IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

FORTIS ADVISORS LLC, as the )

Equityholder Representative, )

)

Plaintiff, )

v. ) C.A. No. 9522-CB

)

DIALOG SEMICONDUCTOR PLC, )

)

Defendant. )

MEMORANDUM OPINION

Date Submitted: November 19, 2014 

Date Decided: January 30, 2015

Kevin G. Abrams, Derrick B. Farrell, J. Peter Shindel, Jr. and David A. Seal of 

ABRAMS & BAYLISS LLP, Wilmington, Delaware; Attorneys for Plaintiff.

Kurt M. Heyman, Samuel T. Hirzel, II and Dawn Kurtz Crompton of PROCTOR 

HEYMAN LLP, Wilmington, Delaware; Neal A. Potischman, Sandra West Neukom and 

Alyse L. Katz of DAVIS POLK & WARDELL LLP, Menlo Park, California; Attorneys 

for Defendant.

BOUCHARD, C.
1

I. INTRODUCTION

This action involves a dispute over whether earn-out payments are owed to the 

former equityholders of iWatt, Inc. (“iWatt”) resulting from the sale of iWatt to Dialog 

Semiconductor PLC (“Dialog”) through a merger transaction that closed in 2013. The 

gravamen of the case is whether Dialog breached the provision of the merger agreement 

obligating it to use “commercially reasonable best efforts” to achieve and pay the earnout payments in full. That claim is not the subject of the present dismissal motion and is 

proceeding through discovery.

As seems all too common in disputes over earn-out payments, the complaint in 

this action asserts, in the alternative to the breach of contract claim, a claim for breach of 

the implied covenant of good faith and fair dealing. Notably, plaintiff admits it does not 

believe that any gaps exist in the merger agreement from which to imply an additional 

contractual term, but it nonetheless seeks to maintain the implied covenant claim as an 

alternative legal theory in case the Court may disagree in the future. I reject this 

approach to pleading, and conclude that the failure to identify any gap in the merger 

agreement in which the implied covenant would operate warrants dismissal of that claim. 

I also conclude that plaintiff‟s claims for fraud and negligent misrepresentation 

must be dismissed. Among other things, the allegations of the complaint fail to satisfy 

the particularity requirement of Court of Chancery Rule 9(b) because the complaint does 

not identify the time or place of the false representations or specifically who made them. 
2

II. BACKGROUND1

A. The Parties

Plaintiff Fortis Advisors LLC (“Fortis”) is a Delaware limited liability corporation 

with its principal place of business in La Jolla, California. Under the terms of an 

Agreement and Plan of Merger dated as of July 1, 2013 (the “Merger Agreement”), Fortis 

was appointed as the representative of the former equityholders of iWatt.

Non-party iWatt, formerly a Delaware corporation, was a provider of digital 

power management circuits. Before its sale to Dialog, iWatt designed, developed, and 

marketed digital-centric power management integrated circuits for AC/DC power 

conversion, LED solid-state lighting, and LED display backlighting markets. After the 

merger closed, iWatt was operated as a separate, stand-alone business unit of Dialog 

known as the Power Conversion Business Group.

Defendant Dialog Semiconductor PLC is incorporated in England and Wales with 

its principal place of business in Green Park, United Kingdom. Dialog is a provider of 

highly integrated power management, audio and short-range wireless technologies. 

B. The Merger Agreement

In the Merger Agreement, which is governed by Delaware law, Dialog agreed to 

acquire iWatt for $310 million plus earn-out payments of up to $35 million depending on 

 

1 Unless otherwise noted, the facts recited in this Memorandum Opinion are drawn from 

the allegations of the Amended Verified Complaint (the “complaint”) and the documents 

integral to or incorporated therein.
3

the post-merger revenues of Dialog‟s Power Conversion Business Group. Specifically, 

earn-out payments would be triggered if the revenues of the Power Conversion Business 

Group exceeded: (1) $51.3 million during the six months ended December 31, 2013 (the 

“First Earn-Out Period”) and/or (2) $99.9 million during the nine months ended 

September 30, 2014 (the “Second Earn-Out Period”).2

Aware that Dialog would take control of iWatt‟s operations after the merger, the 

parties agreed to specific contractual provisions regarding the earn-out payments and 

Dialog‟s ability to manage the business post-closing. In particular, Section 3.04 of the 

Merger Agreement provides, in general terms, that Dialog (referred to as “Parent”) was 

required to use its commercially reasonable best efforts to achieve and pay the earn-out 

payments in full:

From the Closing Date through the end of the Second Earnout Period, 

Parent shall, and shall cause its Affiliates . . . to, use commercially 

reasonable best efforts, in the context of successfully managing the 

business of the Surviving Corporation, to achieve and pay the Earn-Out 

Payments in full (it being understood and agreed that one of the primary 

objectives of managing the business of the Surviving Corporation shall be 

to achieve and pay the Earn-Out Payments in full, provided that, subject in 

all respects to its obligations under this Agreement, Parent is entitled to 

make changes to the business in its reasonable commercial judgment in 

order to achieve the objectives in managing the business of the Surviving 

Corporation), including allocating appropriate and sufficient resources 

 

2

The actual amount of the earn-out payments was based on a scale. For the First EarnOut Period, iWatt‟s former equityholders would receive at least a partial earn-out 

payment if iWatt‟s revenues exceeded $51.3 million and a total of up to $17 million in 

earn-out payments if iWatt‟s revenues exceeded $57 million during that period. For the 

Second Earn-Out Period, iWatt‟s former equityholders would receive at least a partial 

earn-out payment if iWatt‟s revenues exceeded $99.9 million and a total of up to $18 

million in earn-out payments if iWatt‟s revenues exceeded $111 million during that 

period. Merger Agreement § 3.01 (Am. Compl. Ex. A).
4

(including sufficient capital expenditure, working capital and human 

resources) to the Surviving Corporation and its Subsidiaries to enable the 

achievement and payment of the Earn-Out Payments in full.3 

The next sentence of Section 3.04 goes on to impose a number of specific obligations and 

prohibitions concerning Dialog‟s operation of the business:

Without limiting the generality of the foregoing, (i) Parent shall, and shall 

cause its Affiliates . . . to (A) operate the business of the Surviving 

Corporation and its Subsidiaries as a separate, stand-alone business unit 

(understanding that Parent may elect to integrate sales, service, supply 

chain and administrative functions with those of Parent), (B) maintain a 

separate research and development organization within such business unit 

with engineering headcount at a level not materially below that currently 

maintained by the Company and (C) price the products of the Surviving 

Corporation on a standalone basis and without any reduction related to the 

pricing of products by Parent‟s other product lines and (ii) Parent shall not, 

and shall not authorize or permit its Affiliates . . . to, (A) take any action 

with the intent of avoiding or reducing the payment of any Earn-Out 

Payment, (B) divert to another business of Parent any business opportunity 

in a manner that could reasonably be expected to or does diminish or 

minimize the Earn-Out Payments, (C) take any action for the purpose of 

shifting Revenue outside of the Earn-Out Periods . . . or reducing Revenue . 

. . .

4

C. The Power Conversion Business Group Fails to Meet the 

Earn-Out Revenue Targets

On July 16, 2013, Dialog completed its acquisition of iWatt. On January 28, 

2014, Dialog notified Fortis that the Power Conversion Business Group indicated 

revenues of $35.355 million during the First Earn-Out Period, well short of the $51.3 

million revenue threshold to trigger an earn-out payment for this period under the Merger 

Agreement. Based on information it obtained from Dialog after the First Earn-Out Period 

 

3 Merger Agreement § 3.04(a) (emphasis added) (Am. Compl. Ex. A).

4

Id.
5

ended, Fortis contends that the Power Conversion Business Group “had three key 

revenue shortfalls, all of which could have been easily avoided if Dialog had used 

commercially reasonable best efforts . . . to achieve and pay the Earn-Out Payments in 

full,” relating to “lower than anticipated sales involving the (1) the LED lighting 

business; (2) Samsung; and (3) Apple.”5

According to the Amended Verified Complaint, which was filed on July 24, 2014, 

before the end of the Second Earn-Out Period, certain actions taken by Dialog also made 

it apparent that iWatt would not achieve sufficient revenues to trigger an earn-out 

payment for the Second Earn-Out Period. Dialog later confirmed that its Power 

Conversion Business Group did not achieve sufficient revenues during the Second EarnOut Period to trigger an earn-out payment for this period.

D. Procedural History

On April 9, 2014, Fortis filed its initial complaint in this action on behalf of 

iWatt‟s former equityholders. On July 25, 2014, Fortis amended its complaint. As 

amended, the complaint contains five counts: (1) breach of Section 3.04 of the Merger 

Agreement; (2) specific performance relating to the Second Earn-Out Payment (the time 

period for which had not yet ended when the amended complaint was filed); (3) in the 

alternative to Count I, breach of the implied covenant of good faith and fair dealing; (4) 

fraudulent inducement; and (5) in the alternative to Count IV, negligent 

misrepresentation. Dialog filed an answer in response to Counts I and II.

 

5 Am. Compl. ¶ 28.
6

On August 8, 2014, Dialog moved to dismiss Counts III, IV, and V for failure to 

state a claim for relief under Court of Chancery Rule 12(b)(6) and, for the fraud-based 

claims, for failure to satisfy the particularity requirement of Court of Chancery Rule 9(b). 

I heard oral argument on this motion on November 19, 2014.

III. LEGAL ANALYSIS

A. Motion to Dismiss Under Rule 12(b)(6)

Under Court of Chancery Rule 12(b)(6), a motion to dismiss for failure to state a 

claim for relief must be denied unless, assuming the well-pled allegations to be true and 

viewing all reasonable inferences from those allegations in the plaintiff's favor, there is 

no “reasonably conceivable set of circumstances susceptible of proof” in which the 

plaintiff could recover.6“In determining whether a pleading meets this minimal standard, 

this Court draws all reasonable inferences in the plaintiff‟s favor, accepts all well-pleaded 

factual allegations as true, and even accepts „vague allegations in the Complaint as „well 

pleaded‟ if they provide the defendant notice of the claim.‟”7 

B. The Complaint Fails to State a Claim for Breach of the Implied 

Covenant of Good Faith and Fair Dealing

Under Delaware law, the implied covenant of good faith and fair dealing attaches 

to every contract by operation of law and “requires „a party in a contractual relationship 

to refrain from arbitrary or unreasonable conduct which has the effect of preventing the 

 

6 Cent Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del. 

2011).

7

Seinfeld v. Slager, 2012 WL 2501105, at *2 (Del. Ch. June 29, 2012) (quoting Cent. 

Mortg. Co., 27 A.3d at 536).
7

other party to the contract from receiving the fruits‟ of the bargain.”8 “[T]he implied 

covenant only applies where a contract lacks specific language governing an issue and 

the obligation the court is asked to imply advances, and does not contradict, the purposes 

reflected in the express language of the contract.”9 “The Court must focus on „what the 

parties likely would have done if they had considered the issues involved.‟ It must be 

„clear from what was expressly agreed upon that the parties who negotiated the express 

terms of the contract would have agreed to proscribe the act later complained of . . . had 

they thought to negotiate with respect to that matter.‟”10 Where the contract speaks 

directly regarding the issue in dispute, “[e]xisting contract terms control . . . such that 

implied good faith cannot be used to circumvent the parties‟ bargain, or to create a freefloating duty unattached to the underlying legal documents.‟”11

 “To state a claim for 

breach of the implied covenant, a litigant must allege a specific obligation implied in the 

contract, a breach of that obligation, and resulting damages.”12 

 

8 Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434, 442 (Del. 2005) (quoting 

Wilgus v. Salt Pond Inv. Co., 498 A.2d 151, 159 (Del. Ch. 1985), construing Restatement 

§ 205).

9

Alliance Data Sys. Corp. v. Blackstone Capital P’rs V L.P., 963 A.2d 746, 770 (Del. 

Ch. 2009) (citation omitted), aff’d, 976 A.2d 170 (Del. 2009).

10 Lonergan v. EPE Hldgs. LLC, 5 A.3d 1008, 1018 (Del. Ch. 2010) (citations omitted).

11 Dunlap, 878 A.2d at 441 (citation and internal quotation marks omitted).

12 Matthew v. Laudamiel, 2012 WL 605589, at *16 (Del. Ch. Feb. 21, 2012); see also 

Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106, 116 (Del. 2006) (upholding 

dismissal of implied covenant claim where plaintiff failed to identify “any implied 

contract term that it would have the trial court read into the contract”); Fitzgerald v. 

Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998).
8

To place the implied covenant claim in context, it is important to first review 

Count I of the complaint, which is not the subject of the motion to dismiss. In Count I, 

Fortis contends that Dialog breached Section 3.04 of the Merger Agreement by failing to 

“use its commercially reasonable best efforts . . . to achieve and pay the earn-out 

payments in full.”13 Specifically, Fortis alleges that Dialog breached Section 3.04 by 

taking and/or failing to take the following six actions:

(1) failing to replace Ronald Edgerton [iWatt‟s former CEO] following his 

termination; (2) failing to replace the sales staff of Dialog‟s Power 

Conversion Business terminated by Dialog; (3) intentionally not building 

sufficient inventory and supply chains for the Power Conversion Business 

to meet the Earn-Out Revenue Goals; (4) failing to properly manage 

development and introduction of lower price point LED lighting solutions 

for the Power Conversion Business; (5) directing Dialog employees against 

actively marketing the Power Conversion Business‟ LED lighting products; 

and (6) interfering with sales efforts, and failing to dedicate adequate 

manpower and resources to the Apple and Samsung accounts.14

In Count III of its complaint, Fortis pleads, as an alternative to Count I, that Dialog 

breached the implied covenant of good faith and fair dealing by taking or failing to take 

these same six actions.15 Significantly, Fortis does not identify any gap or ambiguity in 

 

13 Am. Compl. ¶ 34.

14 Am. Compl. ¶ 35.

15 See Am. Compl. ¶ 51. Five of these six items (1, 2, 3, 5 and 6) are repeated verbatim 

in Counts I and III. Item 4 is described slightly differently in Count I than Count III. In 

Count I, Fortis alleges that Dialog failed “to properly manage development and 

introduction of lower price point LED lighting solutions for the Power Conversion 

Business.” Am. Compl. ¶ 35. In Count III, Fortis alleges that Dialog failed “to timely 

introduce scheduled lower price point LED lighting solutions for the Power Conversion 

Business.” Am. Compl. ¶ 51. I see no substantive difference between these allegations. 

Both of them focus on the alleged failure to introduce “lower price point LED lighting 
9

Section 3.04 or elsewhere in the Merger Agreement as a basis for implying an additional 

obligation owed by Dialog with regard to any of these six alleged actions or failures. To 

the contrary, Fortis expressly acknowledges that it “does not believe any” gaps exist in 

Section 3.04, but argues that Count III should survive just in case “the Court may 

disagree” down the road of this litigation.16 

In opposition, Dialog contends that Count III should be dismissed because it is

duplicative of Fortis‟s breach of contract claim. According to Dialog, Fortis‟s claim for 

breach of the implied covenant fails because “there is no implied obligation at issue.”17 

Instead, Dialog argues, “the Merger Agreement expressly defines Dialog‟s obligation 

(i.e., to use „commercially reasonable best efforts‟)” and thus, “[t]his case . . . is about an 

alleged breach of the contract‟s terms.”18 

In my opinion, the allegations of the complaint fail to state a claim for breach of 

the implied covenant because Fortis has not identified, as it must,19 a gap in the Merger 

Agreement to be filled by implying terms through the implied covenant. Stated 

differently, Fortis has failed to identify any implied contract term that it would have this 

Court read into the Merger Agreement. 

 

solutions” in a manner that allegedly would have increased the revenues of the Power 

Conversion Business during the earn-out periods.

16 Pl.‟s Ans. Br. 12.

17 Def.‟s Op. Br. 10.

18 Id.

19 Supra note 12.
10

Instead of identifying any contractual gap or term to be implied, Fortis mimicks

the language of its contract claim to argue that the same six alleged actions and failures 

cited as evidence of Dialog‟s alleged breach of Section 3.04 of the Merger Agreement 

were contrary to the parties‟ intent in the Merger Agreement because “Fortis reasonably 

expected that Dialog would use its best efforts to achieve and pay the earn-out payments 

in full during both the First and Second Earn-Out Periods,” but Dialog did not.20 The 

Merger Agreement, however, expressly imposed on Dialog the obligation to use 

“commercially reasonable best efforts to . . . achieve and pay the Earn-Out Payments in 

full.”21 Thus, the Merger Agreement sets a contractual standard by which to evaluate if 

Dialog‟s failure to achieve and pay the earn-out payments in its operation of the Power 

Conversion Business Group was improper.22 There is no gap in the Merger Agreement to 

fill in this regard. Stated more generally, Count III must be dismissed because Fortis has 

failed to identify any “interstitial space in which the doctrine of the implied covenant 

might operate”23 regarding any of the six actions or failures of Dialog that Fortis 

challenges in this action.

 

20 Am. Compl. ¶ 49.

21 Merger Agreement § 3.04 (Am. Compl. Ex. A).

22 I assume Fortis was using shorthand in its complaint when it referenced a “best efforts” 

standard in Count III. Am. Compl. ¶ 49. If it was not, and was intending to suggest that 

a different standard should be implied, it would be improper to do so because the Merger 

Agreement explicitly sets the standard to be “commercially reasonable best efforts.” 

Merger Agreement § 3.04 (Am. Compl. Ex. A).

23 AQSR India Private, Ltd. v. Bureau Veritas Hldgs., Inc., 2009 WL 1707910, at *11 

(Del. Ch. June 16, 2009).
11

My conclusion is consistent with this Court‟s decision in Matthew v. Laudamiel.

24

 

In Laudamiel, the Aeosphere defendants alleged, among other things, that Matthew had 

breached either the LLC agreement or the implied covenant of good faith and fair dealing 

by refusing to attend an emergency board meeting.25 The LLC agreement provided that 

Matthew was obliged to “use [his] „best efforts‟ to attend all properly called meetings of 

the Board.”26 The Court determined that because the LLC agreement expressly required 

Matthew to use his best efforts, “a claim challenging Matthew‟s efforts to attend the 

emergency Board meeting [had to] be pled as a breach of contract counterclaim applying 

the contractually agreed-upon best efforts standard.”27 

In this case, it is equally evident from the Merger Agreement that the parties 

carefully negotiated the contours of Dialog‟s obligations to achieve and pay the earn-out 

payments – hence, Fortis‟s acknowledgement that it does not believe any gaps exist in 

Section 3.04. Thus, Dialog‟s failure to achieve the earn-out revenue thresholds must be 

analyzed within the confines of the express contractual obligations set forth in that 

provision and any other applicable provision of the Merger Agreement.

28

 

 

24 2012 WL 605589 (Del. Ch. Feb. 21, 2012).

25 Id. at *15.

26 Id. at *20.

27 Id.

28 See also Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *11 (Del. 

Ch. Dec. 22, 2010) (dismissing implied covenant claim for failing to expeditiously close 

a merger where the merger agreement contained a “reasonable best efforts” clause that 

included the obligation to expeditiously close the merger); AQSR India, 2009 WL 

1707910, at *11 (dismissing implied covenant claim for “arbitrarily and in bad faith” 
12

Finally, I reject Fortis‟s argument that its implied covenant claim should survive 

despite its failure to identify any gap in the Merger Agreement, simply because it has 

pled its implied covenant claim in the alternative. Fortis cites two cases in which the 

Court has permitted breach of contract and implied covenant claims to survive a motion 

to dismiss when pled as alternative theories for recovery. In both cases, unlike here, the 

plaintiff had identified an ambiguity or potential gap in a contract that could be filled by 

the implied covenant.29 The right to plead alternative claims, as Court of Chancery Rule 

 

determining that there had been a Material Adverse Effect because “[w]hether there was 

a Material Adverse Effect [was] governed by the express terms of the [stock purchase 

agreement],” leaving “no interstitial space in which the doctrine of the implied covenant 

might operate”).

29 See Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at 

*7-8 (Del. Ch. Apr. 20, 2009) (finding that plaintiff sufficiently pled “an implied duty to 

cause performance of the Supporting Agreements” where the contract was ambiguous “as 

to who was responsible for the bulk of the conduct alleged in [Plaintiff]‟s Complaint”); 

Clean Harbors, Inc. v. Safety-Kleen, Inc., 2011 WL 6793718, at *9 (Del. Ch. Dec. 9, 

2011) (finding that the alleged facts could support a claim for breach of the implied 

covenant where an express term of the contract required defendant to use its “good faith 

discretion,” but other terms of the contract to which the implied covenant might apply 

were potentially ambiguous as to defendant‟s obligations).

Fortis also relies on the post-trial opinion in eCommerce Industries, Inc. v. MWA 

Intelligence, Inc., 2013 WL 5621678 (Del. Ch. Sept. 30, 2013). There, after concluding 

that the ECI parties had breached an express non-compete clause through certain indirect 

marketing efforts, the Court found in the alternative that the same parties had breached an 

implied covenant. Critical to the latter holding, the Court found that the parties to the 

contract “could not have foreseen the corporate structure and marketing plan” that would 

exist after the transaction, and that “had they seen the situation that presently exists, . . . 

they would have proscribed it.” Id. at *34, *36. Thus, the Court‟s alternative holding 

followed from identifying a gap in the parties‟ agreement. Here, Fortis has not pled that 

any of the actions or failures of Dialog challenged in this action were unforeseeable and 

thus not addressed in the Merger Agreement. To the contrary, as discussed above, the 

Merger Agreement explicitly contemplated that iWatt would be operated as a separate, 
13

8(e)(2) permits, “does not obviate the need to provide factual support for each theory.”30 

Here, to repeat, Fortis has challenged six alleged actions or failures of Dialog in its 

operation of the Power Conversion Business Group after the merger closed, but it has 

failed to plead the existence of any gap in the Merger Agreement in which the implied 

covenant could operate with respect to any of these alleged actions or failures. 

Accordingly, Count III fails to state a claim for relief.

C. The Complaint Fails to Plead a Claim of Fraudulent Inducement with 

the Requisite Particularity

“In order for a fraud claim to survive a motion to dismiss, a plaintiff needs to 

allege: (1) that defendant made a false representation, usually one of fact; (2) with the 

knowledge or belief that the representation was false, or with reckless indifference to the 

truth; (3) with an intent to induce the plaintiff to act or refrain from acting; (4) that 

plaintiff‟s action or inaction was taken in justifiable reliance upon the representation; and 

(5) damage to the plaintiff as a result of her reliance on the representation.”31

Court of Chancery Rule 9(b) further requires that “[i]n all averments of fraud . . . , 

the circumstances constituting fraud . . . be stated with particularity.” “To satisfy Rule 

9(b), a complaint must allege: (1) the time, place, and contents of the false representation; 

 

stand-alone business unit and imposed both general and specific obligations on Dialog in 

its management of the business after the merger closed relating to the earn-out payments.

30 BAE Sys. Info. & Elec. Sys. Integration, Inc. v. Lockheed Martin Corp., 2009 WL 

264088, at *8 (Del. Ch. Feb. 3, 2009).

31 Grunstein v. Silva, 2009 WL 4698541, at *12 (Del. Ch. Dec. 8, 2009) (citing Gaffin v. 

Teledyne, Inc., 611 A.2d 467, 472 (Del. 1992)).
14

(2) the identity of the person making the representation; and (3) what the person intended 

to gain by making the representations.”32 The particularity requirement requires a 

plaintiff to allege “the circumstances of the fraud with detail sufficient to apprise the 

defendant of the basis for the claim.”33 To support promissory fraud, a plaintiff must also 

“plead specific facts that lead to a reasonable inference that the promissor had no 

intention of performing at the time the promise was made.”34

In Count IV of its complaint, Fortis alleges that Dialog made four materially false 

statements during the parties‟ negotiations to induce iWatt to enter into the Merger 

Agreement:

[B]etween March 13, 2013 and July 1, 2013 Dialog, through statements by 

its CEO, Jalal Baherli, and Mark Tyndall, its Vice President of Business 

Development and Corporate Strategy, to Ronald Edgerton and other iWatt 

directors and officers, repeatedly falsely represented to iWatt it would (1) 

keep iWatt‟s existing sales force in place with substantially the same 

responsibilities; (2) only reduce iWatt‟s sales force by a small number if 

Dialog‟s existing sales staff could service some of iWatt‟s customers; (3) 

increase investments in iWatt and add new products to accelerate iWatt‟s 

growth; and (4) use Dialog‟s existing relationships with Samsung, 

Panasonic, Sony, Zumtobel, and Bosch to increase iWatt‟s sales.35

 

32 ABRY P’rs V, L.P. v. F & W Acq., LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).

33 Id.

34 Grunstein, 2009 WL 4698541, at *13 (citation omitted) (internal quotation marks 

omitted).

35 Am. Compl. ¶ 16; see also Am. Compl. ¶ 57 (alleging same four false statements).
15

Fortis alleges that Dialog “had no intention to keep these promises at the time they were 

made”36 and, as evidence of such, points to the fact that Dialog reduced support for 

iWatt‟s products and personnel soon after the merger closed.

37

In seeking to dismiss Count IV, Dialog argues, among other things,38 that the 

allegations of the complaint lack the particularity required under Rule 9(b) because the 

complaint “does not identify which Dialog employee allegedly made which statements, 

or where or when any of these statements were made.”39 I agree. In my opinion, the 

allegations underlying Count IV are deficient in several respects that, taken together, fail 

to satisfy the particularity requirement of Rule 9(b).

First, the complaint fails to allege in any meaningful sense when any of the alleged 

four misrepresentations were made. The complaint does allege that each of the 

misrepresentations occurred at some time during a period of approximately 3-1/2 months 

from when the parties began their negotiations (March 12, 2013) until the Merger 

Agreement was signed (July 1, 2013). This, however, is the functional equivalent to 

providing no time parameter at all because the misrepresentations logically could not 

have occurred during any other period of time. In short, contrary to the purpose of the 

 

36 Am. Compl. ¶ 58.

37 See Am. Compl. ¶¶ 5, 26-32, 51.

38 Dialog also argues that all of the alleged misrepresentations were promises of future 

intent and that Fortis failed “to plead facts showing that the Dialog speaker(s) lacked the 

intention of keeping [those] promises at the time(s) that they were made.” Def.‟s Op. Br. 

16. Given that I find Count IV to be deficient for failing to plead the circumstances of 

the alleged fraud with particularity as required under Rule 9(b), I do not decide this issue.

39 Def.‟s Op. Br. 17.
16

particularity requirement in Rule 9(b), Dialog is left to guess when Fortis contends that it 

allegedly made any of the four false statements attributed to it.

Pleading when the alleged misrepresentations occurred is especially important 

where, as here, the alleged promises are of future performance. When a fraud claim is 

premised on promises of future performance, a plaintiff must demonstrate that the 

defendant had no intention of keeping its promises at the time they were made.40 To 

defend against such assertions, a defendant logically must be apprised when the alleged 

statements were made in order to counter the assertion that it did not intend to keep its 

promise at that time.41 Fortis, however, has made no effort to provide this information. 

I am unpersuaded by Fortis‟s reliance on this Court‟s decision in Grunstein v. 

Silva42 to excuse the lack of any meaningful temporal allegations in its complaint.

Although the facts in Grunstein are somewhat complex, simplified for relevant purposes,

the case concerned two individuals (Grunstein and Dwyer) who alleged that a third 

individual (Silva) had entered an oral partnership agreement with them in July or August 

of 2005 relating to the acquisition of Beverly Enterprises, Inc., a publicly-held company 

 

40 See supra note 34.

41 See Grunstein, at *13 (“Unlike a traditional fraud claim that allows a plaintiff to plead 

intent generally, because the factual predicate of a promissory fraud claim is the 

speaker‟s state of mind at the time the statement is made, a general averment of a 

culpable state of mind is insufficient. Instead, the plaintiff „must plead specific facts that 

lead to a reasonable inference that the promissor had no intention of performing at the 

time the promise was made.‟”) (quoting Winner Acceptance Corp. v. Return on Capital 

Corp., 2008 WL 5352063, at *10 (Del. Ch. Dec. 23, 2008)).

42 2009 WL 4698541 (Del. Ch. Dec. 8, 2009).
17

that owned and/or operated nursing homes. Grunstein and Dwyer sued Silva for fraud on 

the theory that Silva misrepresented his intent to honor the partnership agreement and

“now disclaims the very existence of a contract in the first place.”43 To demonstrate that 

Silva had no intention of performing the partnership agreement when it was made, 

Grunstein and Dwyer pointed to two principal factual allegations: “(1) that „[a]t no time 

from at least early September 2005 through the closing [in March 2006] did Mr. Silva 

ever mention Mr. Grunstein‟s name to WSIB [a third-party financing source for the 

transaction] or disclose to WSIB Mr. Grunstein‟s role in the Beverly Acquisition‟ . . . and 

(2) that „Mr. Silva represented to WSIB in writing on several occasions . . . that FCP [an 

entity owned and controlled by Silva] had signed the Merger Agreement and paid the 

deposit to Beverly, when in fact NASC [a special purpose entity the three partners were 

using to facilitate the acquisition] had signed the merger agreement and Mr. Dwyer had 

put up the deposit pursuant to the agreement between the parties.”44 In the face of a Rule 

9(b) challenge, the Court found the foregoing allegations to contain sufficient 

particularity because “Plaintiffs have asserted discrete representations by Silva at 

specifically delineated times during the acquisition negotiations.”45

The underlying factual allegations in Grunstein differ from this case in two 

important respects that make Grunstein inapposite. The first factual allegation quoted 

 

43 Id. at *13.

44 Id. at *13 (citation omitted).

45 Id. at *14.
18

above concerned an omission of material information. In that circumstance, it is logical 

to tie a misrepresentation to a period of time (even one of several months) during which 

the information was concealed. This case, however, does not concern an omission. As 

explained above, Fortis‟s fraud claim is premised on four affirmative misrepresentations 

that had to have been made at some point(s) in time, which the complaint makes no 

meaningful attempt to particularize. As to the second factual allegation quoted above, the 

plaintiffs in Grunstein had alleged that Silva made this representation on a specific date, 

i.e., November 4, 2005.46 That is precisely the kind of factual detail that is missing from 

the complaint here.47 

In addition to failing to particularize when any of the alleged misrepresentations 

were made, the complaint fails to identify who made any particular misrepresentation and 

to whom they were made.48 Instead, the complaint asserts that one of two officers of 

 

46 See id. at *3 (citing Compl. ¶ 36).

47 The three other cases Fortis cites in support of its argument that it has met the temporal 

requirement of Rule 9(b) are inapt for the same reason: in each, the plaintiff provided 

meaningful detail concerning when the misrepresentations were made. See Nacco Indus., 

Inc. v. Applica Inc., 997 A.2d 1, 27 (Del. Ch. 2009) (finding fraudulent statements 

alleged to have been made on specific dates over a period of time sufficient to plead a 

fraud claim); Griffin Corp. Servs., LLC v. Jacobs, 2005 WL 2000775, at *9 (Del. Ch. 

Aug. 11, 2005) (refusing to dismiss fraudulent misrepresentation claim where 

counterclaim plaintiffs alleged that false representations were made in December 2003); 

and Acker v. Transurgical, Inc., 2004 WL 1230945, at *3 (Del. Ch. Apr. 22, 2004) 

(finding the time requirement satisfied where complaint alleged that fraudulent 

misrepresentations were made on one of two dates).

48 See Steinman v. Levine, 2002 WL 31761252, at *15 (Del. Ch. Nov. 27, 2002) 

(“Steinman does not even identify misrepresentations made by any particular individuals. 

He simply lumps all the Director Defendants together in his cause of action. Steinman is 
19

Dialog (either Baherli or Tyndall) made the representations, but we do not know who 

allegedly made which statement(s). The complaint also asserts that the representations

were made to iWatt‟s former CEO (Edgerton) and other, unnamed directors and officers 

of iWatt, but we do not know who was the recipient of, or even a witness to, any 

particular statement. 

Citing this Court‟s opinion in Anvil Holding Corp. v. Iron Acquisition Co.,

49 Fortis 

argues that “it is not necessary to identify what particular statements were made by 

specific individuals.”50 That is too broad a reading of the case. In Anvil, plaintiffs 

alleged that all of the individual defendants committed fraud by affirmatively concealing 

certain information from the plaintiffs at meetings held on two specific dates.

51

 In other 

words, plaintiffs did identify who committed the misrepresentations (and when) by 

alleging all of the individual defendants participated in the omission of material 

information.52 It does not follow from this scenario that where the alleged 

misrepresentations consist of false promises rather than omissions, that one is excused 

from identifying who made the false promises. 

 

required to identify specific acts of individual defendants for his negligent 

misrepresentation claim to survive.”).

49 2013 WL 2249655 (Del. Ch. May 17, 2013).

50 Pl.‟s Ans. Br. 22. 

51 Anvil, 2013 WL 2249655, at *5.

52 Id.
20

Finally, the complaint makes no mention of where or by what means any of the 

misrepresentations were made. The complaint refers generally to “discussions” or 

“conversations,”

53 but it does not describe where (e.g., at iWatt‟s offices, Dialog‟s 

offices, a mutual meeting place) or how (e.g., in person, over the phone, by email) any of 

these communications occurred. The lack of these details, in isolation, may not warrant 

dismissal under Rule 9(b). But when the lack of any such details is considered together 

with the failure of the complaint to identify when any of the alleged misrepresentations 

were made and who made any of them, the complaint fails in my view to apprise Dialog

of sufficient information concerning the circumstances of the alleged fraud and thus does 

not satisfy the particularity requirement of Rule 9(b). 

D. The Complaint Fails to State a Claim for Negligent 

Misrepresentation

In Count V of the complaint, Fortis asserts a claim for negligent misrepresentation 

based on the same allegations cited in support of its fraudulent inducement claim. A 

claim for negligent misrepresentation is often referred to interchangeably as equitable 

 

53 Am. Compl. ¶¶ 16, 56, 57. 
21

fraud,

54 and Fortis itself consistently characterized Count V as a claim for equitable fraud

in its briefing.55 

“A claim of negligent misrepresentation, or equitable fraud, requires proof of all of 

the elements of common law fraud except „that plaintiff need not demonstrate that the 

misstatement or omission was made knowingly or recklessly.‟”56 Because Fortis failed to 

plead its common law fraud claim with the requisite particularity, its negligent 

misrepresentation claim fails for the same reason.57

Fortis‟s negligent misrepresentation claim fails to state a claim for a second, 

independent reason. This Court has held that “an equitable fraud or negligent 

misrepresentation claim lies only if there is either: (i) a special relationship between the 

parties over which equity takes jurisdiction (like a fiduciary relationship) or (ii) 

 

54 See, e.g., Eurofins Panlabs, Inc. v. Ricerca Biosciences, LLC, 2014 WL 2457515, at 

*17 (Del. Ch. May 30, 2014) (“Equitable fraud, also known as negligent 

misrepresentation, . . . .”); Envo, Inc. v. Walters, 2009 WL 5173807, at *6 (Del. Ch. Dec. 

30, 2009) (“A claim for equitable fraud or negligent misrepresentation . . . .”); Oliver v. 

Boston Univ., 2000 WL 1091480, at *11 (Del. Ch. July 18, 2000) (“[N]egligent 

misrepresentation and/or equitable fraud claim.”).

55 See Pl.‟s Ans. Br. 28-29.

56 Williams v. White Oak Builders, Inc., 2006 WL 1668348, at *7 (Del. Ch. June 6, 2006) 

(citation omitted).

57 See Zebroski v. Progressive Direct Ins. Co., 2014 WL 2156984, at *7 (Del. Ch. Apr. 

30, 2014) (applying Rule 9(b) pleading standard to equitable fraud claim); see also Those 

Certain Underwriters at Lloyd’s London v. National Installment Ins. Svcs., 2007 WL 

1207106, at *5 (Del. Ch. Feb. 8, 2007) (“Court of Chancery Rule 9(b) requires that fraud 

be pled with particularity. This rule almost certainly extends to negligent 

misrepresentation (equitable fraud) as well.”) (citing In re Dataproducts Corp. S’holders 

Litig., 1991 WL 165301 (Del. Ch. Aug. 22, 1991), reprinted at 17 Del. J. Corp. L. 1159, 

1170 n. 5). Fortis does not dispute the applicability of Rule 9(b) to Count V. See Pl.‟s 

Ans. Br. 28.
22

justification for a remedy that only equity can afford.”58 Here, no meritorious argument

has been made that this case involves either circumstance. There is no allegation, for 

example, that Dialog owed iWatt any fiduciary duties or that there was another 

relationship from which equitable duties sprung.

59

 To the contrary, the gravamen of the 

present dispute arises from a transaction that ostensibly was the product of arms-length 

negotiation between sophisticated parties. Finally, Count V of the complaint expressly 

seeks damages and not any form of equitable relief.

60

 

 

58 Envo, 2009 WL 5173807, at *6 (citing Wal-Mart Stores, Inc. v. AIG Ins. Co., 2006 WL 

3742596, at *2 (Del. Ch. Dec. 12, 2006)); see also Ameristar Casinos, Inc. v. Resorts 

Int’l Hldgs., LLC, 2010 WL 1875631, at *12 (Del. Ch. May 11, 2010) (“equitable fraud 

can only be applied in those cases in which one of the two fundamental sources of equity 

jurisdiction exist: (1) an equitable right founded upon a special relationship over which 

equity takes jurisdiction, or (2) where equity affords its special remedies, e.g., „rescission, 

or cancellation; where it is sought to form a contract . . . or to have a constructive trust 

decreed.‟”) (internal quotation marks omitted) (quoting U.S. West, Inc. v. Time Warner, 

Inc., 1996 WL 307445, at *26 (Del. Ch. June 6, 1996) (Allen, C.)).

59 Fortis argues “that iWatt had a pecuniary interest in Dialog‟s future plans for iWatt‟s 

business” and that “[b]ecause the parties had a pecuniary interest in the information that 

serves as the basis of Fortis‟ equitable fraud claim, sufficient „special equities‟ for an 

equitable fraud claim exist.” Pl.‟s Ans. Br. 29 (citing H-M Wexford LLC v. Encorp, Inc., 

832 A.2d 129, 147 n. 44 (Del. Ch. 2003)). In H-M Wexford, the Court did not address 

whether there existed a special relationship between the parties or whether the plaintiff 

sought a remedy that only equity could afford. Cases since H-M Wexford have held that

one of these two circumstances must exist to bring a claim for negligent 

misrepresentation or equitable fraud. As discussed above, neither circumstance exists 

here. 

60 Am. Compl. ¶ 70. 
23

IV. CONCLUSION

For the foregoing reasons, Dialog‟s motion to dismiss counts III, IV, and V of the 

complaint under Court of Chancery Rules (9)(b) and 12(b)(6) is GRANTED.

IT IS SO ORDERED.