Steven F. Urvan v. AMMO, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
STEVEN F. URVAN, )
)
Plaintiff, )
)
v. )
)
AMMO, INC.; SPEEDLIGHT )
GROUP I, LLC; FRED W. )
WAGENHALS; CHRISTOPHER )
D. LARSON; JOHN P. FLYNN; )
JESSICA M. LOCKETT; )
RICHARD R. CHILDRESS; )
HARRY S. MARKLEY; )
RUSSELL WILLIAM )
WALLACE, JR.; ROBERT J. ) Consol. C.A. No. 2023-0470 PRW
GOODMANSON; AND )
ROBERT D. WILEY, )
)
Defendants. )
_______________________________ )
)
AMMO, INC., )
)
Plaintiff, )
)
v. )
)
STEVEN F. URVAN, )
)
Defendant. )
Submitted: December 18, 2023
Decided: February 27, 2024
Upon Defendants Ammo, Inc., Speedlight Group I, LLC, Fred W. Wagenhals,
Christopher D. Larson, John P. Flynn, Jessica M. Lockett, Richard R. Childress,
Harry S. Markley, Russel William Wallace, Jr., Robert J. Goodmanson, and
Robert D. Wiley’s Motion to Dismiss
DENIED, in part; GRANTED, in part.
Upon Defendant Steven F. Urvan’s Motion to Dismiss
DENIED.
MEMORANDUM OPINION AND ORDER
Kevin M. Coen, Esquire, Rachel R. Tunney, Esquire, MORRIS, NICHOLS, ARSHT &
TUNNEL LLP, Wilmington, Delaware, Nicholas Cutaia, Esquire, Jaclyn Grodin,
Esquire, GOULSTON & STORRS PC, New York, New York, Joshua M. Looney,
Esquire, Nora A. Saunders, Esquire, GOULSTON & STORRS PC, Boston,
Massachusetts, Attorneys for Plaintiff/Counterclaim Defendant Steven F. Urvan.
A. Thompson Bayliss, Esquire, Peter C. Cirka, Esquire, Abrams & Bayliss LLP,
Wilmington, Delaware, Attorneys for Defendant/Counterclaim Plaintiff AMMO,
Inc. and Defendants Speedlight Group I, LLC, Fred W. Wagenhals, Christopher D.
Larson, John P. Flynn, Jessica M. Lockett, Richard R. Childress, Harry S. Markley,
Russell William Wallace, Jr., Robert J. Goodmanson, and Robert D. Wiley.
WALLACE, J. 1
1
Sitting by designation of the Chief Justice pursuant to In re Designation of Actions Filed
Pursuant to 8 Del. C. § 111 (Del. Feb. 23, 2023) (ORDER).
These consolidated cases emanate from a merger agreement executed in April
2021 by AMMO, Inc., SpeedLight Group I, LLC, Gemini Direct Investments, LLC,
and Steven F. Urvan (the “Merger Agreement”). That agreement facilitated
Mr. Urvan’s sale of Gemini and its subsidiaries to AMMO. Under it, Gemini merged
into SpeedLight, AMMO’s wholly owned subsidiary. As part of the deal, Mr. Urvan
became AMMO’s largest shareholder, joined its board, and became its Chief
Strategy Officer. Before long, the relationship soured.
Now, Mr. Urvan is suing AMMO, SpeedLight, and nine individual AMMO
directors and officers (the “Individual Defendants” and, together with AMMO and
SpeedLight, the “AMMO Entities”). All his claims stem from alleged
misrepresentations in the Merger Agreement. AMMO, in turn, is suing Mr. Urvan.
It claims misrepresentations as well as breaches of Mr. Urvan’s indemnity
obligations. Each side has moved to dismiss the other’s complaint. But neither
motion quite gets there.
Indeed, all but one of the volleyed counts satisfies the required reasonable
conceivability threshold. The only deficient claim is Count II of Mr. Urvan’s
complaint. Through it, Mr. Urvan complains the Individual Defendants aided and
abetted AMMO and SpeedLight’s purported fraud. But it’s well-established that
officers and directors acting in their capacity as agents can’t abet their corporate
principal’s torts. So, Mr. Urvan’s Count II must be dismissed. Apart from that
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minor exception, final resolution of these parties’ competing claims will require a
fulsome inquiry into the facts.
I. FACTUAL & PROCEDURAL BACKGROUND2
A. PARTIES AND RELEVANT ENTITIES
Plaintiff/Counterclaim Defendant Steven F. Urvan was the ultimate owner of
GunBroker.com, a successful online retailer of firearms and related products.3
GunBroker was directly owned by IA Tech, LLC, which was owned by Gemini
Direct Investments, LLC.4 Mr. Urvan owned Gemini and its subsidiaries.5
Following the merger at issue here, Mr. Urvan became AMMO’s largest shareholder
and a member of its board.6
Defendant/Counterclaim Plaintiff AMMO is a publicly traded Delaware
corporation headquartered in Arizona.7 At the time of the merger, its business
focused on the manufacture and sale of ammunition.8
Defendant Speedlight is a Delaware limited liability company headquartered
2
These facts are drawn from the parties’ respective complaints and are presumed to be true
solely for purposes of this opinion.
3
Urvan’s Compl. ¶¶ 2, 27 (D.I. 1).
4
Id. ¶¶ 2 n.2, 35.
5
Id. ¶ 35 n.3.
6
Id. ¶ 12.
7
Id. ¶ 13.
8
Id.
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in Arizona.9 AMMO formed Speedlight in April 2021 for the purpose of
consummating this merger and is Speedlight’s sole member.10
Defendant Fred W. Wagenhals is a co-founder of AMMO. At the relevant
times, he was AMMO’s chairman of the board and CEO. He is a significant AMMO
shareholder, and he actively participated in negotiating and executing this merger.11
Defendant Christopher D. Larson is another AMMO co-founder. He had been
the VP of Finance for AMMO and actively participated in the merger. In 2020, the
SEC barred Mr. Larson from holding an officer or director position in any public
company for five years based on his fraudulent business conduct.12 Mr. Urvan
alleges Mr. Larson was nonetheless a de facto officer and director of AMMO at the
relevant times.13
Defendant John P. Flynn, a disbarred lawyer, was an AMMO VP who
actively participated in the merger.14 Mr. Flynn was disbarred in 2019.15 Mr. Urvan
alleges Mr. Flynn was nonetheless permitted to continue as de facto in-house counsel
9
Urvan’s Compl. ¶ 14.
10
Id.
11
Urvan’s Compl. ¶ 15.
12
Id. ¶ 5.
13
Id. ¶ 16.
14
Id. ¶ 17.
15
Id. ¶ 91.
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to AMMO.16
Defendant Jessica M. Lockett is a corporate attorney who had been a member
of AMMO’s board and an AMMO shareholder. She served on AMMO’s Audit
Committee. She, too, participated in the merger negotiations and approval.17
Defendant Richard R. Childress is also an AMMO director and shareholder.
He was on AMMO’s Audit Committee and participated in the merger negotiation
and approval.18
Defendant Harry S. Markley is another AMMO board member and
shareholder that participated in the merger negotiations.19
Defendant Russell William Wallace, Jr. is, likewise, an AMMO board
member and shareholder. He was on AMMO’s Audit Committee and participated
in the merger negotiations and approval.20
Defendant Robert J. Goodmanson was, at relevant times, AMMO’s president,
and a member of its board. He was an AMMO shareholder and was also employed
at an investment advisory firm that held a stake in AMMO. He, too, participated in
the merger negotiation and approval.21
16
Id. ¶ 94.
17
Id. ¶ 18.
18
Id. ¶ 19.
19
Id. ¶ 21.
20
Id. ¶ 22.
21
Id. ¶ 20.
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Finally, Defendant Robert D. Wiley has been AMMO’s Chief Financial
Officer since 2019 and is an AMMO shareholder. He also participated in the merger
negotiation, execution, and approval.22
B. THE PRE-MERGER EVENTS
1. The Titon and Tenor Litigations
Triton Value Partners, LLC performed services for GunBroker from 2006 to
2013.23 In 2017, it brought suit, alleging Mr. Urvan failed to pay it for services and
engaged in fraud to hide assets from creditors like Triton (the “Triton Litigation”).24
The Merger Agreement specifically identified cases related to this dispute as the
“Triton Matter.”25 Now, AMMO seeks indemnification for attorney’s fees it has
incurred from the Triton Litigation.26
Tenor Capital Partners, LLC, initiated litigation in federal court after
Mr. Urvan, acting through GunBroker, allegedly failed to pay over $1 million in fees
(the “Tenor Litigation”).27 The Merger Agreement included the Tenor Litigation as
22
Id. ¶ 23.
23
AMMO’s Am. Compl. ¶ 15 (D.I. 60).
24
Id. ¶¶ 16-17.
25
AMMO Entities’ Opening Brief in Support of their Motion to Dismiss (Hereinafter “AMMO’s
Mot.”), Ex. 1 (hereinafter “MA”) § 1.56 (D.I. No. 36).
26
AMMO’s Am. Compl. ¶¶ 81-84.
27
Id. ¶¶ 18-20.
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“Other Litigation.”28 Following the merger, GunBroker lost at the trial level, and
Tenor was awarded $1.5 million in damages.29 As part of its appeal, GunBroker,
which by this time was owned by AMMO, had to post a $1.55 million appeal bond.30
AMMO and Mr. Urvan have disputed who is responsible for paying the premium on
the appeal bond.31 After AMMO filed this action, Mr. Urvan paid the $38,750 appeal
bond premium, but the parties still dispute the associated fees.32
2. Ms. Hanrahan’s Whistleblower Complaint
Prior to the merger, AMMO had legal problems of its own. Specifically, in
August 2019, Kathleen Hanrahan, a former AMMO executive and board member,
filed a whistleblower complaint with OSHA “alleging numerous financial,
accounting, and reporting violations at AMMO, including violations of SEC rules
and regulations.”33 She also claimed retaliation.34 In February 2021, OSHA
determined there was reasonable cause to believe AMMO had violated the Sarbanes-
Oxley Act.35
28
MA § 1.38.
29
AMMO’s Am. Compl. ¶ 46.
30
Id. ¶ 47.
31
Id. ¶¶ 48-54.
32
See AMMO’s Brief Opposing Urvan’s Motion to Dismiss (hereinafter “AMMO’s Opp’n Br.”)
at 47 (D.I. No. 76).
33
Urvan’s Compl. ¶ 8.
34
Id. ¶ 67.
35
Id. ¶ 68.
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AMMO’s board formed a special committee to investigate Ms. Hanrahan’s
allegations.36 In contrast with OSHA’s findings both initially and on appeal, the
special committee found Ms. Hanrahan’s claims were unsubstantiated.37
Eventually—about ten months after the merger closed— Ms. Hanrahan filed a
federal lawsuit against AMMO based upon her whistleblower complaint.38 AMMO
settled with Ms. Hanrahan a few months later.39
3. Mr. Urvan’s Efforts to Sell GunBroker
With a $50 million payment under a financing agreement due on May 1, 2021,
Mr. Urvan began looking for a buyer for GunBroker in 2020.40 He first retained
Houlihan Lokey (“HL”) as Gemini’s advisor in that effort. The agreement between
Gemini and HL contained a tail provision that permitted HL to recover a fee if a
“qualifying sale” occurred within a set time after the engagement ended.41 The tail
provision was only triggered if, within one year after the HL agreement ended,
GunBroker was sold to a “Contact Party.”42 A “Contact Party” is defined as an
36
Urvan’s Compl. ¶ 69.
37
Id.
38
Urvan’s Compl. ¶ 70.
39
Id. ¶ 70.
40
AMMO’s Am. Compl. ¶ 21.
41
Id.
42
Urvan’s Opening Brief in Support of his Motion to Dismiss AMMO’s Amended Complaint
(hereinafter “Urvan’s Mot.”), Ex 1 § 2 (D.I. 72).
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entity:
(i) Houlihan Lokey identified, contacted or with whom
Houlihan Lokey or the Company had substantive
discussions regarding a potential Transaction during the
term of this Agreement, or (ii) reviewed the information
memorandum or any other written materials prepared by
Houlihan Lokey or by the Company with the assistance of
Houlihan Lokey concerning GunBroker and/or any
proposed Transaction[.]43
AMMO does not allege in its Amended Complaint that it was a “Contact Party” or
that HL has ever sought a fee from Mr. Urvan or any related entity.
Mr. Urvan also worked with Matthew Hayden to find a buyer.44 Mr. Hayden
introduced Mr. Urvan to “more than twenty” potential buyers for GunBroker and
provided him advice about the sale.45 In December 2020, Mr. Hayden introduced
Mr. Urvan to Maxim Group. LLC, which eventually led to the merger.46 Unlike HL,
Mr. Hayden has sought payment from Mr. Urvan.47 When Mr. Urvan didn’t pay,
Mr. Hayden sued him in Florida federal court.48
43
Urvan’s Mot., Ex. 1 § 2.
44
AMMO’s Am. Compl. ¶ 23.
45
Id.
46
AMMO’s Am. Compl. ¶ 24.
47
Id. ¶ 30.
48
Id.
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4. The Verska Agreement
Stephen Verska was a key Gemini employee.49 On April 30, 2021, the day
the merger closed, Mr. Urvan and Gemini signed a separate agreement with
Mr. Verska and Mr. Verska’s company, SharkDiver Consulting, Inc. (the “Verska
Agreement”).50 The Verska Agreement, which purports to be a severance agreement
releasing any claims Mr. Verska or SharkDiver might have against Mr. Urvan or
Gemini, promised to pay Mr. Verska $1 million per year for three years.51 Before
that, Mr. Verska’s annual salary had been $250,000 plus bonuses.52
Mr. Urvan had negotiated for Mr. Verska’s continued employment at
GunBroker during the merger discussions.53 Accordingly, after the merger,
Mr. Verska stayed on as GunBroker’s Chief Technology Officer.54 AMMO alleges
that the undisclosed Mr. Verska Agreement was truly designed to secure
Mr. Verska’s loyalty to Mr. Urvan.55 AMMO claims that Mr. Urvan desired to use
Mr. Verska to retain control over GunBroker after it was sold to AMMO.56 It
49
AMMO’s Am. Compl. ¶ 4.
50
Id. ¶ 59.
51
Id.
52
AMMO’s Am. Compl. ¶ 56.
53
Id. ¶ 57.
54
Id. ¶ 58.
55
Id.
56
AMMO’s Am. Compl. ¶¶ 58, 64.
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buttresses that accusation by pointing to Mr. Verska’s post-merger insubordination
in favor of “Urvan era” GunBroker employees and Mr. Urvan’s discontinued
payments under the Verska Agreement once AMMO fired Mr. Verska.57 Mr. Verska
has since sued Mr. Urvan and Gemini in Georgia federal court to recover $2 million
purportedly still owed under the Verska Agreement.58
C. THE MERGER AGREEMENT
In January 2021, Mr. Urvan learned that AMMO was open to buying
GunBroker.59 Thereafter, Mr. Urvan met with some of AMMO’s key employees,
and negotiations ensued.60 During the negotiations, Mr. Urvan primarily engaged
with Messrs. Larson, Wagenhals, and Flynn.61 On April 19, 2021, in preparation for
the impending deal, AMMO formed Delaware limited liability company SpeedLight
as its wholly owned subsidiary.62
Then, on April 30, 2021, the Merger Agreement was executed.63 Pursuantly,
Gemini merged with SpeedLight, and SpeedLight survived.64 In exchange,
57
Id. ¶¶ 64-70.
58
Id. ¶ 71.
59
Urvan’s Compl. ¶ 28.
60
Id. ¶¶ 29-41.
61
Id. ¶ 33.
62
Id. ¶¶ 43-44.
63
Id. ¶ 45.
64
Id.
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Mr. Urvan received $50 million in cash and up to 20 million shares of AMMO
common stock.65 He also became an AMMO board member and its Chief Strategy
Officer.66 Added to that, SpeedLight assumed $52,277,699.25 in outstanding debt
owed by IA Tech.67
Numerous Merger Agreement provisions are implicated in this dispute. First,
Mr. Urvan raises four representations AMMO made in Section 5 of the Merger
Agreement.
Section 5.7 provides in relevant part:
There is no claim, action, suit, proceeding, arbitration,
complaint, charge or investigation pending or to
[AMMO]’s knowledge, currently threatened in writing (a)
against [AMMO] or any officer, director or employee of
[AMMO] arising out of their employment or board
relationship with [AMMO]; (b) that questions the validity
of this Agreement or the right of [AMMO] to enter into it,
or to consummate the transactions contemplated by this
Agreement; or (c) to [AMMO]’s knowledge, that
reasonably would be expected to have, either individually
or in the aggregate, a Material Adverse Effect. Neither
[AMMO] nor, to [AMMO]’s knowledge, any of its
officers, directors or employees is a party or is named as
subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality (in the case of officers, directors or
employees, such as would affect [AMMO]).
65
Urvan’s Compl. ¶ 46.
66
Id. ¶ 50.
67
Id. ¶ 47.
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Section 5.11(b) provides in relevant part:
None of [AMMO]’s directors, officers or employees, or
any members of their immediate families, or any Affiliate
of the foregoing are, directly or indirectly, indebted to
[AMMO] or, to [AMMO]’s knowledge, have any (i)
material commercial, industrial, banking, consulting,
legal, accounting, charitable or familial relationship with
any of [AMMO]’s customers, suppliers, service providers,
joint venture partners, licensees and competitors . . . .
Section 5.15(h) provides in relevant part:
To [AMMO]’s knowledge, none of the Key Employees or
directors of [AMMO] has been . . . (ii) convicted in a
criminal proceeding or named as a subject of a pending
criminal proceeding (excluding traffic violations and other
minor offenses); (iii) subject to any order, judgment or
decree (not subsequently reversed, suspended, or vacated)
of any court of competent jurisdiction permanently or
temporarily enjoining him or her from engaging, or
otherwise imposing limits or conditions on his or her
engagement in any securities, investment advisory,
banking, insurance, or other type of business or acting as
an officer or director of a public company; or (iv) found
by a court of competent jurisdiction in a civil action or by
the Securities and Exchange Commission or the
Commodity Futures Trading Commission to have violated
any federal or state securities, commodities, or unfair trade
practices law, which such judgment or finding has not
been subsequently reversed, suspended, or vacated.
And Section 5.26 provides, in greater detail than is needed here, that
(1) AMMO complied with all NASDAQ rules and SEC filing requirements;
(2) AMMO’s SEC filings accurately and fairly presented AMMO’s financial
position; and (3) AMMO maintained an adequate system of internal controls over
its financial reporting to reasonably assure the reliability of its financial reporting.
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AMMO, in turn, raises two of Mr. Urvan’s representations that AMMO now
contends were false. Specifically, in Merger Agreement Section 4.18(a), Mr. Urvan
represented in relevant part:
To [Gemini]’s knowledge, none of [Gemini]’s or any
[Gemini] Subsidiary’s employees is obligated under any
contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative
agency, that would materially interfere with such
employee’s ability to promote the interest of [Gemini] or
a [Gemini] Subsidiary or that would conflict with
[Gemini]’s or any [Gemini] Subsidiary’s business.
Finally, Mr. Urvan represented in Section 4.27: “Except for Maxim Group
LLC, no broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this
Agreement or any Ancillary Document based upon arrangements made by or on
behalf of [Gemini].”
AMMO also raises Mr. Urvan’s indemnification obligations under Section 9
of the Merger Agreement. The most relevant provisions to this dispute are Sections
9.5(a), (c), and (f). Section 9.5(a), which addresses “Third-Party Claims,” provides
in relevant part:
If any Indemnified Party receives notice of the assertion or
commencement of any Action made or brought by any
Person who is not a party to this Agreement or an Affiliate
of a party to this Agreement or a Representative of the
foregoing (a “Third-Party Claim”) against such
Indemnified Party with respect to which the Indemnifying
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Party is obligated to provide indemnification under this
Agreement, the Indemnified Party shall give the
Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than fifteen (15) calendar
days after receipt of such notice of such Third-Party
Claim. The failure to give such prompt written notice shall
not, however, relieve the Indemnifying Party of its
indemnification obligations, except and only to the extent
that the Indemnifying Party forfeits rights or defenses by
reason of such failure. Such notice by the Indemnified
Party shall describe the Third-Party Claim in reasonable
detail, shall include copies of all material written evidence
thereof and shall indicate the estimated amount, if
reasonably practicable, of the Loss that has been or may
be sustained by the Indemnified Party. The Indemnifying
Party shall have the right to participate in, or by giving
written notice to the Indemnified Party, to assume the
defense of any Third-Party Claim at the Indemnifying
Party’s expense and by the Indemnifying Party’s own
counsel, and the Indemnified Party shall cooperate in good
faith in such defense . . . . The Indemnified Party shall
have the right to participate in the defense of any Third-
Party Claim with counsel selected by it subject to the
Indemnifying Party’s right to control the defense thereof.
The fees and disbursements of such counsel shall be at the
expense of the Indemnified Party, provided that if in the
reasonable opinion of counsel to the Indemnified Party,
(A) there are material legal defenses available to an
Indemnified Party that are different from or additional to
those available to the Indemnifying Party; or (B) there
exists a conflict of interest between the Indemnifying
Party and the Indemnified Party that cannot be waived, the
Indemnifying Party shall be liable for the reasonable fees
and expenses of counsel to the Indemnified Party in each
jurisdiction for which the Indemnified Party determines
counsel is required.
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Section 9.5(c), which addresses “Direct Claims,” provides in relevant part:
Any Action by an Indemnified Party on account of a Loss
which does not result from a Third-Party Claim (a “Direct
Claim”) shall be asserted by the Indemnified Party giving
the Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than thirty (30) days after
the Indemnified Party becomes aware of such Direct
Claim. The failure to give such prompt written notice shall
not, however, relieve the Indemnifying Party of its
indemnification obligations, except and only to the extent
that the Indemnifying Party forfeits rights or defenses by
reason of such failure. Such notice by the Indemnified
Party shall describe the Direct Claim in reasonable detail,
shall include copies of all material written evidence
thereof and shall indicate the estimated amount, if
reasonably practicable, of the Loss that has been or may
be sustained by the Indemnified Party. The Indemnifying
Party shall have thirty (30) days after its receipt of such
notice to respond in writing to such Direct Claim. . . . If
the Indemnifying Party does not so respond within such 30
day period, the Indemnifying Party shall be deemed to
have rejected such claim, in which case the Indemnified
Party shall be free to pursue such remedies as may be
available to the Indemnified Party on the terms and subject
to the provisions of this Agreement.
Last, Section 9.5(f), which addresses specific pre-existing claims, provides in
relevant part:
Notwithstanding anything to the contrary in this Section
9.5, [Mr. Urvan] shall have initial sole and exclusive
control of the prosecution, defense and settlement of the
Triton Matter and the [Tenor] Litigation in consultation
with [AMMO], including, without limitation, the selection
and termination of counsel with respect to such matter and
all decisions related to the Triton Matter and/or the [Tenor]
Litigation in good faith consultation with [AMMO] . . . .
For the avoidance of doubt, neither [AMMO] nor any of
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its Affiliates shall have the right to terminate any of the
legal counsel currently handling the Triton Matter or [the
Tenor] Litigation. Notwithstanding anything in this
Agreement to the contrary, the parties agree legal counsel
and strategy will be reviewed periodically and in good
faith after six months from the Closing Date, and
[Mr. Urvan] shall consult in good faith and work
cooperatively together related to this matter.
D. THE POST-MERGER EVENTS
1. Mr. Urvan’s Proxy Battle
As demonstrated by SEC filings cited by the AMMO Entities,68 Mr. Urvan
initiated a proxy contest in August 2022.69 In doing so, he sought to replace
AMMO’s entire board and to separate the legacy GunBroker business from
AMMO’s ammunition business.70 Mr. Urvan also wanted to replace AMMO’s then-
CEO, Mr. Wagenhals.71
AMMO and Mr. Urvan settled the proxy contest in November 2022.72 The
settlement increased the size of the board to nine, with Mr. Urvan and his nominees
filling three of those seats.73 The agreement also called for a new four-member
68
The Court may take judicial notice of these filings as explained below. See infra Section
V(A)(1).
69
AMMO’s Mot., Ex. 5 (hereinafter, “Proxy Contest Settlement Agreement”) § 1(a) (D.I. 36).
70
Proxy Contest Settlement Agreement, Ex. C.
71
Id.
72
See generally Proxy Contest Settlement Agreement.
73
Proxy Contest Settlement Agreement § 1(b).
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committee to plan the succession of AMMO’s CEO.74 Mr. Urvan and one of his
nominees occupied two of those four positions.75
2. Mr. Urvan’s Refusals to Indemnify
Following the merger, the law firm Culhane Meadows PLLC represented
Mr. Urvan and AMMO in the Triton Litigation.76 In May 2023, Culhane Meadows
sent a letter to Mr. Urvan and AMMO explaining that it foresaw potential conflicts
of interest between the defendants.77 Specifically, the letter stated:
[T]hough the Defendants’ interests remain aligned with
respect to seeing that the Plaintiffs’ complaint is dismissed
and that no liability is assessed against any Defendant,
because AMMO, Inc. purchased GBI and its subsidiaries
GunBroker and IA Tech (collectively “the AMMO
Companies”), while Mr. Urvan retains ownership of TVPI
and is an individually named defendant, certain situations
could arise where the Defendants may have divergent
interests, or inquire of their counsel seeking attorney-
client privileges, that could result in a potential, future
conflict. For example, we discussed with the parties’
representatives the recent summary judgment ruling in the
Federal Court action to which the Ammo Companies are
not parties and [Mr.] Urvan’s inquiry about moving the
Cobb Action into Federal Court through a potential TVPI
bankruptcy petition where the statute of limitations
defense might be better received (an inquiry CM could not
address because of the potential impacts to the Ammo-
Owned Parties); and other potential pretrial strategies or
positions that could not be discussed under the cloak of
74
Proxy Contest Settlement Agreement § 1(d).
75
Id.
76
AMMO’s Am. Compl. ¶ 35.
77
Id.
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attorney-client privilege under a joint representation.
Additionally, we discussed the advantages of each party
being represented by separate counsel in terms of how the
evidence might be viewed by or presented to a jury,
separate (and thus additional) closing arguments and direct
and cross examinations, etc.78
So, Culhane Meadows said it would withdraw as AMMO’s counsel and suggested
that AMMO retain the existing co-counsel, Litchfield Cavo LLP, which would
correspondingly withdraw as Mr. Urvan’s counsel.79
AMMO intended to follow that advice and retain Litchfield Cavo for itself.80
Relying on the provisions of Merger Agreement Section 9.5(a), AMMO sent
Mr. Urvan the $60,000 bill.81 But Mr. Urvan refused to pay.82 Indeed, Mr. Urvan
allegedly failed to take any action to facilitate the change in counsel, so Culhane
Meadows withdrew from the representation entirely, and AMMO was forced to
retain new counsel.83 Mr. Urvan hasn’t agreed to pay for that new counsel either.84
Separately, and as referenced above, AMMO posted a $1.55 million appeal
78
Urvan’s Mot., Ex. 4 at 1-2.
79
Urvan’s Mot., Ex. 4 at 2; AMMO’s Am. Compl. ¶ 37.
80
AMMO’s Am. Compl. ¶ 37.
81
Id.
82
AMMO’s Am. Compl. ¶ 38.
83
Id. ¶¶ 39-41.
84
Id. ¶ 42.
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bond in the Tenor litigation.85 The premium on that bond was $38,750.86 Though
Mr. Urvan initially said that bill was AMMO’s “problem to deal with,” he has since
remitted the premium.87 Unsatisfied, AMMO now seeks unpaid fees and interest
attributable to the appeal bond based on the Merger Agreement’s indemnity
provisions.88
E. PROCEDURAL HISTORY
Mr. Urvan filed his complaint against the AMMO Entities in April 2023.89
The AMMO Entities moved to dismiss it.90 Then, AMMO filed its own complaint.
The Court consolidated those two cases.91 And soon after, AMMO amended its
complaint.92 Mr. Urvan then moved to dismiss that amended complaint.93
Following full briefing, the Court heard oral argument and the competing dismissal
motions are now ready for resolution.
85
Id. ¶¶ 47-48.
86
Id. ¶ 49.
87
Id. ¶ 50; AMMO’s Opp’n Br. at 46.
88
AMMO’s Opp’n Br. at 47.
89
Urvan’s Compl.
90
AMMO’s Mot.
91
Sept. 11, 2023 Judicial Action Form (D.I. No. 55).
92
AMMO’s Am. Compl.
93
Urvan’s Mot.
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II. LEGAL STANDARD
“When considering a Rule 12(b)(6) motion, the court (i) accepts as true all
well-pled factual allegations in the complaint, (ii) credits vague allegations if they
give the opposing party notice of the claim, and (iii) draws all reasonable inferences
in favor of the plaintiffs.”94 “Dismissal is inappropriate ‘unless the plaintiff would
not be entitled to recover under any reasonably conceivable set of circumstances.’”95
III. PARTIES’ CONTENTIONS
A. AMMO ENTITIES’ MOTION TO DISMISS
The list of the AMMO Entities’ contentions is long—attacking every claim
Mr. Urvan brings. Their first argument against is that Mr. Urvan’s entire complaint
is barred by laches.96 Mr. Urvan primarily responds to this challenge by arguing that
it is too fact dependent for this stage.97 He also emphasizes his claims are within the
three-year statute of limitations.98
Next, the AMMO Entities contest this Court’s personal jurisdiction over the
Individual Defendants, saying the Individual Defendants haven’t had the
94
Ont. Provincial Council of Carpenters’ Pension Tr. Fund v. Walton, 294 A.3d 65, 84 (Del. Ch.
2023) (citing Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del.
2011)).
95
Walton, 294 A.3d at 84 (citing Cent. Mortg., 27 A. 3d at 535).
96
AMMO’s Mot. at 20-27.
97
Urvan’s Brief Opposing the AMMO Entities’ Motion to Dismiss (hereinafter “Urvan’s Opp’n
Br.”) at 14-21 (D.I. 47).
98
Urvan’s Opp’n Br. at 14-21.
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constitutionally required minimum contacts with Delaware.99 Mr. Urvan counters
that a recent United States Supreme Court decision obviates the need for contacts-
based due process analysis, so the applicable long-arm statutes are enough to confer
jurisdiction.100 He alternatively contends that the Individual Defendants’ use of
Delaware law in crafting this merger, and their high-level positions within a
Delaware entity, constitute sufficient contacts with Delaware to satisfy due
process.101
Third, the AMMO Entities challenge the “falsity” and “justifiable reliance”
prongs of Mr. Urvan’s fraudulent inducement claims.102 He says in this regard that
the AMMO Entities merely present factual disputes that must be explored in
discovery.103
The AMMO Entities’ motion next aims at Mr. Urvan’s aiding and abetting
count. They contend there was no underlying fraud, and add that Mr. Urvan hasn’t
plead “substantial assistance” with sufficient specificity.104 The AMMO Entities
also raise the intra-corporate conspiracy doctrine, saying officers and directors
99
AMMO’s Mot. at 27-33.
100
Urvan’s Opp’n Br. at 49-57 (citing Mallory v. Norfolk S. Ry. Co., 143 S. Ct. 2028 (2023)).
101
Urvan’s Opp’n Br. at 57-61.
102
AMMO’s Mot. at 34-44.
103
Urvan’s Opp’n Br. at 23-29.
104
AMMO’s Mot. at 45-52.
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cannot aid and abet their corporate principal.105 Mr. Urvan, of course, takes the
opposite position on the first two arguments.106 Regarding the intra-corporate
conspiracy doctrine, Mr. Urvan posits that it’s inapplicable because the Individual
Defendants were acting on personal motives instead of their roles as agents.107
The AMMO Entities likewise oppose Mr. Urvan’s unjust enrichment count.
They suggest it fails because: (1) there is no lack of justification; (2) the written
contract governs the parties’ relationship; and (3) as to the Individual Defendants,
they were not directly enriched.108 Mr. Urvan counters that: (1) the alleged
wrongdoing removes any justification; (2) a contract that is the product of fraud can’t
control; and (3) there is a reasonable inference the Individual Defendants directly
profited from this merger.109
Turning away from Delaware common law and toward the Arizona Securities
Act (the “ASA”), the AMMO Entities argue two of the three provisions Mr. Urvan
relies upon only apply to fraudulent schemes, not “misstatements and omissions.”110
Mr. Urvan retorts that the totality of the AMMO Entities’ alleged misconduct
105
AMMO’s Mot. at 52-54.
106
Urvan’s Opp’n Br. at 34-36.
107
Id. at 36-37.
108
AMMO’s Mot. at 59-60.
109
Urvan’s Opp’n Br. at 46-48.
110
AMMO Mot. at 54-55.
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amounted to a fraudulent scheme.111
Regarding A.R.S. § 44-1991(A)(2)—a close analogue to Delaware’s common
law fraud—the AMMO Entities again claim there were no misrepresentations and
add that even if there were, they weren’t material to the transaction.112 Mr. Urvan
again disagrees with that position and says it is, at most, a factual dispute not
appropriate for this stage.113 The parties also disagree about the interplay between
the Merger Agreement’s anti-reliance clause and the ASA’s non-waiver provision
and lack of a reliance element.114
B. MR. URVAN’S MOTION TO DISMISS
Mr. Urvan’s motion is similarly comprehensive. He first attacks AMMO’s
two claims of fraudulent inducement—one regarding the “Finder’s Fee”
representation, the other regarding the “Material Agreements” representation.115 As
to both, Mr. Urvan says they weren’t false and he didn’t have knowledge of their
alleged falsity.116 He also contends that even if AMMO could prove its claims with
regard to the Finder’s Fee representation, AMMO would have no damages.117
111
Urvan Opp’n Br. at 45-46.
112
AMMO’s Mot. at 55-58.
113
Urvan’s Opp’n Br. at 38-39.
114
AMMO’s Mot. at 56-57; Urvan’s Opp’n Br. at 40-45.
115
Urvan’s Mot. at 24-35.
116
Id. at 25-28; 30-35.
117
Id. at 28-30.
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AMMO, in essence, counterargues that each of Mr. Urvan’s defenses rest upon
disputed facts.118
Like Mr. Urvan, AMMO restates its fraudulent inducement claims as
violations of the ASA.119 But, unlike Mr. Urvan, it cites only A.R.S. § 44-
1991(A)(2).120 To defeat that claim, Mr. Urvan says again he made no
misrepresentations.121 Mr. Urvan continues that the Gemini interests AMMO
bought are not “securities,” and so they aren’t governed by the ASA.122 AMMO
responds that the stock Mr. Urvan received in this bargain implicate the ASA, and
that it has adequately pled misrepresentations.123
Finally, Mr. Urvan’s motion challenges AMMO’s indemnification claims.
Starting with the Triton Litigation, Mr. Urvan says it is exclusively governed by
Section 9.5(f), which doesn’t provide for reimbursement of attorney’s fees. 124 And
Mr. Urvan continues, that even if Section 9.5(a) did apply, there was no existing,
non-waivable conflict that would entitle AMMO to fees. 125 AMMO, in opposition,
118
AMMO’s Opp’n Br. at 14-29.
119
AMMO’s Am. Compl. ¶¶ 120-25.
120
Id. ¶ 122.
121
Urvan’s Mot. at 40.
122
Id. at 36-40.
123
AMMO’s Opp’n Br. at 34-36.
124
Urvan’s Mot. at 42-45.
125
Id. at 46-47.
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reads Section 9.5(f) as supplementing, not replacing, Section 9.5(a), and says the
Culhane Meadows letter triggered Section 9.5(a)’s the reimbursement provision.126
Turning to the fees and interest relating to the Tenor Litigation’s now-paid
appeal bond premium, Mr. Urvan says AMMO did not fulfill its notice
obligations.127 AMMO contends additional notice wasn’t needed because this claim
was already well known to Mr. Urvan and he repudiated payment.128 AMMO adds
that, in any event, Mr. Urvan did not suffer the prejudice required to transfigure a
lack of notice into a defense under the Merger Agreement.129
As for Count III’s fee-shifting claim, Mr. Urvan says AMMO’s request for
fees generated in this action is unripe, and he again argues a lack of notice.130
AMMO contends that Delaware courts routinely maintain fee-shifting claims, and
that its Complaint provided Mr. Urvan all the notice he is entitled to.131
126
AMMO’s Opp’n Br. at 37-46.
127
Urvan’s Mot. at 48-50.
128
AMMO’s Opp’n Br. at 48-49.
129
Id. at 49-50.
130
Urvan’s Mot. at 50-52.
131
AMMO’s Opp’n Br. at 50-53.
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IV. DISCUSSION
A. THE AMMO ENTITIES’ MOTION TO DISMISS MR. URVAN’S COMPLAINT
1. The Court May Consider Certain Limited Evidence, Including SEC
Filings and Court Records.
To start, it is necessary to address the limits of the Court’s ability to consider
documents outside a complaint without transforming a motion to dismiss into one
for summary judgment. This is so because the AMMO Entities reference SEC
filings and court records from other litigation in support of their arguments.132 In
short, both types of documents may, via judicial notice, be considered at this stage.
This Court will consider SEC filings at the motion to dismiss stage when they
“are not subject to reasonable dispute under Delaware Rule of Evidence 201.”133
SEC filings may also be considered if the movant “is not offering them for the truth
of the matter asserted.”134 Though the documents in Narrowstep did not satisfy those
criteria, it specifically distinguished “a situation in which a court takes judicial notice
of proxy disclosures, not to determine whether they are truthful, but as evidence of
whether certain information has or has not been disclosed.”135 Just so here.
132
See, e.g., AMMO’s Mot. at 5, 8.
133
Smart Local Unions and Councils Pension Fund v. BridgeBio Pharma, Inc., 2022 WL
17986515, at *9 n.114 (Del. Ch. Dec. 29, 2022) (citing In re General Motors (Hughes) S’holder
Litig., 897 A.2d 162, 170 (Del. 2006)).
134
Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *6 (Del. Ch. Dec. 22, 2010).
135
Narrowstep, 2010 WL 5422405, at *6.
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Accordingly, the SEC filings may be considered for that limited purpose and as the
integral facts are undisputed by Mr. Urvan.136
Likewise, the AMMO Entities refer to some of Mr. Urvan’s filings in federal
litigation.137 These, too, may be considered. “This Court has repeatedly held federal
court decisions, orders, and filings judicially noticeable.”138 So, while the Court is
not yet at a factfinding stage and will thus not weigh any evidence,139 it need not
blind itself to the materials the AMMO Entities rely upon.
2. Laches Does Not Bar Mr. Urvan’s Claims at this Stage.
Turning to more substantive issues, the AMMO Entities claim Mr. Urvan’s
complaint is barred in its entirety by the doctrine of laches. “The equitable defense
of laches is based on the theory that upon a person’s acquiring knowledge of a wrong
affecting his rights, any unreasonable delay in asserting an equitable remedy will bar
such form of relief.”140 There are two elements to this defense: “(i) unreasonable
delay in bringing a claim by a plaintiff with knowledge thereof, and (ii) resulting
136
Mr. Urvan also seeks to exclude AMMO’s code of conduct, which purportedly imputed
reporting requirements on employees (including Mr. Urvan), who believed AMMO was engaged
in unlawful practices. Urvan’s Opp’n Br. at 31 n.13. That code, though, is contained in AMMO’s
public SEC filings, and its contents are undisputed. See AMMO, Quarterly Report (Form 10-Q)
(Feb. 12, 2021) at Ex. 14.1. In any event, it has little bearing on the Court’s analysis.
137
See AMMO’s Mot. at 8 n.5.
138
In re Ebix, Inc. Stockholder Litig., 2016 WL 208402, at *10 (Del. Ch. Jan. 15, 2016).
139
Goldstein v. Denner, 2022 WL 1671006, at * 55 (Del. Ch. May 26, 2022).
140
Mellado v. ACPDO Parent Inc., 2023 WL 8086840, at *11 (Del. Ch. Nov. 21, 2023) (quoting
Skouras v. Admiralty Enters., Inc., 386 A.2d 674, 682 (Del. Ch. 1978)).
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prejudice to the defendant.”141 Neither of those fact-driven elements is conducive to
a determination at this stage.
To demonstrate Mr. Urvan knew the bases of his claims well before bringing
suit, the AMMO Entities point to SEC disclosures related to the misconduct
Mr. Urvan now alleges—many of which predate the merger—as well as the more
robust information Mr. Urvan became privy to as an AMMO director.142 The
AMMO Entities then say Mr. Urvan’s delay was unreasonable because: (1) the
challenged representations had a ninety-day survival period; (2) AMMO’s code of
conduct, to which Mr. Urvan was bound, required immediate reporting of the types
of allegations Mr. Urvan now brings; and, (3) Mr. Urvan’s proxy challenge was an
additional opportunity for Mr. Urvan to have raised these allegations.143 As for
prejudice, the AMMO Entities point to AMMO’s costly efforts to integrate
GunBroker into its business, as well as the prejudice to AMMO shareholders who
invested in AMMO while Mr. Urvan was sitting on these claims.144
Those facts may raise the specter of laches, but Mr. Urvan’s entitlement to
relief is not inconceivable. Reasonableness is inherently a fact-sensitive issue. Even
141
Mellado, 2023 WL 8086840, at *11 (quoting Lebanon Cnty. Emps.’ Ret. Fund v. Collis, 287
A.3d 1160, 1194 (Del. Ch. 2022)).
142
AMMO’s Mot. at 20-23.
143
Id. at 24-25.
144
Id. at 26.
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in the more factually nourished context of summary judgment, a laches defense is
“rarely granted.”145 Too, Mr. Urvan’s claims were brought within the analogous
statutes of limitation.146 “Delaware courts presume, in the absence of exceptional
circumstances, that an action filed within the analogous limitations period was
neither the product of unreasonable delay nor the cause of undue prejudice.”147 The
Court won’t disregard that presumption on only the limited facts now before it.
3. The Claims Against AMMO and Speedlight:
a. The Fraudulent Inducement Count is adequately pled.
In Count I of his complaint, Mr. Urvan insists that AMMO and SpeedLight
fraudulently induced him to enter the Merger Agreement based on purported
misrepresentations contained in Merger Agreement Sections 5.7, 5.11, 5.15, and
5.26.148 This Count survives this stage.
To support a claim for fraudulent inducement, a plaintiff must plead facts that
support an inference that:
(1) the defendant falsely represented or omitted facts that
the defendant had a duty to disclose; (2) the defendant
knew or believed that the representation was false or made
the representation with a reckless indifference to the truth;
(3) the defendant intended to induce the plaintiff to act or
145
Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62, 79 (Del. Ch. 2013).
146
The representations’ survival period expressly did not apply to fraud claims. Thus, it does not
operate as an analogue to a statute of limitations for Mr. Urvan’s claims. See MA § 9.9.
147
Meso Scale, 62 A.3d at 79 (citing Whittington v. Dragon Grp., LLC, 991 A.2d 1, 9 (Del. 2009)).
148
Urvan’s Compl. ¶¶ 128-35.
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refrain from acting; (4) the plaintiff acted in justifiable
reliance on the representation; and (5) the plaintiff was
injured by its reliance.149
Additionally, to satisfy Rule 9(b), the complaint must allege: “(1) the time, place,
and contents of the false representation; (2) the identity of the person making the
representation; and (3) what the person intended to gain by making the
representations.”150 This is easily done when the challenged representations are
derived from a written contract.151
The AMMO Entities concede that they have not challenged those elements r
the “Key Employees” representation in Section 5.15, instead relying on their laches
argument for that claim.152 That alone is enough to get this unified count through
the pleading stage.153 In any event, the AMMO Entities arguments are unpersuasive.
The AMMO Entities broadly contend that Mr. Urvan wasn’t justified in
149
Abry Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).
150
Abry Partners, 891 A.2d at 1050 (citing H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145
(Del. Ch. 2003)).
151
River Valley Ingredients, LLC v. Am. Proteins, Inc., 2021 WL 598539, at *4 (Del. Super. Ct.
Feb. 4, 2021) (quoting Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 62 (Del. Ch.
2015)).
152
AMMO Entities’ Reply Brief in Further Support of their Motion to Dismiss Urvan’s Complaint
(hereinafter “AMMO’s Reply Br.”) at 14 n.8 (D.I. 62).
153
inVentiv Health Clinical, LLC v. Odonate Therapeutics, Inc., 2021 WL 252823, at *4-6 (Del.
Super. Ct. Jan. 26, 2021) (“[A]t the pleading stage of a case, a trial judge is not a robed gardener
employing Rule 12(b)(6) as a judicial shear to prune individual theories from an otherwise
healthily pled claim or counterclaim.”); see also Envolve Pharm. Sols., Inc. v. Rite Aid Hdqtrs.
Corp., 2021 WL 855866, at *4 n.45 (Del. Super. Ct. Mar. 8, 2021) (“[I]t is not generally the Court’s
duty to dissect a single claim for either dismissal or rescue of its constituent theories of liability.”).
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relying on the express contractual representations because he had access to
contradictory extra-contractual information. But “[a] buyer justifiably may rely on
contractual representations.”154 And as the AMMO Entities themselves recognize,
“[t]hrough the Anti-Reliance Provision, [Mr.] Urvan effectively disclaimed reliance
on extra-contractual representations.”155 Put differently, the parties agreed to rely
exclusively on the contents of the Merger Agreement’s representations. The AMMO
Entities are hard-pressed to now say that Mr. Urvan should have ignored those
representations in favor of outside information.
The AMMO Entities’ representation-specific arguments regarding the falsity
element are likewise unavailing. Beginning with Section 5.7’s “Litigation
Representation,” the AMMO Entities conflate distinct clauses within that
representation to limit Section 5.7’s scope to litigation that threatens the merger or
could give rise to a material adverse effect. In doing so, the AMMO Entities hope
to remove Ms. Hanrahan’s litigation from the Litigation Representation’s reach. But
Section 5.7 is not so limited.
Section 5.7 lists three categories of litigation as within its scope. Section
5.7(a) covers litigation “against [AMMO] or any officer, director or employee of
154
Aveanna Healthcare, LLC v. Epic/Freedom, LLC, 2021 WL 3235739, at *24 (Del. Super. Ct.
July 29, 2021).
155
AMMO’s Mot. at 34.
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[AMMO] arising out of their employment or board relationship with [AMMO].”156
Section 5.7(b) contemplates litigation “that questions the validity of this Agreement
or the right of [AMMO] to enter into it, or to consummate the transactions
contemplated by this Agreement”157 And Section 5.7(c) discusses litigation “that
reasonably would be expected to have, either individually or in the aggregate, a
Material Adverse Effect.”158 This last option is set off with “or”.159 The AMMO
Entities aver that a litigation has to fall under both Section 5.7(a) and either 5.7(b)
or 5.7(c) to implicate this representation. Not so. The falsity of Section 5.7(a) is
enough to make the Litigation Representation false.
The AMMO Entities next say Section 5.11’s “Related-Party Transaction
Representation” is inadequately pled under Rule 9(b) because Mr. Urvan’s
complaint based an integral assertion “on information and belief.”160 But the fact in
question is stated definitively elsewhere in Mr. Urvan’s complaint.161 The AMMO
Entities also suggest the disputed transaction was on market terms, making it
acceptable. But Section 5.11 has no qualifier that a related-party transaction must
156
MA § 5.7(a).
157
Id. § 5.7(b).
158
Id. § 5.7(c).
159
Id. § 5.7.
160
AMMO’s Mot. at 39.
161
Urvan’s Compl. ¶ 74.
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be unfair to AMMO to implicate the representation.162 The facts alleged by
Mr. Urvan, if proven, would make this representation untrue.
Turning to the representations contained in Section 5.26, the AMMO Entities
raise factual issues about: (1) what AMMO—as opposed to its executives—was
required to report; (2) the accuracy of its financial statements; and, (3) the adequacy
of its internal controls.163 In this context, the AMMO Entities impermissibly seek to
use SEC filings to prove disputed facts. As discussed, the Court may properly notice
facts “not subject to reasonable dispute.”164 That does not permit a movant to
challenge a complaint’s factual allegations by relying on the truth of a public filing’s
contents.165 Taken as true, as they must in this posture, Mr. Urvan’s allegations
regarding the invalidity of AMMO’s SEC filings, financial statements, and internal
controls are a conceivable basis of fraudulent inducement. No more is required to
overcome a Rule 12(b)(6) motion.
In sum, the uncontested falsity of Section 5.15 is enough to maintain Count I
in its entirety. Even if it weren’t, the AMMO Entities have not established that any
of Mr. Urvan’s fraudulent inducement theories are inconceivable. Accordingly, the
AMMO Entities’ motion is denied as to this Count.
162
MA § 5.11(b)(i).
163
AMMO’s Mot. at 40-44.
164
Smart Local Unions, 2022 WL 17986515, at *9 n.114.
165
Narrowstep, 2010 WL 5422405, at *6.
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b. The Arizona Securities Act Count is adequately pled.
Count III of Mr. Urvan’s complaint charges the AMMO Entities with
violations of ASA §§ 44-1991(A)(1)-(3). Those provisions make it unlawful to
(1) “[e]mploy any device, scheme or artifice to defraud”; (2) “[m]ake any untrue
statement of material fact, or omit to state any material fact necessary in order to
make the statements made, in the light of the circumstances under which they were
made, not misleading”; or (3) “[e]ngage in any transaction, practice or course of
business which operates or would operate as a fraud or deceit” in connection with
the sale of a security.166
The AMMO Entities engage a three-fronted assault on Mr. Urvan’s statutory
claims. First, they say the relevant misrepresentations are confined to those
expressed in the Merger Agreement, as opposed to extracontractual misstatements.
Second, they contend ASA Subsection 44-1991(A)(2) was not violated because Mr.
Urvan cannot prove a “material” misrepresentation. And third, they argue ASA
Subsections 44-1991(A)(1) and (A)(3) are inapplicable because those require a
fraudulent scheme in excess of discrete misrepresentations. None of these
arguments warrant Count III’s dismissal.
First, Golden v. ShootProof Holdings, LP167 instructs that anti-reliance and
166
ARIZ. REV. STAT. ANN. §§ 44-1991(A)(1)-(3) (2021).
167
2023 WL 2255953 (Del. Ch. Feb. 28, 2023).
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integration clauses may limit the scope of statutory claims even where reliance is not
an element of the statute, and the statute contains an anti-waiver provision.168 That
recent precedent considered a nearly identical statute and Mr. Urvan has offered no
compelling basis to diverge from its reasoning. In turn, Mr. Urvan might not be able
to base his ASA claims on extracontractual statements. Nevertheless, several of
Mr. Urvan’s ASA claims do find root in express contractual representations and thus
remain viable.
The AMMO Entities’ argument regarding the materiality requirement is less
persuasive. They suggest that even if the representations Mr. Urvan now challenges
were false, that would not have stopped him from closing the deal.169 But Mr. Urvan
specifically pled that “[h]ad [he] known of the true state of facts concerning AMMO,
he would not have entered into the Merger Agreement or completed the Merger on
the terms set forth therein.”170 Once again, the AMMO Entities prematurely seek
resolution of a disputed fact.
Mr. Urvan has a viable claim under A.R.S. § 44-1991(A)(2), so Count III
withstands the AMMO Entities’ motion.171 While the Court need dwell no further
on Mr. Urvan’s ASA claims, it is worth noting that Arizona federal courts have held
168
Golden, 2023 WL 2255953, at *11-15, n.107.
169
AMMO’s Mot. at 57-58.
170
Urvan’s Compl. ¶ 149.
171
See inVentiv Health, 2021 WL 252823, at *4-6; Envolve Pharm., 2021 WL 855866, at *4 n.45.
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“that liability under § 44–1991(A)(1) and (3) could not be premised solely on
assertions of misstatements and omissions.”172 To do so would conflate those two
subsections with (A)(2).173 That said, whether Mr. Urvan can prove fraud in excess
of misrepresentations is a question for another time.
c. The Unjust Enrichment Count is adequately pled.
The AMMO Entities challenge Mr. Urvan’s unjust enrichment charge in
Count V based on two primary theories. First, the AMMO Entities insist that they
committed no wrongdoing that made their enrichment unjust. For the reasons
detailed above, that cannot be decided at this stage. Second, they say the Merger
Agreement governs their relationship and so this quasi-contractual claim cannot go
forward. Despite the AMMO Entities’ argument, at this stage, the unjust enrichment
count survives as an alternative basis of relief.
As this Court has explained, “[u]nder Delaware law, ‘[i]f a contract
comprehensively governs the parties’ relationship, then it alone must provide the
measure of the plaintiff’s rights and any claim of unjust enrichment will be
denied.’”174 Nevertheless, “the ‘contract itself is not necessarily the measure of [the]
172
In re Allstate Life Ins. Co. Litig., 2013 WL 5161688, at *13 (D. Ariz. Sept. 13, 2013) (citing
Red River Res., Inc. v. Mariner Sys., Inc., 2012 WL 2507517, at *10 (D. Ariz. June 29, 2012)).
173
In re Allstate, 2013 WL 5161688, at *13 (quoting Red River, 2012 WL 2507517, at *10).
174
S’holder Representative Servs. LLC v. RSI Holdco, LLC, 2019 WL 2207452, at *8 (Del. Ch.
May 22, 2019) (alteration in original) (quoting RCS Creditor Tr. v. Schorsch, 2018 WL 1640169,
at *7 (Del. Ch. Apr. 5, 2018)).
-36-
plaintiff’s right where the claim is premised on an allegation that the contract arose
from wrongdoing . . . and the [defendant] has been unjustly enriched by the benefits
flowing from the contract.’”175
Where unjust enrichment serves as an alternative basis of relief, this Court
will not dismiss it. For example, in Great Hill Equity Partners IV, LP v. SIG Growth
Equity Fund I, LLLP,176 this Court explained that “if the Plaintiffs prevail on their
tort claims, unjust enrichment is unavailable, because an element of unjust
enrichment is lack of a remedy at law.”177 It continued, though, that if the plaintiffs
could show a wrongful enrichment at their expense but were “unable to implicate
the Moving Defendants in that fraud, unjust enrichment would be invoked.”178
Similarly, the Court in McPadden v. Sidhu stated, “[i]f plaintiff has pleaded and then
prevails in demonstrating that the same conduct results in both liability for breach of
. . . fiduciary duties and disgorgement via unjust enrichment, plaintiff then will have
to elect his remedies.”179
Here, perhaps Mr. Urvan would have an adequate remedy at law if the Merger
Agreement was the product of fraud. But for now, it is at least conceivable that a
175
S’holder Representative Servs., 2019 WL 2207452, at *8 (first and third alterations in original)
(quoting RCS Creditor Tr., 2018 WL 1640169, at *7).
176
2014 WL 6703980 (Del. Ch. Nov. 26, 2014).
177
2014 WL 6703980, at *28.
178
Great Hill Equity Partners, 2014 WL 6703980, at *28.
179
964 A.2d 1262, 1276 (Del. Ch. 2008).
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situation might arise where a tort-based remedy would not fully redress Mr. Urvan’s
alleged harm.180 The Court will not dismiss Count V until its inapplicability
becomes certain.
4. The Claims Against the Individual Defendants:
a. The Court has personal jurisdiction over the Individual
Defendants.
The AMMO Entities argue this Court lacks personal jurisdiction over the
Individual Defendants. As a preliminary matter, the Court has statutory jurisdiction
over the Individual Defendants pursuant to 10 Del. C. § 3114 and 6 Del. C. § 18-
109. The AMMO Entities’ argument on that point—or lack thereof—concedes as
much. So, the remaining question is whether the constitutional due process
requirement is met. That is, whether “‘certain minimum contacts’ exist between the
defendant[s] and the forum state ‘such that the maintenance of the suit does not
offend traditional notions of fair play and substantial justice.’”181 Here, that standard
is met.
180
For example, AMMO suggests it wouldn’t be able to satisfy a $140 million judgment, which
is the amount Mr. Urvan seeks. See AMMO’s Reply Br. at 12. So, it is at least possible that he
might seek damages from those Individual Defendants who benefitted from the merger but did not
themselves engage in tortious conduct.
181
Illumina, Inc. v. Guardant Health, Inc., 2023 WL 1407716, at *14 (D. Del. Jan. 31, 2023)
(quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
-38-
i. Mallory did not upend Delaware’s personal jurisdiction
jurisprudence.
At the outset, Mr. Urvan’s argument regarding due process starts with a bold
proposition: “the historical two-prong test employed by Delaware courts to evaluate
whether they may exercise person jurisdiction over nonresident defendants is no
longer applicable when a consent statute is involved.”182 Mr. Urvan takes this
position based on Mallory v. Norfolk Southern Railway Co.,183 a June 2023 plurality
opinion from the United States Supreme Court. His stance, as of now, is incorrect.
In Mallory, a divided Court subjected Norfolk Southern to Pennsylvania’s
jurisdiction based upon its much earlier holding in Pennsylvania Fire Insurance
Company of Philadelphia v. Gold Issue Mining & Mineral Company.184 The
Mallory Court explained that “Pennsylvania law is explicit that ‘qualification as a
foreign corporation’ shall permit state courts to ‘exercise general personal
jurisdiction’ over a registered foreign corporation, just as they can over domestic
corporations.”185 Then, harkening to Pennsylvania Fire, the Court ruled that “suits
premised on these grounds do not deny a defendant due process of law.”186 In other
words, a foreign corporation’s statutory consent to jurisdiction satisfies
182
Urvan’s Opp’n Br. at 50.
183
600 U.S. 122 (2023).
184
243 U.S. 93 (1917).
185
600 U.S. at 135 (quoting 42 PA. CONS. STAT. § 5301(a)(2)(i)).
186
Mallory, 600 U.S. at 135.
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International Shoe’s due process requirement.
Notably, the majority explicitly limited Mallory’s interpretation to
Pennsylvania’s unique statutory scheme.187 That scheme is atypically precise in
declaring that registering to do business constitutes consent to personal
jurisdiction.188 Delaware’s statute, in contrast, makes no such pronouncement.189
So, whether this state’s business registration requirements extract consent to
jurisdiction from registrants is a matter of statutory interpretation. Our Supreme
Court’s most recent guidance holds that they do not.
In Genuine Parts, the Delaware Supreme Court faced this question head-on
in the light of the United States Supreme Court’s then-recent decision in Daimler
AG v. Bauman.190 The then-Chief Justice, writing for the majority, concluded,
“Delaware’s registration statutes must be read as a requirement that a foreign
corporation must appoint a registered agent to accept service of process, but not as
a broad consent to personal jurisdiction in any cause of action, however unrelated to
the foreign corporation’s activities in Delaware.”191 This Court isn’t free to
187
Id. at 135-36.
188
Mallory v. Norfolk S. Ry. Co., 266 A.3d 542, 564 (Pa. 2021) (“[T]he precise issue presented in
this appeal may be peculiar to Pennsylvania. . . . [M]ost state statutes do not provide expressly that
the act of registering to do business constitutes a specific basis upon which a court may assert
general jurisdiction over all claims against a foreign corporation.”), vacated, 600 U.S. 122 (2023).
189
Genuine Parts Co. v. Cepec, 137 A.3d 123, 142 (Del. 2016).
190
137 A.3d at 125-26 (discussing Daimler AG v. Bauman, 571 U.S. 117 (2014)).
191
Genuine Parts, 137 A.3d at 127.
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disregard that clear instruction.192
The Court is cognizant that much of the reasoning in Genuine Parts was based
upon due process concerns now quelled by Mallory’s reinvigoration of Pennsylvania
Fire.193 But the opinion was also grounded in more routine principles of statutory
interpretation and guided by policy considerations.194 It’s not this Court’s place to
second-guess Genuine Parts’ careful legal construct simply because an outside view
of a single factor has been altered. Rather, only the Delaware Supreme Court may
revisit its own interpretation of the key Delaware statutes. Until then, Genuine Parts
controls.
ii. The Individual Defendants have sufficient minimum contacts to
confer personal jurisdiction.
With the understanding that International Shoe’s due process test still applies,
the Individual Defendants’ contacts with Delaware satisfy it. How?
Besides acting as officers and directors of a Delaware corporation, the
Individual Defendants—in their corporate roles—formed a new Delaware limited
liability company to effect the merger. Also, while Gemini itself was a Nevada
limited liability company, GunBroker—the true target of the acquisition—was “a
192
In re Tesla Motors, Inc. S’holder Litig., 2020 WL 553902, at *6 (Del. Ch. Feb. 4, 2020) (“This
Court follows Supreme Court precedent . . . .” (citing Am. Int’l Grp., Inc. v. Greenberg, 965 A.2d
763, 818 (Del. Ch. 2009))).
193
Genuine Parts, 137 A.3d at 138, 141-42.
194
Id. at 139-41, 143-44.
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group of Delaware companies.”195 Moreover, the Merger Agreement is laden with
references to Delaware law and designates Delaware as the applicable forum and
source of law. And the Individual Defendants’ alleged wrongs are directly
connected to their positions as Delaware officers and directors. In sum, the
Individual Defendants can hardly be surprised at being required to defend their
actions in this state.
Hazout v. Tsang Mun Ting supports personal jurisdiction here.196 The Hazout
defendant was the president, CEO, and director of a Canada-based Delaware
corporation.197 He served as the lead negotiator in the transfer of that Delaware
corporation to a Hong Kong-based group of investors.198 The series of key operative
agreements called for the application of Delaware law in a Delaware forum.199 After
the defendant kept $1 million of the plaintiff’s money without completing the
transfer, the plaintiff sued him in our Superior Court.200 The defendant insisted
Delaware had no basis for the exercise of personal jurisdiction over him.201
In its due process analysis, the Supreme Court first noted that the defendant
195
Urvan’s Compl. ¶ 2.
196
134 A.3d 274 (Del. 2016).
197
Hazout, 134 A.3d at 277.
198
Id.
199
Id.
200
Id.
201
Id.
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availed himself of Delaware law by being an officer and director of a Delaware
corporation.202 It continued, “[m]ore important, the claims against Hazout involve
his actions in his official capacity of negotiating contracts that involved the change
of control of a Delaware public corporation.”203 Too, the Court noted that the
relevant agreements “reflected the parties’ choice to use the law of Delaware as their
common language of commerce, and their understanding that litigation over later
contractual differences could ensue in Delaware.”204 For those reasons, the Court
concluded, “Hazout cannot fairly say he did not foresee that he would be subject to
litigation in Delaware over his conduct in connection with negotiating the Change
of Control Agreements.”205 The Hazout Court didn’t even consider it a close case.206
The AMMO Entities’, in opposition, chiefly rely upon BAM International,
LLC v. MSBA Group Inc.207 There, the parties’ dispute centered on an escrow
agreement—not the merger of Delaware entities.208 The only real connection to
Delaware was the relevant individuals’ status as Delaware officers and the
202
Hazout, 134 A.3d at 292.
203
Id. at 293.
204
Id.
205
Hazout, 134 A.3d at 293-94.
206
Id. at 292.
207
2021 WL 5905878 (Del. Ch. Dec. 14, 2021).
208
BAM, 2021 WL 5905878, at *3.
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agreement’s forum-selection clause.209 The Court there added, “the actions
allegedly giving rise to [the defendants’] liability were not taken as officers of [the
Delaware entity].”210 It described the escrow agreement as “a garden-variety
commercial contract, rather than one necessarily implicating Delaware interests.”211
That is notably distinct from the Delaware-focused Merger Agreement here.
Due process is satisfied here. The merger at issue here took advantage of
Delaware law both in its preparation—forming SpeedLight as a Delaware limited
liability company—and its execution—referring extensively to Delaware law in the
terms of the Merger Agreement. To the extent the Individual Defendants were
involved in the negotiation, approval, and execution of this merger, they cannot
fairly claim they did not foresee potentially litigating in Delaware. Thus, as in
Hazout, requiring the Individual Defendants to defend themselves here “does not
‘offend traditional notions of fair play and substantial justice.’”212 Accordingly, this
Court’s exercise of personal jurisdiction over the Individual Defendants is proper.
b. The Aiding and Abetting Claim is deficient.
Notwithstanding this Court’s jurisdiction over the Individual Defendants,
Mr. Urvan’s common law aiding and abetting claim is untenable. It is barred by the
209
Id. at *10.
210
Id.
211
BAM, 2021 WL 5905878, at *9.
212
Hazout, 134 A.3d at 294 (quoting Int’l Shoe, 325 U.S. at 316).
-44-
intra-corporate conspiracy doctrine. As this Court has explained:
It is basic in the law of conspiracy that you must have two
persons or entities to have a conspiracy. A corporation
cannot conspire with itself any more than a private
individual can, and it is the general rule that the acts of the
agent are the acts of the corporation. Accordingly, it is
entirely sensible that, as a general rule, agents of a
corporation cannot conspire with one another
or aid and abet each other’s torts. The only instance
where this general rule will not apply is when a corporate
officer steps out of her corporate role and acts pursuant to
personal motives.213
In the face of this principle, Mr. Urvan attempts to argue the Individual
Defendants were not truly acting as AMMO’s agents when they allegedly assisted
AMMO in defrauding him. He does so via a three-sentence argument suggesting
the Individual Defendants’ real motive in making the challenged representations was
their desire to hide their purported wrongdoing.214 But if a cover-up was the
Individual Defendants’ true intention, engaging in a significant merger and making
affirmative misrepresentations in the process was a poor way of going about it. The
Individual Defendants had at least two much safer options. First, they could have
simply not acquired GunBroker. Second, they could have declined to make any
representations as to these issues instead of risking the very litigation that is now
dredging up these unflattering facts. To the extent the Individual Defendants
213
Anschutz Corp. v. Brown Robin Cap., LLC, 2020 WL 3096744, at *17 (Del. Ch. June 11, 2020)
(internal quotation marks and citations omitted).
214
Urvan’s Opp’n Br. at 37.
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participated in these alleged misrepresentations, it seems apparent that they were
trying to help get AMMO a favorable deal, not hide misdeeds. So says Mr. Urvan
himself.
In his complaint, Mr. Urvan alleged that “AMMO and SpeedLight engaged in
intentional fraud to induce Urvan to consummate the Merger.”215 That fraud is what
Mr. Urvan alleges the Individual Defendants countenanced.216 Even now, Mr. Urvan
argues:
[The AMMO Entities’] fraudulent scheme included efforts
to conceal other misconduct from [him], including
AMMO’s internal financial control weaknesses, insider
trading, and OSHA’s active investigation of the
Whistleblower Complaint. All of this was done for the
purpose of manipulating [him] into agreeing to a deal in
which a majority of the consideration he received was in
the form of AMMO equity, not cash.217
It cannot be maintained that the fraud’s purpose was to get an unfairly
beneficial deal for AMMO but, at the same time, the people who put that deal
together had abandoned their corporate roles in order to benefit themselves. Because
the Court will not draw unreasonable inferences in the non-movant’s favor, the intra-
corporate conspiracy doctrine stands in the way of Count II.
215
Urvan’s Compl. ¶ 137 (emphasis added).
216
Id. ¶ 138.
217
Urvan’s Opp’n Br. at 46.
-46-
c. The Unjust Enrichment Claim is adequately pled.
The AMMO Entities make an argument against Mr. Urvan’s unjust
enrichment claim that is unique to the Individual Defendants. They say that any
benefit to the Individual Defendants is too attenuated to conceivably provide relief
to Mr. Urvan. At this stage, this argument is unavailing.
The lone case the AMMO Entities cite for this point is OptimisCorp v.
Atkins.218 There, this Court recited that “[a]n enrichment ‘must not be speculative,
attenuated, or too indirect to support a relationship to the loss.’”219 The purpose of
that rule is to ensure the Court can accurately undo the unjust enrichment. 220 In
OptimisCorp, the plaintiff, after discovery, alleged a “butterfly effect[]” theory of
damages based on the defendants’ subsidiary’s competitor being harmed by the
defendants’ wrongful conduct.221 The plaintiff claimed that reduction in competition
necessarily benefitted the defendants.222 The circumstances and allegations here are
quite different.
There is a reasonable inference that the directors and officers involved in this
218
2023 WL 3745306 (Del. Ch. June 1, 2023).
219
OptimisCorp, 2023 WL 3745306, at *25 (quoting LVI Grp. Invs., LLC v. NCM Grp. Hldgs.,
LLC, 2019 WL 7369198, at *31 (Del. Ch. Dec. 31, 2019)).
220
OptimisCorp, 2023 WL 3745306, at *25 (quoting Vichi v. Koninklijke Philips Elecs. N.V., 62
A.3d 26, 61 (Del. Ch. 2012)).
221
OptimisCorp, 2023 WL 3745306, at *25.
222
Id.-47-
merger, most of whom were AMMO stockholders, received some quantifiable
benefit from the transaction. Of course, Mr. Urvan will need to prove that before he
can recover; but the fact that he hasn’t yet done so isn’t fatal. Greater factual
development is needed before ruling that there is no traceable connection between
the Individual Defendants’ allegedly unjust gains and Mr. Urvan’s losses.
B. MR. URVAN’S MOTION TO DISMISS AMMO’S AMENDED COMPLAINT
1. The Fraudulent Inducement Claims:
a. The Material Agreements Representation Count is adequately
pled.
Count IV of AMMO’s amended complaint alleges that Section 4.18’s
“Material Agreements” representation was untrue because the Verska Agreement
was undisclosed. AMMO contends that the Verska Agreement divided Mr. Verska’s
loyalty and thus conflicted with Gemini’s post-closing operations. Mr. Urvan
responds that the Verska Agreement did not create obligations as contemplated by
Section 4.18. He continues that AMMO’s allegations as to the Verska’s Agreement
are speculative. And he concludes that he had no knowledge of any fraud. But none
of those airings gain him dismissal at this stage.
As an initial matter, Mr. Urvan reads Section 4.18 too narrowly. It doesn’t
say that no employees have explicit obligations under a written contract that would
directly interfere with their role at AMMO. Instead, it says no Gemini employee “is
obligated under any contract (including licenses, covenants or commitments of any
-48-
nature) or other agreement” in a way that would conflict with their duties to
AMMO.223 AMMO’s amended complaint alleges that there was an implicit
agreement between Mr. Verska and Mr. Urvan baked into the Verska Agreement
that Mr. Verska would promote Mr. Urvan’s personal interests. If AMMO proves
such an accord existed, it might well fit within Section 4.18’s broad language.
Mr. Urvan’s argument that the existence of any such side agreement is
speculative is inefficacious at this point. Though AMMO might have an uphill battle
in proving this allegation, it is no doubt conceivable. At least three facts tend to
support a reasonable inference that Mr. Verska agreed to act at Mr. Urvan’s behest
in conflict with his duties to GunBroker’s new owner. First, the $1 million annual
payment under the Verska Agreement was quadruple Mr. Verska’s normal salary.
Second, Mr. Verska allegedly undertook actions that were inconsistent with
AMMO’s desires and that promoted the interest of “Urvan era” employees and
vendors. Third, when Mr. Verska was fired for insubordination, Mr. Urvan stopped
making payments under the Verska Agreement. Taken together, those facts raise a
reasonable inference that Mr. Urvan was truly paying for Mr. Verska’s servility so
that Mr. Urvan could surreptitiously influence GunBroker’s operations.
Last, Mr. Urvan’s argument regarding knowledge is misaimed. It eyes what
Mr. Urvan knew about Mr. Verska’s activity post-closing—but that is not the target.
223
MA § 4.18(a).
-49-
The relevant knowledge is Mr. Urvan’s knowledge of the existence of his alleged
pre-closing agreement. If an undisclosed agreement between Mr. Urvan and Mr.
Verska existed, Mr. Urvan would necessarily have had knowledge of it.
In sum, Mr. Urvan merely raises factual disputes about the truth of AMMO’s
allegations. While the evidence may ultimately vindicate him, deciding so isn’t the
Court’s role on a motion to dismiss. Instead, the question is whether AMMO’s
allegations, if proven, might conceivably give rise to relief. They could. So, the
answer to that question is yes.
b. The Finder’s Fee Representation Count is adequately pled.
Count V of AMMO’s amended complaint alleges Mr. Urvan lied in
Section 4.27’s “Finder’s Fee” representation. It claims that Mr. Urvan owed
undisclosed fees to HL and Mr. Hayden. Mr. Urvan first responds that AMMO’s
amended complaint alleged Mr. Urvan owed fees to HL and Mr. Hayden when
Section 4.27 only mentions fees owed by Gemini.224 He then argues that AMMO
failed to adequately plead that any fees were owed to HL or Mr. Hayden. Mr. Urvan
next suggests that AMMO didn’t sufficiently plead that Mr. Urvan knew about fees
owed to HL or Mr. Hayden. And last, Mr. Urvan says, even if fees were owed to
HL or Mr. Hayden, that did not damage AMMO. None of these arguments deliver
dismissal.
224
See AMMO’s Am. Compl. ¶ 73.
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At the outset, there appears some merit to Mr. Urvan’s argument regarding
the fees purportedly owed to HL. The HL agreement had specific requirements for
a tail fee. AMMO has not pled that those requirements were met. Moreover, the
fact that HL has not sought any fees in the years since the merger belies AMMO’s
argument that HL is entitled to a payment. That said, the failure of one theory
supporting a larger count isn’t decisive on a motion to dismiss.225
Turning to the fees owed to Mr. Hayden, AMMO’s pleading that “the
representation failed to disclose that Mr. Urvan owed Mr. Hayden a finder’s fee,”226
does not necessitate dismissal. If Section 4.27 had read “Gemini owes no fee to a
broker, finder or investment banker,” then perhaps only pleading that Mr. Urvan
owed a fee would be deficient. But the actual language of Section 4.27 is “no broker,
finder or investment banker is entitled to any brokerage, finder’s or other fee or
commission.”227 In other words, the focus of this representation is on the entity to
which a fee is owed, not who owes the fee. Also, the representation contemplates
“arrangements made by or on behalf of [Gemini].”228 Based on that language,
Mr. Urvan owing a fee under arrangements made on Gemini’s behalf would violate
the representation. Seemingly, any arrangements Mr. Urvan made to sell Gemini
225
See inVentiv Health, 2021 WL 252823, at *4-6; Envolve Pharm., 2021 WL 855866, at *4 n.45.
226
AMMO’s Am. Compl. ¶ 73.
227
MA § 4.27.
228
Id. (emphasis added).
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would have been made on Gemini’s behalf.
As for whether Mr. Urvan actually owes Mr. Hayden a fee, it is at least
reasonably conceivable. Mr. Hayden is currently litigating this very issue against
Mr. Urvan in federal court.229 At least some of Mr. Hayden’s claims in that action
are proceeding to trial.230 Though Mr. Urvan disputes Mr. Hayden’s claims, that
isn’t enough to shoulder Mr. Urvan’s inconceivability burden.
About knowledge, Mr. Urvan suggests that even if Mr. Hayden’s post-merger
claim to a fee succeeds, Mr. Urvan inherently did not know about that payment
obligation pre-merger. If actual knowledge of falsity was required for fraudulent
inducement, Mr. Urvan’s argument might persuade; but a reckless disregard for truth
suffices.231 As the individual who engaged with Mr. Hayden, Mr. Urvan would
have had the facts necessary to determine whether Mr. Hayden was entitled to a fee.
Accordingly, it is conceivable that Mr. Urvan either knew or should have known that
Mr. Hayden would be owed a payment following the merger. Again, a motion to
dismiss is not the setting to decide factual disputes.
Finally, Mr. Urvan alleges that AMMO failed to adequately232 plead damages.
229
AMMO’s Am. Compl. ¶ 30.
230
Id.
231
Abry Partners, 891 A.2d at 1050.
232
Urvan suggests some “lack of consensus within Delaware case law on whether fraud damages
must be pled with ‘particularity.’” Urvan’s Reply Brief in Further Support of his Motion to
Dismiss AMMO’s Amended Complaint at 14 n.11 (D.I. 82). Chancery Court Rule 9(b) provides
that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall
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Not so. In multiple places in its amended complaint, AMMO alleged that it “would
not have closed the Merger on the terms it did had it known the truth.”233 In its
opposition brief, AMMO expounds that it could have pushed for a better deal had it
known about Mr. Urvan’s extensive efforts to sell Gemini and that it may have
reconsidered working with an individual who had trouble maintaining business
relationships.234 That is sufficient to state this claim.
2. The Arizona Securities Act Count is adequately pled.
In Count VI of AMMO’s amended complaint, AMMO brings a claim under
ASA § 44-1991(A)(2), which is the statutory equivalent of a fraudulent inducement
claim. As one would expect, Mr. Urvan first contends there were no
misrepresentations in the Merger Agreement. That argument is no more persuasive
under this heading. Mr. Urvan’s only other argument is that Gemini was not a
“security” within the meaning of the statute because it was wholly owned by
AMMO.
AMMO doesn’t contest that point. Instead, AMMO says that the alleged
be stated with particularly.” Ch. Ct. R. 9(b) (emphasis added). Our Supreme Court’s most recent
explication on this tells us, “[t]he factual circumstances that must be stated with particularity refer
to the time, place, and contents of the false representations; the facts misrepresented; the identity
of the person(s) making the misrepresentation; and what that person(s) gained from making the
misrepresentation.” Liborio III, L.P. v. Artesian Water Co., Inc., 2023 WL 6614194, at *10 (Del.
Oct. 11, 2023) (citation omitted). Notably, the elevated pleading standard is inapplicable to the
averment of damages.
233
AMMO’s Am. Compl. ¶¶ 8, 118.
234
AMMO’s Opp’n Br. at 30 n.12.
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misrepresentations in the Merger Agreement were made “in connection with a
transaction . . . involving” the transfer of AMMO stock, 235 bringing the Merger
Agreement within the ASA’s reach.
AMMO’s argument would be more easily accepted if it were contained in the
amended complaint. Instead, AMMO’s amended complaint only alleged that the
Gemini membership interests were securities. 236 Fortunately for AMMO, Court of
Chancery Rule 8 counsels forgiveness toward pleadings.237 The facts of the merger
detailed in AMMO’s amended complaint give adequate notice that securities were
involved. Moreover, Mr. Urvan can hardly claim he is prejudiced considering he is
bringing nearly identical statutory claims based on the same transaction. So, the
amended complaint’s imprecision does not warrant dismissal of Count VI.
3. The Indemnification Claims:
a. The Triton Litigation Count is adequately pled.
AMMO seeks payment of its counsel fees from the Triton Litigation based on
Section 9.5(a) of the Merger Agreement.
Mr. Urvan contests that obligation in two ways. First, he insists that only
235
See ARIZ. REV. STAT. ANN. § 44-1991 (2021).
236
See AMMO’s Am. Compl. ¶ 121.
237
Ch. Ct. R. 8(f) (“All pleadings shall be so construed as to do substantial justice.”); see also In
re McDonald’s Corp. Stockholder Deriv. Litig., 289 A.3d 343, 375-76 (Del. Ch. 2023) (explaining
this Court’s relatively indulgent pleading standards).
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Section 9.5(f)—and not Section 9.5(a)—applies to the Triton Litigation. Second, he
says that the relevant requirement that “in the reasonable opinion of counsel to the
Indemnified Party . . . there exists a conflict of interest between the Indemnifying
Party and the Indemnified Party that cannot be waived” has not been met.
Mr. Urvan’s burden of demonstrating that AMMO’s interpretation of the relevant
provisions is unreasonable has not been met.
Mr. Urvan’s suggestion that Section 9.5(f) unambiguously cancels out all of
the provisions of Section 9.5(a) with regard to the Triton Litigation is unconvincing.
Section 9.5(a)’s relevant language reads: “If any Indemnified Party receives notice
of the assertion or commencement of any Action made or brought by any Person
who is not a party to this Agreement or an Affiliate of a party to this Agreement or
a Representative of the foregoing (a “Third-Party Claim”) . . . .”238 The provision
then explains the applicable notice procedures.239 Mr. Urvan posits that “receiv[ing]
notice” is part of the definition of “Third-Party Claim,” meaning Third-Party Claims
must be initiated after the merger; but, even if that is itself a reasonable
interpretation, it is certainly not the only one. It’s also reasonable to interpret the
language to mean “Third-Party Claim” is simply shorthand for the defined type of
“Action”—i.e., one brought by a non-party. Under that reading, the Triton Litigation
238
MA § 9.5(a).
239
Id.
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would meet the definition of a Third-Party Claim.
Next, Mr. Urvan proposes that Sections 9.5(a) and 9.5(f) are in conflict. In
his view then, only one or the other can apply to any single Action. Not so.
Mr. Urvan incorrectly suggests that a more specific provision in a contract entirely
displaces a general provision. But that’s not the rule. Rather, “[u]nder the
general/specific canon, ‘[s]pecific language in a contract controls over general
language, and where specific and general provisions conflict, the specific provision
ordinarily qualifies the meaning of the general one.’”240 So, the existence of Section
9.5(f) doesn’t nullify Section 9.5(a) with regard to the Triton Litigation. Rather, the
provisions should be read harmoniously and Section 9.5(f) might only trump Section
9.5(a) where there is true conflict.
Nothing in Section 9.5(f) precludes AMMO from being represented in the
Triton Litigation. The only limitation was that AMMO could not “terminate any of
the legal counsel currently handling the Triton Matter.”241 But AMMO didn’t
terminate Culhane Meadows; the firm withdrew. Accordingly, it is reasonable to
interpret the Merger Agreement to allow AMMO to retain its own counsel for the
Triton Litigation pursuant to the terms of Section 9.5(a).
The remaining question is whether a non-waivable conflict existed such that
240
Crispo v. Musk, 2023 WL 7154477, at *5 (Del. Ch. Oct. 31, 2023) (alteration in original)
(quoting DCV Hldgs., Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005)).
241
MA § 9.5(f).
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Mr. Urvan’s obligations to pay AMMO’s counsel fees under Section 9.5(a) was
triggered. AMMO raises at least a reasonable inference of that.
The relevant letter sent by Culhane Meadows discusses specific limitations on
that firm’s contemporaneous representation of both AMMO and Mr. Urvan based
upon their incompletely aligned interests.242 And, based on the contents of the letter,
Culhane Meadows didn’t give the parties the option to waive the conflict. Instead,
it said “we believe the most prudent action is to withdraw as counsel for the AMMO
Companies in the Cobb Action and permit them to be separately represented.”243
That raises a fair inference that “in the reasonable opinion of counsel to the
Indemnified Party . . . there exists a conflict of interest between the Indemnifying
Party and the Indemnified Party that cannot be waived.”244 Accordingly, Count I of
AMMO’s amended complaint is adequately pled.
b. The Tenor Litigation Count is adequately pled.
Count II of AMMO’s amended complaint seeks fees related to an appeal bond
in the Tenor Litigation. Mr. Urvan’s counter lacks merit. Despite already having
paid the principal amount that AMMO requested—months after the request and only
once AMMO filed suit— Mr. Urvan wants to avoid paying associated interest and
242
See Urvan’s Mot., Ex. 4 at 1-2.
243
Urvan’s Mot., Ex. 4 at 2.
244
MA § 9.5(a).
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fees. His lone argument is that he received insufficient notice under Section 9.5(c).
As a preliminary matter, the Tenor Litigation pre-existed the merger and was
expressly contemplated by the Merger Agreement’s indemnification provisions.245
Also, Section 9.5(c)’s notice requirements extend to the Direct Claim itself, not each
individual Loss sustained because of the Direct Claim.246
In April 2023, AMMO contacted Mr. Urvan about the appeal bond premium
and sent Mr. Urvan the invoice and the related letter of credit.247 Mr. Urvan
disclaimed responsibility for the payment.248 After repeatedly seeking confirmation
from Mr. Urvan that he would pay, AMMO eventually paid the bill itself on
May 24, 2023.249 Then, after AMMO filed its amended complaint, Mr. Urvan
reimbursed the $38,750 premium in October 2023.250
In essence, Mr. Urvan argues that AMMO needed to provide separate notice
of each cost it incurred related to the Tenor Litigation. But there’s nothing in
Section 9.5(c) that supports that view. To the contrary, the language that the notice
“shall indicate the estimated amount, if reasonably practicable, of the Loss that has
245
Id. §§ 1.38, 9.2(e).
246
Id. § 9.5(c).
247
AMMO’s Am. Compl. ¶ 49.
248
AMMO’s Am. Compl. ¶ 50.
249
Id. ¶¶ 52-53.
250
Urvan’s Mot., Ex. 6.
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been or may be sustained by the Indemnified Party” suggests a one-time notice.251
AMMO provided notice of the appeal bond costs in April 2023. Mr. Urvan didn’t
accept responsibility until October. So, even if the Indemnifying Party’s thirty-day
period to respond to the notice is a prerequisite to a lawsuit as Mr. Urvan contends,
that period expired. Accordingly, Count II of AMMO’s amended complaint
survives Mr. Urvan’s challenge.
c. The Fee-Shifting Count is adequately pled.
Finally, there’s the issue of whether AMMO’s Count III claim for first-party
fee-shifting can survive. It can. Mr. Urvan first says this count must go because he
wasn’t given adequate notice under Section 9.5(c).252 Again, he fails.
The enforcement costs that AMMO seeks under this count are being incurred
by this very litigation. Prior to this lawsuit commencing, there was nothing for
AMMO to provide notice of. What’s more, all of the relevant details required by
Section 9.5(c)’s notice provision are within Mr. Urvan’s knowledge as the
counterparty.
Mr. Urvan’s other argument is just as feeble. In his view, this indemnification
claim is unripe and without the subject matter jurisdiction of this Court because
AMMO’s entitlement to fees is dependent on the outcome of this litigation. For this,
251
MA § 9.5(a).
252
Urvan’s Mot. at 52.
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Mr. Urvan relies primarily on a cramped read of LaPoint v. AmerisourceBergen
Corp.253 There, the Supreme Court held that indemnification claims “do not accrue
until the underlying claim is finally decided” but did so in a very different context.254
In LaPointe, the plaintiff filed suit in the Court of Chancery for a breach of
contract in 2004. The claim did not fully resolve until 2007.255 Shortly after that
resolution, the prevailing party sought contractual indemnification.256 When the
request was rejected, the indemnitee sued in Superior Court.257 The Superior Court
ruled that the indemnification claim should have been brought during the Chancery
action and that the claim was outside the three-year statute of limitation because it
accrued in 2004.258 The Supreme Court held that waiting for the underlying
litigation to resolve did not render the indemnification claim time-barred.259 So,
LaPoint only stands for the proposition that a party is allowed to bring a subsequent
action for fee-shifting, not that it is disallowed from seeking fee-shifting in the initial
action.
253
970 A.2d 185 (Del. 2009).
254
LaPoint, 970 A.2d at 198.
255
Id. at 189.
256
Id.
257
LaPoint, 970 A.2d at 189-90.
258
Id. at 190-91.
259
Id. at 197-98.
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Mr. Urvan also cites Batty v. UCAR International Inc.260 There, this Court
dismissed an indemnification claim without prejudice, finding it premature.261 But
it appears from context that the Batty plaintiff was trying to obtain actual payment
on her indemnification claim before the case resolved.262
Here, AMMO acknowledges it must await the end of this litigation to recover
on this Count.263 And, since Batty, this Court has regularly maintained fee-shifting
claims in the same action upon which they are dependent.264 There’s no reason to
depart from that approach here.265
At bottom, the uncertainty concerns that undergird ripeness are weak when
the chief uncertainty is the resolution of the current litigation.266 Compared to the
obvious risk of wasteful litigation if AMMO is forced to file a separate action to
pursue its fees, it is better to keep Count III alive.
260
2019 WL 1489082 (Del. Ch. Apr. 3, 2019).
261
Batty, 2019 WL 1489082, at *9.
262
See id. (“Batty argues that the phrase ‘in seeking’ in Section 9 creates a right to advancement.”).
263
AMMO’s Opp’n Br. at 52.
264
See LPPAS Representative v. ATH Hldg., 2022 WL 94610, at *1 (Del. Ch. Jan. 10, 2022); AB
Stable VIII v. Maps Hotels & Resorts One, 2020 WL 7024929, at *100 (Del. Ch. Nov. 30, 2020),
aff’d, 268 A.3d 198 (Del. 2021); Manti Hldgs. v. Authentix Acq., 2020 WL 4596838, at *9 (Del.
Ch. Aug. 11, 2020), aff’d, 261 A.3d 1199 (Del. 2021).
265
Urvan’s postulation that the defendants in those post-Batty cases may not have raised ripeness
ignores the fact that the Court will raise a lack of subject matter jurisdiction sua sponte.
266
See, e.g., Benefytt Techs., Inc. v. Capitol Specialty Ins. Corp., 2022 WL 16504, at *9 (Del.
Super. Ct. Jan. 3, 2022).
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V. CONCLUSION
For the reasons stated above, the AMMO Entities’ Motion to Dismiss is
GRANTED in part, DENIED in part, and Mr. Urvan’s Motion to Dismiss is
DENIED.
IT IS SO ORDERED.
/s/ Paul R. Wallace
Paul R. Wallace, J.
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