ensure that all shares would have been converted into the
right to receive cash and stock of the buyer (e.g., a merger).
Chancellor McCormick’s recent decision in HControl is instructive. The
agreement in HControl contained a condition to closing which brought down to
closing certain “Fundamental Representations,” including a capitalization
representation. 2023 WL 3698535, at *27. Sellers repeatedly attempted to insert a
materiality qualifier into this provision which would cabin the circumstances in
which Buyers could refuse to close the agreement to situations in which the breach
was not de minimis. Id. at *6. Buyers repeatedly struck this provision, and the final
agreement required the Fundamental Representations to be “true and correct in all
respects” at closing. Id. The court enforced the parties’ written provision, which
required complete compliance with the terms of the representation. Id. at *27, 38.291
HOL was entitled to rely on Plaintiffs’ representations about Reby’s capital
structure contained in the parties’ bargained for agreement. If that were not the case,
291
Plaintiffs here attempted to add an anti-sandbagging provision to the SSAs in a draft
circulated on March 14, 2022. JX 94 at 15. HOL struck the provision, commenting that
“[i]t would be inappropriate to include an anti-sandbagging provision given the lack of
opportunity to complete any diligence, and in particular given the lack of reps.” JX 91 at
17.
87
“a seller’s representations and warranties, and specific closing conditions would be
meaningless.” Id. at *38. That is not Delaware law. Accordingly, HOL is not
obligated to close because Plaintiffs’ representations and warranties in Section 3.9
are not true and correct.
b. Section 3.13
HOL next argues that Section 3.13 is not true and correct. In Section 3.13,
Restanca represented that “[f]inal audited financial statements for Reby Rides S.L.,
. . . for the years ended December 31, 2019 and December 31, 2020, (collectively,
the ‘Financial Statements’) have been provided to the Buyer.” 292 Plaintiffs do not
dispute that these financial statements were never provided.293 Rather, they argue
that the failure to comply with the representation is not a material breach for several
reasons. First, the transaction did not include going public as a condition precedent
to closing. Second, HOL failed to establish that the IFRS audited financials would
be required for public company disclosures. Third, HOL knew at the time that
Taylor executed the SSAs that Reby had not provided HOL with IFRS-compliant
financial statements.294
292
Model SSA § 3.13.
293
Pls.’ Answering Br. 44–46.
294
Plaintiffs also argue that HOL waived any argument as to Section 3.13 by failing to
identify it as a contractual battleground in its pretrial brief. Pls.’ Opening Br. 53 n.20.
Plaintiffs do not dispute the facts underlying noncompliance with Section 3.13. Indeed,
88
As explained above, Section 5.1(b) imposes a flat bring-down condition
unmodified by a materiality qualifier. Like Section 3.9, Section 3.13 does not
incorporate a materiality standard and is not qualified by Section 3.29. Plaintiffs
concede that Section 3.13 is not true and correct. Accordingly, HOL has no
obligation to close.
c. Sections 3.16 and 3.18
Finally, HOL contends that Plaintiffs have not complied with Sections 3.16
and 3.18. Section 3.16 represents: “Except to the extent reflected or reserved in the
Financial Statements, the Company does not have any outstanding indebtedness or
any liabilities or obligations (contingent or otherwise, including under any guarantee
of any debt).”295 Section 3.18 states: “To the Company’s knowledge, the Company
has always conducted and is continuing to conduct the business of the Company in
compliance with all applicable laws.” 296 HOL contends that these representations
and warranties are not satisfied because Reby, Inc. did not file U.S. tax returns.
Plaintiffs argue that Sections 3.16 and 3.18 do not cover the filing of tax returns,
they anticipated arguments as to Section 3.13, and they have been afforded the opportunity
to respond to the argument after trial. Cf. HControl, 2023 WL 3698535, at *27.
Accordingly, the court will address the argument.
295
Model SSA § 3.16.
296
Id. § 3.18.
89
because that topic is specifically addressed elsewhere in Section 3.15. Section 3.15
states:
The Company operating business subsidiaries have filed all tax returns,
reports and all other tax filings and has paid, deducted, withheld or
collected and remitted on a timely basis all amounts to be paid,
deducted, withheld or collected and remitted with respect to any taxes,
interest and penalties as required under all applicable tax laws. The
Company is not aware of any assessments, reassessments, actions, suits
or proceedings in progress, pending or threatened, against the
Company.297
Plaintiffs argue that, under principles of contract interpretation, the parties’
more specific representation in Section 3.15 controls over the more general ones in
Sections 3.16 and 3.18 and that a reading that allows Sections 3.16 and 3.18 to seep
into the carveouts created by Section 3.15 would render Section 3.15 superfluous.298
HOL contends that the sections do not overlap because Section 3.15 applies only to
Reby’s operating subsidiaries, whereas Section 3.16 and 3.18 apply to the Company
itself. 299
“Specific language in a contract controls over general language, and where
specific and general provisions conflict, the specific provision ordinarily qualifies
the meaning of the general one.” DCV Hldgs., Inc. v. ConAgra, Inc., 889 A.2d 954,
961 (Del. 2005). “‘The primary goal of contract interpretation is to satisfy the
297
Id. § 3.15.
298
Def.’s Opening Br. 57.
299
Def.’s Answering Br. 46–47.
90
reasonable expectations of the parties at the time they entered into the contract,’
which ‘often requires courts to engage in an analysis of the intent or shared
understanding of the parties at the time of the contract.’” ITG Brands, LLC v.
Reynolds Am., Inc., 2019 WL 4593495, at *9 (Del. Ch. Sept. 23, 2019) (quoting
Demetree v. Commonwealth Tr. Co., 1996 WL 494910, at *3 (Del. Ch. Aug. 27,
1996)). In doing so, the court will favor specific language over general language if
there is conflict, because it is reasonable to infer that “specific provisions express
more exactly what the parties intended.” Katell v. Morgan Stanley Gp., Inc., 1993
WL 205033, at *4 (Del. Ch. June 8, 1993).
Under HOL’s reading of the provisions, Sections 3.15, 3.16, and 3.18 would
each govern any potential tax liabilities. Because Section 3.15 specifically addresses
tax matters, the more general provisions in Sections 3.16 and 3.18 do not apply.
HOL’s assertion that Section 3.15 does not apply to the Company is also contrary to
the plain language of that section. The representation that tax returns are filed
applies only to the operating subsidiaries, but the last sentence does, in fact, cover
the Company. “The Company is not aware of any assessments, reassessments,
actions, suits or proceedings in progress, proceeding or threatened against the
Company.”300
300
Model SSA § 3.15 (emphasis added).
91
Section 3.15 was a negotiated provision that represents and warrants that only
the operating subsidiaries have filed all tax returns. HOL’s counsel first inserted a
tax representation broadly covering the Company’s filing of all tax returns. 301 In
addition, the final sentence representing the absence of any existing or threatened
assessments and actions did not contain a knowledge qualifier. 302 Gomez struck
almost the entire provision, leaving only the last sentence, which he further modified
to represent that the Company was not aware of any pending or threatened
proceedings against the Company.303 After hearing “Habibi’s ‘no’ for almost
everything,” the provision was updated to its current form, which provides that only
the Company’s operating subsidiaries have filed all tax returns and includes a
knowledge qualifier as to any proceedings against Reby, Inc. 304
The drafting history for Section 3.15 bears out Plaintiffs’ position that the
parties intended the representation to carve out the US entity itself for purposes of
the actual filing of tax returns. To allow the broad stroke with which Sections 3.16
and 3.18 are painted to color over the carveout in Section 3.15 would render this
specific language superfluous. Accordingly, Sections 3.16 and 3.18 must give way
to the more specific provisions in Section 3.15.
301
JX 83 at 34.
302
Id.
303
JX 84 at 8–9.
304
JX 87 at 8.
92
F. Section 7.7
HOL argues that Plaintiffs breached Section 7.7 by announcing the transaction
through a news release on May 10, 2022 without HOL’s written permission. Section
7.7 is a confidentiality provision which states, in pertinent part: “Neither Seller, nor
Buyer nor any of its representatives shall, directly or indirectly, issue any statement
or communication to any third party . . . regarding the existence or terms of this
Agreement . . . without the written consent of the other parties.” 305 Although HOL
was certainly aware of the draft news release and Gomez’s plans to issue it on May
11, there is no evidence that HOL provided Gomez written consent to do so.
As Plaintiffs point out, however, Section 7.7 is not a representation and
warranty, and compliance with Section 7.7 is not among the closing conditions in
Section 5.1. Even if the issuance of the news release constituted a breach of Section
7.7, and even if that breach were material, which the court need not reach, HOL has
not established that it suffered damages from the breach. See eCommerce Indus.,
Inc. v. MWA Intelligence, Inc., 2013 WL 5621678, at *14 (Del. Ch. Sept. 30, 2013)
(“Plaintiffs have failed to state a breach of contract claim because [Plaintiffs]
suffered no damage.”).
305
Model SSA § 7.7.
93
G. HOL’s Unjust Enrichment Claim
HOL argues in its opening brief that Reby has been unjustly enriched by the
$2 million paid to it pursuant to the Third Term Sheet. HOL seeks an order requiring
Reby either to repay that $2 million or convert it into Reby equity as contemplated
by the Third Term Sheet. HOL devotes a mere eight lines of its opening brief to this
claim and does not even recite the standard for unjust enrichment. 306 HOL’s
answering brief is sparser still—devoting a single, conclusory sentence to this
claim. 307 The opposition brief also increases the amount sought to be returned from
$2 million to $3 million without explanation. 308
Unjust enrichment is the “unjust retention of a benefit to the loss of another,
or the retention of money or property of another against the fundamental principles
of justice or equity and good conscience.” Schock v. Nash, 732 A.2d 217, 232 (Del.
1999). To prevail on a claim for unjust enrichment, a party must prove “(1) an
enrichment, (2) an impoverishment, (3) a relation between the enrichment and the
impoverishment, (4) the absence of justification, and (5) the absence of a remedy
306
See Def.’s Opening Br. 58.
307
Def.’s Answering Br. 54 (“Plaintiffs have been unjustly enriched by the $3 million paid
to Reby to date.”).
308
This was not raised in the opening brief. Therefore, this belated attempt to inflate the
amount of any claim of unjust enrichment is waived. See Emerald P’rs v. Berlin, 726 A.2d
1215, 1224 (Del. 1999) (“Emerald Partners has waived any argument it had against Hall
Financial by not raising the issues in their opening brief”).
94
provided by law.” Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010). The fifth
element need only be established if there is a dispute over jurisdiction. See Garfield
v. Allen, 277 A.3d 296, 351 (Del. Ch. 2022).
Where an express, enforceable contract controls the parties’ relationship, a
claim for unjust enrichment will be dismissed. Bakerman v. Sidney Frank Imp. Co.,
Inc., 2006 WL 3927242, at *18 (Del. Ch. Oct. 16, 2006); Albert v. Alex Brown Mgmt.
Servs., Inc., 2005 WL 2130607, at *11 (Del. Ch. Aug. 26, 2005). It is HOL’s burden
to establish its counterclaim for unjust enrichment by a preponderance of the
evidence. See Schaeffer v. Lockwood, 2021 WL 5579050, at *20 (Del. Ch. Nov. 30,
2021).
HOL made no attempt to explain or establish that its claim for the $2 million
deposited with Reby under the Third Term Sheet was not one that could have been
asserted as one for breach of contract under the binding terms of the Third Term
Sheet. Indeed, HOL’s brief betrays the notion that this claim is anything other than
one grounded in contract, as it seeks an order requiring that Reby “convert the $2
million deposition into Reby equity as contemplated by the March Term Sheet.”309
309
Def.’s Opening Br. 60.
95
Taylor confirmed as much at trial.310 Therefore, HOL has failed to prove its claim
for unjust enrichment.
III. CONCLUSION
For the reasons stated herein, the SSAs are valid contracts but HOL is not
required to complete the transactions contemplated by those agreements because the
conditions to closing are not satisfied. HOL has not proved its claims for unjust
enrichment or for any breach of contract that would entitle it to an award of damages.
The parties should confer, provide a form of order consistent with this opinion, and
inform the court if further issues remain that require the court’s consideration.
310
Tr. 744:16–21 (Taylor) (“Q: And you understand that, as to the $2 million, that was
documented. Correct? A: The break-up fee, yes. Q: And it was pursuant to a contract.
Correct? A: That’s correct.”).
96