IN THE COURT OF CHANCERY O F THE STATE OF DELAWARE WNYH, LLC, Plaintiff, ) ) )

v. ) ) ) C.A. No. 2017-0610-SG

ACCUMED CORP. and ACCUMED HOLDINGS CORP.,

Defendants. ) ) ) )

MEMORANDUM OPINION Date Submitted: February 27, 2018 Date Decided: May 31, 2018

Kevin G. Abrams and Matthew L. M iller, of ABRAMS & BAYLISS LLP, Wilmington, Delaware; OF COUNSEL: Christopher R. Rodi and Brian J. Capitummino, of WOODS OVIATT GILMAN LLP, Rochester, New York, Attorneys for Plaintiff

. Gregory V. Varallo and Susan M. H annigan, of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware, Attorneys for Defendants

.

GLASSCOCK, Vice Chancellor1 This matter involves a sale of s ubstantially all the assets of a Delaware LLC for approximately $35 million. A s ubstantial part of those ass ets was located in the Dominican Republic. Both the seller and the buyer anticipated that, because the assets were located in a tax-free zone of that country, the sal e would be free of capital gains tax. However, the sales contract (the “APA”) was not mad e contingent on the receipt of any particular tax treatment from the Dominican Repu blic tax authority. Contractually, the liability for t hese taxes was placed on the seller. 1 The APA provided the buyer with indemnification rights for cer tain liabilities. $2 million was placed in an escrow account to facilitate indemn ification, and, absent claims, was payable to the seller at the end of the escrow term . Near the end of the term, the buyer apparently learne d that the Dominican Republic tax authority would assess “anticipated” tax liability against the seller, for whic h the buyer feared it might also be jointly liable. As a consequence, it filed a cla im against the escrow fund. Subsequently, the seller pa id the anticipated tax of $10 0,000, and has been assessed (and disputes ) tax liability to th e Dominican Republic of $15 million.

1 The seller asserted in the Comp laint that the buyer is respons ible for fifty percent of Dominican Republic taxes. Verified Complaint (the “Complaint” or “Compl. ”) ¶ 65. Neither party addressed the issue in briefing. At oral argument, the buyer contended t hat “foreign”—that is, Dominican Republic—taxes fall exclusively on the seller, per the APA. Fe b. 27, 2018 Oral Arg. Tr. (“Tr.”) 23:19–25:14. The seller did not rebut the buyer’s argument and appeared to agree that it was solely responsible for these taxes. Tr. 75:1–16. I assume, for purpo ses of this Memorandum Opinion only, that Dominican Republic tax liability is allocated by the APA to the seller. Nothing in my decision here turns on that assumption.2 The seller brought this action. It seeks a declaration that t he buyer’s claim against the escrow fund is a nullity, because claims must be ba sed on liabilities incurred, not anticipated and contingent. It seeks tort and co ntract damages allegedly relying on the buyer’s use of a subsidiary in the transfer of t he assets, as well as the buyer’s post-transaction actions. The seller also accuses the buyer of fraud. The buyer has moved to dismiss; this Memorandum Opinion addresses t hat motion, which is granted in part and denied in part.

I. BACKGROUND 2

A. The Parties Plaintiff WNYH, LLC is a Delaware limited liability company wit h a principal place of business in New York. 3 WNYH is the successor-in-interest or

successor-in-name to another en tity, AccuMED Innovation Technol ogies, LLC (“AIT LLC,” or collectively, the “Seller”). 4 The Seller sold substantially all of its assets (the “AIT Assets ”) to the Defendants. 5 Defendant AccuMED Corporation (“Ac cuMED”) is a Delaware corpora tion with a principal place of business in New York. 6 Defendant AccuMED Holdings

2 The facts, drawn from the Complaint and from documents incorpo rated by reference therein, are presumed true for purposes of evaluating the Defendants’ Motion to Dismiss. See, e.g. , In re Gen. Motors (Hughes) S'holder Litig. , 897 A.2d 162, 169 (Del. 2006). 3 Compl. ¶ 7. 4 Id. ¶¶ 1, 7. 5 Id. ¶ 13. 6 Id. ¶ 8.3 Corporation (“Holdings”) is also a Delaware corporation with a principal place of

business in New York. 7 Holdings participated with AccuMED and others 8 (collectively, the “Buyer”) in purchasing substantially all of the AIT Assets. 9 The

AIT Assets were located in New Y ork and in the Dominican Republ ic. 10 The Buyer and the Seller are parties to a n APA defining rights and respon sibilities with respect

to the sale of the AIT Assets. 11

B. Significant Non-Parties According to the Buyer, Mezed Inversiones S.R.L. (“Mezed”) is a wholly owned subsidiary of AccuMED. 12 The Buyer structured the transaction so that Mezed was the initial acquirer of the AIT Assets in the Dominic an Republic. 13 Mezed then transferred those Assets to AccuMED, which in turn t ransferred the Assets to Holdings. 14 In 2016, Lear Corporation acqui red all outstanding and issued stock of Holdings. 15

The Direccion General de Impuestos Internos (the “Tax Authority”) is a tax authority for the Dominican Republic. 16 The Tax Authority assessed taxes against

7 Id. ¶ 9. 8 Certain equity owners of AIT LL C were also parties to the APA. Id. ¶ 2. 9 Id. ¶ 13. 10 Id. ¶¶ 13–14; Tr. 13:20–14:4. 11 Compl. ¶¶ 2, 13. 12 Tr. 39:8–9. 13 Compl. ¶¶ 13–14, 23. 14 Id. ¶¶ 23–24. 15 Id. ¶ 24. 16 Id. ¶ 34.4 the Seller, arising from the tra nsaction and, perhaps, the Buye r’s conduct of business in the Dominican Republic. 17

C. Facts Leading to This Litigation

1. The Buyer Acquires the AIT Assets AIT LLC owned manufacturing facilities that produced fabrics fo r the medical industry. 18 Some of the facilities were locat ed in a “free trade zone” in the Dominican Republic. 19 The Buyer agreed in the APA to purchase substantially all of the AIT Assets for approximately $35 million, subject to cer tain adjustments. 20 The transaction closed on October 9, 2014. 21 AIT LLC transferred the AIT Assets to Mezed, which then transfe rred the Assets to AccuMED. 22 AccuMED completed the transaction by transferri ng the Assets to Holdings. 23 The parties set aside $2 million (together with all interest an d other income earned thereon, the “Fund”) of the approximately $35 million pu rchase price under an escrow agreement (the “Escrow Agreement”) to cover indemnifi cation rights in favor of the Buyer in the APA. 24 By the terms of the Escrow Agreement, the Fund was to be paid to the Seller on April 6, 2016, absent a timely claim against the Fund

17 Id. ¶ 42. 18 Tr. 14:1–4. 19 Compl. ¶ 14. 20 Id. ¶¶ 2, 13. 21 Id. ¶ 22. 22 Id. ¶¶ 23–24. 23 Id. ¶ 24. 24 Id. ¶¶ 2, 13.5 by the Buyer. 25 According to the Seller, the term within which claims were to be made was extended to May 6, 2016, at the Buyer’s request. 26 On May 5, 2016, the Buyer sent a claim certificate to the escrow agent 27 and a notice to AIT LLC for a “potential claim that the [Buyer] may sustain in relation to ta x assessments, interest and penalties.” 28 The claim certificate sought the full $2 million. 29 The indemnification term expired on May 6, 2016. 30 The Seller provided a timely objection to the escrow agent a nd the Seller on May 13, 2016. 31

2. The Tax Authority Assesses Taxes Against AIT LLC Sometime after that objection, the Tax Authority assessed anticipos (estimated) taxes against the Se ller because of its “failure to make certain tax filings in the Dominican Republic following the closing of the APA.” 32 The anticipos tax was assessed at $100,000. 33 On October 5, 2016, the Buyer and Seller entered into a letter agreement concerning the Buyer’s claim against the Fund (the “Escrow Lett er” or the “Escrow Letter Agreement”). 34 The Escrow Letter states that the parties entered into the

25 Id. at Ex. C (Amendment to Escrow Agreement), § 1.3(E). 26 Tr. 63:17–64:3. 27 Compl. ¶¶ 32–35, Ex. D (AccuMED notice to escrow agent). 28 Id. at Ex. E (AccuMED notice to WNYH). 29 Id. 30 Id. ¶ 39. 31 Id. ¶¶ 37–38, Exs. F–G. 32 Id. ¶ 42. 33 Tr. 73:23–74:2. 34 Compl. Ex. H (Escrow Letter).6 Escrow Letter “in resolution of the escrow release issue.” 35 The Escrow Letter provides for the delivery of Joint Payment Instructions to the escrow agent to release two payments of $1 million each from the Fund. 36 The first payment is conditioned on, in part, a meeting between t he parties and the Tax Authorit y and resolution of

the anticipos taxes. 37 The second payment is conditioned, in part, on the elapse of

six months after the Seller files its tax return in the Dominic an Republic, provided that any issues raised by the Tax Authority are resolved. 38 The parties now debate the purpose and scope of the Esc row Letter. Sometime after the issuance of the Escrow Letter, the Seller avers that it paid the Dominican Repu blic government $100,000 for the anticipos tax. 39 Subsequent to that payment, the Tax Authority informed the Sell er that the Buyer “failed to properly declare the assets purchased from [th e Seller] on certain of [the Buyer’s] tax returns follow ing the closing of the sale.” 40 On July 26, 2017, the Tax Authority assessed a tax ag ainst the Seller of $15,613,498, including $4,061,785 in VAT taxes and $10,561,950 in capital gains taxes. 41 The VAT taxes purportedly arose from the Defendants’ alleged use of the Seller’s tax iden tification information

35 Id. 36 Id. 37 Id. 38 Id. 39 Tr. 73:23–74:2. 40 Compl. ¶ 46. 41 Id. ¶¶ 53–54.7 and a bank account in the Seller’s name for purchases in the Do minican Republic

after the transaction closed. 42 The Tax Authority did not then assess, and has not assessed, any taxes against the Buyer. 43

D. Procedural History The Seller filed the Complaint on August 23, 2017, alleging six named causes of action. The first two are essentially the same. In its Fir st Cause of Action, the Seller seeks a declaratory judgment that “no valid Claim has be en made to the Escrow Agent and, consequently, Plaintiff is entitled to an imm ediate disbursement

of the full amount of the Fund held in escrow.” 44 In its Second Cause of Action, the Seller alleges that the Buyer br eached the Escrow Agreement by submitting a claim certificate without underlying damages under the indemnificatio n provision in APA

Section 6.1. 45 In its Fourth Cause of Action, t he Plaintiff alleges that the D efendants

breached Sections 5.2 and 5.3 of t he APA by using Mezed as an i ntermediary in the transaction, in contravention of the Defendants’ purported repr esentation that AccuMED was the purchaser of the AIT Assets. 46 Alternatively, the Plaintiff argues that the same conduct―submitting an escrow claim certificate an d using Mezed as

42 Id. ¶¶ 55–58. 43 Tr. 69:5–12, 73:2–5. 44 Compl. ¶ 82. 45 Id. ¶¶ 83–91. 46 Id. ¶¶ 101–110.8 an intermediary―breached the i mplied covenant of good faith and fair dealing (Causes of Action Three and Five). 47 Lastly, the Seller alleges that the Buyer committed fraud by (1) failing to p roperly declare the AIT Asse ts on its Dominican Republic tax returns; (2) representing that AccuMED was the ent ity that would purchase the AIT Assets, when in fact the Assets were transferr ed to Mezed; and (3) representing that the Buyer was in compliance with all applicab le laws and regulations. 48 In reliance on these fraudulent representations, the Seller e ntered the Escrow Letter Agreement, which should thus be found void (Sixth Cause of Action). 49 Finally, the Seller alleges th e Buyer wrongfully used the Sel ler’s Dominican Republic taxpayer identification information in makin g post-transaction purchases, leading to the Seller incurring tax liability proper ly owed by the Buyer (also in the Sixth Cause of Action). 50 The Buyer filed a Motion to Dismiss these claims on September 1 9, 2017. I heard argument on February 27, 2018. The Motion is granted in part and denied in part. My analysis follows.

47 Id. ¶¶ 92–100, 111–16. 48 Id. ¶¶ 117–29. 49 Id. ¶¶ 122–23. 50 Id. ¶¶ 125–26.9 II. ANALYSIS The Defendants have moved to dis miss the Complaint under Court of Chancery Rule 12(b)(6). When reviewing such a motion, (i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing pa rty notice of the claim; (iii) the Court must draw all reasonable i nferences in favor of the non-moving party; and (iv) dismissal is inappro priate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of c ircumstances susceptible of proo f. 51 I need not, however, “accept co nclusory allegations unsupported by specific facts or

. . . draw unreasonable inferences in favor of the non-moving p arty.” 52

A. The Escrow Dispute: Causes of Action First, Second, and Third The Seller seeks a declaration that under the contractual langu age of the APA and Escrow Agreement, either as written or as supplemented by t he implied covenant of good faith and fair d ealing, the Buyer’s claim agai nst the Fund was invalid and in breach of the APA, and is a nullity; it also see ks an order releasing the Fund to the Seller. For the reasons below, I deny the Buyer’s Motion to Dismiss

these Causes of Action.

1. Indemnification and Declaratory Judgment Section 6.1 of the APA requires the Seller to indemnify the Buy er for “any claim, Liability, obligation, los s, damage, assessment, judgmen t, cost, and expense

51 Savor, Inc. v. FMR Corp. , 812 A.2d 894, 896–97 (Del. 2002) (citations and internal quot ation marks omitted). 52 Price v. E.I. DuPont de Nemours & Co. , 26 A.3d 162, 166 (Del. 2011).10 . . . (collectively, ‘Damages’).” 53 “Liability” is defined in the APA thus: “any liability or obligation of whatever kind or nature (whether kno wn or unknown , whether asserted or unasserted , whether absolute or contingent , whether accrued or

unaccrued , whether liquidated or unliq uidated, and whether due or to become

due ).” 54 Therefore, if the Buyer is ultimately liable for Dominican Re public taxes resulting from the sale of the AIT Assets, as it allegedly fear s, it will be entitled to indemnification by the Seller (absent contr actual defenses). The parties set aside the $2 million Fund in escrow to facilita te certain indemnification payments. The p arties executed a separate Escr ow Agreement to govern treatment of claims against the Fund for indemnification under Section 6.1. The Buyer submitted a timely cla im against the Fund for potenti al tax liability, which it avers it determined in goo d faith may exceed $2 million. 55 The Escrow Agreement was execu ted simultaneously with the APA, with one Amendment on April 6, 2016. 56 By default, the Escrow Ag reement required that the

Fund be distributed to the Seller at the end of the indemnifica tion term, less any disputed or payable claims. 57 The April 6, 2016 Amendment directs the escrow agent to “automatically distribute to Seller 100% of the then-r emaining Fund less

53 Compl. Ex. A (APA), § 6.1. 54 Id. at Art. VIII (emphases added). 55 Tr. 43:12–13. 56 Compl. Exs. A–C. 57 Id. at Ex. B (Escrow Agreement), § 1.3(E).11 the Outstanding Claims Amount” on “the later of May 6, 2016” or the “Business Day after” the escrow indemnification term ends. 58 Disputed amounts would be distributed through instructions from a “(i) joint written inst rument” or “(ii) a final non-appealable order of a court of competent jurisdiction.” 59 However, if the Buyer “delivers a written certification to [the] Escrow Agent” of a c laim to the Fund, and

the Seller does not “within 30 cal endar days . . . dispute all or any of the amounts set forth therein,” then the escrow agent will transfer the portion of the Fund claimed in the claim certificate to the Buyer. 60 If the Seller objects to the claim certificate, the escrow agent must “continue to hold . . . that portion of the F unds requested in the Claim Certificate, or the disputed portion thereof . . . pendin g receipt of either (i) Joint Payment Instructions, or (ii) a Court Order.” 61 The Buyer submitted its claim certificate to the escrow agent for the full amount of the Fund on May 5, 2016. 62 The Seller filed an objection. 63 Thus, the escrow agent has not released the Fund to either party.

58 Id. at Ex. C (Amendment to Escrow Agreement), 1. 59 Id. ¶ 27, Ex. B (Escrow A greement), § 1.3(B)(i). 60 Id. at Ex. B (Escrow Agreement), § 1.3(C). 61 Id. § 1.3(D). 62 Id. ¶¶ 32–35, Exs. D–E. 63 Id. ¶ 37.12 The parties attempted to address their dispute by agreement. O n October 5, 2016, the parties executed the Escrow Letter Agreement. 64 The Escrow Letter provides the following context: Purchaser previously submitted a Claim Certificate to the Escro w Agent with respect to the Fund, alleging a potential claim of $ 2,000,000 against the Funds. The Company [WNYH] subsequently submitted a n Objection to the Escrow Agent with respect to the full amount a lleged under the Claim Certificate. In resolution of the escrow release issue , the parties are entering in to this letter agreement. 65

The Escrow Letter al lows for an initial release of $1 million, “immediately following the: (a) completion of a meeting between representatives of [the Tax Aut hority, Seller, and Buyer] to di scuss the anticipos (or estimated taxes) asserted by [the Tax Authority] and the reasons why the anticipos should not have been assessed; and (b ) resolution of the anticipos (or estimated taxes) asserted by [the Tax Authority], either by a determin ation that no taxes or penaltie s are owed or any taxes and penalties determined being paid.” 66

The first condition has not been met. The anticipos taxes were paid by the Seller, in the amount of $100,000, but the Seller is disputing the final tax assessment of almost $15 million. The Escrow L etter also provides for rele ase of the remaining

balance of the Fund six months after the Seller files its final tax return in the Dominican Republic pertaining to the asset sale, unless the Tax Authority raises any

“additional material issues.” 67 This second condition is inchoate, for the same

64 Id. at Ex. H (Escrow Letter). 65 Id. (emphasis added). 66 Id. (emphases added). 67 Id.13 reason. Finally, the Escrow Letter states that “[the Buyer] an d the [Seller] agree to deliver Joint Payment Instructions to the Escrow Agent to relea se” the first and second releases of the Fund, b ased on the stated conditions. 68 Here, the Seller asks for a declaration that the Buyer’s claim against the Fund was improper, and void, and asks t hat I direct the agent to rel ease the Fund to the Seller. In opposition to these r equests, the Buyer interposes the Escrow Letter as a binding agreement of the parties. It views the Escrow Letter a s a final settlement of the rights of the Seller to receive the Fund, and seeks specifi c enforcement of that settlement. While the Buyer also a rgues that its claim against the Fund was proper,

and thus that the Seller’s claim s for release of the Fund must be denied in any event,

I must first address whether th e matter was settled by the Escr ow Letter. The parties described the purpos e of the Escrow Letter succinct ly in that document: “In resolution of the escrow release issue, the parti es are entering into this letter agreement.” 69 Nonetheless, the Seller argue s that the Escrow Letter does not prevent it from seeking rel ease of the Fund. It relies on two arguments, one strong, the other not. The latter argument is that the Escrow Letter bound the Buyer t o give a written release to the escrow agent upon certain conditions, but it did not bind the Seller

68 Id. 69 Id.14 from pursuing legal relief. Tha t facile position is incompatib le with the agreed-to

“ resolution of the escrow release issue” explicitly provided in the Escrow Letter,

however. The Seller’s better argument is t hat the parties did not mean t he Escrow Letter Agreement to indefinitely estop the Seller from seeking release of the Fund in the face of changed circumstances. In this reading, the “escrow re lease issue” is the Buyer’s assertion that it may be liable, secondarily, after the assertion of anticipos taxes against the Seller. The Ag reement contemplated, for inst ance, a meeting with the Tax Authority to resolve the anticipos assessment; and then a payment by the Seller of any such assessment, resulting in the first ($1 milli on) disbursement from

the Fund. That anticipos tax assessment has been made . The Seller, however, has been assessed a $15 million final tax, which was not anticipate d by the parties, who expected the transaction to be tax free. As a result, accordin g to the Seller, the Escrow Letter terms are not enforceable in these circumstances, and the parties never meant that a years-long dispute over an eight figure tax assess ment must be resolved

before the Fund is disbursed. The Escrow Letter is ambiguous as to the parties’ intent in the current situation. I cannot, at the pleading stage, enforce it specifi cally. Entitlement to specific performance requires, inter alia , that the movant show, by clear and convincing evidence, that a valid and enforceable contract exis ts and that the movant15 is currently entitled to performance. 70 Because of this decision, I need not address the Seller’s rather half-hearted argument in the Sixth Cause of Action that the Escrow Letter was procured by th e Buyer’s fraud; that may await a developed record

as well.

2. Indemnification and the Escrow Claim I next turn to the Buyer’s argument that its claim against the Fund was valid under the Escrow Agreement. To grant the Buyer’s Motion to Dis miss, I must find

that its claim was sufficient to toll the distribution of the F und at the end of the term,

as a matter of law. The nature of the parties’ dispu te here is simple; does the Esc row Agreement allow the Buyer to cause the a gent to maintain the Fund beyond the term by making

a claim for indemnification for liabilities that are inchoate o r contingent? Both parties agree that the Escrow Ag reement and the Indemnification Provisions of the APA are clear and unambiguous; they read them differently, howe ver. I examine the parties’ views, below. The Escrow Agreement provides that the Fund is to be disbursed to the Seller at the end of the term, absent a claim by the Buyer that “it is entitled to receive all or any portion of the Fund pursuant to the [APA] and such certi fication includes a

70 E.g., Osborn v. Kemp, 991 A2d 1153, 1158 (Del. 2010).16 description (in reasonable detail) of the amount and nature of such amounts owed .” 71 As the Seller points out, this i s written to provide for a pres ently-payable amount— then owed—to the Buyer, as indemnification under the APA. The result of such a claim, absent a dispute by the Seller, is that the escrow agent would then pay the claim from the Fund to the Buyer. Here, the claim actually sub mitted by the Buyer was not for an amount “owed.” Instead, the Buyer’s claim again st the Fund was for an unknown amount that may become owed if (1) the Seller were t o be assessed taxes, (2) the Seller did not p ay the assessment, and (3) the T ax Authority then assessed those taxes against the Buyer. Noting that this claim was not only not currently owed when made, but was entirely contingent, the Sell er argues that the

claim was not valid. The Buyer, for its part, notes that I must read the contracts i n harmony and as

a whole. 72 It points out that these contracts indemnify it against damag es including “Liabilities,” a term defined in the APA to include liabilities present and future, known and unknown. Since the Escrow Agreement was meant to faci litate the indemnification provisions of the APA, argues the Buyer, it mus t provide for anticipated claims against the Fund, if not for current release , then to maintain the

71 Compl. Ex. B (Escrow Agreem ent), § 1.3(C) (emphasis added). 72 GMG Capital Investments, LLC v. Athenian Venture P’rs I, L.P. , 36 A.3d 776, 779 (Del. 2012) (“In upholding the intentions of the parties, a court must cons true the agreement as a whole, giving effect to all provisi ons therein.”).17 Fund as an indemnification-facilitation vehicle. The Seller, f or its part, argues that while the Buyer may be owed inde mnification for future liabilit ies, the plain language of the Escrow Agreement limits claims and payments fro m the Fund for liabilities incurred during the te rm. The Buyer points out tha t it is entirely common for escrow agreements in connection with asset purchase agreeme nts to be structured so that they survive until resolution of potential indemnificat ion rights. 73 I am not dealing with common escrow agree ments, however, but the specifi c Escrow Agreement negotiated between the parties here. The Escrow Agre ement read in light of the entire agreement of the parties is, I find, ambiguous. Because I cannot find that the Buyer’s construction is correct as a matter of law, th e Motion to Dismiss based on the validity of the Buye r’s claim against the Fund mus t be denied. For the foregoing reasons, the Buyer’s Motion to Dismiss the Se ller’s First

and Second Causes of Action is denied. The Motion to Dismiss t he portion of the Sixth Cause of Action pertaining to fraud in the inducement of the Escrow Letter is

also denied.

73 So strong is this understanding of escrow in this context, acc ording to the Buyer, that a contrary construction here would effectivel y incur the end of the world of escrow, as we know it. I am sanguine, however. Good draftsmen have been effective at draft ing around obtuse judges since there have been draftsmen and judges.18 3. The Implied Covenant In the Seller’s Third Cause of Action, it seeks to employ the i mplied covenant of good faith and fair dealing in support of the relief sought in its First and Second Causes of Action. The implied covenant involves a “cautious en terprise” 74 and is “rarely invoked successfully.” 75 “The implied covenant is inherent in all contracts and is used to infer contract terms to handle developments or c ontractual gaps that the asserting party pleads neither party anticipated.” 76 The party raising the claim must “prove[] that the other pa rty has acted arbitrarily or unr easonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected.” 77 A court “must assess the parties’ reasonable expectations at th e time of contracting.” 78 The implied covenant “does not establish a free-floating requ irement that a party act in some morally commendable sense.” 79 Rather, “good faith” here

involves “faithfulness to the s cope, purpose, and terms of the parties’ contract” while “fair dealing” means acting “consistently with the terms of the parties’ agreement and its purpose.” 80

74 Nemec v. Shrader , 991 A.2d 1120, 1125 (Del. 2010) (quoting Dunlap v. State Farm Fire & Cas. Co. , 878 A.2d 434, 445 (Del. 2005)). 75 Kuroda v. SPJS Holdings, L.L.C. , 971 A.2d 872, 888 (Del. Ch. 2009). 76 Dieckman v. Regency GP LP , 155 A.3d 358, 367 (Del. 2017) (internal citations omitted). 77 Nemec , 991 A.2d at 1126. 78 Id. 79 Allen v. El Paso Pipeline GP Co., L.L.C. , 2014 WL 2819005, at *10 (Del. Ch. June 20, 2014). 80 Gerber v. Enter. Prods. Holdings, LLC , 67 A.3d 400, 419 (Del. 2013) (emphasis omitted), overruled on other grounds by Winshall v. Viacom Int’l, Inc. , 76 A.3d 808 (Del. 2013).19 I find the application of the implied covenant here doubtful. I have found, however, that ambiguities lurk in the intentions of the parties as expressed in the Escrow Agreement and the APA. Given that fact, and in the spec ific scenario before me, where ambiguities reside in the contractual provisions said to contain the gap subject to the covenant, it is premature to address the possibl e relevance of the implied covenant with respect to the Seller’s claim to the Fund . Accordingly, I deny the Buyer’s Motion to Dismiss the Third Cause of Action.

B. The Breach of Contract Claims The principles of contract interpretation are well known: [w]hen interpreting a contract, the Court will give priority to the parties’ intentions as reflected in the f our corners of the agreement. In upholding the intentions of the parties, a court must construe the agreement as a whole, giving effect to all provisions therein. The meaning inferred from a particular provision cannot control the meaning of the entire agreement if such an inference conflicts with the agreement's overall scheme or plan . . . . A contract is not re ndered ambiguous simply because the parties do not agree upon its prop er construction. Rather, an ambiguity exists [w]hen the provision s in controversy are fairly susceptib le of different interpretations or may have two or more different meanings. 81 It is well established that “[d]ismissal of a claim based on co ntract interpretation is proper if the defendants’ interpretation is the only reasonable construction as a

81 GMG Capital Investments, LLC , 36 A.3d at 779–80 (second alteration in original) (citations and internal quotation marks omitted).20 matter of law.” 82 The Seller alleges breach of contract claims under the APA an d Escrow Agreement. My analysis follows.

1. Fourth Cause of Action: Breach of Contract The Seller points out that the Buyer caused the AIT Assets to b e transferred, in the first instance, to Mezed; it then caused Mezed to transf er the Assets to AccuMED. The Seller argues that using Mezed in that manner was a breach of

contract. The APA contains numerous references to the term “Pu rchaser.” The Purchaser is defined as “AccuMED Corp.” in the APA preamble. 83 Section 1.1 states that the Purchaser “will purchase and acquire” the AIT A ssets from the

Seller. 84 Section 1.3 states that “[a]t the Closing, [the Seller] will assign and delegate to Purchaser, and Purchaser will assume,” a particular list of liabilities. 85 Section 2.2 requires delivery of certain documents such as “certified c opies of the resolutions duly adopted by Purchaser’s board of directors authorizing the execution, delivery and performance of this Agreement.” 86 In other words, the Seller asserts that the

APA makes it clear that the AIT Assets were to be transferred t o AccuMED as the

82 Caspian Alpha Long Credit Fund, L.P. v. GS Mezzanine P’rs 2006, L.P. , 93 A.3d 1203, 1205 (Del. 2014) (citations and inter nal quotation marks omitted). 83 Compl. Ex. A (APA). 84 Id. § 1.1. 85 Id. § 1.3. 86 Id. § 2.2(b)(ii).22 Neither of these alleged breache s is actionable. Section 5.2 i s a power and authority clause; the Seller does not contend that the Buyer la cked the corporate power to purchase the AIT Assets . At oral argument, the Seller pressed Section 5.3 as more pertinent. The Seller’s argument is as follows. The p arties expected this transaction to be tax free, although they failed to make the AP A contingent on tax treatment. The Seller, however , has been assessed capital gain s taxes in the Dominican Republic of over $10 million. The Seller is disputin g this assessment by the Tax Authority, and professes to not know why it has been so assessed. 89 It suspects, however, that it may have been the use of Mezed, rath er that AccuMED,

as the taker of title to the Assets that caused the Tax Authori ty to asses this tax. 90 Therefore, the Seller argues, t he Buyer caused the “execution a nd delivery” of the APA to “violate or conflict with” law, in violation of Section 5.3. But, even assuming the use of Mezed caused the transaction to incur tax, that is not unlawful. Nothing about the transaction is alleged to have violated a “[l ]aw, rule, regulation, writ, judgment, injunction, decree, determination, award or oth er order of any Governmental Agency,” and the Complaint does not allege otherwi se: an application of tax law is not a violation of tax law. The parties could have, but did

89 Tr. 74:14–20. 90 The Seller suspects that the Buyer assigned a tax exemption ce rtificate to Mezed, and the fact that the certificate was not held by AccuMED, the named purchas er, aroused the Tax Authority’s interest and suspicion. Pl.’s A ns. Br. in Opp’n to Defs.’ Mot. to Dismiss (“Ans. Br.”) 45–46.23 not, condition the transaction on tax-free status, and they cou ld have assigned the responsibility for taxes differently. But given the contract a s written, the Seller has

failed to state a claim for b reach of Sections 5.2 or 5.3. 91 In fact, the use by the Buyer of an affiliate in the transactio n is contemplated in the APA. Section 9.4 states that the “Purchaser may assign in whole or in part its rights and obligations pursuant to this Agreement to one or more of its

Affiliates.” 92 This includes, logically, the right to receive the Assets. T he Buyer asserts that Mezed is a wholly o wned subsidiary of AccuMED, and thus an affiliate under the APA; therefore, argues the Buyer, it had the contract ual right to substitute Mezed as the purchaser. 93 The Seller, by contrast, argues that Mezed’s status as an

91 It is unclear whether the Seller attempts to plead a fraud cla im for damages resulting from the use of Mezed, rather than AccuMED, to receive the AIT Assets. To the extent I can tease such a claim from the Complaint supplemented by the briefing, it can b e stated thus: (1) AccuMED was the purchaser, per the APA; (2) the Buyer had no right to subst itute Mezed as the purchaser in place of AccuMED; (3) notwithstanding its promise in the APA, t he Buyer knew, but did not disclose, that it meant to substitute Mezed as the purchaser; ( 4) the Seller was unaware of the Buyer’s impending breach of the APA, and relied on the Buyer’s contractual promise that AccuMED would be the purchaser of the AIT Assets; (5) the Selle r was damaged as a consequence, in that it was assessed taxes it did not contempla te would result from the AIT Asset sale. If the Seller did intend to plead such a cause of action in fr aud, it must be dismissed. The syllogism above is a classic attempt to bootstrap a breach of c ontract action into a claim for fraud, an attempt that our courts have consistently rejected . See, e.g. , Cornell Glasgow, LLC v. La Grange Props., LLC , 2012 WL 2106945, at *8 (Del. S uper. June 6, 2012) (Slights, J .) (holding that a plaintiff cannot state a fraud claim “merely by intoning the prima facie elements of [fraud] while telling the story of the de fendant’s failure to perform u nder the contract”). 92 Compl. Ex. A (APA), § 9.4. 93 In its Opening Brief on this Motion, the Buyer asserted that M ezed is an affiliate of AccuMED as defined in the APA, as an entity “controlled” by AccuMED. D efs. AccuMED & Holdings’ Opening Br. in Supp. of Their Mot. to Dismiss Pl.’s Verified Co mpl. Opening Br. (the “Opening Br.”) 10. The APA defines an “Affiliate of any particular Pers on” as “any other Pe rson controlling, controlled by or under common control with such particular Pers on, where ‘control’ means the24 affiliate of the Buyer is an unresolved issue of fact, and that the Buyer’s use of Mezed was unanticipated by the parties to the APA. It states in the Complaint, unequivocally, that “Mezed . . . had no right under [the APA] t o acquire the [AIT Assets] directly from” the Selle r, and that the Buyer’s use of Mezed was “unilateral,” “undisclosed,” and “unauthorized.” 94 The Seller’s Answering Brief repeats these allegations. 95 The Seller’s allegations are troublesome, in light of a resolut ion of the Seller’s board of directors (the “Resolu tion”) submitted at oral argumen t by the Buyer. 96 I note that the Resolution is not attached to the Complaint and i s extraneous to the record for purposes of this Motion to Dismiss. When presented with the Resolution, however, the Seller’s counsel state d that the Seller was not “d isputing that there was a resolution that was entered into that indicated that the buye r could transfer its assets

to Mezed.” 97 In fact, the Resolution was entered a week before the transac tion closed, and acknowledged Mezed’s r ight to take the AIT Assets from the Seller : “RESOLVED: This Board authorizes the transfer of all the rights and benefits of [AIT LLC], in the Dominican Re public, on behalf of [Mezed].” 98 Because I have

possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, Contract or otherwise.” Compl. Ex. A (APA), Art. VIII. 94 Compl. ¶¶ 47, 49, 51. 95 Ans. Br. 11, 32–33. 96 Court Ex. 1 (Dkt. No. 17). 97 Tr. 83:8–12. 98 Court Ex. 1 (Dkt. No. 17).25 found that the Seller has failed to state a claim for breach of contract, I need not consider the Resolution further, or whether the Seller has adop ted it for purposes of this Motion. However, the Verified Complaint, in light of the Resolution, appears

to state facts that the Plainti ff should have know n at the time of filing were untrue.

2. Fifth Cause of Action: T he Implied Covenant In the alternative, in its Fifth Cause of Action, the Seller ar gues that the Buyer breached the implied covenant o f good faith and faith dealing, relying on the same facts involving Mezed that allegedly amount to a breach of the APA: “[t]o the extent [the Buyer’s] conduct is not an express breach of APA Sections 5.2 and 5.3 . . . [its] conduct is a breach of the implie d covenant of good faith and f air dealing.” 99 Again, the Seller is liable unde r the APA for taxes resulting f rom the sale, 100 and it alleges that the parties intended the transaction to be free of capital gains tax. Instead, it has been assessed some $10 million by the Tax Autho rity. The Seller speculates that this assessment resulted from the use of Mezed by the Buyer, although it does not allege that such is the case. Assuming th at it did so result, and assuming that the parties knew that assignment of the AIT Asset s to Mezed would have resulted in tax liability, argues the Seller, they surely would have agreed to exclude Mezed from the transaction. If so, however, that does not authorize me to

99 Compl. ¶ 115. 100 See supra , note 1.26 change the contract by applicati on of the implied covenant, to impose that term. The result would be to find the Buyer in breach, retroactively, of an implied term it could not have anticipated, with the effect of shifting liability for taxes arising from the

transaction from the Seller to t he Buyer. The Complaint does n ot allege that the parties knew use of Mezed would cause tax liability. Important ly, the Seller does not allege in the Complaint that the Buyer acted “arbitrarily o r unreasonably,” 101 based on Buyer’s knowledge at the time of the transaction, to f rustrate Seller’s purpose in contracting. There is no allegation in the Complain t that the Buyer used Mezed to strip the Seller of the benefit of its bargain, or tha t it acted to exploit a lacuna in the APA. The implied covenant is inapplicable. This is simply a situation where unforeseen consequences have made the contract less valua ble to the Seller than it anticipated; accordingly, it wishes to rewrite the cont ract. I am sympathetic. But parties are bound to their a greements, good and bad. The i mplied covenant is

not a license to reba lance benefits and bur dens that a party no w regrets. 102

C. Sixth Cause of Action: Fraud I have addressed above the Selle r’s claim in its Sixth Cause of Action that the Escrow Letter Agreement is void as the product of fraud. That Cause of Action

101 Nemec , 991 A.2d at 1126 (“We will only imply contract terms when the party asserting the implied covenant proves that the other party has acted arbitrar ily or unreasonably, thereby frustrating the fruits of the ba rgain that the asserting party reasonably expected.”). 102 See, e.g. , id. (“[W]e must assess the parties’ reasonable expectations at the time of contracting and not rewrite the c ontract to appease a party who later wishes to rewrite a contract he now believes to have been a bad deal.”).27 contains an unrelated allegation as well, that the Buyer “defra uded” the Seller by “using [the Seller’s Dominican Republic] taxpayer identificatio n information in connection with purchases they made,” post transaction. 103 This use was without “right or authorization.” 104 The Seller, at the time of the sale of the AIT Assets to the Buyer, had stopped doing busi ness in the Dominican Republic . Nonetheless, due to the Buyer’s “wrongful use” of t he Seller’s tax identificatio n, the Seller was assessed VAT taxes by the Tax Au thority. The Seller alleges th at it has been wrongly assessed more than $4 million in taxes due to the wrong ful use of its tax

identification inform ation by the Buyer. 105 The Buyer seizes on the heading of the Sixth Cause of Action—“f raud”—and

the word “defrauded” used in the se allegations. It points out, correctly, that the allegations do not state a cause of action for fraud, 106 and asks me to dismiss the claim. Delaware long ago droppe d formalism in favor of notice pleading,

however. 107 Here, the Plaintiff alleges th at the Defendants seized contro l of and

103 Compl. ¶ 125. 104 Id. ¶ 126. 105 Id. ¶¶ 53–57; Tr. 79:14–24. 106 A claim for fraud requires a plaintiff to “plead facts support ing an inference that: (1) the defendant falsely represented or omitted facts that the defenda nt had a duty to disclose; (2) the defendant knew or believed that t he representation was false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its reliance.” Abry P’rs V, L.P. v. F & W Acq. LLC , 891 A.2d 1032, 1050 (Del. Ch. 2006). 107 See, e.g. , Ct. Ch. R. 8(a)(1) (requiring only “a short and plain statement of the claim showing that the pleader is entitled to relief”); Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC , 27 A.3d 531, 535 (Del. 2011) (sta ting that a claim should not be dismissed “unless the28 wrongfully used its asset—the tax identification information—re sulting in tax liability falling on the Plaintiff, rather than on the Defendan ts, the entity that actually took the actions incurring the tax. This states a tort claim, conversion, resulting in damages. 108 The pleading, while inartful, is sufficiently pellucid for th e Buyer to defend. Therefore, the Motion to Dismiss the Seller’s cause of action relying on the wrongful use of its tax identifi cation information is denied.

III. CONCLUSION The Motion to Dismiss is granted in part and denied in part. T he parties

should submit a form of order c onsistent with this Memorandum O pinion.

plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances”); Doe v. Cahill , 884 A.2d 451, 458 (Del. 2005) (“Thus, for a complaint to surv ive a motion to dismiss, it need only give ‘general notice of the claim asserte d.’”) (quoting Ramunno v. Cawley , 705 A.2d 1029, 1034 (Del. 1998)); Klein v. Sunbeam Corp. , 94 A.2d 385, 391 (Del. 1952) (“[A] plaintiff must put a defendant on fair notice in a general way of the cause of action asserted, which shifts to the defendant the burden to determine the details of the cause of action by way of discovery for the purpose of r aising legal defenses.”). 108 Conversion has several elements. “Conversion is an act of dom inion wrongfully exerted over the property of another, in deni al of h[er] right, or inconsist ent with it.” Arnold v. Soc'y for Sav. Bancorp, Inc. , 678 A.2d 533, 536 (Del. 1996) (internal quotation marks omitt ed) (citing Drug, Inc. v. Hunt , 168 A. 87, 93 (Del. 1933)). “In order to prove conversion, a plaintiff must show that: (1) it had a property interest in equipment or other property; (2) it had a right to possession of the property; and (3) the pr operty was converted.” Gould v. Gould , 2012 WL 3291850, at *7 (Del. Ch. Aug. 14, 2012) (internal quotation marks omitted). Convers ion may be remedied through applying “the conversion formula of damages.” Am. Gen. Corp. v. Cont 'l Airlines Corp. , 622 A.2d 1, 13 (Del. Ch.), aff'd , 620 A.2d 856 (Del. 1992) (awardi ng damages based on conversio n of stock); see also Robinson v. Oakwood Vill., LLC , 2017 WL 1548549, at *17 (Del. Ch. Apr. 28, 2017) (“At common law, damage was c ompensable for torts, includ ing conversion or trespass, in the amount of the actual damages; that is, the tortfeasor's vic tim could be made whole for his loss.”).