Cablemaster LLC v. Magnuson Group Corp. ( 2023 )

SUPERIOR COURT
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: October 12, 2023
Decided: December 5, 2023
Issued: December 15, 2023*
Samuel T. Hirzel, II, Esquire Daniel J. Brown, Esquire
Gillian L. Andrews, Esquire Hayley J. Reese, Esquire
HEYMAN ENERIO GATTUSO & HIRZEL MCCARTER & ENGLISH
300 Delaware Avenue, Suite 200 405 North King Street, 8th Floor
Wilmington, Delaware 19801 Wilmington, Delaware 19801
Jeremy G. Suiter, Esquire Thomas M. Burnett, Esquire
Ahmad S. Takouche, Esquire REINHART BOERNER VAN DEUREN
STRADLING YOCCA CARLSON & RAUTH 1000 North Water Street, Suite 1700
660 Newport Center Drive, Suite 1600 Milwaukee, Wisconsin 53202
Newport Beach, California 92660
RE: Cablemaster LLC v. Magnuson Group Corp., f/k/a Cablemaster Corp., and
Amanda Ahimsa as Personal Representative of the Estate of Bruce J.
Magnuson and as Trustee of the Bruce J. Magnuson Revocable Trust
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Defendants’ Motion to Dismiss
Dear Counsel:
Before the Court is the Rule 12(b)(6) Motion to Dismiss filed by Defendants
Magnuson Group Corp. and Amanda Ahimsa, as Personal Representative of the
Estate of Bruce J. Magnuson and as Trustee of the Bruce J. Magnuson Revocable
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Trust. For the reasons explained below, that motion is DENIED.1
I. FACTUAL AND PROCEDURAL BACKGROUND2
A. THE ENTRY OF THE ASSET PURCHASE AGREEMENT
Magnuson Group Corp. f/k/a Cablemaster Corp. (“Seller” and together with
Amanda Ahimsa, as representative for Bruce Magnuson’s trust and estate,
“Defendants”) was a supplier of “cord sets, cable assemblies, wire harnesses, and
bulk wire and cable manufactured to customers’ exact specifications.”3 Non-party
* This decision is issued after consideration of the Plaintiff’s requests for redaction of what it
posited was confidential information and with the Court’s own necessary corrections and
clarifications. The Court’s redactions are far fewer than Plaintiff proposed; the APA’s
confidentiality provision is not nearly as broad as suggested. See Compl., Ex. A (“Agreement”)
§ 4(b) (requiring, at most, that the parties “keep confidential and not use or disclose any and all
confidential and proprietary information concerning the terms of this Agreement”).
Just as with our Delaware siblings, open litigation in the Superior Court is the default and
confidentiality the exception—not the rule. GKC Strategic Value Master Fund, LP v. Baker
Hughes Inc., 2019 WL 2592574, at *2 (Del. Ch. June 5, 2019). Thus, whenever called upon to
make a good cause determination for continued sealing or confidential treatment, the Court should
lean toward disclosure. In re Lordstown Motors Corp. S’holders Litig., 2022 WL 601120, at *1
(Del. Ch. Feb. 28, 2022) (noting that when continued confidential treatment is challenged, “the
court balances the public and private interests, ‘with a tie going to disclosure’”) (quoting GKC
Strategic, 2019 WL 2592574, at *2)). With this backdrop, the Court has found no good cause here
to conceal certain player identification or operative APA language—the latter of which is mostly
just run-of-the-mill contract wording. Doing so would render the Court’s disposition needlessly
opaque.
1
The Court issues this Letter Opinion in lieu of a more formal writing mindful that the parties
have a fuller understanding of and familiarity with the factual background and operative agreement
than is recounted herein.
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. ¶¶ 14-15, 17 (D.I. 1).
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Tide Rock Yieldco, LLC was a strategic holding company.4 Tide Rock was
presented with an opportunity to acquire Seller but initially declined because Seller
was “not the type of company that Tide Rock typically acquires” and Seller’s
“accounts receivable, revenue growth, and margins were all too low for Tide Rock’s
regular business model.”5
After the initial refusal, Seller sought Tide Rock’s reconsideration and
highlighted a new strategy for its wire harness product line.6 Seller pointed to its
successful relationship with [XCo] and “described its wire harness business
as the crown jewel of the Acquisition.”7 Persuaded, Tide Rock formed Cablemaster,
LLC (“Buyer”) and proceeded with the transaction.8
On December 13, 2021, Buyer entered an asset purchase agreement (the
“Agreement”) with Seller and Seller’s principal, Bruce Magnuson.9 The Agreement
provided that Buyer would acquire Seller’s assets for $ , subject to several
adjustments.10
4
Id. ¶ 16.
5
Id. ¶¶ 17-18.
6
Id. ¶ 19.
7
Id.
8
Id. ¶ 20.
9
Id. ¶ 21.
10
Id.
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B. SELLER’S REPRESENTATIONS
In the Agreement, Seller provided representations and warranties. Five are
disputed in this litigation: the “Accounts Receivable,” “Inventory,” “Acquired
Contracts,” “Material Adverse Effect,” and “Top Customer” representations.11
Section 3(a)(i)(B)’s Accounts Receivable representation states:
Accounts Receivable. The Accounts Receivable have arisen in
bona fide arm’s-length transactions in the Ordinary Course, and,
subject to the allowance for doubtful accounts set forth in the
Financial Statements, all such receivables are valid and binding
obligations of the account debtors without any counterclaims,
setoffs or other defenses thereto and are collectible in the
Ordinary Course. All such reserves, allowances and discounts
were and are adequate and consistent in extent with the reserves,
allowances and discounts previously maintained by Seller in the
Ordinary Course and determined in accordance with GAAP.12
Section 3(a)(i)(D)’s Inventory representation states:
Inventory. Except as set forth in the Inventory Schedule, all
Inventory, whether or not reflected in the Financial Statements,
has been maintained in the Ordinary Course and consists of at
least a quality and quantity usable and saleable in the Ordinary
Course, except for an immaterial quantity of obsolete, damaged,
defective or slow-moving items. Except as set forth in the
Inventory Schedule, all Inventory is owned by the Seller free and
clear of all Liens, and no Inventory is held on a consignment
basis. The Inventory is sufficient to continue to operate the
11
Id. ¶ 23.
12
Agreement § 3(a)(i)(B) (underlining in original).
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Business in the Ordinary Course immediately following the
Closing.13
Section 3(a)(i)(E)’s Acquired Contract representation states:
Acquired Contracts. The Seller has made available to Buyer an
accurate and complete copy of each Acquired Contract,
including all substantive amendments, modifications and
waivers thereto (in each case, whether written, oral, or pursuant
to a course of conduct). Except as set forth on the Acquired
Contracts Schedule, (i) Seller is not, and, to Seller’s Knowledge,
no other party is in material default under, or in material breach
or violation of, any Acquired Contract; (ii) Seller has not
received written notice alleging a material default or material
breach under any such Acquired Contract (other than letters of
default or breach that have been rescinded) or written notice of
cancellation or termination of such Acquired Contract; and (iii)
to Seller’s Knowledge, no event has occurred that (with or
without due notice, lapse of time or both) would constitute a
material default by Seller under any Acquired Contract. Each of
the Acquired Contracts is valid, binding, and in full force and
effect, and is an enforceable obligation of the Seller in
accordance with its terms and, to the Seller’s Knowledge, of the
other parties thereto.14
Section 3(a)(vi)’s Material Adverse Effect (“MAE”) representation states in
pertinent part:
Events Subsequent to Reference Date. Since the Reference Date
[July 31, 2021], Seller and its Representatives have conducted
the Business in the Ordinary Course, which includes using
commercially reasonable efforts to preserve customer and other
business relationships. Without limiting the generality of the
13
Id. § 3(a)(i)(D) (underlining in original).
14
Id. § 3(a)(i)(E) (underlining in original).
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foregoing, since the Reference Date, except as set forth on the
Events Subsequent to Reference Date Schedule, neither Seller
nor any of its Representatives has . . . (vi) become aware of any
event, occurrence or development that has had a material adverse
effect on the Business and, to Seller’s Knowledge, there has not
been any event, occurrence or development that would
reasonably be expected to have a material adverse effect to the
Business.15
Section 3(a)(vii)’s Top Customer representation states:
Customers and Suppliers; Vendor Partners. The Top Customer
and Top Supplier Schedule sets forth a correct and complete list
of the fifteen largest customers, clients, or payors for products or
services of the Seller (measured by aggregate revenue) (the “Top
Customers”) for the year ended December 31, 2020 and the
fifteen largest suppliers or vendors of the Seller (measured by
aggregate payments) (the “Top Suppliers”) for the year ended
December 31, 2020. Since the Reference Date, no Top Customer
or Top Supplier has provided written (or, to Seller’s Knowledge,
oral) notice that it intends to cease doing business with or
materially decrease the amount of business done with the Seller
or materially and adversely alter the terms upon which it is
willing to do business with the Seller and, to the Seller’s
Knowledge, no such material adverse decrease or material
adverse alternation is expected to occur. No Top Customer or
Top Supplier has delivered any written complaint to the Seller
during the prior twenty-four (24) month period in connection
with its relationship with the Seller.16
Seller promised to indemnify Buyer from any losses “resulting from, arising out of
or relating to . . . the breach of any representation or warranty of Seller contained in
15
Id. § 3(a)(vi) (underlining in original).
16
Id. § 3(a)(vii) (styling in original).
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Section 3(a).”17 Mr. Magnuson “guarantee[d] 100% of the obligations of the Seller
pursuant to the preceding provisions of this Section 5.”18
C. THE ALLEGED BREACHES OF REPRESENTATIONS
Upon taking over Seller’s business, Buyer discovered what it argues are
breaches of those five representations.19 In essence, each purported breach stems
from Seller’s alleged failure to maintain sufficient production capacity and quality
to meet its customers’ needs.20 As portrayed by Buyer, Seller handed over a
company beset by delayed, defective shipments and correspondingly displeased
customers.21
First, Buyer accuses Seller of “failing to maintain adequate reserves and
measures of allowance for the accounts receivable of its wire harness business.”22
This accusation tracks the language of the Accounts Receivable representation.23
As for the Inventory representation, Buyer alleges “Seller’s wire harnesses
were not in good condition or usable or saleable; Seller’s harnesses were deficient
17
Id. § 5(a).
18
Id. § 5(h) (underlining in original).
19
Compl. ¶ 27.
20
See id. ¶¶ 28-32.
21
See id.
22
Id. ¶ 28.
23
See Agreement § 3(a)(i)(B).
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with bad connectors and misrouted wires.”24 In support, Buyer adduces several
email chains discussing Seller’s defective wire harnesses.25 It also claims, “Seller
received written and oral notification from Top Customer [YCo] that Seller’s
wire harnesses were unsatisfactory.”26
Turning to the Acquired Contracts representation, Buyer claims Seller was
aware of both extant and pending material breaches of relevant contracts. 27 Buyer
alleges, “at least one Top Customer notified Seller that Seller had failed to perform,
and Seller’s failure to adequately supply its wire harnesses required that Top
Customer to find a different supplier.”28 Buyer’s claim that the Top Customer
representation violated is rooted in the same facts.29 The Complaint also references
pre-closing communications by Seller’s employees that discuss proposals “to try and
save $5m of business with [XCo] ,”30 along with similar internal discussions
of Seller’s purported troubles.31
24
Compl. ¶ 29.
25
See, e.g., Compl., Exs. C, F, J, K.
26
Compl. ¶ 53.
27
Id. ¶ 30.
28
Id.
29
Id. ¶ 32.
30
Id. ¶ 40.
31
See, e.g., id. ¶¶ 37, 39-46.
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Last, Buyer says the MAE representation was breached “because Seller’s wire
harness business was understaffed by more than 149% and thus could not meet its
production demands or produce goods of sufficient quality within industry
standards.”32 That number is derived from a presentation regarding a price increase
Seller gave to [XCo] shortly before the Agreement’s closing date.33 In the
presentation and affixed agenda, Seller explained it “simply and badly
underestimated” its labor costs and could only continue supplying [XCo] if
the per-harness price increased from $84.95 to $135.10.34
D. PROCEDURAL HISTORY
After discovering these alleged breaches, Buyer sent a demand letter in April
2023 seeking indemnification from Seller.35 Seller rejected the demand.36 Two
months later, Buyer filed its Complaint asserting breach of contract against
Defendants and fraudulent inducement against Seller.37 Defendants responded with
32
Id. ¶ 31.
33
Compl., Ex. L.
34
Id. (emphasis omitted).
35
Compl. ¶ 58.
36
Id. ¶ 59.
37
See id. ¶¶ 60-72.
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this motion to dismiss,38 which Buyers have opposed in writing,39 and on which the
Court has heard argument.
II. LEGAL STANDARD
“Under Superior Court Civil Rule 12(b)(6), ‘[t]he legal issue to be decided is,
whether a plaintiff may recover under any reasonably conceivable set of
circumstances susceptible of proof under the complaint.’”40 Under Rule 12(b)(6),
the Court will:
(1) accept all well pleaded factual allegations as true, (2) accept
even vague allegations as “well pleaded” if they give the
opposing party notice of the claim, (3) draw all reasonable
inferences in favor of the non-moving party, and (4) [not dismiss
the claims] unless the plaintiff would not be entitled to recover
under any reasonably conceivable set of circumstances.41
But “[t]he Court need not ‘accept conclusory allegations unsupported by specific
facts or . . . draw unreasonable inferences in favor of the non-moving party.’”42 Still,
38
See Defs.’ Open. Br. (D.I. 12); Defs.’ Repl. Br. (D.I. 19).
39
See Pl.’s Ans. Br. (D.I. 18).
40
Vinton v. Grayson, 189 A.3d 695, 700 (Del. Super Ct. 2018) (alteration in original) (quoting
L&L Broad. LLC v. Triad Broad. Co., LLC, 2014 WL 1724769, at *2 (Del. Super. Ct. Apr. 8,
2014)).
41
Id. (alteration in original) (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs.
LLC, 27 A.3d 531, 535 (Del. 2011)).
42
Tilton v. Stila Styles, LLC, 2023 WL 6134638, at *3 (Del. Super. Ct. Sept. 19, 2023) (omission
in original) (quoting Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011),
overruled on other grounds by Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255, 1277
(Del. 2018)).
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“Delaware’s pleading standard is ‘minimal.’”43 And “[d]ismissal is inappropriate
unless ‘under no reasonable interpretation of the facts alleged could the complaint
state a claim for which relief might be granted.’”44
III. DISCUSSION
A. At Least Some of Buyer’s Breach-of-Contract Allegations are
Sufficiently Pled to Withstand Defendants’ Motion to Dismiss.
Several of Buyer’s allegations regarding Seller’s breached representations
could conceivably entitle Buyer to relief. That’s all that’s needed for now. Because
Buyer brought a single count of breach of contract—encompassing all the allegedly
breached representations and the ensuing failure to indemnify—any one conceivable
allegation of breach is enough to defeat Defendant’s dismissal motion aimed at that
single count. So, Count I is not dismissed.
1. For Instance, Buyer’s Acquired Contracts Argument
is Sufficiently Pled.
To demonstrate a breach of the Acquired Contracts representation, Buyer
must show, in essence, Seller was in material breach of an acquired contract or that
43
Id. (quoting Cent. Mortg., 27 A.3d at 536).
44
Id. (quoting Unbound Partners Ltd. P’ship v. Invoy Hldgs. Inc., 251 A.3d 1016, 1023 (Del.
Super. Ct. 2021)); see also Diamond State Telephone Co. v. University of Delaware, 269 A.2d 52,
58 (Del. 1970) (“[I]t is the law that a complaint attacked by a motion to dismiss for failure to state
a claim will not be dismissed unless it is clearly without merit, which may be either a matter of
law or of fact.”).
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an event occurred that would give rise to a material breach.45 Though Buyer is yet
to conclusively make such a showing, it is conceivable Buyer could do so.
The specter of a material breach looms over the [XCo] dealings. Mere
days before Seller closed the Agreement with Buyer, it had given [XCo] an
ultimatum: accept a significant price increase or lose your wire harness supply.46
Though the [XCo] contract is not incorporated into the Complaint, such a
significant alteration of terms—seemingly bereft of corresponding benefit to
[XCo] —could conceivably constitute a material breach thereof. That
[XCo] accepted, apparently due to operational constraints, does not
necessarily mean all was well between the two. Moreover, that sudden price hike
was on top of repetitive problems with wire harness quality and timely shipments
discussed in emails both between Seller and [XCo] and between Seller’s
employees.47 As a whole, the facts alleged by Buyer suggest serious problems with
Seller’s performance under the [XCo] contract. Potentially, those problems
wrought a breach.
The concerns raised by [YCo] similarly raise a reasonable inference of
45
See Agreement § 3(a)(i)(E).
46
See Compl., Ex. L.
47
See, e.g., Compl., Exs. C, D, E, F, G, H, J, K, M.
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material breach. Emails between Seller’s employees indicate that [YCo]
complained that Seller “continued to miss dates” and told Seller it would “consider
other sources of supply.”48 In that email chain, one of Seller’s employees
acknowledged Seller’s “repeated inability to meet dates.”49 Again, while the details
of the [YCo] contract and performance thereunder remain unproven, it is
reasonable to infer that Seller’s recurrently tardy deliveries may have materially
breached that contract.
Defendants’ first counterargument—that these complaints do not prove a
material breach—misses the mark. Buyer is not required to definitively prove a
material breach at this stage. Instead, it must raise a reasonable inference of such a
breach. That, Buyer has done. Defendants’ next contention—that these failures by
Seller were disclosed—is not much more persuasive.
The “Acquired Contracts Schedule” attached to the Agreement discloses,
“Seller has experienced supply chain disruptions that have delayed order fulfillment
for certain customers, including . . . [XCo] [and] [YCo] [.]”50 But this
disclosure is not as candid as Defendants portray. In the throes of the COVID-19
48
Compl., Ex. B.
49
Id.
50
Agreement § Acquired Contracts Schedule.
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pandemic, delayed deliveries of parts and materials throttled many production lines.
Those external disruptions are notably different from Seller’s alleged failures to
produce functional goods, maintain adequate production facilities, and accurately
estimate its labor costs. The Court is therefore unconvinced that Seller’s internal
deficits were properly disclosed.
Defendants’ reply-brief argument that this at-best partial disclosure made it
incumbent on Buyer to seek further information is likewise unavailing. Defendants
cite Pilot Air Freight, LLC v. Manna Freight Systems, Inc.51 and Homan v. Turoczy52
in support of this position.53 Neither case is compelling here. In Pilot Air, the Court
of Chancery rejected a claim of deceptive negotiation due to the plaintiff-buyer’s
inexhaustive pursuit of relevant disclosures.54 There, the seller had declined to make
a requested disclosure and the plaintiff nevertheless went forward with the
purchase.55 Because the plaintiff accepted the seller’s limited representations, the
Vice Chancellor rejected the plaintiff’s attempt to circumvent the contract’s anti-
51
2020 WL 5588671 (Del. Ch. Sept. 18, 2020).
52
2005 WL 2000756 (Del. Ch. Aug. 12, 2005).
53
Defs.’ Repl. Br. at 11.
54
2020 WL 5588671, at *23.
55
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reliance clause and base an argument on the unrepresented information.56 Here, in
stark contrast, Buyer grounds its claim in a representation Seller did provide—not
one Seller refused to make.
Homan, too, is unconvincing. In that case, after a trial, the Court of Chancery
rejected a claim of fraudulently concealed financial records when the records were,
in fact, available to the plaintiffs but the plaintiffs chose not to review them.57
Indeed, the plaintiffs had been specifically advised to review those records before
proceeding, yet they never made a request to do so.58 That sort of willful blindness
has not been demonstrated in this nascent case.
Finally, to the extent Buyer’s allegations pertain to [YCo] , Defendants
contend the Acquired Contract representation is unavailable because it is not the
“most specific representation.”59 They base this argument on Section 14 of the
Agreement, which states in relevant part, “[i]n the event a subject matter is addressed
in more than one representation and warranty, Buyer will be entitled to rely only on
the most specific representation and warranty addressing such matter.”60 This
56
Id.57
Homan, 2005 WL 2000756, at *15.
58
Id.59
Defs.’ Open. Br. at 22.
60
Agreement § 14.
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argument is of little help to Defendants at this stage. First, it requires them to take
the position that the [YCo] issues are “addressed in” the Top Customer
representation—a position they later abandon.61 More importantly, Buyer need not
prove Seller materially breached multiple contracts. The concerns related to
[XCo] are sufficient to carry this claim through the pleading stage.
2. Moreover, Buyer’s Inventory Argument is Sufficiently Pled.
Relief on Buyer’s claim as to the Inventory representation is also reasonably
conceivable. All Buyer must show here is that more than “an immaterial quantity”
of Seller’s inventory was not of “a quality and quantity usable and saleable in the
Ordinary Course.”62 As mentioned, attachments to the Complaint show several
examples of Seller’s employees discussing defective products. The defects were
common enough that a third-party inspection team had to be hired to assist in finding
flawed harnesses.63 According to production status emails attached to the
Complaint, almost every inspected shipment contained multiple defective wire
harnesses.64
61
See Defs.’ Open. Br. at 22.
62
See Agreement § 3(a)(i)(D).
63
Compl., Ex. F.
64
Compl., Ex. K.
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Defendants point to a disclosure in the Agreement’s “Inventory Schedule” as
their lone response to this allegation.65 That disclosure states, “[c]ertain items of
Seller’s Inventory may be obsolete, damaged, defective or slow-moving as set forth
in the Financial Statements.”66 Perhaps, when revealed in discovery, the referenced
Financial Statements will show the extent of the problems with production quality
was adequately disclosed. Until then, a reasonable inference is that Buyer was
uninformed as to the substantial number of the harnesses being returned following
each shipment. That is particularly true in connection with the Inventory
representation’s limited caveat of “an immaterial quantity of obsolete, damaged,
defective or slow-moving items.”67 In sum, Buyer has pled defective inventory well
enough to survive Defendants’ Motion.
3. Again, Buyer’s Top Customer Argument is Sufficiently Pled.
The analysis under the Top Customer representation is similar to that for
Acquired Contracts. The key difference is that it relates only to [YCo] because
[XCo] was not a Top Customer. As was true under the Acquired Contracts
representation, Buyer is yet to prove this allegation; but it has at this pleading stage
65
See Defs.’ Open. Br. at 28.
66
Agreement § Inventory Schedule.
67
Id. § 3(a)(i)(D) (emphasis added).
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put forth a conceivable claim for relief. In short, Buyer has three options for proving
a breach of this representation: (i) written or oral notice of a Top Customer’s intent
to materially and adversely alter its relationship with Seller after the Reference Date
of July 21, 2021; (ii) Seller’s expectation of such a material, adverse alteration after
the Reference Date; or (iii) a written complaint sent by a Top Customer at any point
in the two years preceding the Agreement’s closing date.68
As discussed, [YCo] raised concerns with Seller’s performance and
suggested it might have to find a new supplier.69 Defendants stress that those
grievances were not expressed in writing and came prior to the Reference Date.
Where Defendants’ argument falters, though, is it discounts what may be uncovered
in discovery.
Notably, a post-Reference Date email, which discusses solutions to the
[XCo] problems, suggested “focusing on [YCo] ’s harnesses instead.”70
That implies Seller’s performance as to [YCo] may not have been fully
redressed prior to the Reference Date. Plus, diverting attention away from
68
Id. § 3(a)(vii).
69
Compl., Ex. B.
70
Compl., Ex. E.
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[YCo] to try to “save” other business71 may have increased tension with
[YCo] . Other emails also suggest the issues related to [YCo] were
longstanding.72 It is possible that, at some point in the two years preceding the sale,
[YCo] put a complaint in writing. That alone could constitute a breach of the
Top Customer representation. Accordingly, Buyer has a reasonably conceivable
path to recovery under this theory.
4. The Court Need Examine the Breach-of-Contract Count
No Further Under Rule 12(b)(6).
The existence of those viable allegations, or even just one of them, is enough
for Count I to overcome this Rule 12(b)(6) challenge. The question right now is
whether the overall count, not each compositional theory, is adequately pled.73 Once
the Court determines the claim as a whole is sound, testing the strength of every
individual girder is inessential.
Count I broadly alleges that Defendants “breached their obligations to Buyer
71
See id.
72
See Compl., Ex. B.
73
inVentiv Health Clinical, LLC v. Odonate Therapuetics, Inc., 2021 WL 252823, at *4 (Del.
Super. Ct. Jan. 26, 2021) (“[A]t the pleading stage of a case, a trial judge is not a robed gardener
employing Rule 12(b)(6) as a judicial shear to prune individual theories from an otherwise
healthily pled claim or counterclaim.”); see also Envolve Pharmacy Sols., Inc. v. Rite Aid Hdqtrs.
Corp., 2021 WL 855866, at *4 n.45 (Del. Super. Ct. Mar. 8, 2021) (“[I]t is not generally the Court’s
duty to dissect a single claim for either dismissal or rescues of its constituent theories of liability.”).
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under Section 3(a) of the Purchase Agreement, as alleged herein.” 74 Any breach of
a Section 3(a) representation could therefore support this contention. The Court is
satisfied Buyer might be able to prove one. That suffices.
B. Buyer’s Fraudulent Inducement Claim is Sufficiently Pled.
Assuming that representations in the Agreement were false when made, which
is presently appropriate for the reasons set forth above, Defendants’ arguments
against Buyer’s fraudulent inducement claim lack force.
Defendants first raise the “bootstrap” rule;75 but they acknowledge, “Delaware
courts routinely recognize an exception to this ‘bootstrap’ rule where a plaintiff
pleads ‘that the Seller knew that the Company’s contractual representations and
warranties were false’ when made.”76 Defendants thus revert to insisting there were
no misrepresentations in the Agreement.77 That argument fares no better on its
second pass.
The suggestion that Buyer’s claims are precluded by the Agreement’s anti-
74
Compl. ¶ 63.
75
Parties may not “bootstrap a breach of contract claim into a fraud claim merely by adding the
words fraudulently induced or alleging that the contracting parties never intended to perform.”
Stein v. Wind Energy Hldgs., 2022 WL 17590862, at *6 (Del. Super. Ct. Dec. 13, 2022) (quoting
Swipe Acquisition Corp. v. Krauss, 2020 WL 5015863, at *11 (Del. Ch. Aug. 25, 2020)).
76
Defs.’ Open. Br. at 30 (quoting Anschutz Corp. v. Brown Robin Cap., LLC, 2020 WL 3096744,
at *15 (Del. Ch. June 11, 2020)).
77
Id. at 31-33.
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reliance clause78 is similarly misplaced. The Complaint does refer to extra-
contractual statements; but it does so only to furnish the dispute’s factual context.
Buyer’s actual claims are based on what it was permitted to rely on: express
contractual representations.79 It follows that the anti-reliance clause is no bar here.
Last, Defendants say Buyer’s fraud claim lacks the requisite particularity. Not
so. “To satisfy Rule 9(b), a complaint must allege: (1) the time, place, and contents
of the false representation; (2) the identity of the person making the representation;
and (3) what the person intended to gain by making the representation.”80 But, for
reasons that will soon be apparent, “it is relatively easy to plead a particularized
claim of fraud” when “a party sues based on a written representation in a contract.”81
Buyer’s burden here is easily carried because the obligatory details all go back
to the Agreement itself. The Agreement’s representations comprise the allegedly
false representations and were made at the time and place of the closing. Seller made
78
Agreement § 4(g) (providing in part, “Buyer has relied solely on the results of its own
independent investigation and on the representations and warranties expressly and specifically set
forth in Section 3(a) and Section 3(b)”).
79
Compl. ¶¶ 67-68.
80
ABRY Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006) (citing
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003)).
81
River Valley Ingredients, LLC v. Am. Proteins, Inc., 2021 WL 598539, at *4 (Del. Super. Ct.
Feb. 4, 2021) (quoting Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 62 (Del. Ch.
2015)).
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the allegedly false representations. And Seller allegedly sought to induce Buyer to
enter the Agreement on unduly favorable terms. No greater particularity is needed.
Count II thus withstands Defendants’ Motion.
V. CONCLUSION
Based on the foregoing, Defendants’ Motion to Dismiss is DENIED.82
IT IS SO ORDERED.
_______________________
Paul R. Wallace, Judge
cc: All Counsel via File and Serve
82
Buyer requested leave to amend its Complaint in the event either of its counts were dismissed.
Pl.’s Ans. Br. at 28. That request is now moot.