IN THE COURT OF CHANCERY O F THE STATE OF DELAWARE CHYRONHEGO CORPORATION, VECTOR CAPITAL CORPORATION, and VECTOR CH HOLDINGS 2 (CAYMAN), L.P.,

Plaintiffs, ) ) ) ) ) ) ) )

v. ) ) ) C.A. No. 2017-0548-SG CLIFF WIGHT and CFX HOLDINGS, INC.,

Defendants. ) ) ) )

MEMORANDUM OPINION Date Submitted: April 18, 2018

Date Decided: July 31, 2018 A. Thompson Bayliss and E. Wade Houston, of ABRAMS & BAYLISS LL P, Wilmington, Delaware; OF COUNSEL: Peter M. Stone, of PAUL HASTI NGS LLP, Palo Alto, California, Attorneys for Plaintiffs

. D. McKinley Measley and Daniel T . Menken, of MORRIS, NICHOLS, A RSHT, & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Overton Thompson , III and Joseph B. Crace, Jr., of BA SS BERRY & SIMS PLC, Nashville, Tennessee, Attorneys for Defendants

.

GLASSCOCK, Vice Chancellor1 A few companies so dominate their field of enterprise that the name of their product enters the language, not as a proper noun, but as a reg ular noun or verb. This matter involves one such compa ny, Chyron, now known as ChyronHe go. 1 This action involves a dispute arising from ChyronHego’s acquisition of another electronic-effects company, Clic k Effects. According to Chyron Hego, the Defendants—the sellers of Click Effects―fraudulently misreprese nted the actual condition and value of the compa ny, damaging ChyronHego. The l atter brought this suit, and the Defendants have moved to dismiss. This matter, in part, implicates two fundamental precepts of D elaware law, in tension. Our law supports freedom of contract, holding parties to their bargains, good and bad. The same respect for the free exchange of proper ty from which the foregoing precept arises means that our law abhors fraud, which is inimical to free exchange, properly understood. T he tension arises when parties to a contract purport in their agreement to limit the universe of facts upon which th at agreement rests, when in actuality one party has m ade extra-contractual represen tations upon which

the other has relied. The tension is resolved in our law thus: where the parties in language that is clear provide t hat they eschew reliance on any facts but those recited, they will be held to that representation, notwithstanding prior knowingly false

1 According to research done via another company whose name has become part of English vocabulary, Google, Chyron took its n ame from the centaur of Gr eek myth.2 statements made by one party to the other. Such representation s, therefore, cannot form the basis for common-law fraud, because the complaining pa rty cannot, in light of the contractual provision, have reasonably relied on the pri or false statements.

Reasonable reliance is an eleme nt of common-law fraud. Convers ely, where the contract is ambiguous, or where it merely recites that the part ies meant to integrate all their prior dealings into its terms, that contract does not preclude a party’s proof

of extra-contractual fraud. Here, the parties contest whether the contract at issue contai ns an effective anti-reliance clause precluding ChyronHego from proving prior e xtra-contractual fraud. I find that the Stock Purchase Agreement, read as a who le, does unambiguously so provide, and that claims in the Complaint alle ging extracontractual fraud must be dismissed. The Defendants also seek to dismiss the remainder of the Compl aint, contending that allegations of fraudulent misrepresentation in the contract are insufficiently pled, and that claims for indemnification are pr ecluded by failure of notice required by the Stock Purchase Agreement. I find that m ost of the Plaintiffs’ allegations, under the plaintiff-friendly standards of a motion to dismiss, are

sufficient to state claims. The Motion to Dismiss, therefore , is granted in part and denie d in part. My reasoning is below.3 I. BACKGROUND 2

A. The Parties and Relevant Non-Parties Plaintiff Vector Capital Corpora tion (“Vector Capital”) is a De laware corporation. 3 Vector Capital owns Plain tiff ChyronHego Corporation (“ChyronHego”), a New York corpor ation with a principal place o f business in Melville, New York, through its fund Plaintiff Vector CH Holdin gs 2 (Cayman), L.P., a Cayman Islands exe mpted limited partnership. 4 ChyronHego is a “leading creator of the graphics used in live television broadcasts and in other media,” with

offices around the world. 5 The Plaintiffs bought a company from the Defendants and bring this action for fraud and breach of a written stock p urchase agreement. 6 Defendant Cliff Wight is a citizen of Tennessee. 7 Wight was the owner and President of non-party Sound & Video Creations, LLC (d/b/a Clic k Effects) (“Click Effects” or the “Company”), which he sold to ChyronHego for app roximately $12.5 million in cash and equity. 8 Click Effects creates graphics and other media for high

2 The facts, drawn from the Plaintiffs’ Amended Complaint and fr om documents incorporated by reference therein, are presumed true for purposes of evaluating the Defendants’ Motion to Dismiss. 3 Verified Amended Complaint (the “Complaint” or the “Compl.”) ¶ 11. 4 Id. ¶¶ 4, 13–14. 5 Id. ¶¶ 4, 17. 6 Id. ¶ 1. 7 Id. ¶ 15. 8 Id. ¶¶ 5–6, 15.4 schools, colleges, and professional sports teams in their stadi ums. 9 Wight sold Click Effects to ChyronHego by transfe rring ownership of Click Effect s to Defendant CFX Holdings, Inc. (“CFX”), a Tennessee corporation created to faci litate the sale, which received cash and equity in the sale of Click Effects to Chryon Hego. 10 Wight was the only principal of CFX. 11

B. Factual Background

1. Deal Proposal and Due Diligence The Complaint is silent about how or when ChyronHego became int erested in acquiring Click Effects. At some point, ChyronHego explored an acquisition of

Click Effects due to Click Effe cts’ “cutting-edge products and stable customer base” in the same industry as ChryonHego. 12 ChyronHego began a due diligence process: Wight and Click Effects uploaded documents to a data room from March through June 2016, including details about customers, contracts, and fi nancial projections. 13 In addition, the Defendants provi ded certain financial informat ion in connection with a “quality of earnings report” prepared by the Plaintiffs. 14 The Plaintiffs and

9 Id. ¶¶ 5, 18. 10 Id. ¶¶ 1, 16. 11 Id. ¶ 16. 12 Id. ¶¶ 5, 19. 13 Id. ¶¶ 19–20. 14 Id. ¶ 24.5 the Defendants entered into a stock purchase agreement (the “SP A”) on July 1, 2016, which included certain represe ntations by the Defendants. 15 The Plaintiffs allege that, in a ddition to truthful data, the d ata room contained misleading documents and projections. 16 The Plaintiffs also contend that the Defendants provided misleading information in connection with t he Plaintiffs’ preparation of the quality of earnings report. 17 Lastly, the Plaintiffs argue that the Defendants knowingly made false representations in the SPA. 18 The Plaintiffs allege that the following disclosures or submissions were false or mis leading.

a. Earnings The Plaintiffs contend that Wight intentionally manipulated sal es data to inflate the apparent value of Cl ick Effects. In support of thi s allegation, the Plaintiffs point to particular communications between Wight and his employ ees. In a series of emails entitled “Moving Invoi ces Around” on May 19, 20, and 23, 2016, Wight allegedly instructed certain fin ance personnel that “we’ll need to do some maneuvering with some of the cu rrent invoices that are in the b ooks as well as some

of the un-invoiced sales orders.” 19 Wight purportedly told members of management that he was “maneuvering” invoices to “smooth earnings” and mov e April sales from

15 Id. ¶ 45. 16 Id. ¶¶ 19–20. 17 Id. ¶ 23. 18 Id. ¶¶ 33–37. 19 Id. ¶ 26.6 approximately $117,000 to “somewh ere around $700K to 850K [sic] ” and to “have May [sales] be close if not over” $1 million. 20 Wight purportedly caused May invoices to be moved to April and invoiced open sales orders at the end of May instead of when they would ship in June, which the Plaintiffs a rgue was a deviation from Click Effects’ normal practice. 21 This “earnings bridge” was communicated to Wight’s bankers. 22 According to the Plaintiffs, these emails indicate that Wight intentionally manipulated sales data and submitted false inform ation, resulting in inaccurate projections. 23

b. Atlanta Braves and Florida State University The Plaintiffs next contend that Wight omitted critical informa tion about designated material customers tha t he was required to disclose under the SPA. The SPA requires that the Defendants inform the Plaintiffs if a mat erial customer communicates to the Company that , among other things, “it will, or intends to, materially reduce its purchases from or sales or provisions of services to the Company.” 24

20 Id. 21 Id. ¶¶ 26–28. This was purportedly done to maximize the sale pric e of Click Effects in July 2016. 22 Id. ¶ 29. 23 Id. ¶ 71. 24 Id. Ex. A (SPA) § 2.14 (representati ons and warranties of the Comp any regarding certain customers); ¶ 83.7 First, the Plaintiffs allege tha t documents in the data room in dicated that Click Effects would receive revenue through several agreements with t he Atlanta Braves. 25 However, according to the Plaintiffs, Wight learned from one of his managers, before the sale, that the “Atlanta Braves [were] backing out of the purchase that they made in favor of [a key competitor].” 26 This information, the Plaintiffs argue, triggered a disclosure obligation under the SPA, which was not made. The Plaintiffs allege that Wight knew of this in formation by June 12, 2016 and communicated it to one of the Company’s bankers, but did not inform the Plainti ffs. 27 Second, the Plaintiffs contend that “on May 21, 2016, Defendant Wight learned that a competitor had beaten out Click Effects for the business of a major customer, Florida State University (‘FSU’)” but instead “repres ented to Plaintiffs that the FSU contract was 100% certain” through “projections pl aced in the data

room.” 28 The facts concerning FSU were, according to the Plaintiffs, o mitted in

breach of the SPA. Third, the Plaintiffs allege that during the pendency of the sa le, adverse business conditions became apparent to Wight. They point to an email from a Click Effects manager about “product reliability, lack of meaningful progress on currently

25 Id. ¶ 33. 26 Id. ¶ 34. 27 Id. ¶¶ 36–37. 28 Id. ¶ 23.8 unusable products . . . and a grow ing criticism of the way [Cli ck Effects] support[s] [its] customers.” 29 This situation, the email states, “will take well over a year to turn IF we immediately address.” 30 The Plaintiffs contend that this information should have been disclosed prior to s igning the SPA and breached multi ple sections of the

SPA. 31

c. The Lease The Plaintiffs argue that the lease agreement, as disclosed to the buyers, for the property on which Click Effects’ corporate headquarters is located, was fraudulent and in breach of repre sentations made in the SPA. W ight leased real estate to Click Effects for its corporate headquarters. 32 The Plaintiffs point to an

undisclosed internal email from March 17, 2016, in which Wight stated that the Company “never did an official l ease” because “[i]t has always been a handshake

between me & me.” 33 Nonetheless, Wight submitted a lease signed “as of” January 1, 2016, but in reality created in March 2016. 34 The lease amounted to approximately $1 million over five years. 35 The Plaintiffs contend that the lease was fraudulent and misled the buyers as to the existing lease oblig ations of Click Effects.

29 Id. ¶ 35 (citing a June 12, 2016 email fr om Click Effects manager Greg Stock to Wight). 30 Id. 31 Id. ¶ 83. 32 Id. ¶ 38. 33 Id. ¶¶ 39–40. 34 Transmittal Aff. of Daniel T. Menken, Ex. G (Lease), at 1, 10. I find that the lease is incorporated into the Plaintiffs’ Complaint. 35 Compl. ¶ 43.9 The Plaintiffs also argue that th e lease breached the SPA becau se it was not a “true, correct and complete” copy of an existing lease. 36

2. The Closing and Inde mnification Claims The Plaintiffs and the Defendants signed the SPA on July 1, 201 6. 37 ChyronHego paid Wight and CFX $775,000 in closing cash and $7,5 28,000 in upfront cash. 38 The Defendants deposited $975, 000 into an escrow account. 39 Wight remained president of th e newly acquired company. 40 The Company’s performance proved disappointing to the Plaintiff s. For instance, Click Effects produced $500,000 in profits by the end of 2016, contrary to an expected profit of $2–3 million. 41

The Plaintiffs delivered a wr itten notice (the “Claim Notice”) on June 5, 2017 for an indemnification claim agai nst the Defendants for alleged breaches under the

SPA. 42 The Defendants responded by letter on June 20, 2017, objectin g to the Claim

Notice. 43

36 Id. ¶ 42. 37 Id. ¶ 45. 38 Id. 39 Id. 40 Id. 41 Id. ¶ 64. 42 Id. ¶ 66. 43 Id. ¶ 67.10 C. Procedural Posture The Plaintiffs filed their first Complaint on July 27, 2017 and an Amended Complaint on November 15, 2017. The Defendants filed this Moti on to dismiss the Amended Complaint, and I hear d argument on April 18, 2018. The Plaintiffs bring two counts. Count I alleges that the Defe ndants committed fraud through misrepresentations in the SPA and via m isleading

documents submitted to the data room. 44 Count II is an additional or alternative claim for breach of representations and warranties made by the Defendants in the

SPA. 45 The Plaintiffs seek damages and equitable relief. 46

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. 47

44 Id. ¶¶ 68–78. 45 Id. ¶¶ 79–94. 46 Id. ¶ 93. 47 Savor, Inc. v. FMR Corp. , 812 A.2d 894, 896–97 (Del. 2002) (citations and internal quot ation marks omitted).11 I need not, however, “accept co nclusory allegations unsupported by specific facts or

. . . draw unreasonable inferences in favor of the non-moving p arty.” 48

A. Extra-Contractual Fraud Claims

The Plaintiffs’ extra-contractual fraud claims must be dismisse d. An element of common-law fraud is that a plaintiff must have acted in just ifiable reliance on the misrepresentation of the defendant. 49 I find that Section 4.7 of the SPA functions as

an anti-reliance clause and that the Plaintiffs could not have acted in justifiable reliance on any extra-contractua l representations or warranties in light of this contractual provision. Because the Plaintiffs cannot show just ifiable reliance on extra-contractual representations, the fraud claims that rely o n those representations

fail. 50 “Delaware law enforces clauses that identify the specific info rmation on which a party has relied and whic h foreclose reliance on other information.” 51 This allows parties to “define those representations of fact that fo rmed the reality upon which [they] premised their decision to bargain,” which “minimi zes the risk of erroneous litigation outcomes by reducing doubts about what was promised and

48 Price v. E.I. DuPont de Nemours & Co. , 26 A.3d 162, 166 (Del. 2011). 49 Abry Partners V, L.P. v. F & W Acquisition LLC , 891 A.2d 1032, 1050 (Del. Ch. 2006). 50 Because I find that the Plaintiffs forewent reliance on extra- contractual representations or warranties, I need not address whether these claims are pled wi th the particulari ty required under Rule 9(b). 51 Prairie Capital III, L.P. v. Double E Holding Corp. , 132 A.3d 35, 50 (Del. Ch. 2015).12 said.” 52 However, “murky integration cl auses, or standard integration clauses without explicit anti-reliance representations, will not reliev e a party of its oral and extra-contractual fraudulent representations.” 53 As with any contractual analysis,

the contract must be read as a whole. 54 For anti-reliance language to be enforceable, however, “the contract must contai n language that, when read to gether, can be said to add up to a clear anti-reliance clause by which the plaintif f has contractually promised that it did not rely upon statements outside the contr act’s four corners in deciding to sign the contract.” 55 Here, the SPA contains several pr ovisions relevant to a determi nation of the scope of the parties’ agreed-upon sources of reliance: a standa rd integration clause in Section 9.6, 56 an exclusive remedies provision in Section 7.8, 57 a definition of excluded liabilities in an indemnification provision, 58 and, significantly, the following language in Section 4.7, quoted in full:

52 Abry Partners V, L.P. , 891 A.2d at 1058. 53 Id. at 1059. 54 See, e.g., Kuhn Constr., Inc. v. Diamond State Port Corp. , 990 A.2d 393, 396 (Del. 2010). 55 Kronenberg v. Katz , 872 A.2d 568, 593 (Del. Ch. 2004). 56 Compl. Ex. A (SPA) § 9.6. 57 Id. § 7.8 (Remedies Exclusive) (“N o Buyer Indemnified Party or Sel ler Indemnified Party shall bring any claim with respect to this Agreement or the transacti ons contemplated hereby, whether in contract, tort or otherwise, except to bring a claim for (i) Fraud against the party that committed such Fraud, (ii) indemnificati on against the Sellers in accorda nce with Section 7.2, (iii) indemnification against a particular Seller in accordance with Section 7.3, or (iv) indemnification against the Buyer in accor dance with Section 7.4.”). 58 Id. § 7.2 (excluding “any Fraud by the Company or the Sellers (in the case of Company, prior to Closing)” from the definition of indemnifiable liabilities). Under this provision, “any Fraud” actionable is not subject to the limitations and procedures app licable to indemnification.13 Holdings and the Buyer agree that neither the Company, any Sell er nor any of their respective Affiliates or advisors have made and sh all not be deemed to have made any repr esentation, warranty, covenant o r agreement, express or implied, with respect to the Company, its business or the transactions contemplated by this Agreement, ot her than those representations, warrantie s, covenants and agreements exp licitly set forth in this Agreement. Without limiting the generality o f the foregoing, the Buyer agrees that no representation or warranty, express or implied, is made with respect to any financial projections o r budgets; provided, however, that this S ection 4.7 shall not preclude the Buyer Indemnified Parties from asserting claims for Fraud 59 or indemnification in accordance with ARTICLE VII. 60 Read in conjunction with the integration clause, this is a clea r statement that no extracontractual representations wer e relied upon by the parties. T he first sentence is an explicit anti-reliance clause. The first clause of the second sentence preserves that clause, and emphasizes that no r eliance is made on financial pr ojections or budgets.

The second clause of the second sentence makes clear that nothi ng in Section 4.7 precludes claims under Article V II for fraud or indemnification

. Article VII, in turn, provides generally for the availability o f, the limits to, and the procedure for, indemnificati on. Section 7.8 is a specific exclusive remedies provision, and limits recovery to indemnification, damages for fraud, and related equitable relief. To my mind, r eading these Sections in harmon y, the intent of the parties is clear. The parties ha ve not relied on extra-contrac tual representations, but

59 “Fraud” is a define d term in the SPA, mean ing fraud against a party as defined by common law and determined by a court of competent jurisdiction. The defin ition specifically includes scienter. Id. Art. X. 60 Id. § 4.7.14 may seek recovery in indemnifica tion and for fraud damages for contractual misrepresentations. The Plaintiffs argue that the second sentence of Section 4.7 sh ould be read to the contrary, as preserving a right to sue for fraud based on extra-contractual projections, rather than precluding it. 61 According to the Plaintiffs, “Section 4.7’s

last clause would be rendered me aningless if a party could not bring fraud claims based on projections.” 62 To my mind, this is unpersuasive; the last clause is not mere surplusage. It clarifies the intent to preserve the remedies p rovided in Article VII. In other words, interpreting S ection 4.7 as an anti-reliance pr ovision, the last clause signifies careful lawyering, not surplusage or meaningless verb iage.

In Prairie Capital , this Court considered similar anti-reliance language in light of alleged pre-contractual fraud. 63 The parties’ stock purchase agreement, as here, contained an integration clause, an “exclusive representa tions clause,” 64 and an

61 Pls.’ Answering Br. 5. 62 Id. at 40–41 (interpreting Section 4.7 to mean “(1) Defendants did not make representations or warranties outside the SPA that can form the basis for a basic breach of contract claim (i.e., one that does not require proof of scienter); but (2) Plaintiffs ma y bring a Fraud claim against Defendants for knowing misreprese ntations or omissions arising from information not subject to a representation or warrant y (i.e., projections)”). 63 Prairie Capital III, L.P. , 132 A.3d at 43. 64 Id. at 50 (“The Buyer acknowledges that it has conducted to its sat isfaction an independent investigation of the financial condition, operations, assets, l iabilities and properties of the Double E Companies. In making its determination to proceed with the Tr ansaction, the Buyer has relied on (a) the results of its own independent investigation and (b) the representations and warranties of the Double E Parties expressl y and specifically set forth in this Agreement, including the Schedules. SUCH REPRESENTATIONS AND WARRANTIES BY THE DOUBLE E PARTIES CONSTITUTE THE SOLE AND EXCLUSIV E REPRESENTATIONS AND WARRANTIE S OF THE DOUBLE E PARTIES TO THE BUYER IN CONNECTION WITH THE15 “exclusive remedies provision.” 65 The plaintiffs argued that these provisions did not affirmatively disclaim reliance, allowing them to sue for fraudbased on extracontractual representations. They noted that the contract prov ided for fraud damages

as well as indemnification for mi srepresentations, and argued t hat such was

inconsistent with an effective anti-reliance clause, because th e indemnification sections did “not operate as the sole and exclusive remedy ‘in the case of fraud.’” 66

The Prairie Capital Court disagreed, holding that the exclusive remedies section recognizes that a party is not lim ited to the indemnification f ramework when it sues for fraud, but [the exclusive remedies provision] does not address the representations that a party can rely on in those circumstances. Other provisions in the SPA, such as the Exclusi ve Representations Clause, perform t hat function. [The exclusive r emedies provision] does not alter the contractual universe of informati on on which a fraud-claim [sic] can be based. 67 I find this rationale persuasive here. The Plaintiffs here are free to sue for fraud, but the anti-reliance language of Sec tion 4.7 dictates what represe ntations may form the

basis for such fraud.

TRANSACTION, AND THE BUYER UNDE RSTANDS, ACKNOWLEDGES, AND AGREE S THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY R ELATING TO THE FUTURE OR HISTORICAL FI NANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OR PROSPECTS OF DOUBLE E AND THE SUBSIDIARIES) ARE SPECIFICALLY DIS CLAIMED BY THE DOUBLE E PARTI ES.”) 65 Id. at 55 (quoting clause titled “Exclusion of Other Remedies” as saying that “[e]xcept as provided in [sections relating to post-closing covenants and th e payment of a specific note], equitable remedies that may be available, or in the case of fra ud, the remedies set forth in this Article X [relating to indemnification] constitute the sole and exclusive remedies for recovery of Losses incurred after the Closi ng arising out of or relating to this Agreement and the Transaction”). 66 Id. 67 Id.16 I find the Plaintiffs’ reliance on Anvil Holding Corp. 68 to argue to the contrary misplaced. In that case, the Court was unable to find an enfor ceable anti-reliance clause from the language pointed to in briefing on a motion to dismiss. The

defendants cited add itional contractual la nguage, apparently fo r the first time, at oral

argument: Section 6.5 contains a lengthy representation and warranty by t he Buyer that states, in part, that the Sellers neither made any represe ntation or warranty, express or implied, be yond those expressly given in t he Purchase Agreement nor made any representation “as to the accur acy or completeness of any information” regarding the Company or th e transactions contemplated by the Purchase Agreement. 69 However, the Anvil Court declined to consider the quoted provision without briefing, and considered it waived for consideration on the mot ion to dismiss, which

was denied. 70 The Court did, however, comment that “[t]his representation, in combination with [the two provisions mentioned], appears to str engthen Defendants’ argument that the Buyer could not reasonably have relied on ext ra-contractual representations.” 71 I do not find Anvil contrary to my reasoning here. Finally, I note the Plaintiffs attempt to bootstrap a dog’s bre akfast of extracontractual fraud claims onto contractual misrepresentations un der Section 2.9(a) of the SPA. That Section represents that:

68 Anvil Holding Corp. v. Iron Acquisition Co., Inc. , 2013 WL 2249655 (Del. Ch. May 17, 2013). 69 Id. at *7 n.29. 70 Id. 71 Id.17 Since the date of the Most Recent Balance Sheet . . . , except as set forth on Schedule 2.9 and except for the transac tions contemplated by this Agreement, (a) the Company has conducted its business in all ma terial respects in the ordinary course of business consistent with pas t practice. 72 Essentially, the Plaintiffs argue that extra-contractual misrep resentations are not in the ordinary course of business. To the extent not addressed b elow, these claims are

dismissed.

B. Claims for Fraud Under the SPA The Plaintiffs allege a number of misrepresentations made by th e Defendants in the SPA. I examine each in turn, below. 73 I first note that satisfying Rule 9(b) 74 for allegations based on a contract is simplified: When a party sues based on a written representation in a contra ct . . . it is relatively easy to plead a p articularized claim of fraud. T he plaintiff can readily identify who made w hat representations where and wh en, because the specific representations appear in the contract. T he plaintiff likewise can readily identify what the defendant gain ed, which was to induce the plaintiff to enter into the contract. Having pointed to the representations, the plaintiff need only allege facts suffi cient to support a reasonable inference th at the representations were kn owingly false. 75

72 Compl. Ex. A (SPA) § 2.9(a). 73 Abry Partners V, L.P. , 891 A.2d at 1050 (“To state a claim [for common law fraud], t he plaintiff must plead facts supporting an inference that: (1) the defendan t falsely represented or omitted facts that the defendant had a duty to disclose; (2) the defendant kn ew or believed that the representation was false or made the representation with a reckless indifferen ce 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; a nd (5) the plaintiff was injur ed by its reliance.”). 74 Ct. Ch. R. 9(b) (“In all averments of fraud or mistake, the ci rcumstances constituting fraud or mistake shall be stated with particularity.”). 75 Prairie Capital III, L.P. , 132 A.3d at 62.18 Here, the Plaintiffs must allege facts that make it reasonably conceivable that the representations allegedly given by the Defendants were knowingl y false when made.

1. Misrepresentations Regarding Material Customers.

The Defendants disclosed Click Effects’ “Material Customers” in the SPA.

Both FSU and the Atlanta Braves are so disclosed. 76

a. The Braves

Section 2.14 of the SPA concerns “material customers” and warra nts, in part,

that: Since the date of the Most Recent Balance Sheet, (a) no customer has given written notice or, to the knowle dge of the Company, otherwise informed the Company that (i) it will or intends to terminate or not renew its contract with the Company before such contract’s sche duled expiration date, (ii) it will ot herwise terminate its relations hip with the Company (except in connection with the completion of an install ation) or (iii) it will, or intends to, materially reduce its purchase s from or sales or provisions of services to the Company (except in connection with the completion of an installation). 77 The Complaint states that “[o]n June 12, 2016, Defendant Wight learned from Company management (Greg Stocke r) that the ‘Atlanta Braves [wer e] backing out of the purchase that they made in favor of [a key competitor].’ ” 78 The Plaintiffs allege that the “Defendants kne w by June 12, 2016 that their re lationship with the

Atlanta Braves was lost” and th is development was material. 79

76 Compl. ¶ 71. 77 Id. Ex. A (SPA) § 2.14 (emphasis added). 78 Id. ¶ 25 (emphasis added). 79 Id. ¶¶ 26, 37.19 The Defendants point out that the Complaint does not specify how Company management learned about the rel ationship change with the Atlan ta Braves. They note that Section 2.14 of the SPA is triggered by certain commu nications from a material customer to the Company, a circumstanc e not specifically alleged. Assuming, for purposes of this Motion, that Section 2.14 is tri ggered only when a disclosing party is notified by the customer directly, the ques tion is whether I can

draw the inference that the information came from the Atlanta B raves to the Company before the signing of t he SPA, rendering the representa tion in Section 2.14 knowingly false. At this stage, I find, such an inference is r easonable, and the other

elements for fraud are met. Wheth er the Defendants’ representa tion in Section 2.14 regarding the Atlanta Braves was knowingly false when made must be addressed on a more complete record. This claim survives.

b. The Seminoles Next, the Complaint alleges that: [O]n May 21, 2016, Defendant Wight learned that a competitor ha d beaten out Click Effects for the business of a major customer, Florida State University (“FSU”). In projections placed in the data ro om preclosing, Defendants had represented to Plaintiffs that the F SU contract was 100% certain. Aft er Wight learned on May 21, 2016 that FSU was not going to contract with Click Effects, Defendants fa iled to inform Plaintiffs. 80

80 Id. ¶ 23. As mentioned above, I find that the SPA includes an ant i-reliance clause in Section 4.7 that explicitly precludes relian ce upon “financial projections or budgets.” Id. Ex. A (SPA) § 4.7.20 As before, the Complaint does not specify from whom Wight learned this information. However, at this pleading stage, the question is whether it is reasonably conceivable that the representation made by the Defendants in S ection 2.14 was knowingly false as to FSU as of the time of signing the SPA. I may readily infer that such is the case, and was material to the Plaintiffs. I a lso find it reasonably conceivable that Wight learned this information from FSU. As w ith the Braves, the specificity requirements of Rule 9(b) are met. The Motion to d ismiss this claim must

be denied.

2. Fraudulent Representations Regar ding “Smoothing” of Financial Records According to the Complaint, the financial disclosures made by t he Defendants manipulated or “smoothed” Click Effects’ financial records for April and May, 2016, to move revenue back in tim e in deviation from past accou nting practices. The intent was to fraudulently pad A pril and May financials to misl ead the buyers. To the extent that the Complaint implies reliance on the financial statements or projections, separate from contr actual representations, the Pla intiffs’ attempt to state

a claim fails for lack of reas onable reliance, for the reasons detailed above. The Plaintiffs, however, note that Section 2.9(a) of the SPA wa rrants that “[s]ince the date of the Most Recent Balance Sheet . . . , exce pt as set forth on

Schedule 2.9 and except for the transactions contemplated by this Agreement, (a) the Company has conducted its bus iness in all material respects in the ordinary21 course of business consistent with past practice.” 81 It is a permissible inference that the “smoothing” made this representation knowingly false, becau se this practice is purportedly not in the ordinary course of the Company’s busines s, and was materially misleading to the P laintiffs. This claim survives.

3. Failure to Disclose Company Material Adverse Effects A contractual material adverse effect (“MAE”) is like a Delawar e tornado— frequently alleged but rarely shown to exist. The Plaintiffs a llege here that the Defendants failed to disclose that a “change, event, developmen t, effect or circumstance” had occurred during the pendency of the SPA “that would reasonably be expected” to have a material adverse effect, in breach of a condition of closing. 82 According to the Plaintiffs, this failure to disclose was knowi ngly and materially misleading. An MAE is triggere d by “the occurrence of unknown events that substantially threaten the overall earnings potential of the ta rget in a durationally significant manner.” 83 “A short-term hiccup in earnings should not suffice; rather

the Material Adverse Effect should be material when viewed from the longer-term perspective of a reasonable acquirer.” 84

81 Id. § 2.9(a). 82 Id. § 2.9(h) (“[T]o the Company’s knowledge, there has been no eve nt or circumstance relating specifically to the Company that has caused a [MAE].”); § 6.1(c ) (setting out “No [MAE]” as a closing condition). 83 In re IBP, Inc. S’holders Litig. , 789 A.2d 14, 68 (Del. Ch. 2001). 84 Id.22 The Plaintiffs allege that “the loss of business from the Atla nta Braves and FSU”; a decline in product reliability and customer service; an d the “loss of business, failure to win new business, and dire [financial] forecasts,” a ll occurring in close proximity to the sale, amount to an MAE. 85 The Plaintiffs allege that the financial impact of the purported MAE is “set to last at least two years. ” 86 To support these allegations, the Plaintiffs point to Click Effects’ internal em ails, from which the inferences to be drawn are hotly disputed. At this pleading stage, the Plaintiffs have met their burden t o allege a knowingly false representation of the absence of an MAE, the pr oof of which is inherently fact-intensive. The claim is minimally sufficient, and the Motion to

dismiss this claim is denied.

4. The Lease The Plaintiffs seek damages for fraud resulting from the provis ion by the Company of a lease for its headqua rters that was misleadingly b ackdated to make it appear that it was binding before they contemplated the purchas e of Click Effects.

Section 2.11 of the SPA states: The Company neither owns nor has ever owned any real property. Schedule 2.11 describes the real property leased by the Company , including the lessor of such leased property, which is an Affil iate of certain of the Sellers, and the lease under which such property is leased (the “Lease”). There is no default under the Lease or other cir cumstance

85 Compl. ¶¶ 83–84; Pls.’ Answering Br. 35–36. 86 Pls.’ Answering Br. 36; Compl. ¶ 35 (alleging that MAE impact would be more th an one year).23 that would enable the lessor to cancel or terminate the Lease. The Company does not sublease any leased real property to any Perso n. The Company has made available to Buyer true, correct and complete copies of the Lease. 87 The Plaintiffs allege that the lease provided was “created . . . out of whole cloth” and was not “true, correct and complete” when made. 88 The Plaintiffs point to the lease itself, which states that “the parties have executed this Lease as of . . . this 1st day of January, 2016.” 89 The Plaintiffs point to emails from which they infer that the l ease was in fact executed no earlier than March 2016, and not in Jan uary 2016. 90 Whether

the Defendants made a material and knowingly false representati on in Section 2.11, upon which the Plaintiffs relied, is a factual question that mu st be determined on a more complete record. The Defendants point out that it may be difficult for the Plain tiffs to prove any damages resulting from this misr epresentation, if it occurred. It is sufficient at this stage that the Plaintiffs gener ally aver damages or entitlement to equitable relief,

however. The Motion to dismi ss this claim is denied.

C. CFX and the Fraud Count Finally, the Defendants argue that the fraud claim against CFX fails as a matter of law. They point out tha t the alleged misrepresentati ons in the SPA were

87 Compl. Ex. A (SPA) § 2.11 (emphasis added). 88 Id. ¶ 42. 89 Defs.’ Mot. to Dismiss Ex. K (Click Effects Lease) (emphasis a dded). I find that the Plaintiffs incorporated this in to the Complaint. 90 Compl. ¶¶ 39–44.24 made by the Company, not by CFX. Indeed, CFX made a separate s et of representations and warranties in the SPA, 91 and the Plaintiffs do not premise their fraud claim on any of those statements. Thus, in the Defendant s’ view, because CFX did not make any of the represent ations and warranties at issue in this case, it cannot be held liable for fraud. I disagree. In my view, CFX is a pr oper defendant for the

fraud count. CFX was the selling stockholder in the transaction that transfe rred ownership of the Company to ChyronHego. Sp ecifically, before the transac tion closed on July 1, 2016, Wight transferred his in terest in the Company to CFX, which then sold the interest to ChyronHego. Wight was CFX’s sole principal. The q uestion, then, is whether CFX, as the selling stockholder, can be held liable for the Company’s representations in the SPA.

This Court confronted a similar situation in Prairie Capital . There, the stock purchase agreement “distinguished between representations made by the company and a different set of represen tations made by selling stockhol ders.” 92 The buyer adequately alleged that three of the company’s representations in the stock purchase agreement were false. 93 The question was thus whether the sellers could face

91 Id. Ex. A (SPA) Art. III. 92 Prairie Capital , 132 A.3d at 60. 93 Id. at 59.25 liability for fraudulent representations made by the company. 94 Relying on Abry

Partners , the Court held that, while “the company made the representati ons, . . . the scope of a claim for contractual fraud swept more broadly.” 95 The Court then quoted the following passage from Abry Partners : To the extent that the Stock Purchase Agreement purports to lim it the Seller’s exposure for its own conscious participation in the communication of lies to the Buyer, it is invalid under the pub lic policy of this State. That is, I find that the public policy of this State will not permit the Seller to insulate itself from the possibility that the sale would be rescinded if the Buyer can show either: 1) that the Se ller knew that the Company’s contractual re presentations and warranties w ere false; or 2) that the Seller itself lied to the Buyer about a c ontractual representation and warranty. 96 In other words, a selling stockholder may face liability for re presentations made by the company if the stockholder either (i) knew that the company ’s representations were false or (ii) lied to the buyer about those representation s. Applying these principles, the Prairie Capital Court found it reasonably conceivable that the private equ ity funds that sold the company to the buyer could be held liable for the company’s fraudulent contractual represe ntations. 97 In reaching this conclusion, the C ourt relied on well-pled allegat ions that the private equity firm’s principals knew the company’s representations wer e false. 98 The Court

94 Id. 95 Id. 96 Id. at 61 (quoting Abry Partners V, L.P. , 891 A.2d at 1064). 97 Id. 98 Id.26 also pointed to allegations that the private-equity principals actively participated in the fraudulent scheme by directing company officers to provide falsified sales numbers to the buyer. 99 Here, the SPA distinguishes between representations made by the Company and representations made by the sellers, including CFX. Thus, under Prairie Capital , CFX can be held liabl e for the Company’s contractual represen tations only if it either knew those representations were false or lied to t he buyers about the representations. CFX’s sole principal was Wight, so his knowle dge may be imputed

to CFX. 100 According to the Complaint, Wight orchestrated the fraudulent scheme that led to the alleged misrepresentations in the SPA. At the very least, then, Wight knew that the Company’s contract ual representations were false. Because that knowledge may be imputed to CFX, CFX also knew that the represe ntations were false. Accordingly, CFX can be held responsible for the Compan y’s fraudulent contractual representations. That is sufficient under Prairie Capital to keep CFX as

a Defendant for the f raud count at this sta ge of the litigation

.

99 Id. 100 See, e.g. , In re Dole Food Co., Inc. S’holder Litig. , 110 A.3d 1257, 1262 (Del. Ch. 2015) (“For multitudinous purposes the knowledge and actions of a corporati on’s human decisi on-makers and agents may be imputed to it.”).27 D. Indemnification Claims

1. The Claim Notice The pleadings involving fraudulent misrepresentations generally also state

breaches of the SPA sufficient to survive a motion to dismiss. The Defendants point out, however, that the SPA limits such claims to an indemnifica tion procedure, which they argue the Pla intiffs did not meet. Section 7.5 of the SPA requires that a party making a claim for indemnification undertake certain actions, including delivery o f “a written notice describing the claim in reasonable specificity , the amount thereof (if known), and the basis therefor (a ‘Claim Notice’).” 101 The Plaintiffs gave the Defendants explicit notice regarding alleged breaches of Sections 2.9 and 2.14 of t he SPA and discussed certain facts underlying other claims. 102 I assume for purposes of this Motion that the requirements of Section 7.5 of the SPA are mandatory, and t hat failure to comply precludes a successful action for indemnification. Nonetheless , the Motion to

Dismiss based on failure of a su fficient Claim No tice must be d enied. “Reasonable specificity” depends on the circumstances and the a llegations; in other words, it involves questions of fact. 103 I note that, despite their argument here

101 Compl. Ex. A (SPA) § 7.5(a) (emphasis added). 102 See Defs.’ Opening Br. Exs. E–F (including Claim Notice and subsequ ent correspondence). I find that the Claim Notice and correspondence is incorporated b y the Plaintiffs into their Complaint. 103 Impact Invs. Colorado II, LLC v. Impact Holding, Inc. , 2012 WL 3792993, at *8 (Del. Ch. Aug. 31, 2012) (“In that regard, the parties raise two questions tha t the Court cannot resolve on summary28 that the Claim Notice was insu fficient, the Defendants responde d to it in some detail, implying that the Notice was specific to at least some aspects of the Plaintiffs’

claims. 104 Questions of the required scope and resulting sufficiency of the Plaintiffs’ Claim Notice are mixed questions of fact and law, and await a d eveloped record.

The Motion to dismiss the indemnification claim based on insuff iciency of notice is

denied.

2. GAAP Compliance

The Plaintiffs also raise an indemnification claim that does no t mirror one of their fraud claims. They allege that the Defendants made misre presentations about GAAP compliance for the statements submitted by the Defendants to aid the Plaintiffs’ preparation of the quality of earnings statement in March 2016, as it pertains to (a) revenue recogniti on, (b) EBITDA, and (c) workin g capital. 105

Section 2.8 of the SPA states that the Company provided the buy ers with

balance sheets from December 31, 2014, December 31, 2015, and M arch 31, 2016,

as well as other financial statements from that time. 106 Section 2.8 warrants that the submitted statements were prepar ed in accordance with GAAP as “ consistently applied . . . except as otherwise stated therein” and except fo r other exceptions set

judgment. The first is the legal question as to the proper mea ning of ‘with reasonable particularity.’ The second is the factual question of whether Buyer's Claim Not ice satisfied the ‘reasonable particularity’ requirement.”). 104 Defs.’ Opening Br. Ex. G (Obj ection to Claim Notice Dated June 5, 2017). 105 Compl. ¶¶ 31–32; Pls.’ Answering Br. 48–50. 106 Compl. Ex. A (SPA) § 2.8(a).29 out in a schedule. 107 The Plaintiffs argue that the statements from December 2014 through March 2016 were not prepa red in accordance with GAAP as “consistently applied.” The Defendants seek t o dismiss for failure to state a claim. They argue strenuously that deviations from GAAP in the statements are ade quately disclosed. This raises factual issues that await a developed record, and t his claim survives pending such record. 108

3. CFX CFX and the other sellers agreed to “jointly & severally” indem nify buyers 109 against any claims made pursuant to Article VII. 110 Consequently, CFX is properly

included as a Defendant in th e indemnification claims.

107 Id. § 2.8(a). 108 The Plaintiffs appear to argue that the “smoothing” of earning s from April–June of 2016, discussed in Section II(B)(2) of this Memorandum Opinion, rende rs fraudulent Defendants’ representation, in Section 2.8(a) o f the SPA, that the Company had not provided false information in connection with the buyer’s quality of earnings report . They point to the same “smoothing” with respect to this indemnifi cation claim. They argue that th e subsequent “smoothing” renders, or is evidence that, the documents referenced were not GAAP com pliant as “consistently applied.” The documents in question in both of these assertions, and the quality of earnings report itself, cover a period ending in March 2016, before any “smoothing.” These specific claims, therefore , are fatally anachronistic, and (to the extent Plaintiffs attemp t to assert them) are dismissed. But see, e.g. , Stephen Hawking, A Brief History of Time (1998). 109 At oral argument, the Defendants asked that I dismiss the Vect or entities as party plaintiffs. Because this issue was not briefed, I do not address it here, o ther than to note that this decision is without prejudice to any argument that these entities are not p roper parties to t his litigation. 110 Compl. Ex. A (SPA) § 7.2 (“From and after the Closing, the Sel lers shall join tly and severally indemnify and hold the Buyer, Holdings, the Company and their d irectors, officers, members, partners, employees and Affiliates (the ‘Buyer Indemnified Part ies’) harmless from and against all Losses which the Buyer Indemnified Parties may suffer, sustain, incur, accrue or become subject to . . . [the grounds for indemnification].”).30 III. CONCLUSION The Motion to Dismiss is granted t o the extent described herein . Otherwise, the Motion to Dismiss is denied. The parties should provide an appropriate form of

order.