IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

NOVARUS CAPITAL HOLDINGS, LLC,

a Delaware limited liability company,

 Plaintiff,

 v.

AFG ME WEST HOLDINGS, LLC, 

a Georgia limited liability company, 

ATTICUS FRANCHISE GROUP ME, 

LLC, a Georgia limited liability company,

AFG ME WEST, LLC, a Georgia limited 

liability company, and MICHAEL DRUM, 

an individual,

 Defendants.

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 C.A. No. 2020-0331-JRS

MEMORANDUM OPINION

Date Submitted: March 18, 2021

Date Decided: June 23, 2021

Kevin M. Coen, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, 

Delaware; Darrell G. Waas, Esquire and Patricia C. Campbell, Esquire of Waas 

Campbell Rivera Johnson & Velasquez LLP, Denver, Colorado, Attorneys for 

Plaintiff.

Alan D. Albert, Esquire of O’Hagan Meyer PLLC, Wilmington, Delaware, Attorney 

for Defendants.

SLIGHTS, Vice Chancellor
1 

In 2005, Eric Kenealy and his wife became franchisees of Massage Envy, a 

massage and skin care retail chain. Twelve years later, the Kenealys formed 

Plaintiff, Novarus Capital Holdings, LLC (“Novarus”), to act as an entity through 

which they would acquire additional Massage Envy clinics. By April 2019, the 

Kenealys, either individually or through Novarus, owned and operated 18 successful 

Massage Envy locations employing more than 500 employees.

In recognition of the couple’s success, Massage Envy Franchising, LLC 

(the “Franchisor”) offered Novarus the opportunity to enter into an agreement that 

would provide it preferential access to Massage Envy franchises for sale in 

designated territories (the “Consolidator Agreement”). The parties entered a nonbinding term sheet (the “Term Sheet”) describing the transaction in January 2019, 

contemplating a yet-to-be-executed development agreement. With the expansion of 

its business as outlined in the Term Sheet in mind, and with the encouragement of 

the Franchisor, Novarus decided to partner with a private equity firm that could 

provide the capital necessary to facilitate the anticipated growth of the business. 

After a bidding process, Defendants, Atticus Franchise Group ME, LLC 

(“Atticus”) and its managing member, Michael Drum, emerged as Novarus’ 

preferred partner, based in part on various alleged extracontractual representations 

made by Drum. The parties memorialized their bargain in a Membership Interest 

Purchase Agreement (“MIPA”) and Amended and Restated LLC Agreement 
2 

(the “Operating Agreement” and, together with the MIPA, the “Agreements”) of the 

newly-formed entity, Defendant, AFG ME West Holdings, LLC (the “Company”). 

The Company acquired, among other assets, eighteen of the Kenealys’ Massage 

Envy clinics, including those held by Novarus. In exchange, Novarus received 

approximately $16 million cash consideration and a 20% ownership interest in the 

Company, with the remaining 80% held by Defendant, AFG ME West, LLC 

(“AFG LLC”), of which Drum was the managing member. 

As stated in the Operating Agreement, Atticus was designated as the Manager 

of the Company and permitted to draw compensation for that role up to 10% of the 

Company’s “gross operating revenue” per year. The Agreements both contained 

merger clauses providing that the written contract represented the entire agreement 

between the parties, and both designated Georgia law to apply to disputes arising out 

of the contracts. 

Soon after its execution, Novarus realized the Operating Agreement capped 

Atticus’ management fee by reference to “gross” operating revenue when the parties 

had intended to cap its fees at “net” operating revenue. Novarus informed Atticus 

of the mutual mistake, but Atticus refused to agree to modify the executed Operating 

Agreement and continued to draw its management fee at 10% of gross operating 

revenue. Atticus also began to ice out the Company from acquisitions of other 

Massage Envy clinics. Novarus’ complaint in this action followed. 
3 

The operative complaint asserts six Counts. First, Novarus brings a claim 

against the Company and AFG LLC to reform the Operating Agreement to reflect 

the parties’ intent that Atticus’ management fees would be capped at 10% of the 

Company’s “net” (as opposed to “gross”) operating revenue, relying principally on 

contemporaneous emails between counsel to demonstrate the existence of a mutual 

mistake. Second, Novarus seeks a declaratory judgment that clarifies the meaning 

of the term “net operating revenue” within the Operating Agreement, as Defendants 

have taken the position that “net” and “gross” operating revenue mean the same 

thing. Third, Novarus brings claims against Atticus for willful and intentional 

misconduct (the standard of conduct for the Manager stated in the Operating 

Agreement) by taking for itself corporate opportunities belonging to the Company 

and paying itself an excessive management fee. Fourth, Novarus asserts an unjust 

enrichment claim against Drum, who is not a party to the Operating Agreement but 

allegedly has been unjustly enriched by Atticus’ collection of unauthorized 

management fees. Fifth, Novarus asserts that Drum is liable for intentional 

misrepresentations he made to induce Novarus to enter into the MIPA and the 

Operating Agreement. Finally, Novarus brings a claim against the Company for 

breach of the implied covenant of good faith and fair dealing by abusing its 

discretion when compensating Atticus. 
4 

Defendants together have moved to dismiss all counts under Chancery 

Rule 12(b)(6) for failure to state claims upon which relief may be granted. After 

carefully considering the motion, the result is a mixed bag. Novarus has well pled 

bases for reformation and that there exists an actual controversy between the parties 

regarding the meaning of the term “net operating revenue” within the Operating 

Agreement that cannot be resolved on the pleadings. Novarus has also well pled that 

Atticus violated its obligations under the Operating Agreement to refrain from 

willful misconduct when it paid itself management fees based on a knowingly 

inflated metric to which the parties did not agree. Those same well pled facts support 

Novarus’ claim for breach of the implied covenant of good faith and fair dealing 

under Georgia law. But the Operating Agreement bars Plaintiff’s corporate 

opportunity claim against Atticus. And, as to Drum, Georgia law does not support 

Plaintiff’s contention that he can be held personally liable either for unjust 

enrichment or his alleged extracontractual misrepresentations given the 

Agreements’ explicit merger clauses. My reasoning follows.

I. BACKGROUND

I have drawn the facts from well-pled allegations in the Verified Second 

Amended Complaint (the “Complaint”) and documents properly incorporated by 
5 

reference or integral to that pleading.1

 On a motion to dismiss, I accept as true the 

Complaint’s well-pled factual allegations and draw all reasonable inferences in 

Plaintiffs’ favor.2

A. Parties

Plaintiff, Novarus, is a Delaware limited liability company, with its principal 

place of business in Denver, Colorado.3

Defendant, Atticus, is a Georgia limited liability company with its principal 

place of business in Atlanta, Georgia.

4

 Defendant, AFG LLC, is a Georgia limited 

liability company with its principal place of business also in Atlanta, Georgia.5

 

Defendant, Drum, is the managing member of Atticus and AFG LLC.6

 

1 See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting 

that on a motion to dismiss, the Court may consider documents that are “incorporated by 

reference” or “integral” to the complaint). 

2 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002). 

3

 D.I. 13 (Verified Second Am. Compl.) (“Compl.”) ¶ 1. 

4

 Compl. ¶ 4. 

5

 Compl. ¶ 6. 

6

 Compl. ¶ 8. 
6 

The Company is a Georgia limited liability company with its principal place 

of business in Atlanta, Georgia.7

 As specified in the MIPA, AFG, LLC owns 80% 

of the membership interests in the Company and Novarus owns the remaining 20%.8

B. The Kenealys Form Novarus 

In 2005, Eric Kenealy and his wife became franchisees of Massage Envy, a 

massage and skin care national franchisor.9

 Over the next 10 years, the Kenealys 

purchased the licenses for several new locations and acquired numerous existing 

Massage Envy franchises.10 Each Massage Envy clinic was owned by a single 

member limited liability company, and managed by an entity known as Novarus 

Capital Group, Inc. (later changed to Novarus Capital Group, LLC).11 The growth 

of the business necessitated additional management and more centralized 

operations.12 With these considerations in mind, the Kenealys formed the holding 

7

 Compl. ¶ 2. 

8

 Compl. ¶ 11; see also Compl. Ex. G (“MIPA”) § 1.1(b). 

9 Compl. ¶¶ 3, 14. Mr. Kenealy’s wife is not identified by name in the Complaint or 

elsewhere in the record. 

10 Compl. ¶ 15. 

11 Compl. ¶ 17. 

12 Compl. ¶ 16. 
7 

company, Novarus, in 2017 to act as the entity through which future Massage Envy 

clinics would be acquired.13

By April 2019, the Kenealys, either individually or through Novarus or related 

entities, were the franchisees of 18 successful Massage Envy locations employing 

more than 500 employees.14 Their success did not go unnoticed. In early 2019, the 

Franchisor offered Novarus the opportunity to enter into a so-called “Consolidator 

Agreement” that would provide Novarus several benefits not offered to all Massage 

Envy franchisees.15 The Term Sheet describing the transaction was dated January 

2019.16 Although the Term Sheet was expressly non-binding and contemplated a 

yet-to-be-executed development agreement (“DA”), Massage Envy confirmed it 

would operate as if the Term Sheet was fully effective.

17

As noted, Novarus enjoyed several benefits as a “Consolidator” under the 

Term Sheet.18 For instance, it was given preferential consideration for the 

13 Id.

14 Compl. ¶¶ 18–19. 

15 Compl. ¶ 20. 

16 Id.; Compl. Ex. C. 

17 Compl. ¶¶ 21–22, Ex. D; see also Compl., Ex. E (emails referencing the offers of right 

of first refusal where the Franchisor indicated, “I know we have not inked the DA, but I 

will operate as if we have by showing you deals in your area.”); id. (correspondence from 

the Franchisor stating it “definitely plan[ned] to follow” the Term Sheet). 

18 See Compl. ¶¶ 23–27. 
8 

acquisition of Massage Envy franchises offered for sale in the consolidated territory, 

which included Colorado, Utah, Idaho, Wyoming, Montana, New Mexico, 

Oklahoma and Las Vegas, Nevada.

19 Specifically, it was granted a “right of first 

refusal” to purchase any existing Massage Envy locations that were for sale in the 

territory, as well as the exclusive first right to acquire any new locations in the 

territory that were offered for sale.20

The Term Sheet included a schedule that contemplated the acquisition and 

development of 17 Massage Envy clinics within the first two years of the five-year 

agreement, and 50–70 locations by the term’s end.

21 To facilitate its growth, 

Novarus was encouraged by the Franchisor to partner with a private equity firm that 

could provide the necessary capital.

22 To this end, Novarus determined it would 

seek an investor willing to acquire a majority interest in the Massage Envy franchises 

owned by Novarus and its related companies.23 

19 Compl. ¶ 23. After two years, the territory was to be expanded to include Iowa, 

Nebraska, Kansas, Missouri and Minneapolis, Minnesota. Id. 

20 Compl. ¶ 24; see also Compl., Ex. E. 

21 See Compl., Ex. C. 

22 Compl. ¶ 28. 

23 Compl. ¶ 29. 
9 

C. Novarus Chooses to Partner with Atticus

Novarus retained an investment banker and received significant interest in the 

business, including from Atticus, a Massage Envy Consolidator in the southeast 

United States.

24 Atticus’ interest in Novarus, obviously, was enhanced by the 

substantial upside reflected in the Term Sheet;

25 Novarus’ interest in Atticus flowed 

from its managing member, Drum’s, express and repeated representations that 

Atticus had the requisite capital and experience to grow the business.26 Novarus was 

also attracted to Atticus by Drum’s repeated representations that Atticus would 

follow the comprehensive business and growth plan prepared by Novarus to exploit 

the benefits of the Term Sheet.27

As Novarus searched for an investment partner, it evaluated whether to 

exercise its right of first refusal for certain Massage Envy clinics in Utah.28 Because 

Atticus was then the top contender to acquire Novarus’ interests, Kenealy conferred 

with Drum and other Atticus representatives when deciding whether to exercise his 

24 Compl. ¶¶ 30, 32–33. 

25 Compl. ¶ 37. 

26 Compl. ¶ 31. 

27 Compl. ¶¶ 34–36, Ex. F (investment presentation made by Novarus to Atticus describing 

Novarus’ consolidator relationship with the Franchisor and Novarus’ growth plan). 

28 Compl. ¶ 38. 
10 

first refusal rights.29 Atticus and Novarus worked together to analyze the 

opportunity and Atticus encouraged Novarus to exercise its right of first refusal.30 

Prior to closing with Atticus, Massage Envy offered several additional opportunities

to Novarus, including for clinics in Minnesota and Utah.

31

In addition to the opportunities identified in the Term Sheet, Novarus had 

previously negotiated agreements to acquire seven Massage Envy clinics in 

Colorado.32 Because the closing with Atticus was imminent, the parties agreed that 

Atticus would finalize the Colorado acquisitions, and the clinics would then be put 

into the to-be-formed Company.

33

D. The Parties Negotiate and Execute the Agreements

On April 5, 2019, the purchase and sale transaction was memorialized in an 

MIPA.34 The Company acquired 18 franchised Massage Envy clinics from Novarus 

Capital Group, LLC, and other Novarus-related entities.35 As part of that 

29 Id. 

30 Compl. ¶ 39. 

31 Compl. ¶ 40. 

32 Compl. ¶ 76. 

33 Compl. ¶¶ 76, 78.

34 Compl. ¶ 42; MIPA. 

35 Compl. ¶ 41. 
11 

transaction, and as partial consideration for the sale, Novarus obtained its 20% 

ownership interest in the Company, and AFG LLC’s ownership interest was reduced 

from 100% to 80%.36 Novarus also received roughly $16 million in cash 

consideration.37

Novarus alleges Drum made several oral representations to Novarus to induce 

Novarus to sell to Atticus, including:

• The Company would maintain Novarus and Novarus Capital Group, LLC as 

separate entities with separate ongoing operations; 

• Novarus and Novarus Capital Group, LLC employees would be retained; 

• The Novarus corporate office in Colorado would remain open; 

• The leases for the Massage Envy clinics entered into by Novarus or related 

entities would be assumed by the Company, and the Company would continue 

to pay all rents owed; 

• New Massage Envy clinics that became available under Novarus’ Term Sheet 

would be acquired by the Company; 

• The new clinics would be purchased with a combination of third-party 

financing and cash; 

• Atticus and its principals had the financial capability to obtain such third-party 

financing; 

• The Company would continue to grow by following the business plan and the 

growth plan in the Term Sheet and acquiring new clinics in the Company’s 

name; 

• Because the new clinics would be acquired by the Company, Novarus would 

receive its share of any profits derived from the new business; and 

36 Id.; MIPA § 1.1. 

37 See MIPA § 1.2(a) (providing for payment to Novarus of $16,590,300.27 less certain 

expenses). At oral argument, Defendants’ counsel suggested (and Plaintiff’s counsel did 

not dispute) that Plaintiff netted about $12 million. See D.I. 39 (Tr. of the Oral Arg. on 

Defs.’ Mot. to Dismiss) (“Oral Arg. Tr.”) 11:1–4. 
12 

• Kenealy would become a member of the Company’s Board of Directors and 

would be offered the position of Chairman of the Board.38

As discussed below, the deal the parties ultimately struck, as memorialized in the 

Agreements, was not so generous to Novarus.

39 

The Operating Agreement, at Section 8.06, contemplated that Atticus would 

act as Manager and would be paid a management fee.

40 On the day before the 

Operating Agreement was executed, April 4, 2019, counsel for the parties had an 

email exchange that is prominently featured in Novarus’ claims. As the parties were 

winding up their negotiations of the Operating Agreement, counsel for Novarus sent 

an email to counsel for Atticus, David Weinstein, confirming that the Operating 

Agreement was ready for execution with one exception: “On Section 8.06 we had 

agreed to a cap of 10% of net operating revenue [as the basis for the management 

fee] rather than 10% of gross operating revenue. If you can make that one change, 

we are final on the Operating Agreement.”41 Weinstein responded in an email 

stating, “[s]ee attached clean version, please confirm and we will circulate for 

38 Compl. ¶ 43. 

39 See generally Compl. Ex. B (“Operating Agreement”); see also Compl. ¶ 49. 

40 Operating Agreement § 8.06(a).

41 Compl., Ex. H. 
13 

execution.”42 The attached “clean version” conformed with Novarus’ counsel’s 

request, describing the management fee as “up to 10% of net operating revenue.”43

And yet, unbeknownst to Novarus, the Operating Agreement executed on 

April 5, 2019, did not conform to the “clean version” circulated the day before.

44 

Rather, Section 8.06 of the executed Operating Agreement provides in relevant part:

(a) The Manager shall be compensated for its services as the Manager, 

and the Company shall pay to the Manager (or its Affiliate, as 

designated by the Manager) compensation up to ten percent (10%) of 

the Company’s gross operating revenue per year, which shall be paid 

by the company monthly in arrears. . . .45 

The term “gross operating revenue” is not defined in the Operating Agreement, nor 

is there any mention of gross operating revenue anywhere in the Operating 

Agreement other than Section 8.06.46 

Novarus noticed the error only after the Operating Agreement was signed, in 

the midst of an investigation prompted by its concern that Atticus was drawing 

42 Id. 

43 Id. § 8.06(a) (emphasis added); Compl. ¶ 51. 

44 Compl. ¶ 53. It is unclear when the Company, Atticus, AFG, LLC or Drum first became 

aware that the wrong term was included in the final draft of the Operating Agreement. 

Compl. ¶ 57. At the very latest, they became aware at the time they were notified by 

Novarus. Id. 

45 Operating Agreement § 8.06(a) (emphasis added). 

46 See generally Operating Agreement; Compl. ¶¶ 46–48. I note that the term 

“net operating revenue” is similarly undefined in the Operating Agreement. 
14 

excessive management fees from the Company.

47 Novarus notified Atticus upon its 

discovery of the error, but Defendants refused to reform the Operating Agreement.

48 

The Company has continued to pay Atticus management fees based on 10% of the 

Company’s gross operating revenue, a sum Plaintiff alleges well exceeds 10% of net

operating revenue.

49

The Operating Agreement delineates the corporate opportunities preserved for

the Company. Specifically, Sections 8.05 and 13.01 provide, respectively: 

Section 8.05 Business Opportunities; Obligation to Not Compete 

(a) Nothing contained in this Agreement shall prevent AFG, or any of 

its Affiliates from engaging in any other activities or businesses, 

regardless of whether those activities or businesses are similar to or 

competitive with the Business. Neither AFG nor any of its Affiliates 

shall be obligated to account to the Company or to the other Member 

for any profits or income earned or derived from other such activities 

or businesses. Neither AFG nor its Affiliates shall be obligated to 

inform the Company or the other Member of any business opportunity 

of any type or description.50

47 Compl. ¶ 54. 

48 Compl. ¶¶ 56–58. 

49 Compl. ¶¶ 58–59, 61. Defendants have sought to introduce into the record, along with 

the declaration of Bill Gmaz, several spreadsheets disputing Novarus’ drawn distinction 

between “gross operating revenue” and “net operating revenue,” but they admit that 

Gmaz’s “declaration potentially lies outside the four corners of the [Complaint]” and 

acknowledge that “Defendants do not seek to have the Court consider it as substantive, 

extrinsic evidence for the purposes of this motion . . . .” Defs.’ Opening Br. at 17–18. The 

spreadsheets’ veracity is also contested, as Novarus affirmatively pleads (and proffers 

proof) that these spreadsheets are inaccurate. Compl. ¶¶ 61–64, Ex. I. At this stage, I 

cannot credit Gmaz’s declaration or the spreadsheets as evidence to controvert Novarus’ 

pled facts. 

50 Operating Agreement § 8.05.
15 

Section 13.01 Other Business Activities. The parties hereto expressly 

acknowledge and agree that: (i) AFG and its Affiliates are permitted to 

have, and may presently or in the future have, investments or other 

business relationships, ventures, agreements, or arrangements with

entities engaged in the business of the Company, other than through the 

Company and the Company Subsidiaries (“Other Business”); (ii) AFG 

and its Affiliates have or may develop a strategic relationship with 

businesses that are or may be competitive with the Company and the

Company Subsidiaries; (iii) none of AFG or its Affiliates will be 

prohibited by virtue of AFG’s investment in the Company from 

pursuing and engaging in any such activities; (iv) none of AFG or its 

Affiliates will be obligated to inform the Company or Novarus or other

Person of any such opportunity, relationship, or investment 

(a “Company Opportunity”) or to present a Company Opportunity, 

and the Company hereby renounces any interest in a Company 

Opportunity and any expectancy that a Company Opportunity will be 

offered to it; (v) nothing contained herein shall limit, prohibit, or restrict 

any Board designee of AFG from serving on the board of directors or 

other governing body or committee of any Other Business; and 

(vi) Novarus will not acquire, be provided with an option or opportunity 

to acquire, or be entitled to any interest or participation in any Other 

Business as a result of the participation therein of any of AFG or its 

Affiliates. The parties hereto expressly authorize and consent to the 

involvement of AFG and/or its Affiliates in any Other Business. The 

parties hereto expressly waive, to the fullest extent permitted by 

Applicable Law, any rights to assert any claim that such involvement 

breaches any fiduciary or other duty or obligation owed to the Company 

or any Member or to assert that such involvement constitutes a conflict 

of interest by such Persons with respect to the Company or any 

Member.51

 

The Operating Agreement also identifies as a fully integrated document, 

superseding any and all agreements, understandings and representations other than 

51 Id. § 13.01. 
16 

those expressly set forth therein.52 Section 14.06 contains an “Entire Agreement” 

provision, or merger clause, which states that: 

This Agreement . . . constitutes the sole and entire agreement of the 

parties to this Agreement . . . and supersedes all prior and 

contemporaneous understandings, agreements, representations, and 

warranties, both written and oral, with respect to such subject matter, 

including the Original Agreement.53

Under Section 14.11 of the Operating Agreement, the parties agreed that disputes 

arising out of the Operating Agreement would be governed by Georgia law.54

E. The “Partnership” Unravels

The discovery of the excessive management fees, and Atticus’ refusal to agree 

to reform the Operating Agreement to reflect the parties’ actual agreement, 

significantly diminished Novarus’ enthusiasm for the partnership it thought it had 

formed with Atticus.55 Trust was gone.56 The relationship fractured altogether when 

Atticus and Drum failed to follow through on their extracontractual representations. 

For instance, Atticus and Drum represented that the Colorado clinics that Novarus 

had prospected would be acquired under the Company’s name; instead, they were 

52 Id. § 13.7. 

53 Id. § 14.06. 

54 Id. § 14.11. 

55 Compl. ¶¶ 52, 56. 

56 See id. 
17 

placed into another entity affiliated with Drum and Atticus, thereby ensuring that 

Novarus received none of the profits.57 Drum had also represented that future 

acquisitions under the Term Sheet would be funded by a combination of cash and 

third-party financing to which Atticus had ready access;

58 instead, Drum informed 

Novarus one week after closing that Atticus, the Company and/or its affiliates were 

in default with lenders, so the Company would need to fund the Utah acquisitions 

with cash, increasing Novarus’ portion of the acquisition costs from approximately 

$106,000 to $532,000.59 Atticus and Drum represented that the Utah clinics 

prospected by Novarus would be acquired by the Company; instead, they were 

acquired by an entity affiliated with Atticus, again depriving Novarus of any benefit 

from the acquisitions.60 

Since forming the Company, new opportunities arising under the Term Sheet 

have not been acquired by the Company.

61 The final blow: the DA contemplated by 

57 Compl. ¶¶ 76–84. 

58 Compl. ¶ 92. 

59 Compl. ¶¶ 93–97. 

60 Compl. ¶¶ 95–97. 

61 Compl. ¶ 98. 
18 

the Term Sheet was ultimately signed by Massage Envy and an Atticus affiliate; the 

Company was shut out entirely.

62

F. Procedural History

On May 5, 2020, Plaintiff filed its initial complaint,63 which was subsequently 

amended twice to comprise the now operative Complaint.

64 The Complaint asserts

six causes of action.

65 Count I asserts a claim for reformation of the Operating 

Agreement, based on mutual mistake, to reflect the parties’ agreement that the 

management fee paid to Atticus shall be based on “net operating revenue” instead of 

“gross operating revenue.”66 Count II seeks a declaratory judgment regarding the 

meaning of “net operating revenue” under the Operating Agreement.

67 Count III 

asserts a claim of willful and intentional misconduct against Atticus, incorporating 

standards of conduct stated in the Operating Agreement, for (a) allowing itself to be 

paid a management fee of 10% of the gross operating revenue after it learned of the 

parties’ mistake and (b) acquiring the Colorado clinics through a separate entity not 

62 Id. 

63 D.I. 1. 

64 D.I. 13. 

65 Compl. ¶¶ 100–68. 

66 Compl. ¶¶ 101–11. 

67 Compl. ¶¶ 112–19. 
19 

associated with the Company (and, thus, Novarus), contrary to the terms of the 

Operating Agreement.68 Count IV asserts a claim for unjust enrichment against 

Drum for allowing Atticus to collect a management fee of 10% gross operating 

revenue when he knew the parties had not agreed that Atticus could be paid on that 

basis.

69 Count V asserts a claim for intentional misrepresentation against Drum for 

his representations concerning future business growth and operations regarding the 

Company, which he is alleged to have known to be false.70 Count VI asserts a claim 

against the Company for breach of the implied covenant of good faith and fair 

dealing for paying Atticus a management fee of 10% of gross operating revenue 

when it knew this was “contrary to the intent” of the Operating Agreement between 

the parties.71

68 Compl. ¶¶ 76–84, 120–35. 

69 Compl. ¶¶ 136–46. 

70 Compl. ¶¶ 147–55. 

71 Compl. ¶¶ 156–68. 
20 

Defendants together moved to dismiss the Complaint on August 27, 2020.72 

After briefing, oral argument and supplemental briefing, the motion was submitted 

for decision on March 18, 2021.73 

II. ANALYSIS

The parties agree that, under Section 14.11 of the Operating Agreement, 

Georgia’s substantive law applies to both contract claims and tort claims arising out 

of that contract, and they appear to acknowledge that Delaware’s procedural law 

governs the Court’s standard of review.

74 On a motion to dismiss brought under 

Court of Chancery Rule 12(b)(6), the court must:

72 D.I. 16 (Defs.’ AFG ME W. Hldgs., LLC, Atticus Franchise Gp. ME, LLC, AFG ME 

W., LLC and Michael Drum’s Joint Mot. to Dismiss Pl.’s Verified Second Am. Compl.) 

(“Defs.’ Opening Br.”). 

73 D.I. 23 (Pl. Novarus Cap. Hldgs., LLC’s Br. in Opp’n to Defs.’ Mot. to Dismiss Pl.’s 

Verified Second Am. Compl.) (“Pl.’s Answering Br.”); D.I. 25 (Defs.’ AFG ME W. Hldgs., 

LLC, Atticus Franchise Gp. ME, LLC, AFG ME W., LLC and Michael Drum’s Joint Reply 

Br. in Supp. of Mot. to Dismiss Pl.’s Verified Second Am. Compl.) (“Defs.’ Reply Br.”); 

D.I. 39 (Oral Arg. Tr.); D.I. 36 (Supp. Letter Br. of Defs.’ AFG ME W. Hldgs., LLC, 

Atticus Franchise Gp. ME, LLC, AFG ME W., LLC and Michael Drum) (“Defs.’ Supp. 

Br.”); D.I. 37 (Supp. Letter Br. of Pl. Novarus Cap. Hldgs., LLC) (“Pl.’s Supp. Br.”). 

74 See Defs.’ Opening Br. at 15–39 (arguing for dismissal of all counts on the basis of 

substantive Georgia law while equivocating on the applicable procedural law); Pl.’s 

Answering Br. at 17–42 (arguing for denial of Defendants’ motion to dismiss on all counts 

on the basis of substantive Georgia law and Delaware procedural law); Defs.’ Reply Br. 

(taking no issue with Plaintiff’s argument that Delaware procedural law applies); see also

Operating Agreement § 14.11; Abry P’rs V, L.P. v. F & W Acq. LLC, 891 A.2d 1032, 1048 

(Del. Ch. 2006) (“Parties operating in interstate and international commerce seek, by a 

choice of law provision, certainty as to the rules that govern their relationship. To hold that 

their choice is only effective as to the determination of contract claims, but not as to tort 

claims seeking to rescind the contract on grounds of misrepresentation, would create 

uncertainty of precisely the kind that the parties' choice of law provision sought to avoid.”); 
21 

(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 plaintiff 

would not be entitled to recover under any reasonably conceivable set 

of circumstances.75 

Dismissal is warranted only where a plaintiff fails to plead facts supporting an 

element of their claim, or if “it appears with reasonable certainty that, under any set 

of facts that could be proven to support the claims asserted, the plaintiffs would not 

be entitled to relief.”76 In opposing Defendants’ dismissal motions, Novarus is owed 

every reasonable factual inference in its favor.77

A. Reformation (Count I) 

In Count I, Plaintiff seeks to reform Section 8.06 of the Operating Agreement

to cap the Company’s Manager’s management fees at 10% of “net” (as opposed to 

Tumlinson v. Advanced Micro Devices, Inc., 81 A.3d 1264, 1270 (Del. 2013) (reiterating 

Delaware law that trial courts are to apply Delaware procedural law even if another state’s 

substantive law governs the dispute). For what it is worth, neither party argues there are 

relevant differences between Georgia and Delaware procedural law. 

75 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 

(Del. 2011) (citation omitted). I note at the outset that Defendants at no point argued that 

any of Novarus’ claims are derivative (as opposed to direct) and so I assume for purposes 

of this motion that Rule 12(b)(6), not Rule 23.1, sets the applicable standard and that 

Novarus need not have pled demand futility. See Emerald P’rs v. Berlin, 726 A.2d 1215, 

1224 (Del. 1999) (“Issues not briefed are deemed waived.”). 

76 McMullin v. Beran, 765 A.2d 910, 916 (Del. 2000) (quotation omitted). 

77 In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *7 n.36, 38 (Del. Ch. July 24, 

2009). 
22 

“gross”) operating revenue. Reformation is an equitable remedy by which the court 

may correct an instrument so that it expresses the true intent of the parties when, 

whether by fraud, accident or mistake, the instrument as executed does not express 

that intent by its terms.

78 The doctrine is grounded in the notion that a contracting 

party should not benefit from a windfall for which it did not bargain.79

Under Georgia law, “[a] petition for reformation of a written contract will lie 

where[,] by mistake of the scrivener and by oversight of the parties, the writing does 

not embody or fully express the real contract of the parties. The cause of the defect 

is immaterial so long as the mistake is common to both parties to the transaction.”80 

A “mistake” is defined by statute to be “some unintentional act, omission or error 

arising from ignorance, surprise, imposition or misplaced confidence.”81 “[T]he 

negligence of the complaining party will not defeat his right to reformation if the 

other party has not been prejudiced.”82

78 See O.C.G.A. § 23-2-24 (“In all cases of mistake of fact material to the contract or other 

matter affected by it, if the complaining party applies within a reasonable time, equity will 

grant relief.”); see also Ledford v. Smith, 618 S.E.2d 627, 638 (Ga. App. 2005) (applying 

the statute). 

79 Occidental Fire & Cas. of N. Carolina v. Goodman, 793 S.E.2d 606, 609 (Ga. App. 

2016) (citations omitted). 

80 Curry v. Curry, 473 S.E.2d 760, 761 (Ga. 1996). 

81 O.C.G.A. § 23-2-21(a); Ledford, 618 S.E.2d at 637 (applying statutory definition of 

“mistake”). 

82 Occidental Fire, 793 S.E.2d at 609. 
23 

Where, as here, the mistake is alleged to be mutual, both parties “must have 

labored under the same misconception” with respect to “the terms and conditions of 

a written instrument, intending at the time of the execution of the instrument to say 

one thing and by mistake expressing another,” leaving the instrument’s express 

terms disconnected from either party’s intent.83 In the context of evaluating a claim 

for reformation, the parole evidence rule does not bar the court from receiving and 

considering extrinsic evidence of the parties’ intent.84 

 On April 4, 2019—one day before the Operating Agreement was signed—

Novarus’ counsel sent an email to Atticus’ counsel stating that the Operating 

Agreement was ready to execute with one exception: “On Section 8.06, we had 

agreed to a cap of 10% of net operating revenue rather than 10% of gross operating 

revenue. If you can make that one change we are final on the Operating 

Agreement.”85 Atticus’ counsel agreed with the correction, made it, and then 

reverted the document in an email stating, “[s]ee attached clean version, please 

83 Ledford, 618 S.E.2d at 637 (quoting Yeazel v. Burger King Corp., 526 S.E.2d 112, 116 

(Ga. App. 1999)). 

84 See Yeazel, 526 S.E.2d at 117; see also Ledford, 618 S.E.2d at 638 (noting that “there is 

no rule that reformation will be denied unless the mistake [is] admitted by both parties.”

(internal citations and quotations omitted)). 

85 Compl. ¶ 50, Ex. H. 
24 

confirm and we will circulate for execution.”86 But the executed Operating 

Agreement did not reflect the requested change to “net operating revenue” in what 

Novarus alleges was clear error. This email exchange, where Atticus’ counsel 

appears to agree with Novarus’ counsel’s characterization of the agreed upon term, 

suffices to allow an inference that the parties labored under a mutual mistake when 

they signed the Operating Agreement.

87

According to Defendants, even if Novarus has well pled a mutual mistake, 

reformation still is not warranted under Georgia law because Novarus has failed to 

articulate a meaningful difference between “gross operating revenue” and “net 

operating revenue” and, therefore, any mutual mistake does not operate “as a gross 

injustice to one [while] giv[ing] an unconscionable advantage to the other.”88 

Indeed, Novarus’ reformation claim must fail, Defendants say, because there are no 

86 Id. 

87 See Compl. ¶¶ 50–51. Defendants quote Lawton v. Byck to argue that Novarus has failed 

to “state why the terms of the actual contract happened to be left out, or how the terms not 

agreed on came to be inserted.” Defs.’ Opening Br. at 15 (quoting Lawton, 217 Ga. 676, 

682 (1962)). But the excerpt of the quote from Lawton on which Defendants rely is not 

complete. The court went on to clarify, “[i]n other words,” “[i]f mistake is relied on, it 

must be distinctly charged and stated with precision, the particular mistake being shown, 

and how it occurred.” Id. The email exchange in Exhibit H details the specific mistake 

with precision (i.e., failing to substitute net for gross operating revenue) and how it 

occurred (i.e., by mutual mistake, through counsels’ failure to incorporate the corrected 

language in the executed contract). 

88 O.C.G.A. § 23-2-22. 
25 

allegations Atticus paid itself more than it was entitled to receive under Novarus’ 

proffered reformation. 

 But Novarus affirmatively pleads that “net” and “gross” operating revenues 

are two distinct concepts, with the latter amounting to a higher management fee 

owing to Atticus than the former.

89 Further, the fact that Novarus’ attorneys flagged 

the difference for Atticus’ counsel, insisted on the change and obtained Atticus’ 

agreement to the change, supports a reasonable inference that both parties 

understood the terms to have different meanings.

90 Conversely, Defendants’ afterthe-fact resistance to the revision suggests that they, too, see a meaningful difference 

between “net” and “gross.” It is, therefore, reasonable to infer at this nascent stage 

of the litigation that “gross operating revenue” is greater than “net operating 

revenue” and, accordingly, Novarus has well pled it suffered harm when Atticus 

maxed out its management fees based on the former metric.91 For these reasons, 

Defendants’ motion to dismiss Count I is denied. 

B. Declaratory Judgment (Count II) 

In Count II, Novarus seeks a judgment declaring that the Operating 

Agreement’s undefined term “net operating revenue” should be understood to mean 

89 See Compl. ¶¶ 59–62. 

90 See Compl., Ex. H. 

91 Compl. ¶¶ 61–63, 67, 110. 
26 

“Net Income” as defined in the Operating Agreement.92 “[T]he principal, salutary 

purpose of the declaratory judgment procedure is to provide a technique for early 

resolution of disputes where a party is suffering practical consequences from 

uncertainty arising from the assertion by another of a legal claim.”93 To obtain a 

declaratory judgment, there must be an “actual controversy,” meaning: 

(1) It must be a controversy involving the rights or other legal relations 

of the party seeking declaratory relief; (2) it must be a controversy in 

which the claim of right or other legal interest is asserted against one 

who has an interest in contesting the claim; (3) the controversy must be 

between parties whose interests are real and adverse; and (4) the issue 

involved in the controversy must be ripe for judicial determination.94

 

“The court may refuse to render or enter a declaratory judgment or decree where 

such judgment or decree, if rendered or entered, will not terminate the uncertainty 

or controversy giving rise to the proceeding.”95

 Novarus asserts its declaratory judgment should survive dismissal because a 

controversy will exist as to the definition of “net operating revenue” if the Court 

92 See Operating Agreement Art. I at 8 (defining Net Income by reference to taxable income 

with enumerated adjustments). 

93 Schick, Inc. v. Amalgamated Clothing & Textile Workers Union, 533 A.2d 1235, 1241 

(Del. Ch. 1987) (Allen, C.). 

94 Id. at 1238; see also Strong v. JWM Hldgs., LLC, 800 S.E.2d 380, 384–85 (Ga. App. 

2017) (“Declaratory relief [] is inappropriate for controversies that are merely hypothetical, 

abstract, academic, or moot [and] declaratory judgment will not be rendered based on a 

possible or probable future contingency.”). 

95 10 Del. C. § 6506. 
27 

decides to reform the Operating Agreement but declines to define the reformed term. 

Defendants respond that, by stacking its request for declaratory relief on top of its

yet-to-be-adjudicated reformation claim, Novarus has failed to present an actual 

“controversy” but, instead, has initiated “precisely the kind of effort to obtain an 

advisory opinion that courts will not act upon.”96 In any event, say Defendants, the 

Court should dismiss the declaratory judgment count because the declaratory relief 

sought by Novarus—equating “net operating revenue” to “Net Income”—is so 

beyond the pale that it is not reasonably conceivable. While Defendants 

conspicuously fail to cite any authoritative source defining the term “net operating 

revenue” at all, much less a source that defines it in a manner that reveals Novarus’ 

proffered definition is inconceivable, they urge the Court, in essence, to take judicial 

notice of what Defendants cast as a well-understood term.

As an initial matter, Novarus’ claim for declaratory judgment concerns an 

actual dispute. Defendants have taken the position that “net operating revenue” 

means “gross operating revenue”; Novarus disagrees. Thus, if the Court determines 

that reformation of the contract is justified, then a declaratory judgment as to the 

meaning of net operating revenue becomes necessary.97 The question for the Court 

96 Defs.’ Reply Br. at 10. 

97 See KLM Royal Dutch Airlines v. Checchi, 698 A.2d 380, 383 (Del. Ch. 1997) (noting 

that “the declaratory judgment serves to promote preventive justice” and holding that the 
28 

at this juncture, then, is whether “net operating revenue” lends itself to a definition 

discernable on this record such that the prayer for declaratory relief is unnecessary 

because no controversy could reasonably exist. 

 Both parties agree that the Court may take judicial notice of certain external 

sources to determine the meaning of “net operating revenue.”98 “Whether requested 

by a party or not, a trial court may take judicial notice of ‘a fact which is not subject 

to reasonable dispute,’ in that it is ‘[c]apable of accurate and ready determination by 

resort to sources whose accuracy cannot reasonably be questioned.’”99 When 

interpreting contracts, “[w]ords generally bear their usual and common significance; 

but . . . words used in a particular trade or business will be construed, generally, to 

be in reference to this peculiar meaning.”100

court may entertain a claim for declaratory relief that will be necessitated by its 

adjudication of a separate claim asserted in the same complaint). 

98 See Pl.’s Supp. Br. at 2–3; Defs.’ Supp. Br. at 6–7. 

99 Hunter v. Will, 833 S.E.2d 128, 132 (Ga. App. 2019) (quoting O.C.G.A. § 24-2-201 

(2014)). I note that this language is substantively similar to the judicial notice provisions 

of the Federal Rules of Evidence. See F.R.E. 201. 

100 O.C.G.A. § 13-2-2(a); see also Rhodes v. Palmer, 2004 WL 5295063 (Ga. Super. 

Apr. 26, 2004) (using the definition provided by a legal dictionary where “[t]he term 

‘transaction’ does not appear to be used as a term particular to any business.”). 
29 

The term “net operating revenue” does not appear in the Merriam-Webster 

dictionary. Nor does it appear in any Georgia statute or court rule.101 Indeed, it does 

not even appear in the dictionary function on a website Defendants referenced as 

authoritative at oral argument—www.investopedia.com.102 That website defines the 

terms “income,” “net income,” “net operating income,” “operating revenue” and 

“revenue,” but it makes no mention of the term “net operating revenue.”103 While 

the Court has identified some authority where the term is defined in various contexts, 

typically as some form of revenue less operating and maintenance costs, the contours 

of those costs as applied to the Company’s business are too vague on this record to 

allow the Court to apply that definition, assuming the definition is even appropriate 

in the first place.

104

101 See Shoffner v. Woodward, 394 S.E.2d 921, 923–24 (Ga. App. 1990) (taking judicial 

notice of extant statutes to determine the meaning of “recapitalization”). 

102 See Oral Arg. Tr. at 84:19–85:1. 

103 Investopedia, Financial Term Dictionary, https://www.investopedia.com/financialterm-dictionary-4769738 (last visited June 5, 2021). 

104 See, e.g., Ind. C. Ann. § 16-22-7-3 (West) (“As used in this chapter, ‘net operating 

revenue’ means the revenues of the hospital, exclusive of any property tax levy remaining 

after provision for reasonable expenses of operation, repair, replacements, and maintenance 

of the hospital”); Fidelity Nat. Bank v. Wood, 375 S.E.2d 228, 229 (Ga. App. 1988) 

(equating “net operating revenues” of a commercial bus to gross revenue less expenses for 

fuel, oil and the driver, and distinguishing net operating revenues from profit because the 

latter concept “is found by reducing revenues by the amount of all expenses” of a thenindeterminable amount. (emphasis in original)); San Diego Cty. Water Auth. v. Metro. 

Water Dist. of S. California, 12 Cal. App. 5th 1124, 1143 (2017), as modified on

denial of reh’rg (July 18, 2017) (“The bond contract promises repayment from 

net operating revenues, defined as ‘all revenues received by [Metropolitan] from charges 
30 

To be sure, there is reason to be skeptical of Novarus’ attempt to transmogrify 

a (top-line) revenue concept into a (bottom-line) income concept. Nonetheless, 

I cannot on this record surmise the definition of “net operating revenue” with 

sufficient precision to determine, as a matter of law, its meaning. Thus, I am satisfied 

Novarus has stated a valid claim for declaratory judgment. Accordingly, 

Defendants’ motion to dismiss Count II is denied.

C. Willful Misconduct (Count III) 

In Count III, Novarus asserts that Atticus is liable for willful misconduct, 

having violated the standards of conduct prescribed for the Manager in the Operating 

Agreement.

105 Under Georgia law, willful misconduct “is conduct such as to 

evidence a willful intention to inflict the injury, or else was so reckless or so charged 

with indifference to the consequences . . . as to justify the jury in finding a 

for the sale or availability of water’ less operation and maintenance expenses.”); W&T 

Energy VI, LLC v. Dauphin Island Gathering P’rs, 2016 WL 7406748, at *6 (S.D. Tex. 

Dec. 22, 2016) (reviewing a contract defining “Net Operating Revenue” as “the gross 

revenue received by [a gas company] for handling such Third Party Gas less all direct 

operating and maintenance costs associated with the handling of such Third Party Gas, 

excepting the one cent ($0.01) per MMBtu fee set out in Section 6.6.”). 

105 Under the Operating Agreement, Atticus is liable for conduct constituting willful 

misconduct or fraud. Operating Agreement §§ 12.01, 12.02. 
31 

wantonness equivalent in spirit to actual intent.”106 It must be “based on an actual 

intention to do harm or inflict injury” upon another.107

Novarus proffers two distinct factual predicates for its claim of willful

misconduct against Atticus. First, Novarus alleges Atticus paid itself a management 

fee of 10% of the gross operating revenue after the mutually-understood error was 

brought to its attention, knowing full well that it was not entitled to the enhanced 

fees.108 Defendants counter that they cannot have engaged in willful misconduct by 

paying themselves 10% of gross operating revenue because they have complied with 

the letter of the Operating Agreement. But O.C.G.A. § 14-11-305(4)(A) 

contemplates two ways in which a manager’s liability cannot be eliminated: “(i) For 

intentional misconduct or a knowing violation of law; or (ii) [f]or any transaction for 

which the person received a personal benefit in violation or breach of any provision 

of a written operating agreement.”109 By disjoining the first and second romanette, 

the statute’s plain terms make clear a willful misconduct claim need not be tethered 

to a contractual provision. Because I have determined Novarus’ reformation claim 

106 Martin v. Gaither, 466 S.E.2d 621, 625 (Ga. App. 1995). 

107 2010-1 SFG Venture LLC v. Lee Bank & Trust Co., 775 S.E.2d 243, 251 (Ga. App. 

2015). 

108 Compl. ¶¶ 123–27. 

109 O.C.G.A. § 14-11-305(4)(A). 
32 

is well-founded, and because Novarus has alleged Atticus continued to charge the 

Company excessive management fees even after it was alerted to the mistake, it is 

reasonable to infer that Atticus willfully caused harm to Novarus by overdrawing 

funds from the Company in disregard of what it knew to be the parties’ actual 

understanding. Defendants’ motion to dismiss Novarus’ willful misconduct claim 

for overdrawing management fees must therefore be denied. 

Second, Novarus alleges that Atticus engaged in willful misconduct by 

causing the new clinics and opportunities under Novarus’ Letters of Intent and the 

Term Sheet to be acquired by entities other than the Company. The MIPA details 

the transaction giving rise to the new entity and Novarus does not contest that the 

MIPA fails to carve out for that entity any rights to future business opportunities as 

alleged in Count III.110 Novarus is thus left to rely on the Operating Agreement for 

some basis upon which the Court might infer that Atticus’ actions constituted willful 

misconduct.

The provision of the Operating Agreement to which Novarus points is 

Section 13.01, where the parties agreed, “AFG and its Affiliates . . . may presently 

or in the future have, investments or other business relationships, ventures, 

agreements, or arrangements with entities engaged in the business of the Company, 

110 See Oral Arg. Tr. at 64:23–65:4. 
33 

other than through the Company and the Company Subsidiaries 

(“Other Business”) . . . .”111 Novarus argues this language reveals that AFG and its 

affiliates could not exploit opportunities presented “through the Company.” 

But the plain text of Section 13.01 states that Atticus is free to invest in 

competing businesses through entities “other than [] the Company and the Company 

Subsidiaries”; and no specific opportunities are identified by either the Operating 

Agreement or the MIPA, let alone preserved for the Company. If the parties had 

intended to carve out then-identified opportunities, they could have done so 

expressly. They did not. Instead, the parties agreed in Section 13.01 to give 

Defendants essentially unfettered discretion to pursue for themselves any corporate 

opportunity they wished. 

Other provisions in the Operating Agreement confirm that Novarus’ reading

of Section 13.01 is unreasonable. Section 8.05 states, “[n]othing contained in this 

Agreement shall prevent AFG, or any of its Affiliates from engaging in any other 

activities or businesses, regardless of whether those activities or businesses are 

similar to or competitive with the Business.”112 That same provision makes clear 

that neither AFG nor its Affiliates were “obligated to inform the Company or the 

111 Operating Agreement § 13.01.

112 Id. § 8.05(a). 
34 

other Member of any business opportunity of any type or description.”113 Like 

Section 13.01 (and the MIPA), this provision contains no carveout language. 

Section 8.05’s unqualified language conflicts with Novarus’ construction of 

Section 13.05 as preserving certain corporate opportunities for the Company. 

In construing a contract under Georgia law, the court ascertains the parties’ 

intentions by review of “the entire contract, considering each provision in connection 

with the others, and not giving the contract a construction which entirely neutralizes 

one provision if it is susceptible of another which gives effect to all its provisions.”114 

Under fire of that canon, Novarus’ reading of Section 13.01 cannot stand. 

In a last gasp, Novarus contends that Defendants’ construction of the 

Operating Agreement’s corporate opportunity provisions makes no commercial 

sense because, had Novarus agreed to forego all future corporate opportunities, it 

would not have retained its 20% ownership position but would, instead, have sold 

out entirely for more consideration. Not so. The Agreements indicate that Novarus 

sold its 80% interest for a substantial cash payment, and then preserved a claim to 

20% of future cash flows generated by the Company. While the parties allegedly 

113 Id. 

114 White v. Kaminsky, 610 S.E.2d 542, 545 (Ga. App. 2004); see also O.C.G.A. § 113-2-

2(4) (“The construction which will uphold a contract in whole and in every part is to be 

preferred, and the whole contract should be looked to in arriving at the construction of any 

part.”). 
35 

discussed the possibility of together expanding the Company’s operations, they 

expressly agreed this was not required.115 Novarus cannot now come to the Court 

seeking relief under the Agreements when Defendants decided, in accordance with 

their contractual rights, to pursue opportunities for themselves.

116 Defendants’ 

motion to dismiss Novarus’ claim for willful misconduct based on alleged 

misappropriation of corporate opportunities, therefore, must be granted.

D. Unjust Enrichment (Count IV) 

 In Count IV, Novarus alleges that Drum, despite his knowledge that there was 

an error in the Operating Agreement, intentionally caused Atticus to continue to 

collect a management fee of 10% of the Company’s gross operating income. 

According to Novarus, the management fee collected by Atticus likely benefitted 

Drum personally and, given that he retained the benefit when he knew he was not 

entitled to it, he has been unjustly enriched at Novarus’ expense.117

 Unjust enrichment is, under Georgia law, an alternative theory of recovery if 

there is no contract claim.118 A claim of unjust enrichment will lie only “if there is 

115 Operating Agreement §§ 8.05, 13.01. 

116 I note that Atticus offered to include Novarus in its Utah acquisitions, but Novarus 

declined. See Compl. ¶¶ 95–96. 

117 Compl. ¶¶ 129–43. 

118 Wachovia Ins. Sers., Inc. v. Fallon, 682 S.E.2d 657, 665 (Ga. App. 2009). 
36 

no legal contract and the party sought to be charged has been conferred a benefit by 

the party contending an unjust enrichment which the benefited party equitably ought 

to return or compensate for.”119 

Under the contract at issue, Atticus—not Drum—was entitled to a 

management fee. Novarus has not alleged that Atticus assigned the contract to Drum 

or any other party. To the extent Atticus overdrew its management fee in breach of 

the Operating Agreement, Atticus will be held accountable to Novarus for that 

breach. As Novarus conceded at oral argument, this renders its claim against Drum 

duplicative.120 For that reason, Defendants’ motion to dismiss Count IV is 

granted.121

119 Vernon v. Assurance Forensic Acct., 774 S.E.2d 197, 212 (Ga. App. 2015). 

120 Oral Arg. Tr. at 61:11–14 (“If . . . Atticus is responsible for any excess amounts taken 

as management fees, then we don’t need the unjust enrichment claims against Drum.”). 

Relatedly, in Peterson v. Aaron’s Inc., the court dismissed a claim against a franchisor for 

harm allegedly inflicted by its franchisee because the contract with the franchisee governed 

the direct harm and the plaintiff could not employ the doctrine of unjust enrichment to sue 

a potential beneficiary. 2015 WL 5479877, at *2 (N.D. Ga. Sept. 16, 2015). In other 

words, the court literally applied the principle that “[t]he doctrine of unjust enrichment 

applies in the absence of a written contract between parties; where such a contract exists, 

however, it is the contract that governs the dispute and neither party can rely on unjust 

enrichment.” S-D RIRA, LLC v. Outback Prop. Owners’ Assoc., Inc., S.E.2d 498, 507

(Ga. App. 2014). That reasoning applies with equal force here, as Drum is alleged to have 

only indirectly benefitted from Atticus’ management fees. 

121 I note that Novarus has not argued that the Court should pierce the veil of either the 

Company or Atticus to reach Drum personally. 
37 

E. Intentional Misrepresentation (Count V) 

Novarus’ fifth claim is for intentional misrepresentation (i.e., fraudulent 

inducement) against Drum.122 Specifically, Novarus alleges Drum orally 

represented that (1) Novarus and its affiliates would be maintained as separate 

entities with separate ongoing operations, including retaining all Novarus employees 

and keeping the corporate office in Colorado open; (2) the Company would assume 

the leases of Novarus’ Massage Envy clinics and keep current with payments; and 

(3) any Massage Envy clinics that became available under the Novarus Term Sheet 

would be acquired by the Company, the acquisition(s) would be funded using a 

combination of cash and third-party financing (which Atticus could obtain) and 

Novarus would receive its share of any profits derived from the new business(es).123

To establish a claim for fraudulent inducement under Georgia law, Novarus 

must prove: (a) a false representation by the defendant; (b) scienter; (c) an intent to 

induce the plaintiff to act or refrain from action; (d) justifiable reliance by the 

plaintiff; and (e) damage to the plaintiff.124 “In general, a party alleging fraudulent 

122 See Compl. ¶¶ 35, 43, 151. 

123 Compl. ¶¶ 31, 43. 

124 Ledford, 618 S.E.2d at 634; see also McDaniel v. Elliott, 497 S.E.2d 786, 788 

(Ga. 1998). Though Defendants argue Novarus’ claim is for fraud not fraudulent 

inducement, Novarus affirmatively pleads that Drum “willfully and intentionally 

misrepresented these material facts, and others, with the specific intent to induce Novarus 

to enter into the MIPA and the Agreement, and to cause harm to Novarus.” Compl. ¶ 151; 
38 

inducement to enter a contract has two options: (1) affirm the contract and sue for 

damages from the fraud or breach; or (2) promptly rescind the contract and sue in 

tort for fraud.”125 “By seeking reformation, the [Plaintiff] did not request the court 

either to rescind or ignore the writing, but to reform it, and in its reformed and proper 

condition to preserve, recognize and enforce it.”126 

Under Georgia law, Novarus’ decision to affirm the contract has legal 

consequences. “Where a plaintiff ‘elects to affirm a[n] [] agreement which contains 

a merger or entire agreement clause, he or she is precluded from recovering [from] 

the seller’s alleged fraudulent inducement based on misrepresentations made outside 

the contract.’”127 The Georgia Court of Appeals explained the rationale for this wellsettled Georgia rule: 

see also Compl. ¶ 35 (“Atticus and Drum made these representations to induce Novarus to 

sell.”). 

125 Ainsworth v. Perreault, 563 S.E.2d 135, 137 (Ga. App. 2002).

126 Harkins v. Channell, 618 S.E.2d 129, 132 (Ga. App. 2005) (internal citations and 

quotations omitted); see also Pl.’s Suppl. Br. at 8 n.2 (admitting “Plaintiff has not sought 

rescission.”). 

127 Curtis Inv. Co., LLC v. Bayerische Hypo-Und Vereinsbank, AG, 341 Fed. App’x 487, 

493 n.3 (11th Cir. 2009) (quoting Ainsworth, 563 S.E.2d at 132); see also Eco Sols., LLC 

v. Verde Biofuels, Inc., 2011 WL 13135279, at *17–18 (N.D. Ga. Feb. 1, 2011) (rejecting 

under Georgia law a claim for fraudulent inducement “[b]ecause the Agreements, as 

affirmed by [the movants], contain or incorporate the merger clause, [so] [the movants] 

cannot now recover for alleged fraudulent inducement based on misrepresentations made 

outside the Agreements.” (citing Curtis, 341 Fed. App’x at 493 n.3)); WirelessMD, 610 

S.E.2d at 358–59 (same). 
39 

In an action for fraud, if the defrauded party has not rescinded but has 

elected to affirm the contract, he is relegated to a recovery in contract 

and the merger clause will prevent his recovery. This result obtains 

because where the allegedly defrauded party affirms a contract which 

contains a merger or disclaimer provision and retains the benefits, he is 

estopped from asserting that he relied upon the other party’s 

misrepresentation and his action for fraud must fail. Stated another way, 

the entire agreement clause operates as a disclaimer, establishing that 

the written agreement completely and comprehensively represents all 

the parties' agreement. Thus, if the contract contains a merger clause, a 

party cannot argue they relied upon representations other than those 

contained in the contract.128

 Both the Operating Agreement and the MIPA contain merger clauses with 

substantively identical language: “[t]his Agreement . . . constitute[s] the entire 

agreement of the parties hereto and supersede[s] all prior agreements, 

understandings and representations, both written and oral, between the parties with 

respect to the subject matter hereof.”129 Language substantively identical to the 

128 Authentic Architectural Millworks v. SCM Gp. USA, 586 S.E.2d 726, 729 (Ga. App.

2003); see also Pennington v. Braxley, 480 S.E.2d 357, 360 (Ga. App. 1997) (explaining 

that, “[w]hile an entire agreement provision may, in some instances, result in a waiver of 

claims, the parties to the contract have ultimate control over its impact by reducing all the 

vital terms of their contract to writing. Also, a party signing a contract containing an entire 

agreement clause is not absolutely bound by it. If that party later learns of a fraud that 

induced the contract but is not reflected in the contract's terms, the party has the choice of 

rescinding the contract and suing on the fraud or affirming the contract and being bound 

by its terms. The entire agreement clause will bar the fraud claim only in the latter 

instance.”). 

129 MIPA § 13.7; see also Operating Agreement § 14.06(a) (“This Agreement . . . 

constitutes the sole and entire agreement of the parties to this Agreement with respect to

the subject matter contained herein and therein, and supersedes all prior and

contemporaneous understandings, agreements, representations, and warranties, both

written and oral, with respect to such subject matter, including the Original Agreement.”).
40 

merger clauses in the Operating Agreement and MIPA has been characterized by 

Georgia courts to be “comprehensive.”130 “The Georgia Supreme Court has held 

that, where a contract includes a [comprehensive] merger clause, a plaintiff cannot 

reasonably rely ‘upon any pre-contractual representation that was not also included 

in the [contract’s] language,’ and therefore cannot ‘have been deceived by such precontractual representations.’”131 

130 See First Data POS, Inc. v. Willis, 273 Ga. 792, 792 (Ga. 2001) (rejecting a fraudulent 

inducement claim due to a comprehensive and unambiguous merger clause reading: “[The] 

Agreement . . . constitutes the entire agreement between the parties with respect to the 

subject matter contained herein and supercedes all prior agreements and understandings, 

both oral and written by and between the parties hereto with respect to the subject matter 

hereof.”); Flip Face U.S.A, LLC v. Alexandria Moulding, Inc., 2016 WL 8844255, *1

(N.D. Ga. Jan. 4, 2016) (characterizing the merger clause in First Data as “comprehensive” 

and holding that the merger clause before the court was substantively analogous, reading: 

“this Agreement constitutes and contains the entire agreement between the Parties, and 

supersedes any and all prior negotiations, agreements, conversations, correspondences, 

understandings, and letters . . . ”); Eco Sols., 2011 WL 13135279, at *11, *18 (rejecting a 

fraudulent inducement claim under Georgia law based on the presence of a merger clause 

reading: “Entire Agreement. This Agreement is the final expression of, and contains the 

entire agreement between, the parties with respect to the subject matter hereof and 

supersedes all prior understandings with respect thereto. No other agreement, statement, 

promise, proposal, tender, or letter agreement related to the subject matter of this 

Agreement which is not contained herein shall be valid or binding.” (emphasis removed)).

131 Eco Sols., 2011 WL 13135279, at *16 (quoting First Data, 273 Ga. at 795 (2001)); 

but see Raysoni v. Payless Auto Deals, 766 S.E.2d 24 (Ga. 2014) (concluding that a merger 

clause expressly limiting itself to oral representations did not bar reliance on precontractual written representations as a matter of law). In this regard, Georgia law differs 

from Delaware law. Under Delaware law, an integration clause without clear anti-reliance 

language will not bar claims of fraudulent inducement based on knowingly false extracontractual representations of fact regardless of whether the plaintiff has elected to affirm 

or reject the contract. See Abry P’rs V, LP v. F&W Acq. LLC, 891 A.2d 1032, 1056–59 

(Del. Ch. 2006). 
41 

While acknowledging the settled Georgia authority regarding the relationship 

between merger clauses and extra-contractual fraud claims, Novarus argues that a 

merger clause will only preclude a fraud claim when the prior or contemporaneous 

representations contradict the written contract, and neither the Operating Agreement 

nor the MIPA speaks to the actions Drum misleadingly suggested he would take on 

the Company’s behalf in the future.

132 Novarus is wrong. In WirelessMD, Inc. v. 

Healthcare.com Corp., the Georgia Court of Appeals considered a claim that a 

health care company fraudulently induced the plaintiff to sell its software by failing 

to follow-through on its extracontractual promise that it would market that software

132 In support of its proposition that Georgia requires a conflict between a specific 

contractual provision and an alleged oral representation, Plaintiff relies exclusively on 

selectively quoted language from a single Georgia case, First Data, 273 Ga. 792. To be 

sure, the Georgia Supreme Court in First Data relied on a merger clause to reject a fraud 

claim based on extracontractual misrepresentations that conflicted directly with the 

agreement at issue. Id. at 795. But the Georgia Supreme Court also stated more broadly 

that the merger clause at issue “put appellees on notice that the Agreement’s terms 

superseded any and all prior representations not contained therein. . . . [Thus,] [u]nder the 

express terms of the Agreement, appellees could not have reasonably placed their reliance 

upon any pre-contractual representation that was not also included in the Agreement’s 

language, and thus appellees could not have been deceived by such pre-contractual 

representations.” Id. at 794–95 (emphasis added). The merger clause at issue there 

provided, “[the] Agreement . . . constitutes the entire agreement between the parties with 

respect to the subject matter contained herein and supercedes all prior agreements and 

understandings, both oral and written by and between the parties hereto with respect to the 

subject matter hereof.” Id. at 792. As later opinions explained, the court viewed that 

language as “comprehensive” and, therefore, the clause “precluded any subsequent claim 

of deceit based upon pre-contractual representations.” Flip Face, 2016 WL 8844255, at *4

(emphasis added); see also Novare Gp., Inc. v. Sarif, 718 S.E.2d 304, 309 (Ga. 2011) 

(citing First Data for the broadly-worded proposition that, “[w]here a purchaser affirms a 

contract that contains a merger or disclaimer provision, he is estopped from asserting 

reliance on a representation that is not part of the contract.”).
42 

once acquired.

133 The court held that “none of the[] [Agreement’s] provisions is 

inconsistent with [the alleged future promise],” but nonetheless rejected a fraudulent 

inducement claim based on the presence of a comprehensive merger clause.

134 

The same logic applies here: while Atticus purchased an 80% interest in the 

Company, neither Atticus nor Drum made any contractual guarantees that either 

would make good on Drum’s alleged oral representations. To the contrary, they 

expressly disclaimed a responsibility to expand the Company’s operations through 

Sections 8.05 and 13.01 of the Operating Agreement. As this was the document 

governing the control and operations of the Company, Novarus could (and should) 

have negotiated for provisions requiring Defendants to take certain actions allegedly 

promised by Drum, or at least providing Novarus some measure of say over whether 

those actions would be taken. It did not. Instead, Novarus sold 80% of its interest 

in the Company in exchange for roughly $16 million and rights to 20% of future 

cash flows generated by the Company’s assets. In exchange, Defendants secured

control of the Company and broad discretion in how they would operate the business. 

By including a merger clause in both Agreements, which Novarus voluntarily signed 

(and has reaffirmed through this action), the parties also agreed to foreclose the 

133 610 S.E.2d 352, 354–55 (Ga. App. 2005). 

134 Id. at 358–59. 
43 

possibility that Novarus could hold Drum legally accountable for oral 

representations not integrated in those contracts. 

In sum, “[b]ecause the [Operating Agreement] has not been rescinded, the 

[Plaintiff]’s fraud claim can only survive if it can show misrepresentations by the 

Defendants that are actually contained in the [Agreements].”135 Novarus admits that 

Drum’s alleged oral misrepresentations are not contained in the operative 

contracts.136 It follows that Plaintiff’s fraudulent inducement claim fails as a matter 

of Georgia law.

F. Implied Covenant of Good Faith and Fair Dealing (Count VI) 

Finally, Novarus alleges in Count VI that the Company breached the implied 

covenant of good faith and fair dealing by paying to Atticus more than the maximum

management fee allowed under the Operating Agreement.

137 “The requirement that 

a party exercise good faith and honest judgment, even where the contractual 

language grants the party discretion, arises from the implied duty of good faith and 

fair dealing imposed upon virtually every contract under Georgia law.”138 “[W]here 

135 In re Bay Circle Props., LLC, 593 B.R. 14, 25 (Bankr. N.D. Ga. 2018) (citing 

WirelessMD, 610 S.E.2d at 358–59). 

136 Pl.’s Answering Br. at 40–41 (“Drum’s misrepresentations . . . do not contradict the 

terms of the Operating Agreement.”). 

137 Compl. ¶¶ 157–65. 

138 Cap. Health Mgmt. Gp., Inc. v. Hartley, 689 S.E.2d 107, 112 (Ga. App. 2009). 
44 

the manner of performance is left more or less to the discretion of one of the parties 

to the contract, he is bound to the exercise of good faith.”139 “What constitutes good 

faith is a question for the finder of fact.”140 In this regard, “where a decision is left 

to the discretion of a designated entity, the question is not whether it was in fact 

erroneous, but whether it was in bad faith, arbitrary or capricious so as to amount to 

an abuse of that discretion.”141 But, “if an agreement by its express terms grants a 

party absolute or uncontrolled discretion in making a decision, then no duty of good 

faith is implied as to that decision and[] there can be no breach of the agreement 

predicated on the decision.”142

Section 8.06 states, “[t]he Manager shall be compensated for its services . . . 

and the Company shall pay to the Manager . . . compensation up to ten percent (10%) 

of the Company’s gross operating revenue per year . . . .”143 In pressing for dismissal 

139 Hunting Aircraft, Inc. v. Peachtree City Airport Auth., 636 S.E.2d 139, 141 (Ga. App. 

2006) (emphasis removed) (internal citations and quotations omitted); see also O.C.G.A. 

§ 13–4–20 (providing that, “to be effectual,” performance of a contract “must be 

substantially in compliance with the spirit and the letter of the contract and completed 

within a reasonable time.”). 

140 Hunting Aircraft, 636 S.E.2d at 141. 

141 MacDougald Const. Co. v. State Hwy. Dept., 188 S.E.2d 405, 406 (Ga. App. 1972). 

142 Planning Techs., Inc. v. Korman, 660 S.E.2d 39, 42 (Ga. App. 2008); see also Automatic 

Sprinkler Corp. v. Anderson, 257 S.E.2d 283, 284 (Ga. 1979) (“[I]t is possible to so draw 

a contract as to leave decisions absolutely to the uncontrolled discretion of one of the 

parties and in such a case the issue of good faith is irrelevant.”). 

143 Operating Agreement § 8.06 (emphasis added). 
45 

of the implied covenant claim, Defendants rest on their argument that, because the 

Operating Agreement’s language provides Atticus discretion in determining its fee, 

Novarus’ invocation of the implied covenant fails as a matter of law. 

Section 8.06 does expressly grant discretion to the Company in determining 

the amount of Atticus’ fee, but not in the manner by which the fee will be 

calculated.

144 Under Georgia law, “the general rule” is that “the duty of good faith 

is implied in all contracts,” and a grant of discretion displaces the implied covenant 

only when “the contract expressly (not impliedly) provides otherwise.”145 

In Automatic Sprinkler, for example, the Georgia Supreme Court found no room to 

imply a duty of good faith where the contract provided that an “award of any direct 

incentive compensation is entirely within the discretion of the corporation.”146 The 

court compared that language to the “more ambiguous” language in Montgomery 

Ward & Co. v. Reich,

147 which read: “[Y]our eligibility for Extra Compensation and 

the amount thereof, if any, shall be at the discretion of a Bonus Committee. . . . The 

144 Id. (“[t]he Manager shall be compensated for its services . . . and the Company shall pay 

to the Manager . . . compensation up to ten percent (10%) of the Company’s gross operating 

revenue per year . . . .” (emphasis added)).

145 Hunting Aircraft, 636 S.E.2d at 142 (emphasis added). 

146 257 S.E.2d at 284 (emphasis added) (citation and internal quotations omitted). 

147 282 P.2d 1091 (Colo. 1955). 
46 

decision of the Bonus Committee shall be final and binding.”148 After the 

comparison, the court concluded that, while the “entirely within the discretion”

language in Automatic Sprinkler expressly disclaimed a duty of good faith,

149 the

operative provision in Montgomery Ward implied “that the bonus committee will act 

upon a sound judgment and it is, of course, precluded from arbitrary or oppressive 

action.”150 

 The language at issue here is more like Montgomery Ward than Automatic 

Sprinkler, as it does not include an adverb anything like “entirely” to qualify the 

degree of discretion afforded to the Company when calculating Atticus’ Manager 

fee. Rather, Section 8.06 links the fee to “compensation for [Atticus’] services,” 

which lends itself to implying a duty of good faith. For that reason, Novarus’ claim 

for breach of the implied covenant is not precluded as a matter of law by any express 

disclaimer of that obligation in the Operating Agreement.

Even so, to sustain an inference that the Company violated the implied 

covenant of good faith, Novarus must allege some factual predicate from which the 

Court can justify that inference.

151 Novarus proffers two facts it contends allow the 

148 Id. at 1092 (internal citation and quotations omitted). 

149 Automatic Sprinkler, 636 S.E.2d at 869. 

150 Montgomery Ward, 282 P.2d at 1093; Automatic Sprinkler, 636 S.E.2d at 869. 

151 See White v. Wachovia Bank, N.A., 563 F. Supp. 2d 1358, 1364 (N.D. Ga. 2012) 

(applying Georgia law and denying a motion to dismiss a claim for breach of the implied 
47 

Court to infer the Company breached its implied covenant of good faith. First, 

Novarus alleges the Company continued to pay Atticus the full 10% of gross 

operating revenue even after it learned that the executed version of the Operating 

Agreement mistakenly swapped out “net” for “gross.”152 Second, Novarus alleges 

the management fees charged by Atticus “are approximately double the management 

fees that were historically paid by Novarus and the Seller entities. The fees are vastly 

in excess of the actual costs of managing these entities as shown by historical 

performance.”153 

Having well pled these facts, under Georgia law, Novarus has stated a viable 

claim for breach of the implied covenant. As noted, Novarus has described in its 

Complaint, and incorporated by reference, emails that allow a reasonable inference 

that Section 8.06 is the product of mutual mistake. And yet, the Company continued 

to pay Atticus the full 10% of gross operating revenues even after the mistake was 

brought to its attention. It is reasonable to infer, based on the Company’s intentional 

use of the wrong metric to calculate Atticus’ compensation, resulting in double the 

fees that are justified for Atticus to manage the operations of the Massage Envy 

covenant of good faith only after finding plaintiffs sufficiently alleged the defendant 

abused its discretion to determine the order in which transactions are paid by taking actions 

to maximize overdraft fees charged to plaintiff). 

152 Compl. ¶¶ 65, 161–64. 

153 Compl. ¶ 68. 
48 

clinics acquired by the Company, that Atticus’ compensation was calculated purely 

to enrich itself at Novarus’ expense. “‘Good faith’ and ‘reasonableness’ do not 

comprehend arbitrary or capricious reasons, considerations based on pecuniary gain, 

or merely personal preferences; rather, they refer to ‘considerations of fairness and 

commercial reasonableness.’”154 

Defendants’ motion to dismiss Count VI is denied. “The [implied covenant] 

claim may not survive the summary judgment stage, however, if discovery 

establishes that [the Company’s award of management fees] was commercially 

reasonable.”155 

III. CONCLUSION

For the foregoing reasons, Defendants’ motion to dismiss is GRANTED as to 

Counts IV and V. It is also GRANTED as to Count III insofar as that Count seeks 

to hold Atticus accountable for its willful taking of corporate opportunities. 

Otherwise, the motion is DENIED. 

IT IS SO ORDERED.

154 Hunting Aircraft, 636 S.E.2d at 141. 

155 White, 563 F. Supp. 2d at 1365–66 (allowing an implied covenant claim to survive a 

motion to dismiss because the court could not find, as a matter of law, that a bank faithfully 

exercised its contractual discretion under a contract).