IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

KENNETH E. CLARK,

 Plaintiff,

v.

CHESTER C. DAVENPORT, CECE

DAVENPORT BERKOWITZ, COREY 

DAVENPORT, ROBERT L. REISLEY, 

JONATHAN FOTOS, GEORGETOWN 

BASHO INVESTORS, LLC, and ADAM J. 

WRAY,

 Defendants.

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C.A. No. 2017-0839-JTL

MEMORANDUM OPINION

Date Submitted: May 2, 2019

Date Decided: July 18, 2019

Robert A. Penza, Christina M. Belitz, POLSINELLI PC, Wilmington, Delaware; Attorneys

for Plaintiff Kenneth E. Clark.

Andrew D. Cordo, F. Troupe Mickler IV, Hayley M. Lenahan, ASHBY & GEDDES, P.A., 

Wilmington, Delaware; Attorneys for Defendant Adam J. Wray.

David A. Felice, BAILEY & GLASSER, LLP, Wilmington, Delaware; Attorneys for 

Defendant Corey Davenport.

LASTER, V.C.
The plaintiff sued seven defendants for inducing him to make three investments in 

a failed enterprise. Three of the defendants defaulted. Two settled. The remaining two 

moved to dismiss the complaint pursuant to Rule 12(b)(6) for failing to state a claim on 

which relief can be granted. One of the two remaining defendants moved for dismissal 

pursuant to Rule 12(b)(2), contending that this court lacks personal jurisdiction over him. 

The Rule 12(b)(6) motions are granted in part. The Rule 12(b)(2) motion is denied.

I. FACTUAL BACKGROUND

The facts are drawn from the amended complaint and the documents it incorporates 

by reference. At this stage of the proceeding, the complaint’s allegations are assumed to be 

true, and the plaintiff receives the benefit of all reasonable inferences. 

A. Basho And Georgetown

Founded in 2008, Basho Technologies, Inc. (“Basho” or the “Company”) was a 

privately held Delaware corporation. Basho specialized in distributed-systems database 

software, which enables large companies to store and manage massive amounts of data

using cloud-based applications. By late 2013, many large businesses, including over one

third of the Fortune 50, were using Basho’s software. According to industry analysts, 

Basho fell within a small cluster of companies best positioned to exploit this rapidly 

expanding market segment.

Along the way, Basho attracted the interest of defendant Chester Davenport, a 

wealthy and successful attorney. The defendants in this case include two other members of 

the Davenport family: Corey Davenport, Chester’s son, and CeCe Davenport Berkowitz, 

Chester’s daughter. For clarity, this decision refers to the Davenports by their first names.
2

Chester controlled non-party Georgetown Partners LLC and used it to make privateequity-style investments. Both Corey and CeCe are employees of Georgetown. 

In February 2011, Georgetown invested in Basho through defendant Georgetown 

Basho Investors, LLC, a special purpose vehicle that Chester also controlled. For 

simplicity, this decision does not distinguish between Georgetown and the special purpose 

vehicle. 

Georgetown purchased shares of Basho’s Series D preferred stock and obtained the 

right to designate a member of Basho’s board of directors (the “Board”). Georgetown 

designated Chester. In June 2012, Georgetown purchased shares of Basho’s Series F

preferred stock and received the right to designate a second member of the Board. 

Georgetown designated defendant Robert Reisley, an associate and confidante of Chester’s 

who was a member and officer of Georgetown. 

The Series F preferred stock carried blocking rights that prevented Basho from 

raising equity capital without the consent of holders of a majority of the Series F shares. 

As the holder of a majority of the Series F shares, Georgetown controlled the blocking 

rights.

B. Chester Takes Control.

Chester wanted to force a near-term sale of Basho. He anticipated that Basho would 

soon need additional capital. He planned to use Georgetown’s blocking rights to foreclose 

third-party financing options, thereby forcing Basho into a cash crisis. Basho eventually 

would turn to Georgetown, and Chester would insist on full control as the price for keeping 

Basho afloat. Once in control, Chester would achieve a near-term sale.
3

Consistent with this plan, Georgetown blocked Basho from pursuing attractive 

financing proposals from third parties. After failing to raise capital from other sources, 

Basho turned to Georgetown. Rather than investing equity, Georgetown provided Basho 

with a secured loan that authorized monthly draws of up to $1.5 million and a maximum 

credit limit of $7.5 million. 

The loan was only a short-term financing solution, and Basho’s management team 

expected to need more funding by the end of 2013. During 2013, Basho attempted to raise 

equity from outside investors, but Georgetown interfered with the process. Basho’s CEO 

resigned in frustration.

Having cut off Basho’s other financing options and with the loan coming due, 

Georgetown presented Basho with an offer to lead a Series G round that would raise a total 

of $25 million. Georgetown would fund $10 million, but only $2.5 million would be new 

money. The remaining $7.5 million would come from converting amounts due under the 

secured loan. Georgetown had not yet lined up any other investors to participate in the 

round. Georgetown wanted to close its part of the deal, then go into the market to find 

investors.

The terms of the Series G round were onerous. Among other things, the shares gave 

Georgetown control over 65% of Basho’s voting power. Georgetown also would receive 

the right to designate four of seven directors. But without other options, Basho accepted.

The initial closing took place on January 23, 2014 (the “Series G Financing”).

Immediately after closing, Georgetown added defendant Jonathan Fotos to the Board. He 

was a Georgetown employee and beholden to Chester. The Georgetown designees—
4

Chester, Reisley, and Fotos—then led the Board through a series of resolutions that the 

non-Georgetown directors had never seen before, much less discussed. One resolution 

appointed Chester as Executive Chairman. Another established an Executive Committee 

with the power to exercise all of the Board’s authority. Its members were Chester, Reisley, 

and whoever became Basho’s CEO. The Board approved all of the resolutions.

Effective March 10, 2014, Chester and Reisley hired defendant Adam Wray to serve 

as Basho’s CEO. Wray also became a director and member of the Executive Committee. 

Although Wray had experience working at technology firms, including as a CEO, he was 

underqualified to lead Basho. Chester and Reisley nevertheless provided Wray with a 

lavish compensation package that was out of step with market terms.

After hiring Wray, the Executive Committee continued to manage Basho. The 

Board did not convene a formal meeting for months. During this period, numerous key 

personnel left the Company.

C. Insider Transactions With Chester’s Affiliates

Basho continued to need money. Davenport and his Georgetown colleagues thought 

they would be able to find investors to fill out the remaining $15 million for the Series G 

Financing, but they had little success. The punitive terms of the Series G Financing sparked 

concern, and every investor who had previously shown interest in Basho declined to 

participate. By mid-March 2014, Georgetown had managed to raise only $67,500 from 

other investors.
5

To keep Basho going, Georgetown exercised warrants it had received in the Series 

G Financing and paid $1.8 million for additional Series G shares. The date for exercising 

the warrants had passed, but the Executive Committee extended it for Georgetown. 

Chester next paid an individual in China to refer investors to Basho. Those efforts 

led to additional purchases of Series G shares totaling $2.5 million.

Georgetown next engaged two investment banks to place the Series G shares. They

failed to generate any interest. 

After that, Chester resorted to funding Basho with insider loans. In April 2014, the 

Executive Committee approved a $650,000 loan from Georgetown. In June, the Executive 

Committee approved a loan of $1.5 million from Newport Beach Investors, LLC 

(“Newport”), another entity that Chester controlled. In August, the Executive Committee 

approved a second loan from Newport, this time in the amount of $250,000. In September, 

the Executive Committee approved a third loan from Newport, this time in the amount of 

$400,000.

Basho’s difficulties in raising capital signaled to its business partners that it was 

distressed. As a result, Basho lost significant strategic relationships, including with 

companies such as Cluster Technologies, NEC, Xyratex Ltd., Seagate Technology LLC, 

EMC Corporation, and Akamai Technologies, Inc. 

D. Clark’s October 2014 Investment

In October 2014, Chester telephoned plaintiff Kenneth Clark about investing in 

Basho. Clark was the founder and chairman of First Guaranty Mortgage Company, a 

residential mortgage lender licensed in forty-four states. Clark had met Chester in 1988 
6

when First Guaranty merged with a savings and loan association that Chester partly owned. 

Clark and Chester stayed in contact over the years, and Clark considered Chester a friend. 

For his part, Chester knew that Clark was in the process of selling First Guaranty to 

a private equity firm, which meant Clark would have cash to deploy. Chester also knew 

that Clark was not a professional investor and did not have any particular knowledge about 

Basho or its industry.

During a call with Clark on October 2, 2014, Chester spoke positively about Basho. 

After the call, he sent Clark an email that attached an “Executive Summary.” The email 

contained positive statements about Basho, the state of its business, and the market in 

which it operated. The email did not mention other highly material facts about the 

difficulties that Basho had encountered and the ongoing problems it faced. 

For example, Chester told Clark, “We have not raised capital from the [sic] Venture 

Capital. Most of the capital has been raised By [sic] the insiders in the Company.” Although 

technically true, Chester failed to mention that Basho had tried to raise money from venture 

capital funds and failed miserably, or that the money raised from insiders included 

repeated, emergency cash injections from Chester and his affiliates. By omitting the 

negative information, Chester implied that Basho had not yet sought venture capital due to 

the high level of participation by Basho’s insiders and their confidence in Basho.

Chester also told Clark that as a result of the Series G Financing, Georgetown 

“became the controlling shareholder of the Company and has 5 of the 7 board seats.” 

Chester conveyed this message as part of his pitch that there was “a new sheriff in town” 

who would take Basho to the next level. Chester’s statement was deceptive because 
7

Georgetown had been exercising control over Basho since before the Series G Financing, 

which would have undermined the “new sheriff in town” narrative.

Chester also represented in his October email: “We only have $8M of the G shares 

that remain to be sold. We are offering those shares first to family and friends of GTP’s 

Limited Partners.” This was deceptive. Georgetown was not offering the Series G shares 

first to friends and family. Chester contacted Clark only after exhausting his other options.

Chester even represented to Clark that Basho had “engaged Benchmark, a New 

York investment banking firm to sell $50M-$60M of new securities valuing Basho closer 

to the Values being given our competitors” and that he expected “the value of Basho will 

be set in a range of $500M to $600M.” Benchmark never set a value for Basho in this 

range. Given Basho’s condition at the time, Chester could not have reasonably expected 

that Basho would receive that valuation.

The complaint details other positive statements in Chester’s email that were 

similarly misleading. In each case, Chester omitted closely related and highly material 

negative information that was necessary to put the positive statement in context.

The Executive Summary also contained false and misleading disclosures about 

Wray. For example, it stated that “Wray is a cloud enterprise technology entrepreneur and 

executive with more than 20 years of experience,” but cloud technologies did not become 

a market segment until approximately 2009, and Wray had never been a cloud enterprise 

technology “entrepreneur.” 

Wray’s bio also claimed that he had 
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led a variety of companies at different stages, holding positions of CEO, 

president, GM and product management. Most recently, Wray served as the 

CEO and president of Tier 3, where he led the company through nearly $20 

million in funding from venture capitalists and grew the company from a 

startup to an eight figure annual run-rate ($10M+) before selling the company 

to CenturyLink for several hundred million dollars.

Elsewhere, the Executive Summary represented that Wray and Basho CTO Dave McCrory 

had “led VC-backed companies to successful M&A exits.” These statements were false. 

Wray did not sell Tier 3 to CenturyLink. In fact, Wray admitted under oath in another 

proceeding that Tier 3 replaced him as CEO in October 2012 and that his successor 

accomplished the sale over a year later. Wray had not led any VC-backed companies to a 

successful M&A exit.

The complaint alleges that after speaking with Clark and sending this email, 

“Chester put Clark in contact with Wray.” The complaint pleads a series of negative facts 

that Clark was not told. It then alleges that “Wray did not provide Clark with any of this

material Basho history. On the contrary, Wray corroborated everything Chester had said, 

and reinforced the message that Basho was postured for imminent success.”

Based on his communications with Chester and Wray, Clark decided to invest. In 

making his decision, Clark took into account his years of friendship with Chester and the 

fact that Chester had always seemed to act honestly. He trusted Chester and believed that 

he was receiving an inside view of Basho from the people who controlled it. Precisely 

because Chester controlled Basho, Clark thought Basho was an ideal opportunity for a 

passive investment, enabling him to focus on the sale of his mortgage-lending business.
9

On October 28, 2014, Clark invested $2 million in Basho in return for Series G 

shares (the “October 2014 Investment”). Clark documented the investment by executing a 

signature page to Basho’s Series G Senior Participating Preferred Stock Purchase 

Agreement. 

E. Clark’s December 2014 Investment

In December 2014, Chester again approached Clark and urged him to make an 

additional investment in Basho. Wray also communicated with Clark about the investment. 

Together, they claimed that (i) at least three investment funds were clamoring to fill out 

the Series G round but that Chester was stalling them to facilitate investments by friends 

like Clark, (ii) other investors in New York were considering the shares but Chester wanted 

Clark to buy them, (iii) an aggressive ramp-up of Basho’s booking was expected for 2015, 

(iv) Basho was close to claiming the dominant position in its market by the end of 2015, 

and (v) Basho was on the verge of an enormously beneficial strategic partnership with 

IBM.

During these discussions, Wray represented to Clark that Basho expected to achieve 

$32 million in bookings for 2015. Wray also represented that Basho was uniquely 

positioned to achieve a strategic partnership with IBM because IBM owned The Weather 

Company, an existing Basho client. According to Wray, Basho expected to announce its 

strategic partnership with IBM on February 22, 2015, at the IBM Interconnect Conference.

Neither Chester nor Wray identified any of the serious problems that Basho faced. 

They did not disclose any of the negative information that they had failed to disclose in 

connection with the October 2014 Investment, nor did they disclose additional problematic 
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events that had taken place in the interim. Most notably, they never disclosed that an 

outside director and co-founder of Basho (Earl Galleher) had filed a complaint seeking 

books and records based on detailed allegations of serious fiduciary misconduct by Chester 

and Georgetown.

In reliance on Chester and Wray’s sanitized representations, Clark invested another 

$500,000 in Basho. In exchange, he received additional Series G shares (the “December 

2014 Investment”).

F. Clark’s March 2016 Investment 

Fifteen months passed between the December 2014 Investment and Clark’s next 

investment. During the intervening period, Basho completed the Series G round. The final 

investment came from the Business Development Corporation of America (“BDCA”), 

which invested $2 million of equity and loaned Basho $10 million in March 2015. But even 

after the BDCA investment, Basho’s financial condition continued to deteriorate. In June 

2015, the outside director and co-founder who had filed the books-and-records action 

(Galleher) circulated a detailed memorandum expressing serious concerns about Basho and 

requesting immediate Board action. In October 2015, Galleher circulated another detailed 

memorandum raising additional concerns.

During this period, Clark did not receive any meaningful information about Basho’s 

situation. His principal contacts were Chester and Wray, but they did not disclose the 

hardships Basho was facing, nor did they tell him about Galleher’s claims. For his part, 

Clark did not pay significant attention to Basho, both because he trusted Chester, and 
11

because he was still focused on selling his mortgage business. That transaction closed in 

October 2015.

From time to time, Clark did check in with Chester and Wray. For example, on 

February 17, 2016, Clark contacted Wray for an update. During their efforts to schedule a 

call, Wray cited a conflict because of meeting with Raytheon regarding a “large gov pursuit 

we’ve been chosen for.” Clark responded that Raytheon sounded like “huge upside 

potential” and asked if “[e]verything [was] going well?” Wray wrote back:

Yes, everything’s going great. The position we’ve staked out in IoT and Time 

Series is really starting to take hold w/ IBM, Cisco and others, including 

Akamai, Juniper and Wind River.

On the Raytheon pursuit, it will be huge. We’ve been chosen by their 

Solipsys division to be the standard going forward for their DB over Oracle. 

That means we’re being baked into over 20 massive gov pursuits that they 

have w/ countries from US to Quatar [sic], plus becoming foundational to 

review existing clients for change out in next cycle. We should see some 

rather large upside this yr out of Raytheon, and growth to only continue from 

there (side note, their interest and review of our technology brought 

Lockheed Martin to the table to us as well, as they did a 6mo extensive review 

of the market and choose [sic] our distributed tech over everyone else).

Exciting times for sure.

Wray did not mention that Basho was again desperate for capital. Nor did he mention 

Galleher’s concerns.

Instead, Chester and Wray approached Clark to participate in Basho’s Series H 

round. After further discussions, Clark agreed to invest a total of $6 million with Chester 

through a newly formed, special purpose vehicle named KEC Capital, LLC (“KECC”). 

The joint investment reinforced Clark’s confidence in Basho, because he and Chester were 

investing the additional funds together.
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KECC committed to make the $6 million investment based on a letter of intent sent 

to Basho on February 11, 2016 (the “Series H Letter of Intent”). It stated:

We are interested in investing in Bash at a fully diluted total enterprise value 

of $45 million, which represents approximately 3x 2015 revenue of $14.97 

million. We expect that KECC will invest at least $6.0 million of primary 

capital onto the balance sheet (inclusive of the conversion of $1.0 of certain 

outstanding indebtedness), and would have the right to invest an additional 

$4.0 million on the same terms within 60 days after the initial closing. This 

valuation is based upon information that has been provided to us to date, 

including among other things, historical financial results, and projections that 

indicate that Basho has a path to achieving sustained cash flow positive 

results within 12 months of the close of this transaction.

Wray countersigned on behalf of Basho.

The complaint alleges that the reference to “information that has been provided to 

us to date” included analyses prepared collectively by Reisley, Fotos, and Corey. Based on 

Fotos’s testimony in another proceeding, the complaint alleges that at the time Wray 

countersigned the Series H Letter of Intent, Basho was “a company in collapse—a

complete failure.” The complaint alleges that the defendants, including Wray and Corey, 

could not have believed that “Basho ha[d] a path to achieving sustained cash flow positive 

results within 12 months of the close of” the Series H transaction. 

The Series H Letter of Intent contemplated KECC conducting due diligence before 

closing. The record at this stage does not provide insight into what, if any, due diligence 

KECC conducted.

On March 15, 2015, the Series H round closed. KECC was credited with an 

investment of $6 million, comprising $5 million in cash plus $1 million of loan forgiveness 

from Georgetown (the “Series H Investment”). KECC borrowed the $5 million in cash 
13

from a third-party lender. Clark and Chester provided personal guarantees for the debt, 

making them each jointly and severally liable for the full amount. 

Completing the Series H transaction required filing a restated certificate of 

incorporation with the Secretary of State of Delaware that authorized the Series H preferred 

stock. After the Series H transaction closed, Clark joined the Board.

G. Basho’s Demise

In July 2016, Clark learned from a Board presentation that Basho’s cash-burn rate 

was alarmingly high, that its bookings were lagging, and that Basho needed cash 

desperately. Having just made the Series H Investment based on projections which showed 

that Basho would be cash-flow positive in twelve months without the need for any 

additional cash, Clark demanded an explanation. Chester told Clark to “ask Adam.”

In August 2016, Clark learned from Basho’s CFO that Chester had been advancing 

funds to meet Basho’s working capital needs, that a further advance was needed to make 

payroll, and that Basho had obtained an emergency loan of $900,000 from BDCA. Soon 

afterwards, Clark learned that Basho was in default under the terms of its loan with BDCA 

and had been discussing bankruptcy as an option. 

In September 2016, Clark learned that Basho was seeking another emergency loan 

from BDCA to cover its cash needs for 60–90 days while it sought to sell the business. 

BDCA extended the loan, but no buyer was found. In November, BDCA issued a formal 

notice of default.
14

In December 2016, Wray reported to Basho’s directors that BDCA had 

recommended that Basho file for bankruptcy. He also told the directors that BDCA thought 

Clark was the only likely source of funds to enable Basho to make payroll. 

Faced with the loss of his entire investment, Clark loaned Basho $500,000 so it 

could explore an emergency sale (the “December 2016 Loan”). To facilitate a sale, Clark 

obtained the right to vote Georgetown’s shares and took over from Chester as Executive 

Chairman. After no transaction materialized, Clark surrendered his right to vote 

Georgetown’s shares and resigned as Executive Chairman.

In July 2017, BDCA obtained an order from a court in the State of Washington that 

placed Basho into receivership. Basho had ceased to be a going concern, and its equity was 

worthless. As part of the liquidation, the receiver sold any claims that Basho might have 

possessed against the defendants to entities affiliated with Galleher. 

H. Clark Brings This Litigation.

Clark filed this action on November 21, 2017. Believing that Chester had defrauded 

him with the assistance of other individuals who worked for Chester at Georgetown and 

Basho, Clark sued Chester, Corey, CeCe, Reisley, Fotos, and Wray. He also sued 

Georgetown.

In Count I of the complaint, Clark asserted claims for breach of fiduciary duty 

against Georgetown, Chester, Reisley, Fotos, and Wray in connection with the December 

2014 Investment and the Series H Investment. When each challenged transaction took 

place, Chester, Reisley, Fotos, and Wray were directors of Basho, Wray was its seniormost officer, and Georgetown was its controlling stockholder.
15

In Count II of the complaint, Clark asserted claims for common law fraud against 

Georgetown, Chester, Reisley, Fotos, Wray, CeCe, and Corey. He contended that the 

defendants defrauded him in connection with the October 2014 Investment, the December 

2014 Investment, and the Series H Investment. 

In Count III of the complaint, Clark asserted claims for negligent misrepresentation 

against Georgetown, Chester, Reisley, Fotos, Wray, CeCe, and Corey. He contended that 

the defendants misled him in connection with the October 2014 Investment, the December 

2014 Investment, and the Series H Investment.

In Count IV of the complaint, Clark asserted claims for aiding and abetting against 

Reisley, Fotos, Wray, CeCe, and Corey. He contended that they knowingly participated in 

the underlying torts asserted in Counts I, II, and III and, if not primarily liable, should be 

secondarily liable. 

Clark’s complaint thus focused on the October 2014 Investment, the December 

2014 Investment, and the Series H Investment. The complaint referenced the December 

2016 Loan in each of the counts, but Clark clarified that he only included that transaction 

as a source of additional damages, not as an independent instance of wrongdoing.

Chester, CeCe, and Georgetown failed to respond to the complaint. Default

judgments were entered against them. Clark reached settlements with Fotos and Reisley, 

and the claims against them were dismissed. 

I. The Motions To Dismiss

The two remaining defendants—Wray and Corey—moved to dismiss the complaint.

Both contended that the complaint fails to state a claim on which relief can be granted. 
16

Corey additionally contended that this court cannot exercise jurisdiction over his person 

for purposes of the claims asserted in the complaint.

Ordinarily, a court must address issues of personal jurisdiction before considering 

claims on their merits. In this case, however, Clark asserts that jurisdiction over Corey 

exists under the conspiracy theory of jurisdiction. Evaluating this theory requires assessing 

whether the complaint sufficiently pleads that Corey conspired to engage in tortious 

activity that had a sufficient connection to the State of Delaware to support jurisdiction 

over his person. It therefore makes sense to evaluate the claims first, because the viability 

of the claims is an input in the jurisdictional analysis.

II. THE RULE 12(b)(6) MOTION

Wray and Corey have moved to dismiss the complaint pursuant to Rule 12(b)(6).

When considering this type of motion, the court (i) accepts as true all well-pleaded factual 

allegations in the complaint, (ii) credits vague allegations if they give the opposing party 

notice of the claim, and (iii) draws all reasonable inferences in favor of the plaintiff. Savor, 

Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002). When applying this standard, 

“dismissal is inappropriate unless the plaintiff would not be entitled to recover under any 

reasonably conceivable set of circumstances susceptible of proof.” Id. at 897 (internal 

quotation marks omitted). 

A. Count I: Breach Of Fiduciary Duty

In Count I of the complaint, Clark asserted claims for breach of fiduciary duty in 

connection with the December 2014 Investment and the Series H Investment. He did not 

advance this theory as to the October 2014 Investment, because until that investment 
17

closed, he was not yet a stockholder and was not yet owed fiduciary duties. Wray is the 

only remaining defendant for Count I.

A claim for breach of fiduciary duty has only two formal elements: (i) the existence 

of a fiduciary duty and (ii) a breach of that duty.1 For the first element, the complaint easily 

clears the bar. When the events in question took place, Wray was a director and officer of 

Basho and owed fiduciary duties to Basho and its stockholders in that capacity.

The second element is more complicated. Clark has made clear that he is not 

asserting claims for breach of fiduciary duty based on how Wray and his fellow fiduciaries 

managed Basho. Instead, Count I asserts that the defendants breached their duties by failing 

to disclose information to him when soliciting the December 2014 Investment and the 

Series H Investment. 

Directors of a Delaware corporation owe two fiduciary duties: care and loyalty. 

Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006). The “duty of disclosure is not an 

independent duty, but derives from the duties of care and loyalty.” Pfeiffer v. Redstone, 

965 A.2d 676, 684 (Del. 2009). The duty of disclosure arises because of “the application 

in a specific context of the board’s fiduciary duties . . . .” Malpiede v. Townson, 780 A.2d 

1075, 1086 (Del. 2001). Its scope and requirements depend on context; the duty “does not 

exist in a vacuum.” Stroud v. Grace, 606 A.2d 75, 85 (Del. 1992). “When confronting a 

 

1 See Beard Research, Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010); accord Zrii, 

LLC v. Wellness Acq. Gp., Inc., 2009 WL 2998169, at *11 (Del. Ch. Sept. 21, 2009) (citing 

Heller v. Kiernan, 2002 WL 385545, at *3 (Del. Ch. Feb. 27, 2002)).
18

disclosure claim, a court therefore must engage in a contextual[ly] specific analysis to 

determine the source of the duty, its requirements, and any remedies for breach.” In re 

Wayport, Inc. Litig., 76 A.3d 296, 314 (Del. Ch. 2013) (citing Lawrence A. Hamermesh, 

Calling Off the Lynch Mob: The Corporate Director’s Fiduciary Disclosure Duty, 49 

Vand. L. Rev. 1087, 1099 (1996)). 

Governing principles have been developed for commonly recurring scenarios, such 

as when directors request stockholder action. A less common scenario involves a corporate 

fiduciary who buys shares directly from or sells shares directly to a stockholder in a private 

transaction. See Hamermesh, supra, at 1103. In this setting, the special facts doctrine

applies, and the fiduciary has a duty to disclose information to the stockholder counterparty 

“only when a director is possessed of special knowledge of future plans or secret resources 

and deliberately misleads a stockholder who is ignorant of them.” Lank v. Steiner, 224 A.2d 

242, 244 (Del. 1966). If this standard is met, a duty to speak exists, and the director can be 

held liable for failing to disclose material information. If this standard is not met, then the 

director does not have a duty to speak and is liable only to the same degree as a nonfiduciary would be. See Wayport, 76 A.3d at 315.

It seems logical that once Clark had become a stockholder, then the private 

transactions between Clark and Basho, which Chester and Wray facilitated, would 

implicate the special facts doctrine. But neither side relied on this framework. In his 

opening brief, Wray argued that the fiduciary-duty claim should be governed by the 

framework announced in Malone v. Brincat, 722 A.2d 5 (Del. 1998). In his opposition, 

Clark effectively agreed by articulating the governing principles as framed in Malone.
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The Malone framework applies when a corporate fiduciary speaks outside of the 

context of soliciting or recommending stockholder action, such as through “public 

statements made to the market,” “statements informing shareholders about the affairs of 

the corporation,” or public filings required by the federal securities laws. Malone, 722 A.2d 

at 11. In that context, directors owe a duty to stockholders not to speak falsely:

Whenever directors communicate publicly or directly with 

shareholders about the corporation’s affairs, with or without a 

request for shareholder action, directors have a fiduciary duty 

to shareholders to exercise due care, good faith and loyalty. It 

follows a fortiori that when directors communicate publicly or 

directly with shareholders about corporate matters the sine qua 

non of directors’ fiduciary duty to shareholders is honesty.

Id. at 10 (emphasis added). “[D]irectors who knowingly disseminate false information that 

results in corporate injury or damage to an individual stockholder violate their fiduciary 

duty, and may be held accountable in a manner appropriate to the circumstances.” Id. at 9

(emphasis added). “When the directors are not seeking shareholder action, but are 

deliberately misinforming shareholders about the business of the corporation, either 

directly or by a public statement, there is a violation of fiduciary duty.” Id. at 14 (emphasis 

added). Breach “may result in a derivative claim on behalf of the corporation[,]” “a cause 

of action for damages[,]” or “equitable relief . . . .” Id.

This court has characterized the standard for evaluating a claim under Malone as

“similar to, but even more stringent than, the level of scienter required for common law 

fraud.” Metro Commc’n Corp. BVI v. Advanced MobileComm Techs. Inc., 854 A.2d 121, 

158 (Del. Ch. 2004). For a common law fraud claim, a plaintiff can show reckless 

indifference, but Malone requires knowing misconduct. Id. at 158 n.88. Like common law 
20

fraud, a Malone claim requires “reasonable reliance.” Id. at 157–58. This court has

interpreted the Delaware Supreme Court as “set[ting] a high bar for Malone-type claims . 

. . to ensure that our law was not discordant with federal standards and that our law did not 

encourage a proliferation of disclosure claims outside the discretionary vote or tender 

context by exposing directors to an additional host of disclosure claims . . . .” Id. at 158 

(footnote omitted). Similar policy concerns do not exist for scenarios covered by the special 

facts doctrine, where a fiduciary purchases or sells shares (or facilitates the purchase or 

sale) in a direct transaction with a stockholder beneficiary. But to reiterate, Clark does not 

view this as anything other than a Malone case, so that is the law that this decision applies.

Other than contending that Malone provides the governing framework, Wray does 

not make any arguments that are specifically directed at Count I. He is content to treat his 

exposure under Malone as coextensive with his exposure for common law fraud, and he 

saves his firepower for that count. Clark followed Wray’s lead by accepting the Malone 

framework and not treating the claim for breach of fiduciary duty as subject to different 

procedural or substantive rules. 

This decision accepts the parties’ framework for purposes of this case and treats the 

claims for breach of fiduciary duty as rising or falling with the claims for common law 

fraud in Count II. To the extent Count II states a claim based on either the December 2014 

Investment or the Series H Investment, which are the only transactions challenged in Count 

I, then Count I also states a claim as to those transactions. 
21

B. Count II: Common Law Fraud

In Count II of the complaint, Clark asserted claims for common law fraud based on 

the October 2014 Investment, the December 2014 Investment, and the Series H Investment.

To plead a claim for fraud under Delaware law, a plaintiff must allege (i) a false statement,

generally of fact, (ii) the defendant’s knowledge or belief of its falsity or reckless 

indifference to its truth, (iii) the defendant’s intention to induce action, (iv) reasonable 

reliance, and (v) causally related damages. See Stephenson v. Capano Dev., Inc., 462 A.2d 

1069, 1074 (Del. 1983).

Particular aspects of a fraud claim must be pled “with particularity.” Ct. Ch. R. 9(b). 

This means a plaintiff must allege “the circumstances of the fraud with detail sufficient to 

apprise the defendant of the basis for the claim.” Abry P’rs V, L.P. v. F & W Acq. LLC, 891 

A.2d 1032, 1050 (Del. Ch. 2006). The relevant circumstances are “the time, place, and 

contents of the false representations; the facts misrepresented; the identity of the person(s) 

making the misrepresentation; and what that person(s) gained from making the 

misrepresentation.” Trenwick Am. Litig. Tr. v. Ernst & Young LLP, 906 A.2d 168, 207–08 

(Del. Ch. 2006), aff’d sub nom. Trenwick Am. Litig. Tr. v. Billett, 2007 WL 2317768 (Del. 

Apr. 14, 2007) (ORDER). A defendant’s state of mind, including the elements of 

knowledge and intent, “may be averred generally.” Anglo Am. Sec. Fund, L.P. v. S.R. Glob. 

Int’l Fund, L.P., 829 A.2d 143, 158 (Del. Ch. 2003). The same pleading standard applies 

when a plaintiff attempts to plead a fraud claim based on material omissions. TransDigm 

Inc. v. Alcoa Glob. Fasteners, Inc., 2013 WL 2326881, at *6 (Del. Ch. May 29, 2013).
22

The Anti-Reliance Argument

As a threshold matter, Corey argues that Clark cannot assert any claims for fraud 

because the agreements that governed his investments contained anti-reliance provisions. 

They did not.

“[M]urky integration clauses, or standard integration clauses without explicit antireliance representations, will not relieve a party of its oral and extra-contractual 

fraudulent representations.” Abry P’rs, 891 A.2d at 1059. For an anti-reliance defense to 

succeed, the contract “must contain language that, when read together, can be said to add 

up to a clear anti-reliance clause by which the plaintiff has contractually promised that it 

did not rely upon statements outside the contract’s four corners in deciding to sign the 

contract.” Kronenberg v. Katz, 872 A.2d 568, 593 (Del. Ch. 2004).

Corey cites two contractual provisions. One recites that the representations and 

warranties made in “Section 3” or “the Disclosure Schedule” will not be affected by any 

investigation by the purchasers. This is not an anti-reliance provision that protects the 

seller. It is a pro-sandbagging provision that protects the buyer. See Akorn, Inc. v. Fresenius 

Kabi AG, 2018 WL 4719347, at *76–78 (Del. Ch.) (discussing sandbagging), aff’d, 2018 

WL 6427137 (Del. Dec. 7, 2018) (ORDER).

The other provision is a standard integration clause, which states that the agreement 

“constitutes the entire agreement and understanding of the parties hereto with respect to 

the subject matter hereof and supersedes all prior agreements and understandings relating 

to such subject matter.” That is not an anti-reliance provision either. See Prairie Capital 

III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 50 (Del. Ch. 2015).
23

Fraud In Connection With The October 2014 Investment

The first transaction at issue in Count II is the October 2014 Investment. As to this 

transaction, Count II fails to state a claim against Corey or Wray. 

The complaint contains detailed allegations about what Chester told Clark in 

connection with the October 2014 Investment, both in a telephone call and in a subsequent 

email. The complaint does not provide similar detail about any communications from 

Corey or Wray. 

As to Corey, the complaint says nothing. It does not indicate that he communicated 

with Clark in any way in connection with the October 2014 Investment. 

As to Wray, the complaint alleges only that “Chester put Clark in contact with 

Wray.” After pleading a series of negative facts about Basho, the complaint alleges that 

“Wray did not provide Clark with any of this material Basho history On the contrary, Wray 

corroborated everything Chester had said, and reinforced the message that Basho was 

postured for imminent success.” In a subsequent paragraph, the complaint alleges that 

Wray understood that Clark was interested in making a passive investment and 

“affirmatively reinforced the suitability of this approach.” 

In Metro Communication, this court held that a similarly framed allegation did not 

satisfy the particularized pleading requirements of Rule 9(b). The plaintiff (Metro) alleged 

that the managers of an LLC (Fidelity Brazil) had concealed the fact that representatives 

of the LLC had paid bribes to government officials. The complaint alleged that after Metro 

received a letter “regarding ‘activities of concern’ . . . that had been investigated, Metro 

‘was assured by various representatives of [Fidelity Brazil], its members and managers that 
24

there was no cause for concern and that [Fidelity Brazil’s] business was continuing to 

develop according to plans.’” 854 A.2d at 144 (alterations in original). This court held that 

“[a]mong other deficiencies, this particular allegation does not even purport to identify any 

specific statement by a specific defendant at a specific time.” Id. Although Clark’s 

allegations at least name Wray, they are otherwise equally conclusory.

The fraud claim against Corey and Wray based on the October 2014 Investment is 

dismissed. Because this claim fails on the merits, this decision does not reach any of Corey 

or Wray’s other grounds for dismissing this aspect of Count II.

Fraud In Connection With The December 2014 Investment

The second transaction at issue in Count II is the December 2014 Investment. As to 

this transaction, the complaint fails to state a claim against Corey but does so against Wray. 

As to Corey, the complaint again says nothing. It does not indicate that he 

communicated with Clark in any way in connection with the December 2014 Investment.

As to Wray, the outcome is different. Wray made representations to Clark that fell 

into three categories. The first consisted of factual claims about Basho’s fundraising 

efforts. Wray told Clark that (i) at least three investment funds were clamoring to fill out 

the Series G round but that Chester was stalling them to facilitate investments by friends 

like Clark and (ii) other investors in New York were considering the shares but Chester 

wanted Clark to buy them.

The second category consisted of factual claims about Basho’s future prospects. 

Wray told Clark that (i) an aggressive ramp-up of Basho’s booking was expected for 2015, 
25

(ii) Basho was close to claiming the dominant position in its market by the end of 2015, 

and (iii) Basho expected to achieve $32 million in bookings for 2015. 

The third category concerned a strategic partnership with IBM. Wray represented 

to Clark that Basho was on the verge of an enormously beneficial strategic partnership with 

IBM. He explained that Basho was uniquely positioned to achieve a strategic partnership 

with IBM because IBM owned The Weather Company, an existing Basho client. He also 

reported that Basho expected to announce its strategic partnership with IBM on February 

22, 2015, at the IBM Interconnect Conference.

Wray argues that these statements were non-actionable opinions about future events.

The statements about the fundraising process and the IBM partnership, however, were not 

about the future. These representations described the current state of Basho’s relationships 

with its investors and with IBM. Wray’s argument does not apply to these categories.

The statements about Basho’s future prospects were forward-looking, but that did

not mean Wray could say anything he wanted. So long as a party acts in good faith, errors 

in estimates or mistaken predictions about future success will not be sufficient to support 

a fraud claim. In re Genesis Health Ventures, Inc., 355 B.R. 438, 458 (Bankr. D. Del. 

2006). “On the other hand, when a party makes false statements with an intent to deceive, 

that party may be liable for fraud regardless of whether the statements expressed opinions, 

estimates, or projections of the future.” Id. Wray’s conduct supports an inference that he 

intended to deceive Clark, rendering his statements actionable at the pleading stage. 

Wray also claims that his statements about Basho’s prospects were non-actionable 

puffery. “Puffery is a ‘vague statement’ boosting the appeal of a service or product that, 
26

because of its vagueness and unreliability, is immunized from regulation.” David A. 

Hoffman, The Best Puffery Article Ever, 91 Iowa L. Rev. 1395, 1397 (2006). Under 

Delaware law, a person’s optimistic statements about his “skills, experience, and 

resources” are “mere puffery and cannot form the basis for a fraud claim.” Solow v. Aspect 

Res., LLC, 2004 WL 2694916, at *3 (Del. Ch. Oct. 19, 2004). Wray’s statement that Basho 

was uniquely positioned to achieve a strategic partnership with IBM was puffery. The 

representations that IBM owned The Weather Company and that it was an existing Basho 

client were statements of fact. Wray’s statements about the state of Basho’s negotiations 

with IBM and an existing plan to announce the partnership on February 22, 2015, were 

also statements of fact.

Wray next contends that he cannot be liable for fraud because he did not participate 

in the transaction personally and had nothing to gain from Clark’s investment. According 

to Wray, an allegation that an officer was motivated to deceive a plaintiff about a 

transaction with the company because of his position with the company is insufficient to 

support personal liability for fraud. For this proposition Wray relies on two federal cases: 

GSC Partners CDO Fund v. Washington, 368 F.3d 228 (3d Cir. 2004), and Kalnit v. 

Eichler, 264 F.3d 131 (2d Cir. 2001). Both cases concerned what a plaintiff needed to plead 

to support the “strong inference of fraudulent intent” required by the Private Securities 

Litigation Reform Act of 1995 (the “PSLRA”). See GSC P’rs, 368 F.3d at 237–38; Kalnit, 

264 F.3d at 138–39. Both cases recognized that for purposes of establishing a claim for 

securities fraud, a plaintiff could not simply find a past disclosure that turned out to be 

inaccurate, combine it with a drop in the stock price, and then include a generalized 
27

allegation about management’s desire for the corporation to appear profitable or for the 

stock price to remain high. See GSC P’rs, 368 F.3d at 237–38; Kalnit, 264 F.3d at 138–39. 

For purposes of a disclosure claim under the PSLRA, allegations of this type about 

incentives that are “common to all corporate executives” are “too generalized to 

demonstrate scienter.” Kalnit, 264 F.3d at 139. But the Kalnit court recognized that a 

plaintiff could plead scienter by identifying specific conduct by the executives in question, 

such as sales of shares. See id. at 141–42. 

This is not a securities fraud case governed by the PSLRA, and Clark need not plead 

specific facts supporting a strong inference of scienter. Clark can plead knowledge and 

intent generally. See Ct. Ch. R. 9(b) (“Malice, intent, knowledge and other condition of 

mind of a person may be averred generally.”). Equally important, this is not a case in which 

a plaintiff is alleging that an executive made false disclosures in public filings because he 

generally wanted to keep the stock price high. The complaint alleges that Basho faced a 

financial crisis, that Chester and Wray had exhausted other options, and that they 

desperately needed to obtain a cash infusion from Clark. As the CEO, Wray had a 

significant financial and reputational stake in keeping Basho solvent. Basho was his sole 

source of income, and he stood to gain personally and professionally by keeping the lights 

on. For a common law fraud claim, the complaint pleads facts sufficient to support an 

inference of scienter. The complaint states a claim for fraud against Wray in connection 

with the December 2014 Investment.
28

Fraud In Connection With The Series H Investment

The third transaction at issue in Count II is the Series H Investment. Once again, the 

complaint does not state a claim against Corey, but states a claim against Wray. 

As to Corey, the complaint alleges that Clark agreed to make the Series H 

Investment based on representations made and conditions set forth in the Series H Letter 

of Intent. That letter recited that Clark was investing based on a “total enterprise value of 

$45 million,” which was “based upon information that has been provided to us to date, 

including among other things, historical financial results, and projections that indicate that 

Basho has a path to achieving sustained cash flow positive results within 12 months of the 

close of this transaction.” The complaint alleges that Fotos, Reisley, and Corey prepared 

the “information . . . provided . . . to date,” including the projections that showed “a path 

to achieving sustained cash flow positive results within 12 months of the close of this 

transaction.” Fotos testified in another proceeding that at this point, Basho was “a company 

in collapse—a complete failure.” That testimony supports a reasonable inference Corey 

could not have believed that Basho had a total enterprise value of $45 million or prepared 

reasonable projections that would show Basho achieving cash-flow-positive results within 

twelve months.

As with the other aspects of the fraud claim, the complaint does not allege that Corey 

made any statements directly to Clark. But that omission should not matter in this instance, 

where the complaint supports a reasonable inference that Corey and the other Georgetown 

representatives prepared the projections and other documents intending for them to be 

provided to Clark. A party that is not the speaker can be held liable for a false statement 
29

“if the misrepresentation, although not made directly to the other, is made to a third person 

and the maker intends or has reason to expect that its terms will be repeated or its substance 

communicated to the other, and that it will influence his conduct in the transaction . . . .” 

Restatement (Second) of Torts § 533 (Am. Law Inst. 1977). “If the misrepresentation is 

made for the purpose of having it communicated, the maker is subject to liability.” Id. cmt. 

d. For example, “one who, to aid a friend in selling his land, gives him for transmission to 

a prospective purchaser a fraudulent misrepresentation as to the quantity or quality of the 

land, is subject to liability to the purchaser under the rule stated in this Section.” Id. That 

scenario would seem to apply, supporting a claim against Corey. But Clark has not 

articulated this theory, so this decision does not adopt it. Clark has not argued another 

theory by which Corey could be held liable, so the complaint fails once again to state a 

claim against Corey.

By contrast, the complaint states a claim for fraud against Wray. For one thing, 

Wray signed the Series H Letter of Intent. Although different inferences can be drawn from 

that fact, one reasonable inference is that Wray agreed with the valuation and validated the 

view expressed in the letter that “Basho has a path to achieving sustained cash flow positive 

results within 12 months of the close of this transaction.” The facts alleged in the complaint 

support a reasonable inference that the valuation and the statement about the existence of 

a path to sustained cash-flow-positive results were false.

The complaint further alleges that on February 17, 2016, shortly after the Series H 

Letter of Intent and before the Series H Investment closed, Clark contacted Wray to obtain 

an update about the Company. Wray informed Clark that Basho had “been chosen for” a 
30

large government pursuit involving Raytheon and that based on Basho’s selection, its 

technology was being “baked into over 20 massive [government] pursuits” in the United 

States and in foreign countries, including Qatar. In reality, Basho’s business was failing 

and it was desperate for capital. Some of Wray’s language was puffery, but the statements 

that Basho had been chosen for a valuable venture with Raytheon and that its technology 

was being incorporated in government pursuits were factual representations.

Wray claims yet again that the complaint does not identify the fraud with 

particularity, but in this case it does by citing the Series H Letter of Intent and Wray’s

February 2016 email. Wray again argues that he cannot be liable for fraud if he only stood 

to gain because of his status as the CEO of Basho, but this decision has rejected that 

argument as overly broad. 

There is one final wrinkle presented by the claim involving the Series H Investment: 

Clark invested through KECC, rather than personally. According to the defendants, Clark 

therefore lacks standing to sue for fraud because KECC made the investment and suffered 

the injury. Perhaps KECC could sue, say the defendants, but not Clark.

KECC was a special purpose entity formed for Clark to make the Series H 

Investment jointly with Chester. The joint investment vehicle made Clark feel more 

comfortable because he perceived Chester to be investing alongside him, and it therefore 

can be regarded as part of the fraud. Clark personally secured and guaranteed the $5 million 

loan used to fund 83% of the value of the investment and 100% of the new money. Clark 

agreed to invest through KECC based on the misrepresentations and omissions cited in the 

complaint. In Count II, Clark is suing to recover the losses that he personally suffered from
31

forming KECC with Chester, obtaining and personally guaranteeing a loan for $5 million, 

and investing the proceeds in Basho through KECC. Based on these allegations, Clark has 

standing to bring a direct action against the individuals who fraudulently induced him to 

suffer these losses. Indeed, it is reasonably inferable at this stage that the creation of KECC 

and the joint investment through that entity were part of the scheme that led to Clark’s 

losses. 

The complaint states a claim for fraud against Wray in connection with the 

December 2014 Investment and the Series H Investment. Otherwise, Count II is dismissed.

C. Count III: Negligent Misrepresentation

In Count III of the complaint, Clark advances a claim for negligent 

misrepresentation in connection with the October 2014 Investment, the December 2014 

Investment, and the Series H Investment. This count fails to state a claim on which relief 

can be granted.

“[A]n equitable fraud or negligent misrepresentation claim lies only if there is 

either: (i) a special relationship between the parties over which equity takes jurisdiction 

(like a fiduciary relationship) or (ii) justification for a remedy that only equity can afford.” 

Fortis Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *9 (Del. Ch. Jan. 

30, 2015). When the special relationship involves allegations of fiduciary breach, then the 

claim for equitable fraud is subsumed in the claim for breach of fiduciary duty. The latter 

claim “confronts directly the implications of the fiduciary relationship, rendering [a claim 

for equitable] fraud . . . redundant and superfluous.” Wayport, 76 A.3d at 327. 
32

To the extent that Clark’s claim for negligent misrepresentation addresses the 

December 2014 Investment and the Series H Investment, it fails as a matter of law. For 

each of these claims, Clark has asserted a claim for breach of fiduciary duty, which is the 

proper claim. Moreover, the claim for breach of fiduciary duty in this case invokes the duty 

of disclosure as described in Malone, and this court has held that when Malone provides 

the framework for a claim for breach of fiduciary duty, it displaces any claim for negligent 

misrepresentation. Metro Commc’n, 854 A.2d at 130–31, 163.

This analysis does not apply to the October 2014 Investment, where Clark does not 

assert a claim under Malone because he was not yet a stockholder. For this claim, he argues 

that he can sue Wray for negligent misrepresentation because Wray and Chester positioned 

themselves as Clark’s primary conduits for information and exploited Clark’s relationship 

of “trust” and “friendship” with Chester. 

Clark has not cited any cases that have grounded a negligent-misrepresentation 

claim on allegations about friendship. Perhaps some set of facts might exist, but they would 

require specific pleading to articulate why the friendship reached a level of trust and 

confidence analogous to a familial or a fiduciary relationship, rather than “mere personal 

friendship.” See, e.g., Beam v. Stewart, 845 A.2d 1040, 1050 (Del. 2004) (“Allegations of 

mere personal friendship or a mere outside business relationship, standing alone, are 

insufficient to raise a reasonable doubt about a director’s independence.”). If “mere 

personal friendship” is insufficient to undermine the independence of an actual fiduciary, 

it would likewise seem insufficient to convert an arm’s-length relationship into something 

akin to a fiduciary one. In this case, Clark would need to bridge an additional conceptual 
33

gap by bringing Wray within the scope of the friendship. The complaint in this case alleges 

only that Chester and Clark had an amicable professional acquaintance. The allegations 

describe “mere personal friendship” that would not support a claim for negligent 

misrepresentation against Chester, much less Wray.

D. Count IV: Aiding And Abetting 

Count IV of the complaint asserts a claim for aiding and abetting the wrongdoing 

asserted in Counts I, II, and III of complaint. Importantly, the primary actors who allegedly 

engaged in wrongdoing in the other counts include Chester, who is the principal wrongdoer 

identified in the complaint. The operative question for Count IV is generally whether it is 

reasonably conceivable that Wray or Corey aided and abetted wrongdoing by Chester.

Because of how the parties have approached Counts I, II, and III, Count II’s fraud 

claim is the only primary claim requiring analysis. The elements of a claim for aiding and 

abetting fraud are (i) an act of fraud by the primary actor, (ii) the secondary actor’s 

knowledge of the primary actor’s conduct, (iii) substantial encouragement or assistance 

from the secondary actor, and (iv) causally related damages. See Prairie Capital, 132 A.3d 

at 63–64; Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 2014 WL 

6703980, at *22–23 (Del. Ch. Nov. 26, 2014). Claims for aiding and abetting are “fact 

intensive and ill-suited” for disposition on the pleadings. In re Good Tech. Corp. S’holder 

Litig., 2017 WL 2537347, at *2 (Del. Ch. May 12, 2017) (ORDER). 
34

The October 2014 Investment

The complaint states a claim for fraud against Chester in connection with the 

October 2014 Investment. The operative question is whether the complaint sufficiently 

pleads that Wray or Corey aided and abetted Chester’s fraud.

The complaint does not plead facts to support an inference that Corey knowingly 

participated in Chester’s fraud or conspired with Chester for purposes of the October 2014 

Investment. The complaint tries to paint a picture of Corey working behind the scenes to 

support Chester, and it cites an email that Corey sent to Chester, but its limited allegations 

do not make it reasonably conceivable that Corey knowingly participated in the fraud. 

By contrast, the complaint supports a reasonable inference that Wray knowingly 

participated in Chester’s fraud. The representations that Chester made to Clark included 

false information about Wray’s background and experience. It is reasonably conceivable 

that Wray provided the false information to Chester. It is also critical to remember when 

assessing Wray’s alleged involvement that he was the CEO and senior executive of the 

Company who reported directly to Chester and served together with Chester and Reisley

as part of the three-man Executive Committee that ran the Company. For purposes of 

Chester’s efforts to raise money from Clark, Wray was as connected to Chester as anyone 

could be. Count IV therefore states a claim against Wray for aiding and abetting Chester’s 

fraud in connection with the October 2014 Investment.

Wray contends that laches should bar Clark from asserting any claims involving the 

October 2014 Investment. “[A]ffirmative defenses, such as laches, are not ordinarily well-
35

suited for treatment on [a motion to dismiss]” unless “the complaint itself alleges facts 

showing that [it was] filed too late.”2

Clark filed his lawsuit on November 21, 2017, three years and a few weeks after the 

October 2014 Investment closed. Ordinarily, the three-year statute of limitations would bar 

the aiding-and-abetting claim. See Kraft v. WisdomTree Invs., Inc., 145 A.3d 969, 983 (Del. 

Ch. 2016). Fraudulent concealment, however, will toll the statute of limitations. Primedia, 

2013 WL 6797114, at *12.

In this case, the complaint supports a reasonable inference that Clark was the victim 

of an ongoing campaign of fraud that began with the October 2014 Investment and 

continued thereafter. As a result, Clark did not learn of facts sufficient to put him on inquiry 

notice until July 2016, after he joined the Board and received presentations about the true 

state of affairs at Basho. The fraudulent statements that Chester and Wray made to Clark 

in connection with the December 2014 Investment and the Series H Investment were 

sufficient to lead Clark away from the truth, providing a basis for tolling. See In re Tyson 

Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 585, 590 (Del. Ch. 2007). It is 

reasonably conceivable that Clark’s claim against Wray for aiding and abetting fraud in 

connection with the October 2014 Investment is timely. Because the complaint’s 

 

2

In re Primedia, Inc. S’holders Litig., 2013 WL 6797114, at *12 (Del. Ch. Dec. 20, 

2013) (first alteration in original) (first quoting Reid v. Spazio, 970 A.2d 176, 183 (Del. 

2009); then quoting Kahn v. Seaboard Corp., 625 A.2d 269, 277 (Del. Ch. 1993)). 
36

allegations support a reasonable inference of timeliness, the limitations defense is not 

suitable for pleading-stage disposition.

Corey’s motion to dismiss Count IV is granted as to the October 2014 Investment. 

Wray’s motion is denied.

The December 2014 Investment

The complaint states claims for fraud against both Chester and Wray in connection 

with the December 2014 Investment. The operative question is whether the complaint 

sufficiently pleads that Corey aided and abetted their fraud. Once again, the complaint does 

not plead any facts to support an inference that Corey was involved in any way with the 

December 2014 Investment. Corey’s motion to dismiss Count IV is granted as to the 

December 2014 Investment. 

This decision has held that Count II states a claim against Wray for purposes of the 

December 2014 Investment, but the claim for secondary liability potentially has 

independent significance. The complaint’s allegations regarding the December 2014 

Investment support a reasonable inference that Chester and Wray agreed to work together 

to induce Clark to invest as part of a common scheme. The complaint’s allegations

regarding the December 2014 Investment also support a reasonable inference that Wray 

spoke with Clark as a form of knowing participation in Chester’s fraud. Count IV states a 

claim against Wray.
37

The Series H Investment

The complaint states claims for fraud against Chester and Wray in connection with 

the Series H Investment. The operative question is whether the complaint sufficiently 

pleads that Corey aided and abetted their fraud.

For purposes of aiding and abetting, the complaint supports a reasonable inference 

that Corey knowingly gave substantial assistance to Chester and Wray by preparing the 

financial statements and projections that supported an enterprise value for Basho of $45 

million and the representation that Basho had a path to sustained cash-flow-positive results 

within twelve months after the closing of the Series H Investment. The complaint’s 

allegation about Corey’s involvement in the preparation of these materials is bolstered by 

Corey’s public representations that he

● oversaw Basho’s management;

● participated in recruiting, selecting, and evaluating Basho’s executive 

personnel, including Basho’s CEO (Wray), CFO, and CTO;

● played an instrumental role in devising Basho’s corporate strategy;

● monitored management’s progress in executing the overall strategy;

● oversaw Basho’s profit and loss statement;

● regularly discussed roadmaps for new projects with management as well as 

customer needs;

● tracked competitive market trends and guided Basho’s senior management 

with respect to those trends; and 

● assisted with business development and customer growth for Basho’s sales 

group.

Corey’s motion to dismiss the aiding-and-abetting claim as to the Series H Investment is 

denied.
38

As with the claim for aiding and abetting against Wray in connection with the 

December 2014 Investment, the claim potentially has independent significance in 

connection with the Series H Investment. The allegations of the complaint again support a 

reasonable inference that Chester and Wray agreed to work together to induce Clark to 

invest as part of a common scheme. The complaint also supports a reasonable inference 

that Wray’s interactions with Clark evidence his knowing participation in Chester’s fraud. 

Count IV states a claim against Wray.

III. THE RULE 12(b)(2) MOTION

Corey has moved to dismiss the complaint pursuant to Rule 12(b)(2), claiming that 

this court cannot exercise jurisdiction over him. To analyze a Rule 12(b)(2) motion, a 

Delaware trial court applies a two-part test:

First, the court must determine whether Delaware’s long arm statute, 10 Del. 

C. § 3104(c), is applicable. If so, the court must decide whether subjecting 

the nonresident defendant to jurisdiction would violate due process. Under 

settled law, a nonresident defendant must have sufficient minimum contacts 

with the forum state such that the maintenance of the suit does not offend 

traditional notions of fair play and substantial justice.

Matthew v. Fläkt Woods Gp. SA, 56 A.3d 1023, 1027 (Del. 2012) (alteration and internal

quotation marks omitted). See generally Donald J. Wolfe, Jr. & Michael A. Pittenger, 

Corporate and Commercial Practice in the Delaware Court of Chancery § 3.02 (2d ed. & 

Supp. 2018). 

The Delaware Long-Arm Statute provides:

As to a cause of action brought by any person arising from any of the acts 

enumerated in this section, a court may exercise personal jurisdiction over 

any nonresident, or a personal representative, who in person or through an 
39

agent: (1) Transacts any business or performs any character of work or 

service in the State . . . .

10 Del. C. § 3104(c)(1). “[A] single transaction is sufficient to confer jurisdiction where 

the claim is based on that transaction.” Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 

963, 978 (Del. Ch. 2000); accord LaNuova D & B S.p.A. v. Bowe Co., 513 A.2d 764, 768 

(Del. 1986). Under the plain language of the Delaware Long-Arm Statute, forum-directed 

activity can occur “through an agent.” 10 Del. C. § 3104(c). The statute is “broadly 

construed to confer jurisdiction to the maximum extent possible under the Due Process 

Clause.” Hercules Inc. v. Leu Trust & Banking (Bahamas) Ltd., 611 A.2d 476, 480 (Del. 

1992). 

For purposes of the due process analysis, “[t]he well-established point of departure 

is that certain minimum contacts must exist between a State and a nonresident defendant 

before that State can exercise personal jurisdiction over him.” Moore v. Little Giant Indus., 

Inc., 513 F. Supp. 1043, 1048 (D. Del. 1981) (internal quotation marks omitted), aff’d, 681 

F.2d 807 (3d Cir. 1982) (TABLE). The question is whether the defendant had sufficient 

minimum contacts with Delaware such that “compelling it to defend itself in the State 

would be consistent with the traditional notions of fair play and substantial justice.” Waters 

v. Deutz Corp., 479 A.2d 273, 276 (Del. 1984) (internal quotation marks omitted).

The Delaware Supreme Court has adopted what is known as the conspiracy theory 

of jurisdiction. Fläkt Woods, 56 A.3d at 1027. Under this theory, 

a conspirator who is absent from the forum state is subject to the jurisdiction 

of the court, assuming he is properly served under state law, if the plaintiff 

can make a factual showing that: (1) a conspiracy to defraud existed; (2) the 

defendant was a member of that conspiracy; (3) a substantial act or 
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substantial effect in furtherance of the conspiracy occurred in the forum state; 

(4) the defendant knew or had reason to know of the act in the forum state or 

that acts outside the forum state would have an effect in the forum state; and 

(5) the act in, or effect on, the forum state was a direct and foreseeable result 

of the conduct in furtherance of the conspiracy. 

Istituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 225 (Del. 1982). The 

theory “is based on the legal principle that one conspirator’s acts are attributable to the 

other conspirators.” Fläkt Woods, 56 A.3d at 1027. Thus, “if the purposeful act or acts of 

one conspirator are of a nature and quality that would subject the actor to the jurisdiction 

of the court, all of the conspirators are subject to the jurisdiction of the court.” Istituto 

Bancario, 449 A.2d at 222.

By satisfying the elements for the conspiracy theory of jurisdiction, a plaintiff makes 

the showing necessary to meet both prongs of the jurisdictional test. The first three Istituto 

Bancario elements encompass the statutory prong by speaking to the requirements of the 

Delaware Long-Arm Statute. The third Istituto Bancario element corresponds to the 

statutory requirement that the defendant have transacted business or performed work in the 

State. The first and second Istituto Bancario elements provide grounds for imputing the 

jurisdiction-conferring act to the defendant under agency principles, because “conspirators 

are considered agents for jurisdictional purposes.” Hercules, 611 A.2d at 481; accord

Carlton Invs. v. TLC Beatrice Int’l Hldgs., Inc., 1995 WL 694397, at *12 (Del. Ch. Nov. 

21, 1995). The fourth and fifth Istituto Bancario elements speak to due process and whether 

there are sufficient minimum contacts between the defendant and the forum such that the 

defendant could reasonably anticipate being sued there. See Carlton Invs., 1995 WL 

694397, at *12. 
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Here, the complaint states a claim against Corey for aiding and abetting fraud in 

connection with the Series H Investment, satisfying the first and second elements of the 

conspiracy test. Corey argues that the complaint did not plead the existence of a conspiracy, 

but “the Court focuses on the substance instead of the form” of the plaintiff’s allegations, 

and “allegations supporting a conspiracy theory of jurisdiction need not be framed as civil 

conspiracy in the Complaint.” Matthew v. Laudamiel, 2012 WL 605589, at *7 (Del. Ch. 

Feb. 21, 2012). A sufficiently pled claim for aiding and abetting satisfies this requirement. 

See Benihana of Tokyo, Inc. v. Benihana, Inc., 2005 WL 583828, at *7 (Del. Ch. Feb. 4, 

2005).

The Series H Investment required both the filing of a restated certificate of 

incorporation with the Delaware Secretary of State and the creation of a Delaware entity, 

KECC. Each is sufficient to serve as a Delaware-directed act in satisfaction of the third 

element. See Virtus Capital L.P. v. Eastman Chem. Co., 2015 WL 580553, at *14–15 (Del. 

Ch. Feb. 11, 2015). 

Based on Corey’s deep involvement with Basho, his thorough knowledge of its 

operations, and his sophistication as the holder of an MBA, it is reasonable to infer that 

Corey had reason to know that the Series H Investment involved the filing of the restated 

certificate of incorporation and the formation of a Delaware entity. Given this Delaware 

nexus, it is therefore reasonable for him to be subject to the jurisdiction of the Delaware 

courts for purposes of litigation involving the Series H Investment. See id. 

Corey has argued that Clark did not serve him pursuant to the Delaware Long-Arm 

Statute, having instead attempted to effect service under 10 Del. C. § 3114. Corey argues 
42

that Clark should not be able to rely on the Delaware Long-Arm Statute to support personal 

jurisdiction. But the analysis of personal jurisdiction under Rule 12(b)(2) assesses the 

court’s power to exercise jurisdiction over the defendant. The question of whether the 

defendant was validly served is a matter raised by a motion to dismiss under Rule 12(b)(5). 

Corey did not move to dismiss on that ground.

IV. CONCLUSION

Corey’s motion to dismiss the complaint pursuant to Rule 12(b)(6) is granted in the 

following respects:

 As to Counts II and III in their entirety.

 As to Count IV with respect to the October 2014 Investment and the December 2014 

Investment.

Corey was not named as a defendant in Count I. The Rule 12(b)(6) motion is otherwise 

denied. The Rule 12(b)(2) motion is denied.

Wray’s motion to dismiss the complaint pursuant to Rule 12(b)(6) is granted in the 

following respects:

 As to Count III in its entirety.

 As to Counts I and II with respect to the October 2014 Investment.

The motion is otherwise denied.