James Bocock v. HC2 Holdings, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
JAMES BOCOCK, VENTURI )
ANDERSONI, LLC, JOHN N. KYLE )
II, KRISTINA C. BRUNI, PAUL )
DESTEFANIS, PAULA ABERLE, )
MICHAEL DAGEN, ENTRUST )
FREEDOM/YVONNE WOOD, )
EQUITY TRUST/J.M. HUISINGA, )
IRWIN PODHAJSER, JAMES )
GALLAGHER, JONATHAN )
HEISTEN, LINDA KLINK, MICHAEL )
L. ROBERTS, PAVAN ANAND, )
PHYLLIS COHEN, RONALD R. )
TILLER, TYLER WOOD, STEPHEN )
CLAASSEN, MICHAEL TANIELIAN, )
FRANK NEVES, JOHN D. ROEHRS, )
STAN V. SMITH ON BEHALF OF )
THE STAN V. SMITH TRUST )
DATED APRIL 30, 1993, ROBERT A. )
BEAN, RICHARD CAREY, and )
ALLEN WHITMORE, )
)
Plaintiffs, )
)
v. ) C.A. No. 2021-0224-PAF
)
INNOVATE CORP., HC2 )
BROADCASTING HOLDINGS INC., )
HC2 BROADCASTING INC., )
CONTINENTAL GENERAL )
INSURANCE COMPANY, PHILLIP )
A. FALCONE, MICHAEL J. SENA, )
WAYNE BARR, JR., LES LEVI, )
PAUL K. VOIGT, AND IVAN P. )
MINKOV, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: July 20, 2022
Date Decided: October 28, 2022
John G. Harris, David B. Anthony, BERGER HARRIS LLP, Wilmington, Delaware;
Attorneys for Plaintiffs James Bocock, Venturi Andersoni, LLC, John N. Kyle II,
Kristina C. Bruni, Paul Destefanis, Paula Aberle, Michael Dagen, Entrust
Freedom/Yvonne Wood, Equity Trust/J.M. Huisinga, Irwin Podhajser, James
Gallagher, Jonathan Heisten, Linda Klink, Michael L. Roberts, Pavan Anand,
Phyllis Cohen, Ronald R. Tiller, Tyler Wood, Stephen Claassen, Michael Tanielian,
Frank Neves, John D. Roehrs, Stan V. Smith on behalf of The Stan V. Smith Trust,
Robert A. Bean, Richard Carey, and Allen Whitmore.
Kevin G. Abrams, J. Peter Shindel, Jr., April M. Ferraro, ABRAMS & BAYLISS
LLP, Wilmington, Delaware; Attorneys for Defendants INNOVATE Corp. (f/k/a
HC2 Holdings, Inc.), HC2 Broadcasting Holdings Inc., HC2 Broadcasting Inc.,
Michael J. Sena, Wayne Barr, Jr., Les Levi, and Ivan P. Minkov.
Martin S. Lessner, Daniel M. Kirshenbaum, M. Paige Valeski, Wilmington,
Delaware, YOUNG CONAWAY STARGATT & TAYLOR, LLP; Beth I. Z.
Boland, FOLEY & LARDNER LLP, Boston, Massachusetts; Chelsea L. Hilliard,
FOLEY & LARDNER LLP, Dallas, Texas; Attorneys for Defendant Continental
General Insurance Company.
Stephen C. Norman, Jaclyn C. Levy, POTTER ANDERSON & CORROON LLP,
Wilmington, Delaware; Eric Landau, Travis Biffar, ELLENOFF GROSSMAN &
SCHOLE LLP, Irvine, California; Attorneys for Defendant Philip A. Falcone.
Kurt M. Heyman, Aaron M. Nelson, HEYMAN ENERIO GATTUSO & HIRZEL
LLP, Wilmington, Delaware; Attorneys for Defendant Paul K. Voigt.
FIORAVANTI, Vice Chancellor
In November 2017, HC2 Holdings, Inc. (now Innovate, Inc. or “Innovate”)
acquired a controlling stake in DTV America Corporation (“DTV America”). It
acquired that stake through a stock purchase agreement with several DTV America
stockholders, many of whom are plaintiffs in this action. Both Innovate and DTV
America were and are in the television broadcasting business.
After the transaction closed, Innovate designated as DTV America officers
and directors certain of its or its affiliates’ officers and directors. The plaintiffs
allege that Innovate’s acquisition of control was part of a scheme by Innovate, its
affiliates, and the DTV America officers and directors to loot DTV America.
According to the alleged scheme, Innovate usurped for itself valuable corporate
opportunities that DTV America had identified, transferred DTV America broadcast
licenses to Innovate’s affiliates for little to no consideration to DTV America, and
forced DTV America to enter into agreements with Innovate that drained DTV
America of its value. Plaintiffs allege that this scheme culminated in Innovate
offering to buy the remaining shares of DTV America from the plaintiffs on the
cheap.
The plaintiffs comprise stockholders and option holders of DTV America.
They have asserted a variety of claims, including fiduciary duty claims against
officers and directors of DTV America and Innovate and certain of its affiliates as
DTV America’s controlling stockholders. The complaint also seeks to hold these
same defendants liable under theories of aiding and abetting and civil conspiracy.
The last claim is by holders of DTV America stock options, who allege that the same
fiduciary duty breaches underlying the stockholder plaintiffs’ derivative claims give
rise to a direct tortious interference claim for devaluing the stock options.
The defendants have moved to dismiss. Before addressing the factual
background and the merits, a few words about the complaint and the plaintiffs’ legal
theories are in order. To put it charitably, the complaint is unfocused and short on
well-pleaded facts. It is the classic, unappetizing “pizza on the wall.” For example,
the complaint lumps all of the individual defendants together as “Conspirators.” The
complaint purports to allege claims as to dozens of events, but, as to most of them,
the complaint does not identify when they occurred, who the decision makers were,
or any of the transaction details. The complaint alleges that five of the six individual
defendants served as DTV America officers, directors, or both, at varying times, but
is vague as to the duration of their service. In other words, it is impossible to discern
who served on the board at the time of some of the challenged transactions. The
complaint alleges both direct and derivative claims covering identical conduct, but
the direct claims do not pass the straight-face test, and the plaintiffs conceded as
much by not briefing the issue.
Delaware is a notice-pleading state. All reasonable inferences are to be drawn
in favor of the plaintiffs on a motion to dismiss. The court applies that standard here.
2
None of the more than 20 plaintiffs utilized the tools at hand under 8 Del. C. § 220
to obtain basic facts about the transactions that they challenge. That failure is not
fatal, but the court is left with a complaint that for the most part lacks well-pleaded
facts from which reasonable inferences can be drawn. At the end of this opinion, a
few claims survive. Most do not. Consequently, this opinion is longer than it should
be because, “it is more time-consuming to clean up the pizza thrown at a wall than
it is to throw it.” In re TransPerfect Glob., Inc., 2021 WL 1711797, at *1 (Del. Ch.
Apr. 30, 2021), aff’d sub nom. TransPerfect Glob., Inc. v. Pincus, 2022 WL 1763204(Del. June 1, 2022).
I. BACKGROUND
The facts recited in this Memorandum Opinion are drawn from the Amended
Verified Complaint (the “Complaint”)1 and documents integral thereto or otherwise
subject to judicial notice.
1
Dkt. 30 (“Compl.”). Exhibits attached to the Complaint are cited as “Ex.” Both sides
have submitted documents that are outside the pleadings. Some of those documents are
integral to the Complaint or otherwise subject to judicial notice. Others are not. The
Defendants’ reliance on documents outside the pleadings raised the specter of converting
the motions to dismiss into motions for summary judgment and affording the Plaintffs
discovery. In re CBS Corp. S’holder Class Action & Deriv. Litig., 2021 WL 268779, at
*17 (Del. Ch. Jan. 27, 2021). The court declines to do so. Instead, the court considers only
those documents that are integral to the Complaint or otherwise subject to judicial notice.
See City Pension Fund for Firefighters & Police Officers in City of Miami v. The Trade
Desk, Inc., 2022 WL 3009959, at *9 (Del. Ch. July 29, 2022).
3
A. The Parties
The plaintiffs are 22 purported stockholders or option holders of DTV
America Corporation (“DTV America” or the “Company”). They are collectively
referred to as “Plaintiffs.”2 Counts I through VI are asserted on behalf of a group
defined as the “Stockholder Plaintiffs.”3 Plaintiffs James Bocock and Venturi
Andersoni, LLC (the “Derivative Plaintiffs”) represent that they have “continuously
held DTV America stock at all times pertinent to the derivative claims averred in
this action and remain stockholders of record.” 4 The “Option Holder Plaintiffs” are
John N. Kyle II, Kristina C. Bruni, Paul DeStefanis, Michael Dagen, Irwin
Podhajser, Paula Aberle, Robert A. Bean, and James Bocock.5 Many of the plaintiffs
are former officers, directors, or employees of DTV America.
DTV America owns and operates low-power television (“LPTV”) broadcast
stations across the United States.6
2
Compl. ¶¶ 1, 21–22.
3
The Stockholder Plaintiffs are: James Bocock; Venturi Andersoni, LLC; Entrust
Freedom/Yvonne Wood; Equity Trust/JM Huisinga; Irwin Podhajser; James Gallagher;
Jonathan Heistein; Linda Klink; Michael L. Roberts; Pavan Anand; Phyllis Cohen; Ronald
R. Tiller; Tyler Wood; Stephen Claassen; Michael Tanielian; Frank Neves; John D.
Roehrs; Stan V. Smith on behalf of the Stan V. Smith Trust Dated April 30, 1993; Robert
A. Bean; Richard Carey; and Allen Whitmore. See Ex. 1.
4
Compl. ¶ 91. The other Stockholder Plaintiffs do not appear to be holding themselves
out as stockholders asserting derivative claims on behalf of the Company.
5
Id. ¶ 22.
6
Dkt. 45 (“Pls.’ HC2 Ans. Br.”) 2; see also Compl. ¶ 29.
4
Innovate, 7 a Delaware corporation, is a publicly traded holding company with
a “diverse array of operating subsidiaries across multiple reportable segments.”8
Innovate is “the ultimate parent company of DTV America and a web of numerous
other intersecting companies.”9 Among Innovate’s wholly owned subsidiaries is
Defendant HC2 Broadcasting Holdings Inc. (“HC2 Broadcasting”), a Delaware
corporation that holds Innovate’s broadcasting assets.10 As of January 2021, HC2
Broadcasting operated over 220 broadcast television stations and owned
approximately 210 silent licenses and construction permits across 130 U.S.
markets. 11 HC2 Broadcasting, in turn, owns 100% of Defendant HC2 Broadcasting
Inc. (“HC2 Inc.”), a Delaware corporation. 12 Defendant Continental General
Insurance Company (“Continental”), a Texas corporation, was at all relevant times,
7
See Dkt. 42 (Order Regarding Name Change of Defendant HC2 Holdings, Inc.).
8
Compl. ¶ 6.
9
Id.
10
Id. ¶ 7.
11
Id.
12
Id. ¶ 8.
5
a wholly owned subsidiary of Innovate. 13 At all relevant times, Continental owned
approximately 8% of DTV America’s common stock.14
Innovate, HC2 Broadcasting, and HC2 Inc. are collectively referred to as the
“Innovate Defendants.” The Innovate Defendants and Continental are referred to
collectively as the “Entity Defendants.”
The six remaining defendants (the “Individual Defendants”) are current and
former directors and officers of the Innovate Defendants. Five of them also served
at various time as directors and officers of DTV America. Outside of the time
periods described below, the specific tenure of each defendant in their alleged
fiduciary roles is not apparent from the Complaint.
Defendant Phillip A. Falcone was the President and Chief Executive Officer
of Innovate from May 2014 to April 2020 and the President and a director of HC2
13
Id. ¶ 9. Innovate sold Continental to Continental General Holdings LLC in a transaction
that closed on July 1, 2021. HC2 Holdings, Inc., Quarterly Report 21 (Form 10-Q) (June
30, 2021). The court may take judicial notice of this fact, which is not subject to reasonable
dispute. Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d 1163, 1167 n.3 (Del. Ch. 2002)
(“The court may take judicial notice of facts publicly available in filings with the SEC.”).
It is not clear what happened to Continental’s equity interest in DTV America in the
transaction, but the result does not matter for this decision.
14
Compl. ¶ 9. Continental, relying upon Innovate’s filings with the United States
Securities and Exchange Commission (“SEC”), argues that Continental owned 6.84% of
DTV’s outstanding common stock. Dkt. 39 (“Continental Mot. To Dismiss”) 5, 19. For
purposes of this decision, the court accepts the allegations of the Complaint. Whether
Continental owned 6.84% or 8% of DTV America’s outstanding stock is immaterial to the
outcome of this decision.
6
Broadcasting from October 2017 to May 2020. 15 He served as a director of DTV
America from October 2017 to May 2020. 16 He also served as CEO, President, and
Chairman of the Board of DTV America starting in November 2017.17
Defendant Michael J. Sena is currently the Chief Financial Officer of
Innovate, an executive officer and director of HC2 Broadcasting, and a director and
former Chief Financial Officer of DTV America. 18 He has served at Innovate since
June 2015 and at HC2 Broadcasting since October 2017. 19 He served as a member
of the DTV America board of directors on March 15, 2021, but the Complaint does
not allege when he first joined the board. 20
Defendant Les Levi was the Chief Operating Officer of DTV America from
December 2017 to April 2018.21 He has served on the DTV America board of
directors since November 2017 and became the managing director of business
15
Compl. ¶¶ 10, 99.
16
Id. ¶ 10.
17
Id. ¶ 17.
18
Id. ¶ 11.
19
Id. ¶ 12,
20
Id. ¶¶ 12, 95.
21
Id. ¶ 12
7
strategy of DTV America in May 2020.22 Levi has been an officer of HC2 Holdings
since 2017. 23
Defendant Ivan P. Minkov has been the Chief Financial Officer of DTV
America since April 2018 and is a current member of the board. 24 He became an
officer of HC2 Broadcasting in 2018 and a director of the same in October 2017.25
Defendant Wayne Barr, Jr. has served as a director of Innovate since 2014 and
as its Chief Executive Officer since June 2020.26 He has served as the Chief
Executive Officer and as a director of HC2 Broadcasting since February 2021.27
Barr has also served as President of two non-party Innovate entities since 2018.28
The Complaint alleges that “[s]ince November 2017” Barr “at one time, served as
either a director, officer, or both of DTV America,” and that he was a director as of
March 15, 2021.29
Defendant Paul K. Voigt served as senior managing director of investments
at Innovate from late 2014 to early 2018 and as a “director and/or officer of several
22
Id.
23
Id. ¶ 100.
24
Id. ¶¶ 13, 17.
25
Id. ¶ 98.
26
Id. ¶ 15.
27
Id.
28
Id.
29
Id. ¶¶ 17, 93
8
[Innovate] entities” at undisclosed times.30 He is not alleged to have held any
position at DTV America at any time.
The Complaint alleges that Barr, Minkov, Sena, and Levi were DTV America
directors at the time of the filing of the original complaint in this action on March
15, 2021. 31
The named defendants are collectively referred to as the “Defendants.”
B. The Entity Defendants’ Acquisition of DTV America Stock
In late 2015, Innovate indirectly owed a minority equity stake in DTV
America through Continental. 32 In early 2016, Falcone and Voigt, acting as
representatives of the Innovate Defendants, engaged in discussions with and
obtained confidential business information about DTV America in contemplation of
an additional equity investment in the Company.33 That information included details
of valuable business opportunities available to DTV America—specifically
“immediate, near term LPTV broadcast station purchase opportunities around the
country.” 34 The Complaint alleges that these acquisition targets were reflected in a
30
Id.
31
Id. ¶ 93.
32
Id. ¶ 26.
33
Id. ¶ 32.
34
Id.
9
“Business Plan,” but the Complaint does not identify any of the targets.35 Plaintiffs
acknowledge that Plaintiff John N. Kyle, II, DTV America’s former Chief Executive
Officer, created the Business Plan.36 The Complaint does not specify when the
Business Plan was provided to any of the Innovate Defendants. It is apparent,
however, that it was provided sometime between May 2016 and June 2017.37
In June 2017, Innovate, through a wholly owned subsidiary, entered into
private agreements with certain DTV America stockholders, including some of the
Plaintiffs, to purchase their shares of DTV America common stock, representing
approximately 43% of all outstanding shares (the “Purchase Agreement”).38 The
transaction closed in November 2017.39 As a result of these transactions, Innovate
and its subsidiaries owned over 50% of DTV America’s common stock by the end
of 2017.
35
Id.
36
Dkt. 43 (“Pls.’ HC2 Ans. Br.”) 3.
37
Compl. ¶ 32 (alleging that Falcone and others had continuous access to DTV America’s
LPTV station purchase opportunities from June 2017 to November 2017); see Pls.’ HC2
Ans. Br. Ex. A (attaching what is alleged to be the Business Plan, dated May 2016).
38
Compl. ¶ 27; see Dkt. 38 (“HC2 Defs.’ Opening Br.”) Ex. D. The court can take judicial
notice of this document, which was filed with the SEC and is not subject to reasonable
dispute. See Del. R. Evid. 201(b); In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d
162, 169 (Del. 2006).
39
Compl. ¶ 30.
10
At some unalleged time thereafter, Innovate entered into proxy agreements
with other stockholders allowing Innovate “at all times to maintain a controlling
majority.” 40 The Complaint contains no facts as to these agreements or the number
of shares that are subject to these agreements.
C. Defendants’ Alleged Misconduct
Plaintiffs allege that once Innovate signed the Purchase Agreement in June
2017, Innovate, its affiliates, and several of the Individual Defendants began
siphoning off assets from the Company. The Plaintiffs allege that these events were
part of a scheme, led by Falcone, to acquire a majority stake in DTV America and
then loot DTV America of its assets and corporate opportunities, leading to
Innovate’s attempt to buyout the remaining minority DTV America stockholders at
a deep discount.41 In addition to Falcone, the other alleged participants in this
alleged scheme were Levi, Sena, Minkov, Barr, and Voigt, to whom the Complaint
refers as the “Conspirators.”42 Plaintiffs allege that beginning in November 2020,
the Conspirators began to “make offers to Minority Shareholders to purchases their
shares at a deep discount.”43 The allegations as to much, but not all, of the alleged
40
Id. ¶ 116.
41
Id. ¶ 1.
42
Id. ¶ 31.
43
Id. ¶ 78. There are no other allegations about this alleged “third and final step of the
Scheme.” Id. There are no allegations as to any offers, any representations about the
offers, or whether any offers were accepted.
11
misconduct are sparse to nearly nonexistent. What follows is the court’s attempt to
categorize and describe the claims.
1. Usurpation of Corporate Opportunities Identified in the
Business Plan
Plaintiffs allege that in the period between June 2017 and December 2020,
Innovate, through subsidiaries other than DTV America, acquired over 100 LPTV
stations that had been identified as DTV America acquisition targets prior to
November 2017.44 Very few of those alleged corporate opportunities are identified
in the Complaint. For the most part, Plaintiffs do not identify which specific stations
were purchased, when they were purchased, or which Innovate subsidiaries (party
or non-party) were the purchasers. The few that are described in the Complaint are
as follows:
• WFWC-CD Station Group. DTV America signed a letter of intent with
Trans Star, LLC (“Trans Star”) on October 19, 2017 to acquire the WFWC-
CD Station Group for $225,000 45. On February 8, 2018, HC2 Station Group,
Inc., 46 an Innovate affiliate, filed an assignment for the WFWC-CD Station
44
Id. ¶¶ 33–34.
45
Id. ¶ 35.
46
HC2 Station Group, Inc. (“HC2 Station Group”) is not a defendant in this action. See
id. ¶¶ 13, 15, 95, 96, 98, 100.
12
Group with the FCC, and on April 6, 2018, the FCC approved the sale of
WFWC-CD Station Group to HC2 Station Group.47
• Frank Digital Broadcasting. In October 2017, DTV America
“negotiated a deal to purchase Frank Digital Broadcasting’s LPTV stations
for $65,000.”48 On April 15, 2018, HC2 Station Group filed an application
with the Federal Communications Commission (the “FCC”) to purchase these
stations for itself for the same $65,000 purchase price. 49
• Azteca America. In November 2017, the Innovate Defendants acquired
Azteca America, a Spanish-language television programming network (the
“Azteca America Acquisition”).50 The Complaint alleges that the Business
Plan identified Azteca America as a potential target.51 But the document that
Plaintiffs attached to their answering brief and asserted to be the Business Plan
does not mention Azteca America as a potential acquisition target. 52 Plaintiffs
do not specify which of the Innovate Defendants purchased Azteca America.
According to the Complaint, since the Azteca America Acquisition, DTV
47
Id. ¶¶ 36–37.
48
Id. ¶ 39.
49
Id.
50
Id. ¶ 40.
51
Id.
52
Pls. HC2 Ans. Br. Ex. A. Azteca America is mentioned one time in the Business Plan
as among 27 networks carried on DTV America. Id. at 13.
13
America’s stations have been “forced” to run Azteca America programming
at “a reduced profit.” 53 Plaintiffs imply that, but for an unidentified Innovate
affiliate’s acquisition of this company, DTV America could have and would
have acquired Azteca America itself, which would have resulted in greater
value to the Company. 54
2. Broadcasting Licenses and Construction Permits
Plaintiffs allege that “[s]ince 2017, over 70 licenses or construction permits
were transferred from DTV America and placed in the name of HC2 Station Group,
Inc. . . . or another [Innovate] Entity”55 for “little or no consideration to DTV
America.”56 Plaintiffs provide no details or dates for any of these license transfers.
The Complaint merely lists the station call letters, city, and state of 48 licenses.57
According to the Complaint, the Entity Defendants have begun transferring some of
these licenses back to DTV America following the commencement of this action.58
53
Compl. ¶¶ 40, 42.
54
Id. ¶¶ 41–42.
55
Id. ¶ 44.
56
Id. ¶ 43.
57
Id. ¶ 44.
58
Id. ¶ 45.
14
3. The Lowcountry Sale
On November 11, 2019, DTV America sold two LPTV stations, W26DT-D
and WCGZ-LD, to Lowcountry 24 Media, LLC (“Lowcountry”) for two dollars (the
“Lowcountry Sales”). 59 According to an application filed with the FCC, “additional
consideration for the [Lowcountry] transaction is the extension of time granted by
[Lowcountry] to DTV America . . . in a related transaction between the parties.”60
The “related transaction,” however, did not directly involve DTV America. Instead,
it involved Lowcountry’s sale of a full power TV station to Innovate for $2.6
million.61 Seven months later, Lowcountry sold W26DT-D to a third party for
$200,000 and sold WCGZ-LD, along with two other licenses, to another third party
for over $350,000.62
4. The Gray Media Sale
On March 12, 2021, DTV America and HC2 Broadcasting entered into an
asset purchase agreement with Gray Media Group, Inc. (“Gray Media”) to sell ten
broadcasting station licenses to Gray Media for $475,000 (the “Gray Media Sale”).63
Six were DTV America licenses, and the other four had previously been transferred
59
Id. ¶ 47.
60
Id. ¶ 48 (modified from all capital letters in original).
61
Id. ¶ 49.
62
Id. ¶¶ 50–51.
63
Id. ¶ 53.
15
from DTV America to the Entity Defendants for “no consideration.”64 The
Complaint alleges on information and belief that the proceeds from the Gray Media
Sale “went directly to the [Entity Defendants], and DTV America received no
consideration for its licenses.”65 The Complaint alleges no facts as to whether any
of the Individual Defendants had any involvement in the transaction.
5. TV-49
On March 17, 2021, HC2 Broadcasting sold six licenses to TV-49, Inc. (“the
TV-49 Sale”). 66 DTV America originally owned and has been named as licensee of
four of those six licenses. DTV America was not a party to the asset purchase
agreement.67 Plaintiffs allege that the Entity Defendants and the so-called
Conspirators “improperly transferred control of these licenses to HC2
Broadcasting.”68 Again, the Complaint alleges no facts as to who was involved in
negotiating, approving, or effectuating the transaction.
64
Id. The Complaint identifies these four licenses by city, state, and call letters. Id. ¶ 54
n.1.
65
Id. ¶ 55. After the initiation of this action, HC2 Broadcasting informed the FCC that the
four stations listed as being HC2, Inc. licenses should have been listed as DTV America
licenses. Id. ¶ 56.
66
Id. ¶ 59.
67
Id.
68
Id. ¶ 60.
16
6. Expired and Written-Off Licenses and Permits
Plaintiffs allege that, since 2017, over 115 of DTV America’s licenses and
construction permits have expired and are worthless. 69 In addition, as of the date of
the Complaint, an additional 62 construction permits were set to expire in July
2021. 70 As a result, the alleged Conspirators “engage[d] in the large-scale selling of
DTV America assets at severely depressed prices to various other broadcasters.”71
DTV America also wrote off nearly $2 million for the impairment of FCC licenses
in 2019. By contrast, DTV America wrote off $319,557 in impaired licenses in 2017
and $176,119 in 2018. 72 The Complaint alleges no further facts about any of these
licenses and permits. The Complaint does not identify them, and there are no
allegations that any of the licenses or permits had value at the time they were written
off or were allowed to expire.
D. DTV America’s Technology and Intellectual Property
Long before Innovate began discussing a transaction to acquire a controlling
interest in DTV America, the Company had developed a proprietary program
69
Id. ¶ 81.
70
Id. ¶ 82. The parties have not informed the court whether such expiration actually
occurred.
71
Id. The court infers that the assets being sold were the soon-to-expire construction
permits.
72
Id. ¶ 80.
17
distribution platform named “DTV Cast.”73 DTV Cast “enabled TV programming
from a central ‘hub’ to any connected TV station in the US,” without the need for
satellite dishes.74 The DTV Cast platform “provides for a low cost of operation,
flexibility in maintenance, remote monitoring, remote operations, and the ability to
scale to hundreds of TV stations.”75 Plaintiffs allege that the Entity Defendants
appropriated and rebranded this valuable technology as “Central Cast,” an asset of
HC2 Broadcasting, without paying any consideration to DTV America. 76 Like most
of the other activities and transactions alleged to be wrongful, the Complaint does
not allege when the appropriation and rebranding occurred or offer any other facts
about the purported malfeasance. What they do allege, however, is that Innovate’s
misappropriation of the DTV Cast technology “made it possible for the [Entity
Defendants] to go on a $150,000,000 acquisition spree to purchase stations, starting
in November 2017.”77 The only reasonable inference to draw from this allegation is
that the wrongful misappropriation of DTV Cast occurred at or before the beginning
of the “acquisition spree.”
73
Id. ¶ 73.
74
Id.
75
Id.
76
Id. ¶ 74.
77
Id. ¶ 75.
18
E. FCC Repacking
The FCC periodically “repacks” television stations in order to efficiently
utilize the spectrum of airwaves. 78 This practice reshuffles stations via an incentive
auction process, in which some stations voluntarily relinquish spectrum usage rights
in exchange for payment from the FCC, those rights are resold to mobile broadband
providers, and the remaining television stations are reorganized to occupy a smaller
portion of the spectrum. 79 Stations are reshuffled regardless of whether they chose
to participate in the reverse auction.80
Plaintiffs allege that, after the Entity Defendants acquired a controlling
ownership interest in DTV America in November 2017, they “took the best open
and available channels that were repacked by the FCC from DTV America and
diverted those stations to other wholly owned subsidiaries of [Innovate].”81
Plaintiffs do not identify the channels diverted or the entities to which they were
transferred, nor do they offer facts to support their assertion that these channels were
“the best open and available channels.”
78
Id. ¶ 76. See Comment Sought on Competitive Bidding Procedures for Broadcast
Incentive Auction 1000, Including Auctions 1001 and 1002, 20 FCC Rcd. 15750 (Feb 27,
2015) ¶ 2.
79
Id.
80
Id. ¶ 3.
81
Compl. ¶ 77.
19
F. Expense Sharing and Equity Compensation
Plaintiffs allege that the Entity Defendants, as DTV America’s controllers,
used their control to “prop up [Innovate’s] financial position while also diluting the
[minority shareholders of DTV America].”82 According to the Complaint, the Entity
Defendants caused DTV America to enter into a “Right to Use” agreement (the
“Right to Use Agreement”).83 The Complaint offers no details as to when this
agreement was entered or its terms. The Complaint alleges that this agreement “adds
over $12 million in long-term debt payable to [Entity Defendants].” 84
In addition to the Right to Use agreement, DTV America entered into an
“Expense Sharing Agreement” with the Entity Defendants.85 The Complaint does
not describe the terms of this agreement. Plaintiffs allege this agreement was
mentioned in the 2019 DTV America financial statements.86 The Complaint alleges
that between 2017 and 2019, DTV America’s operating expenses increased from
$7.5 million to $12.3 million, and that its total liabilities increased from $12.8
82
Id. ¶¶ 62–63.
83
Id. ¶ 65.
84
Id.
85
Id. ¶ 66.
86
Id.
20
million to $30.2 million. 87 However, DTV America only recorded an increase of
about $100,000 in gross revenues during that time. 88
Plaintiffs allege that the Conspirators have caused DTV America to “pay[] out
large sums of share-based compensation disproportionate to DTV America’s profits
or revenue.”89 Plaintiffs allege the Company paid $1,602,879 in share-based
compensation in 2019 and $628,000 in 2018, while revenues have remained between
$4.7 million and $4.8 million between 2017 and 2019. There are no other allegations
beyond these top-line numbers. The Complaint does not identify of any recipient of
this share-based compensation or allege who approved it. Nor does the Complaint
describe the form of the share-based compensation.
The Complaint alleges that these agreements and compensation arrangements
enabled the Entity Defendants to push expenses down to DTV America, damaging
DTV America’s financial status, and diluting Company’s minority stockholders.90
G. Procedural History
Plaintiffs filed their Verified Complaint on March 15, 2021, and an Amended
Verified Complaint (the “Complaint”) on June 23, 2021.91
87
Id. ¶ 67.
88
Id.
89
Id. ¶ 70.
90
Id. ¶¶ 62–72.
91
Dkt. 1; Dkt. 30.
21
The Complaint contains seven counts. Count I alleges that Falcone, Sena,
Levi, Barr, and Minkov (together, the “Director and Officer Defendants”) breached
their fiduciary duty of loyalty by expropriating DTV America’s assets, value, and
opportunities for the benefit of Innovate and its affiliates. Count II alleges that the
Entity Defendants, as the controlling stockholders of DTV America, breached their
fiduciary duties of loyalty to DTV America’s minority stockholders by “steal[ing]
numerous business opportunities that rightfully belonged to DTV America.”92
Count III is a direct fiduciary duty claim against the Director and Officer Defendants
for their involvement in the “Scheme.”93 Count IV is a derivative breach of fiduciary
duty claim and corporate waste claim against the Director and Officer Defendants
for permitting the sale of DTV America licenses for inadequate consideration and
allowing other DTV America licenses to expire. Count V is a civil conspiracy claim
against all Defendants for “engag[ing] in overt acts in furtherance of the
conspiratorial Scheme” to loot DTV America.94 The Complaint alleges all of the
Defendants engaged in acts in support of the alleged scheme, “all of which were
willful violations of their fiduciary duties.” 95 Count VI alleges the Entity Defendants
92
Compl. ¶ 118.
93
Id. ¶ 124.
94
Id. ¶ 133.
95
Id.
22
aided and abetted the Director and Officer Defendants’ breaches of fiduciary duties.
Finally, Count VII is asserted solely by the Option Holder Plaintiffs. It alleges that
all Defendants tortiously interfered with the Option Holder Plaintiffs’ “prospective
contractual interests relating to the Options” and “intentionally and improperly
interfered with the Option Holders’ interests and expectations relating to the
Options.” 96
All Defendants have moved to dismiss the Complaint. All Defendants seek
dismissal under Court of Chancery Rule 12(b)(6) for failure to state a claim.
Continental additionally argues that the Complaint must be dismissed as to it for lack
of personal jurisdiction and failure to plead demand futility.97 Following argument
on the motions, the parties filed supplemental submissions in response to questions
from the court at and after oral argument.98 The last submission was filed on July
20, 2022. The court took the matter under submission as of that date.
96
Id. ¶¶ 147–48.
97
Dkt. 35–39. The Innovate Defendants, Sena, Barr, Levi, and Minkov filed one motion
to dismiss, which Voigt and Falcone joined. Continental filed its own motion to dismiss
and supporting briefs.
98
Dkt. 55. Despite asserting several derivative claims on behalf of DTV America,
Plaintiffs have not named the Company as a nominal defendant in this case. See 1 Donald
J. Wolfe & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware
Court of Chancery § 11.06[e], at 11-176 (2d. ed. 2021) (“The general rule in derivative
litigation is that the entity on whose behalf Plaintiff asserts a claim is an indispensable
party.”). Both parties agree that the Company can later be added as an indispensable party
pursuant to Court of Chancery Rule 19(a). See Dkt. 60–61. For purposes of deciding the
pending motions to dismiss, the court need not join the Company at this time.
23
II. ANALYSIS
A. Plaintiffs Have Not Established Personal Jurisdiction over
Continental.
Continental has moved to dismiss the Complaint for lack of personal
jurisdiction under Court of Chancery Rule 12(b)(2).99 Personal jurisdiction is a
threshold issue that must be resolved before considering the merits of the claims.
Reid v. Siniscalchi, 2018 WL 620475, at *12 (Del. Ch. Jan. 30, 2018). The court
begins its analysis here.
Once a defendant moves to dismiss pursuant to Rule 12(b)(2), the plaintiff
bears “the burden to show a basis for the Court’s jurisdiction over the nonresident
defendant.” Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2737409, at *5 (Del. Ch.
July 14, 2008). In deciding a Rule 12(b)(2) motion, “the court may consider the
pleadings, affidavits, and any discovery of record.” Ryan v. Gifford, 935 A.2d 258,
265 (Del. Ch. 2007). Plaintiffs submitted no affidavits to establish jurisdiction over
Continental, served no discovery in aid of establishing personal jurisdiction over
Continental, and did not argue in their answering brief that discovery was necessary
to establish jurisdiction. Where, as here, “no evidentiary hearing has been held,
plaintiffs need only make a prima facie showing of personal jurisdiction, and the
99
Dkt. 39.
24
record is construed in the light most favorable to the plaintiff.” Id. (internal
quotations omitted).
Continental is a nonresident defendant incorporated in the state of Texas.100
It is not alleged to have conducted business in or otherwise have a connection with
this forum. In response to the motion to dismiss, Plaintiffs assert that jurisdiction
over Continental is proper under the conspiracy theory of jurisdiction. 101
Conspiracy is not an independent basis for personal jurisdiction; it merely
provides a rubric whereby the actions of a co-conspirator may “create sufficient
minimum contacts with Delaware to satisfy the long-arm statute and due process.”
Lacey v. Mota-Velasco, 2020 WL 5902590, at *6 (Del. Ch. Oct. 6, 2020). To obtain
personal jurisdiction over an alleged conspirator who is absent from the forum state,
a plaintiff must make a factual showing that:
(1) a conspiracy to defraud existed; (2) the defendant was a member of
that conspiracy; (3) a substantial act or substantial effect in furtherance
of the conspiracy occurred in the forum state; (4) the defendant knew
or had reason to know of the act in the forum state or that acts outside
the forum state would have an effect in the forum state; and (5) the act
in, or effect on, the forum was a direct and foreseeable result of the
conduct in furtherance of the conspiracy.
Istituto Bancario Italiano SpA v. Hunter Eng’g Co., Inc., 449 A.2d 210, 225 (Del.
1982). “Delaware courts construe this test narrowly and require a plaintiff to assert
100
Compl. ¶ 9.
101
Id. ¶ 24; Dkt. 44 (“Pls.’ Continental Ans. Br.”) at 2.
25
specific facts, not conclusory allegations, as to each element.” Hartsel v. Vanguard
Gp., Inc., 2011 WL 2421003, at *10 (Del. Ch. June 15, 2011), aff’d, 38 A.3d 1254(Del. 2012).
Continental argues that Plaintiffs fail to allege facts to support any of the five
elements of the Istituto Bancario test,102 but focuses its argument on elements two
and three. The court agrees that Plaintiffs have failed to make a prima facie showing
to support the second and third elements. 103 The Complaint contains no well-
pleaded factual allegations that Continental was a member of any conspiracy.
Continental, a wholly owned subsidiary of Innovate, owned approximately 8% of
DTV America’s voting stock. Continental’s ownership of DTV America stock is
the only specific allegation in the Complaint as to Continental.
There are no allegations that anyone at Continental communicated with
anyone at Innovate, its other affiliates, or any of the Individual Defendants
concerning any of the acts alleged in the Complaint. The Complaint specifically
defines the “Conspirators” as Falcone, Levi, Sena, Minkov, Barr, and Voigt.
102
Dkt. 39 (“Continental’s Opening Br.”) 8
103
Additionally, Continental asserts that it should be dismissed from this case because: (i)
the claims asserted against it are derivative in nature and Plaintiffs did not plead demand
futility; (ii) Plaintiffs failed to state a cognizable claim under Court of Chancery Rule
12(b)(6) by failing to allege any wrongful act by Continental; and (iii) Plaintiffs failed to
allege that Continental was part of the Innovate “control group.” Id. 9–25. Because this
court finds that it lacks personal jurisdiction over Continental, this opinion does not address
Continental’s additional grounds for dismissal.
26
Continental is not among them. There are no allegations that any of the alleged
Conspirators served as an officer or director of Continental or that Continental ever
voted its shares of DTV America. In sum, the Complaint is bereft of any well-
pleaded facts to establish that Continental participated in any conspiracy.
The Complaint also lacks allegations to support a prima facie showing as to
the third element of the conspiracy theory test, i.e., a “substantial act or substantial
effect in furtherance of the conspiracy” that occurred in this state. See Altabef v.
Neugarten, 2021 WL 5919459, at *8 (Del. Ch. Dec. 15, 2021) (“A conspiracy is not
an independent jurisdictional hook; there must still be an anchoring Delaware act.”);
Lacey, 2020 WL 5902590, at *7 (“Even assuming that [the defendant] was a part of
a conspiracy, in order to establish jurisdiction the Plaintiff would have to allege that
a substantial act in furtherance of that conspiracy was taken in Delaware.”). Under
the Istituto Bancario framework, any act by a member of the conspiracy is attributed
to all of the members of the conspiracy. Istituto Bancario, 449 A.2d at 225; accord
O’Gara v. Coleman, 2020 WL 752070, at *13 (Del. Ch. Feb. 14, 2020). The
Complaint fails to make a prima facie showing that any act or substantial effect of
the alleged conspiracy occurred in Delaware.
The conspiracy theory of jurisdiction applies to a “defendant who has so
voluntarily participated in a conspiracy with knowledge of its acts in or effects in the
forum state.” Istituto Bancario, 449 A.2d at 225. There are no allegations that any
27
act or substantial effect of the alleged conspiracy occurred in Delaware, and there is
certainly no allegation that Continental knew of any acts or effects having occurred
in Delaware. Cf. Matthew v. Fläkt Woods Gp. SA, 56 A.3d 1023, 1028–29 (Del.
2012) (holding that the complaint supported an inference that a non-resident
defendant knew that the corporation was a Delaware entity, that a certificate of
dissolution had been filed in Delaware, and that co-conspirators intended to continue
the business after dissolution).
The Plaintiffs’ decision to lump Continental together with the other Innovate
Defendants cannot satisfy their pleading obligation to make a prima facie showing
of personal jurisdiction over Continental. Delaware respects the corporate
separateness of individual entities. Pauley Petrol. Inc. v. Cont’l Oil Co., 239 A.2d
629, 633 (Del. 1968). As Vice Chancellor Glasscock recently decided in Lacey,
merely invoking a conspiracy theory of jurisdiction among entities in the capital
structure of a controlling stockholder is not enough to establish jurisdiction over a
non-resident defendant. Lacey, 2020 WL 5902590, at *7–8; see also Goodyear
Dunlop Tires Ops., S.A. v. Brown, 564 U.S. 915, 930 (2011) (“[M]erging parent and
subsidiary for jurisdictional purposes requires an inquiry ‘comparable to the
corporate law question of piercing the corporate veil.’”) (quoting Brilmayer &
Paisley, Personal Jurisdiction and Substantive Legal Relations: Corporations,
Conspiracies, and Agency, 74 Cal. L. Rev. 1, 14, 29–30 (1986)). Plaintiffs have not
28
argued that the court should disregard Continental’s status as a separate entity and,
instead, treat all of the entity defendants as a unitary business subject to personal
jurisdiction in Delaware. They have forfeited any right to do so by not briefing the
issue, and the court does not consider it here.
The Complaint does not allege that any substantial act or substantial effect in
furtherance of the conspiracy occurred in Delaware—not by Continental or any other
defendant. Nor did the Plaintiffs’ answering brief identify any acts or effects having
occurred in Delaware. 104 Having failed to make a prima facie showing on this
element of the conspiracy theory test, Plaintiffs are not entitled to pursue their claims
104
At oral argument, Plaintiffs asserted for the first time a possible “act” subjecting
Continental to jurisdiction in this court: “[T]he act here that’s alleged is the act of
controlling a Delaware corporation, which is DTV [America].” Dkt. 56 (“Hrg. Tr.”) 37.
This new argument, which was not briefed, is waived. See Emerald P’rs v. Berlin, 726
A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”); see also Winshall
v. Viacom Int’l, Inc., 55 A.3d 629, 642 (Del. Ch. 2011) (ruling that an argument raised for
the first time at a hearing was “not fairly or timely presented and was waived”), aff’d, 76
A.3d 808 (Del. 2013). Nor did Plaintiffs support this argument with any legal authority.
At argument, Plaintiffs cited Hart Holding Co. Inc. v. Drexel Burnham Lambert Inc., 593
A.2d 535 (Del. Ch. 1991), in support of their newly spun basis for jurisdiction. Even if the
court were to consider this untimely argument, Hart Holding is inapposite. There, the court
permitted discovery into the question of jurisdiction over a non-Delaware conspirator
where it appeared that the “operative events critical to the success of the alleged conspiracy
. . . did involve actions in this state.” Id. at 542. Those acts were the effectuation of a
merger involving a Delaware corporation and perhaps the issuance of shares upon exercise
of warrants. Id. The Plaintiffs do not allege any such acts here. See Lacey, 2020 WL
5902590, at *7–8 (granting a motion to dismiss filed by the non-resident parent of the
controlling stockholder where the plaintiff’s conspiracy theory of jurisdiction failed to
allege any acts in furtherance of the conspiracy having occurred in Delaware).
29
against Continental. Accordingly, Continental’s motion to dismiss for lack of
personal jurisdiction is granted.
B. Claims Accruing Before March 15, 2018 Are Time-Barred.
Defendants have moved to dismiss several of Plaintiffs’ claims as untimely
under the doctrine of laches. “Laches is an affirmative defense that the plaintiff
unreasonably delayed in bringing suit after the plaintiff knew of an infringement of
his rights, thereby resulting in material prejudice to the defendant.” U.S. Cellular
Inv. Co. of Allentown v. Bell Atl. Mobile Sys., Inc., 677 A.2d 497, 502 (Del. 1996).
The party asserting laches has the burden of establishing every element of the
defense. See Hudak v. Procek, 806 A.2d 140, 154 (Del. 2002) (“[T]he burden to
prove the elements of laches—both delay and prejudice to defendants—rests upon
the defendants.”); see also Ct. Ch. R. 8(c) (stating that affirmative defenses such as
laches shall be “set forth affirmatively”).
Although laches is “not ordinarily well-suited for treatment” at the motion to
dismiss stage, the court may dismiss a complaint on grounds of laches if “it is clear
from the face of the complaint that an affirmative defense exists and that the plaintiff
can prove no set of facts to avoid it.” Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009);
see Buerger v. Apfel, 2012 WL 893163, at *4 (Del. Ch. Mar. 15, 2012) (recognizing
that laches can be applied at the pleadings stage if “the complaint itself alleges facts
30
that show that the complaint is filed too late”) (quoting Kahn v. Seaboard Corp., 625
A.2d 269, 277 (Del. Ch. 1993).
“Absent some unusual circumstances, a court of equity will deny a plaintiff
relief when suit is brought after the analogous statutory period.” U.S. Cellular, 677
A.2d at 502; see also Kraft v. WisdomTree Inv., Inc., 145 A.3d 969, 973–83 (Del.
Ch. 2016) (providing the applicable framework in this court for determining whether
legal and equitable claims are time-barred). The parties do not dispute that the
presumptive limitations period for all of the Plaintiffs’ claims is three years. See 10
Del. C. § 8106.105 The three-year limitations period under Section 8106 begins to
run at the time of the wrongful act giving rise to the claim, “even if the plaintiff is
ignorant of the cause of action.” S’holder Representative Servs. LLC v. Alexion
Pharm., Inc., 2021 WL 3925937, at *5 (Del. Ch. Sept. 1, 2021).
Plaintiffs’ initial complaint was filed on March 15, 2021.106 Thus, any claims
accruing before March 15, 2018 are time-barred unless the Plaintiffs can establish a
105
See Pls.’ HC2 Ans. Br. 15 (conceding that “[e]ach of Plaintiffs’ claims is subject to an
analogous three-year statutory limitations period”); see also In re Sirius XM S’holder
Litig., 2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013) (applying the statute of
limitations by analogy to a breach of fiduciary duty claim); Dubroff v. Wren Hldgs., LLC,
2011 WL 5137175, at *12 (Del. Ch. Oct. 28, 2011) (applying the statute of limitations by
analogy to breach of fiduciary duty and aiding and abetting claims); BTIG, LLC v. Palantir
Techs., Inc., 2020 WL 95660, at *3 (Del. Super. Ct. Jan. 3, 2020) (applying the three-year
statute of limitations to tortious interference and civil conspiracy claims).
106
Dkt. 1.
31
recognized exception that would toll the running of the statute of limitations. In re
Primedia, Inc. S’holders Litig., 2013 WL 6797114, at *11 (Del. Ch. Dec. 20, 2013).
Plaintiffs invoke the doctrine of equitable tolling to avoid the presumptive
limitations period. “Under the theory of equitable tolling, the statute of limitations
is tolled for claims of wrongful self-dealing . . . where a plaintiff reasonably relies
on the competence and good faith of a fiduciary.” Weiss v. Swanson, 948 A.2d 433,
451 (Del. Ch. 2008). Under the equitable tolling doctrine, the limitations period
ceases to run only until “the plaintiff is objectively aware of the facts giving rise to
the wrong, i.e. on inquiry notice.” Id.When a plaintiff invokes equitable tolling, it does not enjoy the plaintiff-
friendly standard under Court of Chancery Rule 12(b)(6), and the court is not
required to draw plaintiff-friendly inferences when determining whether the
pleadings support tolling. Eni Hldgs., LLC v. KBR Gp. Hldgs., LLC, 2013 WL
6186326, at *11 (Del. Ch. Nov. 27, 2013). Plaintiffs bear the burden of “plead[ing]
facts supporting the applicability of that exception.” State ex rel. Brady v. Pettinaro
Enters., 870 A.2d 513, 524 (Del. Ch. 2005).
The reason for this [heightened pleading] requirement is plain: having
discovered the facts sufficient to bring an action, a [plaintiff] is
uniquely aware of the circumstances which caused it to fail to do so in
a timely manner; consequently, it bears the burden of pleading with
specificity the reasons that the defendant should not enjoy the
protections of the statutorily-imposed (or bargained-for) limitations
period.
32
Eni Holdings, 2013 WL 6186326, at *11. Therefore, Plaintiffs must offer facts to
show when they “learned of the [challenged transaction] . . . ; when [Plaintiffs] had
notice of facts concerning possible unfairness of the terms; and the reasonable steps
[Plaintiffs] took to oversee [their] investment.” Buerger, 2012 WL 893163, at *4
(quoting Kahn v. Seaboard Corp., 625 A.2d 269, 277 (Del. Ch. 1993)).
Plaintiffs have not pleaded when they learned of any of the Defendants’
wrongful conduct. In their briefing, the Stockholder Plaintiffs merely assert that
they “rel[ied] on the supposed good faith and competency of the [Director and
Officer Defendants] and . . . therefore justifiably assumed Defendants were not
engaging in wrongful self-dealing to the ongoing detriment of DTV America and its
minority stockholders.” 107 This is not enough to satisfy the Plaintiffs’ burden.
“Even where a defendant is a fiduciary, a plaintiff is on inquiry notice when the
information underlying plaintiff’s claim is readily available.” In re Dean Witter
P’rship Litig., 1998 WL 442456, at *8 (Del. Ch. July 17, 1998); accord Erisman,
2021 WL 6134034, at *14. The Plaintiffs do not allege or indicate in their answering
107
Pls.’ HC2 Ans. Br. 16. At oral argument, Plaintiffs pointed to two paragraphs
referencing financial statements as possible markers for inquiry notice: “So the complaint
alleges that the plaintiffs learned of the alleged misconduct or wrongful conduct concerning
the expense sharing agreement by reviewing financial statements that pertain to that year
and they did so. And the statements were for 2018, so they were for calendar year 2018
looking back. So that suggests to me, and I think a reasonable inference can be drawn that
those statements were reviewed after 2018, or after at least March 15, 2018, which the
defendants say is the witching date.” Hrg. Tr. 54:03–14.
33
brief when they were on notice of any of their claims that accrued outside the three-
year limitations period. Based on the Complaint, it is apparent that Plaintiffs learned
of their claims by reviewing publicly available FCC filings. The Plaintiffs
confirmed at oral argument that they obtained information supporting their claims
from FCC filings,108 but they never alleged or otherwise disclosed when the
Plaintiffs learned of that information. Nor have the Plaintiffs alleged any reasonable
steps that they took to monitor their investment in the Company. 109
The unfocused, disjointed allegations of the Complaint lack sufficient
information to determine when many claims accrued. For example:
• The Complaint alleges that over 70 broadcasting station licenses or
construction permits were wrongfully transferred from DTV America to
unidentified Innovate entities (the “License and Permit Transfers”). 110 The
Complaint merely asserts, without elaboration, that the Licenses and
108
Hrg. Tr. 50:15–20.
109
In this case, many of the Plaintiffs are former DTV America executives. For example,
Kyle, Bocock, Dagen, and DeStefanis were all directors of DTV America as of October
14, 2016. DTV America Corp., Notice of Exempt Offering of Securities (Form D) (Oct.
14, 2016) (signed by Kyle as “Chief Executive Officer” of DTV America). The court can
take judicial notice of these facts which are not subject to reasonable dispute. See Hughes,
897 A.2d at 170 (“This Court has recognized that, in acting on a Rule 12(b)(6) motion to
dismiss, trial courts may consider hearsay in SEC filings to ascertain facts appropriate for
judicial notice under [Delaware Rule of Evidence] 201.” (internal quotations omitted)).
110
Compl. ¶¶ 43–44.
34
Permit Transfers have occurred “since 2017.”111 The Complaint merely
lists approximately 28 of these licenses by call letters and city and state of
location. Otherwise, there are no facts as to when the transfers occurred.
• The Complaint alleges that Innovate subsidiaries acquired “more than 100
LPTV stations” that were previously identified for acquisition by DTV
America.”112 The Complaint states that these acquisitions took place
“between June 2017 and December 2020.” 113
• The Complaint alleges that “[s]ince 2017, over 115 of DTV America’s
licenses and construction permits have expired and [become]
worthless.”114 That is the entire sum and substance of this allegation.
• The Complaint’s Repacking allegations assert that Innovate entities
arrogated DTV America’s “best open and available channels” at some time
“[a]fter . . . November 2017.” 115 There are no other allegations as to when
this occurred.
• Plaintiffs assert that the Innovate Defendants are exploiting DTV America
financially through a Right to Use Agreement, Expense Sharing
111
Id. ¶ 44 (emphasis added).
112
Id. ¶ 34.
113
Id. (emphasis added).
114
Id. ¶ 81 (emphasis added).
115
Id. ¶ 77 (emphasis added).
35
Agreement, and Innovate’s position as a large minority investor. 116 No
specific dates are provided for this alleged exploitation. Plaintiffs rely,
however, upon the financial statements for the years 2018 and 2019.117
There are no allegations as to when the Right to Use agreement was
entered. The Complaint alleges that the Expense Sharing Agreement was
entered in 2018.118
The court is not able to determine, at this stage, when each of the claims
accrued, but many are alleged to have accrued more than three years before the filing
of the Complaint. As to any claims concerning pre-March 15, 2018 conduct, the
Plaintiffs’ claims are time-barred and dismissed, except as discussed below.
As to certain claims, the Complaint provides sufficient facts to establish the
accrual date. For example, Plaintiffs allege that Innovate “acquired Azteca America
for themselves” in “November 2017.”119 Plaintiffs allege that the “HC2 Entities
usurped the opportunity” and “DTV America was in the best position to take
advantage of the Azteca America opportunity.” 120 The crucial event within this
allegation is the wrongful acquisition of Azteca America, which occurred in
116
Id. ¶¶ 62–72.
117
Id. ¶¶ 66, 67, 70, 71.
118
Id. ¶ 71.
119
Id. ¶ 40.
120
Id. ¶ 42.
36
November 2017. This date is four months outside the analogous statute of
limitations for Plaintiffs’ claims.
Dismissal of this claim is appropriate because “it is clear from the face of the
complaint that the claims are time-barred.” Akrout v. Jarkoy, 2018 WL 3361401, at
*11 (Del. Ch. July 10, 2018) (citation omitted). Plaintiffs have not pleaded any fact
supporting equitable tolling as to this claim. Dismissal is therefore appropriate. See,
e.g., Chertok v. Zillow, Inc., 2021 WL 4851816, at *7 (Del. Ch. Oct. 18, 2021)
(granting motion to dismiss complaint as time-barred), aff’d, 2022 WL 1789337(Del. June 1, 2022); Pettinaro, 870 A.2d at 533–34 (same).
Plaintiffs’ claims as to DTV Cast are also time-barred. The Complaint alleges
that the Entity Defendants, “under the direction of the Conspirators, rebranded DTV
Cast as ‘Central Cast’ and appropriated it for HC2 Broadcasting.”121 The Complaint
does not specify when this appropriation occurred. Nevertheless, the Complaint
acknowledges that it happened more than three years before Plaintiffs filed their
original Complaint. This conclusion is drawn from the Complaint’s allegation that
the misappropriation of DTV Cast “made it possible for the [Innovate Defendants]
to go on a $150,000,000 acquisition spree to purchase stations, starting in November
2017.” 122 Therefore, the misappropriation of DTV Cast must have occurred prior to
121
Id. ¶ 74.
122
Id. ¶ 75 (emphasis added).
37
that date, which is outside the analogous three-year limitations period. Accordingly,
all of Plaintiffs’ claims arising from the DTV Cast misappropriation are time-barred
and must be dismissed. 123
The motion to dismiss the claim alleging usurpation of a corporate opportunity
to acquire stations from Frank Digital Broadcasting is denied. The Complaint
alleges that DTV America negotiated a deal to acquire those stations in October 2017
and that on April 15, 2018, the HC2 Station Group filed an application with the FCC
to purchase those licenses. Although the April 15, 2018 application is within the
three-year limitations period, the Innovate Defendants argue that this claim is,
nevertheless, time-barred. The Innovate Defendants contend this claim accrued on
March 12, 2018. To support that argument, the Innovate Defendants have submitted
a copy of the asset purchase agreement between HC2 Station Group and Frank
Digital Broadcasting, which indicates that it is “entered into as of” March 12,
2018. 124 The agreement is dated “as of” three years and three days prior to the filing
of the original Complaint.
Under the doctrine of equitable tolling, the statute of limitations is tolled only
until the plaintiff discovers or, exercising reasonable diligence, should have
123
Plaintiffs’ claims based on the following events are not time-barred: (i) the November
11, 2019 Lowcountry Sales; (ii) the March 12, 2021 Gray Media Sale; and (iii) the March
17, 2021 TV-49 Sale.
124
HC2 Defs.’ Opening Br. Ex. E.
38
discovered her injury. Dean Witter, 1998 WL 442456, at *6. Even considering the
asset purchase agreement as integral to the Complaint, the document does not show
when it was actually executed. There is also no indication or explanation that it was
available to the Plaintiffs before March 15, 2018 so as to put them on inquiry notice
of their claim. Id.125 Given the close proximity of the date of the contract to the
outside date of the statute of limitations period, the court cannot conclude at this
stage that the Plaintiffs were on inquiry notice of this claim before March 15, 2018.
Accordingly, the motion to dismiss the corporate opportunity claim concerning the
Frank Digital Broadcasting transaction on grounds of laches is denied.
The usurpation of DTV America’s opportunity to acquire the WFWC-CD
Station Group stands on a different footing. DTV America signed a letter of intent
to acquire the WFWC-CD Station Group on October 19, 2017. The Plaintiffs allege
that on February 8, 2018, Innovate affiliate HC2 Station Group filed an assignment
with the FCC for the WFWC-CD Station Group, and on April 6, 2018, the FCC
approved the sale of WFWC-CD Station Group to HC2 Station Group.126 Plaintiffs
do not allege, as they must when asserting equitable tolling, when they were on
inquiry notice of this claim. Dean Witter, 1998 WL 442456, at *6. The basis of this
125
The HC2 Defendants argue that this agreement was disclosed in public filings with the
FCC, but they do not state when it was filed and they have not attached the FCC filing with
their brief. HC2 Defs.’ Opening Br. 11.
126
Compl. ¶¶ 35–37.
39
claim—the February 8, 2018 assignment to HC2 Station Group—was publicly filed
with the FCC. Plaintiffs also acknowledged that they “were able to inform ourselves
of a possible claim . . . by virtue of searching the FCC filings.” Hr’g Tr. 50.
The February 8, 2018 publicly filed notice of assignment was a red flag that
WFWC-CD Station Group was not being acquired by DTV America, but rather HC2
Station Group, an Innovate affiliate. Even if Plaintiffs did not know that HC2 Station
Group was not controlled by Innovate (then HC2 Holdings, Inc.), the FCC filing put
them on reasonable notice that DTV America’s letter of intent to acquire the WFWC-
CD Station Group was not heading toward closing. A reasonably prudent
stockholder of DTV America in Plaintiffs’ position would have known enough at
that point to put them on notice of the need to undertake further inquiry. See U.S.
Cellular, 677 A.2d at 504 (holding plaintiff had notice of claims based on public
filings with the FCC). The information necessary to put the Plaintiffs on inquiry
notice was contained in one document. This is not a situation like Weiss, where the
stockholder would have needed to cull through several public filings “then conduct
a statistical analysis in order to uncover the alleged malfeasance.” 948 A.2d at 452;
see also Carsonaro v. Bloodhound Techs., Inc., 65 A.3d 618, 646 (Del. Ch. 2013)
(rejecting argument that documents filed with the Delaware Secretary of State,
which the plaintiffs would have been required to purchase, established inquiry notice
and, even then, the content of the filings was insufficient to put plaintiffs on inquiry
40
notice). Accordingly, Plaintiffs’ corporate opportunity claim regarding the WFWC-
CD Station Group is time barred.
C. Failure to State a Claim
All Defendants have moved to dismiss under Court of Chancery Rule
12(b)(6). In addressing a motion to dismiss on this basis:
(i) all well-pleaded factual allegations are accepted as true; (ii)
even vague allegations are well-pleaded if they give the opposing
party notice of the claim; (iii) the Court must draw all reasonable
inferences in favor of the non-moving party; and ([iv]) dismissal
is inappropriate unless the plaintiff would not be entitled to
recover under any reasonably conceivable set of circumstances
susceptible of proof.
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal citations and
quotations omitted). Although these pleading standards are minimal, Central Mortg.
Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011), they
have reasonable limits. “[A] trial court is required to accept only those reasonable
inferences that logically flow from the face of the complaint and is not required to
accept every strained interpretation of the allegations proposed by the plaintiff.” In
re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (citation
omitted). Indeed, “a claim may be dismissed if allegations in the complaint or in the
exhibits incorporated into the complaint effectively negate the claim as a matter of
law.” Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001); accord H-M Wexford
LLC v. Encorp, Inc., 832 A.2d 129, 139 n.9 (Del. Ch. 2003).
41
When it comes to fiduciary duty claims: “A plaintiff must adequately plead a
breach of fiduciary duty claim against each individual director or officer; so-called
‘group pleading’ will not suffice.” In re USG Corp. S’holder Litig., 2020 WL
5126671, at *23 (Del. Ch. Aug. 31, 2020) (internal quotations omitted); accord Raj
& Sonal Abhyanker Fam. Tr. ex rel. UpCounsel, Inc. v. Blake, 2021 WL 2477025,
at *4 (Del. Ch. June 17, 2021); see In re Cornerstone Therapeutics Inc, S’holder
Litig., 115 A.3d 1173, 1182 (Del. 2015) (“[E]ach director has a right to be considered
individually when the directors face claims for damages in a suit challenging board
action.”).
D. The Fiduciary Duty Claims
The Stockholder Plaintiffs have packaged their fiduciary duty claims in
multiple counts of the Complaint. Many of the counts overlap. Counts I, III and IV
are asserted against the Director and Officer Defendants. Count I is a framed as a
derivative claim for transferring DTV America assets to the Innovate Defendants
and their affiliates, failing to pursue business opportunities that were then passed on
to the Innovate Defendants, and selling assets for inadequate consideration to the
detriment of the Company and for the benefit of the Innovate Defendants. Count III
is asserted as a direct claim on behalf of the minority stockholders against the
Director and Officer Defendants, and simply incorporates earlier paragraphs of the
Complaint. Count IV is a claim against the Director and Officer Defendants for
42
waste of corporate assets 127—specifically for selling licenses for “next to nothing”
and allowing over 70 broadcast licenses and construction permits to expire or “be
sold at fire sale prices.” 128
Count II alleges the Entity Defendants breached their fiduciary duties as DTV
America’s controlling stockholder. This Count is fashioned as a direct claim by the
minority stockholders seeking “direct relief in the form of a damages award,” for the
Innovate Defendants’ breaches of the fiduciary duty of loyalty and usurpation of
corporate opportunities. 129
1. All of the Fiduciary Duty Claims are Derivative
The Stockholder Plaintiffs have styled many of their fiduciary duty claims as
both direct and derivative. In reviewing claims alleging breach of fiduciary duty,
the court is not obliged to accept the Plaintiffs’ characterization of the claims. “The
manner in which a plaintiff labels its claim and the form of words used in the
127
“The waste test is just another way to examine whether a fiduciary breach has been
committed.” Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995, at *35 (Del. Ch. July 12,
2010); Sample v. Morgan, 914 A.2d 647, 699-70 (Del. Ch. 2007) (“Claims of waste are
sometimes misunderstood as being founded on something other than a breach of fiduciary
duty. Conceived more realistically, the doctrine of waste is a residual protection for
stockholders that polices the outer boundaries of the broad field of discretion afforded
directors by the business judgment rule.”) (citations omitted); see also In re Barnes &
Noble S’holders Deriv. Litig., C.A. No. 4813-VCS, at 131 (Del. Ch. Oct. 21, 2010)
(TRANSCRIPT) (“Waste is a form of breach of fiduciary duty.”).
128
Compl. ¶¶ 127, 129.
129
Id. ¶ 121.
43
complaint are not dispositive; rather, the court must look to the nature of the wrong
alleged, taking into account all of the facts alleged in the complaint, and determine
for itself whether a direct claim exists.” Hartsel v. Vanguard Gp., Inc., 2011 WL
2421003, at *16 (Del. Ch. June 15, 2011), aff’d, 38 A.3d 1254 (Del. 2012). That
determination, as our Supreme Court recently reaffirmed, is to be derived from a
“simple test of straightforward application to distinguish direct claims from
derivative claims.” Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1263
(Del. 2021). This test “‘turn[s] solely on the following questions: (1) who suffered
the alleged harm (the corporation or the suing stockholders, individually); and (2)
who would receive the benefit of any recovery or other remedy (the corporation or
the stockholders, individually)?’” Id. (quoting Tooley v. Donaldson, Lufkin &
Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004)).
A claim is considered “derivative in nature,” under the first element of the
Tooley test, “[w]here all of a corporation’s stockholders are harmed and would
recover pro rata in proportion with their ownership of the corporation’s stock solely
because they are stockholders.” Feldman v. Cutaia, 951 A.2d 727, 733 (Del. 2008).
Plaintiffs’ “Scheme” allegations, which have not been consistently pleaded, focus
primarily on the alleged “looting [of] DTV America’s assets” and “forc[ing] DTV
44
America into unfavorable agreements that negatively impact DTV America’s
financial position.” 130 This harm is derivative.
Mismanagement which depresses the value of stock is a wrong to the
corporation, i.e., the stockholders collectively, to be enforced by a
derivative action. . . . A claim that excessive fees, options and bonuses
operated to depress the value of the stock of the corporation resulting
in a loss in value of the stockholders is merely a claim for the waste of
corporate assets—a purely stockholder derivative claim.
In re First Interstate Bancorp Consol. S’holder Litig., 729 A.2d 851, 862 (Del. Ch.
1998) (internal citations and quotations omitted), aff’d, 546 A.2d 348 (Del. 1988);
see also Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1188 n.10 (Del. 1988)
(“Generally speaking, a wrong to the incorporated group as a whole that depletes or
destroys corporate assets and reduces the value of the corporation’s stock gives rise
to a derivative action.”). Here, the “alleged harm is one to the corporation (a
diminution of the pool of available assets), and any recovery would flow to the
corporation.” N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 2006
WL 4782349, at *14 (Del. Ch. Sept. 1, 2006).
As alleged here, a claim that “a controller transferred to himself assets of the
corporation for less than fair value is a claim belonging to the corporation.” In re
Straight Path Commc’ns Inc. Consol. S’holder Litig., 2017 WL 5565264, at *3 (Del.
Ch. Nov. 20, 2017). Similarly, claims alleging usurpation of corporate opportunities
130
Id. ¶ 1.
45
and waste are derivative. In re Digex Inc. S’holders Litig., 789 A.2d 1176, 1189
(Del. Ch. 2000) (“A claim that a director or officer improperly usurped a corporate
opportunity belonging to the corporation is a derivative claim.”); In re J.P. Morgan
Chase & Co. S’holder Litig., 906 A.2d 766, 771 (“[C]laims of waste are classically
derivative”). Accordingly, all of the claims asserted in Counts I–IV are exclusively
derivative. Plaintiffs offered no argument to the contrary in their answering brief.
2. Sorting Out the Claims
Plaintiffs’ disjointed and unwieldy Complaint presented challenges for the
Defendants, and even more so for the court. The court will address the claims as the
court understands them to be.
To establish a claim for breach of fiduciary duty, a plaintiff must allege: “(1)
that a fiduciary duty existed and (2) that the defendant breached that duty.” Bamford
v. Penfold, L.P., 2020 WL 967942, at *8 (Del. Ch. Feb. 28, 2020). Directors and
officers of a Delaware corporation owe “identical” fiduciary duties of loyalty and
care to the corporation and its stockholders. Gantler v. Stephens, 965 A.2d 695,
708–09 (Del. 2009).
Similarly, controlling stockholders owe fiduciary duties to the corporation and
its stockholders. Brookfield, 261 A.3d at 1274; see also Carr v. New Enter. Assocs.,
Inc., 2018 WL 1472336, at *22 (Del. Ch. Mar. 26, 2018) (“A controlling stockholder
owes fiduciary duties to the corporation and its minority stockholders, and it is
46
‘prohibited from exercising corporate power (either formally as directors or officers
or informally through control over officers and directors) so as to advantage [itself]
while disadvantaging the corporation.’”) (citation and emphasis omitted).
In this case, the Plaintiffs allege that the Innovate Defendants became
controlling stockholders in November 2017, after they acquired more than a majority
of the voting power of the Company’s outstanding stock. 131
Whether and when fiduciary duties attached as to each of the Individual
Defendants is difficult to determine, because the Complaint lacks well-pleaded
allegations as to when many of the Individual Defendants became officers and
directors, when they departed those positions, and when most of the conduct that is
alleged to constitute fiduciary duty breaches occurred. It is clear from the
Complaint, however, that none of the Individual Defendants served as directors or
officers of DTV America until October 2017.
3. Usurpation of Corporate Opportunities.
A corporate opportunity claim is a claim for breach of fiduciary duty. Broz v.
Cellular Info. Sys., Inc., 673 A.2d 148, 154 (Del. 1996) (“The doctrine of corporate
opportunity represents but one species of the broad fiduciary duties assumed by a
corporate director or officer.”). The corporate opportunity doctrine holds that a
131
Id. ¶ 16.
47
fiduciary “may not take a business opportunity for his own if: (1) the corporation is
financially able to exploit the opportunity; (2) the opportunity is within the
corporation's line of business; (3) the corporation has an interest or expectancy in
the opportunity; and (4) by taking the opportunity for his own, the corporate
fiduciary will thereby be placed in a position inimicable to his duties to the
corporation.” Id. at 155. No one factor is dispositive, and all of them must be taken
into account insofar as they are applicable. Id.
Nearly all of the corporate opportunity claims fail. First, as explained above,
claims as to any corporate opportunities usurped before March 15, 2018 are time-
barred. Second, the Complaint’s vague and generalized allegations of unspecified
opportunities having been usurped at unspecified times must be dismissed. The
court is not required to accept vague and conclusory allegations that are not
supported by well-pleaded facts. Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354,
360 (Del. 2013) (“We do not, however, credit conclusory allegations that are not
supported by specific facts, or draw unreasonable inferences in the plaintiff’s
favor.”). Thus, the general allegation that “[b]etween June 2017 and December
2020, more than 100 LPTV stations that were identified by DTV America (prior to
November 2017) as its acquisition candidates were purchased by HC2 Holdings
48
through subsidiaries other than DTV America” 132 is insufficient to state a claim.
Plaintiffs fare no better with their allegation that the Director and Officer Defendants
“prompted [Innovate] (through its wholly owned subsidiaries) to purchase a number
of LPTV broadcast stations that were identified in DTV America’s business plan.”133
The Complaint does not name any of the stations purportedly identified in the
Business Plan. After the Defendants exposed that shortcoming, the Plaintiffs
attached the so-called Business Plan to their answering brief. The Business Plan,
which is actually titled “Investor Update,” lists a two-column table of 13 acquisition
opportunities, identified only as “Target” A through M and an approximate cash cost
to acquire each target.134 But the Business Plan does not identify a single acquisition
target by name, and neither the Complaint nor Plaintiffs’ brief connects any specific
opportunity to any of the unnamed targets listed in the Business Plan.135 These
generalized allegations lack sufficient factual support to establish a prima facie claim
for usurpation of corporate opportunities. In short, the Complaint does not identify
any opportunity in the Business Plan that the Innovate Defendants took for their
132
Compl. ¶ 34.
133
Id. ¶ 33.
134
Pls.’ HC2 Ans. Br. Ex. A at 29.
135
The Plaintiffs easily could have done so, as they acknowledge that Plaintiff Kyle
prepared the Business Plan. Pls.’ HC2 Ans. Br. 3. In addition, the Business Plan itself
identifies Plaintiffs Kyle, Bruni, and Podhajser as members of DTV America’s
management team. Id. Ex. A at 19.
49
own. Therefore, it is not possible to apply the other Broz factors. Accordingly, the
Plaintiffs have failed to state a claim for usurpation of unknown and unidentified
targets in the Business Plan.
Except for one claim discussed below, there are no well-pleaded allegations
that any of the Director and Officer Defendants took any act to usurp any alleged
corporate opportunity from DTV America. To be sure, the Complaint does not
contain any allegations of any board meetings, written consents, communications by
or to any of these defendants about any of the events or transactions underlying the
Plaintiffs’ claims.
Instead, the Complaint lumps each Individual Defendant into the categories
of Director and Officer Defendants and Conspirators, and then in conclusory fashion
attributes all of the events about which Plaintiffs complain to all of the Individual
Defendants. See, e.g., Compl. ¶ 34 (“All the members of the board of directors of
DTV America were also members of the Conspirators.”); id. ¶ 105 (“While directors
and officers, the D&O Defendants used their authority to transfer valuable assets
from DTV America to the HC2 Entities and their affiliates, including but not limited
to state of the art intellectual property, the lucratively ‘repackaged’ broadcasting
channels, the LPTV licenses, and the network programming relationships.”); id. ¶
106 (“[T]he D&O Defendants and HC2 Entities sold DTV America licenses for the
50
direct and indirect financial benefit of HC2 Entities which HC2 Entities are currently
in the process of covering up.”).
“The blunt nature of the pleading” and Plaintiffs’ failure to identify any act by
a specific Individual Defendant constituting a fiduciary breach requires dismissal of
the claims against them. See Genworth Fin., Inc. Consol. Deriv. Litig., 2021 WL
4452338, at *22 (Del. Ch. Sept. 29, 2021) (dismissing claims asserted against
officers where they merely lumped together as “Executive Defendants” and no
specific allegations were directed against them).
The Complaint does, however, contain well-pleaded allegations as to one
corporate opportunity alleged to have been usurped. In October 2018, DTV America
negotiated a deal to purchase Frank Digital Broadcasting’s LPTV stations for
$65,000. On April 15, 2018, HC2 Station Group filed an application to purchase
these stations for itself for the same $65,000 purchase price. 136
The Defendants do not meaningfully challenge the substance of this corporate
opportunity claim.137 The Complaint alleges well-pleaded facts that DTV America
had reached a deal to acquire Frank Digital Broadcasting’s LPTV stations. Months
after reaching this agreement, Innovate, through its affiliates, acquired those same
136
Id. ¶ 39.
137
The Defendants argued that the claims as to these two transactions are time-barred. As
discussed above, the court has denied the motion to dismiss on grounds of laches.
51
assets. From these well-pleaded allegations, it is reasonably conceivable that this
opportunity was within DTV America’s line of business, and that the Company had
an expectancy in and was financially capable of exploiting the opportunity. It is also
reasonably conceivable that the Innovate Defendants took this opportunity for
themselves, placing them in a position inimicable to their duties to DTV America.
Analyzing this claim as to the Director and Officer Defendants is much more
challenging. The Complaint does not identify the composition of the DTV America
board at the time of the transaction. Nor does it allege that any board action
occurred. Based on the Complaint, Falcone, Minkov, and Levi served as officers
and/or directors of DTV America at the time of this transaction. Falcone was the
Chief Executive Officer, President, and Chairman of the Board of both Innovate and
DTV America when Innovate’s affiliate executed the asset purchase agreement for
the Frank Digital Broadcasting properties. Levi was also a conflicted officer, having
served at that time both as Chief Operating Officer of HC2 Station Group, the
Innovate affiliate that acquired the properties, while also serving as director and
Chief Operating Officer of DTV America. Levi also signed the Frank Digital
Broadcasting asset purchase agreement in his capacity as COO of HC2 Station
Group. Minkov began as DTV America’s CFO at some time in April 2018, but it is
not apparent when he became a director. At the time of the Frank Digital
Broadcasting transaction, he was an officer and director of HC2 Broadcasting. None
52
of the other Individual Defendants are alleged to have served as officers or directors
of DTV America at the time of the transaction.
The court is left with the tension between the plaintiff-friendly standard of
Rule 12(b)(6) and the requirement that a “plaintiff must adequately plead a breach
of fiduciary duty claim against each individual director or officer; so-called ‘group
pleading’ will not suffice.” In re USG Corp. S’holder Litig., 2020 WL 5126671, at
*23; In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *43 (Del.
Ch. June 11, 2020) (dismissing director defendant where the complaint did not
identify specific, non-conclusory facts to support an inference that she acted
disloyally); United Food & Com. Workers Union v. Zuckerberg, 250 A.3d 862, 896
(Del. Ch. 2020) (finding that the court must identify individual conduct on the part
of each director in which they furthered the self-interest of an interested party to
support a claim for breach of loyalty), aff’d, 262 A.3d 1034 (Del. 2021).
Here, the Complaint does not allege any board action whatsoever. Giving the
Plaintiffs the benefit of all reasonable inferences, it is reasonably conceivable that
Levi breached his fiduciary duties to DTV America as a conflicted fiduciary who
executed the Frank Digital Broadcasting asset purchase agreement. The allegations
are not so strong as to Falcone, but given his dual-fiduciary capacities as CEO,
President, and Chairman at both Innovate and DTV America at the time, it is
reasonably conceivable that he approved and authorized this transaction.
53
Defendants’ briefs hardly address these transactions in their motions to dismiss. In
light of Falcone and Levi’s roles at the time of Frank Digital Broadcasting sale, it is
reasonably conceivable that each approved and authorized the transaction.
Therefore, the Complaint adequately alleges that Falcone and Levi breached
their fiduciary duties in connection with the Innovate Entities’ usurpation of DTV
America’s opportunity to acquire LPTV stations from Frank Digital Broadcasting.
4. Duty of Loyalty.
a. Gray Media Sale.
In March 2021, DTV America and HC2 Broadcasting entered into an asset
purchase agreement with Gray Media, transferring ten licenses to Gray Media.138
As controlling stockholders of DTV America at the time of the transaction, the
Innovate Entities owed DTV America fiduciary duties of loyalty and care. “To plead
a claim for breach of the duty of loyalty that will overcome a motion to dismiss, a
plaintiff must plead sufficient facts to support a rational inference that the corporate
fiduciary acted out of material self-interest that diverged from the interests of the
shareholders.” In re Saba Software, Inc. S’holder Litig., 2017 WL 1201108, at *21
(Del. Ch. Mar. 31, 2017).
138
Id. ¶¶ 53–58.
54
The Complaint alleges that six of the licenses in the Gray Media Sale belonged
to DTV America139 and the other four “were previously improperly transferred from
DTV America to [the Entity Defendants’] control for no consideration.”140 The
Complaint alleges that the $475,000 purchase price for the ten licenses was not
allocated among the licenses. 141 Plaintiffs allege that all proceeds from the Gray
Media Sale went to the Entity Defendants and that DTV America received no
consideration for its licenses.142 After this litigation was filed, HC2 Broadcasting
sent a letter to the FCC citing a “technical issue” and claiming that four of the
transferred licenses had been incorrectly listed as belonging to HC2 Broadcasting
instead of DTV America.143 In other words, HC2 Broadcasting owned none of the
licenses listed in the Gray Media Sale agreement.
It is reasonably conceivable the Innovate Defendants breached their duty of
loyalty by causing DTV America to transfer its licenses to a third-party and taking
the full purchase price for themselves. Defendant contests the Complaint’s assertion
that “the proceeds of the sale went directly to the [Innovate] Entities, and DTV
139
Id. ¶ 53. The Complaint identifies these licenses by city, state, and call letters. Id. ¶ 53
n.1.
140
Id.
141
Id. ¶ 54
142
Id. ¶ 55.
143
Id. ¶ 56.
55
America received no consideration for its licenses,” arguing the statement is
conclusory and unsupported.144 The Complaint alleges that both DTV America and
HC2 Broadcasting were listed as “Seller” under the agreement and the purchase
price was to be transferred in accordance with wire instructions “sent by the
Seller.”145 The well-pleaded facts support a reasonable inference that HC2
Broadcasting received consideration for the sale of the ten broadcast licenses held
by DTV America to the exclusion of DTV America. As such, the court declines to
dismiss the Gray Media Sale claims against the Innovate Defendants.
This claim is not well-pleaded as to the Director and Officer Defendants and
must be dismissed. The Complaint identifies no individual or board-level action
involving the Gray Media Sale. The Complaint does not mention the Conspirators
or alleged Conspiracy at all in connection with the Gray Media Sale. Because the
Complaint does not identify any individual’s involvement in the Gray Media Sale,
this claim must be dismissed as to the Director and Officer Defendants.
b. TV-49 Sale.
HC2 Broadcasting Holdings sold six licenses to TV-49 for $145,333 on
March 17, 2021. Plaintiffs allege that DTV America owned and was named licensee
144
Id. ¶ 55; see HC2 Defs.’ Opening Br. 39.
145
Compl. ¶¶ 53–54.
56
of four licenses sold in the transaction. 146 The Complaint identifies each by location,
call sign, and FCC facility number.147 The Complaint further alleges that “[t]he
Conspirators and HC2 Entities improperly transferred control of these licenses to
HC2 Broadcasting.” 148 Levi signed this asset purchase agreement in his capacity as
Chief Operating Officer of HC2 Broadcasting.149 DTV America is not mentioned
in the purchase agreement. 150
Taking these allegations as true, it is reasonably conceivable that the Innovate
Entities breached their duty of loyalty by causing DTV America to transfer its
licenses to an Innovate Entity, which then sold the licenses to TV-49 without
compensating DTV America. Further, the Plaintiffs have adequately alleged a
breach of fiduciary duties by Levi, who signed the purchase agreement. The
Complaint does not contain any allegations pertaining to the other Individual
Defendants as to the transaction. Therefore, the TV-49 Sale claim is sustained as to
Levi and the Innovate Entities but is dismissed as to the other Defendants.
146
Id. ¶ 59.
147
Id. ¶ 59 n.2.
148
Id. ¶ 60.
149
Id. ¶ 61.
150
Id.
57
c. Expense Sharing Agreement, Right to Use Agreement,
and Stock-Based Compensation Claims.
Plaintiffs’ claims concerning the Expense Sharing Agreement, Right to Use
Agreement, and unidentified agreements regarding stock-based compensation are
dismissed for two independent reasons. First, the Complaint’s allegations of as to
these agreements fail to state a claim upon which relief can be granted. The
Complaint does not describe any of the terms of the agreements and does not attach
them to the Complaint or their brief. The Plaintiffs’ failure to provide the terms of
these agreements renders the parties and the Court unable to assess whether the terms
of those agreements were fair to DTV America, when they were entered, or which
of the defendants were involved in proposing or approving any of those agreements.
For example, Plaintiffs merely allege that DTV America’s expenses and
liabilities increased after DTV America purportedly entered into those agreements.
But the mere fact that the Company’s expenses increased after it entered into the
agreements without an understanding of their terms is insufficient to demonstrate
any type of causal relationship.
In short, the allegations as to these three agreements lack sufficient well-
pleaded facts to support claims for breach of fiduciary duty. See Criden v. Steinberg,
2000 WL 354390, at *3 (Del. Ch. Mar. 23, 2000) (dismissing claims where the
complaint failed to specifically allege why an agreement breached the duty of
loyalty); In re General Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del.
58
2006) (“A trial court is not . . . required to accept as true conclusory allegations
‘without specific supporting factual allegations.’”) (quoting In re Santa Fe Pac.
Corp. S’holder Litig., 669 A.2d 59, 65–66 (Del. 1995)).
These claims also fail because the Plaintiffs’ Answering Brief did not respond
to arguments the Innovate Defendants raised in their opening brief regarding these
agreements. Instead, the fact section of the Plaintiffs’ answering brief repeats some
of the allegations contained in the Complaint, 151 but contains no argument in support
of these claims. Nor did Plaintiffs address these claims at oral argument. Therefore,
the Plaintiffs have waived any argument to support their claims as to these
agreements. “A party’s failure to raise an argument in its answering brief constitutes
a waiver of that argument.” King v. VeriFone Hldgs., Inc., 994 A.2d 354, 360 (Del.
Ch. 2010), rev’d on other grounds, 12 A.3d 1140 (Del. 2011); see Emerald P’rs v.
Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”
(citing Murphy v. State, 632 A.2d 1150, 1152 (Del. 1993) and Loudon v. Archer–
Daniels–Midland Co., 700 A.2d 135, 140 n.3 (Del. 1997))); T.A.H. First, Inc. v.
Wescott, 2004 WL 2827879, at *2 (Del. Super. Ct. Nov. 23, 2004) (“Employer
mentions the accident in the ‘Statement of Facts’ section of the opening brief but
does not argue the import of the accident in the ‘Argument’ section. This Court
151
See Pls.’ HC2 Ans. Br. 65–67, 71–72.
59
therefore finds that this argument has been waived.”); In re Mobilactive Media, LLC,
2013 WL 297950, at *12 n.152 (Del. Ch. Jan. 25, 2013) (“[I]ssues adverted to in a
perfunctory manner, unaccompanied by some effort at developed argumentation, are
deemed waived . . . . It is not enough merely to mention a possible argument in the
most skeletal way, leaving the court to do counsel's work . . . . Judges are not
expected to be mindreaders. Consequently, a litigant has an obligation to spell out
its arguments squarely and distinctly, or else forever hold its peace.”) (omissions in
original) (quoting Roca v. E.I. duPont de Nemours & Co., Inc., 842 A.2d 1238, 1243
n.12 (Del. 2004))); accord AB Stable VIII LLC v. Maps Hotels & Resorts One LLC,
2020 WL 7024929, at *78 (Del. Ch. Nov. 30, 2020) (“A court need not address
arguments that are presented in such a cursory and elliptical manner.”), aff’d, 268
A.3d 198 (Del. 2021). Plaintiffs have failed to satisfy that obligation in regard to
these agreements. Accordingly, Plaintiffs’ claims challenging the Expense Sharing
Agreement, Right to Use Agreement, and stock-based compensation are
dismissed. 152
152
Plaintiffs also did not respond to the Innovate Defendants’ arguments in support of the
motion to dismiss claims concerning FCC Repacking. See HC2 Defs.’ Opening Br. 41.
Those claims are dismissed, as well.
60
5. Count IV States a Claim for Corporate Waste
Count IV asserts a claim of corporate waste against the Director and Officer
Defendants. Although the Complaint included several acts of corporate waste, the
Plaintiffs focused on only one: the Lowcountry Sales.153
For a claim of waste to survive a motion to dismiss, a plaintiff must show
“economic terms so one-sided as to create an inference that no person acting in a
good faith pursuit of the corporation’s interests could have approved the terms.”
Sample v. Morgan, 914 A.2d 647, 670 (Del. Ch. 2007). A “claim of waste will arise
only in the rare, ‘unconscionable cases where directors irrationally squander or give
away corporate assets.’” In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (Del.
2006) (quoting Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000)). This high pleading
standard is crucial, as “[a]ny other rule would deter corporate boards from the
optimal rational acceptance of risk . . . . Courts are ill-fitted to attempt to weigh the
153
Compl. ¶¶ 47–48. The Complaint asserts three primary bases for the waste claim: (i)
the sale of DTV America licenses for inadequate value; (ii) the transfer of DTV America’s
licenses to Innovate Entities for inadequate value; and (iii) the expiration of DTV America
licenses and construction permits. Defendants argue that “[m]erely alleging that the
defendants elected not to renew unidentified licenses at unidentified times is insufficient
to state a waste claim.” Plaintiffs did not respond to this argument, as their briefing on the
waste claim was limited to the Lowcountry Sales. Therefore, Plaintiffs waived their
argument as to any other basis for their waste claim by failing to address it in their briefing
and oral argument. See Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed
waived.”); Richard B. Gamberg 2007 Family Tr. v. United Rest. Gp., L.P., 2018 WL
566417, at *4 (Del. Ch. Jan. 26, 2018) (“Plaintiff chose very specific arguments on which
to stand. I address only these arguments . . . .”).
61
‘adequacy’ of consideration under the waste standard or, ex post, to judge
appropriate degrees of business risk.” Lewis v. Vogelstein, 699 A.2d 327, 336 (Del.
Ch. 1997).
In November 2019 two DTV America Stations were sold to Lowcountry for
nominal consideration paid to DTV America and “additional consideration”
provided to Innovate. The Complaint alleges that this “additional consideration” was
the extension of time to finalize a sale of Lowcountry assets to an HC2 Entity.154
Within a year of these sales, Lowcountry sold one of the licenses for $200,000 and
sold the other, along with two additional licenses, for over $350,000. 155
Plaintiffs analogize this claim with the waste claim that was sustained in
Orloff v. Shulman, 2005 WL 3272355, at *3–6 (Del. Ch. Nov. 23, 2005). In Orloff,
the plaintiffs alleged the defendants wasted corporate assets by approving rents for
the company’s properties for less than 20% of their market value, as measured
154
Compl. ¶¶ 47–48. The Innovate Defendants argue that the additional consideration was
provided to DTV America, basing their argument solely on the terms of the contract itself,
which reads:
ADDITIONAL CONSIDERATION FOR THE TRANSACTION IS THE
EXTENSION OF TIME GRA[N]TED BY LOW COUNTRY 34 MEDIA,
LCC TO DTV AMERICA CORPORATION IN A RELATED
TRANSACTION BETWEEN THE PARTIES (SEE FCC FILE NO. BALCT –
20190520AAU).
Id. ¶ 48. The FCC file describes an asset assignment between Lowcountry and HC2 Station
Group. Pls.’ HC2 Ans. Br. Ex. C. DTV America is not mentioned in the filing. Id.
155
Compl. ¶¶ 50–51.
62
against rents charged for properties on the same street. Id. at *13. Plaintiffs argue
the same dramatic disparity is alleged here, warranting discovery.
Defendants argue that Orloff is inapposite and that the Complaint obscures
important context. Defendants point out that: (i) Lowcountry had over six months
to develop W26DT-D and increase its market value; and (ii) WCFZ-LD was sold as
a package with two other licenses, whose values are not identified in the
Complaint.156 Therefore, Defendants assert, the particularized allegations fail to
meet the high standard required to plead a claim for waste of corporate assets
Defendant’s explanation may ultimately pan out, but the allegations of the
Complaint also support a reasonable inference that these licenses were sold without
any benefit to DTV America. Any “additional consideration” outside of the $2
payment for this transfer flowed to non-party HC2 Holding Group. A payment of a
single dollar for a station license that was later turned around and sold six months
later for $200,000 is striking. “[T]he size of the gap between the two numbers means
that the court cannot say that a claim of waste . . . could not be proven at trial.”
Orloff, 2005 WL 3272355, at *13.
Like the corporate opportunity claim relating to Frank Digital Broadcasting,
the Complaint alleges only that Falcone and Levi served on the DTV America board
156
HC2 Defs.’ Opening Br. 47.
63
at the time of the Lowcountry sale. Levi signed the Lowcountry Asset Purchase
Agreement as “Managing Director” of DTV America.157 There are no other
allegations that any other of the Individual Defendants served as a director of DTV
America at the time of this sale or had any specific involvement in approving or
effectuating the transaction. Accordingly, the Complaint states a claim for waste of
corporate assets against Levi and Falcone. This claim is dismissed as to the
remaining Individual Defendants.
6. Aiding and Abetting Breaches of Fiduciary Duty
In Count VI, the Stockholder Plaintiffs allege the Innovate Defendants aided
and abetted the Director and Officer Defendants’ breaches of fiduciary duty. The
Stockholder Plaintiffs allege the Innovate Defendants participated in the “Scheme”
of diverting business opportunities that belonged to DTV America and inundating
DTV America with debt and expenses through agreements such as the Expense
Sharing Agreement 158
To plead a claim for aiding and abetting a breach of fiduciary duty, a plaintiff
must plead: “‘(1) the existence of a fiduciary relationship, (2) the fiduciary breached
its duty, (3) a defendant, who is not a fiduciary, knowingly participated in a breach,
157
Pls.’ HC2 Ans. Br. Ex. B.
158
Compl. ¶¶ 138–41.
64
and (4) damages to the plaintiff resulted from the concerted action of the fiduciary
and the non-fiduciary duty.’” Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817
A.2d 160, 172 (Del. 2002) (quoting Fitzgerald v. Cantor, 1999 WL 182573, at *1
(Del. Ch. Mar. 25, 1999)). A claim of aiding and abetting will fail if the court fails
to find an underlying breach of fiduciary duty. See, e.g., Weil v. Morgan Stanley
DW Inc., 877 A.2d 1024, 1039 (Del. Ch. 2004) (“[H]aving failed to state an
underlying claim for breach of fiduciary duty against Morgan Stanley itself, Weil’s
aiding and abetting claim against HarrisDirect necessarily fails.”), aff’d, 894 A.2d
407 (Del. 2005); accord Stone & Paper Invs., LLC v. Blanch, 2020 WL 3496694, at
*14 (Del. Ch. June 29, 2020).
The Innovate Defendants argue that this claim must be dismissed as to them
because “a fiduciary cannot aid and abet the fiduciary breach of another
fiduciary.”159 The Innovate Defendants rely on several cases, including In re Pattern
Energy Group, Inc. Stockholders Litigation, 2021 WL 1812674 (Del. Ch. May 6,
2021), which observed that claims of aiding and abetting breaches of fiduciary duty
against persons and entities alleged to be a control group would be subject to
dismissal if the plaintiffs were to establish that they constituted a control group
owing fiduciary duties. Id. at *77; see OptimisCorp v. Waite, 2015 WL 5147038, at
159
HC2 Defs.’ Opening Br. 48.
65
*57 (Del. Ch. Aug. 26, 2015) (“In those instances where a fiduciary takes actions
that would amount to aiding and abetting by a non-fiduciary, that conduct amounts
to a direct breach of fiduciary duties.”), aff’d, 137 A.3d 970 (Del. 2016); Higher
Educ. Mgmt. Gp., Inc. v. Mathews, 2014 WL 5573325, at *13 (Del. Ch. Nov. 3,
2014) (“As a separate and independent reason for dismissing the aiding and abetting
claim against [the defendant], I note that, as an executive officer . . [the defendant]
himself owes fiduciary duties to the corporation, and therefore any conduct of his
rising to the level of aiding and abetting would be a breach of his own fiduciary
duties.”).
Plaintiffs generally do not seem to contest this statement of the law. Instead
they argue that the aiding and abetting claim should not be dismissed as to
Continental, which denies that it owes fiduciary duties to the Company or its
stockholders.160 But with Continental being dismissed for lack of personal
jurisdiction, and the Innovate Entities conceding that they owe fiduciary duties,
Plaintiffs’ argument is untenable. See Pattern Energy, 2021 WL 1812674, at *77
(denying motion to dismiss aiding and abetting claim against members of an alleged
control group alleged to owe fiduciary duties where further evidence was necessary
to determine whether those defendants constituted a control group); HC2 Defs.’
160
Pls.’ HC2 Ans. Br. 28.
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Reply Br. 29–30 (“[T]he viability of [the aiding and abetting claim against
Continental] has no bearing on the viability of Plaintiffs’ aiding and abetting claim
against the [Innovate] Entities, all of which are fiduciaries.”); Hrg Tr. at 28 (counsel
for the Innovate Defendants acknowledging that the Innovate Entities “are alleged
and concede that they owe fiduciary duties in their capacity as DTV's controlling
stockholder”); see also Firefighters’ Pension Sys. of City of Kansas City, Missouri
Tr. v. Presidio, Inc., 251 A.3d 212, 281 (Del. Ch. 2021) (“The defendants do not
dispute that Apollo was a fiduciary for purposes of the motion to dismiss, and this
decision therefore analyzes Apollo's liability as a fiduciary, rather than an alleged
aider and abettor.”).
The Innovate Entities concede that they owe fiduciary duties to DTV America
and the minority stockholders. Therefore, there is no basis to maintain the claims
that they aided and abetted the alleged breaches of fiduciary duty of the Director and
Officer Defendants. Accordingly, the claims against the Innovate Entities for aiding
and abetting the Director and Officer Defendants’ alleged breaches of fiduciary duty
are dismissed.
7. Civil Conspiracy
Count V is asserted by “All Plaintiffs against All Defendants” for civil
conspiracy. But the specific allegations of Count V show otherwise. The word
“conspiracy” appears in the Complaint exactly four times. First, in paragraph 1,
67
which lists civil conspiracy as one of several claims. Second, paragraph 24 mentions
the “conspiracy theory of personal jurisdiction” as to Continental. The word
conspiracy next appears twice in the body of Count V. After incorporating the
preceding 131 paragraphs of the Complaint by reference, the civil conspiracy claim
is articulated as follows:
133. To the extent any members of the Conspirators were not part
of that group from its inception, each one of them at a point in time that
they became a member engaged in overt acts in furtherance of the
conspiratorial Scheme all of which were willful violations of their
fiduciary duties.
134. As a result of the conspiracy, the Minority Shareholders
have suffered economic injury in terms of substantial devaluation of
their stock holdings.
135. As a result of the foregoing, Plaintiffs are entitled to direct
relief in the form of a damages award against Defendants, including
Voigt, in an amount to be determined at trial.
Compl. ¶¶ 133–35. The Complaint alleges the conspiracy against the
“Conspirators.” The Conspirators are defined as: Falcone, Levi, Sena, Minkov,
Barr, and Voigt. The Complaint limits the civil conspiracy claim to the Conspirators.
In addition, only minority stockholders are alleged to have suffered any injury from
the acts of the Conspirators. Thus, the civil conspiracy claim is not asserted by all
Plaintiffs, but rather the Stockholder Plaintiffs, to whom the Complaint refers as the
Minority Shareholders. There are no allegations alleging the Option Holder
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Plaintiffs suffered any injury in their capacities as option holders as a result of the
alleged civil conspiracy.
Of the six alleged Conspirators, five are alleged to have served as a director,
officer, or both of DTV America, and served in those roles “[a]t the inception of the
Scheme.” 161 Voigt did not serve as an officer or director of DTV America. Rather,
he served as a Senior Managing Director at Innovate from October 2014 to May
2018 and as a “director and/or officer of several of [Innovate’s] subsidiaries,” none
of which the Complaint identifies. 162 Nevertheless, Count V alleges that he and the
other alleged Conspirators breached their fiduciary duties.163
The elements for civil conspiracy under Delaware law are: (i) a confederation
or combination of two or more persons; (ii) an unlawful act done in furtherance of
the conspiracy; and (iii) damages resulting from the action of the conspiracy parties.
AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., 871 A.2d 428, 437 n. 8 (Del. 2005).
“Delaware law requires an independent tort underlying a civil conspiracy.”
OptimisCorp, 2015 WL 5147038, at *56; see also Ramunno v. Cawley, 705 A.2d
1029, 1039 (Del. 1998) (“We agree that civil conspiracy is not an independent cause
of action in Delaware, and that it must arise from some underlying wrong.”). A
161
Compl. ¶ 18.
162
Id. ¶ 14.
163
Id. ¶ 133.
69
plaintiff may not plead conspiracy to avoid the statute of limitations for the
underlying tort. See Connolly v. Labowitz, 519 A.2d 138, 144 (Del. Super. Ct. 1986)
(“Where there is a succession of wrongful acts done in pursuance of a conspiracy,
the statute of limitations commences as to each wrongful act at the time that act
occurred.”).
As to Falcone, Levi, Sena, Minkov, Barr, the civil conspiracy claim must be
dismissed for the same reason as the aiding and abetting claim against the Innovate
Entities. Each of these five alleged Conspirators is alleged to have been a DTV
America director, officer, or both during the alleged conspiracy. In those capacities
they owed, and are alleged to have owed, fiduciary duties to DTV America and the
Stockholder Plaintiffs. See Gantler, 965 A.2d at 708–09 (recognizing that directors
and officers owe the identical fiduciary duties of care and loyalty). Thus, the
independent civil conspiracy count against these fiduciaries cannot stand. “However
captioned, civil conspiracy is vicarious liability. It holds a third party, not a
fiduciary, responsible for a violation of fiduciary duty. Therefore, it does not apply
to the defendants which owe the [stock]holders a direct fiduciary duty.” Albert, 2005
WL 2130607, at *11 (footnotes omitted); OptimisCorp, 2015 WL 5147038, at *57
(“In the fiduciary duty context, conspiracy is treated essentially as coterminous with
aiding and abetting.”);Presidio, , 251 A.3d 212 at (“This court largely has equated
claims for aiding and abetting and civil conspiracy, noting that the two theories often
70
cover the same ground and that the distinctions usually are not material.”). Like the
aiding and abetting claim asserted against the Innovate Defendants, the civil
conspiracy claim is premised upon conduct by the alleged Conspirators that
constituted breaches of their fiduciary duties. Therefore, it must be dismissed.
Although Voigt did not owe fiduciary duties to DTV America or the Plaintiffs,
the civil conspiracy claim as to him must be dismissed, as well. The sole factual
allegations against Voigt individually relate to his meeting with DTV America
officials and shareholders starting in 2016 until June 2017.164 The Complaint alleges
that Voigt “was” Innovate’s Senior Managing Director, Investments until May 2018.
Compl. ¶ 14. It also alleges that Voigt was a “director and/or officer” of other
Innovate subsidiaries (it does not clarify which entities). Id. Finally, the Complaint
alleges that Voigt is or was a director of another Innovate subsidiary not party to this
case. Id.The elements of a conspiracy require a “confederation.” OptimisCorp, 2015
WL 5147038, at *57. “[T]he confederation requirement includes “knowing
participation” in the conspiracy. Although there need not be an explicit agreement,
plaintiffs still must prove knowing participation in a conspiracy.” Id. At the
pleadings stage, “the Plaintiff must allege that the parties knowingly participated in
164
Id. ¶ 32.
71
the conspiracy and that there was coordination of action among the parties.”
Lechliter v. Del. Dep’t of Nat. Res. Div. of Parks & Rec., 2015 WL 7720277, at *11
(Del. Ch. Nov. 30, 2015). This can be accomplished by demonstrating a “meeting
of the minds on the object or course of action.” In re Swervepay Acq., LLC, 2022
WL 3701723 (Del. Ch. Aug. 26, 2022) (quoting Binks v. DSL.net, Inc., 2010 WL
1713629, at *11 (Del. Ch. Apr. 29, 2010)).
There are no well-pleaded facts supporting a reasonable inference that Voigt
knowingly participated in a conspiracy. The only conduct alleged as to Voigt is that
he and Falcone met with DTV America and certain of its stockholders at times from
2016 until June 2017, when the SPA was executed.165 This was five months before
the transaction closed and Innovate became DTV America’s controlling stockholder.
There are no other allegations as to Voigt. Although it is reasonable to infer that
Voigt received the so-called Business Plan in the period before the parties executed
the SPA, but there is no well-pleaded allegation that Voigt agreed to anything or
coordinated his actions with anyone. See Allied Cap. Corp. v. GC-Sun Hldgs., L.P.,
910 A.2d 1020, 1037 (Del. Ch. 2006) (dismissing claims against defendants where
“the complaint is entirely devoid of facts regarding the role of particular individuals,
165
Id.72
even by title.”). As with all claims, “[f]acts, not legal conclusions, must be pled.”
Atlantis Plastics Corp. v. Sammons, 558 A.2d 1062, 1066 (Del. Ch. 1989).
Voigt joined the other Defendants’ briefs in support of dismissal and
independently moved to dismiss for lack of notice as to what he is alleged to have
done wrong. 166 Plaintiffs did not address Voigt’s argument in their answering brief.
Spring Real Estate, LLC v. Echo/RT Hldgs., 2013 WL 6916277, at *7 (Del. Ch. Dec.
13, 2013) (“In this Court, a plaintiff may waive a claim if it does not brief the
sufficiency of its allegations in response to a defendant’s motion to dismiss.”);
Forsythe v. ESC Fund Mgmt. Co. (U.S.), Inc., 2007 WL 2982247, at *11 (Del. Ch.
Oct. 9, 2007) (granting motion to dismiss claims after finding that the plaintiffs
waived them “by failing to brief them in their opposition to the motion to dismiss”).
Plaintiffs fail to state a claim for civil conspiracy against Voigt because they
fail to allege that Voigt knowingly participated in any conspiracy. In addition, there
is no tort to underly a claim for conspiracy as to him. As such, Plantiffs’ claims for
civil conspiracy must be dismissed.
8. Count VII Fails to State a Claim for Tortious Interference
Finally, the Option Holder Plaintiffs allege that all defendants tortiously
interfered with their interests and expectations, including prospective contractual
166
Dkt. 35.
73
interests, relating to their options.167 The Option Holder Plaintiffs assert that
defendants wrongfully and intentionally interfered with their ability to financially
benefit from the option agreements.168
To state a claim for tortious interference with a contract, a plaintiff must
allege: (1) a contract, (2) about which the defendant knew, and (3) an intentional act
by that defendant that is (4) without justification and is (5) a significant factor
causing a breach of the contract and resulting injury. Agranoff v. Miller, 1999 WL
219650, at *21 (Del. Ch. Apr. 12, 1999), aff’d, 737 A.2d 530 (Del. 1999). The
Option Holder Plaintiffs allege that a contract existed, defendants were aware of it,
defendants acted intentionally, and injury occurred as a result.169 The Option Holder
Plaintiffs do not, however, allege that any breach of the agreement occurred, whether
as a result of defendants’ conduct or that of others. On a motion to dismiss, “[t]he
well-pleaded allegations of the complaint are accepted as true . . . [but] such a motion
does not concede pleaded conclusions of law or fact where there are no allegations
of specific facts which would support such conclusions. This is of critical
significance here.” Weinberger v. UOP, Inc., 409 A.2d 1262, 1264 (Del. Ch. 1979).
167
Compl. ¶¶ 147–48.
168
Id. ¶ 146.
169
Id. ¶¶ 145–47.
74
The Option Holder Plaintiffs’ allegations fail to fulfill a foundational element of the
claim for tortious interference with a contract.
To state a claim for tortious interference with a prospective business
opportunity, a plaintiff must allege: “1) the reasonable probability of a business
opportunity; 2) the intentional interference by defendant with that opportunity; 3)
proximate causation; and 4) damages.” Agilent Techs., Inc. v. Kirkland, 2009 WL
119865, at *5 (Del. Ch. Jan. 20, 2009). The elements of this claim must be
considered “in light of a defendant’s privilege to compete or protect his business
interests in a fair and lawful manner.” DeBonaventura v. Nationwide Mut. Ins. Co.,
419 A.2d 942, 947 (Del. Ch. 1980), aff’d, 428 A.2d 1151 (Del. 1981).
The Option Holder Plaintiffs allegations fail the first element. They allege
that “Defendants knew of the . . . [Option Holder Plaintiffs’] ability to become
stockholders and/or financially benefit from the Option Agreement.” 170 The law
requires more than a showing of an ability to benefit for such a claim to survive.
This court recently rejected a similar claim on this basis in Blue v. Fireman,
2022 WL 593899 (Del. Ch. Feb. 28, 2022). There, Vice Chancellor Zurn succinctly
explained that the mere ownership of stock options is insufficient to show a bona
170
Id. ¶ 146.
75
fide expectancy to support a claim for tortious interference with prospective business
relationships:
Plaintiffs rely exclusively on the conclusory allegation that they had a
“reasonable probability of receiving positive value for their options
from the Company.” This bare statement is insufficient to establish a
bona fide expectancy. Plaintiffs plead no facts to quantify that
expectancy, to support its existence, or to explain why it was reasonable
to hold it. Rather, it appears their expectancy is based on a “mere hope”
that their options would be in the money. Options, like other derivative
securities, inherently involve risk. Plaintiffs’ speculation or hope that
they picked the right side of their bet is not, standing alone, sufficient
to establish a reasonable probability of a business relationship.
Id. at *18. 171 That reasoning equally applies here. Accordingly, Count VII is
dismissed.
171
In essence, Count VII is an attempt by option holders to turn derivative claims, for which
they lack standing to assert, into direct fiduciary duty claims. Plaintiffs concede as much:
“the [Option Holder Plaintiffs’] tortious interference claim is . . . predicated on the gross
breaches of fiduciary duties, including the purposeful devaluation of DTV America.” Pls.’
HC2 Ans. Br. 27. “A claim for breach of fiduciary duty must be based on an actual, existing
fiduciary relationship between the plaintiff and defendants at the time of the alleged
breach.” In re Nine Sys. Corp. S’holders Litig., 2013 WL 771897, at *7 (Del. Ch. Feb 28,
2013) (citation omitted). The Option Holder Plaintiffs cannot assert fiduciary duty claims
in this case because they are not owed fiduciary duties. A “holder of an option to purchase
stock is not an equitable stockholder of the corporation.” Harff v. Kerkorian, 324 A.2d
215, 219 (Del. Ch. 1974), rev’d on other grounds, 347 A.2d 133 (Del. 1975). Therefore,
“the option feature of these instruments does not qualify for the protections that flow from
a fiduciary duty.” Glinert v. Wickes, 1990 WL 34703, at *9 (Del. Ch. Mar. 27, 1990), aff’d,
586 A.2d 1201 (Del. 1990).
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III. CONCLUSION
For the foregoing reasons, Continental’s motion to dismiss for lack of
personal jurisdiction is granted. The Innovate Defendants and the Individual
Defendants’ motions to dismiss Counts I through IV are granted in part and denied
in part, and as to Counts V through VII are granted in their entirety.
IT IS SO ORDERED.
77