Mark Jacobs v. Mohsin Y. Meghji

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MARK JACOBS, Individually And On
)
Behalf Of All Others Similarly Situated,
)
)
Plaintiff, )
)
v. ) C.A. No. 2019-1022-MTZ
)
MOHSIN Y. MEGHJI, JOHN PAUL )
ROEHM, DEREK GLANVILL, PETER )
JONNA, CHARLES GARNER, )
TERENCE MONTGOMERY, IAN )
SCHAPIRO, JOHN EBER, OAKTREE )
POWER OPPORTUNITIES FUND III )
DELAWARE, L.P., and ARES )
MANAGEMENT CORPORATION )
)
Defendants, )
)
and )
)
INFRASTRUCTURE & ENERGY )
ALTERNATIVES INC., )
)
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: July 22, 2020
Date Decided: October 8, 2020
Stephen E. Jenkins and Richard D. Heins, ASHBY & GEDDES, Wilmington,
Delaware; Donald J. Enright, Elizabeth K. Tripodi, and Jordan A. Cafritz, LEVI &
KORSINSKY, LLP, Washington, D.C., Attorneys for Plaintiff.
T. Brad Davey, J. Matthew Belger, and Nicholas D. Mozal, POTTER ANDERSON
& CORROON LLP, Wilmington, Delaware, Attorneys for Defendant Ares
Management Corporation.
S. Michael Sirkin, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware;
Yosef J. Riemer, P.C. and Jeffrey R. Goldfine, KIRKLAND & ELLIS LLP, New
York, New York, Attorneys for Defendants Terence Montgomery and John Paul
Roehm.
Daniel A. Mason and Brendan W. Sullivan, PAUL, WEISS, RIFKIND, WHARTON
& GARRISON LLP, Wilmington, Delaware; Andrew J. Ehrlich, Gregory Laufer,
and Anika Rappleye, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP,
New York, New York, Attorneys for Defendants Derek Glanvill, Peter Jonna, Ian
Schapiro, and Oaktree Power Opportunities Fund III Delaware, L.P.
Lisa A. Schmidt and Alexander M. Krischik, RICHARDS, LAYTON & FINGER,
P.A., Wilmington, Delaware, Attorneys for Nominal Defendant Infrastructure &
Energy Alternatives Inc.
ZURN, Vice Chancellor.
A stockholder challenges a transaction in which another minority stockholder
partnered with the company’s controlling stockholder to infuse the company with
much-needed capital. The plaintiff primarily takes issue with the actions of the
company’s fiduciaries, but also claims the minority stockholder aided and abetted
the fiduciaries’ breaches and was unjustly enriched. In pursuit of this theory, the
plaintiff looks to the structure of the transaction itself—a side-by-side investment
with the company’s known controller—to support the inference that the minority
stockholder knowingly participated in the fiduciaries’ breaches.
The plaintiff’s conclusory allegations of knowledge are insufficient to support
his claims. To hold a defendant liable for aiding and abetting a fiduciary’s
wrongdoing, the plaintiff must satisfy a stringent scienter requirement: the
defendant must know wrongdoing is afoot and exploit it. Absent specific facts
supporting an inference of knowing participation in a breach, allegations that an
investor merely participated alongside a known controller are insufficient to subject
the investor to liability.
In the same vein, such benign participation cannot support the plaintiff’s
unjust enrichment claim. The linchpin of an unjust enrichment claim is an absence
of justification for the defendant’s enrichment. Where an investor is only alleged to
have participated in a transaction without any knowledge of wrongdoing, its
bargained-for benefit is justified, barring circumstances that would render the benefit
1
unconscionable. Accordingly, the plaintiff’s claims against the minority stockholder
are dismissed with prejudice.
I. BACKGROUND
On December 20, 2019, Plaintiff Mark Jacobs filed a Verified Stockholder
Derivative and Class Action Complaint (the “Complaint”) in the above-captioned
action against Oaktree Power Opportunities Fund III Delaware, L.P. (“Oaktree”);
Mohsin Meghji, John Paul Roehm, Derek Glanvill, Peter Jonna, Charles Garner,
Terence Montgomery, John Eber, and Ian Schapiro, as directors of nominal
defendant Infrastructure & Energy Alternatives Inc. (“IEA” or the “Company”); and
Ares Management Corporation (“Ares”).1 Upon consideration of Ares’ March 6,
2020, motion to dismiss (the “Motion”),2 I accept the Complaint’s well-pled
allegations as true, draw all reasonable inferences in Plaintiff’s favor, and from those
allegations and inferences, discern the following pertinent facts regarding Ares’
involvement in the transaction at issue.3
IEA is a publicly held infrastructure construction company with specialized
energy and heavy-civil expertise, facilitating wind and solar energy projects across
1
Docket Item (“D.I.”) 1 [hereinafter “Compl.”]. Plaintiff stipulated to the dismissal of
Meghji, Garner, and Eber. See D.I. 52. I refer to the remaining human defendants, namely
Roehm, Glanvill, Jonna, Montgomery, and Schapiro, as the “Individual Defendants.”
2
D.I. 27.
3
See Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251 (Del. 2019).
2
North America. Plaintiff is an IEA minority stockholder. Oaktree is IEA’s largest
and controlling stockholder, at all relevant times owning between 46.3% and 67%
of IEA’s common stock and appointing three out of IEA’s eight board members.
Ares, a publicly traded asset manager, beneficially owns 6.4% of IEA’s outstanding
common stock. Non-party Hudson Bay Capital (“Hudson Bay”) is an asset
management firm.
Plaintiff’s claims center on the competing proposals from Hudson Bay and
Ares to provide IEA with capital. In early 2019, due to delayed progress in six of
its wind projects, IEA faced a severe liquidity crisis and announced it needed
additional capital. The IEA board began exploring financing sources, and on March
29, 2019, the board retained Guggenheim Partners, LLC (“Guggenheim”).
Over the following month Guggenheim “contacted, and negotiated with, 83
potential parties,” leading to IEA receiving “three term sheets for an equity
investment.”4 The offers from Ares and Hudson Bay both contemplated that Oaktree
would participate in the transaction, to differing degrees. IEA’s board began
negotiations with both bidders.
On April 25, IEA signed a non-binding term sheet with Hudson Bay, which
proposed an equity financing transaction with both Hudson Bay and Oaktree. IEA
continued to explore alternative financing sources, and formed a special committee
4
Compl. ¶ 82. The third term sheet was later withdrawn.
3
on May 2, consisting of four IEA board members: Eber, Garner, Meghji, and
Montgomery (the “Special Committee”).5 The Special Committee was formed after
the board had begun negotiating with Hudson Bay and Ares; after the board “knew
that either proposal would require substantial participation by Oaktree;” and after
“Oaktree was already involved with the proposed transaction.”6 Over the weekend
of May 4, Ares “negotiated the preliminary terms of a potential term sheet.”7
The Special Committee met several times in May to discuss the competing
proposals from Ares and Hudson Bay. Plaintiff alleges that the Special Committee
was not independent and was created “out of a need to paper over the blatant
conflicts that existed with Oaktree’s involvement,”8 and that “the role of the Special
Committee was little more than a smoke screen for a conflicted sale process.”9 In
support, Plaintiff points to the Special Committee’s May 6 minutes, which disclosed
that “proposed participation by Oaktree had influenced the Company’s Board of
Directors to establish the Committee” and that the board “discussed the potential
5
Montgomery’s presence on the Special Committee serves as Plaintiff’s basis for the
allegation that the Special Committee was conflicted. See, e.g., id. ¶¶ 10, 89.
6
Id. ¶ 83.
7
Id. ¶ 82.
8
Id. ¶ 86.
9
Id. ¶ 87.
4
participation of funds affiliated with Oaktree with respect to both transactions.”10
Plaintiff also points to a subsequent email from Garner, which read in pertinent part:
The role of the Special Committee is to oversee the transaction process
and, in view of Oaktree’s potential conflict of interest, to ensure that
the negotiations with Hudson Bay and Ares are truly conducted on an
arm’s-length basis - so that the outcome is fair to, all shareholders and
does not favor Oaktree. In keeping with this: . . .
3. Under no circumstances should Oaktree have calls or meetings with
Ares or Hudson Bay without the Special Committee (either in full or
through me) being invited to participate and, if we elect to participate,
being present. Similarly, I should be in attendance at all calls/meetings
between Oaktree (on the one hand) and the IEA management team
and/or advisors (on the other hand) that relate to the substance of the
transactions. Although this does NOT mean that Guggenheim,
Kirkland or, anyone else is prohibited from speaking with Oaktree, the
Special Committee (either in full or through me) should be copied on
all correspondence and included in all calls that involve negotiation of
deal terms or other areas where Oaktree’s potential conflict could affect
the deal terms.11
Plaintiff alleges that the “conflicted Special Committee steer[ed] the process
toward Ares.”12 On May 7, the Special Committee revealed that
Hudson Bay had been further along in the process than Ares, but that
Ares had been moving very quickly, had significantly improved the
terms of its proposal as a result of negotiations, was offering more
conventional preferred stock terms than Hudson Bay, and appeared to
be interested in and able to offer a larger investment than Hudson Bay
(which required significant participation from co-investors).13
10
Id. ¶ 86.
11
Id. ¶ 87.
12
Id. at 50.
13
Id. ¶ 91.
5
And on May 9, the Special Committee was updated on negotiations with Ares,
including
the proposed timing of final documents and closing; Ares’ positive
perspective regarding the proposed lender arrangements; its request for
access to the lenders, based in part on the analysis from Paul Weiss
(counsel to Ares) regarding the Company’s potential exposure to the
lenders; the status of Ares’ due diligence; the proposed size of Ares’
investment; the warrants to be issued in the transaction and the
requirement that Oaktree invest $20 million.14
The Special Committee also learned “that Ares had requested Oaktree’s participation
to reduce Ares’ initial commitment, which would allow Ares to move more quickly
and to agree to terms more favorable to the Company,” and “that Guggenheim had
proposed that Ares invest $50 million and Oaktree $20 million but Ares had rejected
that proposal and requested that Ares invest $30 million and Oaktree $20 million.”15
At the same time, the Special Committee was aware that
Hudson Bay and the other parties had indicated that they could invest
from $28 to $40 million, which would require Oaktree to invest $10 to
$22 million. The Committee asked questions regarding Oaktree’s
ability and willingness to invest up to $22 million to ensure that the
Company could raise at least $50 million. Mr. Ortner believed that the
other investors ultimately would be willing to invest $30 million to keep
Oaktree’s participation at no more than $20 million.16
14
Id. ¶ 92.
15
Id.
16
Id. ¶ 93. The Complaint does not identify Mr. Ortner.
6
Both proposals contemplated a $50 million investment, but the Ares proposal
“ensured that Oaktree would be guaranteed a significant role in the proposed
investment,”17 and “[e]ven more attractive to Oaktree was the significant windfall it
stood to receive should the Board elect to pursue a transaction with ARES as
opposed to Hudson Bay.”18 Guggenheim’s analysis reflected that the Hudson Bay
proposal would have transferred $60 million in equity value to Hudson Bay and
Oaktree, as compared to the Ares proposal which would transfer approximately $134
million.
On May 13, the Special Committee met twice to discuss certain requests from
Ares and the best method of proceeding with negotiation. At the first meeting, the
Special Committee concluded “the most effective negotiating strategy for securing
the best terms from ARES would be to request fellow Board member Ian Schapiro
to reach out to one of the principals at ARES, with whom Mr. Schapiro had
previously worked, and emphasize the concern of the committee over certain
terms.”19 Schapiro also “had a long-standing and lucrative professional relationship
with Oaktree and its affiliated companies.”20
At the second meeting,
17
Id. ¶ 94.
18
Id. ¶ 95.
19
Id. ¶ 96.
20
Id. ¶ 8.
7
 [d]iscussion ensued concerning the process, including the extensive
market check for equity and debt investors, the Company’s need for
financing, the competing offers from Ares and Hudson Bay . . . , and
the participation by Oaktree in each such transaction required by Ares
and Hudson Bay. Guggenheim advised that the terms of the Ares
proposal were superior to the terms offered by Hudson Bay. Following
further discussion, the Committee determined that the Ares proposal
was in the best interests of the Company and its stockholders (other
than Oaktree) and determined to recommend approval of the
transaction to the Board of Directors. The Committee unanimously
adopted the resolutions that had been circulated to the Committee in
advance of the meeting.21
On May 14, the Special Committee executed a written consent approving the Ares
deal; it was dated May 13.
The Ares transaction contemplated the amendment and early conversion of
the Company’s Series A Preferred Stock, as well as the creation and issuance of
Series B Preferred Stock and warrants. Oaktree and Ares agreed to purchase $50
million of newly created Series B Preferred Stock from the Company, in addition to
receiving initial warrants with an exercise price of $.01 per share for the purchase of
up to 2,545,934 million shares of the Company’s common stock, with the
opportunity to obtain warrants for up to an additional 6% of the Company’s fully
diluted common stock outstanding in the event that the Company failed to meet
certain performance targets. The Series A conversion, Series B issuance, and
21
Id. ¶ 97.
8
warrants issuance would culminate in a cash payout for Oaktree and Ares over five
years.
Stockholders were not informed of the negotiation process. After announcing
its need for additional capital, IEA did not further inform stockholders of its plan to
secure that capital until May 16, when, in the process of announcing its financial
results for the quarter ended March 31, the Company announced that IEA secured a
$50 million equity commitment agreement with Ares and Oaktree.
On May 20, to facilitate the Ares transaction, the Company issued warrants to
Ares and Oaktree in a private placement. The board and the holders of a majority of
the Company’s outstanding Series A Preferred Stock also amended the terms of that
stock to permit its early conversion to common stock. The documents amending the
terms of the Series A Preferred Stock also permitted the issuance of Series B
Preferred Stock, among other things. On May 22, IEA issued a press release dated
May 20 stating that it agreed to and completed a transaction with Ares. Shortly
thereafter, Oaktree filed a Schedule 13D with the SEC, revealing that it had increased
its ownership to 48.7% as a result of the May 20 private placement.
Completion of the Ares transaction required stockholder approval of the
Series A conversion and warrants issuance. Accordingly, on June 27, IEA filed a
proxy statement with the SEC, soliciting stockholder support. Plaintiff contends that
the proxy statement did not disclose material information regarding the propriety of
9
the transaction, the Hudson Bay proposal, and “the process and/or negotiations
between IEA and Oaktree concerning the agreements.”22
On August 14, 14,602,634 shares, representing 65.6% of IEA’s issued and
outstanding common stock, voted on the Series A conversion and warrants issuance;
the majority of voting shares approved.23 The transaction was not conditioned on or
approved by a majority of the minority vote. Stockholders were unaware of
competing offers, and so did not know the terms of Hudson Bay’s offer which,
according to Plaintiff, threatened less dilution for IEA stockholders and was less
expensive than the Ares deal. On August 16, Oaktree filed a new Schedule 13D
disclosing that, as a result of the stockholder vote, it controlled 67% of IEA on a
fully diluted basis.
Plaintiff challenges the Ares transaction as being “extraordinarily sweet” for
Oaktree and Ares, to the detriment of the Company and IEA’s minority stockholders,
and as failing to provide sufficient information to IEA stockholders. Plaintiff alleges
that because the Ares deal “provided an outsized benefit to ARES and Oaktree,”24
who stood to receive roughly $134 million in cash after five years, the reasonable
inference is that “instead of allowing IEA to enter a transaction with Hudson Bay,
22
Id. ¶¶ 80, 101.
23
Of the shares that voted, 13,744,934 approved the warrants issuance, and 13,993,099
approved the Series A conversion.
24
Compl. ¶ 110.
10
Oaktree used its control over the Company, aided and abetted by ARES, to cause
IEA to enter the extremely high-priced ARES and Oaktree Transaction.”25
Plaintiff brought direct and derivative breach of fiduciary duty claims against
the Individual Defendants, challenging the board’s decisions (a) to pursue the
“grossly unfair and severely dilutive” Ares transaction and to reject the allegedly
“superior proposal” form Hudson Bay;26 (b) to appoint a Special Committee late in
the negotiation process after Oaktree’s involvement was known, which Plaintiff in
turn challenges as not being fully disinterested, independent, and empowered; and
(c) to “[a]llow[] interested directors to taint negotiations.”27 Plaintiff also directly
and derivatively claims Oaktree, as IEA’s alleged controller, breached its duties to
IEA’s minority stockholders by acting in its own interest to the detriment of the
minority.
In Counts VI and VII, Plaintiff asserts direct and derivative claims that Ares
aided and abetted the Individual Defendants’ breaches of fiduciary duty; those
Counts do not allege that Ares aided and abetted Oaktree’s breaches.28 In Count V,
25
Id. ¶ 14.
26
Id. ¶¶ 148(g), 154(h).
27
Id. ¶ 148(f).
28
See id. ¶¶ 176–82.
11
Plaintiff asserts a claim for unjust enrichment against Ares and Oaktree,29 claiming
that “Ares [] shared in the wrongful benefits” Oaktree retained from its misconduct.30
On March 6, 2020, Jonna, Schapiro, Glanvill, Montgomery, Rohem, and
Oaktree answered the Complaint.31 That same day, Ares filed this Motion, seeking
dismissal of Plaintiff’s aiding and abetting and unjust enrichment claims. 32 The
Motion was briefed,33 and the parties presented argument on July 22.34 For the
following reasons, the Motion is granted.
II. ANALYSIS
This opinion addresses Ares’ Motion pursuant to Court of Chancery Rule
12(b)(6). “The standard for dismissal pursuant to Rule 12(b)(6) for failure to state a
claim upon which relief can be granted is well established.”35 The Court accepts all
well-pled allegations as true and draws all reasonable inferences in favor of the non-
movant.36 However, the Court “need not accept conclusory allegations as true, nor
29
See id. ¶¶ 171–75.
30
Id. ¶ 175.
31
See D.I. 29, 34.
32
D.I. 27.
33
D.I. 27, 55, 58.
34
D.I. 69, 70.
35
Feldman v. Cutaia, 2006 WL 920420, at *7 (Del. Ch. Apr. 5, 2006).
36
Sheldon, 220 A.3d at 251.
12
should inferences be drawn unless they are truly reasonable.”37 A motion to dismiss
will be granted only if “it appears with reasonable certainty that the plaintiff could
not prevail on any set of facts that can be inferred from the pleading,”38 and “failure
to plead an element of a claim warrants dismissal under Rule 12(b)(6).”39
A. Plaintiff Has Failed To Allege That Ares Knowingly
Participated In Any Fiduciary Breach.
Plaintiff claims that Ares aided and abetted the Individual Defendants’
breaches of fiduciary duty, stating Ares
knowingly and affirmatively participated with the Individual
Defendants in a course of conduct that was intended to, and did, aid and
abet their Breaches of Fiduciary Duties to IEA’s stockholders.
Defendants knew that their aiding and abetting of the actions of the
Individual Defendants in approving the Transactions would cause
substantial injury to IEA’s stockholders, and such harm was a direct
and foreseeable result of Defendants’ actions.40
In pursuit of this theory, Plaintiff suggests that Ares negotiated with the board
before the Special Committee was formed. Plaintiff also alleges that “taken together,
ARES and Oaktree’s control of IEA stock prior to the share issuance was in excess
37
Id.
38
Feldman, 2006 WL 920420, at *7.
39
Miramar Police Officers’ Ret. Plan v. Murdoch, 2015 WL 1593745, at *7 (Del. Ch.
Apr. 7, 2015).
40
Compl. ¶ 177; accord id. ¶ 180 (“ARES knowingly and affirmatively participated with
the Directors in a course of conduct that was intended to, and did, aid and abet their
Breaches of Fiduciary Duties to IEA and the stockholders. Defendants knew that their aiding
and abetting of the Directors’ breaches of fiduciary duties would cause substantial injury to
IEA, and such harm was a direct and foreseeable result of Defendants’ actions.”).
13
of 50%.”41 Plaintiff also contends that Schapiro, who the Special Committee sent to
negotiate with Ares on May 13, was an “Oaktree affiliated director”42 who also “had
longstanding and well-known connections with ARES. Accordingly, with absolute
majority ownership through the combined power of Oaktree and ARES stock
ownership, as well as a significant presence on the IEA Board, it is little wonder that
the Transactions were directed towards ARES and Oaktree.”43
Plaintiff also relies on the terms of the transaction, alleging
ARES knew that the Transactions’ terms were unfairly skewed in its
favor as a result of Oaktree’s influence, but was incented to go forward
because it was benefitting from those same terms. As a financially
sophisticated entity, ARES knew at all relevant times that the terms of
the Transactions were not commercially typical, but rather involved
unfairly high dividend yield rates (in connection with the Series B
Preferred Stock) and unfairly valuable benefits to ARES and Oaktree
in return for unfairly low consideration. Because ARES received
essentially identical treatment to that accorded Oaktree in the
Transactions, it proceeded with the Transactions and reaped the
benefits of the breaches of fiduciary duty and other wrongs complained
of herein.44
Plaintiff goes on:
41
Id. ¶ 61.
42
Id. ¶ 38.
43
Id. ¶ 61.
44
Id. ¶ 132.
14
 The issuance of the Warrants, which entitles Oaktree and ARES to IEA
common stock at a bargain price, and the Series A Conversion, which
entitles Oaktree to the transference of Series A Preferred Stock into IEA
common stock at a bargain price, not only transferred tens of millions
of dollars of value to Defendants, it also effectively transferred clear
majority control of the Company to Oaktree.45
This Court has articulated the pleading standard for a claim of aiding and
abetting breach of fiduciary duty:
To plead a claim for aiding and abetting breach of fiduciary duty, a
plaintiff must allege (i) the existence of a fiduciary relationship, (ii) a
breach of the fiduciary’s duty, (iii) knowing participation in that breach
by the defendants, and (iv) damages proximately caused by the breach.
An adequate pleading of “knowing participation” requires a pleading
of scienter.46
Ares contends Plaintiff has failed to plead knowing participation. That scienter
requirement imposes a “stringent” standard.47 “[T]he plaintiff must demonstrate that
45
Id. ¶ 133.
46
RCS Cred. Tr. v. Schorsch, 2018 WL 1640169, at *5 (Del. Ch. Apr. 5, 2018) (internal
quotation marks omitted) (quoting RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 861
(Del. 2015), and then quoting Cumming v. Edens, 2018 WL 992877, at *26 (Del. Ch.
Feb. 20, 2018)). Typically, “the question of whether a defendant acted with scienter is a
factual determination.” RBC Capital Mkts., LLC, 129 A.3d at 862. However, the Court
will grant a motion to dismiss an aiding and abetting claim where “there is no indication in
the [] complaint that [the defendant] participated in the board’s decisions, conspired with
[sic] board, or otherwise caused the board to make the decisions at issue,” and therefore
the allegations in the complaint do not support an inference that the defendant knowingly
participated in a fiduciary breach. Malpiede v. Townson, 780 A.2d 1075, 1098 (Del. 2001).
47
In re MeadWestvaco S’holders Litig., 168 A.3d 675, 688 (Del. Ch. 2017) (quoting Lee
v. Pincus, 2014 WL 6066108, at *13 (Del. Ch. Nov. 14, 2014)).
15
the aider and abettor had actual or constructive knowledge that their conduct was
legally improper.”48
The Delaware Supreme Court has stated that “[k]nowing participation in a
board’s fiduciary breach requires that the third party act with the knowledge that the
conduct advocated or assisted constitutes such a breach.”49 Where the complaint
does not plainly allege the third party “conspired with the directors to breach a
fiduciary duty, a court can infer a non-fiduciary’s knowing participation only if a
fiduciary breaches its duty in an inherently wrongful manner, and the plaintiff
alleges specific facts from which that court could reasonably infer knowledge of the
breach.”50 But “[c]onclusory statements that are devoid of factual details to support
48
RCS Cred. Tr., 2018 WL 1640169, at *5 (internal quotation marks omitted) (quoting
RBC Capital Mkts., LLC, 129 A.3d at 862).
49
RBC Capital Mkts., LLC, 129 A.3d at 861–62 (quoting Malpiede, 780 A.2d at 1097); see
also In re Telecomms., Inc. S’holders Litig., 2003 WL 21543427, at *2 (Del. Ch.
July 7, 2003) (“[I]t is necessary that the plaintiffs make factual allegations from which
knowing participation may be inferred in order to survive a motion to dismiss. For
example, knowing participation may be inferred where the terms of the transaction are so
egregious or the magnitude of side deals is so excessive as to be inherently wrongful. In
addition, the Court may infer knowing participation if it appears that the defendant may
have used knowledge of the breach to gain a bargaining advantage in the negotiations. The
plaintiff’s burden of pleading knowing participation may also be met through direct factual
allegations supporting a theory that the defendant sought to induce the breach of fiduciary
duty, such as through the offer of side payments intended as incentives for the fiduciaries
to ignore their duties.” (footnotes omitted)).
50
McGowan v. Ferro, 2002 WL 77712, at *2 (Del. Ch. Jan. 11, 2002) (emphasis in
original) (internal quotation marks omitted) (quoting Jackson Nat’l Life Ins. Co. v.
Kennedy, 741 A.2d 377, 392 (Del. Ch. 1999)).
16
an allegation of knowing participation will fall short of the pleading requirement
needed to survive a Rule 12(b)(6) motion to dismiss.”51
Because a bidder has “the right to work in its own interests to maximize its
value,” the plaintiff faces a high burden when pleading an aiding and abetting claim
against a transactional counterparty.52 As Vice Chancellor Glasscock recently noted,
“[i]n evaluating a typical aiding and abetting claim, the legal analysis is simple
enough: Has the predicate tort occurred? If yes, has the third party, with the
requisite scienter, aided in the commission of the tort?”53 However, “[a] twist occurs
where the litigation is an attempt by former stockholders to hold a third party liable
for self-serving actions that enabled an unfair merger process.”54 This Court adheres
to “the long-standing rule that arm’s-length bargaining is privileged and does not,
absent actual collusion and facilitation of fiduciary wrongdoing, constitute aiding
and abetting.”55
A bidder is “under no duty or obligation to negotiate terms that benefited [the
target] or otherwise to facilitate a superior transaction for [the target].”56
51
Id. (internal quotation marks omitted) (quoting Jackson Nat’l Life Ins. Co., 741 A.2d at
392).
52
Morrison v. Berry, 2020 WL 2843514, at *11 (Del. Ch. June 1, 2020).
53
Id. at *8.
54
Id.
55
Morgan v. Cash, 2010 WL 2803746, at *1 (Del. Ch. July 16, 2010).
56
In re Rouse Props., Inc., 2018 WL 1226015, at *25 (Del. Ch. Mar. 9, 2018).
17
Accordingly, “a bidder’s attempts to reduce the sale price through arm’s-length
negotiations cannot give rise to liability for aiding and abetting.”57 “To allow a
plaintiff to state an aiding and abetting claim against a bidder simply by making a
cursory allegation that the bidder got too good a deal is fundamentally inconsistent
with the market principles with which our corporate law is designed to operate in
tandem.”58
“[A]lthough an offeror may attempt to obtain the lowest possible price for
stock through arm’s-length negotiations with the target’s board, it may not
knowingly participate in the target board’s breach of fiduciary duty by extracting
terms which require the opposite party to prefer its interests at the expense of its
shareholders.”59 As an example, “a bidder may be liable to the target’s stockholders
if the bidder attempts to create or exploit conflicts of interest in the board,” 60 or
“where the bidder and the board conspire in or agree to the fiduciary breach.” 61 “If
the third party knows that the board is breaching its duty of care and participates in
57
Malpiede, 780 A.2d at 1097.
58
Morgan, 2010 WL 2803746, at *8.
59
Gilbert v. El Paso Co., 490 A.2d 1050, 1058 (Del. Ch. 1984), aff’d, 575 A.2d 1131 (Del.
1990); see also In re Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *18 (Del. Ch.
Dec. 30, 2019).
60
Malpiede, 780 A.2d at 1097.
61
Id. at 1097–98.
18
the breach by misleading the board or creating the informational vacuum, then the
third party can be liable for aiding and abetting.”62
For purposes of today’s analysis, I assume that Plaintiff has adequately pled
an underlying breach of fiduciary duty and has therefore satisfied the breach element
of an aiding and abetting claim.63 Ares argues that Plaintiff has failed to plead facts
from which I may reasonably infer that Ares had actual or constructive knowledge
of the Individual Defendants’ breaches. I agree.
1. Plaintiff Has Not Established Actual Knowledge
Of The Individual Defendants’ Breaches.
Counts VI and VII seek to hold Ares liable for aiding and abetting the
Individual Defendants’ wrongdoing. I first consider whether Plaintiff has alleged
Ares had actual knowledge of the Individual Defendants’ breaches.64 Plaintiff bears
the stringent burden of alleging “specific facts from which [the] court could
reasonably infer knowledge” of the specified breach.65 The Complaint’s silence is
deafening: Plaintiff does not plead Ares had any knowledge about IEA’s process,
the Special Committee’s creation or role, Hudson Bay’s proposal, or the Individual
62
RBC Capital Mkts., LLC, 129 A.3d at 862 (alteration omitted) (quoting In re Rural Metro
Corp. S’holders Litig., 88 A.3d 54, 97 (Del. Ch. 2014)).
63
Indeed, the remaining Individual Defendants and Oaktree have not moved to dismiss the
fiduciary duty claims against them, but instead answered the Complaint. See D.I. 29, 34.
64
See RCS Cred. Tr., 2018 WL 1640169, at *5.
65
McGowan, 2002 WL 77712, at *2 (emphasis omitted) (quoting Jackson Nat’l Life Ins.
Co., 741 A.2d at 392).
19
Defendants’ compliance with their fiduciary duties. The Complaint fails to allege
Ares was aware of, much less involved in, any flaws in decision making by the
board, Special Committee, or Guggenheim.
The Complaint suggests that the board negotiated with Ares before the Special
Committee was formed. But Plaintiff does not allege anything about those
discussions that supports an inference that Ares knew about or participated in any
breach of fiduciary duty.66 “The Complaint lacks any reference to non-conclusory
communications between [Ares] and the [IEA board] that would support an
inference of concerted activity.”67 Plaintiff does not allege that Ares was involved
in the decision to create the Special Committee, the timing of its creation, or its
composition.
And once the Special Committee was formed, Plaintiff does not allege any
facts from which the Court may infer that Ares had any knowledge of flaws in, or
control or influence over, the Special Committee’s negotiations. The Complaint
alleges only that Ares negotiated with the Special Committee for its own benefit.
Plaintiff does not allege facts from which the Court may infer that Ares’ dealings
66
See Se. Pa. Transp. Auth. v. Volgenau, 2013 WL 4009193, at *27 (Del. Ch. Aug. 5, 2013)
(rejecting an aiding and abetting claim where “[t]here [was] no evidence in the record that
[the bidder] and [the target], during their initial meetings, hatched a plan for [the bidder] to
‘opportunistically’ acquire [the target] at a bargain price”), aff’d, 91 A.3d 562 (Del. 2014).
67
In re Essendant, Inc., 2019 WL 7290944, at *17.
20
with the Special Committee “amounted to anything other than arm’s-length
negotiations.”68
Accordingly, the Complaint is devoid of any allegations that Ares knew the
Individual Defendants were breaching their fiduciary duties and exploited or
participated in such breaches to facilitate the transaction to the detriment of Ares’
fellow minority stockholders.
2. Plaintiff Has Not Established Ares Knew Of
Oaktree’s Wrongdoing, Nor Had Constructive
Knowledge Of The Individual Defendants’
Breaches.
In the absence of pleading any direct knowledge of the Individual Defendants’
flawed process or decision making, Plaintiff attempts to meet his burden by linking
Ares to Oaktree. Counts VI and VII do not allege that Ares aided and abetted any
68
See In re AmTrust Fin. Servs., Inc. S’holder Litig., 2020 WL 914563, at *15 (Del. Ch.
Feb. 26, 2020). Plaintiff relies on the Special Committee’s selection of Schapiro as
negotiator not to show actual knowledge of the Individual Defendants’ breaches, but to
show constructive knowledge via Oaktree’s breaches. D.I. 55 at 27. I therefore consider
that allegation in Section II(A)(2), infra.
To the extent Plaintiff asks the Court to infer that Ares knew the Special Committee
was breaching its fiduciary duties by utilizing Schapiro’s connection to Ares to further
Oaktree’s aims, the Complaint fails to allege facts sufficient to support this inference and
renders it conclusory. See In re AmTrust Fin. Servs., Inc., 2020 WL 914563, at *15
(rejecting as insufficient to support a reasonable inference of knowing participation the
plaintiff’s claim that “it was widely known that the chairperson of the Special Committee
. . . was a longtime friend, lawyer, business associate and ally of” the controller, who also
served on the board of another controller-affiliated company (emphasis in original)
(alteration and internal quotation marks omitted)).
21
breach by Oaktree.69 Plaintiff asserts Ares had constructive knowledge of the
Individual Defendants’ breaches because it purportedly had actual or constructive
knowledge of Oaktree’s wrongdoing.70 Plaintiff theorizes that Oaktree’s domination
was so complete that Ares must have known the process was rigged to “facilitate[]
Oaktree’s ability to dictate the terms of the transaction in its favor,”71 leading to
“constructive knowledge” of the Individual Defendants’ breaches.72
69
See Compl. ¶ 177 (“ARES knowingly and affirmatively participated with the Individual
Defendants in a course of conduct that was intended to, and did, aid and abet their Breaches
of Fiduciary Duties to IEA’s stockholders. Defendants knew that their aiding and abetting
of the actions of the Individual Defendants in approving the Transactions would cause
substantial injury to IEA’s stockholders, and such harm was a direct and foreseeable result
of Defendants’ actions.” (emphasis added)); id. ¶ 180 (“ARES knowingly and affirmatively
participated with the Directors in a course of conduct that was intended to, and did, aid and
abet their Breaches of Fiduciary Duties to IEA and the stockholders. Defendants knew that
their aiding and abetting of the Directors’ breaches of fiduciary duties would cause
substantial injury to IEA, and such harm was a direct and foreseeable result of Defendants’
actions.” (emphasis added)).
70
The parties did not parse Counts VI and VII’s aiding and abetting allegations between
Oaktree’s breaches and the Individual Defendants’ breaches. In one conclusory paragraph,
the Complaint alleges that “Oaktree used its control over the Company, aided and abetted
by ARES, to cause IEA to enter the extremely high-priced ARES and Oaktree
Transaction.” Id. ¶ 14. But Counts VI and VII allege only that Ares aided and abetted the
Individual Defendants’ breaches. See id. ¶¶ 177, 180. In opposing dismissal of those
Counts, Plaintiff relies on Ares’ alleged knowledge of Oaktree’s breaches. See D.I. 55 at
3–4, 27, 28, 29. My analysis focuses on why knowledge about Oaktree and its involvement
in the process falls short of establishing constructive knowledge of the Individual
Defendants’ breaches. My reasoning also demonstrates why that knowledge falls short of
establishing knowing participation in Oaktree’s breaches.
71
D.I. 55 at 8.
72
See RCS Cred. Tr., 2018 WL 1640169, at *5.
22
Plaintiff fails to allege Ares’ knowledge of Oaktree’s breaches, and fails to
demonstrate that knowledge of Oaktree’s breach could transitively or constructively
support knowledge of the Individual Defendants’ breaches. Plaintiff’s chosen links
between Ares and Oaktree do not demonstrate that Ares know of any Oaktree
wrongdoing, and therefore cannot serve as the basis of constructive knowledge of
the Individual Defendants’ breaches. I take each link in turn.
First, Plaintiff contends the Special Committee’s decision to elect Schapiro to
negotiate with Ares gave Ares actual or constructive knowledge of Oaktree’s
breaches and, therefore, constructive knowledge of the Individual Defendants’
breaches.73 The Special Committee selected Schapiro to negotiate with Ares.
Plaintiff claims Ares should have inferred some nefarious motive from that selection
because of Schapiro’s connection to an Ares principal and because “Schapiro was
not just another board member—he is one of the Oaktree employees most
responsible for Oaktree’s investment in the Company, and so he had a direct conflict
of interest between his duties to Oaktree and his duties to the Company.” 74
73
See D.I. 55 at 27 (“[E]ven if Ares somehow did not already know the fix was in, it
absolutely knew that the Special Committee’s envoy was directly conflicted. Not
surprisingly, the bid went to Ares that very day. . . . It is hard to fathom how, given these
facts, and especially given that it knew that Mr. Schapiro had a direct conflict of interest,
Ares can claim that it did not have even constructive knowledge that Oaktree was deeply
engaged in an obvious self-dealing in breach of its fiduciary duties. Again, Oaktree [sic]
not only asks to be given the benefit of an inference, but an obviously unreasonable
inference.”).
74
Id. at 26.
23
 This Court has declined to infer knowing participation where an otherwise
arm’s-length bidder has recruited or involved persons affiliated with the target or its
controller in the bidding process to increase the likelihood of effectuating a deal.75
Here, the Special Committee, not Ares or Oaktree, selected Schapiro to negotiate
with Ares. Further, Plaintiff does not allege that Ares encouraged communications
through Schapiro, learned of Oaktree’s duplicity through him, learned of flaws in
the transaction process through him, or in any way exploited Schapiro’s alleged
conflict of interest. At bottom, the Complaint alleges no facts from which I may
reasonably infer that Ares used Schapiro’s relationship with one of Ares’ employees,
or Schapiro’s Oaktree affiliation, “to create or exploit conflicts of interest in the
board.”76
Second, Plaintiff takes issue with the fact that Ares participated in the
transaction alongside Oaktree, a known controller, and asks the Court to infer
knowledge of wrongdoing from that vantage point. The Complaint alleges Ares
knew (a) Oaktree held a controlling stake in IEA; (b) Ares would participate
75
See Volgenau, 2013 WL 4009193, at *4, *10, *27 (rejecting an aiding and abetting claim,
even though the defendant utilized relationships with the board in the transaction process).
76
Malpiede, 780 A.2d at 1097; see In re Hansen Med., Inc. S’holders Litig., 2018 WL
3025525, at *12 (Del. Ch. June 18, 2018) (“Plaintiffs offer the conclusory allegation that
Auris exploited its existing relationship with the Controller Defendants, and effectuated a
merger in which Hansen’s Control Group (i.e., the Controller Defendants), or alternatively
Defendant Schuler alone, received a benefit not shared with the minority stockholders, and
which was unfair to minority stockholders. But, Plaintiffs plead no facts to support that
Auris knew of, let alone exploited, any conflicts.” (internal quotation marks omitted)).
24
alongside Oaktree; and (c) both Ares and Oaktree would obtain certain benefits from
the transaction. But the Complaint does not allege Ares had any knowledge that
Oaktree wrongfully orchestrated and infected IEA’s transaction process such that
Ares would know the Individual Defendants were breaching their duties. It does not
allege that Ares exploited Oaktree’s involvement and participated alongside Oaktree
to extract terms that would require IEA to subjugate the interests of its
stockholders.77 Participating alongside a known controller in a beneficial
transaction, without more, does not give rise to aiding and abetting liability.
Plaintiff first asks the Court to infer the requisite scienter from Ares’
knowledge that Oaktree controlled IEA. Mere knowledge that a co-investor was a
fiduciary does not support the reasonable inference of knowledge that the fiduciary
breached its duties. And the Complaint explicitly acknowledges that both Ares and
Hudson Bay, knowing Oaktree’s stake in the Company, required Oaktree’s
participation in the proposed financing. Ares is no different than Hudson Bay in that
regard. Knowledge of Oaktree’s position, without more, cannot give rise to the
reasonable inference that Ares knew Oaktree infected, and the board permitted, a
process in breach of their fiduciary duties.
77
See In re Essendant, Inc., 2019 WL 7290944, at *18; McGowan, 2002 WL 77712, at *2;
Gilbert, 490 A.2d at 1058.
25
Plaintiff next asks the Court to infer Ares’ knowing participation from the
transaction’s structure. Plaintiff alleges that “taken together, ARES and Oaktree’s
control of IEA stock prior to the share issuance was in excess of 50%,” and that their
combined ownership somehow influenced the transaction.78 This mathematical
observation does not support aiding and abetting liability.79 There is no indication
that by agreeing to invest alongside Oaktree, Ares knew Oaktree wrongfully
influenced the transaction and exploited that influence to secure a lucrative deal.
Nor do the allegations give rise to the reasonable inference that by pursuing a side-
78
Compl. ¶ 61.
79
Cf. In re Essendant, Inc., 2019 WL 7290944, at *8–9, *18. To be clear, Plaintiff has not
alleged that Ares, either alone as a minority stockholder or in cooperation with Oaktree,
owed any fiduciary duties to its fellow minority stockholders; Plaintiff seeks to hold Ares
liable only for aiding and abetting, or benefitting from, breaches by actual fiduciaries.
However, I note that Plaintiff’s argument flirts with the idea that Ares was somehow
elevated to a position of control by partnering with Oaktree. Read that way, Plaintiff would
unfairly impute upon Ares—an IEA minority stockholder—a duty to its peers that it does
not owe. See id.; see also Greenfield v. Tele-Commc’ns, Inc., 1989 WL 48738, at *2 (Del.
Ch. May 10, 1989) (“Analysis of whether a claim has been stated against the moving
defendants begins with the recognition that those persons owe no fiduciary duty to the
plaintiff class. They owe to plaintiff only such duties as they assume by contract or those
which every person owes to every other. Thus, in order to state a claim on these facts,
where no breach of contract is alleged, it is necessary for plaintiff to plead facts which
would extend to the moving defendants the fiduciary duty that defendant [controller] bore
to the minority stockholders of [the company]. The attempt to extend such a duty is, of
course, not an unknown situation to the law. It is generally treated by the law of
aiding and abetting . . . or knowing participation in a breach of fiduciary duty.”). Where a
bidder holds a minority stake at the time of the transaction, “with no facts to serve as
anchor, the conclusory allegations of domination and control drift over the falls.” In re
Essendant, Inc., 2019 WL 7290944, at *8. The allegations in the Complaint do not give
rise to a reasonable inference that, by investing alongside Oaktree, Ares controlled or
influenced the transaction process.
26
by-side investment, Ares and IEA’s fiduciaries agreed to or conspired in any breach.
The allegation that Ares combined its equity with Oaktree, without more, does not
support the inference that Ares knew of any wrongdoing by Oaktree or the Individual
Defendants.
Finally, Plaintiff conclusorily alleges that Ares “knew” the transaction was
unfairly structured for Oaktree’s benefit.80 Plaintiff does not allege specific facts
from which the Court may infer this knowledge. And Ares’ purported awareness
that “the terms of the Transactions were not commercially typical”81 does not
support an inference that Ares knew of the allegedly superior Hudson Bay terms and
the Individual Defendants’ breach in rejecting the superior deal.
At a fundamental level, Ares had the right to secure for itself a favorable deal,
even if it Ares knew its offer was inferior.82 “Even if the Complaint alleged (which
it does not expressly) that [Ares] knew its proposal was inferior to [Hudson Bay]’s
and that the [IEA board], nevertheless, was favoring the [Ares] proposal over the
80
Compl. ¶ 132; see also D.I. 55 at 19.
81
Compl. ¶ 132. Plaintiff also asserts in briefing that Ares has “enormous resources” and
a “[h]igh [d]egree of [s]ophistication,” and speculates that therefore Ares would have had
“significant private discussions with Oaktree,” that “those discussions ended up in a
satisfactory place for Ares” and that Oaktree “provided Ares with enough information that
gave it comfort that the Ares/Oaktree bid would be the winning bid.” D.I. 55 at 23–24.
This abstract theory is not supported by any well-pled facts, and I do not rely on it here.
82
See, e.g., In re Essendant, Inc., 2019 WL 7290944, at *18; In re Rouse Props., Inc., 2018
WL 1226015, at *25.
27
[Hudson Bay] proposal, this alone would be inadequate to state an aiding and
abetting claim.”83 The fact that the IEA board preferred Ares’ proposal to Hudson
Bay’s proposal “cannot be laid at [Ares’] feet as supporting an inference that [Ares]
somehow aided and abetted the [IEA] fiduciaries in making that determination.”84
Absent specific factual allegations supporting an inference that Ares was aware of
Oaktree and the Individual Defendants’ alleged breaches, Ares was “under no duty
or obligation to negotiate terms that benefited [IEA] or otherwise to facilitate a
superior transaction for [IEA].”85 Plaintiff has failed to plead specific facts
supporting the inference that Ares knew of any IEA fiduciary’s breaches.
More holistically, Plaintiff does not allege facts that suggest that Oaktree, or
any other defendant, breached fiduciary duties “in such an inherently wrongful
manner that [Ares] could not help but know of the breach and then facilitate it by its
continued engagement with” Oaktree.86 Rather, the Complaint demonstrates that
Ares knew it was engaging with the Special Committee, which determined Ares’
83
In re Essendant, Inc., 2019 WL 7290944, at *18 (citing McGowan, 2002 WL 77712, at
*4).
84
Id.; see Compl. ¶ 97 (noting that “Guggenheim advised that the terms of the Ares
proposal were superior to the terms offered by Hudson Bay,” and that “[f]ollowing further
discussion, the Committee determined that the Ares proposal was in the best interests of
the Company and its stockholders”).
85
In re Rouse Props., Inc., 2018 WL 1226015, at *25; accord In re Essendant, Inc., 2019
WL 7290944, at *18.
86
See In re Essendant, Inc., 2019 WL 7290944, at *17 (internal quotation marks omitted)
(quoting McGowan, 2002 WL 77712, at *2).
28
participation alongside Oaktree was in the best interests of IEA and its stockholders,
as supported by Guggenheim’s conclusion that the Ares’ side-by-side investment
was superior.87
Drawing all reasonable inferences in Plaintiff’s favor, the Complaint alleges
simply that Ares’ participation “was the product of arm’s-length negotiations” that
“are inconsistent with participation in a fiduciary breach.”88 Consistent with
longstanding principles of law and capitalism, Ares exercised its right to secure for
itself a “sweet” deal.89 It did not “knowingly participate in the target board’s breach
of fiduciary duty by extracting terms which require the opposite party to prefer its
interests at the expense of its shareholders.”90 Plaintiff’s “cursory allegation that
[Ares] got too good a deal is fundamentally inconsistent with the market principles
with which our corporate law is designed to operate in tandem” and cannot carry the
day.91 Counts VI and VII are dismissed.
87
This characterization of the Complaint is from Ares’ perspective. Time and discovery
will reveal the depth of any fiduciary breaches.
88
Malpiede, 780 A.2d at 1098; see also In re MeadWestvaco, 168 A.3d at 688 (“To the
contrary, the Complaint’s allegations paint a picture of genuine arm’s-length bargaining
that is the antithesis of an aiding and abetting claim.”).
89
Compl. ¶¶ 16, 18.
90
Gilbert, 490 A.2d at 1058.
91
Morgan, 2010 WL 2803746, at *8; see also In re Essendant, Inc., 2019 WL 7290944, at
*18.
29
B. Plaintiff Has Failed To Allege That Ares Was Unjustly
Enriched.
Plaintiff also brings Count V against Ares for unjust enrichment.92 Plaintiff
claims Ares was unjustly enriched by the transaction because “Ares also shared in
the wrongful benefits” Oaktree retained from its misconduct.93 This is Count V’s
sole allegation against Ares; Count V’s remaining allegations are directed at
Oaktree.94
“Unjust enrichment is ‘the unjust retention of a benefit to the loss of another,
or the retention of money or property of another against the fundamental principles
of justice or equity and good conscience.’”95 “The elements of unjust enrichment
92
See Compl. ¶¶ 172–74.
93
Id. ¶ 175.
94
See id. ¶ 172 (“At all times alleged herein, Oaktree owed fiduciary duties to IEA and its
stockholders, including Plaintiff.”); id. ¶ 173 (“As alleged in detail herein, Oaktree caused
the Company to enter into the Transactions. As a result of its actions, Oaktree received
benefits from the Transactions far in excess of the consideration it provided, and received
such benefits solely as a result of its control position. These benefits included: (a) the
Warrants, for which Oaktree paid unfairly low consideration, (b) the common stock
received in exchange for the Series A Preferred Stock, in which the exchange ratio was
unfairly generous to Oaktree, and benefitted Oaktree at the expense of IEA; (c) the Series
B Preferred Stock, which pays a dividend yield far in excess of what the market would
yield in the absence of Oaktree’s control over IEA; and (d) actual de jure majority control
over IEA.”); id. ¶ 174 (“Accordingly, Oaktree has been unjustly enriched as a result of its
misconduct as detailed above. It would be unconscionable and against the fundamental
principles of justice, equity, and good conscience for Oaktree to retain the improper
benefits it received as a result of their misconduct. Such benefits should be ordered to be
returned to IEA.”).
95
Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010) (quoting Fleer Corp. v. Topps
Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del. 1988)).
30
are: (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment
and impoverishment, (4) the absence of justification, and (5) the absence of a remedy
provided by law.”96
Plaintiff must plead each element of his claim.97 Read in a vacuum, Count
V’s lone allegation against Ares is conclusory at best, but “vagueness or lack of
detail are not sufficient grounds alone to dismiss for failure to state a claim so long
as the complaint provides the defendant with notice of the claim.”98 Even so, reading
the Complaint in the light most favorable to Plaintiff, Plaintiff has failed to allege a
necessary element of its unjust enrichment claim: the absence of justification.
Aiding and abetting and unjust enrichment claims often rise and fall together:
“where a breach of fiduciary duty claim based on the same facts and circumstances
fails, the Court often dismisses the corresponding unjust enrichment claim.” 99 So
96
Id.
97
Zebroski v. Progressive Direct Ins. Co., 2014 WL 2156984, at *6 (Del. Ch.
Apr. 30, 2014) (“[F]ailure to plead an element of a claim precludes entitlement to relief
and, therefore, is grounds to dismiss that claim.”).
98
Marina View Condo. Ass’n of Unit Owners v. Rehoboth Marina Ventures, LLC, 2018
WL 1172581, at *5 (Del. Ch. Mar. 6, 2018) (citing Cent. Mortg. Co. v. Morgan Stanley
Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011), and also citing Morgan v. Wells,
80 A.2d 504, 505 (Del. Ch. 1951)), adopted, 2018 WL 1411654 (Del. Ch. Mar. 20, 2018).
99
In re Molycorp, Inc. S’holder Deriv. Litig., 2015 WL 3454925, at *11 (Del. Ch.
May 27, 2015) (citing Frank v. Elgamal, 2014 WL 957550, at *31 (Del. Ch.
Mar. 10, 2014)); see also, e.g., In re Lear Corp. S’holder Litig., 967 A.2d 640, 657 (Del.
Ch. 2008) (dismissing an unjust enrichment claim because “for the same reasons as the
complaint fails to plead facts supporting an inference that [the defendant] was knowingly
complicit in any breach of fiduciary duty, it also fails to support an inference that [the
defendant] was engaged in some form of wrongdoing”); Jackson Nat. Life Ins. Co., 741
31
too here: Plaintiff’s unjust enrichment claim against Ares fails, as it is based on the
same facts and circumstances as the failed aiding and abetting breach of fiduciary
duty claim.100 As to Ares, Count V alleges only that “ARES also shared in the
wrongful benefits and its wrongful gains should also be recouped”—not that Ares
knew of or was involved in Oaktree’s fiduciary breaches.101
Plaintiff posits that Ares need not actually have been involved, contending
that simply benefitting from another defendant’s wrongdoing is enough to support a
claim of unjust enrichment. In this case, Plaintiff is incorrect. Because there must
be an absence of justification for the defendant’s benefit obtained through the
challenged transaction, “[t]hat requirement usually entails some type of wrongdoing
A.2d at 394 (“Having pleaded sufficiently the allegations . . . that Fort James aided and
abetted Kennedy’s alleged breach of fiduciary duty to a degree sufficient to defeat this
motion, it is axiomatic that Plaintiffs have likewise pleaded sufficiently the allegations that
Defendants were enriched by their actions . . . . If Plaintiffs succeed on the merits of their
breach of fiduciary duty and aiding and abetting claims, it is likely they will also be able
to prove that neither Kennedy nor Fort James can retain any benefit resulting from the
disputed transaction justifiably or in accordance with the fundamental principles of justice
or equity and good conscience.” (internal quotation marks omitted)); cf. NuVasive, Inc. v.
Miles, 2020 WL 5106554, at *12 (Del. Ch. Aug. 31, 2020) (“NuVasive contends that
Alphatec’s alleged aiding and abetting of Miles’s breaches of fiduciary duty constitutes
independent wrongfulness sufficient to state a claim for tortious interference with
prospective economic advantage. But, as discussed, . . . NuVasive’s aiding and abetting
claim does not withstand Alphatec’s Motion to Dismiss. Consequently, because the only
independent wrongfulness alleged by NuVasive is the aiding and abetting claim, NuVasive
has failed to plead independent wrongfulness and its claim for tortious interference with
prospective economic advantage is dismissed.” (emphasis in original)).
100
See In re Molycorp, Inc., 2015 WL 3454925, at *11.
101
Compl. ¶ 175.
32
or mistake at the time of transfer.”102 Even for defendants who did not act with
scienter, the absence of justification requirement suggests that the defendant must
be at least “sufficiently aligned with [the] wrongdoer that [he] ought to disgorge an
unearned benefit conferred upon [him] by the wrongdoer at the victim’s expense.”103
Where the defendant participated at arm’s-length in a negotiated transaction, and the
plaintiff has not alleged that the defendant was knowingly complicit in any breach
of fiduciary duty, the plaintiff has also failed to allege the defendant was not justified
in the enrichment it obtained via that transaction.104
In an attempt to circumvent the determination that Ares did not aid and abet
any breach, Plaintiff points to the narrow line of cases where an unjust enrichment
claim “may exist . . . even if the defendant retaining the benefit is not a
wrongdoer.”105 Plaintiff relies on Schock v. Nash to support the contention that Ares
should be “deprive[d] . . . of benefits that in equity and good conscience [it] ought
not to keep, even though [it] may have received those benefits honestly in the first
102
In re Lear Corp., 967 A.2d at 657 n.73 (quoting Territory of U.S. V.I. v. Goldman, Sachs
& Co., 937 A.2d 760, 796 n.161 (Del. Ch. 2007), aff’d, 2008 WL 2894840 (Del.
July 29, 2008), and citing Palese v. Del. State Lottery Office, 2006 WL 1875915, at *5
(Del. Ch. June 29, 2006)).
103
Territory of U.S. V.I., 937 A.2d at 796 n.161 (quoting Teachers’ Ret. Sys. of La. v.
Aidinoff, 900 A.2d 654, 672–73 & n.25 (Del. Ch. 2006), and applying this principle over
Schock v. Nash, 732 A.2d 227, 232 (Del. 1999)).
104
See, e.g., In re Lear Corp., 967 A.2d at 657.
105
Donald J. Wolfe & Michael A. Pittenger, Corporate and Commercial Practice in the
Delaware Court of Chancery § 16.01[b], at 16-14 (2018) (collecting cases).
33
instance.”106 In Schock, our Supreme Court held that “[r]estitution is permitted even
when the defendant retaining the benefit is not a wrongdoer.”107 In that case, a
fiduciary made “gratuitous transfers” to herself and her family while acting as a
power of attorney, and her family assisted in the scheme. 108 The fiduciary titled a
brokerage account in the name of herself and her mother to hold the improperly
obtained funds.109 The fiduciary’s mother, a defendant, “was not a wrongdoer[:]”110
she was unaware that those funds were transferred to the account, did not know
where the funds came from, and “removed her name from the brokerage account and
has not received any benefit from the account.”111 Assessing the propriety of the
Court of Chancery’s damages determination, the Supreme Court held that the
supposedly innocent party can still be unjustly enriched and jointly and severally
responsible for restitution damages, as supported by the conclusion that, under the
facts of that case, “it would be unconscionable to allow them to retain that
benefit.”112
106
Schock, 732 A.2d at 233.
107
Id. at 232 (citing Fleer Corp., 539 A.2d at 1063).
108
Id. at 223.
109
Id. at 232.
110
Id.
111
Id.
112
Id. Recognizing that “[t]he issue of whether the judgment should be modified is not
before [the Court],” id., the Court only reviewed the trial court’s award of damages,
34
But in situations like this one, “equity and good conscience” generally have
not required depriving an innocent, successful bidder of an arm’s length bargain.113
Indeed, this Court has previously declined to expand Schock where the alleged right
of recovery is “based solely on the unfairness” of a “passive” party retaining a
benefit it received at arm’s-length and in good faith.114 The great weight of authority
provides that where a plaintiff has failed to plead that a defendant aided and abetted
a breach of fiduciary duty, that failure translates into a failure to plead requisite
wrongdoing for an unjust enrichment claim.
Here, as explained, Ares’ participation in the transaction was not wrongful,
and it had no knowledge that Oaktree’s participation was somehow inappropriate.
Ares obtained its benefit through arm’s-length negotiations.115 Plaintiff has not pled
that Ares’ benefit was unjustified. “[F]or the same reasons as the complaint fails to
affirming it as “the product of an orderly and logical deductive process and supported by
the record.” Id. at 234.
113
See, e.g., In re Lear Corp., 967 A.2d at 657; Territory of U.S. V.I., 937 A.2d at 796
n.161; Jackson Nat. Life Ins. Co., 741 A.2d at 394; see also NuVasive, Inc., 2020 WL
5106554, at *12. The Court need not legally adjudicate a wrongdoing in order to uphold
an unjust enrichment claim. See, e.g., Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017
WL 1437308, at *43 (Del. Ch. Apr. 14, 2017). The wrongdoing may be exculpated or
otherwise excused by an available defense, but the enrichment nonetheless lacks
justification under the facts of the case. Id. “Under those circumstances, unjust enrichment
could provide a vehicle for the [plaintiff’s] recovery.” Id.
114
Territory of U.S. V.I., 937 A.2d at 796 n.161.
115
This conclusion, based on Plaintiff’s allegations about Ares’ negotiations, is not
intended to extend to the allegations about the other defendants or their negotiations.
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plead facts supporting an inference that [Ares] was knowingly complicit in any
breach of fiduciary duty, it also fails to support an inference that [Ares] was engaged
in some form of wrongdoing” that supports an unjust enrichment claim. 116 Count V
is dismissed as to Ares.
III. CONCLUSION
The Motion is GRANTED and the Complaint is hereby dismissed with
prejudice as to Ares. The parties shall submit an implementing order within twenty
days of this decision.
116
In re Lear Corp., 967 A.2d at 657.
36