IN THE COURT OF CHANCERY OF 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. Miller, 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. Hannigan, of RICHARDS, LAYTON & FINGER, 

P.A., Wilmington, Delaware, Attorneys for Defendants. 

GLASSCOCK, Vice Chancellor 
1 

 This matter involves a sale of substantially all the assets of a Delaware LLC 

for approximately $35 million. A substantial part of those assets 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 sale would be free of capital 

gains tax. However, the sales contract (the “APA”) was not made contingent on the 

receipt of any particular tax treatment from the Dominican Republic tax authority. 

Contractually, the liability for these taxes was placed on the seller.1

 The APA provided the buyer with indemnification rights for certain liabilities. 

$2 million was placed in an escrow account to facilitate indemnification, and, absent 

claims, was payable to the seller at the end of the escrow term. Near the end of the 

term, the buyer apparently learned that the Dominican Republic tax authority would 

assess “anticipated” tax liability against the seller, for which the buyer feared it 

might also be jointly liable. As a consequence, it filed a claim against the escrow 

fund. Subsequently, the seller paid the anticipated tax of $100,000, and has been 

assessed (and disputes) tax liability to the Dominican Republic of $15 million. 

 

1

 The seller asserted in the Complaint that the buyer is responsible 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 that “foreign”—that is, Dominican 

Republic—taxes fall exclusively on the seller, per the APA. Feb. 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 purposes 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 the buyer’s claim 

against the escrow fund is a nullity, because claims must be based on liabilities 

incurred, not anticipated and contingent. It seeks tort and contract damages allegedly 

relying on the buyer’s use of a subsidiary in the transfer of the 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 that motion, 

which is granted in part and denied in part. 

I. BACKGROUND2

A. The Parties 

Plaintiff WNYH, LLC is a Delaware limited liability company with a 

principal place of business in New York.3

 WNYH is the successor-in-interest or 

successor-in-name to another entity, AccuMED Innovation Technologies, 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 (“AccuMED”) is a Delaware corporation 

with a principal place of business in New York.6

 Defendant AccuMED Holdings 

 

2

 The facts, drawn from the Complaint and from documents incorporated 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 others8

(collectively, the “Buyer”) in purchasing substantially all of the AIT Assets.9

 The 

AIT Assets were located in New York and in the Dominican Republic.10 The Buyer 

and the Seller are parties to an APA defining rights and responsibilities 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 Dominican Republic.13 

Mezed then transferred those Assets to AccuMED, which in turn transferred the 

Assets to Holdings.14 In 2016, Lear Corporation acquired 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 LLC 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 transaction and, perhaps, the Buyer’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 for the 

medical industry.18 Some of the facilities were located 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 certain adjustments.20 

The transaction closed on October 9, 2014.21 AIT LLC transferred the AIT Assets 

to Mezed, which then transferred the Assets to AccuMED.22 AccuMED completed 

the transaction by transferring the Assets to Holdings.23

The parties set aside $2 million (together with all interest and other income 

earned thereon, the “Fund”) of the approximately $35 million purchase price under 

an escrow agreement (the “Escrow Agreement”) to cover indemnification 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 agent27 and a notice to AIT LLC for a 

“potential claim that the [Buyer] may sustain in relation to tax 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 and 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 Seller 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 Letter” 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 the parties and the Tax Authority 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 Dominican Republic, provided 

that any issues raised by the Tax Authority are resolved.38 The parties now debate 

the purpose and scope of the Escrow Letter. Sometime after the issuance of the 

Escrow Letter, the Seller avers that it paid the Dominican Republic government 

$100,000 for the anticipos tax.39 

Subsequent to that payment, the Tax Authority informed the Seller that the 

Buyer “failed to properly declare the assets purchased from [the Seller] on certain of 

[the Buyer’s] tax returns following the closing of the sale.”40 On July 26, 2017, the 

Tax Authority assessed a tax against 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 identification 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 Dominican 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 First Cause of Action, the 

Seller seeks a declaratory judgment that “no valid Claim has been made to the 

Escrow Agent and, consequently, Plaintiff is entitled to an immediate disbursement 

of the full amount of the Fund held in escrow.”44 In its Second Cause of Action, the 

Seller alleges that the Buyer breached the Escrow Agreement by submitting a claim 

certificate without underlying damages under the indemnification provision in APA 

Section 6.1.45 

In its Fourth Cause of Action, the Plaintiff alleges that the Defendants 

breached Sections 5.2 and 5.3 of the APA by using Mezed as an intermediary in the 

transaction, in contravention of the Defendants’ purported representation that 

AccuMED was the purchaser of the AIT Assets.46 Alternatively, the Plaintiff argues 

that the same conduct―submitting an escrow claim certificate and 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 implied 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 properly declare the AIT Assets on its Dominican 

Republic tax returns; (2) representing that AccuMED was the entity that would 

purchase the AIT Assets, when in fact the Assets were transferred to Mezed; and (3) 

representing that the Buyer was in compliance with all applicable laws and 

regulations.48 In reliance on these fraudulent representations, the Seller entered the 

Escrow Letter Agreement, which should thus be found void (Sixth Cause of 

Action).49 Finally, the Seller alleges the Buyer wrongfully used the Seller’s 

Dominican Republic taxpayer identification information in making post-transaction 

purchases, leading to the Seller incurring tax liability properly owed by the Buyer 

(also in the Sixth Cause of Action).50 

The Buyer filed a Motion to Dismiss these claims on September 19, 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 dismiss 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 party 

notice of the claim; (iii) the Court must draw all reasonable inferences 

in favor of the non-moving party; and (iv) dismissal is inappropriate 

unless the plaintiff would not be entitled to recover under any

reasonably conceivable set of circumstances susceptible of proof.51

I need not, however, “accept conclusory allegations unsupported by specific facts or 

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

A. The Escrow Dispute: Causes of Action First, Second, and Third 

The Seller seeks a declaration that under the contractual language of the APA 

and Escrow Agreement, either as written or as supplemented by the implied 

covenant of good faith and fair dealing, the Buyer’s claim against the Fund was 

invalid and in breach of the APA, and is a nullity; it also seeks 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 Buyer for “any 

claim, Liability, obligation, loss, damage, assessment, judgment, cost, and expense 

 

51 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations and internal quotation 

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 known or unknown, 

whether asserted or unasserted, whether absolute or contingent, whether accrued or 

unaccrued, whether liquidated or unliquidated, and whether due or to become 

due).”54 Therefore, if the Buyer is ultimately liable for Dominican Republic taxes 

resulting from the sale of the AIT Assets, as it allegedly fears, it will be entitled to 

indemnification by the Seller (absent contractual defenses). 

The parties set aside the $2 million Fund in escrow to facilitate certain 

indemnification payments. The parties executed a separate Escrow Agreement to 

govern treatment of claims against the Fund for indemnification under Section 6.1. 

The Buyer submitted a timely claim against the Fund for potential tax liability, which 

it avers it determined in good faith may exceed $2 million.55

The Escrow Agreement was executed simultaneously with the APA, with one 

Amendment on April 6, 2016.56 By default, the Escrow Agreement required that the 

Fund be distributed to the Seller at the end of the indemnification 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-remaining 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 instrument” 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 claim to the Fund, and 

the Seller does not “within 30 calendar 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 Funds requested in the 

Claim Certificate, or the disputed portion thereof . . . pending 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 Agreement), § 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. On 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 Escrow 

Agent with respect to the Fund, alleging a potential claim of $2,000,000 

against the Funds. The Company [WNYH] subsequently submitted an 

Objection to the Escrow Agent with respect to the full amount alleged 

under the Claim Certificate. In resolution of the escrow release issue, 

the parties are entering into this letter agreement.65 

The Escrow Letter allows for an initial release of $1 million, 

“immediately following the: (a) completion of a meeting between 

representatives of [the Tax Authority, Seller, and Buyer] to discuss 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 determination that no taxes or penalties 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 Letter also provides for release 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] and the [Seller] agree to 

deliver Joint Payment Instructions to the Escrow Agent to release” the first and 

second releases of the Fund, based 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 that I direct the agent to release the Fund to the 

Seller. In opposition to these requests, the Buyer interposes the Escrow Letter as a 

binding agreement of the parties. It views the Escrow Letter as a final settlement of 

the rights of the Seller to receive the Fund, and seeks specific enforcement of that 

settlement. While the Buyer also argues that its claim against the Fund was proper, 

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

I must first address whether the matter was settled by the Escrow Letter. 

The parties described the purpose of the Escrow Letter succinctly in that 

document: “In resolution of the escrow release issue, the parties are entering into 

this letter agreement.”69 Nonetheless, the Seller argues that the Escrow Letter does 

not prevent it from seeking release of the Fund. It relies on two arguments, one 

strong, the other not. 

The latter argument is that the Escrow Letter bound the Buyer to 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. That facile position is incompatible with the agreed-to 

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

however. 

The Seller’s better argument is that the parties did not mean the 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 release issue” is the 

Buyer’s assertion that it may be liable, secondarily, after the assertion of anticipos

taxes against the Seller. The Agreement contemplated, for instance, 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 million) 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 anticipated by the parties, who 

expected the transaction to be tax free. As a result, according 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 assessment 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 specifically. Entitlement to 

specific performance requires, inter alia, that the movant show, by clear and 

convincing evidence, that a valid and enforceable contract exists and that the movant 
15 

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 the 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 Dismiss, I must find 

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

as a matter of law. 

The nature of the parties’ dispute here is simple; does the Escrow Agreement 

allow the Buyer to cause the agent to maintain the Fund beyond the term by making 

a claim for indemnification for liabilities that are inchoate or contingent? Both 

parties agree that the Escrow Agreement and the Indemnification Provisions of the 

APA are clear and unambiguous; they read them differently, however. 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 certification 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 is written to provide for a presently-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 submitted by the Buyer 

was not for an amount “owed.” Instead, the Buyer’s claim against the Fund was for 

an unknown amount that may become owed if (1) the Seller were to be assessed 

taxes, (2) the Seller did not pay the assessment, and (3) the Tax 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 Seller argues that the 

claim was not valid. 

The Buyer, for its part, notes that I must read the contracts in harmony and as 

a whole.72 It points out that these contracts indemnify it against damages including 

“Liabilities,” a term defined in the APA to include liabilities present and future, 

known and unknown. Since the Escrow Agreement was meant to facilitate the 

indemnification provisions of the APA, argues the Buyer, it must provide for 

anticipated claims against the Fund, if not for current release, then to maintain the 

 

71 Compl. Ex. B (Escrow Agreement), § 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 construe the agreement as a whole, giving 

effect to all provisions therein.”). 
17 

Fund as an indemnification-facilitation vehicle. The Seller, for its part, argues that 

while the Buyer may be owed indemnification for future liabilities, the plain 

language of the Escrow Agreement limits claims and payments from the Fund for 

liabilities incurred during the term. The Buyer points out that it is entirely common 

for escrow agreements in connection with asset purchase agreements to be structured 

so that they survive until resolution of potential indemnification rights.73 I am not 

dealing with common escrow agreements, however, but the specific Escrow 

Agreement negotiated between the parties here. The Escrow Agreement 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, the Motion to Dismiss 

based on the validity of the Buyer’s claim against the Fund must be denied. 

For the foregoing reasons, the Buyer’s Motion to Dismiss the Seller’s First 

and Second Causes of Action is denied. The Motion to Dismiss the 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, according to the Buyer, that a contrary 

construction here would effectively incur the end of the world of escrow, as we know it. I am 

sanguine, however. Good draftsmen have been effective at drafting 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 implied 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 enterprise”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 contractual gaps that 

the asserting party pleads neither party anticipated.”76 The party raising the claim 

must “prove[] that the other party has acted arbitrarily or unreasonably, thereby 

frustrating the fruits of the bargain that the asserting party reasonably expected.”77 

A court “must assess the parties’ reasonable expectations at the time of 

contracting.”78 The implied covenant “does not establish a free-floating requirement 

that a party act in some morally commendable sense.”79 Rather, “good faith” here 

involves “faithfulness to the scope, 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 specific 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 possible 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 four 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 rendered 

ambiguous simply because the parties do not agree upon its proper 

construction. Rather, an ambiguity exists [w]hen the provisions in 

controversy are fairly susceptible of different interpretations or may 

have two or more different meanings.81

It is well established that “[d]ismissal of a claim based on contract 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 and 

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 be transferred, 

in the first instance, to Mezed; it then caused Mezed to transfer 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 “Purchaser.” 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 Assets 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 copies 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 to 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 internal 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 breaches is actionable. Section 5.2 is a power and 

authority clause; the Seller does not contend that the Buyer lacked 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 parties expected this 

transaction to be tax free, although they failed to make the APA contingent on tax 

treatment. The Seller, however, has been assessed capital gains taxes in the 

Dominican Republic of over $10 million. The Seller is disputing 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, rather that AccuMED, 

as the taker of title to the Assets that caused the Tax Authority to asses this tax.90 

Therefore, the Seller argues, the Buyer caused the “execution and 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 other order of any 

Governmental Agency,” and the Complaint does not allege otherwise: 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 certificate to Mezed, and the fact 

that the certificate was not held by AccuMED, the named purchaser, aroused the Tax Authority’s 

interest and suspicion. Pl.’s Ans. Br. in Opp’n to Defs.’ Mot. to Dismiss (“Ans. Br.”) 45–46. 
23 

not, condition the transaction on tax-free status, and they could have assigned the 

responsibility for taxes differently. But given the contract as written, the Seller has 

failed to state a claim for breach of Sections 5.2 or 5.3.91 

In fact, the use by the Buyer of an affiliate in the transaction 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. The Buyer 

asserts that Mezed is a wholly owned subsidiary of AccuMED, and thus an affiliate 

under the APA; therefore, argues the Buyer, it had the contractual 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 claim 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 be stated thus: (1) AccuMED was 

the purchaser, per the APA; (2) the Buyer had no right to substitute Mezed as the purchaser in 

place of AccuMED; (3) notwithstanding its promise in the APA, the 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 Seller was damaged as a 

consequence, in that it was assessed taxes it did not contemplate would result from the AIT Asset 

sale. 

 If the Seller did intend to plead such a cause of action in fraud, it must be dismissed. The 

syllogism above is a classic attempt to bootstrap a breach of contract 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. Super. 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 defendant’s failure to perform under the contract”). 

92 Compl. Ex. A (APA), § 9.4. 

93 In its Opening Brief on this Motion, the Buyer asserted that Mezed is an affiliate of AccuMED 

as defined in the APA, as an entity “controlled” by AccuMED. Defs. AccuMED & Holdings’ 

Opening Br. in Supp. of Their Mot. to Dismiss Pl.’s Verified Compl. Opening Br. (the “Opening 

Br.”) 10. The APA defines an “Affiliate of any particular Person” as “any other Person controlling, 

controlled by or under common control with such particular Person, where ‘control’ means the 
24 

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] to acquire the [AIT 

Assets] directly from” the Seller, 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 resolution of the Seller’s 

board of directors (the “Resolution”) submitted at oral argument by the Buyer.96 I 

note that the Resolution is not attached to the Complaint and is extraneous to the 

record for purposes of this Motion to Dismiss. When presented with the Resolution, 

however, the Seller’s counsel stated that the Seller was not “disputing that there was 

a resolution that was entered into that indicated that the buyer could transfer its assets 

to Mezed.”97 In fact, the Resolution was entered a week before the transaction 

closed, and acknowledged Mezed’s right 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 Republic, 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 adopted it for purposes of 

this Motion. However, the Verified Complaint, in light of the Resolution, appears 

to state facts that the Plaintiff should have known at the time of filing were untrue. 

2. Fifth Cause of Action: The Implied Covenant 

In the alternative, in its Fifth Cause of Action, the Seller argues that the Buyer 

breached the implied covenant of 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 implied covenant of good faith and fair dealing.”99

Again, the Seller is liable under the APA for taxes resulting from 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 Authority. 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 that it did so result, and 

assuming that the parties knew that assignment of the AIT Assets 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 application 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 the Buyer. The Complaint does not allege that the 

parties knew use of Mezed would cause tax liability. Importantly, the Seller does 

not allege in the Complaint that the Buyer acted “arbitrarily or unreasonably,”101

based on Buyer’s knowledge at the time of the transaction, to frustrate Seller’s 

purpose in contracting. There is no allegation in the Complaint that the Buyer used 

Mezed to strip the Seller of the benefit of its bargain, or that 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 valuable to the Seller 

than it anticipated; accordingly, it wishes to rewrite the contract. I am sympathetic. 

But parties are bound to their agreements, good and bad. The implied covenant is 

not a license to rebalance benefits and burdens that a party now regrets.102 

C. Sixth Cause of Action: Fraud 

I have addressed above the Seller’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 arbitrarily or unreasonably, thereby 

frustrating the fruits of the bargain 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 contract 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 “defrauded” the Seller by 

“using [the Seller’s Dominican Republic] taxpayer identification 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 business in the Dominican Republic. Nonetheless, due 

to the Buyer’s “wrongful use” of the Seller’s tax identification, the Seller was 

assessed VAT taxes by the Tax Authority. The Seller alleges that it has been 

wrongly assessed more than $4 million in taxes due to the wrongful use of its tax 

identification information by the Buyer.105

The Buyer seizes on the heading of the Sixth Cause of Action—“fraud”—and 

the word “defrauded” used in these 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 dropped formalism in favor of notice pleading, 

however.107 Here, the Plaintiff alleges that the Defendants seized control 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 supporting an inference that: (1) the 

defendant falsely represented or omitted facts that the defendant had a duty to disclose; (2) the 

defendant knew or believed that the representation was false or made the representation with a 

reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or 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) (stating that a claim should not be dismissed “unless the 
28 

wrongfully used its asset—the tax identification information—resulting in tax 

liability falling on the Plaintiff, rather than on the Defendants, 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 the Buyer to 

defend. Therefore, the Motion to Dismiss the Seller’s cause of action relying on the 

wrongful use of its tax identification information is denied. 

III. CONCLUSION 

The Motion to Dismiss is granted in part and denied in part. The parties 

should submit a form of order consistent with this Memorandum Opinion. 

 

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 survive a motion to 

dismiss, it need only give ‘general notice of the claim asserted.’”) (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 raising legal defenses.”). 

108 Conversion has several elements. “Conversion is an act of dominion wrongfully exerted over 

the property of another, in denial of h[er] right, or inconsistent with it.” Arnold v. Soc'y for Sav. 

Bancorp, Inc., 678 A.2d 533, 536 (Del. 1996) (internal quotation marks omitted) (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 property was converted.” Gould v. Gould, 2012 WL 3291850, at *7 (Del. 

Ch. Aug. 14, 2012) (internal quotation marks omitted). Conversion 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) (awarding damages based on conversion of 

stock); see also Robinson v. Oakwood Vill., LLC, 2017 WL 1548549, at *17 (Del. Ch. Apr. 28, 

2017) (“At common law, damage was compensable for torts, including conversion or trespass, in 

the amount of the actual damages; that is, the tortfeasor's victim could be made whole for his 

loss.”).