RGIS International Transition Holdco, LLC v. Retail Services WIS Corporation

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
RGIS INTERNATIONAL )
TRANSITION HOLDCO, LLC, )
RGIS INTERNATIONAL )
TRANSITION HOLDCO MEXICO, )
LLC, and RGIS MEXICO, LLC, )
)
Plaintiffs, )
)
v. ) C.A. No. N21C-12-077
) PRW CCLD
RETAIL SERVICES WIS )
CORPORATION, RETAIL SERVICES )
WIS HOLDINGS CORPORATION, )
JAMES ROSE, and )
RICHARD BAXTER, )
)
Defendants. )
Submitted: January 12, 2024
Decided: February 13, 2024
Upon Defendants’ Motion to Dismiss,
GRANTED.
MEMORANDUM OPINION AND ORDER
Christopher P. Simon, Esquire, David G. Holmes, Esquire, CROSS & SIMON, LLC,
Wilmington, Delaware, Jed M. Schwartz, Esquire, Christopher Almon, Esquire,
Michael T. Frieda, Esquire, MILBANK LLP, New York, New York, Attorneys for
Plaintiffs RGIS International Transition Holdco, LLC, RGIS International Holdco,
LLC, and RGIS Mexico, LLC.
Steven T. Margolin, Esquire, Bryan T. Reed, Esquire, GREENBERG TRAURIG, LLP,
Wilmington, Delaware, Attorneys for Defendants James Rose and Richard Baxter.
WALLACE, J.
Plaintiffs here purchased shares of certain companies from sellers. Turns out,
those certain companies had certain troublesome undisclosed liabilities, including
millions owed to Mexican taxation authorities. Plaintiffs have responded with a
fraud claim against the Delaware-incorporated seller entities. To boot, Plaintiffs
have brought civil conspiracy and aiding and abetting fraud claims against the
sellers’ CEO and CFO, both of whom reside in Texas.
Those officer-defendants now move to dismiss the claims brought against
them as individuals. They say they aren’t subject to personal jurisdiction in
Delaware and—even were they—that Plaintiffs failed to adequately state claims
against them as individual defendants.
Plaintiffs have pled themselves into a pickle. The non-resident officer-
defendants could be subject to personal jurisdiction in Delaware under a minimum-
contacts analysis only if they were acting within their corporate role. But those same
officer-defendants cannot be liable for the civil conspiracy or aiding and abetting
claims unless they were acting outside their corporate role. All that said, the Court
need not make the call on whether the tag was applied or missed on either end. The
Plaintiffs’ claims against the individual officer-defendants don’t survive Rule
12(b)(6) scrutiny and are, therefore, dismissed for that failure.
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I. FACTUAL AND PROCEDURAL BACKGROUND1
A. THE PARTIES
Plaintiffs RGIS International Transition Holdco, LLC, RGIS International
Transition Holdco Mexico, LLC, and RGIS Mexico, LLC (collectively, “RGIS”) are
Delaware limited liability corporations.2
Defendants Retail Services WIS Corporation and Retail Services WIS
Holdings Corporation (the “Selling Entity Defendants”) are Delaware corporations
headquartered in Dallas, Texas.3 Individual Defendants James Rose and Richard
Baxter both reside in Texas.4 Mr. Rose is the Chief Executive Officer and Mr.
Baxter the Chief Financial Officer of the Selling Entity Defendants.5
B. FACTUAL BACKGROUND
In September 2021, RGIS purchased from the Selling Entity Defendants the
entire issued share capital of three entities—WIS UK, WIS Mexico, and PSI
(collectively, the “Transferred Companies”)6—for an aggregate purchase price of
1
This background is drawn from the pleadings, which include the Complaint, Answer,
Counterclaims, and the documents incorporated therein.
2
Amended Complaint (“Am. Compl.”) ¶ 9 (D.I. 22).
3
Id. ¶¶ 10-12.
4
Id. ¶¶ 13-14.
5
Id.
6
WIS Mexico and PSI are the entities located in Mexico and, as later discussed, subject to
Mexican tax liability. Mr. Rose and Mr. Baxter both served on the board of managers for WIS
Mexico and PSI. Id.
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$7.5 million.7
The governing Share Purchase Agreement contains the Selling Entity
Defendants’ representations and warranties.8 Those now mentioned are pertinent to
this motion.9
SPA Section 5.1.4 addresses the Transferred Companies’ liabilities. Under
Section 5.1.4.1, Selling Entity Defendants represent and warrant that RGIS “has
been provided with true and accurate copies of” the Transferred Companies’ balance
sheets and income statements for the fiscal year ended March 31, 2021, and the four
months ended July 31, 2021.10 And those financial statements “present fairly, in all
material respects, the financial position and the results of operations of the
Transferred Companies as of the respective dates thereof and for the respective
periods covered . . . .”11 That section also provides that “the Transferred Companies
have no indebtedness other than (i) as reflected on the Financial Statements, or
(ii) as incurred in the Ordinary Course of Business.”12 SPA Section 5.1.4.2 states,
[t]here are no material liabilities or obligations of the Transferred
Companies of any nature, whether or not accrued, contingent or
otherwise, other than those that (i) are reflected or reserved against
7
Am. Compl. ¶ 1.
8
Id., Ex. 1 (“SPA”).
9
Other representations and warranties are also included in the Amended Complaint, but only
those included here are relevant to the claims brought against Mr. Rose and Mr. Baxter.
10
SPA § 5.1.4.1.
11
Id.
12
Id.
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on the Financial Statements or otherwise set forth in this Agreement,
(ii) have been incurred in the Ordinary Course of Business of the
Transferred Companies since March 31, 2021, (iii) are permitted or
contemplated by this Agreement, or (iv) have been discharged or
paid off since March 31, 2021.13
Section 5.1.9 of the SPA contains the Selling Entity Defendants’ representations and
warranties with respect to taxes. Section 5.1.9.1 states, in pertinent part:
To the knowledge of the Seller, (i) all material Tax Returns required
to be filed by or with respect to any Transferred Company have been
filed and all such Tax Returns were correct and complete in all
material aspects; (ii) all material Taxes due and payable have been
paid or will be paid by the due date thereof; (iii) there is no action,
suit, proceeding, investigation, audit, deficiency, adjustment or
claim pending or, to the knowledge of the Seller, threatened in
writing with respect to any Taxes of the Transferred Companies;
(iv) each of the Transferred Companies has complied with all
applicable Laws relating to the payment and withholding of Taxes
and has duly and timely withheld and paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid
over . . . .14
Under SPA Section 5.1.9.3, Selling Entity Defendants represent and warrant that,
[t]o the knowledge of the Seller, the Transferred Companies have
properly collected and remitted all material amounts of sales and
similar Taxes with respect to sales or leases made or services
provided to their customers and have properly received and retained
any appropriate Tax exemption certificates or other documentation
for all such sales, leases or other services made without charging or
remitting any material amounts of sales or similar Taxes that qualify
as exempt from sales and similar Taxes.15
13
Id. § 5.1.4.2.
14
Id. § 5.1.9.1.
15
Id. § 5.1.9.3.
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The “knowledge of the Seller” is defined in the Agreement as “the actual knowledge
after reasonable inquiry of James Rose and Richard Baxter.”16 Indeed, Mr. Rose and
Mr. Baxter represented to RGIS that they were fully knowledgeable regarding all
relevant issues and that they would be RGIS’s sole contact during negotiations.17
After the closing, RGIS learned of WIS Mexico and PSI’s outstanding tax
liabilities in Mexico.18 Those companies owed the Mexican taxation authorities
upwards of 40 million Mexican pesos (approximately $2.5 million U.S. dollars) for
various unpaid taxes stemming back to 2007.19 In addition, an open audit into
WIS Mexico from 2010 has a potential tax liability of 71 million Mexican pesos
(approximately $4.2 million U.S. dollars).20
RGIS was unaware of these outstanding tax liabilities when they entered into
the Agreement. At closing, the Selling Entity Defendants presented only a
consolidated report to RGIS with no separate financial statement of the Transferred
Companies.21
In contrast, the Selling Entity Defendants were searching for solutions to the
16
Id. § 1 (Definitions and interpretation).
17
Am. Compl. ¶ 19.
18
Id. ¶¶ 4, 27.
19
Id. ¶¶ 28-33.
20
Id. ¶ 32.
21
Id. ¶ 36.
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tax liabilities well before the sale occurred. According to PSI and WIS Mexico’s
books and records, Selling Entity Defendants attempted to move PSI’s operations
and employees entirely to WIS Mexico, leaving PSI with no operations or assets—
only liabilities.22
The named Individual Defendants were also involved in efforts to resolve
those liabilities. In 2015, Mr. Rose heard a presentation about PSI’s liabilities, as
well as the plan to move PSI’s assets, and was then-on privy to the effort.23 And in
2021, Mr. Baxter authorized a payment of 7.761 million Mexican Pesos purportedly
to settle a tax liability of approximately 71 million Mexican Pesos.24 But that
payment was never provided to the Mexican tax authorities; instead, it was
distributed to employees of WIS Mexico.25 In connection with that payment, a
document was created purporting to be a settlement with Mexican tax authorities.26
That settlement document was later discovered to be fabricated.27 Mr. Baxter had
some knowledge of the fabricated settlement document, as he asked those same
employees for an update on the “tax liability settlement” just prior to the sale
22
Id. ¶¶ 40-41.
23
Id. ¶ 42.
24
Id. ¶¶ 43-44.
25
Id. ¶ 44.
26
Id. ¶¶ 43-44.
27
Id. ¶ 44.
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transaction.28
In November 2021, RGIS demanded compensation for the liabilities it has
now incurred and currently faces.29 Defendants refused, and RGIS filed suit.30
C. PROCEDURAL BACKGROUND
RGIS initiated this action on December 10, 2021.31 After a long delay,32 RGIS
served summonses in June 2023.33 The Individual Defendants answered with their
initial motion to dismiss.34
In response, RGIS filed an Amended Complaint, bringing three causes of
action: (1) fraud against the Selling Entity Defendants;35 (2) civil conspiracy against
the Individual Defendants,36 and; (3) aiding and abetting fraud against the Individual
Defendants.37 The Individual Defendants have answered with another motion to
28
Id. ¶ 45.
29
Id. ¶ 8.
30
Id.
31
D.I. 1.
32
Instead of moving this case forward, RGIS waited to act upon its initial Complaint for
months—providing intermittent status updates only at the Court’s behest. See D.I. 2 (status update
dated July 25, 2022); D.I. 4 (status update dated Feb. 9, 2023); D.I. 6 (status update dated May 24,
2023). Without question, RGIS’s months-long delay extended well past this Court’s 120-day time
limit for service of summonses and complaints. See Super. Ct. Civ. R. 4(j).
33
D.I. 10-15.
34
D.I. 16.
35
Am. Compl. ¶¶ 60-72.
36
Id. ¶¶ 73-76.
37
Id. ¶¶ 77-80.
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dismiss.38 That motion is now ripe for decision.
II. PARTIES’ CONTENTIONS
Mr. Rose and Mr. Baxter seek to dismiss Counts II and III of the Amended
Complaint.39 In support, they make two main arguments.40 First, they contend that
they are not subject to personal jurisdiction in the State of Delaware.41 Specifically,
Mr. Rose and Mr. Baxter say that they are not necessary and proper parties under
10 Del. C. § 3114, and that constitutional due process concerns warrant dismissal of
the claims against them.42
Second, Mr. Rose and Mr. Baxter contend that neither the civil conspiracy nor
the aiding and abetting fraud claim is pled such that they withstand the reasonable
conceivability examination that must be engaged.43 They argue that the Amended
Complaint pleads insufficient facts of the elements necessary to state either claim.44
38
Individual Defendants’ Renewed Motion to Dismiss Counts II and III of Plaintiffs’ Amended
Complaint (“Defs.’ Mot.”) (D.I. 25).
39
See generally id.
40
In addition to that described here, Individual Defendants also urge the Court to consider two
documents outside of the pleadings. See id. at 23-24; id., Ex. A (Tax Settlement Document); id.,
Ex. B (Deloitte Letter). Because the motion can be and is disposed of on the 12(b)(6) failure-to-
state-a-claim merits alone, the Court didn’t consider these documents. See Super. Ct. Civ. R.
12(b)(6) (instructing how the Court must proceed under Rule 56 when matters outside the
pleadings are presented to and not excluded by the Court).
41
Id. at 12-18.
42
Id.
43
Id. at 19-26.
44
Id. at 19-23, 25-26.
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Additionally, as basis for dismissal, they point to Delaware law that explains that a
corporation cannot conspire with its own officers, directors, or agents.45
RGIS opposes the Individual Defendants’ motion.46 In its opposition, RGIS
contends that Messrs. Rose and Baxter are subject to personal jurisdiction in
Delaware under Section 3114.47 And it insists that both the civil conspiracy claim
as well as the aiding and abetting fraud claim are sufficiently pled here.48
With reference to the latter, RGIS contends that both claims fall under the
personal motivation exception to the Delaware rule that a corporation cannot
conspire with its own officers, directors, or agents.49 In support, RGIS says that
Messrs. Rose and Baxter acted “to cause the sale of the Transferred Companies and
thereby eliminate their personal liability to Mexican authorities for non-compliance
with [tax] requirements.”50 According to RGIS, “[u]nder Mexican law, directors
such as Rose and Baxter are subject to liability for non-compliance with [tax]
requirements, but that exposure is potentially reduced once they no longer serve as
directors, and the sale had the effect of Rose and Baxter no longer serving as
45
Id. at 22-23; Individual Defendants’ Reply Brief in Support of Motion to Dismiss (“Defs.’
Reply Br.”) at 6-13 (D.I. 30).
46
See generally Plaintiffs’ Answering Brief in Opposition to Individual Defendants’ Renewed
Motion to Dismiss (“Pls.’ Answering Br.”) (D.I. 28).
47
Id. at 24-34.
48
Id. at 8-17.
49
Pls.’ Answering Br. at 13-18.
50
Id. at 14 (quoting Am. Compl. ¶ 74).
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directors of the Mexican Entities, leaving the Transferred Companies with the
liability.”51
Because this motion can be disposed of on Rule 12(b)(6) grounds alone, the
Court need not resolve the personal jurisdiction challenge posed.
III. STANDARD OF REVIEW
“Under Superior Court Civil Rule 12(b)(6), ‘[t]he legal issue to be decided is,
whether a plaintiff may recover under any reasonably conceivable set of
circumstances susceptible of proof under the complaint.’”52 Under that Rule, the
Court will
(1) accept all well pleaded factual allegations as true, (2) accept even
vague allegations as “well pleaded” if they give the opposing party
notice of the claim, (3) draw all reasonable inferences in favor of the
non-moving party, and (4) [not dismiss the claims] unless the plaintiff
would not be entitled to recover under any reasonably conceivable set
of circumstances.53
“If any reasonable conception can be formulated to allow Plaintiffs’ recovery, the
motion must be denied.”54 This is because “[d]ismissal is warranted [only] where
the plaintiff has failed to plead facts supporting an element of the claim, or that under
51
Am. Compl. ¶ 46; id. at 13-14.
52
Vinton v. Grayson, 189 A.3d 695, 700 (Del. Super. Ct. 2018) (alteration in original) (quoting
Super. Ct. Civ. R. 12(b)(6)).
53
Id. (alteration in original) (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs.
LLC, 27 A.3d 531, 535 (Del. 2011)).
54
Id. (citing Cent. Mortg. Co., 27 A.3d at 535).
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no reasonable interpretation of the facts alleged could the complaint state a claim for
which relief might be granted.”55
Civil Rule 9(b) requires one to plead a fraud claim with particularity.56
IV. DISCUSSION
A. RGIS’S CLAIMS OF CIVIL CONSPIRACY AND AIDING AND ABETTING FAIL.
In Counts II and III, RGIS alleges that Mr. Rose and Mr. Baxter engaged in
acts of civil conspiracy as well as aiding and abetting fraud.57 A civil conspiracy
claim requires a plaintiff establish that “two or more persons combined or agreed
with the intent to do an unlawful act or to do an otherwise lawful act by unlawful
means.”58 An aiding and abetting claim requires a plaintiff allege “(i) underlying
tortious conduct, (ii) knowledge, and (iii) substantial assistance.” 59 Both claims
must be pled with a certain degree of particularity.60
55
Hedenberg v. Raber, 2004 WL 2191164, at *1 (Del. Super. Ct. Aug. 20, 2004) (citation
omitted).
56
Super. Ct. Civ. R. 9(b).
57
Am. Compl. ¶¶ 73-80.
58
In re Transamerica Airlines, Inc., 2006 WL 587846, at *6 (Del. Ch. Feb. 28, 2006).
59
Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2014 WL 6703980, at
*23 (Del. Ch. Nov. 26, 2014).
60
Id. at *20-23 (applying the Rule 9(b) particularity standard to civil conspiracy and aiding and
abetting claims); Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *11 (Del. Ch.
Aug. 26, 2005) (“Where a complaint alleges fraud or conspiracy to commit fraud, the Rules of this
court call for a higher pleading standard, requiring the circumstances constituting the fraud or
conspiracy to ‘be pled with particularity.’” (quoting Atlantis Plastics Corp. v. Sammons, 558 A.2d
1062, 1066 (Del. Ch. 1989), and citing Ch. Ct. R. 9(b), which is identical to Super. Ct. Civ. R. 9(b)
and states: “In all averments of fraud, the circumstances constituting fraud shall be stated with
particularity.” (cleaned up and emphasis added))).
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Generally, a corporation cannot be deemed to have conspired with its wholly
owned subsidiary, or its officers and agents.61 And “like civil conspiracy, officers
and agents cannot aid and abet their principal or each other in the commission of a
tort.”62 But these general rules may not apply when the officer or agent of the
corporation steps out of his corporate role and acts on personal motives.63 A
corporate officer does not step out of his corporate role unless he “seeks to gain a
benefit independent of [his] financial interest resulting from [his] employment by or
investment in [his employer].”64
While RGIS tries mightily to convince otherwise, the personal motivation
exception just doesn’t save the claims challenged here. The Amended Complaint
describes Messrs. Rose and Baxter acting within their capacities as CEO and CFO
of the Selling Entity Defendants while purportedly perpetuating a fraud against
RGIS.
To argue the personal motivation exception, RGIS mostly relies on its
61
In re Transamerica Airlines, Inc., 2006 WL 587846, at *6 (citing Amaysing Techs. Corp. v.
Cyberair Commc’ns, Inc., 2005 WL 578972, at *7 (Del. Ch. Mar. 3, 2005)); see also Anschutz
Corp. v. Brown Robin Cap., LLC, 2020 WL 3096744, at *17-18 (Del. Ch. June 11, 2020)
(characterizing the general rule as a “basic law of conspiracy”).
62
Largo Legacy Grp., LLC v. Charles, 2021 WL 2692426, at *18 (Del. Ch. June 30, 2021)
(quoting Cornell Glasgow, LLC v. La Grange Props., LLC, 2012 WL 2106945, at *11 (Del. Super.
Ct. June 6, 2012)).
63
In re Transamerica Airlines, Inc., 2006 WL 587846, at *6 (citing Amaysing Techs. Corp., 2005
WL 578972, at *7); Largo Legacy Grp., LLC, 2021 WL 2692426, at *18 (citing same).
64
Anschutz Corp., 2020 WL 3096744, at *18 (alteration in original) (quoting Amaysing Techs.
Corp., 2005 WL 578972, at *8).
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allegation that Messrs. Rose and Baxter are “reducing [their] personal exposure to
liability in Mexico” by selling the companies with outstanding tax liabilities.65 But
RGIS nowhere reveals or alleges facts demonstrating that the sale (or any act related
thereto) was done outside of the Individual Defendants’ corporate roles, or pursuant
to some particularized personal motives. RGIS also broadly asserts that Mr. Rose
and Mr. Baxter could be liable for outstanding tax liabilities as directors of the
Transferred Companies, and that liability “is potentially reduced” once they no
longer serve as directors.66 Yet, RGIS points to no law substantiating that claim, and
identifies no facts showing they acted for that reason.
Messrs. Rose and Baxter may in fact personally benefit from selling those
companies with outstanding tax liabilities. But that alone doesn’t show that they
stepped outside of their corporate role and acted out of personal motivation to do so.
Indeed, as it must, RGIS admits that its allegation is that the Individual Defendants
it’s after “us[ed] their capacities as officers and the benefits of Delaware law[] to
negotiate a transaction intended to carry out a fraud against Plaintiffs.”67 So, even
when drawing all reasonable inferences in its favor, RGIS has pled insufficient facts
65
Am. Compl. ¶¶ 46, 74; Pls.’ Answering Br. at 13-14.
66
Am. Compl. ¶ 46; Pls.’ Answering Br. at 13.
67
Pls.’ Answering Br. at 32 (emphasis added). Indeed, the suggested benefits Messrs. Rose and
Baxter may have supposedly gained from selling the Transferred Companies to RGIS are more
aptly categorized as “resulting from their employment,” because the facts and occurrences of the
claims against the individuals and the fraud claim against the Selling Entity Defendants are so
intertwined. See Anschutz Corp., 2020 WL 3096744, at *18.
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to save its otherwise impermissible conspiracy and aiding and abetting claims via
the personal motivation exception.
V. CONCLUSION
RGIS cannot bring the civil conspiracy or aiding and abetting fraud claims it
has penned against Mr. Rose and Mr. Baxter; corporations can’t do either with their
own officers. RGIS’s attempt to save those claims by resorting to the personal
motivation exception fails in its pleading.
The Individual Defendants’ Motion to Dismiss Counts II and III of the
Amended Complaint is GRANTED.
IT IS SO ORDERED.
_______________________
Paul R. Wallace, Judge
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