Court Opinion

ID: 8415895
Source: CourtListenerOpinion
Date Created: 2022-11-03 16:01:51.578932+00
Date Added: 2024-06-11T16:48:16.362812
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

AMERIMARK INTERACTIVE, LLC,     )
                                )
         Plaintiff,             )
                                )
         v.                     )
                                )
AMERIMARK HOLDINGS, LLC,        ) C.A. No. N21C-12-175 MMJ CCLD
PRUDENTIAL CAPTIAL PARTNERS     )
II, L.P., MARCUS BRADSHAW, MARK )
ETHIER and STEVEN SZEJNER,      )
                                )
         Defendants.            )
                                )

                          Submitted: August 11, 2022
                          Decided: November 3, 2022

               On Amerimark Holdings, LLC, Marcus Bradshaw,
                    and Mark Ethier’s Motion to Dismiss
                 GRANTED IN PART, DENIED IN PART

 On Prudential Capital Partners II, L.P. and Stephen Szezner’s Motion to Dismiss
                 GRANTED IN PART, DENIED IN PART

                                   OPINION

Andrew L. Cole, Esq., Jack M. Dougherty, Esq., Cole Schotz, P.C., Wilmington,
DE, Steven L. Klepper, Esq. (pro hac vice) (argued), Brendan P. Barry (pro hac
vice), Cole Schotz, P.C., Hackensack, NJ, Attorneys for Plaintiff
Patricia R. Urban, Esq., Megan I. Brison, Esq., Pinckney, Weidinger, Urgan &
Joyce LLC, Wilmington, DE, Eric B. Fisher, Esq. (pro hac vice) (argued), Sarah
Dowd, Esq., (pro hac vice), Binder & Schwartz LLP, New York, NY, Anna E.
Currier, Esq., James G. Gorman III, Esq., Blank Rome LLP, Wilmington, DE,
Jason A. Snyderman, Esq. (pro hac vice) (argued), Charles A. Fitzpatrick, Esq.
(pro hac vice), Blank Rome LLP, Philadelphia, PA, Shawna J. Henry, Esq. (pro
hac vice), Blank Rome, Pittsburgh, PA, Attorneys for Defendants

JOHNSTON, J.
                 FACTUAL AND PROCEDURAL CONTEXT

      This case arises from a dispute after the sale of three companies to a retailer

of fashion, health and beauty, houseware, home decor, apparel, and personal care

products. Plaintiff AmeriMark Interactive LLC (“Buyer”) and Defendant

AmeriMark Holdings, LLC (“Seller”) negotiated a $322.5 million transaction.

Buyer purchased from Seller all the equity in three direct mail marketing

companies: LTD Commodities LLC (“LTD”), AmeriMark Intermediate Holdings,

LLC (“AIH”), and AmeriMark Intermediate Sub, Inc. (“AIS”) (collectively, the

“Acquired Companies”). Buyer and Seller memorialized this transaction in the

Equity Purchase Agreement (“EPA”), dated October 15, 2021. Prudential Capital

(“Prudential”) was Seller’s former majority shareholder and participated in the

transaction’s negotiations.

      Marcus Bradshaw (“Bradshaw”) is Seller’s former Chief Financial Officer.

Mark Ethier (“Ethier”) is Seller’s former Chief Executive Officer. Stephen Szejner

(“Szejner”) is allegedly Prudential’s Managing Director.

      Buyer brought an action seeking damages arising from Defendants’ alleged

fraudulent conduct and breaches of representations and warranties in the EPA. The
                                          2
Acquired Companies had a key vendor named LSC Communications US, LLC

(“LSC”). LSC prints catalogs in preparation for the fourth quarter holiday retail

season. The fourth quarter was particularly important to Buyer because the fourth

quarter sales made up a large portion of the Acquired Companies’ annual sales.

Buyer sought to close the transaction—and did close the transaction—before the

end of the fourth quarter of 2021 to capture the sales from the fourth quarter

holiday season. LSC allegedly gave written notice (“LSC Letter”) to the Acquired

Companies to enforce a “force majeure” event from a labor shortage. The “force

majeure” event allegedly would result in diminished circulation of the printed

catalogs for the fourth quarter holiday season.

      Defendants allegedly concealed LSC’s force majeure event and the LSC

Letter from Buyer until after the closing to induce Buyer to close on the

transaction. The sales from the fourth quarter of 2021 were much lower than

Buyer had anticipated. Buyer alleges that if it had known of LSC’s labor shortage

and notice of force majeure, it would have not closed on the transaction—or at

least would not have paid the full $322.5 million for the Acquired Companies.

      Buyer filed its original complaint on December 22, 2021. Defendants

Prudential and Szejner filed a motion to dismiss on February 24, 2022. Defendants

Seller, Bradshaw, and Ethier also filed a motion to dismiss on February 24, 2022.

Instead of responding to the motions to dismiss, Buyer filed its First Amended

                                          3
Complaint on April 7, 2022. Prudential and Szejner then filed their Motion to

Dismiss Buyer’s First Amended Complaint on May 10, 2022. Seller, Bradshaw,

and Ethiers also filed their Motion to Dismiss Buyer’s First Amended Complaint

on the same day. The Court heard oral argument regarding the motions to dismiss

on August 11, 2022.

                              RULE 12(b)(6) STANDARD

       In a Rule 12(b)(6) Motion to Dismiss, the Court must determine whether the

claimant “may recover under any reasonably conceivable set of circumstances

susceptible of proof.”1 The Court must accept as true all well-pled allegations.2

Every reasonable factual inference will be drawn in the non-moving party’s favor.3

If the claimant may recover under that standard of review, the Court must deny the

Motion to Dismiss.4

                                        ANALYSIS

       Buyer alleges four causes of action. The first cause of action (Count I)

alleges all Defendants fraudulently induced Buyer through contractual fraud in the

representations and warranties in the EPA, Section 4.23, Section 4.5(b)(ii), and

Section 3.7. The second cause of action (Count II)—which Buyer pleads in the

1
  Spence v. Funk, 396 A.2d 967, 968 (Del.1978).
2
  Id.
3
  Wilmington Sav. Fund. Soc’v, F.S.B. v. Anderson, 2009 WL 597268, at *2 (Del. Super.) (citing
Doe v. Cahill, 884 A.2d 451, 458 (Del.2005)).
4
  Spence, 396 A.2d at 968.
                                              4
alternative to the first cause of action with respect to Prudential, Szejner, and

Ethier—alleges Prudential, Szejner, Ethier, and Bradshaw aided and abetted the

fraudulent conduct of Seller. The third cause of action (Count III) alleges all

Defendants conspired to fraudulently induce Buyer to purchase the Acquired

Companies. The fourth cause of action (Count IV)—which Buyer pleads in the

alternative to the first cause of action—requests indemnification for breach of

representations and warranties through contractual fraud in the EPA, Section 4.23,

Section 4.5(b)(ii), and Section 3.7.

          For Counts II and III to proceed, Buyer must have pled an underlying tort. If

Count I is dismissed, then the Court also must dismiss Counts II and III.

                              Equity Purchase Agreement

          The Non-Recourse provision in Section 8.11 of the EPA is very broad. It

states:

                Except to the extent expressly set forth otherwise in the
                Confidentiality Agreement, (a) no past, present, or future
                stockholder, member, partner officer, director, manager,
                employee, incorporator, agent, attorney, or Representative
                of the Acquired Companies or the Seller or any of their
                respective Affiliates and (b) no past, present, or future
                stockholder, member, partner officer, director, manager,
                employee, incorporator, agent, attorney, or Representative
                of the Buyer or its Affiliates shall have be deemed to (i)
                have made any representations or warranties, express or
                implied, in connection with the Transactions, or (ii) have
                any personal Liability to the Buyer for any obligations or
                Liabilities of any Party under this Agreement for any claim
                based on, in respect of, or by reason of, the Transactions.
                                            5
             Except to the extent expressly set forth otherwise in the
             Confidentiality Agreement, all claims, obligations,
             liabilities or cause of action (whether in Contract or in tort,
             in law or in equity) that may be based upon, in respect of,
             arise under, out or by reason of, be connected with, or
             relate in any manner to this Agreement, or the negotiation,
             execution or performance of this Agreement, may be made
             only against the Parties to this Agreement. It is further
             understood that any certificate or certification
             contemplated by this Agreement and executed by an
             officer of a Party shall be deemed to have been delivered
             only in such officer’s capacity as an officer of such Party
             (and not in his or her individual capacity) and shall not
             entitle any Party to assert a claim against such officer in
             his or her individual capacity.

According to the EPA, all claims arising under the EPA are only permitted against

a contracting party (i.e., Buyer and Seller), including claims for tort and fraud.

This provision controls Counts I, II, and III against non-seller defendants.

      Schedule 1 of the EPA defines “Affiliate” as “any other Person directly or

indirectly controlling, controlled by or under common control with such first

Person within the meaning of the Securities Exchange Act of 1934, as amended.”

Prudential is an “Affiliate” under this definition. Section 8.11 of the EPA excludes

representations by Affiliates.

      Section 6.1(b) of the EPA regarding indemnification states:

             [T]he Buyer, each of its Affiliates (including the Acquired
             Companies), and each of its respective successors, assigns,
             officers, directors, managers, members, equityholders,
             employees, and agents (collectively, the “Buyer
             Indemnitees” and each, a “Buyer Indemnitee”), shall be
             indemnified by the Seller from and against any Loss
                                           6
             suffered or incurred by any such Buyer Indemnitee arising
             resulting from or based upon[] any inaccuracy in or breach
             of any representation or warranty of the Seller contained
             in ARTICLE III or ARTICLE IV of this Agreement;
             provided that, other than with respect to Losses arising
             from Fraud or Losses arising out of a breach of any Seller
             Fundamental Representations, there shall be no
             indemnification for Liability under Section 6.1(b), unless
             the aggregate of all Losses arising thereunder for which
             indemnification Liability would, but for this proviso, exist
             exceeds $3,225,000 Dollars, and then only to the extent of
             any such excess[.]

      Section 6.3(a) of the EPA states that a party first must seek recovery from

the Warranty Insurance Policy before seeking indemnity from the seller. Under

Section 6.3(g), a party may seek indemnification for claims based on fraud without

first seeking recovery from the Warranty Insurance Policy.

      Section 2.6(b) of the EPA explains that Buyer may not rely on

representations made outside the contract, stating:

             The Buyer acknowledges to the Seller that, except for the
             representations and warranties that are expressly set forth
             in ARTICLE III OR ARTICLE IV (as modified by the
             Disclosure Schedules) or in the Seller Release, the
             Acquired Company Release, the Seller Restrictive
             Covenant Agreements, or the certificates delivered to the
             Buyer by the Seller pursuant to Sections 7.1(f) through (h),
             (i) it is relying on its own investigation and analysis in
             entering into both the Transaction Documents and the
             Transactions; (ii) neither the Seller nor any of the
             Acquired Companies nor any of the respective Affiliates
             or Representatives of the Seller or the Acquired
             Companies, has made, and the Buyer is not relying on, any
             other representation or warranty, express or implied, of the
             Seller or the Acquired Companies or any of the respective
                                          7
             Affiliates or Representatives of the Seller or the Acquired
             Companies, with respect to the Seller or the Acquired
             Companies, including any representation or warranty as to
             (x) any information provided or made available to the
             Buyer or any of its Affiliates or Representatives, including
             the accuracy or completeness of any of such information,
             including the information set forth in the Confidential
             Discussion Materials and the Evaluation Materials and (y)
             any financial projection, forecast, budget or estimate
             provided or made available to the Buyer or any of its
             Affiliates or Representatives with respect to revenues,
             margins, backlogs, costs, expenses, income or profitability
             of the Acquired Companies; and (iii) none of the
             information and materials described in clause (ii), except
             as otherwise expressly represented in ARTICLE III or
             ARTICLE IV herein or in the Exhibits hereto, the Seller
             Release, the Acquired Company Release, the Seller
             Restrictive Covenant Agreements, or the certificates
             delivered to the Buyer by the Seller pursuant to Sections
             7.1(f) through (h), shall form the basis of any Action or
             Proceeding (including under ARTICLE VI) against any of
             the acquired Companies or the Seller or any of the
             respective Affiliates or Representatives of the Acquired
             Companies or the Seller with respect thereto or with
             respect to any related matter.

      Section 2.6(d) of the EPA states that “nothing in this Agreement . . . shall

limit or otherwise restrict or be used as a defense in the event of Fraud.”

      Section 4.25 of the EPA, regarding disclaimer, states:

             Except as otherwise specifically provided in ARTICLE III
             or ARTICLE IV (as modified by the Disclosure
             Schedules), the Purchased Equity is being acquired as is,
             and the Buyer is entering into this Agreement and the
             Purchased Equity is being acquired AS IS WITHOUT
             ANY      OTHER        EXPRESSED         OR     IMPLIED
             WARRANTY and neither the Seller, nor any of the
             Acquired Companies, nor any of its or their directors,
                                          8
      managers, officers, employees, stockholders, members,
      agents, Affiliates or Representatives thereof, nor any other
      Person, has made or shall be deemed to have made any
      representation or warranty to the Buyer, express or
      implied, at Law or in equity, with respect to the Seller, the
      Acquired Companies, the Business or the assets,
      Liabilities, results of operations or financial condition of
      the Acquired Companies, including any representations
      and warranties as to the accuracy or completeness of any
      Evaluation Material or any other information provided,
      delivered, or made available to the Buyer or any of its
      Affiliates or Representatives pursuant to the
      Confidentiality Agreement or as to the future sales,
      revenue, profitability, or success of the Business, or any
      representations or warranties arising from statute or
      otherwise in Law, from a course of dealing or a usage of
      trade. All such other representations and warranties are
      expressly disclaimed.

Section 8.13 provides the integration clause:

      This Agreement (including any Exhibit or Schedule
      attached hereto) and the Transaction Documents contain
      the entire agreement and understanding among the Parties
      hereto with respect to the subject matter hereof and, except
      as explicitly set forth herein, supersede all prior and
      contemporaneous oral and written agreements and
      understandings relating to such subject matter. There are
      no promises, representations, warranties, covenants, or
      undertakings with respect to this Agreement (including
      any Exhibit or Schedule attached hereto) and the
      Transaction Documents and the events giving rise thereto
      other than those expressly set forth herein and therein.

                                   9
                          Secondary Liability Case Precedent

                                Background Legal Context

       In ABRY Partners V, L.P. v. F & W Acquisition LLC5 and its progeny,

Delaware courts have grappled with the balance between contractual freedom and

an intolerance for fraud.6 “Delaware has developed a body of law that permits

sophisticated parties contractually to shift the risks posed by post-closing fraud

claims.”7 Two common contractual provisions that parties combine to allocate

such risks are anti-reliance and non-recourse provisions.8 An anti-reliance

provision limits “the possibility of future claims of fraud or misrepresentation by

contractually specifying what representations the parties are and are not making

and relying upon.”9 Thus, “parties eliminate ‘extra-contractual fraud claims while

preserving ‘intra-contractual’ fraud claims.”10 A non-recourse provision limits the

entities and people a claim may be brought against.11 Therefore, the anti-reliance

provision dictates “what” the alleged claim may rely upon to establish the fraud

5
  891 A.2d 1032 (Del. Ch. 2006).
6
  Id. at 1055–59; see e.g., Aveanna Healthcare, LLC v. Epic/Freedom, LLC, 2021 WL 3235739,
at *12-13 (Del. Super.) (explaining the balance between Delaware’s public policy against fraud
and contractual freedom).
7
  Aveanna, 2021 WL 3235739, at *13 (citing EMSI Acquisition, Inc. v. Contrarian Funds, LLC,
2017 WL 1732369, at *8–9 (Del. Ch.)).
8
  Id. at *4, 13, 24.
9
  Infomedia Grp., Inc. v. Orange Health Sols., Inc., 2020 WL 4384087, at *4 (Del. Super.).
10
   Aveanna, 2021 WL 3235739, at *13.
11
   Id. at 4, 24.
                                              10
and the non-recourse provision dictates “who” that alleged claim may be brought

against.

       The EPA in the instant case has a similar structure. Through the anti-

reliance language in the non-recourse and integration clauses of the EPA, the

contracting parties agreed what representations and warranties were being relied

upon in the agreement. The non-recourse clause established that the Buyer and

Seller are the only entities that made any representations and warranties. If Buyer

and Seller are the only entities that made any representations and warranties, then

Prudential, Szejner, Ethier, and Bradshaw (“non-seller defendants”) could not have

made any misrepresentations. The non-recourse language also states that the only

party against whom a claim may be brought is the Seller. According to non-seller

defendants, any claims against them are barred by the anti-reliance and non-

recourse provisions. The question the Court must decide is whether public policy

against fraud should override the parties’ contractual provisions as it pertains to

Buyer’s fraud claims against non-seller defendants.

       “Commentators and courts have generally understood Delaware law to

disregard non-recourse clauses where the parties purportedly insulated by those

clauses were complicit in contractual fraud.”12 “Because of Delaware’s strong

12
  Online HealthNow, Inc. v. CIP OCL Invs., LLC, 2021 WL 3557857, at *19 (Del. Ch.) (citing
Shenandoah Life Ins. Co. v. Valero Energy Corp., 1988 WL 63491, at *9 (Del. Ch.); Surf's Up
Legacy Partners, LLC v. Virgin Fest, LLC, 2021 WL 117036, at *11 (Del. Super.); LaSalle Nat.
                                             11
public policy against intentional fraud, a knowingly false contractual

representation can form the basis for a fraud claim, regardless of the degree to

which the agreement purports to disclaim or eliminate tort remedies.”13 Delaware

law disregards “non-recourse clauses where the parties purportedly insulated by

those clauses were complicit in contractual fraud.”14

       “The speaker who makes a false representation is, of course, accountable for

it.”15 “‘[A] corporate officer can be held personally liable for the torts he commits

and cannot shield himself behind a corporation when he is a participant.’”16 “‘[A]n

officer actively participating in the fraud cannot escape personal liability on the

ground that the officer was acting for the corporation.’”17

Bank v. Perelman, 141 F. Supp. 2d 451, 461 (D. Del. 2001); Geyer v. Ingersoll Publications Co.,
621 A.2d 784, 793 (Del. Ch. 1992); Mabon, Nugent & Co. v. Texas Am. Energy Corp., 1988 WL
5492, at *3 (Del. Ch.); Kling & Nugent § 15.02[2] n.31 (“Unless fraud is present, a court will
generally enforce the clear expression of the parties’ intent”)).
13
   Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 136–37 (Del. Ch. 2009).
14
   Online HealthNow, 2021 WL 3557857, at *19.
15
   Prairie Cap. III, L.P. v. Double E Holding Corp., 132 A.3d 35, 59 (Del. Ch. 2015) (citing
Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del.1983) (noting that the first element
of a common law fraud claim is “a false representation, usually one of fact, made by the
defendant”); accord Restatement (Second) of Torts § 525 (1977) (“One who fraudulently makes
a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or
to refrain from action in reliance upon it, is subject to liability . . . .”)).
16
   Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *12 (Del.
Ch.) (quoting Stonington Partners, Inc. v. Lernout & Houspie Speech Prods., N.V., 2002 WL
31439767, at *8 n. 27 (Del.Ch.)).
17
   Prairie Cap., 132 A.3d at 60 (quoting 3A William Meade Fletcher, Cyclopedia of the Law of
Corporations § 1135, at 273–76 (perm. ed., rev. vol. 2011)).
                                                12
                                    ABRY and its Progeny

       In ABRY, the buyer alleged that the seller and company management

manipulated financial statements to fraudulently induce the buyer to purchase the

company.18 The buyer sought rescission of the transaction.19 The agreement at

issue in ABRY did contain a non-recourse provision, even though the non-recourse

provision was not directly referenced in the case.20 The Court found that

Delaware’s public policy did not allow the Seller to insulate itself from fraud and

denied Seller’s motion to dismiss.21 The ABRY Court did not directly address the

impact of its holding on the remaining defendants also named in the fraud claim,

who were not signatories to the agreement.22 However, by denying the Seller’s

motion to dismiss, the Court “implicitly rejected the argument that a non-recourse

provision will operate to insulate a [non-signatory] party from liability when that

party facilitated the target’s lies.”23

18
   ABRY, 891 A.2d at 1038.
19
   Id. at 1040.
20
   ABRY, C.A. No. 1756-VCS, D.I. 15 (Tab 3, Part 4), § 11.10 (“Notwithstanding anything that
may be expressed or implied in this Agreement, the Acquiror agrees and acknowledge that no
recourse under this Agreement or any documents or instruments delivered in connection with
this Agreement shall be had against any current or future director, officer, employee, general or
limited partner of member of the Selling Stockholder or of any Affiliate or assignee thereof .... it
being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be
imposed on or otherwise be incurred by any current or future officer, agent or employee of the
Selling Stockholder ... for any obligation of the Selling Stockholder or of any Affiliate or
assignee thereof ... ”); see also Online HealthNow, 2021 WL 3557857, at *14.
21
   ABRY, 891 A.2d at 1064–65.
22
   See id. at 1036.
23
   Online HealthNow, 2021 WL 3557857, at *14.
                                                13
       The ABRY Court found that a seller may not “insulate itself from the

possibility that [a] sale would be rescinded if the [b]uyer can show either: 1) that

the [s]eller knew that the [c]ompany’s contractual representations and warranties

were false; or 2) that the [s]eller itself lied to the [b]uyer about a contractual

representation and warranty.”24 Other Delaware Courts “have endorsed ABRY’s

holding that a ‘seller can be liable for the false contractual representations of “the

company” if the buyer adequately pleads the seller’s knowledge of the company’s

misrepresentations.’”25

       In Express Scripts, Inc. v. Bracket Holdings Corp.,26 the Delaware Supreme

Court explained that an agreement which limited the buyer’s remedy for fraud was

enforceable because the agreement specifically did not insulate the seller from

“deliberate fraud.”27 “[A] contracting party cannot, as a matter of public policy,

‘limit . . . exposure for its own conscious participation in the communication of lies

to the Buyer . . . .’”28 Thus, the Delaware Supreme Court clarified that contracting

parties may not insulate themselves from deliberate, intentional fraud.29

24
   ABRY, 891 A.2d at 1064.
25
   Online HealthNow, 2021 WL 3557857, at *13 (quoting Aveanna, 2021 WL 3235739, at *16);
see also Prairie Cap. 132 A.3d at 61 (holding individual defendants “Fortin and Vancura can be
held liable for fraudulent contractual representations made by the Company because the
Counterclaim sufficiently alleges that they knew that the representations were false.”).
26
   248 A.3d 824 (Del. 2021).
27
   Id. at 831–32.
28
   Id. at 830 (quoting ABRY, 891 A.2d at 1061, 1064).
29
   Id.
                                              14
       The issue in the instant case is not whether the Seller may insulate itself (as a

contracting party) from fraud—it cannot—but whether the non-recourse provision

may insulate other participants in the transaction from fraud liability (i.e., non-

seller defendants). The ABRY court established that contracting parties may not

insulate themselves from fraud. The ABRY Court did not resolve whether other

participants in the transaction may be shielded from fraud liability through

contractual provisions.

               The EPA’s Non-Recourse and Anti-Reliance Provisions
                       Do Not Bar Plaintiff’s Fraud Claim

       In River Valley Ingredients, LLC v. American Proteins, Inc.,30 company

executives were included in the fraud claim.31 The Court found that it was

“reasonably conceivable” that the non-signatory parties were “connected to, and

liable for, the representations made in the APA.”32 However, the Court in that case

was not asked to consider whether the APA limited claims to contracting parties in

a non-recourse provision.

       In Prairie Capital III, L.P. v. Double E Holdings Corp.,33 the Court

concluded that it was “reasonably conceivable that [two corporate officers (one of

which was also a board member)] [could] be held liable for fraudulent contractual

30
   2021 WL 598539 (Del. Super.).
31
   Id. at *4.
32
   Id.
33
   132 A.3d 35 (Del. Ch. 2015).
                                          15
representations made by the Company because the Counterclaim sufficiently

allege[d] that they knew that the representations were false.”34 However, the Court

in this case also apparently was not asked to consider a contractual provision

limiting claims to contracting parties through a non-recourse provision.

      In Aveanna Healthcare, LLC v. Epic/Freedom, LLC,35 the Court addressed

contractual fraud.36 The parties agreed to provisions that excluded the buyer from

relying “on extra-contractual representations.”37 The provisions also “bar[red]

fraud claims premised on statements that [were] not expressly contained within the

[agreement].”38 The Court concluded the fraud claims were not barred by the

agreement’s anti-reliance language because the alleged fraud was based on intra-

contractual representations.39 The parties also agreed to a non-recourse provision

that specifically allowed for fraud claims against Affiliates.40 Even though the

Affiliate was not a party to the agreement, the fraud claim could proceed against

the Affiliate because the non-recourse provision did not exclude Affiliates.41

      In contrast, the non-recourse provision in the instant case does not

specifically allow for fraud claims against Affiliates. Instead, the non-recourse

34
   Id. at 61.
35
   2021 WL 3235739 (Del. Super.).
36
   Id. at *12–15.
37
   Id. at *14.
38
   Id. at *14.
39
   Id. at *15.
40
   Id. at *4.
41
   Id. at *24.
                                         16
provision in the instant case excludes Affiliates from liability. Therefore, Aveanna

is distinguishable.

       In Harland Clarke Holdings Corporation v. Milken,42 the Delaware District

Court found that a non-recourse clause prevented the plaintiff from bringing a

fraud claim against a non-recourse party.43 In that case, the non-recourse clause

explicitly stated that claims could only be brought against the Guarantor or the

Seller.44 Because the person at issue, Milken, was not the Guarantor or the Seller,

he was a non-recourse party and immune from suit for fraud.45 The Court granted

the motion for summary judgment.46

       However, the fraud claim in Harland was based on extra-contractual

representations.47 The instant case is based solely on intra-contractual

representations. The Harland Court indicated the importance of distinguishing

between extra-contractual fraud and intra-contractual fraud, stating: “Contracts

between sophisticated parties may include provisions insulating the parties from

‘fraud claims based on representations made outside of a merger agreement—

which can be disclaimed through non-reliance language.’”48 The Court then found

42
   2015 WL 12868204 (D. Del.), aff'd, 646 F. App’x 223 (3d Cir. 2016).
43
   Id. at *2.
44
   Id. at *1.
45
   Id. at *2.
46
   Id. at *4.
47
   Id. at *2, 3.
48
   Id. at *3 (quoting RAA Management, LLC v. Savage Sports Holdings, Inc., 45 A.3d 107, 116–
18 (Del. 2012)) (emphasis in original).
                                             17
the plaintiff’s extra-contractual claims not permissible because various contractual

provisions prohibited claims based on extra-contractual language.49

      The reasoning from Harland is not dispositive in the instant case because:

(1) the Harland Court relied on extra-contractual representations combined with

anti-reliance and non-recourse provisions; and (2) the decision was on summary

judgment, rather than at the motion to dismiss stage. Because Harland is a 2015

case, the District Court also did not have the benefit of more recent Delaware

opinions that instruct on interpreting these contractual provisions, like Online

HealthNow, Inc. v. CIP OCL Investments, LLC.50

      Online HealthNow is the case most factually like the instant case. In Online

HealthNow, the Court of Chancery addressed ABRY and whether anti-reliance and

non-recourse provisions worked together to bar a plaintiff’s intra-contractual fraud

claim.51 The non-recourse provision in Online HealthNow provided:

             [T]he [agreement] may only be enforced against “the
             Parties and their respective successors and permitted
             assigns”; claims arising out of the [agreement] may only
             be asserted against “the Persons that are expressly
             identified as Parties and their respective successors and
             permitted assigns”; and “no officer, director, partner,
             manager, equityholder, employee or Affiliate of any Party
             ... will have any liability or obligation with respect to [the
             agreement] or with respect to any claim or cause of action
             (whether in contract, tort or otherwise)” arising out of or

49
   Id.
50
   2021 WL 3557857 (Del. Ch.).
51
   Id. at *1, 11.
                                          18
               related to the [agreement] “(including a representation or
               warranty made in connection with [the agreement] or as
               an inducement to enter into [the agreement]).”52

       CIP OCL was the Seller as identified in the agreement.53 CIP Capital was a

private equity fund that “directly owned (in part) and controlled CIP OCL.”54

Plaintiffs argued “that it expressly relied on the allegedly fraudulent

misrepresentations made by CIP OCL [seller] and [that] ABRY Partners [did] not

permit CIP Capital to take cover behind a non-recourse provision if it knowingly

participated in the alleged contractual fraud.”55 Defendants countered “that CIP

Capital . . . [could not] be held liable for CIP OCL’s contractual representations

under the [agreement]’s non-recourse and anti-reliance clauses.”56 Delaware law

disregards “non-recourse clauses where the parties purportedly insulated by those

clauses were complicit in contractual fraud.”57 Even though the agreement dictated

that only CIP OCL (Seller) made any representations and warranties, “‘the scope

of a claim for contractual fraud [swept] more broadly[]’ to cover those who knew

that such representations were false.”58

52
   Id. at *5.
53
   Id. at *2.
54
   Id. at *3.
55
   Id. at *19.
56
   Id.
57
   Id.
58
   Id. at *13, 19 (quoting Prairie Cap., 132 A.3d at 60) (emphasis in original).
                                                19
       The Online HealthNow Court determined that the non-recourse provision in

the parties’ agreement did not bar the plaintiffs’ contractual fraud claim against a

non-signatory party.59 The plaintiff sufficiently pled that the non-signatory party

(CIP Capital) knew and facilitated fraudulent misrepresentations in the

agreement.60 CIP Capital, as a private equity fund that controlled the seller (CIP

OCL), was not insulated from the plaintiff’s fraud claim.61 Thus, a fraud claim

may be brought against a non-signatory party who is knowingly complicit in the

fraud, even though the combination of non-recourse and anti-reliance language in

the contract stipulates a fraud claim could not otherwise be brought.62

       The Court finds that Online HealthNow controls. The case precedent

ensures that contracting parties cannot insulate themselves from fraud.63 However,

Online HealthNow determined that non-contracting parties also may expose

themselves to fraud liability.64 Public policy against fraud may defeat anti-reliance

and non-recourse contractual language at the motion to dismiss stage in litigation,

if the plaintiff can adequately plead that a non-signatory party was knowingly

59
   Id. at *18–19.
60
   Id. at *20.
61
   Id.
62
   Online HealthNow also concluded the agreement’s survival clause did not bar the plaintiff’s
fraud claim. Id. at *18. The Court did not indicate that the survival clause in any way affected its
analysis concerning the non-recourse and anti-reliance provisions at issue.
63
   See Express Scripts, 248 A.3d at 830 (“[A] contracting party cannot, as a matter of public
policy, ‘limit . . . exposure for its own conscious participation in the communication of lies to the
Buyer . . . .” (quoting ABRY, 891 A.2d at 1061, 1064)).
64
   Online HealthNow, 2021 WL 3557857, at *20.
                                                 20
complicit when a contracting party made fraudulent representations in a contract.

Therefore, the fraud claims against non-seller defendants are not necessarily barred

by the non-recourse and anti-reliance language in the EPA.

                                     Fraud Allegations

       Buyer alleges: (1) fraudulent inducement against all Defendants; (2) aiding

and abetting fraud against non-seller defendants; and (3) civil conspiracy against

all Defendants.

       Superior Court Civil Rule 9(b) requires that fraud claims satisfy a

heightened pleading standard. “In all averments of fraud . . . the circumstances

constituting fraud . . . shall be stated with particularity. Malice, intent, knowledge

and other condition of mind of a person may be averred generally.”65

              The factual circumstances that must be stated with
              particularity refer to 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.
              Although Rule 9(b) provides that “knowledge ... may be
              averred generally,” where pleading a claim of fraud has at
              its core the charge that the defendant knew something,
              there must, at least, be sufficient well-pled facts from
              which it can reasonably be inferred that this “something”
              was knowable and that the defendant was in a position to
              know it.66

65
  Del. Super. Ct. Civ. R. 9(b).
66
  Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 208 (Del. Ch. 2006), aff’d
sub nom. Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438 (Del. 2007).
                                              21
        “‘Essentially, . . . the plaintiff must allege circumstances sufficient to apprise

the defendant of the basis of the claim.’”67

                             Fraudulent Inducement Claim

        A fraudulent inducement claim requires that the following elements be well-

pled:

              (i) a false representation, usually one of fact, made by the
              defendant;
              (ii) the defendant's knowledge or belief that the
              representation was false, or was made with reckless
              indifference to the truth;
              (iii) an intent to induce the plaintiff to act or to refrain
              from acting;
              (iv) the plaintiff’s action or inaction taken in justifiable
              reliance upon the representation; and
              (v) damage to the plaintiff as a result of such reliance.68

        Buyer alleges that Sections 4.23, 4.5(b)(ii) and 3.7 of the EPA were false

intra-contractual representations made to induce Buyer to execute the EPA.

Section 4.23 of the EPA represents the following:

              No Material Vendor has cancelled, terminated or
              materially diminished its business relationship with the
              applicable Acquired Company or notified the applicable
              Acquired Company in writing (or, to the Knowledge of the
              applicable Acquired Company, orally) of its intent to
              cancel, terminate or materially diminish its business
              relationship with the applicable Acquired Company,
              including the material modification of any terms (whether

67
   Aveanna, 2021 WL 3235739, at *22 (quoting H–M Wexford LLC v. Encorp, Inc., 832 A.2d
129, 145 (Del. Ch. 2003)).
68
   Id. at *21.

                                            22
             related to the payment, price, quantity or otherwise) or its
             relationship in an adverse manner.

      Section 4.5(b)(ii) represents that there had been no Company Material

Adverse Changes occurring between December 31, 2020 and the Closing.

      Section 3.7(iii) of the EPA represents:

             [T]o the Seller’s Knowledge, no other party to any such
             Seller Business Contract is in material breach or material
             default of such Seller Business Contract. No party to any
             Seller Business Contract has disputed, renegotiated,
             modified, canceled, failed to renew, renewed on materially
             different terms, terminated, or, to the Seller’s Knowledge,
             threatened to dispute, renegotiate, modify, cancel, fail to
             renew, renew on materially different terms, or terminate
             any such Seller Business Contract.

      Buyer argues: (1) the LSC Letter constitutes notice from a Material Vendor

that it intends to cancel, terminate, or materially diminish its business relationship

with the Acquired Companies under Section 4.23; (2) the operational and financial

impacts of LSC’s alteration of its business relationship with the Acquired

Companies also constitute a Company Material Adverse Change under Section

4.5(b)(ii); and (3) the invocation of the Force Majeure provision and planned

reduction of circulation described in the LSC Letter constitutes a cancellation or

modification of a Seller Business Contract under Section 3.7.

      The LSC Letter refers to labor shortages that would result in circulation

reductions, schedule delays, and additional incremental charges estimated to be

$225,672.12. LSC was one of the Acquired Companies’ primary vendors used for
                                          23
printing catalogs. Because it is alleged that approximately 88% of the Acquired

Companies’ revenue comes from catalog sales, a reduction in printing services was

a major concern for Buyer. Therefore, a failure to disclose the LSC Letter

allegedly would have constituted a deliberate false representation and failure to

disclose.

      Buyer alleges that Ethier and Bradshaw—and by extension, Seller—received

the LSC Letter via email on September 24, 2021. Buyer also argues that it can

reasonably be inferred that Prudential and Szejner were in a position to know about

the LSC Letter.

      Non-seller defendants rely on the fraudulent reliance claims being barred by

the non-recourse and anti-reliance provisions as the basis for their motion to

dismiss. The non-seller defendants and Seller also argue the fraudulent

inducement claim fails for failure to plead separate fraud damages from the

indemnification claim.

      The Court previously has found that the non-recourse and anti-reliance

provisions do not bar Buyer’s claims against non-seller defendants.

      Buyer Met Pleading Standard for Fraudulent Inducement Concerning
               Prudential, Szejner, Seller, Ethier, and Bradshaw

      The First Amended Complaint alleges (1) that Seller, Ethier, and Bradshaw,

Szejner, and Prudential made a false representation to Buyer concerning the LSC

Letter; and (2) that Ethier and Bradshaw received the LSC Letter via email on
                                         24
September 24, 2021, three weeks before Closing the transaction. Because Seller,

Ethier, and Bradshaw allegedly received the letter, Buyer has met the “knowledge”

pleading requirement concerning Seller, Ethier, and Bradshaw.

       The complaint contains no allegations regarding Prudential and Szejner’s

actual knowledge of the LSC Letter. Actual knowledge and deliberate

misrepresentation distinguish contractual breach of representation and warranty

claims from deliberate fraud claims. The Buyer did not allege that Prudential and

Szejner had been copied on the email containing the LSC Letter, nor that

Prudential and Szejner had obtained knowledge of the LSC Letter in another

manner.

       Although Buyer may plead knowledge generally, additional factual

allegations are required for fraud.69 Buyer alleged that Szejner—and therefore

Prudential because Szejner was acting in his capacity as Managing Director70—

was the “main driver” of the transaction, was at the forefront of all negotiations,

was the primary member of the Project Dispatch Working Group, and directed

69
   ABRY, 891 A.2d at 1050 (“While knowledge may be pled generally, when a plaintiff pleads a
claim of fraud that charges that the defendants knew something, it must allege sufficient facts
from which it can reasonably be inferred that this ‘something’ was knowable and that the
defendants were in a position to know it.”).
70
   Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *12 (Del.
Ch.) (quoting Stonington Partners, Inc. v. Lernout & Houspie Speech Prods., N.V., 2002 WL
31439767, at *8 n.27 (Del.Ch.)); see also Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3d
Cir. 1978) (“A corporate officer is individually liable for the torts [s]he personally commits and
cannot shield h[er]self behind a corporation when [s]he is an actual participant in the tort.”).
                                                25
negotiations and drafts. Buyer also has alleged that Ethier and/or Bradshaw

provided the LSC Letter to Szejner and discussed the LSC Letter’s potential to

derail the transaction. Based on these alleged facts, the Court reasonably can infer

(for pleading purposes) that the LSC Letter was “knowable” to Szejner and

Prudential. It is reasonable to infer that Szejner and Prudential also were in a

position to know about the LSC Letter’s existence at the time of the alleged

misrepresentations because of their position in the Project Dispatch Working

Group. Buyer is only required to put Szejner and Prudential on notice as to the

basis of their claim. Thus, Buyer also met the “knowledge” pleading requirement

in this case concerning Szejner and Prudential.

       The representations concerning material vendors were in the EPA and

therefore intended to induce the buyer to close the sale of the company.71 As stated

in the EPA, Buyer relied on the representations from the EPA in moving forward

with the Closing of the transaction. Thus, Buyer has satisfied the particularity

standard in pleading the first four fraudulent inducement elements.

71
  See ABRY, 891 A.2d at 1051 (“These financial statements were represented and warranted in
the Agreement and were therefore intended to induce the Buyer to sign the Agreement and close
the sale to purchase the Company.”).
                                             26
       The last element of a fraudulent inducement claim that Buyer must plead is

damages.72 The fraud claims track and duplicate the breach of contract allegations.

The fraud claims are repackaged breach of representation and warranty claims.

              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. . . . However, the
              same circumstances may give rise to both breach of
              contract and tort claims if the plaintiff asserts that the
              alleged contractual breach was accompanied by the breach
              of an independent duty imposed by law.73

       “Under Delaware’s pleading standard, a plaintiff’s fraud claim ‘may not

simply “rehash” the damages allegedly caused by the breach of contract.’”74

“[T]he relevant question is whether fraudulent inducement resulted in the plaintiff

sustaining or incurring different damages from those of its breach of contract

claim.”75 One way to cure a pleading alleging the same damages for fraudulent

inducement that are alleged for breach of contract is to plead the claims in the

alternative to one another.76

72
   Cornell Glasgow, LLC v. La Grange Properties, LLC, 2012 WL 2106945, at *8 (Del. Super.).
73
   Data Mgmt. Internationale, Inc. v. Saraga, 2007 WL 2142848, at *3 (Del. Super.).
74
   Khushaim v. Tullow Inc., 2016 WL 3594752, at *6 (Del. Super.) (quoting ITW Glob. Invs. Inc.
v. Am. Indus. Partners Capital Fund IV, L.P., 2015 WL 3970908, at *5 (Del.Super.)).
75
   Firmenich Inc. v. Nat. Flavors, Inc., 2020 WL 1816191, at *9 (Del. Super.), cert. denied, 2020
WL 2193285 (Del. Super.), and appeal refused, 230 A.3d 901 (Del. 2020).
76
   Ashland LLC v. Samuel J. Heyman 1981 Continuing Tr. for Heyman, 2018 WL 3084975, at
*14–15 (Del. Super.) (explaining that Ashland’s fraudulent inducement claim, pleaded in the
alternative, is not inconsistent with the contractual allegations, and that claims pleaded in the
alternative are not duplicative because they will never “co-exist at final judgment”); Firmenich,
2020 WL 1816191, at *9 (“[D]uplicative damages will not bar parallel breach of contract and
fraud in the inducement claims if the claims are pled in the alternative.” (citing Ashland, 2018
WL 3084975, at *14–15)).
                                               27
      The Court finds that Buyer’s alleged damages for fraudulent inducement and

breach of contract are not subject to dismissal as duplicative, because they are pled

in the alternative. At this stage of litigation the two claims may co-exist. The

Court finds the fraudulent inducement claim against Seller, Ethier, Bradshaw,

Prudential, and Szejner was pled with sufficient particularity under Superior Court

Civil Rule 9(b).

                              Aiding and Abetting Fraud

      A claim for aiding and abetting fraud must establish the following elements:

“(i) underlying tortious conduct[;] (ii) knowledge[;] and (iii) substantial

assistance.”77 “Like the pleading requirements for fraud, the knowledge element of

an aiding and abetting claim under Delaware law can be averred generally.”78 It

requires that the plaintiff plead facts from which it reasonably can be inferred that

the defendants knew or were in a position to know of the underlying tortious

conduct.79 To show substantial assistance, “the secondary actor must have

provided ‘assistance . . . or participation’ in aid of the primary actor’s allegedly

unlawful acts.”80

77
   Agspring Holdco, LLC v. NGP X US Holdings, L.P., 2020 WL 4355555, at *20 (Del. Ch.)
(quoting PR Acqs., LLC v. Midland Funding LLC, 2018 WL 2041521, at *15 (Del. Ch.)).
78
   Id.
79
   Id.
80
   In re Oracle Corp. Derivative Litig., 2020 WL 3410745, at *11 (Del. Ch.) (quoting
Restatement (Second) of Torts § 876 cmt. d (1979)).
                                           28
       Bradshaw and Ethier argue that the aiding and abetting fraud claims should

be dismissed pursuant to the non-recourse provision and because of the lack of an

actionable underlying tort. Prudential and Szejner similarly argue the fraud claim

should be dismissed because of the lack of an actionable tort.

       The Court previously has found that the non-recourse provision does not bar

claims for fraud under the circumstances presented in this case. The underlying

tort of fraudulent inducement also was properly pled.

       Bradshaw and Ethier also argue that the intra-corporate conspiracy doctrine

bars their claim for aiding and abetting. “[O]fficers and agents cannot aid and abet

their principal or each other in the commission of a tort.”81 Buyer alleges that

Bradshaw, Ethier, Prudential, and Szejner all aided and abetted Seller. The intra-

corporate conspiracy doctrine would apply to Bradshaw and Ethier—as officers of

Seller. The intra-corporate conspiracy doctrine does not apply to Prudential and

Szejner because Prudential and Szejner are not officers or agents of Seller.

       Buyer alleges that Szejner—and therefore Prudential because Szejner was

acting in his capacity as Managing Director82—was the “main driver” of the

transaction, was at the forefront of all negotiations, was the primary member of the

81
  Cornell Glasgow, 2012 WL 2106945, at *11.
82
  Bay Ctr. Apartments Owner, 2009 WL 1124451, at *12 (quoting Stonington Partners, Inc. v.
Lernout & Houspie Speech Prods., N.V., 2002 WL 31439767, at *8 n.27 (Del.Ch.)); see also
Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3d Cir. 1978) (“A corporate officer is
individually liable for the torts [s]he personally commits and cannot shield h[er]self behind a
corporation when [s]he is an actual participant in the tort.”).
                                               29
Project Dispatch Working Group, and directed negotiations and drafts. Buyer has

also alleged that Ethier and/or Bradshaw provided the LSC Letter to Szejner and

discussed the LSC Letter’s potential to derail the transaction.

          Based on these alleged facts, the Court reasonably can infer that the LSC

Letter was “knowable” to Szejner and Prudential. For pleading purposes, it is

reasonable to infer that Szejner and Prudential also were in a position to know

about the LSC Letter’s existence at the time of the alleged misrepresentations. It is

also reasonable to infer that Prudential and Szejner participated and aided Seller

through the Project Dispatch Working Group in the alleged fraudulent inducement.

          The Court finds the aiding and abetting claim must be dismissed as to

Bradshaw and Ethier on the basis of the intra-corporate conspiracy doctrine. The

Court finds that the motion to dismiss the aiding and abetting fraud claim must be

denied as to Prudential and Szejner.

                       Civil Conspiracy to Fraudulently Induce Buyer

          “The elements for civil conspiracy under Delaware law are: (i) a

confederation or combination of two or more persons; (ii) an unlawful act done in

furtherance of the conspiracy; and (iii) damages resulting from the action of the

conspiracy parties.”83 “Since conspiracy requires an agreement or understanding

to commit a wrong against another, its commission necessarily ‘involves some

83
     Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *10 (Del. Ch.).
                                                30
mutual mental action coupled with an intent to commit the act which results in the

injury.’”84 “Plaintiffs do not need to prove the existence of an explicit agreement;

a conspiracy can be inferred from the pled behavior of the alleged conspirators.”85

All that is needed to survive a motion to dismiss is a reasonable inference that each

member was part of the conspiracy.86

        Seller, Bradshaw, Ethier, Szejner, and Prudential again rely on the fact that

an underlying tort was not properly pled, thus the civil conspiracy claim should be

dismissed. The Court previously has found that Buyer properly pled an underlying

tort.

        Prudential and Szejner also argue that Buyer failed to allege that Prudential

and Szejner entered an agreement to cooperate. It can reasonably be inferred from

the alleged facts that Szejner and Prudential were part of the alleged conspiracy.

Buyer alleged that Szejner—and therefore Prudential because Szejner was acting

in his capacity as Managing Director87—was the “main driver” of the transaction,

was at the forefront of all negotiations, was the primary member of the Project

84
   Anderson v. Airco, Inc., 2004 WL 2827887, at *4 (Del. Super.).
85
   In re Am. Int'l Grp., Inc., 965 A.2d 763, 806 (Del. Ch. 2009), aff'd sub nom. Teachers' Ret.
Sys. of Louisiana v. PricewaterhouseCoopers LLP, 11 A.3d 228 (Del. 2011) (citing Empire Fin.
Servs., Inc. v. Bank of N.Y., 900 A.2d 92, 97 n.16 (Del.2006)).
86
   Id.
87
   Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *12 (Del.
Ch.) (quoting Stonington Partners, Inc. v. Lernout & Houspie Speech Prods., N.V., 2002 WL
31439767, at *8 n. 27 (Del.Ch.)); see also Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3d
Cir. 1978) (“A corporate officer is individually liable for the torts [s]he personally commits and
cannot shield h[er]self behind a corporation when [s]he is an actual participant in the tort.”).
                                                31
Dispatch Working Group, and directed negotiations and drafts. Buyer has also

alleged that Ethier and/or Bradshaw provided the LSC Letter to Szejner and

discussed the LSC Letter’s potential to derail the transaction. Buyer alleged that

“Szejner told Ethier to tell the other executives, including Wurl, Zielecki and

Bradshaw, that he (i.e. Szejner) wanted them to ‘show confidence in q4,’ to

‘manage expectations around y/e ebitda,’ and warned them that ‘Hedging now is

premature and will erode confidence.’” These combined facts create a reasonable

inference that Prudential, Szejner, Bradshaw, Ethier, and Seller formed an

agreement to cooperate in the alleged fraudulent inducement.88

       Therefore, the Court finds that the underlying tort of fraudulent inducement

would meet the second pleading requirements for civil conspiracy.

       However, the last element that Buyers must plead for civil conspiracy is

damages. Buyer alleges the same damages for civil conspiracy that it alleges for

fraudulent inducement and breach of contract. It does not delineate separate

damages specifically ascribed to the alleged conspiracy. Therefore, the Court finds

88
  Unlike the aiding and abetting claim, the intra-corporate conspiracy doctrine does not bar this
claim. The pleading for the aiding and abetting claim specifically stated that Prudential, Szejner,
Bradshaw, and Ethier aided and abetted Seller. The civil conspiracy allegations state that Seller,
Prudential, Szejner, and Ethier entered into a confederation or combination to fraudulently
induce Buyer. This permits those who are not protected by the intra-corporate conspiracy
doctrine (Prudential and Szejner) to conspire with those who are protected (Seller, Ethier, and
Bradshaw). Thus, while Bradshaw and Ethier cannot conspire with Seller, Prudential and
Szejner may form an agreement to conspire with Bradshaw and Ethier—and Seller may form an
agreement to conspire with Prudential and Szejner.
                                                32
these alleged damages are impermissibly duplicative.89 Without satisfying the

damages pleading requirement for civil conspiracy, the claim must be dismissed.

             Indemnification for Breach of Representations and Warranties

          Section 6.3(a) of the EPA states that a party first must seek recovery from

the Warranty Insurance Policy before seeking indemnity from the seller. Under

Section 6.3(g), a party may seek indemnification for claims based on fraud without

first seeking recovery from the Warranty Insurance Policy. Section 6.3(g) of the

EPA states:

                 As between the Parties and any Indemnified Person and
                 Indemnifying Person, the sole source to satisfy any and
                 all indemnification claims of the Buyer or any
                 Indemnified Person pursuant to Section 6.1(b) herein
                 shall be under the Warranty Insurance Policy, except for
                 (i) such indemnification claims based on Fraud . . . .

The indemnification claim for breach of representations and warranties is based on

the allegations from the fraudulent inducement claim, and is pled in the alternative

to the fraudulent inducement claim. The Court previously has found that the

fraudulent inducement claim may proceed. Therefore, the Court finds that Section

6.3(g) of the EPA allows Buyer to bring an indemnification claim without first

pursuing a claim under the Warranty Insurance Policy.

89
     Defendants did not raise the damages argument concerning civil conspiracy.
                                                33
                                  CONCLUSION

      The Court finds that public policy considerations against fraud may defeat

anti-reliance and non-recourse contractual language at the motion to dismiss stage

in litigation, if the plaintiff can adequately plead that a non-signatory party was

knowingly complicit when a contracting party made fraudulent representations in a

contract. Therefore, the fraud claims against non-seller defendants are not

necessarily barred by the non-recourse and anti-reliance language in the EPA.

      The Court finds that Buyer’s alleged damages for fraudulent inducement and

breach of contract are not subject to dismissal as duplicative, because they are pled

in the alternative. At this stage of litigation, the two claims may co-exist. The

Court finds that the fraudulent inducement claim against Seller, Ethier, Bradshaw,

Prudential, and Szejner was pled with sufficient particularity under Superior Court

Civil Rule 9(b).

      The Court finds the aiding and abetting claim must be dismissed as to

Bradshaw and Ethier on the basis of the intra-corporate conspiracy doctrine. The

Court finds that the motion to dismiss the aiding and abetting fraud claim must be

denied as to Prudential and Szejner.

      The Court finds that the civil conspiracy claim must be dismissed for failure

to properly plead non-duplicative damages.

                                          34
      The Court finds that Section 6.3(g) of the EPA allows Buyer to bring an

indemnification claim on the basis of fraud, without first pursuing a claim under

the Warranty Insurance Policy.

      THEREFORE, Amerimark Holdings, LLC, Marcus Bradshaw, and Mark

Ethier’s Motion to Dismiss is hereby GRANTED IN PART AND DENIED IN

PART. Prudential Capital Partners II, L.P. and Stephen Szezner’s Motion to

Dismiss is hereby GRANTED IN PART AND DENIED IN PART.

      IT IS SO ORDERED.

                                                  /s/ Mary M. Johnston
                                             The Honorable Mary M. Johnston

                                        35