Aldrich Capital Partners Fund, LP v. Rhonda Bray ( 2024 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
PAUL R. WALLACE LEONARD L. WILLIAMS JUSTICE CENTER
JUDGE* 500 N. KING STREET, SUITE 10400
WILMINGTON, DELAWARE 19801
(302) 255-0660
Submitted: March 6, 2024
Decided: May 17, 2024
Kevin M. Coen, Esquire Shannon E. German, Esquire
Miranda N. Gilbert, Esquire. Jeremy W. Gagas, Esquire
MORRIS, NICHOLS, ARSHT & TUNNELL Emmanuel J. Burrell, Esquire
1201 North Market Street WILSON SONSINI GOODRICH & ROSATI
Wilmington, Delaware 19801 222 Delaware Avenue
Wilmington, Delaware 19801
Joseph P. Rockers, Esquire
Justin D. Ward, Esquire.
GOODWIN PROCTER
100 Northern Avenue
Boston, Massachusetts 02210
RE: Aldrich Capital Partners Fund, LP, et al. v. Rhonda Bray
C.A. No. 2023-1253-PRW
Defendant’s Motion to Dismiss
Dear Counsel:
The Court provides this Letter Opinion and Order in lieu of a more formal
writing1 to resolve the Motion to Dismiss filed by Rhonda Bray. For the reasons
explained below, the Motion is DENIED.
* Sitting by designation of the Chief Justice pursuant to In re Designation of Actions Filed
Pursuant to 8 Del. C. § 111 (Del. Sept. 18, 2023) (ORDER).
1
The Court crafts this somewhat abbreviated decision keeping in mind the parties’ full
understanding of and familiarity with the factual background and operative agreements mentioned
herein.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 2 of 21
I. FACTUAL AND PROCEDURAL BACKGROUND2
A. THE SPA AND THE MURJ LITIGATION
Defendant Rhonda Bray is an entrepreneur and the founder of Plaintiff
Rhythm Management Group Corp.3 Rhythm is a technology-driven healthcare
business that helps patients and providers by enabling the remote monitoring of
implantable cardiac devices, among other things.4 Rhythm employs a proprietary
software platform called “Synergy” to facilitate the remote medical monitoring.5
In December 2020, Plaintiff Aldrich Capital Partners Fund, LP expressed its
interest in investing in Rhythm.6 Bray was receptive, so the parties engaged in due
diligence.7 And, on May 14, 2021, they executed a Stock Purchase Agreement (the
“SPA”).8 But even as they signed the dotted line, trouble was on the horizon.
While Aldrich was planning an investment in Rhythm, non-party Murj Inc.
was planning a lawsuit against Rhythm. Murj is a software company that produces
2
The following facts are derived from the allegations in the Complaint and the exhibits attached
thereto. They are presumed to be true solely for purposes of this Motion.
3
Compl. ¶ 15 (D.I 1).
4
Id.
5
Id.
6
Id. ¶ 18.
7
Id.
8
Id. ¶ 28.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 3 of 21
the “Murj Platform.”9 Before it created Synergy, Rhythm10 utilized the Murj
Platform under the auspices of the “Murj License Agreements.”11 The terms of the
Murj License Agreements prohibited Rhythm from copying or reverse-engineering
the Murj Platform.12 So Murj wasn’t happy when it found out that Rhythm built
Synergy to do the same things the Murj Platform did.13 Murj voiced its displeasure
via a lawsuit filed in January 2021; it alleged Rhythm stole Murj’s intellectual
property in breach of the Murj License Agreements (the “Murj Litigation”).14
Aldrich was alerted to the Murj Litigation during due diligence.15 But, instead
of walking away from the deal, Aldrich chose to bargain for contractual
protections.16 Those protections took the form of representations and special
indemnity provisions—and those are now the focus of this litigation.
9
Id. ¶ 19.
10
Rhythm operates through its subsidiary, Rhythm Management Group, LLC f/k/a Rhythm
Management Group, PLLC (“RMG LLC”). Id. ¶ 15. RMG LLC was the signatory to the Murj
License Agreements. Id. ¶ 20. The distinction between Rhythm and RMG LLC is insubstantial
for present purposes because the allegedly breached representations applied equally to both. That
being so, this Letter Opinion will follow the parties’ lead and temporarily elevate simplicity over
exactness by referring only to Rhythm.
11
Id. ¶ 20.
12
Id.
13
Id. ¶ 21.
14
Id. ¶¶ 4, 21.
15
Id. ¶ 23.
16
Id.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 4 of 21
As for the relevant representations, SPA § 4.16(a) provides:
The Group Companies [i.e., Rhythm and its subsidiaries] own all right,
title and interest in and to (free and clear of any Liens other than
Permitted Liens), or have valid and enforceable licenses to use, all
Intellectual Property used or held for use in or necessary to the conduct
of their respective businesses as currently conducted. Each Group
Company has been and is in material compliance with all contractual
obligations relating to the Intellectual Property it uses or holds for use
pursuant to license or other agreement.17
SPA § 4.16(b) states in pertinent part:
Neither the conduct of the business of the Group Companies, nor any
of the Group Companies or the Proprietary Software or any Company
Product, nor any use, sale, offer to sell, licensing, provision,
importation or exportation thereof or any other activities conducted by
the Group Companies associated therewith, conflict with, infringe,
misappropriate or violate, nor in the past six years have conflicted with,
infringed, misappropriated, or otherwise violated, any Intellectual
Property of any third party. Except as set forth on Schedule 4.16(b),
there is no written notice or Proceeding pending or, to the Knowledge
of the Company, threatened in writing against any Group Company
(i) alleging any such conflict with, or infringement, misappropriation
or violation of any third party’s Intellectual Property, including any
offer or request to license any Intellectual Property, or (ii) challenging
such Group Company’s ownership or use, or the validity or
enforceability, of any Intellectual Property owned or purported to be
owned by a Group Company.18
And SPA § 4.25 provides in pertinent part:
Each Material Contract [including the Murj License Agreements]: . . .
(ii) is in full force and effect on the date hereof and the applicable Group
17
Bray’s Mot., Ex. 1 (hereinafter “SPA”) § 4.16(a).
18
Id. § 4.16(b).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 5 of 21
Company is not in default or material breach of any Material Contract,
and no event or circumstance has occurred which, with due notice or
lapse of time or both, would constitute such a default or material
breach[.]19
The SPA’s representations were not unqualified, however. Rhythm’s
representations in the SPA come with the global caveat, “[e]xcept as qualified by the
Disclosure Schedules.”20 And the relevant Disclosure Schedule (“Disclosure
Schedule” or “DS”) disclosed the Murj Litigation, explaining: “Murj, Inc. filed a
complaint against the Company on January 6, 2021, in the U.S. Federal District
Court in San Jose, California alleging the Company breached its License Agreement
with Murj and misappropriated Murj intellectual property (the ‘Murj Litigation’).”21
Likewise, DS § 4.18 lists “The Murj Litigation” under the heading “Litigation.”22
Regarding the scope of the Disclosure Schedule’s disclosures, SPA § 8.18
explains:
The disclosures in the Disclosure Schedules are to be taken as relating
to the representations and warranties of the Company and the Seller set
forth in the corresponding section of this Agreement and in each other
section of this Agreement (to the extent the applicability of such
disclosure is readily apparent on its face . . .), notwithstanding the fact
that the Disclosure Schedules are arranged by sections corresponding
19
Id. § 4.25.
20
Id. at Art. IV.
21
Bray’s Mot., Ex. 2 (hereinafter “DS”) § 4.16(b).
22
Id. § 4.18.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 6 of 21
to the sections in this Agreement or that a particular section of this
Agreement makes reference to a specific section of the Disclosure
Schedules.23
The Disclosure Schedule itself, however, offers a different explanation of how
broadly each disclosure is meant to apply, saying:
The section numbers below correspond to the section numbers of the
representations and warranties in the Agreement; provided, however,
that any information disclosed herein under any section number shall
be deemed to be disclosed and incorporated into any other section
number under the Agreement if specified under such other section
number.24
Apart from those representations, the parties also agreed to Murj-specific
indemnity provisions. SPA § 6.3(v) explains that Aldrich has the right to be
indemnified for losses resulting from “the Murj Litigation.”25 SPA § 6.10(g)
provides in pertinent part that the Murj-related losses:
shall be first satisfied from: (i) the [$500,000] Special Indemnity
Escrow Amount . . . (ii) for any Losses after the Special Indemnity
Escrow Amount has been exhausted, up to $1,000,000 directly from the
Company, (iii) thereafter, any further Losses to be shared equally by
the Seller and the Company[.]26
And SPA § 6.9(b)(ii)(B) states in pertinent part that Bray’s indemnity obligations
23
SPA § 8.18.
24
DS at 1.
25
SPA § 6.3(v).
26
Id. § 6.10(g).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 7 of 21
for the Murj Litigation are capped at the “Secondary Consideration,” which is the
$11 million Bray received under the SPA.27
B. REVELATION OF THE ALLEGED FRAUD
To Aldrich, the disclosure of the Murj Litigation in concert with the
representations about Rhythm’s valid IP ownership implied that the Murj Litigation
was meritless.28 But when Aldrich saw the Murj Litigation discovery in April 2023,
Murj’s case didn’t look so bad.
For example, communications from 2018 reveal that Rhythm hired a
developer to build a product with “the same features and functionality as the Murj
software platform [Rhythm] is currently using.”29 And Bray was part of
conversations describing conscious efforts to keep Murj in the dark about Rhythm’s
use of the Murj Platform as a template.30 Such efforts included Rhythm employees
showing the Murj Platform to the overseas software developer via screenshare so
that Murj wouldn’t notice a foreign login attempt.31
Accordingly, Aldrich alleges that Bray knew at the time of contracting that:
27
Id. §§ 2.1(b), 6.9(b)(ii)(B).
28
Compl. ¶ 27.
29
Id. ¶¶ 35-36 (emphasis omitted).
30
Id. ¶¶ 37-38.
31
Id.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 8 of 21
(1) Rhythm didn’t validly own its IP, making SPA § 4.16(a) false; (2) Rhythm
infringed upon others’ IP, making SPA § 4.16(b) false; and (3) Rhythm breached the
Murj License Agreements, making SPA § 4.25 false.32 That’s fraud, says Aldrich.
C. BRAY’S ALLEGED FAILURES TO INDEMNIFY
Plaintiffs33 also complain that Bray hasn’t upheld her indemnity obligations
under the SPA. In July 2023, Rhythm sent Bray notice of over $1.5 million in legal
fees from the Murj Litigation.34 When Plaintiffs filed this action in late 2023, their
chief indemnity-related grievance was that Bray hadn’t released the $500,000
Special Indemnity Escrow Amount.35 Plaintiffs acknowledge that Bray has since
done so, which “mooted this part of Count II.”36
Plaintiffs, though, also allege that “Bray has further breached the SPA by
failing to pay 50% of the losses in the Murj Litigation over $1 million.”37 That part
of Count II hasn’t gone away. Bray’s briefing38 indicates that she is only willing to
32
Id. ¶ 43.
33
Unlike the fraud claim in Count I, the breach of contract claim in Count II is brought by both
Aldrich and Rhythm. See id. ¶¶ 52-64.
34
Id. ¶ 50.
35
Id. ¶¶ 49-51.
36
Pls.’ Opp’n at 48 (D.I. 12).
37
Compl. ¶ 63.
38
The Court is mindful that “[t]he complaint generally defines the universe of facts that the trial
court may consider in ruling on a Rule 12(b)(6) motion to dismiss.” In re Gen. Motors (Hughes)
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 9 of 21
pay half of the Murj Litigation expenses over $1.5 million.39 So, there is still a
$250,000 indemnity dispute.
D. THIS LITIGATION
This litigation started in October 2023 with a brief stint in Superior Court
before it came to the Court of Chancery in December 2023.40 Thereafter, Bray
promptly moved to dismiss the Complaint.41 Plaintiffs opposed the motion,42 and
Bray replied to the opposition.43 The Court’s now heard argument on the motion.44
II. LEGAL STANDARD
A motion to dismiss under Court of Chancery Rule 12(b)(6) tasks the Court
with weighing the complaint’s allegations against the governing “reasonable
‘conceivability’” pleading standard.45 When applying Rule 12(b)(6), the Court
accepts as true all of the complaint’s well-pled allegations and draws all reasonable
S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (citations omitted). The Court relies solely on the
parties briefing for their respective positions.
39
Bray’s Reply at 34 (D.I. 19).
40
Compl. ¶ 14 n.1.
41
See Bray’s Mot.
42
See Pls.’ Opp’n.
43
See Bray’s Reply.
44
Judicial Action Form (D.I. 25).
45
Sjunde AP-fonden v. Activision Blizzard, Inc., 2024 WL 863290, at *3 (Del. Ch. Feb. 29, 2024)
(quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011)).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 10 of 21
inferences in the plaintiff’s favor.46 The Court will not, however, accredit
“conclusory allegations unsupported by specific facts” nor “draw unreasonable
inferences in favor of the nonmoving party.”47 The Court must “deny the motion
unless the plaintiff could not recover under any reasonably conceivable set of
circumstances susceptible of proof.”48
III. DISCUSSION
A. ALDRICH HAS STATED A CLAIM FOR FRAUD.
To maintain a claim for fraud, a plaintiff must plead facts demonstrating:
“(i) a false representation, (ii) the defendant’s knowledge of or belief in its falsity or
the defendant’s reckless indifference to its truth, (iii) the defendant’s intention to
induce action based on the representation, (iv) reasonable reliance by the plaintiff on
the representation, and (v) causally related damages.”49
Accusations of fraud must also satisfy Rule 9(b)’s particularity requirement,
meaning the complaint must describe: “(1) the time, place, and contents of the false
representation; (2) the identity of the person making the representation; and (3) what
46
Id. (quoting Cent. Mortg., 27 A.3d at 536).
47
Id. (quoting Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011)).
48
Id. (quoting Cent. Mortg., 27 A.3d at 536).
49
Malt Fam Tr. v. 777 Partners LLC, 2023 WL 7476966, at *4, n.31 (Del. Ch. Nov. 13, 2023)
(quoting LVI Grp. Invs., LLC v. NCM Grp. Hldgs., LLC, 2018 WL 1559936, at *11 (Del. Ch. Mar.
28, 2018)).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 11 of 21
the person intended to gain by making the representations.”50
For now, Bray limits her arguments to fraud’s first two elements—the
existence of a misrepresentation and Bray’s knowledge of it.51 Bray’s contentions
miss their mark.
1. It’s Reasonable to Infer Bray Made False Representations.
Whether it’s reasonably conceivable that the challenged representations were
false—which is the guiding question at this stage—turns on the impact of the
contractual disclosure of the Murj Litigation. If, as Bray would have it, DS § 4.16(b)
modifies each challenged representation to account for the Murj Litigation, then the
details of the Murj Litigation would not render those representations false. If, on the
other hand, the disclosure doesn’t apply to the challenged representations, then
Aldrich has a conceivable basis for fraud. Accordingly, principles of contractual
interpretation are called upon to answer this tort question.
Delaware courts follow the “‘objective’ theory of contracts,” meaning “a
contract’s construction should be that which would be understood by an objective,
reasonable third party.”52 Unambiguous contracts, which are susceptible to only one
50
Id. (quoting ABRY Partners V, L.P. v. F&W Acq. LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006)).
51
See Bray’s Mot. at 27-47.
52
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citing NBC Universal v.
Paxson Commc’ns, 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 12 of 21
reasonable interpretation, are enforced as written.53 In contrast, a contract that can
be reasonably interpreted multiple ways is ambiguous, so extrinsic evidence is
needed to determine the parties’ intent.54 Since the Court does not weigh evidence
at the motion to dismiss stage, a defendant can only succeed if its interpretation of
the relevant contract “is the only reasonable construction as a matter of law.”55
Confounding the interpretation of DS § 4.16(b)’s scope is the inconsistency
between how the SPA and the Disclose Schedule explain that scope. SPA § 8.18
provides that each disclosure applies to each representation “to the extent the
applicability of such disclosure is readily apparent on its face.” 56 The Disclosure
Schedule, in contrast, says a disclosure pertaining to one section of the SPA only
applies to other sections of the SPA “if specified under such other section number.”57
The Court doesn’t need to decide between those competing approaches at this stage.
Even applying SPA § 8.18—which is Bray’s preferred route—it is reasonable to
53
Id. at 1159-60 (citing Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d
1192, 1195 (Del. 1992)).
54
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1229 (Del. 1997).
55
Khushaim v. Tullow Inc., 2016 WL 3594752, at *3 (Del. Super. Ct. June 27, 2016) (quoting
Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613
(Del. 1996)).
56
SPA § 8.18.
57
DS at 1.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 13 of 21
construe DS § 4.16(b) as not modifying all58 of the challenged representations.
For starters, the contents of DS §§ 4.16(a) and 4.25 undercut the notion that it
is “readily apparent” that DS § 4.16(b) should apply to those representation.
DS § 4.16(a) is not merely blank or omitted; instead, it explicitly states, “none.”59
In the Court’s view, it is reasonable to interpret “none” to mean that no disclosures
apply, implicitly or otherwise. DS § 4.25 leads to a similar conclusion for a
dissimilar reason. DS ¶ 4.25 discloses many material contracts, including by cross-
referencing other sections of the Disclosure Schedule, but it makes no mention of
Murj, the Murj Litigation, or DS § 4.16(b).60 Under Delaware’s contract principles,
DS § 4.25’s inclusion of explicit cross-references weighs against finding implicit
cross-references.61
58
Count I alleges that SPA §§ 4.16(a), 4.16(b), and 4.25 were each false. Compl. ¶¶ 25-26, 52-57.
If Aldrich has a conceivable claim as to even one of those three representations, the entire Count
will survive this stage. See Cablemaster LLC v. Magnuson Grp. Corp., 2023 WL 8678043, at *7
(Del. Super. Ct. Dec. 5, 2023) (“Once the Court determines the claim as a whole is sound, testing
the strength of every individual girder is inessential.”).
59
DS § 4.16(a).
60
Id. § 4.25.
61
See Malt Fam., 2023 WL 7476966, at *7 n. 52 (“Contractual interpretation operates under the
assumption that the parties never include superfluous verbiage in their agreement, and that each
word should be given meaning and effect by the court.” (quoting NAMA Hldgs., LLC v. World Mkt.
Ctr. Venture, LLC, 948 A.2d 411, 419 (Del. Ch. 2007)); cf. Crispo v. Musk, 2022 WL 6693660, at
*5 n.36 (Del. Ch. Oct. 11, 2022) (noting “the expressio unius est exclusio alterius maxim applies
in the contractual interpretation context” (citing Delmarva Health Plan, Inc. v. Aceto, 750 A.2d
1213, 1216 n.12 (Del. Ch. 1999))).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 14 of 21
Moreover, notwithstanding DS §§ 4.16(a) and 4.25’s silence, the Disclosure
Schedule explicitly mentions the Murj Litigation outside of DS § 4.16(b).
Specifically, DS § 4.18 discloses pending and threatened litigation against Rhythm.62
Right at the top, it says, “[t]he Murj Litigation.”63 Either that separate disclosure is
superfluous, or DS § 4.16(b)’s scope isn’t quite as broad as Bray contends. The
Court declines to hold that an interpretation that defies this state’s presumption
against meaningless contractual language is unambiguously correct. 64
Too, the Court notices a distinctive feature of the representations that
DS § 4.16(b) unquestionably modifies. The Disclosure Schedule mentions the Murj
Litigation only where the corresponding representation says there is no pending
litigation against Rhythm—i.e., representations that are directly refuted by the Murj
Litigation’s mere existence. Perhaps, then, SPA § 8.18’s “readily apparent” test
applies disclosures to each representation that directly conflicts with the disclosure.
Under that construction, the challenged representations would not be modified by
DS § 4.16(b).
62
DS § 4.18.
63
Id.
64
See Malt Fam., 2023 WL 7476966, at *7 n. 52; see also Weinberg v. Waystar, Inc., 294 A.3d
1039, 1044 (Del. 2023) (Delaware courts “endeavor” to “not render any terms ‘meaningless or
illusory’” (quoting Manti Hldgs, LLC v. Authentix Acq. Co., Inc., 261 A.3d 1199, 1208 (Del.
2021))).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 15 of 21
The Court does not yet have occasion to decide whether DS § 4.16(b) modifies
the challenged representations. For now, it’s enough to conclude that Aldrich’s
position that the challenged representations are unmodified is not unreasonable.65
And the Court reaches that conclusion.
Bray also argues that Aldrich’s interpretation “makes no sense” in light of the
Murj-specific indemnity provisions.66 This argument doesn’t require much analysis.
It rests on the false premise that indemnifiable litigation expenses are only incurred
by losing the litigation. As Count II demonstrates, just defending against litigation
costs money. Bray next points at the $22.5 million67 she says was allocated for
indemnifying Murj Litigation costs, saying that sum would not be necessary to
defend a meritless claim. But Bray acknowledges that that number is based on the
consideration Bray received, not the merits of the Murj Litigation. So, the Court
does not view the Murj-specific indemnity provisions as an implicit concession that
Rhythm misappropriated Murj’s IP or breached the Murj License Agreements.
65
See Khushaim, 2016 WL 3594752, at *3.
66
Bray’s Mot. at 32-35.
67
Bray reaches this number by inputting the $11 million cap on her Murj-related indemnity
obligations into her interpretation of SPA § 6.10(g) to calculate the purported maximum total
SPA § 6.10(g) contemplates. See id. at 34 n.119.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 16 of 21
2. It’s Reasonable to Infer Bray Knew the Representations were False.
Bray’s second category of arguments against the fraud claim pertain the
purported inconceivability that Bray knew Rhythm had misappropriated IP or
violated the Murj License Agreements. None of these arguments clear the high
hurdle defendants face at the pleading stage. To adequately plead knowledge, a
plaintiff need only allege facts that demonstrate the representation’s falsity “was
knowable and that the defendants were in a position to know it.”68 Aldrich satisfies
both of those requirements.
Starting with the “position to know” prong, the Complaint contains ample
allegations to support that Bray was in a position to know about Rhythm ripping off
the Murj Platform to build Synergy. The Complaint quotes deposition testimony
from a Rhythm employee who described Bray as “very hands-on” and said
“[n]othing happened at [Rhythm] without Rhonda Bray knowing about it.”69 And
as mentioned, the Complaint alleges that Bray personally took part in conversations
about using Murj Platform as a template for Synergy and hiding that use from Murj.70
In response, Bray resorts to questioning the allegations’ credibility and offering
68
Labyrinth, Inc. v. Urich, 2024 WL 295996, at *13 (Del. Ch. Jan. 26, 2024) (quoting ABRY
Partners, 891 A.2d at 1050).
69
Compl. ¶ 41.
70
Id. ¶¶ 35-39.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 17 of 21
competing interpretations of the evidence.71 That won’t do it on a dismissal
motion.72
Bray’s arguments about whether it was “knowable” that Rhythm
misappropriated Murj’s IP and thereby breached the Murj License Agreements
aren’t much stronger.
Bray first posits that because the representations pertained to “legal
conclusions,” she, a sophisticated businesswoman, could not be expected to know
whether they were true or not. Not so. For one thing, Bray’s citations to the
difficulty of predicting the outcome of litigation are inapposite. The outcome of
litigation turns on innumerable subtle variables besides the action’s merit. Was the
action timely brought in a suitable forum? How much evidence has been preserved?
Will the key witness hold up on cross-examination? Can counsel find parking at the
courthouse?73 Bray didn’t need to know any of those things to know whether
Rhythm had misappropriated IP or breached an agreement. And the Court flatly
rejects the notion that businesspeople are categorically ignorant to their own
71
Bray’s Mot. at 39-43.
72
See Activision Blizzard, Inc., 2024 WL 863290, at *3.
73
See Acuity Ins. Co. v. Gartner Plumbing & Heating LLC, 2024 WL 1639802, at *1 (Vt. Super.
Ct. Apr. 3, 2024) (denying a motion to vacate judgment after plaintiff’s case was dismissed with
prejudice because plaintiff’s counsel failed to appear for trial because counsel “had trouble finding
parking”).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 18 of 21
contractual adherence until their conduct is tried in court. Contracts only work in
the real day-to-day world because—at least most of the time—real day-to-day
people know how to follow them.
Bray next says that Rhythm’s position in the Murj Litigation—i.e., that
Rhythm didn’t breach the Murj License Agreements—means there must at least be
uncertainty about that fact.74 This argument prematurely asks the Court to weigh the
credibility of Aldrich’s averments here against that of Rhythm’s averments in federal
court. Bray tacitly concedes as much by using Rule 11 of the Federal Rules of Civil
Procedure to drape Rhythm’s federal pleadings with legitimacy.75 Moreover, the
fact that Rhythm mustered presumably good-faith denials of Murj’s allegations
doesn’t necessarily make it inconceivable that Bray knew the challenged
representations were false. Rhythm’s contradictory averments in federal court might
just exploit insubstantial technicalities. In any event, now’s not the time for fact-
finding. The Complaint’s allegations raise a fair inference that Bray knew Rhythm
used the Murj Platform to build Synergy in violation of the Murj License
74
Bray’s Mot. at 44-45.
75
Id. at 45; see Fed. R. Civ. P. 11(b)(2) (“By presenting to the court a pleading . . . an attorney or
unrepresented party certifies that to the best of the person’s knowledge, information, and belief,
formed after an inquiry reasonable under the circumstances: . . . the claims, defenses, and other
legal contentions are warranted by existing law[.]”).
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 19 of 21
Agreements.
B. ALDRICH HAS ADEQUATELY STATED A BREACH-OF-CONTRACT CLAIM.
A separate issue is Bray’s compliance with the SPA’s indemnity provisions.
Large portions of this section of the Complaint have been mooted by post-filing
developments—namely, that Bray agreed to release the disputed escrowed funds.76
Even so, the parties’ indemnity impasse has not yet met its end. The Complaint
alleges that Bray has not paid her share of the losses that exceed the escrowed
amount.77 And the parties disagree about what Bray’s share is.78 So Count II
persists.
Bray’s argument against what’s left of Count II is uncompelling. It is
predicated on the idea that Plaintiffs’ claim for indemnity is “skeletal and unripe.”79
But the Complaint asserts that: (1) Plaintiffs “sent Bray an indemnification demand
notice attaching evidence that Rhythm had incurred over $1.5 million in legal fees
in the Murj Litigation”;80 (2) “ under Section 6.10(g), Bray must pay half of all loses
76
See Pls.’ Opp’n at 48; supra Section I.C.
77
Compl. ¶ 63.
78
See Bray’s Reply at 34.
79
Bray’s Mot. at 47. The Court notes that ripeness challenges fall under Rule 12(b)(1)’s ambit.
See Viacom Inc. v. U.S. Specialty Ins. Co., 2023 WL 2034445, at *2 (Del. Super. Ct. Feb. 16, 2023).
80
Compl. ¶ 50.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 20 of 21
over $1 million”;81 and (3) “Bray has . . . breached the SPA by failing to pay 50% of
the losses in the Murj Litigation over $1 million.”82 The Court therefore disagrees
that it is “impossible for Bray to ascertain what she has supposedly been ‘failing to
pay’” or that Plaintiffs’ claim is somehow unripe.83
Bray’s reply brief acknowledges Plaintiffs’ right to payment but disputes
Plaintiffs’ interpretation of SPA § 6.10(g).84 The disagreement boils down to
whether Rhythm’s initial obligation under SPA § 6.10(g)(ii) is to shoulder the first
$1 million after the Special Indemnity Escrow Amount is exhausted, or only the first
$500,000 after the same.85 That question relates to the measure of Plaintiffs’
damages, not whether Plaintiffs have stated a claim. And the Court will not rush to
answer a question that only Bray’s reply brief meaningfully discussed.
81
Id. ¶ 61.
82
Id. ¶ 63.
83
See Bray’s Mot. at 48.
84
Bray’s Reply at 33-34.
85
Id.; see also Pl.’s Opp’n at 49 n.20.
Aldrich Capital Partners Fund, LP, et al. v. Bray
C.A. No. 2023-1253-PRW
May 17, 2024
Page 21 of 21
VI. CONCLUSION
Aldrich has stated its claims for both fraud and breach of contract. And
notwithstanding some mid-litigation developments, the latter is still a live
controversy.
Resultingly, Bray’s 12(b)(6) Motion to Dismiss must be DENIED.
IT IS SO ORDERED.
_______________________
Paul R. Wallace, Judge
cc: All Counsel via File and Serve