In re Swervepay Acquisition, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE SWERVEPAY ACQUISITION, ) Consolidated C.A. No.
LLC ) 2021-0447-KSJM
MEMORANDUM OPINION
Date Submitted: April 14, 2022
Date Decided: August 26, 2022
Peter J. Walsh, Jr., Nicholas D. Mozal, POTTER ANDERSON & CORROON LLP,
Wilmington, Delaware; Orion Armon, COOLEY LLP, Denver, Colorado; Luke Cadigan,
COOLEY LLP, Boston, Massachusetts; Alexandra Leeper, COOLEY LLP, Palo Alto,
California; Katelyn Kang, COOLEY LLP, New York, New York; Counsel for SPOSC
Investment Holdings, LLC.
Peter J. Walsh, Jr., Nicholas D. Mozal, POTTER ANDERSON & CORROON LLP,
Wilmington, Delaware; Bradley Levison, Carrie A. Herschman, HERSCHMAN
LEVISON HOBFALL PLLC, Chicago, Illinois; Counsel for Jaeme Adams, Katrina
Adams, and Christopher Hamilton.
A. Thompson Bayliss, Stephen C. Childs, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; David B. Hennes, Adam M. Harris, Alexander B. Simkin, ROPES & GRAY
LLP, New York, New York; Sarah M. Samaha, ROPES & GRAY LLP, Washington,
District of Columbia; Counsel for SwervePay Holdings LLC, OSC Investment, L.P., OSC
Investment GP, LLC, OSC Payments, Inc., SwervePay LLC, Blue Star Innovation Partners
GP, LLC, New Mountain Capital, LLC, Robert Wechsler, Michael Oshinsky, and Matthew
Dubbioso.
McCORMICK, C.
New Mountain Capital, LLC (“New Mountain”) acquired SwervePay, LLC
(“SwervePay”) to provide payment processing services to another New Mountain
subsidiary. The purchase agreement included an upfront payment of $10 million, as well
as earnout payments worth up to $55 million in cash and anywhere from $150 million to
$500 million in equity payable only if SwervePay achieved contractual milestones.
When it became clear mid-way through the earnout period that SwervePay would
not achieve any of the contractual milestones, the sellers sued the buyers. The gravamen
of the sellers’ complaint is that, in negotiations leading up to the purchase agreement, the
buyers overstated a key financial metric—monetizable payment volume. Monetizable
payment volume refers to the portion of overall payment volume flowing through the
buyers’ existing system that was available for conversion to the sellers’ electronic payment
platform. According to the sellers, the buyers represented that the monetizable payment
volume flowing through the buyers’ system was at least $34 billion and potentially as high
as $50 billion. Based on those figures, the sellers would need to convert roughly 13% of
the buyers’ monetizable payment volume to achieve the first milestone and receive the
attendant payments. In reality, the buyers’ monetizable payment volume was
approximately $5 to $6 billion. Based on these figures, the sellers would need to convert
roughly 43% of the buyers’ monetizable payment volume to achieve the first milestone and
receive the attendant payments.
The sellers brought claims against the buyers for fraudulent inducement, conspiracy
to commit fraud, and breach of contract. The sellers also asserted claims against the buyers
for fraudulently inducing certain key employees into executing employment agreements.
The buyers responded by filing a separate lawsuit, claiming that the sellers induced
the buyers into acquiring SwervePay through fraudulent representations related to
SwervePay’s features, functions, and customer pipeline. The buyers also claim that the
sellers breached the purchase agreement based on alleged material adverse changes in the
business relationship with material customers.
The court consolidated the sellers’ and buyers’ suits, although the operative
complaints remain separate. For simplicity, this decision refers to the seller parties as
“Sellers” and their complaint as the “Seller Complaint.” This decision refers to the buyer
parties as “Buyers” and their complaints as the “Buyer Complaint.”
The Buyers moved to dismiss the Seller Complaint for failure to state a claim.
Certain Buyers moved to dismiss for a lack of personal jurisdiction. The Sellers moved to
dismiss the Buyer Complaint for failure to state a claim. This decision first addresses the
motion to dismiss the Seller Complaint and then addresses the motion to dismiss the Buyer
Complaint.
In what amounts to a glorified pruning exercise, both motions are granted in part.
Sellers’ fraud claims against New Mountain and certain of Buyers’ fraud and contract
claims survive. The remaining claims and defendants are dismissed.
2
I. FACTUAL BACKGROUND TO THE MOTION TO DISMISS THE
SELLER COMPLAINT
The facts are drawn from the Seller Complaint and documents it incorporates by
reference. 1
A. The Players
New Mountain acquired non-party Ontario Systems, LLC (“Ontario”) in August
2019 by purchasing a majority stake in OSC Investment, L.P. (“OSC Holdings”), which
wholly owns Ontario. Ontario licenses financial services software to clients in healthcare
and government. Under this business model, Ontario derives its revenue from licensing its
proprietary software. When New Mountain acquired Ontario, Ontario was contracting with
third parties to provide payment processing services.
New Mountain partnered with Defendant Blue Star Innovation Partners GP, LLC
(“Blue Star”) and non-party Eir Partners to transform Ontario’s business model. Blue Star
was an “industry leader in the payment facilitator sphere,” and Blue Star’s role in the group
was to provide analysis and strategy recommendations. 2 The group determined that
Ontario’s value could be improved by partnering with a payment facilitator instead of using
third-party vendors.
SwervePay (formerly known as SwervePay Acquisition, LLC) offers payment
processing services and solutions for merchants processing online payments from
customers. Payment facilitators like SwervePay derive revenue by charging as a fee a
1
C.A. No. 2021-0447-KSJM, Docket (“Dkt.”) 1, Verified Compl. (“Seller Compl.”).
2
Seller Compl. ¶¶ 23, 41, 50.
3
small percentage of each payment processed through the system. Accordingly,
SwervePay’s revenue depends on the volume of payments made to its clients that are
processed through its payment processing system.
Rounding out the list of players, the three individuals named as plaintiffs in the
Seller Complaint are SwervePay’s (pre-acquisition): Chief Executive Officer, Jaeme
Adams; SwervePay’s Executive Vice President of Technology and Chief Technical
Officer, Christopher Hamilton; and Director of Operations, Katrina Adams. Jaeme Adams
is mentioned more than Katrina Adams in this decision, and so this decision refers to him
as “Adams.” Under the Purchase Agreement (defined below), “Seller” refers to
SwervePay. For convenience only, as noted above, this decision defines “Sellers” as the
plaintiffs to the Seller Complaint: SPOSC Investment Holdings, LLC (which was known
as “SwervePay” pre-acquisition), Adams, Hamilton, and Katrina Adams.
The three individuals named as defendants to the Seller Complaint are: Vice
President of New Mountain, Michael Oshinsky; a director at New Mountain and an “officer
and/or director” of two of the acquisition vehicles, Matthew Dubbioso; and Chief
Executive Officer of Blue Star, Robert Wechsler.
Also, New Mountain formed acquisition vehicles to complete the transaction,
including SwervePay Holdings, LLC (“SwervePay Holdings”) as a wholly owned
subsidiary of OSC Payments, Inc. (“OSC Parent”). 3 Under the Purchase Agreement
3
Seller Compl., Ex. 24 at 9 (explaining that “SwervePay, LLC forms a new Delaware
limited liability company, SwervePay Acquisition, LLC [SwervePay Acquisition]”).
4
(defined below), “Buyer” refers to SwervePay Holdings. For convenience only, this
decision includes New Mountain, Blue Star, SwervePay Holdings, OSC Parent, and the
other entities and individuals named as defendants in the Seller Complaint in the defined
term “Buyers.” 4
B. The Purchase Agreement And Earnout Payment Structure
In October 2019, New Mountain identified SwervePay as an acquisition target and
sought to incorporate its payment facilitation platform into Ontario’s software systems. 5
On February 24, 2020, Sellers and New Mountain entered into a Membership Interest
Purchase Agreement (the “Purchase Agreement”).
The Purchase Agreement called for an upfront payment to Sellers of $10 million
and 100 Class A Units of OSC Holdings. Also, if SwervePay achieved contractually
specified milestones between January 1, 2021 and December 31, 2021 (the “Earnout
Period”), the Purchase Agreement entitled Sellers to earnout payments of up to $55 million
in cash and additional equity units in OSC Holdings projected to be worth anywhere from
$150 million to $500 million.
If SwervePay generated $17.5 million in revenue during the Earnout Period from
converting Ontario’s existing payment volume (the “First Milestone”), the Sellers would
receive up to $43.75 million (the “First Milestone Payment”). If SwervePay generated $10
4
The defendants include New Mountain, Blue Star, SwervePay Holdings, OSC Holdings,
OSC Parent, OSC Investment GP, LLC (which is OSC Parent’s General Partner),
SwervePay Acquisition, Matthew Dubbioso, Michael Oshinsky, and Robert Wechsler.
5
Seller Compl. ¶ 7.
5
million in new revenue during the Earnout Period (the “Second Milestone”), the Sellers
would receive up to $25 million (the “Second Milestone Payment”). If SwervePay
achieved either the First Milestone or Second Milestone, the Sellers would also receive
10,000 “Earnout Parent Shares,” which could be exchanged immediately for an equal value
of shares in OSC Holdings. 6
C. Representations To Sellers Regarding Payment Volume
The parties’ dispute centers on the First Milestone Payment, which itself turns on
Ontario’s existing payment volume.
In negotiations between leading to the Purchase Agreement, Buyers made
statements that the volume of payments flowing through Ontario’s software was “between
$40–$50 billion.” 7 Specifically, during an October 29, 2019 meeting between Sellers and
Blue Star, Matthew Steffe of Blue Star represented to Adams that “Ontario’s payment
volume was between $40–[$]50 billion annually, and further represented that this $40–$50
billion reflected payment volume that would be available for conversion.” 8 This
representation was repeated on a December 9, 2019 call with representatives from New
Mountain and Blue Star, including Wechsler. 9
Meanwhile, in December 2019, John Durrett of Blue Star was gathering data from
Ontario concerning payment volume. During negotiations of New Mountain’s acquisition
6
Id. ¶ 81.
7
Id. ¶¶ 8, 43, 44, 52.
8
Id. ¶ 43.
9
Id. ¶ 44.
6
of Ontario, Ontario represented to New Mountain that it had around $34 billion in
potentially monetizable payment volume. In December 2019, Durrett specifically inquired
into the basis of Ontario’s 2018 $34 billion estimation. In response, Ontario provided
Durrett with a 2018 memo reflecting that the number was based on market assumptions
and not Ontario’s actual customer base. Durrett identified problems with the assumptions-
based approach. For example, the estimate included student loan debt, which must be
processed by government-approved vendors, and which Ontario was not. By December
17, 2019, Durrett concluded that Ontario’s $34 billion estimate was “based on industry
benchmarks for volume/seat at 10X” and that Blue Star “[r]eally need[ed] to dig into
customer data to figure out gap.” 10 After further analysis, Durrett concluded that Ontario
had only $5 billion of monetizable consumer payments. These conclusions are reflected
in notations to a shared Google Sheets document.
Sellers allege on information and belief that Durrett’s $5 million calculation was
shared with Buyers, and that is reasonable to infer. At the time, Durrett’s role at Blue Star,
and Blue Star’s role generally, was to analyze and provide strategic recommendations to
New Mountain on how to best partner with Ontario and a payment facilitation business.
Payment volume was a key driver of this analysis and thus a key aspect of the strategic
recommendations. It is reasonable to infer, therefore, that Durrett shared his calculations
with Buyers.
10
Id. ¶ 48.
7
Despite Durrett’s $5 billion calculation, Oshinsky represented that monetizable
payment volume was $40–$50 billion at a January 31, 2020 meeting with Sellers.
On February 4, 2020, Adams and Hamilton emailed Oshinsky and Wechsler
requesting more information on the monetizable payment volume figure. On February 6,
Oshinsky responded by sending the “October Month Detail” for sample Ontario customers.
Oshinsky represented to Adams and SwervePay CTO and Executive Vice President of
Technology Christopher Hamilton that these numbers excluded the “vast majority of
payment volumes that the platform directs” and that the “total payment volume running
through our workflow on a monthly basis is multiples of these numbers.” 11
Adams responded on February 7, stating
To clarify what we’re trying to assess: In conversations thus
far, we’ve come to understand that ~$1B in payments have
been monetized by Ontario and that there is an additional
$40B-$50B that have not. We’re trying to get the clearest
picture possible of where that volume exists by
platform/segment and how that may or may not impact the
ability for us to move it quickly to the [SwervePay platform]. 12
Dubbioso responded by email stating “we’ll revert with answers on these items.” 13
Wechsler followed up by text stating: “can’t wait any longer,” “the [payment] volume will
get done and we have everything we need,” and “If you aren’t comfortable let’s just move
11
Id. ¶ 54.
12
Dkt. 2, Ex. 17 at 1–2.
13
Id. at 1.
8
on. I have too much time invested here and have to win. So if we aren’t going to close –
I need to proceed elsewhere.” 14
On February 8, Oshinsky emailed Sellers an attachment containing a “definitive
accounting of Ontario’s $34 billion monetizable payment volume” (the “February 8
email”). 15 The “definitive accounting” reproduced the same calculations and numerical
assumptions that were sent to Durrett in December, which had Durrett had viewed
skeptically. Further, the information Oshinsky sent to Sellers did not contain any of the
explanatory notes included in the December email to Durrett on the bases for the
assumptions, and it also did not contain any of the questions or explanatory notes Durrett
subsequently prepared challenging those assumptions.
The $34 million number was reported to the SwervePay board of directors pre-
acquisition. Minutes of the February 12, 2020 board meeting report Adams stating that
SwervePay would only need to “capture a relatively small piece of the $34,000,000,000 in
payments that is estimated to run through Ontario” in order to achieve the earnout payments
being contemplated. 16
With a monetizable payment volume at $34 billion, SwervePay would achieve the
First Milestone by converting 13% of Ontario’s payment volume during the Earnout
Period. By contrast, with a monetizable payment volume of $5 to $6 billion, SwervePay
14
Dkt. 2, Ex. 18 at 1–2.
15
Seller Compl. ¶ 60.
16
Dkt. 2, Ex. 20 at 6.
9
would need to convert 47% of Ontario’s payment volume to achieve the First Milestone.
Sellers viewed the 47% as impossible to achieve.
D. The Key Employee Agreements
The Buyers sought to retain key SwervePay employees post-acquisition: Adams,
Hamilton, and Katrina Adams (collectively, the “Key Employees”). Ensuring that the Key
Employees remained with SwervePay “was important to executing on [Buyers’] plan to
convert Ontario into a payment facilitator” generally. 17 Hamilton in particular was viewed
as “critical to the acquisition” because he wrote a majority of SwervePay’s code and was
the “sole source of understanding for much of the company’s technical footprint.” 18
In an effort to induce the Key Employees to execute their respective Employment
Agreements, Buyers awarded Adams and Hamilton 7,250 Class P Units (valued at over $2
million) and 7,250 Profits Interest Units (“PIUs”) each. 19 Approximately 40% of the PIUs
vested upon meeting performance targets, and the target case valuation for the PIUs
awarded to Adams and Hamilton was over $4 million. 20 The target case valuation of the
PIUs, however, was based on the $34 billion monetizable payment volume figure, while
the PIUs only had a strike price equal to Ontario’s valuation at closing. This meant that
Adams and Hamilton would only receive value to the extent that Ontario’s valuation
increased after closing. Based on a $5 to $6 billion in monetizable payment volume figure,
17
Seller Compl. ¶ 72.
18
Id. ¶ 73.
19
Id. ¶¶ 74, 77, 80.
20
Id. ¶¶ 74, 75.
10
the increase to Ontario’s valuation would be “negligible.” 21 Sellers contend that the PIUs
were rendered “close to worthless” when the monetizable payment volume was reduced
from $34 billion to $5 to $6 billion. 22
In addition, each of the three Key Employees was a unitholder of SwervePay. As a
result, the Key Employees “expected to be paid at the end of the earnout period” if they
achieved the relevant milestones. 23 Since this payment hinged on the represented
monetizable payment volume of $34 billion, Sellers contend that Buyers used this expected
payment to induce the Key Employees to enter their respective Employment Agreements.
E. The BillingTree Contract
Prior to entering the Purchase Agreement, Buyers failed to disclose that Ontario was
a party to an agreement with BillingTree, a SwervePay competitor. Under the BillingTree
agreement, BillingTree held a right of first refusal for any Ontario customer until December
21, 2020. BillingTree was able to “persuade a number of key customer accounts to migrate
to its platform on longer-term contracts” before expiration of its right of first refusal. 24
Section 4.04(c) of the Purchase Agreement contained a representation that Ontario
was not a party to any contract that would “impair or delay [Ontario’s] ability to
consummate the transactions contemplated by” the Purchase Agreement. 25 Sellers claim
21
Id. ¶ 76.
22
Id.
23
Id. ¶ 79.
24
Id. ¶ 98.
25
Id. ¶ 97.
11
that the BillingTree contract harmed SwervePay’s ability to convert Ontario’s customers
and achieve the milestones because BillingTree was able to sign up Ontario customers to
long-term contracts leading up to the Earnout Period.
F. Sellers Fail To Achieve Earnout Payments Post-Acquisition.
According to Sellers, post-acquisition, Buyers interfered with the Key Employees’
efforts to meet the milestones by shifting the focus away from payments and to
transforming the business model. This shift in strategy resulted in the termination of key
support personnel, scattered former SwervePay employees to different areas within
Ontario, and placed new responsibilities on Adams and Hamilton in addition to their
existing duties. 26 Despite these hindrances, SwervePay converted roughly “22–25%” of
Ontario’s payment volume by May 2021, five months into the twelve-month Earnout
Period. 27
G. The Seller Complaint
The Sellers filed the Seller Complaint on May 21, 2021.
• In Count I, Sellers claim that Buyers fraudulently induced Sellers to enter
into the Purchase Agreement.
• In Count II, Sellers claim that Buyers conspired to commit fraud related to
the Purchase Agreement.
• In Count III, Sellers claim that SwervePay Holdings and New Mountain
breached the Purchase Agreement by failing to disclose Ontario’s prior
agreement with BillingTree.
26
Id. ¶ 86.
27
Id. ¶ 85.
12
• In Counts IV through VI, the Key Employees claim that Buyers fraudulently
induced them to sign the Employment Agreements.
• In Counts VII and VIII, the Key Employees seek declaratory judgment that
the restrictive covenants found in the Purchase Agreement and Employment
Agreements are unenforceable because they were founded upon fraud.
Buyers moved to dismiss all counts of the Seller Complaint under Court of Chancery
Rules 12(b)(6) and 12(b)(2). The motion was fully briefed, and the court heard oral
argument on April 14, 2022. 28
II. LEGAL ANALYSIS OF BUYERS’ MOTION TO DISMISS THE SELLER
COMPLAINT
This analysis proceeds in two parts. The court first addresses the motion to dismiss
for failure to state a claim pursuant to Court of Chancery Rule 12(b)(6). Those Rule
12(b)(6) arguments are directed to, in the order addressed: Counts I and VI through VIII
asserted various theories of fraud (the “Fraud Claims”); Count III for breach of contract
(the “Breach of Contract Claim”); and Count II for civil conspiracy (the “Civil Conspiracy
Claim”). The court last addresses the personal jurisdiction arguments.
A. Failure To State A Claim
“[T]he governing pleading standard in Delaware to survive a motion to dismiss is
reasonable ‘conceivability.’” 29 On a Rule 12(b)(6) motion, the court accepts “all well-
pleaded factual allegations in the Complaint as true, [and] accept[s] even vague allegations
28
Dkt. 33, Defs.’ Opening Br. (“Buyers’ Opening Br.”); Dkt. 39, Pls.’ Answering Br.
(“Sellers’ Answering Br.”); Dkt. 47, Defs.’ Reply Br. (“Buyers’ Reply Br.”); Dkt. 72, Oral
Arg. Tr.
29
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del.
2011).
13
in the Complaint as ‘well-pleaded’ if they provide the defendant notice of the claim.” 30
The court “is not, however, required to accept as true conclusory allegations without
specific supporting factual allegations.” 31 The court draws “all reasonable inferences in
favor of the plaintiff, and den[ies] the motion unless the plaintiff could not recover under
any reasonably conceivable set of circumstances susceptible of proof.” 32
1. The Fraud Claims
“Under Delaware law, the elements of fraudulent inducement and fraud are the
same.” 33 To state a claim for fraudulent inducement or fraud, a plaintiff must allege:
(1) that a defendant made a false representation, usually one of
fact; (2) with the knowledge or belief that the representation
was false, or with reckless indifference to the truth; (3) with an
intent to induce the plaintiff to act or refrain from acting; (4)
that plaintiff’s action or inaction was taken in justifiable
reliance upon the representation; and (5) damage to the
plaintiff as a result of her reliance on the representation. 34
30
Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
31
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (internal
quotation marks omitted).
32
Cent. Mortg., 27 A.3d at 536 (citing Savor, 812 A.2d at 896–97).
33
Great Hill Equity P’rs IV, LP v. Sig Growth Equity Fund I, LLLP, 2018 WL 631182, at
*31 (Del. Ch. Dec. 3, 2018).
34
Grunstein v. Silva, 2009 WL 4698541, at *12 (Del. Ch. Dec. 8, 2009) (citing Gaffin v.
Teledyne, Inc., 611 A.2d 467, 472 (Del. 1992)); accord Browne v. Robb, 583 A.2d 949,
955 (Del. 1990); Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983); see
also Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2021 WL 1592473, at *7
n.79 (Del. Ch. Apr. 23, 2021) (holding that “[t]he elements of fraud and fraudulent
inducement are the same”).
14
Sellers claim that Buyers fraudulently induced them into signing the Purchase
Agreement and Employment Agreements by stating that Ontario’s monetizable payment
volume was $34 billion.
Buyers advance three arguments for dismissal of the Fraud Claims. They contend
that Sellers failed to allege a false statement with particularity, failed to adequately allege
reliance, and used impermissible group pleading to attribute the statements made in the
February 8 email to all Buyers.
a. Particularity
The primary basis of the Fraud Claims is the February 8 email. Buyers argue that
it failed to meet the particularity requirements of Rule 9(b).
Under Rule 9(b), “the circumstances that must be stated with particularity are the
time, place, and contents of the false representation, the identity of the person(s) making
the representation, and what he intended to obtain thereby.” 35
In the February 8 email, New Mountain’s Oshinsky represented that “Ontario
Payment Volumes” was $34 billion, when Buyers knew that the monetizable payment
volume was far lower than $34 billion. 36 The February 8 email replied to Adams’s
February 7 email that stated, “[t]o clarify what we’re trying to assess: In conversations
thus far, we’ve come to understand that ~$1B in payments have been monetized by Ontario
35
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003) (citations
omitted).
36
See Buyers’ Opening Br. at 20–26.
15
and that there is an additional $40B‐$50B that have not.” 37 In response, the February 8
email stated: “Circling back on your ask to help calibrate payments volumes, attached is
the math I was alluding to. The build here is to about $34B.” 38 Oshinsky then attached a
spreadsheet entitled “Ontario Payments Volumes.” 39
Buyers do not argue that these allegations fall short of most of the particularity
requirements. Sellers clearly plead the time (February 8), place (email), and contents ($34
billion) of the statement, the identity of the person who made it (Oshinsky), and what he
intended to obtain (agreement to enter into the Purchase Agreement). Instead, Buyers
argue that the February 8 email is not false because the $34 billion figure “represented
Ontario’s total ‘payments volumes,’” not monetizable payment volume. 40 Buyers contend
that Sellers cannot rely on the surrounding context in which the statements were made to
argue fraud. According to Buyers, the statements in the February 8 email should be
considered alone in deciding falsity. 41
Buyers’ argument does not work for a few reasons. For starters, the key word “total”
does not appear in the February 8 email. Buyers ask the court to infer it. Moreover, the
context suggests that the payments volume information was provided in response to queries
regarding monetizable payments volume. The particularity requirement does not serve as
37
Dkt. 2, Ex. 17 at 1.
38
Dkt. 2, Ex. 19 at 1.
39
Id. at 3.
40
Buyers’ Opening Br. at 22–23 (emphasis in original).
41
Buyers’ Reply Br. at 9–11.
16
a requirement that the court make a defendant-friendly inference as to falsity from
particularized facts. Nor does it require the court to ignore the context of allegedly false
statements. 42
Buyers cite to a decision of the Delaware Court of Common Pleas, Patel v. Shree
Ji, LLC, to support their contention that the court must ignore context in deciding whether
a statement is false. 43 In Patel, the buyer of a liquor store alleged that the store had “dead
inventory” contrary to the seller’s representation that the store had no “dead inventory” at
the time of the sale. At trial, the buyer testified that he viewed “dead inventory” as
inventory that did not sell in the six months following the sale of the store. In a post-trial
decision, the court held that the buyer’s testimony was not enough to establish the meaning
of the term “dead inventory.” Accordingly, the court could not hold that the seller’s
representation regarding dead inventory was false. 44 The court observed that the buyer
“should have offered expert testimony on the meaning of ‘dead inventory.’” 45
Buyers argue that Patel stands for the proposition that the context of an allegedly
fraudulent statement cannot supplant the actual statement and that the subjective
understanding of a party does not control the fraud analysis. Patel, however, was decided
post-trial; a plaintiff’s burden is necessarily lower at the pleading stage. Moreover, unlike
42
See NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 32 (Del. Ch. 2009) (holding that
the reliance element was satisfied when the speaker made false disclosures about its intent
“in a context where” the speaker expected the listener “to review and rely on them”).
43
2013 WL 5715434, at *5 (Del. Com. Pl. Oct. 18, 2013).
44
Id.45
Id.17
Patel, there is no ambiguity in this case as to how “total” or “monetizable” payment volume
should be defined; rather, there is a factual dispute as to whether the $34 billion figure
meant one or the other. Patel does not aid Buyers’ argument.
Sellers have adequately alleged the falsity element of the Fraud Claims with
particularity, and Buyers’ motion to dismiss on this basis is denied.
b. Justifiable Reliance
Buyers argue that Sellers fail to adequately allege reliance on the February 8 email.
“Making a false statement is not a strict liability offense.” 46 To plead a claim of
fraud, the defendant must have had “the intent to induce the plaintiff to act or refrain from
acting,” and the plaintiff must in fact have acted or not acted “in justifiable reliance on the
representation.” 47 As both parties observe, whether reliance was justifiable or reasonable
is a fact-intensive inquiry that is not well-suited for resolution at the pleading stage. 48
Buyers argue that Sellers’ pre-acquisition board minutes confirm that Sellers did not
rely on Oshinsky’s February 8 representation of payment volume. The board minutes in
question state the following: “[Adams] noted that if [SwervePay] could capture a relatively
46
NACCO, 997 A.2d at 29.
47
Id. (quoting H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 144 (Del. Ch. 2003);
see also Restatement (Second) of Torts § 525 (“One who fraudulently makes a
representation . . . for the purpose of inducing another to act or refrain from action . . . is
subject to liability to the other . . . caused to him by his justifiable reliance upon the
misrepresentation.”).
48
See NACCO, 997 A.2d at 32 (stating that “the line when [plaintiff’s] reliance became
unreasonable is difficult to draw and is not something I will address on a motion to
dismiss”); Flowshare, LLC v. GeoResults, Inc., 2018 WL 3599810, at *4 (Del. Super. July
25, 2018) (noting that “whether a party's reliance was reasonable is not generally suitable
for resolution on a motion to dismiss”).
18
small piece of the $34,000,000,000 in payments that is estimated to run through Ontario,
[SwervePay] should be able to reach the Ontario portion of the earnout.” 49 Buyers hone in
on the word “estimated” and repeat their arguments concerning “total” payment volume,
arguing that Sellers cannot demonstrate reliance because “[Sellers] understood the $34
billion figure to be an estimate representative of Ontario’s total payment volume.” 50
Buyers’ arguments again fail in light of Sellers’ pleading obligation. At the pleading
stage, it is reasonable to infer from the portion of the board minutes not quoted by Buyers
that the board considered the $34 billion figure to be an accurate assessment of Ontario’s
monetizable (“available for capture”) payment volume. The word “estimated,” standing
alone, does not undermine that inference. And the absence of the word “monetizable” does
not mean that the board believed the figure to be “total” payments volume.
Sellers have adequately alleged the justifiable reliance element of the Fraud Claims,
and Buyers’ motion to dismiss on this basis is denied.
c. Impermissible Group Pleading
Buyers argue that the Fraud Claims must be dismissed as to Blue Star, Dubbioso,
Wechsler, SwervePay Holdings, SwervePay Acquisition, OSC Holdings, OSC Investment,
and OSC Payments—i.e., all Buyers except Oshinsky and New Mountain—because those
defendants are not alleged to have sent the February 8 email. 51
49
Dkt. 2, Ex. 20 at 6.
50
Buyers’ Opening Br. at 35 (emphasis in original).
51
Buyers’ Opening Br. at 30–34.
19
In order to state a claim for fraud, the first element requires that a false statement be
made by the defendant; only “[t]he speaker who makes a false representation is, of course,
accountable for it.” 52 “A plaintiff must adequately plead a . . . claim ‘against each
individual director or officer; so-called ‘group pleading’ will not suffice.’” 53 Although
group pleading is not prohibited under Delaware law, it “is generally disfavored.” 54
Oshinsky is New Mountain’s Vice President and was engaged in negotiations on
behalf of New Mountain; his February 8 email, therefore, can be viewed as a statement by
New Mountain for pleading purposes. 55 Sellers do not argue otherwise. The question is
whether it is fair to impute Oshinsky’s statement to Buyers other than himself and New
Mountain.
That question is easily answered as to SwervePay Holdings and SwervePay
Acquisition, which were not in existence at the time of the February 8 email; they were
created when the Purchase Agreement was executed later that month. 56 Oshinsky’s
February 8 email therefore cannot support a fraud claim against them.
52
Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 59 (Del. Ch. 2015).
53
Genworth Fin., Inc. Consol. Deriv. Litig., 2021 WL 4452338, at *22 (Del. Ch. Sept. 29,
2021) (quoting Raj & Sonal Abhyanker Fam. Tr. v. Blake, 2021 WL 2477025, at *4 (Del.
Ch. June 17, 2021)).
54
In re WeWork Litig., 2020 WL 7343021, at *11 (Del. Ch. Dec. 14, 2020); see also River
Valley Ingredients, LLC v. Am. Proteins, Inc., 2021 WL 598539, at *3 (Del. Super. Feb. 4,
2021) (interpreting the Superior Court analogue to Court of Chancery Rule 9 and
concluding that “[t]here is nothing in Rule 9 that per se prohibits group pleading”).
55
Seller Compl. ¶ 24.
56
See id. ¶ 71 (stating that “Though [SwervePay Holdings] and [SwervePay, LLC] are
formally parties to the MIPA, [SwervePay Holdings] and [SwervePay, LLC] were only
20
Sellers argue that Oshinsky’s February 8 email supports a claim of fraud against
Wechsler and Dubbioso based on statements by Wechsler and Dubbioso made elsewhere.
Sellers maintain that Weschler “spoke” regarding Ontario’s payment volume when he
texted Adams that “the [payment] volume will get done” 57 and that Dubbioso did the same
when he replied to Adams that New Mountain would “revert with answers on these
items.” 58 In isolation, these statements do not support a claim of fraud. Nor do they support
a claim of fraud in combination with the February 8 email. On their face, these statements
did not—expressly or impliedly—endorse, repeat, or affirm any aspect of the allegedly
false statement. Sellers do not meaningfully argue otherwise.
Rather, Sellers primarily argue that the statements by Weschler and Dubbioso
constituted an attempt to conceal the fraudulent nature of the $34 billion figure. That
position, too, requires an untenable stretch. Under Delaware law, fraudulent concealment
requires a “show[ing] that a defendant took some action affirmative in nature designed or
intended to prevent, and which does prevent, the discovery of facts giving rise to the fraud
claim, some artifice to prevent knowledge of the facts or some representation intended to
exclude suspicion and prevent inquiry.” 59
created by and for the MIPA, and did not exist when the fraudulent misrepresentations
and/or omissions were being made by the Defendants”).
57
Sellers’ Answering Br. at 28.
58
Id. at 29.
59
Transdigm Inc. v. Alcoa Glob. Fasteners, Inc., 2013 WL 2326881, at *6 (Del. Ch. May
29, 2013) (quoting Metro Commc’ns Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854
A.2d 121, 150 (Del. Ch. 2004)).
21
Sellers contend that Weschler’s threats to “proceed elsewhere” if the parties were
unable to close was an attempt to “prevent [Seller] Plaintiffs from prying further and from
uncovering the true payment volume.” In addition, Sellers allege Dubbioso’s promise that
New Mountain would provide answers to Adams’s questions was an affirmative step
“designed to prevent Plaintiffs from uncovering the true monetizable payment volume.” 60
Neither of these arguments are convincing. Wechsler’s assurances that the payment
volume figure would “get done” and Dubbioso’s assurance that Adams’s questions would
get answers do not demonstrate an attempt to conceal information; rather, they indicate that
information would be forthcoming. The statements by Wechsler and Dubbioso fail to rise
to the level of concealment, as such statements cannot be viewed as attempting to prevent
adverse facts from coming to light.
Tacitly acknowledging the weakness in their primary argument, Sellers further
contend that Wechsler and Dubbioso “had a duty to correct the material misstatement made
by Oshinsky in the February 8 email” by virtue of being copied on the email and their roles
in the negotiations generally. 61 As support, Sellers point to Corporate Property Associates
14 Inc. v. CHR Holding Corp. 62 There, the court held that a corporation committed fraud
by omitting information about a large planned dividend when responding to a questionnaire
sent by a party seeking to value outstanding warrants. 63 In CHR Holding, the fraudulent
60
Sellers’ Answering Br. at 31.
61
Id. at 27.
62
2008 WL 963048 (Del. Ch. Apr. 10, 2008).
63
Id. at *2, *7.
22
act and attendant “duty to speak” concerned the same actor and statement—a corporation’s
impartial response to the questionnaire. 64 By contrast, the fraudulent act in this case was
the February 8 email stating the payment volume. Wechsler’s statement that the payment
volume figure would “get done” and Dubbioso’s statement that answers would be
forthcoming were ancillary to the alleged misrepresentation by Oshinsky. They did not
give rise to a duty to speak.
Sellers’ efforts to rope in Wechsler and Dubbioso to the Fraud Claims, therefore,
fail.
Regarding Blue Star, the only basis Sellers offer for imputing the February 8 email
is Wechsler’s affiliation with Blue Star. 65 Since none of Sellers’ arguments above stick in
attributing the February 8 email to Weschler, Sellers have similarly failed to sufficiently
establish that Blue Star made the statement to satisfy the first element of fraudulent
inducement.
Sellers make no other meaningful efforts to extend Oshinshy’s February 8 email to
the other Buyers. Sellers correctly note that they “at times refer to multiple Defendants in
a single allegation” and that “grouping defendants together when alleging actions is not
group pleading.” 66 But that supplies no reason in law or logic to impute the statements in
the February 8 email to other defendants. They further note, correctly, that “Delaware law
64
Id. at *7.
65
Seller Compl. ¶¶ 26, 101, 103.
66
Sellers’ Answering Br. at 18.
23
does not expressly forbid [group pleading].” 67 But they fail to explain why group pleading
should be permitted here.
For these reasons, Buyers’ motion to dismiss the Fraud Claims in Counts I and IV
through VIII as to Blue Star, SwervePay Holdings, OSC Holdings, OSC Investment, OSC
Payments, SwervePay Acquisition, Dubbioso, and Wechsler is granted.
2. The Breach Of Contract Claim
“Under Delaware law, plaintiffs must allege the following three elements to succeed
on a breach of contract claim: (1) the existence of a contract, whether express or implied;
(2) breach of one or more of the contract’s obligations; and (3) damages resulting from the
breach.” 68
“When interpreting a contract, the role of a court is to effectuate the parties’
intent.” 69 “If a writing is plain and clear on its face, i.e., its language conveys an
unmistakable meaning, the writing itself is the sole source for gaining an understanding of
intent.” 70 Absent ambiguity, “Delaware courts interpret contract terms according to their
67
Id.
68
GEICO Gen. Ins. Co. v. Green, 276 A.3d 462, 2022 WL 1052195, at *5 (Del. Apr. 8,
2022) (TABLE) (citing VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del.
2003)).
69
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006).
70
City Inv. Co. Liquid. Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993) (italics in
original) (citation omitted).
24
plain, ordinary meaning.” 71 The “contract’s construction should be that which would be
understood by an objective, reasonable third party.” 72
Sellers claim that SwervePay Holdings and New Mountain breached Section 4.04(c)
of the Purchase Agreement by intentionally failing to disclose Ontario’s prior arrangement
with BillingTree.
Buyers move to dismiss the breach of contract claim in Count III because Section
4.04(c) applies to agreements to which SwervePay Holdings is a party, and SwervePay
Holdings is not a party to the BillingTree agreement. 73
Section 4.04(c) of the Purchase Agreement states:
Noncontravention. The authorization, execution, delivery and
performance of this Agreement and the other Transaction
Documents to which [SwervePay Holdings] is a party will not,
the consummation of the transactions contemplated hereby or
thereby will not and compliance by [SwervePay Holdings]
with the terms hereof and thereof will not . . . (c) violate,
contravene or conflict with, result in a breach of, constitute a
default (with or without notice or lapse of time, or both) under
or result in or give rise to a right of termination, cancellation or
acceleration of any obligation, or require any action by
(including any authorization, consent or approval) or notice to
any Person, or to loss of a material benefit under, or to
increased, additional, accelerated or guaranteed rights or
entitlements of any Person under, any contract to which
[SwervePay Holdings] is a party or by which its assets are
bound, except, in the case of clause (c), where the violation,
contravention, conflict, breach, default, termination,
acceleration right or loss would not, individually or in the
71
Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012).
72
Salamone v. Gorman, 106 A.3d 354, 367–68 (Del. 2014) (internal quotation marks
omitted).
73
Buyers’ Opening Br. at 41.
25
aggregate, materially impair or delay Buyer’s ability to
consummate the transactions contemplated by this Agreement
and the Transaction Documents to which [SwervePay
Holdings] is a party. 74
Section 4.04(c), a standard contractual noncontravention provision, only applies to
“contract[s] to which [SwervePay Holdings] is a party.” 75 New Mountain is the
counterparty to the BillingTree agreement, and SwervePay Holdings is not a party to the
BillingTree agreement. 76 Sellers concede this point in the Seller Complaint. 77 Since
SwervePay Holdings was not a party to the BillingTree agreement, that agreement is not
prohibited by the plain language of Section 4.04(c).
Sellers do not dispute that their claim for breach fails under the plain language of
Section 4.04(c). Sellers instead argue that the provision should have been written to
include New Mountain because “[SwervePay Holdings] was created for the sole purpose
of facilitating the [Purchase Agreement].” 78 But that is not what happened. When
determining the legal sufficiency of a claim for breach of contract, the court is stuck with
the language the parties agreed to. Under that language, Sellers fail to state a claim for
breach.
74
Dkt. 1, Ex. 1 (“Purchase Agreement”) at 47 (emphasis added).
75
Id.76
Buyers’ Opening Br. at 41.
77
See Seller Compl. ¶ 96 (“Ontario had entered into an agreement with BillingTree in
December 2017.”) (citing Dkt. 2, Ex. 34); see also Dkt. 2, Ex. 34 at 1, 7 (noting that the
agreement was between Ontario and BillingTree and evidencing that the agreement was
signed only by representatives from Ontario and BillingTree).
78
Sellers’ Answering Br. at 43.
26
Buyers’ motion to dismiss Count III for failure to state a claim is granted.
3. The Civil Conspiracy Claim
“The elements for civil conspiracy under Delaware law are: (1) a confederation or
combination of two or more persons; (2) an unlawful act done in furtherance of the
conspiracy; and (3) actual damage.” 79
In Count II, Sellers allege that Buyers worked in concert to fraudulently induce
Sellers into entering into the Purchase Agreement. Specifically, Sellers argue that Buyers
“were each the agent, servant, partner, and/or joint venturer of the other” and that there was
a “close interrelationships between all [Buyers].” 80 Sellers’ theory is that Buyers worked
together to acquire SwervePay on “illusory earnout terms that Defendants knew were not
achievable.” 81
Buyers advance two arguments for dismissal of the conspiracy claim.
Buyers first argue that there was no wrongful act to satisfy the second element
because Sellers fail to adequately allege fraud. 82 This decision has already rejected that
argument.
79
AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 n.8 (Del. 2005)
(citing Nicolet, Inc. v. Nutt, 525 A.2d 146, 149 (Del. 1987)).
80
Seller Compl. ¶¶ 103–04.
81
Id. ¶ 105.
82
Buyers’ Opening Br. at 39.
27
Buyers next argue that the Seller Complaint fails to satisfy the first element of a
confederation or combination of two or more persons because the Seller Complaint
contains only “wholly conclusory allegations.” 83
A plaintiff pursuing a civil conspiracy claim must “establish facts suggesting
‘knowing participation’ among the conspiring partners,” which can be accomplished by
showing “a meeting of the minds on the object or course of action.” 84 Although Rule 9(b)
requires a fraud claim to be pled with particularity, “[t]he existence of a confederation may
be pled by inference [and] is not subject to the specificity requirement of Rule 9(b).” 85
This decision has already held that the Sellers fail to support a claim for fraud
against Buyers other than New Mountain and Oshinsky. The question is whether the same
facts support a claim for civil conspiracy. Sellers argue that all Buyers participated in the
conspiracy to defraud Sellers either (i) by participating in the negotiations of and
communications about the Purchase Agreement (including through designated agents and
when false statements were made), (ii) by signing the Purchase Agreement and associated
agreements, and (iii) by virtue of being an entity created by New Mountain to accomplish
the SwervePay acquisition.
83
Id. at 37.
84
Binks v. DSL.net, Inc., 2010 WL 1713629, at *11 (Del. Ch. Apr. 29, 2010).
85
Agspring Holdco, LLC v. NGP X US Hldgs., L.P., 2020 WL 4355555, at *21 (Del. Ch.
July 30, 2020) (quoting Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP,
2014 WL 6703980, at *20 (Del. Ch. Nov. 26, 2014)).
28
In essence, Sellers allege that all Buyers, their agents, and their advisors should be
treated as a single conspiratorial group based solely on their joint efforts to consummate
this deal. The discrete acts Sellers cite in their complaint amount to mere participation at
deal meetings, being copied on emails containing the allegedly fraudulent statements, and
communicating with the parties to the transaction. Taken to its logical extremes, Sellers’
argument invites this court to find grounds for conspiracy in virtually any negotiation that
involves multiple parties partnering to execute a deal. While there certainly may be
circumstances in which concerted efforts rise to the level of conspiracy, Sellers’ threadbare
contentions do not allege more than ordinary partnership in deal negotiations.
Sellers rely on LVI Group Investments, LLC v. NCM Group Holdings, LLC, where
the court denied a motion to dismiss a claim for civil conspiracy among negotiating
parties. 86 There, the buyer alleged that the seller and its affiliates intentionally inflated the
target. The court found that the plaintiff adequately alleged a claim for fraud against the
target entity and a claim for civil conspiracy against the affiliated defendants—the target’s
parent entity, officers, and managers. The court held that the complaint pled “in abundant
detail” that defendants had worked with the target to manipulate the financial statements
before and during the merger negotiations. 87 The court further observed that “the
Individual Defendants, as principals of the private equity firm that held most of NCM’s
86
2018 WL 1559936, at *16 (Del. Ch. Mar. 28, 2018).
87
Id.29
equity, had an obvious incentive to make the company’s financials appear stronger than
they actually were.” 88
In this case, Sellers argue that Buyers also “had an obvious incentive” to make the
deal appear attractive like in LVI. But such common incentives standing alone cannot
support a claim for civil conspiracy. If that were enough, then every deal participant who
worked together with another would be exposed to liability since there is an inherent
incentive to make an acquisition appealing. The law requires that a plaintiff allege an
unlawful act in furtherance of the conspiracy. In LVI, the court was able to infer a
conspiracy based on the fact that each defendant had some level of responsibility for
preparing the financials at the center of the fraud. Sellers do not allege any similar unlawful
acts here.
Sellers also point to two other decisions of this court to support the inference that
Buyers acted in concert with one another. The first is Agspring Holdco, LLC v. NGP X US
Holdings, L.P., 89 and the second is Ogus v. SportTechie, Inc. 90 While both cases found
that defendants acted in concert to satisfy the first element of a civil conspiracy claim, both
cases involved multiple substantial acts by individuals involved in the conspiracy. In
Agspring, the defendants provided feedback to improve financial statements, encouraged
employees to “add back amounts to EBITDA calculations,” and advised employees to
88
Id.89
2020 WL 4355555 (Del. Ch. July 30, 2020).
90
2020 WL 502996 (Del. Ch. Jan. 31, 2020).
30
modify financial documents to make the company “look more attractive to potential
investors.” 91 In SportTechie, the defendants converted the corporation into an LLC,
thereby eliminating the founder’s veto right and allowing the board to terminate the
founder. The defendants then created a new board that excluded the founder, procured a
shareholders agreement providing for the repurchase of the founder’s shares upon his
termination, terminated the founder, and then repurchased the shares at an unfair price. 92
The allegations that the Buyers engaged in civil conspiracy are far thinner than both
Agspring and SportTechie. In this case, there is nothing more than a reasonable inference
that a group of people collaborated to close a deal. That, standing alone, does not support
a claim for civil conspiracy.
Buyers’ motion to dismiss Count II is granted.
B. Personal Jurisdiction
Buyers seek to dismiss all claims as to Blue Star, Wechsler, Dubbioso, and Oshinsky
for lack of personal jurisdiction under Court of Chancery Rule 12(b)(2). This decision only
addresses personal jurisdiction arguments as to Oshinsky. 93
91
Agspring, at *17.
92
SportTechie, at *11.
93
This decision has already determined that the Seller Complaint fails to state a claim
against Blue Star, Wechsler, and Dubbioso. Technically, however, questions of personal
jurisdiction precede questions concerning the legal sufficiency of a claim, such that this
court should not reach the Rule 12(b)(6) arguments without first determining whether the
court may exercise jurisdiction over the defendants. Accordingly, Blue Star, Wechsler,
and Dubbioso should submit a letter confirming that they intend to withdraw their motion
to dismiss for lack of personal jurisdiction.
31
“When a defendant moves to dismiss a complaint pursuant to Court of Chancery
Rule 12(b)(2), the plaintiff bears the burden of showing a basis for the court’s exercise of
jurisdiction over the defendant.” 94 In ruling on a 12(b)(2) motion, this court may “consider
the pleadings, affidavits, and any discovery of record.” 95 “If, as here, no evidentiary
hearing has been held, plaintiffs need only make a prima facie showing of personal
jurisdiction and ‘the record is construed in the light most favorable to the plaintiff.’” 96
Delaware courts resolve questions of jurisdiction using a two-step analysis. The
first step requires determining “that service of process is authorized by statute,” 97 and the
second requires finding that the defendant had certain minimum contacts with Delaware
such that the exercise of personal jurisdiction “does not offend traditional notions of fair
play and substantial justice.” 98
Sellers argue that this court has personal jurisdiction over Oshinsky under two
theories—the conspiracy theory of jurisdiction and Delaware’s long-arm statute. This
decision addresses those arguments in that order.
94
Ryan v. Gifford, 935 A.2d 258, 265 (Del. Ch. 2007) (citing Werner v. Mill Tech. Mgmt.,
L.P., 831 A.2d 318 (Del. Ch. 2003)).
95
Ryan, 935 A.2d at 265 (citing Cornerstone Techs., LLC v. Conrad, 2003 WL 1787959,
at *3 (Del. Ch. Mar. 31, 2003)).
96
Ryan, 935 A.2d at 265 (first citing Benerofe v. Cha, 1996 WL 535405, at *3 (Del. Ch.
Sept. 12, 1996); and then quoting Cornerstone, 2003 WL 1787959, at *3).
97
Ryan, 935 A.2d at 265.
98
Matthew v. Fläkt Woods Gp. SA, 56 A.3d 1023, 1027 (Del. 2012) (quoting Int’l Shoe Co.
v. Washington, 326 U.S. 310, 316 (1945) (internal quotation marks omitted)).
32
The Delaware Supreme Court established the five elements of the conspiracy theory
of jurisdiction in Istituto Bancario Italiano SpA v. Hunter Engineering Co., 99 which
“functionally encompass both prongs of the jurisdictional test.” 100 “The first three . . .
elements address the statutory prong . . . . The fourth and fifth . . . elements address the
constitutional prong . . . .” 101 The first element of that test requires the court to find that a
civil conspiracy existed. This decision has already determined that no civil conspiracy
exists here. Accordingly, the first element of conspiracy theory jurisdiction is not met, and
Sellers fail to establish personal jurisdiction over Oshinsky on that basis.
Delaware’s long-arm statute provides jurisdiction over a nonresident “who in person
or through an agent . . . [t]ransacts any business or performs any character of work or
service in the State . . . [or] [c]auses tortious injury in the State by an act or omission in this
State.” 102 “[A] single transaction is sufficient to confer jurisdiction where the claim is
based on that transaction.” 103 “Under the plain language of the Long-Arm Statute, forum-
directed activity can be accomplished ‘through an agent.’” 104
99
449 A.2d 210, 225 (Del. 1982).
100
Virtus Cap. L.P. v. Eastman Chem. Co., 2015 WL 580553, at *12 (Del. Ch. Feb. 11,
2015).
101
Id.102
10 Del. C. § 3104(c)(1) & (3).
103
Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 963, 978 (Del. Ch. 2000).
104
Virtus Cap., 2015 WL 580553, at *11 (quoting 10 Del. C. § 3104(c)).
33
Sellers contend that “Oshinsky took specific fraudulent actions, which are the
subject of this lawsuit, in order to effectuate the [Purchase Agreement].” 105 Further, Sellers
allege that “execution of the [Purchase Agreement] resulted in, among other things, the
formation of” SwervePay Holdings, OSC Parent, and SwervePay Acquisition, all of which
are Delaware entities. 106
This argument fails because the Seller Complaint does not allege that Oshinsky
played any role in forming SwervePay Holdings, OSC Parent, or SwervePay Acquisition.
In fact, the Seller Complaint attached board minutes confirming that SwervePay, LLC was
responsible for creating SwervePay Acquisition and that OSC Holdings was responsible
for creating SwervePay Holdings and OSC Parent. 107 Where an individual such as
Oshinsky had no role in forming a Delaware entity, either directly or indirectly, or did not
otherwise “participate[] in the formation [of a Delaware entity] in a meaningful fashion,”
this court will not find an adequate basis for asserting personal jurisdiction over that
individual. 108
105
Sellers’ Answering Br. at 51.
106
Id.
107
See Seller Compl., Ex. 24 at 9–10 (explaining that “SwervePay, LLC forms a new
Delaware limited liability company, SwervePay Acquisition, LLC [SwervePay
Acquisition]” and “OSC Investment, L.P. [OSC Holdings] forms: a. OSC Payments, Inc.
[Parent], a Delaware corporation; and b. SwervePay Holdings, LLC, [SwervePay
Holdings] a Delaware limited liability company”).
108
EBG Hldgs. LLC v. Vredezicht’s Gravenhage 109 B.V., 2008 WL 4057745, at *7 (Del.
Ch. Sept. 2, 2008) (holding that personal jurisdiction under Delaware’s long-arm statute is
not proper when plaintiff fails to allege that the defendant “formed [the Delaware entity],”
actively “participated in the formation in a meaningful fashion,” or “participated in
selecting Delaware as the state of . . . formation”).
34
Consequently, Sellers have failed to plead the existence of personal jurisdiction over
Oshinsky under either the long-arm statute or the conspiracy theory of jurisdiction.
Buyers’ motion to dismiss all claims against Oshinsky is granted based on a lack of
personal jurisdiction.
C. Buyers’ Motion To Dismiss The Seller Complaint Conclusion
In conclusion, Buyers’ motion to dismiss is granted in part except as to the Fraud
Claims in Counts I and IV through VIII against New Mountain.
III. FACTUAL BACKGROUND TO MOTION TO DISMISS THE BUYER
COMPLAINT
The facts are drawn from the Buyer Complaint and the documents it incorporates
by reference. 109
A. SwervePay Struggles As A Standalone Business.
SwervePay was a “consistently unprofitable payment facilitator” who “spent years
unsuccessfully trying to find a buyer.” 110 At a February 2020 meeting of SwervePay’s
board of directors, Adams stated that he was concerned with the company’s ability to
survive independently or attract a “major go to market partner[].” 111 Adams explained that
market partners were unwilling to partner with SwervePay because they had “concern[s]
with the size and stability of the Company.” 112 The minutes of this meeting state that
109
Dkt. 51, Am. Verified Compl. For Fraudulent Inducement and Breach of Contract
(“Buyer Compl.”).
110
Id. ¶¶ 42–43.
111
Id. ¶¶ 6, 45.
112
Id. ¶ 46.
35
absent the Buyers’ acquisition, the company “would need to immediately start looking for
additional cash,” and the company was considering a down round of funding. 113
While SwervePay struggled as a standalone business, the company possessed
valuable payment facilitator technology. That valuable technology was at risk, however.
Adams stated during a February 2020 meeting of the SwervePay board of directors that
“the Company’s technological lead in the [payment facilitator] space was dwindling, as
other better funded competitors had taken a page from the Company’s playbook and
competition was heating up, with the window closing on the technological edge held by
the Company.” 114 Sellers failed to disclose this information as part of the acquisition
transaction.
B. Sellers’ Pre-Acquisition Representations Of SwervePay’s Features,
Functions, And Customer Pipeline
Purchase Agreement negotiations began in Fall of 2019. 115 Buyers engaged Blue
Star to assist with diligence, and Sellers populated an electronic data room.
Several key features and functions of SwervePay were identified in the SwervePay
Product Matrix (the “Product Matrix”) that Sellers uploaded to the data room on December
23, 2019, under a folder entitled “Product and Technology.” 116 The Product Matrix
contained a list of 65 features and functions of SwervePay’s technology. Three were
113
Id. ¶ 47.
114
Id. ¶ 50.
115
Id. ¶ 53.
116
Id. ¶ 62.
36
“critical features that were integral to the future success of [SwervePay]: (i) ‘automated or
rule based’ underwriting and onboarding processes; (ii) ‘RESTful API [Application
Programming Interface] access’; and (iii) ‘text and email-based payment requests’ and
‘receipts.’” 117
Sellers also made direct representations to Blue Star about SwervePay’s features.
On November 5, 2019, Adams emailed Blue Star stating that SwervePay had “[a]djacent
technology built modularly to the platform that allows for advanced communication (text-
to-pay, agent keyword text-to-collect)” and “[i]nstant onboarding.” 118 Blue Star
memorialized these representations in a PowerPoint presentation and categorized each
functionality as “currently available,” “partially available,” or “currently unavailable.”119
Blue Star asked Adams to review this presentation for accuracy, and later that day, Adams
emailed back an annotated version of the presentation. Adams’s annotated version did not
advise Blue Star that any of the identified functionalities were either unavailable or lacked
the capabilities described in the presentation. 120 Specifically, Adams’s annotated version
indicated that “Automated, instant onboarding,” “Underwriting (automated & rules-
based),” and “Text-to-pay (including request and receipt)” were “Currently Available.” 121
117
Id. ¶ 65.
118
Id. ¶¶ 66–67.
119
Id. ¶ 68.
120
Id. ¶¶ 69–70.
121
Id. ¶ 73.
37
On December 19, 2019, Adams and Hamilton presented a PowerPoint entitled
“SwervePay Technology Overview” (the “Technology Overview”) to Buyers’
representatives and then uploaded the Technology Overview to the data room. 122 The
Technology Overview confirmed that “Instant onboarding of SwervePay-issued Sub-
Merchant Accounts,” “Automatic and Manual Underwriting Processes,” “Text receipts,”
“Payment requests,” “Text-to-Pay,” and “REST API” were features of SwervePay’s
technology. 123
Sellers also made representations to Buyers as to SwervePay’s existing customer
relationships and customer pipeline. On December 23, 2019, Sellers’ representatives stated
to Buyers’ representatives that there was a potential customer, PointClickCare Corp., who
could provide $24.6 million in annual recurring revenue. Schedule 3.22 of the Purchase
Agreement listed SwervePay’s top ten “Material Customers,” and Section 3.22 of the
Purchase Agreement stated that there has not been “any material adverse change in the
business relationship of the Company with any Material Customer.” 124
C. Buyers Discover Post-Closing That Representations As To
SwervePay’s Features, Functions, And Customer Pipeline Were False.
Post-closing, Buyers integrated SwervePay’s technology into Ontario’s software
platform and began offering it to customers. This process revealed that some of Sellers’
representations about features, functionality, and customers were materially false.
122
Id. ¶ 74.
123
Id. ¶ 76.
124
Id. ¶ 82.
38
As to automated onboarding and underwriting, Ontario employees were required to
“manually assist the customer throughout the underwriting and enrollment process,”
necessitating days of back and forth with the customer. 125 Further, the SwervePay product
could not meaningfully “evaluate the risk associated with potential customers,” in
contravention to Sellers’ claims that the technology had “automated or rule based”
underwriting. 126
As to RESTful API access, which is a feature that allows customers and third parties
to integrate SwervePay functionality into their existing applications, the feature was
“materially incomplete and non-functional.” 127 Instead, “virtually every API had to be
custom-built for each potentially [] interested ISV [Independent Software Vendor], a labor-
intensive and time-consuming process.” 128 As an example, if an ISV wanted to add an
additional information field, such as a location, the ISV would have to reach out to Ontario
and have one of its employees manually set up a new location information field. 129 Adams
confirmed in an email one month after closing that “SwervePay lacked the promised API
functionality” and that creating a new integration system could take three to six months. 130
125
Id. ¶ 102.
126
Id. ¶ 104.
127
Id. ¶ 109.
128
Id.
129
Id. ¶ 112.
130
Id. ¶ 116.
39
As to text and email-based payment requests and receipts, the feature was not
functional and was not “capable of being marketed to customers.” 131 The text and email
messaging feature “(i) could not be used effectively with large provider systems, (ii) lacked
basic and standard capabilities necessary to operate a payments business, and (iii) provided
such a limited and poor user-experience, it was not a meaningfully operational feature of
the SwervePay product.” 132 In a post-closing email on March 18, 2020, Hamilton
described the “Payment by Text and Email” system as a “Phase 2” project where “some
effort [was] needed to enable live client implementation.” 133
As to additional features and functionality promised in the Product Matrix, Sellers
claimed that 65 “services/solutions” existed in the SwervePay product. 134 Post-closing,
“approximately one-third of the promised features either did not actually exist or were
materially incomplete and non-functional as of the time of the Transaction.” 135 These
missing or incomplete functions include: (i) merchant account provisioning with “full
control over settlement” and “raw interchange data access”; 136 (ii) “customer-facing
payment interfaces”; 137 (iii) “customer/patient portal” with “standalone payments, card-on-
131
Id. ¶ 121.
132
Id. ¶ 125.
133
Id. ¶ 127.
134
Id. ¶ 129.
135
Id.
136
Id. ¶¶ 130–31.
137
Id. ¶ 133.
40
file management,” and “self-service and provider-driven signup”; 138 (iv) “message/queue
monitoring and alerting”; 139 (v) “granular data change notification via SQS messaging for
data consumers”; 140 (vi) “dynamic per-client configuration options”; 141 (vii) “automatic
deployment generation”; 142 (viii) “hosted payment forms”; 143 and (ix) “in system, granular
user/permission management.” 144
As to the customer pipeline representation, the $24.6 million annual recurring
revenue opportunity with PointClickCare failed to materialize. Sellers “misrepresented the
state of their discussions with PointClickCare,” “there was no opportunity with
PointClickCare that was already coming to fruition” as of December 23, 2019, and “none
of the additional revenue that [Sellers] represented was already beginning to materialize
ever did.” 145
D. Sellers Fail To Disclose Adverse Changes In Relationships With
Material Customers.
As to existing customer relationships, Sellers represented in Section 3.22 of the
Purchase Agreement that there was no “‘material adverse change in the business
relationship of the Company with any’ of its Material Customers disclosed in Schedule
138
Id. ¶ 135.
139
Id. ¶ 137.
140
Id.
141
Id.
142
Id.
143
Id.
144
Id.
145
Id. ¶¶ 144–45.
41
3.22 from January 1, 2021 through the Closing Date.” 146 Following the acquisition,
however, “SwervePay’s top three Material Customers all either reduced their business with
SwervePay or terminated their relationship.” 147
SwervePay’s relationships with two of the top three Material Customers, ProScan
and ARStrat, were “deteriorating.” 148 In fact, those accounts were identified in an October
2019 SwervePay presentation as “the Company’s two ‘largest accounts with decreasing
revenues.’” 149 SwervePay’s revenue from ProScan, its largest customer, decreased
materially since January 2019; revenue from its third largest customer, ARStrat, decreased
by nearly 40% since 2019. Additionally, the second largest Material Customer, The CORE
Institute, terminated its relationship with SwervePay soon after the Purchase Agreement
was signed. Buyers filed a claim for indemnification as to these alleged material adverse
changes on February 6, 2021, which was within the survival period of the Purchase
Agreement.
E. The Buyer Complaint
Buyers filed an amended version of the Buyer Complaint on November 4, 2021. 150
The Buyer Complaint alleges two counts against the Sellers. Count I is for
fraudulent inducement against all Sellers based on representations related to SwervePay’s
146
Id. ¶ 149.
147
Id. ¶ 152.
148
Id. ¶ 154.
149
Id. ¶153.
150
Dkt. 51.
42
features, functions, and customer pipeline. Count II is for breach of contract against Sellers
for breaching Section 3.22 of the Purchase Agreement based on alleged material adverse
changes in the business relationship with any Material Customers.
The Sellers moved to dismiss all counts based on Court of Chancery Rules 12(b)(6)
and 9(b). The motion was fully briefed on March 28, 2022, and the court heard oral
argument on this motion contemporaneously with argument on the Buyers’ motion to
dismiss the Seller Complaint on April 14, 2022. 151
IV. LEGAL ANALYSIS OF SELLERS’ MOTION TO DISMISS THE BUYER
COMPLAINT
This analysis first addresses Sellers’ motion to dismiss the fraud claim in Count I
and then turns to Sellers’ motion to dismiss the breach of contract claim in Count II. The
standard governing motions to dismiss for failure to state a claim is set forth above. 152
A. The Fraud Claim
In Count I, Buyers claim that Sellers made fraudulent misrepresentations that
induced Buyers to enter into the Purchase Agreement. The elements of a claim for fraud
are set forth above. 153 In moving to dismiss, Sellers group these allegedly fraudulent
statements into three categories: customer pipeline statements; key product technologies
and features; and “additional” technologies and functionalities. As to each of the three
categories, Sellers argue that Buyers fail to state a claim for fraudulent inducement because
Dkt. 56 (“Sellers’ Opening Br.”); Dkt. 59 (“Buyers’ Answering Br.”); Dkt. 61 (“Sellers’
151
Reply Br.”).
152
See Section II.A supra.
153
See Section II.A.1 supra.
43
they fail to adequately allege that any statement was false. Buyers further allege that Sellers
fail to adequately allege the elements of reliance or damages.
1. Falsity of Statements Regarding The Customer Pipeline
Buyers challenge two different customer pipeline statements by Sellers:
(a) representations regarding SwervePay’s “Material Customers” and (b) representations
regarding a business opportunity with PointClickCare.
a. Material Customers
Sellers advance arguments as to dismissal of claims based on SwervePay’s
“Material Customers,” and Buyers failed to address this argument in either its answering
brief or during oral argument. “A party’s failure to address in its responsive brief an
opposing party’s asserted grounds for dismissal, coupled with its failure to cure that
omission at the corresponding oral argument, can lead to the Court’s deeming the
underlying issue waived.” 154 Because Buyers did not respond to Sellers’ arguments for
dismissal of claims based on the Material Customer representations in Count 1, those
claims are dismissed.
b. PointClickCare
Buyers allege that Sellers falsely stated, during a December 23, 2019 diligence call,
that a $24.6 million annual recurring revenue opportunity with PointClickCare was already
coming to fruition.
Sellers advance two arguments in support of dismissal.
154
VTB Bank v. Navitron Projects Corp., 2014 WL 1691250, at *4 (Del. Ch. Apr. 28, 2014)
(citing Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999)).
44
Sellers first argue that the statement was a forward-looking opinion that cannot give
rise to a fraud claim. It is generally true that forward-looking opinions cannot support
claims of fraud, 155 but Sellers’ first argument does not work on these facts. Although
Sellers portray the December 23, 2019 statement as a “future prediction that the potential
PointClickCare opportunity would bear fruit,” 156 as alleged, the statement was not forward-
looking. Rather, it was a statement that a revenue opportunity through PointClickCare was
“beginning to come to fruition” as of December 23, 2019. 157 Such a statement is sufficient
to afford Buyers the inference that Sellers intended to communicate that a deal with
PointClickCare was beginning to generate revenue, i.e., the “fruit” of the deal.
Sellers next argue that Buyers have failed to allege “that the statement was known
to be ‘false when made’ or that [Sellers] ‘lacked a good faith belief in [its] truth.’” 158 This
argument fails as well. Knowledge of falsity is an exception to Court of Chancery Rule
155
Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 209 (Del. Ch. 2006),
aff’d sub nom. Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438 (Del. 2007) (holding that
statements such as “the company believed that the [] acquisition would generate good
results” does not support a claim of fraud because “[t]hey are simply statements of
expectation or opinion about the future of the company and the hoped for results of business
strategies. Such opinions and predictions are generally not actionable under Delaware
law”); see also Great Lakes Chem. Corp. v. Pharmacia Corp., 788 A.2d 544, 554 (Del.
Ch. 2001) (holding that “alleged statement that the ‘current financial posture justified the
projections for future sales’ is not actionable because it was an expression of opinion that
the projections were adequately supported”); In re Student Fin. Corp., 2004 WL 609329,
at *3 (D. Del. Mar. 23, 2004) (“Under Delaware law, [o]pinions and statements as to
probable future results are not generally fraudulent even though they relate to material
matters.” (internal quotation marks omitted)).
156
Sellers’ Opening Br. at 27.
157
Buyer Compl. ¶ 80.
158
Sellers’ Opening Br. at 28.
45
9(b). Although “the circumstances constituting fraud . . . shall be stated with particularity
. . . knowledge . . . may be averred generally.” 159 Knowledge can be adequately alleged
where well-pleaded facts make it “reasonably . . . inferred that this ‘something’ was
knowable and that the defendant was in a position to know it.” 160 Buyers have met this
standard. Whether the PointClickCare deal was beginning to bear fruit was a “knowable”
fact by Sellers. At the pleading stage, making all inferences in favor of the Buyers, it is
reasonably conceivable that Sellers either knew or should have known that the
PointClickCare statement was false.
Sellers’ motion to dismiss Count I as to the PointClickCare allegations is denied.
2. Falsity of Statements Regarding Key Product Technologies And
Features
Buyers challenge Sellers’ statements concerning three key product technologies and
features: (a) automated underwriting and onboarding; (b) RESTful API access; and (c) text
and email-based payments and receipts.
a. Automated Underwriting And Onboarding
Buyers allege that Sellers made three false statements as to SwervePay’s automated
underwriting and onboarding capabilities. First, in the Product Matrix uploaded to the data
room on December 23, 2019, Sellers represented that “the SwervePay product had
‘automated or rule based’ underwriting and onboarding processes and that ‘[a]utomated,
159
Ct. Ch. R. 9(b).
160
Metro Commc’n Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 147
(Del. Ch. 2004) (quoting Iotex Commc’ns, Inc. v. Defries, 1998 WL 914265, at *4 (Del.
Ch. Dec. 21, 1998)).
46
instant onboarding’ was ‘currently available.’” 161 Second, in the Technology Overview
presentation Adams made to Buyers on December 19, 2019, SwervePay represented that
“‘[i]nstant onboarding’ and ‘[a]utomatic . . . [u]nderwriting [p]rocesses’ were features of
SwervePay’s technology.” 162 Third, in a November 5, 2019 email to Blue Star, Adams
promised “‘[i]nstant onboarding requiring less data and overhead in underwriting
requirements.’” 163
Buyers allege that these statements were false because Ontario employees were
required to “manually assist the customer throughout the underwriting and enrollment
process” and because the product could not meaningfully “evaluate the risk associated with
potential customers.” 164 Buyers allege that this was contrary to Sellers’ claims that the
technology had “automated or rule based” underwriting. 165
Sellers advance three arguments in support of dismissal.
Sellers first argue that the representation of SwervePay’s technology was for
“Automatic and Manual Underwriting Processes.” 166 They say that Buyers do not allege
that Sellers represented that SwervePay featured “underwriting and onboarding ‘without
the manual assistance of a SwervePay employee.’” 167 Even crediting Sellers’ strained
161
Buyer Compl. ¶ 100.
162
Id.163
Id.164
Id. ¶ 102.
165
Id. ¶ 104.
166
Sellers’ Opening Br. at 39 (emphasis in original).
167
Id. (emphasis added).
47
reading of this representation—that SwervePay promised only a combination of automated
and manual underwriting and onboarding as opposed to fully automated onboarding—this
argument fails based on Buyers’ well-pled complaint. The Buyer Complaint alleges that
SwervePay’s technology, as delivered, required employees to “manually assist the
customer throughout the underwriting and enrollment process.” 168 This allegation gives
rise to a reasonable inference that the product lacked any automation. Buyers have
therefore adequately alleged that the representations concerning automation were false.
Sellers next argue that this fraud claim is negated by an extrinsic document, “The
Liberty Diligence Report.” 169 This argument fails because the referenced document is
neither attached to nor referenced in the Buyer Complaint. Regardless of its contents, the
court cannot consider it at this procedural posture. 170
Sellers last argue that Buyers’ “statement that the underwriting process did not
‘meaningfully’ evaluate risk” is too vague and subjective to support a fraud claim under
Rule 9(b). 171 Specifically, Sellers argue that “[w]hat is a ‘meaningful’ or ‘not meaningful’
evaluation of risk is inherently a subjective opinion, and such claims cannot support
fraud.” 172 This argument also fails because the allegation does not stand in isolation.
168
Buyer Compl. ¶ 102.
169
Sellers’ Opening Br. at 39–40.
In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 68 (Del. 1995) (“Generally,
170
matters outside the pleadings should not be considered in ruling on a motion to dismiss.”).
171
Sellers’ Opening Br. at 40.
172
Id.48
Taken as a whole, the Buyer Complaint pleads facts from which the court can infer that the
SwervePay technology lacked automated underwriting as promised. 173
Sellers’ motion to dismiss Count I as to the automated underwriting and onboarding
feature is denied.
b. RESTful API Access Feature
Buyers allege that Sellers twice represented that “SwervePay technology included
RESTful API [] access” in both the Product Matrix and the Technology Overview. 174
Buyers contend, however, that SwervePay effectively lacked the API access feature
because certain key features were missing. For example, Buyers argue that the lack of
automatic integration with independent software vendors and the inability to automatically
add an information field were missing features that rendered the delivered API access
nonfunctioning.
Sellers move for dismissal as to the RESTful API access feature because they did
not expressly represent in pre-acquisition materials that certain features, such as automatic
integration or automatic addition of information fields, were available and functioning.175
This view is myopic because Buyers argue that key features were missing from the
delivered product such that it effectively lacked any API access. Sellers concede that
SwervePay was represented in pre-acquisition materials to have “Restful API access” as
173
See Buyer Compl. ¶¶ 100–05.
174
Id. ¶ 106.
175
Sellers’ Opening Br. at 34.
49
an “[i]ntegration option.” 176 As a result, the only remaining question is whether the lack
of automatic integration or ability to automatically add information fields renders the API
access effectively non-existent. Such a question is a factually rife determination that is not
suitable for disposition at the pleading stage. 177
Sellers’ motion to dismiss Buyers’ claims as to the RESTful API access feature
allegation in Count I is denied.
c. Text And Email-Based Payments And Receipts
As to text and email-based payments and receipts, Buyers argue that the feature was
not “meaningfully operational” because it “(i) could not be used effectively with large
provider systems, (ii) lacked basic and standard capabilities necessary to operate a payment
business, and (iii) provided such a limited and poor user-experience.” 178 Sellers again
argue that there were no misrepresentations as to the specific features that Buyers claim
rendered the text and email-based payment systems effectively inoperable. 179 This
argument fails for the same reason it did above: once Buyers have alleged that Sellers
represented that a specific feature or function was part of the SwervePay product, the
question of whether deficiencies with that feature or function render it effectively
inoperable are not suitable for resolution on the limited record of a motion to dismiss.
176
Id. at 33.
177
See Weiss v. Swanson, 948 A.2d 433, 447 (Del. Ch. 2008) (noting that similar questions
of fact were “unsuitable for determination on a motion to dismiss”).
178
Buyer Compl. ¶ 125.
179
Sellers’ Reply Br. at 18.
50
In their opening brief, Sellers concede that text and email-based payments were
promised in pre-acquisition communications. 180 Buyers have adequately pled, with the
particularity required by Rule 9(b), that certain features and functions that were necessary
to the operation of the text and email-based payment option were missing. The
determination of whether those missing features and functions render the text and email-
based payment option effectively inoperable is a factual determination that the court cannot
make based on the limited record. Accordingly, Sellers’ motion to dismiss Buyers’ claims
at to the text and email-based payments feature in Count I is denied.
3. Falsity Of Statements Regarding Additional Technologies And
Functionalities
Buyers argue that ten “additional” features and functions were missing from the
SwervePay product. 181 Sellers correctly point out, however, that six of the ten missing
features were pled in conclusory fashion. 182 As an example of Buyers’ conclusory
pleadings, under several features the Buyer Complaint simply states that the features were
“partial or incomplete.” 183 This court is not obligated to accept such conclusory
180
See Sellers’ Opening Br. at 42 (citing Buyer Compl. ¶¶ 119, 121–24) (stating that
“‘[T]ext and email-based payment requests’ are ‘Services / Solutions Provided’”).
181
Buyers’ Answering Br. at 30–31.
182
See Seller’ Reply Br. at 28–29; see also Buyers’ Answering Br. at 30–31.
183
Buyer Compl. ¶¶ 131, 137; see also Buyers’ Answering Br. at 30–31.
51
allegations, 184 and such conclusory pleadings fail to meet the particularity requirement of
Rule 9(b). 185
The four remaining features are: (i) “customer-facing payment interfaces,” (ii)
“standalone payments,” (iii) “card-on-file management,” and (iv) “merchant account
provisions.” 186 Buyers claim that SwervePay was represented to have a “customer/patient
payment portal,” which was represented pre-acquisition to have “standalone payments,”
“card-on-file management,” and “self-service and provider-driven signup.” 187 Buyers
allege, however, that as of the closing date those features were so limited in functionality
that “it was functionally equivalent to the feature not existing at all.” 188 Buyers allege the
same for the “[m]erchant account provisioning,” which included full control over
“Settlement (Instructional-based funding)” and “Raw interchange data access.” 189
Sellers repeat the argument that the lack of these specified features does not make
the pre-acquisition statements misrepresentations. For the same reasons this argument
failed above, it fails here. Whether the absence of “card-on-file management” or full
184
Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009).
185
Largo Legacy Gp., LLC v. Charles, 2021 WL 2692426, at *20 (Del. Ch. June 30, 2021)
(dismissing fraud claim because “‘conclusory allegations of a ‘scheme’ are insufficient,
and do not excuse the [p]laintiffs from their burden of properly stating a claim upon which
relief may be granted”) (quoting Thermopylae Cap. P’rs, L.P. v. Simbol, Inc., 2016 WL
368170, at *15 (Del. Ch. Jan. 29, 2016)).
186
Sellers’ Opening Br. at 45–47.
187
Buyer Compl. ¶ 135.
188
Id. ¶ 134.
189
Id. ¶¶ 130, 132.
52
control over “raw interchange data access” renders the respective features effectively
nonfunctional is a question of fact best resolved on a more fulsome record. By stating that
specific features were promised but missing from the final product, the Buyers have carried
the burden imposed by Rules 12(b)(6) and 9(b), and the claims for the four additional
technologies survive dismissal. 190
Accordingly, Sellers’ motion to dismiss the “additional features” allegations in
Count I is granted except as to customer-facing payment interfaces, standalone payments,
card-on-file management, and merchant account provisioning. 191
4. Justifiable Reliance
Sellers argue that Buyers fail to allege that they justifiably relied on the
misrepresentations.
“Making a false statement is not a strict liability offense.” 192 In order to plead a
claim of fraud, the defendant must have had “the intent to induce the plaintiff to act or
refrain from acting,” and the plaintiff must in fact have acted or not acted
“in justifiable reliance on the representation.” 193
Setting aside Sellers’ arguments related to the Liberty Report, which is extrinsic to
the Buyer Complaint and will not be considered based on the reasons stated above, Sellers’
190
See Kainos Evolve, Inc. v. InTouch Techs., Inc., 2019 WL 7373796, at *5 (Del. Ch. Dec.
31, 2019) (holding that descriptions of platform features that “were not fully functional”
satisfied the time and place requirements for pleading a fraud claim).
191
Sellers’ Opening Br. at 45–47.
192
NACCO, 997 A.2d at 29.
193
Id. (citations omitted).
53
arguments boil down to claims that Buyers were “experience[d]” and “well-resourced” in
the payment facilitator sphere. 194 This argument runs contrary to the Buyer Complaint,
however, which states that Buyers “were dependent on [Sellers’] written and oral
representations concerning the systems’ functionalities” because Buyers “had not operated
a payment facilitator business prior to the Transaction and were not experts in payment
facilitator technology and functionality.” 195
At the motion to dismiss stage, factual inferences are resolved in favor of the non-
movants, i.e., the Buyers. Further, this outcome is buttressed by the fact that questions of
reliance are ill-suited for disposition at the motion to dismiss stage. 196 This point—that a
developed factual record is necessary to make the reliance determination—is made more
poignant by Sellers’ multiple attempts to introduce evidence neither attached to nor
included in the Buyer Complaint.
Sellers’ motion to dismiss Buyers’ claims in Count I for failure to allege justifiable
reliance is denied.
194
Sellers’ Reply Br. at 30.
195
Buyer Compl. ¶¶ 92–93.
196
See S’holder Representative Servs. LLC v. Albertsons Cos., Inc., 2021 WL 2311455, at
*11 (Del. Ch. June 7, 2021) (“[W]hether a party's reliance was reasonable is not generally
suitable for resolution on a motion to dismiss.”); NACCO, 997 A.2d at 32 (stating that “the
line when [] reliance became unreasonable is difficult to draw and is not something I will
address on a motion to dismiss”); Flowshare, LLC v. GeoResults, Inc., 2018 WL 3599810,
at *4 (Del. Super. July 25, 2018) (noting that “whether a party's reliance was reasonable is
not generally suitable for resolution on a motion to dismiss”).
54
5. Damages
Finally, Sellers argue that Buyers fail to plead damages with particularity. Sellers
argue that the damages in the Buyer Complaint were “conclusory,” “generic,” and
“speculative.” 197 In their Reply Brief, however, Sellers retreat to a narrower version of this
argument, contending that Buyers fail to adequately allege a claim for rescissory damages
because Buyers delayed bringing this claim for nearly 18 months. 198
Both arguments fail. As to the first argument, fraud claims under Rule 9(b) do not
require damages to be pled with particularity; rather, the rule simply requires a plaintiff to
plead causation with particularity. 199 As to the second argument, even assuming arguendo
that rescissory damages are inappropriate here, Buyers also plead that they suffered
damages in having to spend additional money and time on fixing the missing features and
functionalities, which represent expectation damages distinct from the rescissory
damages. 200 Having identified an independent basis for damages outside of rescissory
damages, this decision need not address Sellers’ second argument on this point.
Sellers’ motion to dismiss Count I for failure to plead damages with particularity is
denied.
197
Sellers’ Opening Br. at 59–60.
198
Sellers’ Reply Br. at 36.
199
See Ct. Ch. R. 9(b); see also Bamford v. Penfold, L.P., 2020 WL 967942, at *21 (Del.
Ch. Feb. 28, 2020) (noting that “[e]ven when a plaintiff asserts a fraud claim, damages do
not have to be pled with particularity. What has to be pled with particularity are ‘the
circumstances constituting fraud or mistake’”).
200
Buyer Compl. ¶¶ 105, 117, 128.
55
B. The Breach Of Contract Claim
The elements of a claim for breach of contract and interpretive principles of contract
interpretation are set forth above. 201
In Count II, Buyers argue that, according to Section 3.22 of the Purchase
Agreement, Sellers represented that there had not been “any material adverse change in the
business relationship of the Company with any Material Customer” and that Sellers did not
receive any notice that any of its top ten customers “threatened to cease doing business
with the Company Group or has adversely changed or has threatened to adversely change,
in any material respect . . . other terms of its business with the Company Group.” 202 Buyers
argue that Sellers breached Section 3.22 because “there were material adverse changes in
the business relationship . . . with at least two of the ten Material Customers” before the
Purchase Agreement was effective. 203
Sellers advance two arguments in support of dismissal.
They first argue that Count II is time-barred under the 15-month contractual
limitations period in Section 6.01 of the Purchase Agreement. They next contend that
Count II fails to state a claim for three reasons.
1. Count II Is Not Time-Barred.
Section 6.01 of the Purchase Agreement states:
Survival of Representations, Warranties and Covenants. Each
of the representations and warranties contained in this
201
See Section II.A.2 supra.
202
Buyer Compl. ¶ 182.
203
Id. ¶ 183.
56
Agreement or in any certificate delivered with respect thereto
in connection herewith, and all indemnification obligations
pursuant to Section 6.02(a) and Section 6.03(a) with respect
thereto, shall survive the Closing and remain in full force and
effect until fifteen (15) months after the Closing Date (the
“General Survival Period”);
...
Any claim for indemnification brought on or prior to the
expiration of the applicable survival period set forth in this
Section 6.01 shall survive indefinitely until fully and finally
resolved in accordance with the terms, conditions and
procedures set forth in this ARTICLE VI. 204
Section 6.04 of the Purchase Agreement states:
Exclusive Remedy. From and after the Closing, each Party
acknowledges and agrees that, except as provided in Section
2.07 or Section 6.06 or Actions for fraud, intentional
misrepresentation or intentional breach, his, her or its sole and
exclusive remedy with respect to any and all claims relating to
the subject matter of this Agreement and transactions
contemplated hereby (other than equitable remedies pursuant
to Section 7.02) shall be pursuant to the indemnification set
forth in this ARTICLE VI. In furtherance of the foregoing,
each Party hereby waives any provision of applicable Law to
the extent that it would limit or restrict the agreement contained
in this Section 6.04. 205
Sellers argue that Section 6.01 applies a 15-month contractual limitations period to
their representations and warranties under the Purchase Agreement, including Section
3.22. 206 This means that the contractual limitations period expired on May 24, 2021, while
Buyers did not file the original Buyer Complaint until over two months later. Sellers
204
Buyer Compl., Ex. A (“Purchase Agreement”) art. IV, § 6.01.
205
Purchase Agreement art. IV, § 6.04.
206
Sellers’ Opening Br. at 14.
57
further allege that none of the contractual exceptions apply, meaning that Buyers’ breach
of contract claim is contractually barred under this provision.
In response, Buyers argue that Section 6.01 does not apply to Count II because the
Purchase Agreement contains a carve-out for “intentional breach” in Section 6.04, which
excludes those claims from the indemnification provisions set out in Section 6.01.
In support of this position, Buyers rely on ENI Holdings, LLC v. KBR Group
Holdings, LLC. 207 In ENI, Vice Chancellor Glasscock considered whether a similar
provision to the parties’ purchase agreement precluded filing fraud claims based on non-
fundamental representations outside of the contractual limitations period. 208 The movants
relied on the fact that the agreement contained a survival provision that did “not contain an
express exclusion for claims based on fraud” while providing express carve-outs for fraud
elsewhere. As a result, the movants contended that the parties intended that fraud claims
be subject to the contractual limitations period in the survival provision. 209 The non-
movants argued that carve-outs for fraud elsewhere in the agreement, particularly a carve-
207
ENI Hldgs., LLC v. KBR Grp. Hldgs., LLC, 2013 WL 6186326 (Del. Ch. Nov. 27, 2013);
see also SPay, Inc. v. Stack Media Inc., 2021 WL 6053869, at *7 (Del. Ch. Dec. 21, 2021)
(applying the holding of ENI and concluding that “the contractual survival period set forth
in Section 7.1 of the [amended purchase agreement] does not apply to claims for fraud,
including contractual fraud, because Section 7.4 of the [amended purchase agreement], an
exclusive remedy provision, expressly “carves out fraud claims from the indemnification
regime”).
208
ENI, 2013 WL 6186326, at *15.
209
Id.58
out providing that indemnification is not the “sole and exclusive remedy” for fraud claims,
evidenced that fraud claims were not intended to be subject to the survival provision. 210
The Vice Chancellor noted that “by providing that the indemnification provisions
do not constitute the ‘sole and exclusive remedy’ for fraud, [the agreement] contemplates
that at least some actions grounded in fraud can be brought outside the [agreement’s]
indemnification provisions, and thus, can be timely brought within the statutory—rather
than contractual—limitations period.” 211 The Vice Chancellor held that fraud claims were
not barred by the limitations period because the agreement was “ambiguous at best,” and
that since non-movants proffered a reasonable interpretation, any ambiguity should be
resolve in their favor. 212
The holding of ENI matches the facts at issue here, where Section 6.04 contemplates
that indemnification is not the exclusive remedy for intentional breach. Specifically, the
Purchase Agreement envisions, via Section 6.04, that some intentional breach actions can
be brought outside the indemnification provision of Section 6.01, as was the case in ENI.
Accordingly, Buyers’ breach of contract claim in Count II is not subject to the contractual
limitations period and is therefore timely.
In search of a contrary outcome, Sellers first argue that Section 6.04 is “purely a
remedies provision” and thus “under the Purchase Agreement’s plain text, Section 6.04
210
Id.211
Id. at *16.
212
Id.
59
does not exempt such causes of action from Section 6.01’s limitations period.” 213 This
argument fails because the court in ENI expressly held that a remedies provision with a
carve-out for certain claims can introduce ambiguity into whether those claims are within
the purview of an indemnification provision.
Sellers next argue that ENI’s holding flows from Delaware’s “venerable public
policy against fraud” and that there is “no similar public policy concern with intentional
breaches.” 214 This is, again, expressly contradicted by the ENI court, which grounded its
decision in contractual ambiguity and sidestepped the public policy arguments as to fraud
altogether. 215 The contract, and not public policy, carves out an exemption for intentional
breach in this case.
Having found that Count II is not time-barred under the contractual limitations
period of Section 6.01 of the Purchase Agreement, the court turns to Sellers’ alternative
argument that Count II fails to adequately plead a breach of contract claim.
2. Count II States A Claim.
Section 3.22 of the Purchase Agreement states:
Customers and Vendors. Schedule 3.22 contains a true,
complete and correct list in order of (a) the top ten (10)
customers (based on gross sales) (collectively, the “Material
Customers”) and (b) the top five (5) vendors (based on gross
expenditures) of the Business (collectively, the “Material
213
Sellers’ Reply Br. at 10 (emphasis in original).
214
Id.
215
See ENI, 2013 WL 6186326, at *16 (noting that because the decision was resolved based
on contractual interpretation grounds, “I need not reach KBR's argument that claims
sounding in fraud cannot be subject to a limitations period shorter than that provided by
statute, as a matter of public policy”).
60
Vendors”), in each case, as of the twelve (12)-month period
ended on the Reference Balance Sheet Date, along with the
amounts invoiced to or by each such Material Customer or
Material Vendor, respectively, during such period. Since the
Lookback Date, there has not been (i) any material adverse
change in the business relationship of the Company with any
Material Customer or Material Vendor or (ii) any change in
any material term of the arrangements with any such Material
Customer or Material Vendor. Since the Lookback Date, no
member of the Company Group has received any customer
complaint concerning its products and services, other than
complaints in the Ordinary Course of Business that,
individually or in the aggerate, are not material. No member
of the Company Group has received any written notification,
or, to the Knowledge of the Company, oral notice, that any of
the Material Customers or Material Vendors has, or, to the
Company’s Knowledge, has threatened to cease doing business
with the Company Group or has adversely changed or has
threatened to adversely change, in any material respect, the
pricing or other terms of its business with the Company
Group. 216
Based on the language emphasized above, Sellers argue that Buyers’ claims
“concern neither the identities of SwervePay’s customers, nor that SwervePay hid any
change in the material terms of the arrangements between SwervePay and its customers,
nor hid the loss (or even the threatened loss) of any material customer.” 217 Instead, since
Buyers’ claims only concern declining revenue from certain customers. They further argue
that the Buyer Complaint contains only conclusory allegations regarding the purported
deterioration of business relationships. They finally contend that “[e]ven assuming that a
mere decline in revenue could somehow constitute a breach of Section 3.22,” the facts in
216
Purchase Agreement § 3.22 (underline emphasis in original; italics emphasis added).
217
Sellers’ Opening Br. at 5 (emphasis omitted).
61
Buyers’ own complaint refute the contention that there was a material decline in revenue,
showing instead mere “fluctuations of revenue growth and decline.” 218
These arguments ignore the procedural posture. Materiality is a factual rife issue.
A material loss of revenue supports an inference of a “material adverse change” in a
customer relationship. 219 Although the allegations concerning the circumstances
surrounding the alleged “rupture in the relationship between SwervePay and [a top
customer]” could be more developed, Buyers adequately allege that it occurred. 220 And
although declining revenue standing alone may not support the contractual claim at issue,
it would be unwise at this stage to require a tremendous amount of additional granularity
concerning duration and other supporting factors. 221
Accordingly, the Buyers’ motion to dismiss Count II is denied. Count II states a
claim (albeit just barely).
218
Sellers’ Opening Br. at 5.
Buyers’ Answering Br. at 58 (“Indeed, revenue losses are the quintessential measure of
219
whether there has been a ‘material adverse change’ with a customer.”).
220
Buyer Compl. ¶ 157; see also Buyers’ Answering Br. at 59 (“To survive Sellers’ motion,
Buyers need only plead a reasonably conceivable set of circumstances susceptible of proof,
with the benefit of all reasonable inferences. The Complaint satisfies this threshold by
alleging that two of SwervePay’s ten largest customers suffered material revenue losses
during the Lookback Period, and that another terminated its relationship with SwervePay
shortly after Closing.”).
221
Buyers’ Answering Br. at 60 (internal quotation marks omitted). I also acknowledge
Buyers’ secondary arguments—that materiality is a question of fact ill-suited for resolution
at the pleading stage and that the MIPCA contains a “materiality scrape.” Neither sway
the decision herein. The Court need not dive into a factual “materiality” analysis; the terms
of the Purchase Agreement and the face of the Buyer Complaint illustrate the fatal flaws in
the contract claim. And the materiality scrape is immaterial here, as, again, the court’s
analysis does not hinge on a “materiality” analysis. See Purchase Agreement § 6.08(e).
62
C. Sellers’ Motion To Dismiss The Buyer Complaint Conclusion
In conclusion as to the Buyer Complaint, Sellers’ motion to dismiss Count I of the
Buyer Complaint is denied except as to (i) the PointClickCare allegations, (ii) the key
product technologies and features allegations, and (iii) the “additional features” allegations
concerning customer-facing payment interfaces, standalone payments, card-on-file
management, and merchant account provisioning. Sellers’ motion to dismiss Count II is
denied.
V. CONCLUSION
In summary, the respective motions to dismiss the Seller and Buyer Complaints are
granted except as to Buyer’s motion to dismiss the Fraud Claims in Counts I and IV through
VIII against New Mountain in the Seller Complaint and the Sellers’ motion to dismiss
Count II and the (i) the PointClickCare allegations, (ii) the key product technologies and
features allegations, and (ii) the “additional features” allegations concerning customer-
facing payment interfaces, standalone payments, card-on-file management, and merchant
account provisioning in Count I of the Buyer Complaint.
63