Court Opinion

ID: 9955162
Source: CourtListenerOpinion
Date Created: 2024-03-27 19:02:33.977375+00
Date Added: 2024-06-11T08:15:18.792479
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

GEOFFREY “REFF” SYKES, REFF           )
HOLLINGS PTY LTD., SHODOGG            )
PTY LTD., and MASH IN MUSIC PTY       )
LTD.,                                 )
                                      )
                 Plaintiffs,          )
                                      )
      v.                              ) C.A. No. 2022-0861-SG
                                      )
TOUCHSTREAM TECHNOLOGIES,             )
INC., d/b/a SHODOGG,                  )
TOUCHSTREAM ANZ, LLC,                 )
HERBERT MITSCHELE, JOHN               )
BURNS, and DAVID STROBER,             )
                                      )
                 Defendants.          )

                       MEMORANDUM OPINION

                    Date Submitted: December 7, 2023
                     Date Decided: March 27, 2024

Sean J. Bellew, BELLEW LLC, Wilmington, Delaware; OF COUNSEL: Scott C.
McAdam, LAW OFFICE OF SCOTT C. MCADAM, Henderson, Nevada, Attorneys
for Plaintiffs.

Sean A. Meluney, William M. Alleman, Jr., and Stephen A. Spence, MELUNEY
ALLEMAN & SPENCE, LLC, Lewes, Delaware, Attorneys for Defendants.

GLASSCOCK, Vice Chancellor
       The individual Plaintiff here, Geoffrey “Reff” Sykes, is an investor and equity

holder in Defendant Touchstream Technologies, Inc., d/b/a Shodogg (“Shodogg”).

Sykes seeks to vindicate his creditor and equity rights in Shodogg through this

litigation under a variety of theories. Shodogg is a repeat litigator here, a kind of

Canis Familiaris in the Court of Chancery.1 This latest addition to the Shodogg

litter involves the Defendants’ Motion to Dismiss the Amended Complaint, under

Rule 12 (b)(6). In this Memorandum Opinion, I examine the various counts of the

Amended Complaint, finding, generally speaking, that Plaintiffs’ legal claims

seeking declaratory judgment stand, but that his fiduciary-duty claims and fraud

claim are deficient. My reasoning follows a statement of the facts alleged, below.

                                   I. BACKGROUND

       A. Factual Background

       The following facts are taken from the Amended Complaint, and presumed

true for purposes of my analysis.

              1. The Parties

       Plaintiff Geoffrey “Reff” Sykes is a resident of Australia.2

1
  See Fetch Interactive Television LLC v. Touchstream Techs. Inc., 2019 WL 193921 (Del. Ch.
Jan. 15, 2019); Fetch Interactive Television LLC v. Touchstream Techs. Inc., 2022 WL 4462165
(Del. Ch. Sept. 26, 2022); Fetch Interactive Television LLC v. Touchstream Techs. Inc., 2023 WL
3265128 (Del. Ch. May 5, 2023).
2
  Verified Am. Compl. ¶ 6, Dkt. No. 13 (“Am. Compl.”).

                                              1
        Plaintiff Reff Holdings PTY LTD (“Reff Holdings”) is a proprietary limited

company formed under the laws of Australia, with its principal place of business

Queensland.3 Sykes founded Reff Holdings on October 20, 2011.4

        Plaintiff Shodogg PTY LTD is a proprietary limited company formed under

the laws of Australia with its principal place of business in Sydney, Australia. 5

Sykes founded Shodogg PTY LTD on August 31, 2011.6

        Plaintiff Mash in Music PTY LTD (“Mash in Music” and collectively with

Sykes, Reff Holdings, and Shodogg PTY LTD, “Plaintiffs”) is a proprietary limited

company formed under the laws of Australia, with its principal place of business in

Sydney, Australia.7 Shodogg founded Mash in Music on October 8, 2015.8

        Defendant Touchstream Technologies, Inc., d/b/a Shodogg (“Shodogg”), is a

corporation formed and existing under the laws of Delaware. 9 Shodogg was co-

founded by Sykes and Defendant Herbert Mitschele in 2011.10

3
  Id. ¶ 7.
4
  Id.
5
  Id. ¶ 8.
6
  Id.
7
  Id. ¶ 9.
8
  Id.
9
  Id. ¶ 10.
10
   Id. ¶ 6.

                                         2
        Defendant Herbert Mitschele is a resident of Pennsylvania, who serves as the

Chief Executive Officer of Shodogg and is a member of Shodogg’s board of

directors.11

        Defendant John Burns is a resident of Canada and serves as the Chairman of

Shodogg’s board of directors.12

        Defendant David Strober (collectively with Mitschele and Burns, the

“Individual Defendants”) is a resident of New York and serves as a director on

Shodogg’s board of directors.13

        Defendant Touchstream ANZ, LLC (collectively with Shodogg, Mitschele,

Burns, and Strober, “Defendants”) is a limited liability company formed under the

laws of Delaware and an affiliate of Shodogg.14

               2. Sykes and Mitschele Found Shodogg

        In 2011, Sykes and Mitschele, among others, co-founded Shodogg.15

Shodogg is a software development company that developed at least four significant

patents related to “casting” media content from one device to another (the “Shodogg

Patents”).16 At its founding, Sykes contributed capital to Shodogg’s development.17

11
   Id. ¶ 11.
12
   Id. ¶ 12.
13
   Id. ¶ 13.
14
   Id. ¶ 14.
15
   Id. ¶ 16.
16
   Id.
17
   Id. ¶ 17.

                                          3
In exchange for the capital and his efforts in establishing and growing Shodogg

globally, Sykes received 3% equity interest in Shodogg.18

               3. Sykes and Mitschele Establish a Joint Venture

        On August 1, 2011, Sykes and Mitschele negotiated the terms of a Joint

Venture Agreement (the “JV Agreement”) to develop and deploy Shodogg’s

intellectual property in the Australian and New Zealand markets. 19 Sykes, through

Reff Holdings, loaned money to the joint venture.20 These loans were recorded in

the financial documents of Shodogg PTY LTD.21 Section 6.4 of the JV Agreement

provides Sykes with an annual salary of $180,000.22               The JV Agreement

acknowledges that Sykes made a “Capital Contribution” of $125,000 to Shodogg

PTY LTD.23

        For the next two-and-a-half years, Sykes worked to help Defendants develop

Shodogg’s software and products.24 Sykes also established Shodogg’s presence in

Australia and New Zealand while contributing to Shoodgg’s global business.25

Although Sykes was working for Shodogg during this time, Defendants asked Sykes

18
   Id.
19
   Id. ¶ 19.
20
   Id. ¶ 21.
21
   Id.
22
   Id. ¶ 22.
23
   Id. ¶ 24.
24
   Id. ¶ 28.
25
   Id.

                                          4
to defer his salary that was guaranteed under the JV Agreement.26 Sykes agreed to

do so while continuing to invest capital into Shodogg’s development.27

       The JV Agreement states that the JV Agreement will terminate upon mutual

agreement of the parties in writing.28             However, the termination of the JV

“Agreement shall not release a party from any obligations or liabilities to the other

parties, whether pursuant to the provisions of this Agreement or at law or in

equity.”29 If the JV Agreement is terminated, Shodogg PTY LTD “shall be wound

up and assets and properties of [Shodogg PTY LTD] liquidated and distributed to

the parties in accordance with the distribution priorities set forth in” the JV

Agreement.30

              4. Sykes and Mitschele Enter into the Amended and Restated Joint
              Venture Agreement

       On April 1, 2014, Sykes and Mitschele entered into an Amended & Restated

Joint Venture Agreement (the “A&R JV Agreement”) to add Shodogg, the parent

company of Touchstream ANZ, LLC, to the JV Agreement, along with Shodogg

PTY LTD, the joint venture company.31 The A&R JV Agreement provides that

Sykes will receive an annual salary of $180,000.32 Section 7.7 of the A&R JV

26
   Id..
27
   Id.
28
   Id. ¶ 25.
29
   Id. ¶ 26 (quoting Am. Compl., Ex. A § 17.2, Dkt. No. 13).
30
   Id. ¶ 27 (quoting Am. Compl., Ex. A § 17.3).
31
   Id. ¶¶ 29–30.
32
   Id. ¶ 31 (citing Am. Compl., Ex. B § 6.4, Dkt. No. 13).

                                               5
Agreement states that Sykes made a “Capital Contribution” of $125,000 to Shodogg

PTY LTD.33 The A&R JV Agreement restated the sections regarding termination

as first included in the JV Agreement, discussed above in Section I.A.3.34

              5. Sykes and Shodogg Execute an Agreement to Terminate the Joint
              Venture Agreement

       On January 13, 2015, Sykes and Mitschele, on behalf of Shodogg, entered into

the Agreement to Terminate ANZ Joint Venture (the “JV Termination Agreement”),

to terminate the A&R JV Agreement upon the occurrence of specific events.35

Under the terms of the JV Termination Agreement, Sykes was promised “549,600

shares of the 6,058,550 available share [sic] pre series A” shares of Shodogg in

exchange for his agreement to terminate the A&R JV Agreement.36              The JV

Termination Agreement further provided that “[a]n additional 56,255 shares will be

transferred from [ ] Mitschele to [Sykes], to complete the 10% total equity holding

of [Sykes] in [Shodogg].”37 Sykes was further provided an executive level role with

a starting annual salary of $100,000 in addition to healthcare benefits.38

       The JV Termination Agreement lays out the process to terminate the parties’

joint venture.39 Specifically, the JV Termination Agreement provides that the joint

33
   Id. ¶ 33.
34
   See id. ¶¶ 34–36 (quoting Am. Compl., Ex. B §§ 16.1–16.3).
35
   Id. ¶ 37.
36
   Id. ¶ 39 (quoting Am. Compl., Ex. C, Dkt. No. 13).
37
   Id.
38
   Id.
39
   Id. ¶ 40.

                                              6
venture would terminate on a date chosen by Shodogg, after the repayment of the

joint venture’s debt.40 Upon the successful closure of bridge funding, Shodogg was

to assume liability for the joint venture’s debt.41 The JV Termination Agreement

states that Reff Holdings loaned Shodogg $565,000, accruing interest at an annual

rate of 7%; that amount is deemed a “priority repayment.”42 The joint venture’s debt

was expected to be paid within a reasonable amount of time following the successful

closure of Shodogg’s Series B round funding.43

       Since its execution in 2015, Shodogg has yet to repay Sykes’s $565,000 loan

and its associated interest.44 Sykes has also not been provided the stock certificates

representing the shares that were to be transferred to Sykes under the JV Termination

Agreement.45 Shodogg has never paid Sykes the $100,000 annual salary due to him

under the terms of the JV Termination Agreement, nor the healthcare benefits

associated with that salary.46

               6. Sykes and Shodogg Execute the Licensing Agreement

       On January 24, 2016, Sykes’ entity, Mash in Music, entered a licensing

agreement with Shodogg (the “Licensing Agreement”).47 Under the terms of the

40
   Id. (citing Am. Compl., Ex. C).
41
   Id.
42
   Id.
43
   Id.
44
   Id. ¶ 42.
45
   Id.
46
   Id.
47
   Id. ¶ 45.

                                          7
Licensing Agreement, Sykes was provided a license to use Shodogg’s intellectual

property encompassed by the Shodogg Patents and the related casting technology

that Shodogg developed in connection with the Shodogg Patents.48 Sykes invested

more than $700,000 in Mash in Music to develop and deploy the Shodogg

technology in Australia and New Zealand, but Mash in Music needed to use the

Shodogg Patents for its business model to be viable.49 On April 20, 2017, Sykes and

Shodogg execute an Addendum to the Licensing Agreement (the “Addendum”) to

extend the term of the Licensing Agreement.50 On August 14, 2017, Shodogg shut

off Sykes’ cloud access to the Shodogg technology service, contrary to the terms of

the Licensing Agreement,51 but Sykes was still able to access Shodogg’s technical

software development services utilized to develop the software at the heart of the

Licensing Agreement.52

                7. Shodogg’s 2017 Convertible Note Offering

        In April 2017, Shodogg underwent a recapitalization to secure bridge funding

that would be used, in part, to pursue a patent infringement action to enforce the

Shodogg Patents.53 These funds were raised via an issuance of convertible notes to

48
   Id.
49
   Id. ¶ 46.
50
   Id. ¶ 47.
51
   Id. ¶ 48.
52
   Id. ¶ 151.
53
   Id. ¶ 50.

                                          8
existing investors (the “Convertible Note Offering” or the “Offering”).54 On April

20, 2017, Mitschele informed Sykes that Sykes would be required to invest an

additional $11,656.11 in the Convertible Note Offering or Sykes would lose 2.36%

of his co-founder stock in Shodogg.55 If Sykes did not participate in the Convertible

Note Offering, Sykes’ ownership interest would be diluted down to less than one-

tenth of one percent.56 On May 19, 2017, Sykes and Shodogg entered into a

Convertible Note Purchase Agreement (the “Convertible Note”).57           Under the

Convertible Note, Sykes invested $50,000 in the Convertible Note Offering, with

$11,656.11 being contributed to maintain Sykes’ pre-Offering 2.36% equity interest

in Shodogg.58 The excess amount contributed in the Offering that entitled Sykes to

an additional 7.547% equity stake.59 The Convertible Note had a maturity date of

June 30, 2022.60

                8. Sykes Receives “Notice of Breach” Letters from Shodogg

        On April 18, 2022, Defendant Burns, on behalf of Shodogg, sent Sykes a

“Notice of Breach” letter concerning the Convertible Note Purchase Agreement (the

“April 2022 Letter”).61 In the letter, Shodogg alleged that Sykes (1) breached a

54
   Id. ¶¶ 50, 52.
55
   Id. ¶ 54.
56
   Id.
57
   Id. ¶ 55.
58
   Id.
59
   Id.
60
   Id.
61
   Id. ¶ 62.

                                          9
restrictive covenant in the Convertible Note and (2) made a misrepresentation in the

Convertible Note Purchase Agreement.62 Shodogg threatened to sue Sykes for these

breaches unless he agreed to voluntarily relinquish his rights under the Convertible

Note Purchase Agreement and the accompanying Convertible Note.63

        The following month, Mitschele, as CEO of Shodogg, emailed other parties

who had participated in the Convertible Note Offering regarding the upcoming June

30, 2022 maturity date of the convertible notes to provide those parties with

instructions to convert the notes to common stock in Shodogg prior to the maturity

date (the “Conversion Notice”).64 Specifically, the Conversion Notice stated that

participants would receive a separate email from Shodogg’s legal counsel with a

document that the recipient needed to complete and sign to convert their notes to

common stock.65 Despite having contributed $50,000 in the Offering, Sykes was

excluded from the Conversion Notice and was not sent the document necessary to

convert his convertible note to common stock.66

        On May 31, 2022, Sykes received another “Notice of Breach” letter that

referenced Sykes’s alleged breach of the Convertible Note Purchase Agreement and

threatened litigation against Sykes if he did not resolve the dispute by June 10,

62
   Id.
63
   Id.
64
   Id. ¶ 65.
65
   Id.
66
   Id.

                                        10
2022.67 Sykes received a “Follow-Up to Notice of Breach” letter on July 1, 2022.68

The follow-up letter informed Sykes that his Convertible Note had matured without

Sykes acting to convert his convertible note to common stock.69 In the follow-up

letter, Shodogg requested payment instructions for the return of Sykes’s $50,000

used to participate in the Offering.70 Shodogg threatened to sue Sykes if Sykes failed

to respond to Shodogg’s request by July 13, 2022.71

               9. Shodogg Holds an Annual Meeting

        On November 19, 2022, Shodogg sent out a “Notice Regarding Annual

Meeting for [Shodogg]” (the “Annual Meeting Notice”), scheduled for December

20, 2022 (the “December Meeting”), with an agenda that included a board election

of proposed nominees an attached proxy form.72 Stockholders who wished to

nominate an alternative slate of directors had until December 13, 2022, to do so.73

This annual meeting was Shodogg’s first annual meeting in more than five years.74

        After receiving the Annual Meeting Notice, Sykes sent Shodogg a formal

“Demand for Stockholder Information” on November 30, 2022.75 In his demand,

67
   Id. ¶ 66.
68
   Id. ¶ 67.
69
   Id.
70
   Id.
71
   Id.
72
   Id. ¶ 71.
73
   Id. ¶ 76.
74
   Id. ¶ 71.
75
   Id. ¶ 73.

                                         11
Sykes requested information necessary for Sykes to confirm his stock ownership and

relative percentage of his vote in the director election, and contact other stockholders

about a possible alternative slate of director candidates.76 Two days later, Shodogg

responded to Sykes’s Demand for Stockholder Information by demanding that Sykes

enter into a confidentiality agreement before Shodogg would produce any of the

requested information to Sykes.77 Sykes returned the executed confidentiality

agreement to Shodogg on December 6, 2022.78

        Subsequently, Shodogg provided Sykes with a capitalization table dated

December 7, 2022 (the “December Cap Table”).79 The December Cap Table

reflected that Sykes’ equity interest in Shodogg was 0.041% and not the 20.547%

that, up until receipt of the December Cap Tables, Sykes believed he owned.80 On

December 9, 2022, Shodogg provided Sykes with its Shodogg’s stockholder list that

included physical and email addresses for all current stockholders.81              The

stockholder list did not include the stockholders’ respective equity positions nor the

stockholders’ phone numbers, despite Sykes’ demand for that information.82

76
   Id.
77
   Id. ¶ 75.
78
   Id. ¶ 76.
79
   Id. ¶ 77.
80
   Id. ¶ 78.
81
   Id. ¶ 79.
82
   Id.

                                          12
        On December 13, 2022, Sykes emailed Mitschele to request Shodogg provide

remote video access for stockholders to attend the December Meeting.83 Shodogg

had not responded to this request when Sykes sent Mitschele another request for

remote video access for stockholders on December 19, 2022.84 Later that day,

Mitschele circulated a telephone number for stockholders to use to call into the

December Meeting.85

        The December Meeting began at 3:00 pm.86 The stockholders who dialed in

for the annual meeting using the telephone number provided by Mitschele were

permitted only to listen and were unable to be heard by other participants.87 At 3:11

pm, the telephone participants were disconnected and removed from the December

Meeting.88 It was not until after the telephonic participants were removed from the

December Meeting that Shodogg conducted the election process for the board of

directors.89

        Prior to the start of the December Meeting, Sykes submitted written questions

to Shodogg’s board in the manner prescribed by Shodogg for remote attendees to do

83
   Id. ¶ 80.
84
   Id. ¶ 81.
85
   Id.
86
   Id. ¶ 84.
87
   Id. ¶ 83.
88
   Id. ¶ 84.
89
   Id.

                                          13
so.90 Those questions were not addressed at the December Meeting.91 Upon being

removed from the December Meeting, Sykes emailed Mitschele the same list of

written questions.92 Sykes sent a follow-up email on January 5, 2023, to request that

his written questions be addressed and to be sent a copy of Shodogg’s meeting

minutes from the December Meeting.93 When Mitschele responded on January 10,

2023, he refused to answer Sykes’ questions and failed to provide Sykes with a copy

of the December Meeting minutes.94 Sykes requested the December Meeting

minutes twice more before Mitschele agreed to give Sykes a copy, so long as Sykes

agreed that those minutes were subject to the confidentiality agreement Sykes had

signed on December 6, 2022.95 Sykes executed a new version of the confidentiality

agreement on February 8, 2023, and was provided a copy of the December Meeting

minutes on February 9, 2023.96

       B. Procedural History

       Plaintiffs filed suit on September 26, 2022,97 before filing the operative

complaint on March 20, 2023 (the “Amended Complaint”).98                         The Amended

90
   Id. ¶ 82.
91
   See id. ¶ 86.
92
   Id.
93
   Id. ¶ 87.
94
   Id. ¶ 88.
95
   Id. ¶¶ 89–90.
96
   Id. ¶ 90.
97
   See Verified Compl. for Inj. Relief, Decl. Relief, and Damages, Dkt. No. 1.
98
   See Am. Compl.

                                               14
Complaint contains nine causes of action: (1) declaratory relief with respect to the

validity of the Convertible Note Purchase Agreement; (2) declaratory relief with

respect to Sykes’ total holdings in Shodogg; (3) specific performance of the JV

Termination Agreement; (4) fraud; (5) breach of contract with respect to the JV

Agreement and the A&R JV Agreement; (6) breach of contract with respect to the

Licensing Agreement and Amendment thereto; (7) breach of fiduciary duty against

Mitschele; (8) breach of fiduciary duty against Burns; and (9) breach of fiduciary

duty against Strober.99 Defendants moved to dismiss the Amended Complaint for

failure to state a claim on April 19, 2023.100 The parties finished briefing the motion

to dismiss on June 12, 2023.101 I heard oral argument on December 7, 2023, and

consider the matter fully submitted as of that date.102

                                      II. ANALYSIS

       A. Standards of Review

       Defendants have moved to dismiss the Amended Complaint under Court of

Chancery Rule 12(b)(6) for failure to state a claim.103

       The standard for reviewing a motion to dismiss under Rule 12(b)(6) is well

settled:

99
   Id. ¶¶ 98–170.
100
    See Defs.’ Mot. to Dismiss Am. Compl., Dkt. No. 16 (“Defs.’ OB”).
101
    See Defs.’ Reply Br. Supp. Mot. to Dismiss Am. Compl., Dkt. No. 19 (“Defs.’ RB”).
102
    See Judicial Action Form re Mot. to Dismiss before Vice Chancellor Glasscock dated 12.7.23,
Dkt. No. 21.
103
    See Defs.’ OB 13–14.

                                              15
       (i) all well-pleaded factual allegations are accepted as true; (ii) even
       vague allegations are “well-pleaded” if they give the opposing party
       notice of the claim; (iii) the Court must draw all reasonable inferences
       in favor of the non-moving party; and (iv) dismissal is inappropriate
       unless the “plaintiff would not be entitled to recover under any
       reasonably conceivable set of circumstances susceptible of proof.104

       The Court need not, however, “accept as true conclusory allegations without

specific supporting factual allegations.”105

       B. Counts I and II: Declaratory Judgment

       Where a plaintiff seeks to have the Court consider a claim for declaratory

judgment, that plaintiff must sufficiently allege that: (1) the dispute “involve[s] a

claim of right or other legal interest of the party seeking declaratory relief;” (2) the

party against whom the claim is asserted “has an interest in contesting the claim;”

(3) the parties’ “conflicting interests [are] real and adverse; and (4) the issue [is] ripe

for judicial determination.”106

              1. Plaintiffs State Claims for Declaratory Judgment

       In Count I, Plaintiffs seek declaratory judgment that the Convertible Note

Purchase Agreement is a valid, enforceable contract by which Sykes purchased

equity in Shodogg in the form of a $50,000 Convertible Note.107 In Count II,

Plaintiffs further seek declaratory judgment that Sykes owns 20.547% equity interest

104
    Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).
105
    In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
106
    Mehiel v. Solo Cup, Co., 2005 WL 1252348, at *4 (Del. Ch. May 13, 2005).
107
    Am. Compl. ¶ 99.

                                              16
in Shodogg, comprised of (a) 9.907% equity interest pursuant to the Convertible

Note Purchase Agreement; (b) 10% equity interest pursuant to the JV Termination

Agreement; and (c) 0.64% equity interest that constitutes the balance of Sykes’ 3%

co-founder shares less the 2.36% that was repurchased in the Convertible Note

Offering.108

                     a. Count I: Declaratory Judgment for the Convertible Note

       Defendants ask that Count I be dismissed because it is redundant and

subsumed by Count II.109 Plaintiffs acknowledge that their equity holding in

Shodogg under the Convertible Note is “part of the declaratory relief Sykes seeks in

both Counts I and II[.]”110 While the validity and enforceability of the Convertible

Note will be assessed by the Court in deciding Count II, Plaintiffs can only recover

once if the Convertible Note is found to be valid and enforceable under both Counts

I and II. I decline to dismiss Count I merely for redundancy.111

       Defendants next contend that Count I fails as a matter of law because

convertible notes are debt instruments that only give the note holder the option to

convert the note into equity prior to the maturity date, which Sykes failed to do.112

In response, Plaintiffs explain that Sykes intended to convert the Convertible Note

108
    Id. ¶ 107.
109
    Defs.’ OB 15; Defs.’ RB 3–4.
110
    Pls.’ Resp. in Opp’n to Defs.’ Mot. to Dismiss 22, Dkt. No. 18 (“Pls.’ AB”).
111
    See Osram Sylvania Inc. v. Townsend Ventures, LLC, 2013 WL 6199554, at *6 (Del. Ch. Nov.
19, 2013) (explaining that dismissal for redundancy is within the Court’s discretion).
112
    Defs.’ OB 15–20; Defs.’ RB 5–7.

                                            17
into equity, however, Defendants excluded Sykes from receiving the instructions on

how to convert included in the Conversion Notice.113 Taking Plaintiffs’ well-pled

allegations as true, it is reasonable to infer that Defendants acted to prevent Plaintiffs

from exercising their contractual right to convert the Convertible Note to equity. By

asserting Count I, Plaintiffs seek to have that contractual right determined by the

Court. Therefore, Plaintiffs have stated a claim for declaratory judgment regarding

the validity and enforceability of the Convertible Note.

                     b. Count II: Declaratory Judgment Regarding Total Equity
                     Holdings

       Defendants assert that Count II should be dismissed by mounting arguments

against each individual component that Plaintiffs allege in support of their

contention that they own 20.547% equity interest in Shodogg.114 Specifically,

Defendants reassert their argument that Sykes did not purchase equity under the

Convertible Note.115 Defendants also argue that Plaintiffs’ 0.64% equity attributable

to Sykes’ co-founder shares is calculated incorrectly because the 0.64% is based on

Plaintiffs’ incorrect assertion that Sykes purchased equity under the Convertible

Note.116 Similarly, Defendants aver that Plaintiffs’ asserted 10% equity holding

113
    Pls.’ AB 23–27.
114
    See Defs.’ OB 20–23; Defs.’ RB 7–9.
115
    Defs.’ OB 20–21; Defs.’ RB 8.
116
    Defs.’ OB 22–23; Defs.’ RB 9.

                                           18
under the JV Termination Agreement is untimely, mathematically impossible, and

waived by Plaintiffs’ participation in the Convertible Offering.117

       It is not my practice to grant motions to dismiss piecemeal by reviewing each

allegation underlying a cause of action to confirm whether those allegations

individually state a cause of action.118 Here, Plaintiffs have adequately alleged that

their equity holding in Shodogg is 20.547%, which Shodogg contests by asserting

that Plaintiffs’ equity holdings amount to only 0.041%. There is a present dispute

between the parties regarding the quantum of equity holdings in Shodogg held by

Plaintiffs, and parties who have an interest in contesting the claimed ownership.

Therefore, Defendants’ motion to dismiss Count II for failure to state a claim is

denied.

                     c. Proper Defendants for Counts I and II

       Defendants argue that Plaintiffs improperly assert their claims for declaratory

judgment against the Individual Defendants.119 According to Defendants, only

Shodogg has a cognizable interest in determining Sykes’ degree of equity ownership

in Shodogg.120 In response, Plaintiffs argue that declaratory judgment is appropriate

117
    Defs.’ OB 21–22; Defs.’ RB 8.
118
    See Glob. Discovery BioSciences Corp. v. Harrington, C.A. No. 2022-1132-SG, at 5–6 (Del.
Ch. Aug. 17, 2023) (TRANSCRIPT).
119
    See Defs.’ OB 20–21; Defs.’ RB 4, 7.
120
    Defs.’ OB 21; Defs.’ RB 4, 8.

                                            19
against all Defendants, including the Individual Defendants, because an entity

cannot act without its officers and directors taking actions.121

       As explained above, a claim for declaratory relief “must be asserted against

one who has an interest in contesting the claim.”122 Here, the defendant with an

interest in contesting Plaintiffs’ claim seeking declaratory judgment regarding

Plaintiffs’ ownership in Shodogg is Shodogg itself. The relief sought by Plaintiffs

is a declaration that Plaintiffs’ equity holdings in Shodogg is greater than the 0.041%

Shodogg contends it is. If Plaintiffs are ultimately successful and awarded this relief,

Shodogg would be the party required to acknowledge Plaintiffs’ adjudicated equity

holdings.

       While Plaintiffs are correct that a corporation cannot act unless an agent of

the corporation acts on behalf of the corporation,123 complete relief for Plaintiffs’

claims for declaratory judgment is available only from Shodogg.

       C. Count III: Specific Performance

       In the Amended Complaint, Plaintiffs also seek specific performance of

Shodogg’s obligations under the JV Termination Agreement, including repayment

of Sykes’ loans, 10% equity interest in Shodogg, and payment of Sykes’ annual

121
    Pls.’ AB 21–22, 28.
122
    Mehiel, 2005 WL 1252348, at *4.
123
    See Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 60 (Del. Ch. 2015) (“Because
it lacks a body and mind, a corporation only can act through human agents”).

                                               20
salary and benefits.124 Defendants argue that Count III is time-barred and should be

dismissed.125 Plaintiffs assert that Count III is not barred by laches and, in the

alternative, that the Amended Complaint pleads sufficient facts for the Court to toll

the running of the analogous statute of limitations.126

       Laches is an affirmative defense that “generally requires the establishment of

three things: first, knowledge by the claimant; second, unreasonable delay in

bringing the claim, and third, resulting prejudice to the defendant.”127 The existence

of these elements “is generally determined by a fact-based inquiry.”128 Accordingly,

laches is “not ordinarily well-suited for treatment on” a Rule 12(b)(6) motion to

dismiss.129 Even where the statute of limitations applies by analogy, tolling is a fact-

intensive matter as well. Given the limited factual record before me, I decline to

dismiss Count III at this time.

       D. Count IV: Fraud

       Plaintiffs assert a claim for fraud, fraud in the inducement, and fraudulent

conspiracy.130 Defendants contend that Count IV is improper bootstrapping, time-

barred, and does not satisfy the pleading requirements of Rule 9(b).131 Plaintiffs

124
    Am. Compl. ¶¶ 110–18.
125
    Defs.’ OB 23–29; Defs.’ RB 9–15.
126
    Pls.’ AB 31–39.
127
    Homestore, Inc. v. Tafeen, 888 A.2d 204, 210 (Del. 2005).
128
    Id.
129
    Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009).
130
    Am. Compl. ¶¶ 119–29.
131
    Defs.’ OB 29–33; Defs.’ RB 16–18.

                                              21
retort that the fraud claim, as pled, satisfies Rule 9(b); is not improper bootstrapping

because it satisfies an exception recognized by the Court; and could not have been

brought until Defendants sent the April 2022 Letter that revealed Defendants’ true

intent to never perform their contractual obligations.132

       Even if the fraud claim states satisfies Rule 9(b)’s heightened pleading

standard, “Delaware law holds that a plaintiff cannot ‘bootstrap’ a claim of breach

of contract into a claim of fraud merely by alleging that a contracting party never

intended to perform its obligations.”133 An example of improper bootstrapping

would be where a plaintiff “couch[es] an alleged failure to comply with a contract

as a failure to disclose an intention to take certain actions arguably inconsistent with

that contract[.]”134 This Court has explained that bootstrapping is improper where

“the plaintiff has simply tacked on conclusory allegations that the defendant made

the contract knowing it would not or could not deliver on its promises.”135 However,

a fraud claim may be brought alongside a breach of contract claim without

constituting “improper bootstrapping” if, for example, the “plaintiff has made

particularized allegations that a seller knew contractual representations were false or

lied regarding the contractual representation[.]”136

132
    Pls.’ AB 39–46.
133
    Narrowstep, Inc. v. Onstream Media Corp., 2010 WL 5422405, at *15 (Del. Ch. Dec. 22, 2010).
134
    Id.
135
    Pilot Air Freight, LLC v. Manna Freights, Sys., 2020 WL 5588671, at *25 (Del. Ch. Sept. 18,
2020).
136
    Id. at *26.

                                              22
       Plaintiffs’ fraud claim is improper bootstrapping. Plaintiffs have asserted

claims for breach of contract against Defendants based on Defendants’ failure to

comply with their contractual obligations under the JV Agreement, the A&R JV

Agreement, and the Licensing Agreement and Addendum thereto. Plaintiffs’ fraud

claim rests on the allegation that, at the time of entering of these agreements,

Defendants failed to disclose to Plaintiffs that Defendants never intended to perform

or abide under the agreements.137 While Plaintiffs aver that these allegations are

sufficient to show that Defendants “knew contractual representations were false or

lied regarding the contractual representation,” and therefore fall into the “anti-

bootstrapping” rule, I disagree.

       Plaintiffs do not point to a specific contractual representation that Defendants

knew was false or lied about. Rather, Plaintiffs have tacked onto their breach of

contract claims conclusory allegations that Defendants never intended to perform

under the contracts. Plaintiffs’ allegations, in my view, fall squarely within the

definition of improper bootstrapping.138 Thus, Count IV for fraud is dismissed.139

137
    Am. Compl. ¶¶ 120–22.
138
    See Pilot Air Freight, LLC, 2020 WL 5588671, at *25 (explaining that improper bootstrapping
occurs where “the plaintiff has simply tacked on conclusory allegations that the defendant made
the contract knowing it would not or could not deliver on its promises.”).
139
    Since I have concluded that Count IV must be dismissed as improper bootstrapping, I decline
to address Defendants’ assertions that Count IV is time-barred and fails to comply with the
heightened pleading standards under Rule 9(b).

                                              23
      E. Breach of Contract Claims: Counts V and VI

      Plaintiffs bring two breach of contract claims against Defendants for

breaching (1) the JV Agreement and the A&R JV Agreement and (2) the Licensing

Agreement and Addendum thereto.140

      To state a claim for breach of contract, a plaintiff must allege “first, the

existence of the contract, whether express or implied; second, the breach of an

obligation imposed by that contract; and third, the resultant damage to the

plaintiff.”141 In determining whether a plaintiff has sufficiently pled the existence

of a contract and a breach of an obligation contained therein, “the [C]ourt must

consider, and often construe the proffered contract at the heart of the claim[.]”142

Although “[t]he construction of a contract is a question of law,”143 the Court will not

grant a defendant’s motion to dismiss a breach of contract claim “under Rule

12(b)(6) unless the interpretation of the contract on which [defendant’s] theory of

the case rests is the only reasonable construction as a matter of law.”144

140
    Am. Compl. ¶¶ 130–55.
141
    VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).
142
    Skye Min. Invs., LLC v. DXS Cap. (U.S.) Ltd., 2020 WL 881544, at *14 (Del. Ch. Feb. 24,
2020).
143
    Id.
144
    Kahn v. Portnoy, 2008 WL 5197164, at *3 (Del. Ch. Dec. 11, 2008) (emphasis in original)
(internal quotations omitted).

                                            24
               1. Count V: Breach of the JV Agreement and the A&R JV Agreement

       Plaintiffs contend that Defendants breached the JV Agreement and the A&R

JV Agreement by failing to: (a) repay Sykes’ loans to and investments in the joint

venture; (b) provide Sykes with shares in Shodogg; (c) provide Sykes a salary; (d)

failing to keep Sykes informed of “Other IP;” and (e) recognize Sykes’ work with

Chinese companies.145 Defendants seek dismissal of Count V because Plaintiffs fail

to cite the provisions in the contract that impose the alleged obligations on

Defendants and on the grounds that the claim is time-barred.146

                     a. Whether the Cited Provisions Support Plaintiffs’ Claim

       Plaintiffs have facially stated a claim for breach of the JV Agreement and the

A&R JV Agreement. Defendants argue that the provisions relied upon by Plaintiffs

in stating the claim do not impose the obligations that Plaintiffs allege were

breached.147

       Under the incorporation by reference doctrine, a Court may review documents

relied upon by plaintiffs in asserting a claim to confirm that plaintiffs have not

misconstrued the contents.148 The Court, however, cannot review the documents

when the parties fail to provide those documents to the Court. Defendants advocate

145
    Am. Compl. ¶ 133.
146
    Defs.’ OB 33–37; Defs.’ RB 19–21.
147
    Defs.’ OB 34–37.
148
    Lebanon Cnty. Emps.’ Ret. Fund v. Collis, 287 A.3d 1160, 1181 (Del. Ch. 2022).

                                             25
for dismissal by explaining their understanding of each section of the contracts relied

upon by Plaintiffs.149 However, the JV Agreement and the A&R JV Agreement are

not included as exhibits to the Amended Complaint nor included as exhibits in the

pleadings, so I cannot refer to them to determine whether Plaintiffs have accurately

represented their contents.150 Accordingly, Defendants’ motion to dismiss Count V

is denied without prejudice to any motion for partial summary judgment upon a

record sufficient to support Defendants’ contractual contentions.

                      b. Timeliness of Plaintiffs’ Claim

       The statute of limitations for breach of contract claims is three years from the

accrual of the cause of action.151 A claim for breach of contract does not accrue until

the breach occurs.152 Delaware courts recognize that circumstances may exist that

warrant the tolling of the statute of limitations for a period of time.153 At the motion

to dismiss stage, the Court must accept all facts pled in the complaint as true. 154 If

the complaint pleads facts sufficient to demonstrate that the Court should toll the

statute of limitations, this Court will not dismiss the complaint.155

149
    Defs.’ OB 36–37.
150
    See Letter to the Ct. re: Certain Exs. Filed with the Am. Compl., Dkt. No. 15.
151
    10 Del. C. § 8106.
152
    Certainteed Corp. v. Celotex Corp., 2005 WL 217032, at *7 (Del. Ch. Jan. 24, 2005).
153
    See Collis, 287 A.3d at 1211–21 (explaining different tolling doctrines utilized by Delaware
courts).
154
    Savor, Inc., 812 A.2d at 896–97.
155
    Certainteed Corp., 2005 WL 217032, at *6.

                                              26
       Defendants generally assert that the statute of limitations ran at least three

years before Plaintiffs filed suit by relying on the execution dates of the JV

Agreement and the A&R JV Agreement.156                 Plaintiffs allege that Defendants

repeatedly reassured Plaintiffs that the Defendants intended to comply with the

obligations laid out in the JV Agreement and A&R JV Agreement.157 Thus,

Plaintiffs only became aware that Defendants’ intention to breach the contracts when

Defendants stated so in the April 2022 Letter.158

       The facts alleged in the Amended Complaint demonstrate reasonably

conceivable grounds for tolling the statute of limitations. For example, the Amended

Complaint sufficiently pleads that Defendants owed Sykes a salary and were

obligated to repay Sykes for amounts he owed to the joint venture.159 Although

Sykes was not paid his salary nor repaid for loans, the Amended Complaint

adequately alleges that Defendants requested that Sykes defer exercising his rights

to monetary compensation while assuring Sykes that those contractual obligations

still existed and would be performed once Defendants succeeded in patent

infringement actions involving the Shodogg Patents.160 As alleged by Plaintiffs,

Defendants’ inability to pay Sykes’ salary under the contracts was a result of funding

156
    Defs.’ OB 33–34; Defs.’ RB 19.
157
    Pls.’ AB 49 (citing Am. Compl. ¶¶ 62, 114, 124).
158
    Id.
159
    See Am. Compl. ¶¶ 18–36.
160
    See id. ¶ 49.

                                              27
limitations, which Defendants acknowledged in a 2020 email.161 Plaintiffs have

plead sufficient facts to make it reasonably conceivable that a tolling doctrine may

apply, which, if so, makes Count V timely.162 Therefore, I decline to dismiss Count

V as time-barred.

               2. Count VI: Breach of the Licensing Agreement and Addendum

       Plaintiffs also assert a claim for breach of the Licensing Agreement and

Addendum thereto based on Defendants turning off Sykes’ access to the Shodogg

technology service and failing to complete the technology promised under the

Licensing Agreement and Addendum.163 Defendants advocate for dismissal of

Count VI because (a) Plaintiffs failed to cite the exact provisions in the Licensing

Agreement or Addendum that Defendants breached; (b) the claim is time-barred

because the alleged breach occurred in 2017; and (c) the claim has no basis in fact.164

       In the Amended Complaint, Plaintiffs allege that the Licensing Agreement

and Addendum granted Sykes use of Shodogg’s intellectual property.165                             The

Addendum was entered into by the parties on April 20, 2017, to extend the term of

the Licensing Agreement.166 Plaintiffs’ allegations that Shodogg breached these

161
    See id. ¶ 138.
162
    I note that a developed factual record may indicate otherwise. However, at the motion to
dismiss stage with plaintiff-friendly inferences is not an appropriate point in litigation to determine
a fact-intensive question such as the application of a tolling doctrine.
163
    Am. Compl. ¶ 145.
164
    Defs.’ OB 37–38; Defs.’ RB 21–22.
165
    Am. Compl. ¶ 45.
166
    Id. ¶ 47.

                                                 28
contracts by preventing Sykes from accessing and using the licensed intellectual

property is directly contradicted by Plaintiffs’ further allegations that, despite having

his access to Shodogg’s technology “turned off,” Sykes was still able to operate

under the Licensing Agreement.167 While Plaintiffs allege this “shutting off” of

Sykes access caused Sykes’ ability to operate under the contracts to be “more

restricted” than previously, Plaintiffs acknowledge that the Sykes continued to

access Shodogg’s technical software development services used to develop the

software at the core of the Licensing Agreement.168

       Plaintiffs fail to state how the Licensing Agreement was breached if Sykes

continued to access the intellectual property at the core of the Licensing Agreement,

nor have they alleged that Sykes was damaged by his allegedly “restricted” access

that permitted him to continue to perform under the Licensing Agreement. Thus,

with respect to Count VI for breach of the Licensing Agreement and Addendum

thereto, Plaintiffs have not sufficiently pled a claim for breach of contract.

Accordingly, Count VI is dismissed for failure to state a claim.169

167
    Compare Am. Compl. ¶ 149, with Am. Compl. ¶¶ 150–51.
168
    Compare Am. Compl. ¶ 150, with Am. Compl. ¶ 151.
169
    Because I have dismissed Count VI for failure to state a claim, I decline to reach Defendants’
arguments regarding the timeliness of Count VI and whether Plaintiffs were required to cite exact
provisions in the Licensing Agreement to adequately place Defendants on notice of the claim.

                                               29
       F. Counts VII–IX: Breach of Fiduciary Duty

       Plaintiffs assert a breach of fiduciary duty claims against each of the three

Individual Defendants based on Sykes’ position as a shareholder of Shodogg and the

Individual Defendants’ alleged misdeeds that harmed Sykes as a shareholder.170

Defendants advocate for dismissal of Counts VII–IX by attacking each alleged act

underlying the claim.171 Specifically, Defendants (1) claim to have mooted the lack

of an annual stockholder meeting by holding such a meeting in December 2022; (2)

note that Plaintiffs’ information rights are governed by statute; (3) argue that the

allegation that the Individual Defendants acted in their own self-interest are wholly

conclusory; and (4) aver that failure to honor valid contracts is a bootstrapped

contract claim that is barred.172

       “The plaintiff is the master of the complaint[.]”173 Accordingly, I will limit

my assessment of whether Plaintiffs stated a claim for breach of fiduciary duty to

the allegations Plaintiffs have included in support of Counts VII–IX.174 According

to Plaintiffs, each individual defendant breached their fiduciary duties owed to Sykes

by: (a) failing to hold an annual stockholder meeting for more than five years; (b)

170
    See Am. Compl. ¶¶ 157–58, 162–63, 167–68.
171
    Defs.’ OB 39–42; Defs.’ RB 23–25.
172
    Defs.’ OB 39–41; Defs.’ RB 23–25. I note that Defendants did not assert in their briefs a
Section 102(b)(7) defense. See Defs.’ OB; Defs.’ RB.
173
    NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 23 (Del. Ch. 2009).
174
    That is, without regard to whether facts pled elsewhere in the Amended Complaint could
support a claim of breach of fiduciary duty.

                                             30
failing to provide Sykes with information pertaining to Shodogg’s business affairs;

(c) failing to provide Sykes with requested financial records related to Shodogg; (d)

acting contrary to Shodogg’s best interests while acting in each defendants’ own

self-interest; (e) failing to keep Sykes apprise of important corporate matters; and (f)

attempting to disenfranchise Sykes of his shares in Shodogg.175 Plaintiffs also allege

that Mitschele breached his fiduciary duties by failing to honor valid agreements

Shodogg entered into with Sykes.176

       First, I consider Plaintiffs attempt to invoke rights arising under statute as

breach-of-duty claims. Plaintiffs allege that the Individual Defendants breached

their fiduciary duties by failing to comply with the Delaware General Corporation

Law (the “DGCL”).177 Specifically, Plaintiffs allege that Individual Defendants

breached their fiduciary duties by violating Section 211, for failing to hold an annual

meeting, and Section 220 for failing to provide Plaintiffs with requested books and

records.178 As owners of Shodogg stock, Plaintiffs can exercise their rights to bring

direct actions against the Company for breaches violations of specific provisions of

the DGCL.179 Plaintiffs have not attempted to vindicate their statutory rights by

175
    See Am. Compl. ¶¶ 158, 163, 168.
176
    Id. ¶ 159.
177
    Pls.’ AB 57–59.
178
    Id.
179
    See In re Activision Blizzard, Inc. S’holder Litig., 124 A.3d 1025, 1049–1050 (Del Ch. 2015)
(explaining that the Delaware Supreme Court recognizes “that the DGCL, the certification of
incorporation, and the bylaws together constitute a multi-party contract among the directors,
officers, and stockholders of the corporation. As parties to the contract, stockholders can enforce

                                                31
assert claims for breaches of the DGCL. Instead, Plaintiffs plead solely fiduciary

duty claims based on alleged failures of the Company to comply with the DGCL.

But this is an improper attempt to bootstrap a fiduciary claim out of a legal claim,180

and the fiduciary claims based on Sections 211 and 220 are dismissed.

       With respect to Plaintiffs’ allegation that the Individual Defendants have

disenfranchised Plaintiffs by representing that Sykes’ ownership interest in Shodogg

is only 0.041%, the determination of Plaintiffs’ actual ownership amount will be

determined under Plaintiffs’ request for declaratory judgment. If Plaintiffs are

correct, then they will receive declaratory relief to that effect. Alone, Plaintiffs’

allegation that the Individual Defendants have misrepresented Plaintiffs’ actual

ownership in Shodogg does not support a claim for breach of fiduciary duty.

       Plaintiffs also allege that the Individual Defendants acted in their own self-

interest and contrary to the interests of Shodogg and its stockholders, and that

Mitschele caused Shodogg to fail to honor valid agreements. To the extent these

it.”); accord Grunstein v. Silva, 2009 WL 4698541, at *6 (Del. Ch. Dec. 8, 2009) (“the general
rule under Delaware law . . . is that a plaintiff may not ‘bootstrap’ a breach of fiduciary duty claim
[from] a breach of contract claim merely by restating the breach of contract claim as a breach of
fiduciary duty.”); Data Mgmt. Internationale, Inc. v. Saraga, 2007 WL 2142848, at *3 (Del Super.
July 25, 2007) (“Under Delaware law, a plaintiff bringing a claim based entirely upon a breach of
the terms of a contract generally must sue in contract, and not in tort.”); see also In re Est. of
Tinley, 2007 WL 2304831, at *1 (Del. Ch. July 19, 2007) (explaining that “the vindication of
purely statutory rights represents an exercise of the prerogative of the legislature, and not the equity
Court. Such a purely statutory right, therefore, will be enforced by this Court not as a matter of
equity, but of law”).
180
    See id.

                                                  32
allegations state a claim, that claim is derivative in nature because the harm caused

by these breaches of fiduciary duties, and the remedy thereto, would run to Shodogg,

not Plaintiffs individually.181 Therefore, Counts VII–IX are dismissed for failure to

state a claim.

                                      III. CONCLUSION

       Defendants’ motion to dismiss Counts IV and VI–IX are GRANTED.

Defendants’ motion to dismiss Count II is GRANTED IN PART. Defendants’

motion to dismiss Counts I, III, and V is DENIED. The parties should submit a form

of order consistent with this memorandum opinion.

181
    See Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1263 (Del. 2021) (quoting Tooley
v. Donaldson, Lufkin & Jennette, Inc., 845 A.2d 1031, 1033 (Del. 2004) (reaffirming the Tooley,
i.e., to decide if a claim is direct or derivative, the Court must only consider “(1) who suffered the
alleged harm (the corporation or the stockholders, individually); and (2) who would receive the
benefit of any recovery or other remedy (the corporation or the stockholders, individually)?”).

                                                 33