Court Opinion

ID: 9962090
Source: CourtListenerOpinion
Date Created: 2024-04-22 18:02:21.604608+00
Date Added: 2024-06-11T08:19:49.692133
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

RAMCO ASSET MANAGEMENT,                  )
LLC, US TRADING COMPANY                  )
METALS RE, LLC, and DINSHA               )
DYNASTY TRUST,                           )
                                         )
                  Plaintiffs,            )
                                         )
      v.                                 ) C.A. No. 2022-0665-SG
                                         )
USA RARE EARTH, LLC, MORZEV              )
PTY LTD., MORDECHAI GUTNICK              )
ATF THE MORZEV TRUST,                    )
MORDECHAI GUTNICK, and PINI              )
ALTHAUS,                                 )
                                         )
                  Defendants.            )

                        MEMORANDUM OPINION

                       Date Submitted: January 5, 2024
                        Date Decided: April 22, 2024

David A. Felice, BAILEY & GLASSER, LLP, Wilmington, Delaware; OF
COUNSEL: Andrew St. Laurent, HARRIS ST. LAURENT & WECHSLER LLP,
New York, New York, Attorneys for Plaintiffs Ramco Asset Management, LLC, US
Trading Company Metals Re, LLC, and the DinSha Dynasty Trust.

John M. Seaman and E. Wade Houston, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; OF COUNSEL: Chelsea Corey, KING & SPALDING LLP, Charlotte,
North Carolina, Attorneys for Defendant USA Rare Earth, LLC.

Carl D. Neff, PIERSON FERDINAND LLP, Wilmington, Delaware; OF
COUNSEL: Aurora Cassirer and Christina H. Bost Seaton, FISHERBROYLES,
LLP, New York, New York, Attorneys for Defendant Pini Althaus.

Karen E. Keller, Andrew E. Russell, and Nathan R. Hoeschen, SHAW KELLER
LLP, Wilmington, Delaware; OF COUNSEL: Justin L. Ormand, ALLEN &
OVERY, New York, New York; Patrick W. Pearsall, ALLEN & OVERY,
Washington, D.C., Attorneys for Defendants Mordechai Gutnick ATF the Morzev
Trust, Morzev Pty Ltd., and Mordechai Gutnick.

GLASSCOCK, Vice Chancellor
       The simplicity of the facts of this Memorandum Opinion is matched by its

surprising legal complexity, arising in part from the large number of jurisdictions

whose law does, or plausibly could, apply. Factually, Plaintiffs are former members

of an Australian LLC, Morzev PTY Ltd., whose principals proposed reorganizing as

a Delaware LLC, USARE, ostensibly to better participate in the U.S. capital markets.

According to the Amended Complaint, the Plaintiffs were promised that if they

consented to exchange their interests in Morzev for interests in USARE, they would

be given the same ownership percentage in the latter as the former. Instead, their

interests were diluted. Plaintiffs, accordingly, have stated a smorgasbord of claims;1

what follows is a partial motion to dismiss in which the individual dishes are

digested, under Rule 12(b)(6).

                                     I. BACKGROUND

       A. Factual Background

               1. The Parties

       Plaintiff Ramco Asset Management, LLC (“Ramco”) is a New Jersey limited

liability company.2 Ramco is a Member of USA Rare Earth, LLC (“USARE” or the

“Company”).3

1
  The most pertinent of these claims, perhaps, were against Morzev and its principal, and related
entites—those claims await vindication, if at all, in another jurisdiction; in an earlier Memorandum
Opinion in this matter, I found that this court lacked jurisdiction over those parties.
2
  Am. Verified Compl. for Breach of Contract and Breach of Fiduciary Duties ¶ 5, Dkt. No. 29
(“Am. Compl.”).
3
  Id.
                                                 1
        Plaintiff US Trading Company Metals RE, LLC (“US Trading Company”) is

a Delaware limited liability company, with its headquarters in New York. 4 US

Trading Company is a Member of USARE.5

        Plaintiff DinSha Dynasty Trust (“DinSha,” and together with Ramco and US

Trading Company, the “Plaintiffs”) is a trust organized under the laws of New

Jersey.6 DinSha is a Member of USARE.7

        Defendant USARE is a limited liability company organized under the laws of

Delaware.8

        Defendant Mordechai Gutnick is a Manager of USARE and is the largest

current holder of USARE Class A shares through entities that he controls.9 Gutnick

is also a Member of USARE through Vested Incentive Units he holds.10 Gutnick is

a resident of the state of New York.11

        Former defendant Morzev PTY Ltd. (“Morzev”) is an Australian limited

liability company.12 Gutnick was a director of Morzev.13

4
  Id. ¶ 6.
5
  Id.
6
  Id.¶ 7.
7
  Id.
8
  Id. ¶ 8.
9
  Id. ¶ 11.
10
   Id.
11
   Id.
12
   Id. ¶ 9.
13
   Id.
                                         2
       Former defendant the Mordechai Gutnick ATF the Morzev Trust (the “ATF

Morzev Trust,” and together with Gutnick and Morzev, the “Morzev Defendants”)

is a trust organized under the laws of Australia.14

       Defendant Pini Althaus was the chief executive officer of USARE from 2019–

2021 and is a former Manager of the Company.15 Althaus is a Member of USARE

through Vested Incentive Unites that he holds.16 Althaus is a resident of New York.17

               2. Plaintiffs Invest

       Gutnick founded Morzev on March 6, 2015.18 Morzev’s primary asset was

the option to acquire up to 80% of the Round Top heavy rare-earth and critical

minerals project in Hudspeth County, Texas (the “Round Top Option”).19 Ramco

invested in Morzev through the purchase of convertible notes;20 DinSha and US

Trading Company invested in Morzev by purchasing shares in the entity.21

               3. Gutnick Transfers Morzev’s Assets to USARE

       In 2019, Gutnick decided to transfer the assets and liabilities of Morzev to a

U.S.-based entity to increase the availability of U.S.-based capital to exploit

14
   Id. ¶ 10.
15
   Id. ¶ 12.
16
   Id.
17
   Id.
18
   Id. ¶ 18.
19
   Id.
20
   Id. ¶ 19.
21
   Id. ¶¶ 20–21.
                                          3
Morzev’s primary asset, the Round Top Option.22 On May 6, 2019, Althaus formed

USARE as a Delaware limited liability company.23 Gutnick then transferred the

Round Top Option on August 23, 2019, when USARE entered into the Amended

and Restated Round Top Option Agreement.24 Under the Amended and Restated

Round Top Option Agreement, USARE was given the rights to the Round Top

Option on the same terms as Morzev to acquire interests in the Round Top heavy

rare-earth and critical minerals project.25

               4. Plaintiffs Transfer Their Interests from Morzev to USARE

        From March to May 2019, Gutnick spoke with Stewart Kleiner, Ramco’s

principal and DinSha’s grantor, regarding the potential for Ramco and DinSha to

transfer their interests in Morzev to the new U.S.-based entity, USARE.26 Gutnick

had similar conversations with Steven Rosenfeld, the principal of US Trading

Company.27

                     a. The 2019 Memo

        Kleiner memorialized his understanding of his conversations with Gutnick in

a writing he sent to Gutnick in May 2019 (the “2019 Memo”).28 Before turning to

22
   Id. ¶ 22.
23
   Id. ¶ 23.
24
   Id. ¶ 25.
25
   Id.
26
   Id. ¶ 28.
27
   Id. ¶ 29.
28
   Id. ¶ 31.
                                              4
the substance of the conversations, Kleiner wrote that “[u]ntil more formal

documentation should occur, if at all, [the 2019 Memo] shall serve as our

Understanding and Agreement Re [sic] the Following.”29 The 2019 Memo, as

drafted by Kleiner, stated that Ramco owned 14.29% interest in Morzev, or

20,7777,000 shares.30 With respect to DinSha, the 2019 Memo stated DinSha owned

2.143% interest in Morzev.31 In explaining how the Morzev interests would be

transferred to USARE, the 2019 Memo states that USARE would deliver Ramco and

DinSha’s shares in USARE “within two weeks’ time” after those shares in “Morzev

Pty Ltd, the Australian company” were “translated / transcribed / transferred into

valid U.S. shares . . . of Morzev LLC / d.b.a. USA Rare Earth, the United States of

America company.”32 The 2019 Memo concluded by stating: “Assuming the above

is in accordance with our understanding Please [sic] make two copies of this

agreement, sign both of them and overnight them both to me.”33

       Gutnick returned a copy of the 2019 Memo to Kleiner that included several

handwritten edits.34 Specifically, Gutnick wrote by Ramco’s asserted 14.29%

29
   Am. Compl., Ex. B, Dkt. No. 29 (the “2019 Memo”).
30
   Am. Compl. ¶ 35 (citing 2019 Memo).
31
   Id. ¶ 44, (citing the 2019 Memo).
32
   2019 Memo at 1.
33
   Id. at 2.
34
   See id. While the Amended Complaint alleges that the 2019 Memo is an agreement that includes
specific percentages of equity interest in USARE to be issued to Ramco and DinSha, the
incorporation by references doctrine allows the Court to review the documents relied upon in the
complaint to ensure that the statements are accurately represented. See Lebanon Cnty. Emps.’ Ret.
Fund v. Collis, 287 A.3d 1160, 1181 (Del. Ch. 2022). Accordingly, I have reviewed the 2019
                                               5
interest and DinSha’s asserted 2.143% interest in Morzev that he was “not sure exact

percentages.”35 Gutnick also edited the timing of when the USARE certificates

would be delivered to DinSha by scratching through “within” and penciling in

“approximately 2 weeks.”36 While the 2019 Memo defined “Morzev” as “Morzev

Pty Ltd / Morzev LLC / d.b.a. USA Rare Earth,” Gutnick wrote above his signature

that he was signing on behalf of “Morzev Pty Ltd.”37

                     b. Plaintiffs’ Respective Conversion Agreements

       Months later, the parties entered into agreements under which each plaintiff’s

interest in Morzev were to convert to interests in USARE. On July 29, 2019,

USARE, Morzev, and Ramco signed an agreement (the “Ramco Conversion

Agreement”) whereby USARE agreed to adopt and endorse the term sheets for the

convertible notes that Ramco had entered into with Morzev.38 Under the Ramco

Conversion Agreement, Ramco agreed to convert its convertible notes in Morzev

into 21,123,677 shares of USARE.39 The Ramco Conversion Agreement provides

that “[t]his Letter is governed by the laws in force from time to time in New Jersey,

USA.”40

Memo and find it is necessary to include this paragraph of facts in my opinion to accurately
represent the contents of the 2019 Memo.
35
   See 2019 Memo at 1.
36
   Id.
37
   Id. at 2.
38
   Am. Compl. ¶ 36.
39
   Id.
40
   Am. Compl., Ex. C at 2, Dkt. No. 29 (the “Ramco Conversion Agreement”).
                                             6
       DinSha entered into a similar agreement with Morzev to transfer DinSha’s

shares in Morzev to shares in USARE on July 25, 2019 (the “DinSha Conversion

Agreement”).41 Under the terms of the DinSha Conversion Agreement, the parties

thereto agreed that, in exchange for transferring its’ Morzev shares, DinSha was to

“be issued fully paid ordinary shares in the capital of [USARE] on a one for one

(1:1) basis.”42 While the DinSha Conversion Agreement specifies that DinSha

“currently holds 3,116,608 [s]hares” in Morzev,43 DinSha acquired more shares in

Morzev and held 3,562,898 shares when it entered into the DinSha Conversion

Agreement.44 The DinSha Conversion Agreement provides that “[t]his Letter is

governed by the laws in force from time to time in Western Australia.”45

       On July 22, 2019, US Trading Company executed the agreement under which

it would transfer its Morzev interest (the “US Trading Company Conversion

Agreement”).46      Under the terms of the US Trading Company Conversion

Agreement, US Trading Company agreed to transfer its shares of Morzev in

exchange for “fully paid ordinary shares in the Capital of [USARE] on a one for one

(1:1) basis.”47 The US Trading Company Conversion Agreement provided that, as

41
   Am. Compl. ¶ 45.
42
   Id. ¶ 36 (quoting Am. Compl., Ex. D at 1, Dkt. No. 29 (the “DinSha Conversion Agreement”)).
43
   DinSha Conversion Agreement at 1.
44
   Am. Compl. ¶ 47.
45
   DinSha Conversion Agreement at 2.
46
   Am. Compl. ¶ 48.
47
   Id. ¶ 49 (quoting Am. Compl., Ex. E at 1, Dkt. No. 29 (the “US Trading Company Conversion
Agreement”)).
                                              7
of the date of the agreement, US Trading Company held 23,178,571 shares in

Morzev.48

      B. Procedural History

      Plaintiffs initiated this action on July 29, 2022.49     On November 4, 2023,

Plaintiffs filed the operative complaint in this action (the “Amended Complaint”).50

The Amended Complaint asserted fourteen causes of action against five

defendants.51 On October 20, 2023, I issued a memorandum opinion addressing

whether this Court has personal jurisdiction over certain defendants.52 In Ramco I,

I dismissed all counts brought against Morzev and ATF Morzev Trust because this

Court lacks personal jurisdiction over those defendants.53 Similarly, with respect to

Gutnick, I dismissed Counts I–VI and IX–XIV for lack of personal jurisdiction.54

However, I denied Althaus’s motion for dismissal for lack of personal jurisdiction.55

As a result of the holding in Ramco I, I cannot adjudicate Plaintiffs’ claims asserted

solely against the Morzev Defendants. Those claims are Count III for breach of the

DinSha Conversion Agreement; Count IV for breach of the implied covenant

48
   US Trading Company Conversion Agreement at 1.
49
   See Verified Compl. for Breach of Contract and Breach of Fiduciary Duties, Dkt. No. 1.
50
   See Am. Compl.
51
   See id. ¶¶ 61–158.
52
   See Ramco Asset Mgmt., LLC v. USA Rare Earth, LLC, 2023 WL 6939263 (Del. Ch. Oct. 20,
2023) (“Ramco I”).
53
   Id. at *7.
54
   Id.
55
   Id. at *4.
                                           8
inhering in the DinSha Conversion Agreement; Count V for breach of the US

Trading Company Conversion Agreement; and Count VI for breach of the implied

covenant inhering in the US Trading Company Conversion Agreement.56

       Ramco I did not address Gutnick and Althaus’s motions to dismiss on forum

non conveniens grounds and all defendants’ motion to dismiss under Rule 12(b)(6).57

On November 15, 2023, Gutnick and Althaus informed the Court that the issue of

forum non conveniens did not need to be reached at this time.58 The parties submitted

supplemental filings, as requested by the Court, regarding choice of law issues

inhering in Counts IX–XII on January 5, 2024.59 I consider the motions to dismiss

fully submitted as of that date.

                                        II. ANALYSIS

       Before me currently are motions brought by USARE, Althaus, and Gutnick to

dismiss the remaining counts of the Amended Complaint under Rule 12(b)(6). The

remaining counts are as follows: Count I for breach of contract against USARE

based on the 2019 Memo and the Ramco Conversion Agreement; Count II for breach

of the implied covenant inhering in the 2019 Memo and the Ramco Conversion

Agreement against USARE; Count VII for breach of fiduciary duty against Althaus

56
   Am. Compl. ¶¶ 70–88.
57
   Ramco I, 2023 WL 6939263, at *7.
58
   See Joint Letter to Hon. Sam Glasscock III from Counsel re questions posed in the Ct.’s Oct. 20,
2023 mem. op. at 1, Dkt. No. 61.
59
   See Letter to the Hon. Sam Glasscock III on behalf of Def. USARE Re: Choice of Law, Dkt.
No. 65; Pls.’ Suppl. Mem. on Choice of Law Question, Dkt. No. 66 (“Pls.’ Suppl. Mem.”).
                                                9
and Gutnick; Count VIII for breach of the implied covenant inhering in USARE’s

LLC operating agreement (the “LLC Agreement”) against Althaus and Gutnick;

Count IX for negligent misrepresentation against USARE brought by Ramco; Count

X for fraud against USARE for inducing Ramco to transfer its interests; Count XI

for negligent misrepresentation against USARE brought by DinSha; and Count XII

for fraud against USARE for inducing DinSha to transfer its interests.60

         Plaintiffs’ claims are governed by the laws of at least two jurisdictions: Counts

VII and VIII are governed by Delaware law as they relate to a Delaware limited

liability company while Counts I and II are governed by New Jersey law to the extent

that those counts rely upon the Ramco Conversion Agreement, which contains a

New Jersey choice-of-law provision. The parties dispute which jurisdiction’s laws

apply to the remaining tort claims, with Plaintiffs advocating for the application of

New Jersey law to at least Counts IX and X and Western Australian law to Counts

XI and XII while USARE seeks application of Delaware law to all tort claims.

Below, I analyze the various claims, making choice of law decisions only as

necessary.

         A. Standard of Review

         The standard of review for a motion to dismiss under Court of Chancery Rule

12(b)(6) is well established:

60
     Am. Compl. ¶¶ 61–69, 89–139.
                                            10
       (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.61

“A trial court is not, however, required to accept as true conclusory allegations

without specific supporting factual allegations.”62 “Moreover, a claim may be

dismissed if allegations in the complaint or in the exhibits incorporated into the

complaint effectively negate the claim as a matter of law.”63

       B. Counts I–II: The Contract Claims

              1. Count I for Breach of Contract

       Plaintiffs allege that USARE breached the parties’ contractual agreement to

transfer Ramco’s interest from Morzev to USARE without diminution, as reflected

in the 2019 Memo and the Ramco Conversion Agreement, because USARE

provided Ramco with an interest that was materially less than Ramco’s interest in

Morzev.64 USARE contends that Count I fails to state a claim because (i) the Ramco

Conversion Agreement is a fully-integrated contract that does not guarantee Ramco

a specific percentage ownership in USARE following the conversion—instead, it

provides for a specific number of units, which Ramco received; and (ii) the Ramco

61
   Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal quotations omitted).
62
   In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (internal quotations
omitted).
63
   Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001).
64
   Am. Compl. ¶¶ 62, 64.
                                               11
Conversion Agreement is clear and unambiguous, so the Court should not consider

the 2019 Memo to modify the express terms of the Ramco Conversion Agreement.65

Plaintiffs, however, aver that the Ramco Conversion Agreement must be read

together with the 2019 Memo and construed as one contract.66 Plaintiffs invoke New

Jersey’s expansive approach to the parol evidence rule to urge the Court to consider

the 2019 Memo to interpret the meaning of the Ramco Conversion Agreement.67

The Ramco Conversion Agreement contains a choice-of-law provision that states,

“[t]his Letter is governed by the laws in force from time to time in New Jersey,

USA.”68 Both parties agree that Count I is subject to this choice-of-law provision.

       Under New Jersey law, to state a claim for breach of contract, Plaintiffs must

allege four elements: (i) “that the parties entered into a contract containing certain

terms;” (ii) “plaintiffs did what the contract required them to do;” (iii) “defendants

did not do what the contract required them to do;” and (iv) “defendant’s breach, or

failure to do what the contract required, caused a loss to the plaintiffs.”69 A contract

is fully integrated “[w]here the parties reduce an agreement to a writing which in

view of its completeness and specificity reasonably appears to be a complete

agreement . . . unless it is established by other evidence that the writing did not

65
   Def. USA Rare Earth, LLC’s Opening Br. Supp. Mot. Dismiss Am. Compl. 22–27, Dkt. No. 34
(“USARE’s OB”).
66
   [Corrected] Pls.’ Answering Br. Opp’n Defs.’ Mots. to Dismiss 25–26, Dkt. No. 39 (“Pls.’ AB”).
67
   Id. at 27–28
68
   Ramco Conversion Agreement at 2.
69
   Goldfarb v. Solimine, 245 A.3d 570, 577 (N.J. 2021) (citation omitted).
                                               12
constitute a final expression.”70 The Court may consider extrinsic evidence to

interpret an agreement, “even when the contract on its face is free from ambiguity.”71

“Such evidence is adducible only for the purpose of interpreting the writing—not

for the purpose of modifying or enlarging or curtailing its terms, but to aid in

determining the meaning of what has been said.”72 Once the Court has ascertained

the true meaning of the contractual terms, “the parol evidence rule comes into play

to prohibit the introduction of extrinsic evidence to vary the terms of the contract.”73

      USARE contends that the Ramco Conversion Agreement is a fully integrated

contract. Plaintiffs have not alleged that the Ramco Conversion Agreement does not

constitute a final expression of the parties’ agreement. Rather, Plaintiffs ask this

Court to read the 2019 Memo and the Ramco Conversion Agreement as one contract.

The Ramco Conversion Agreement provided that Ramco would receive 21,123,677

shares in USARE. Plaintiffs contend that, when read together, the 2019 Memo

allows the Court to interpret the terms of the Ramco Conversion Agreement such

that the 21,123,677 shares in USARE provided to Ramco should be interpreted as

equaling the 14.29% equity interest in USARE that Ramco requested in the 2019

Memo.74

70
   Chance v. McCann, 966 A.2d 29, 41 n.6 (N.J. Super. Ct. App. Div. 2009) (emphasis added)
(citation omitted).
71
   Atl. N. Airlines v. Schwimmer, 96 A.2d 652, 656 (N.J. 1953).
72
   Id.
73
   Conway v. 287 Corp. Ctr. Assocs., 901 A.2d 341, 347 (N.J. 2006).
74
   Pls.’ AB 27–28.
                                           13
      Despite USARE’s arguments that the 2019 Memo itself is not a valid contract

and that Gutnick lacked the authority to sign it on behalf of USARE, under New

Jersey law, I consider the circumstances surrounding the execution of the Ramco

Conversion Agreement by considering extrinsic evidence, such as the 2019 Memo.

When read together, the inclusion of the exact percentages in the 2019 Memo

provides insight into what the parties intended the 21,123,677 shares in USARE to

represent. It is unclear from the Ramco Conversion Agreement alone what the

absolute number of shares included therein was intended to represent as the Ramco

Conversion Agreement does not state the total number of shares of USARE that

would be outstanding. As Plaintiffs posit, it is plausible at this stage to infer that the

parties intended the 21,123,677 shares of USARE to represent an equity interest in

USARE equivalent to what Plaintiffs previously held in Morzev. Because Plaintiffs’

purpose in asking this Court to consider the 2019 Memo is to assist the Court in

ascertaining the true meaning of contractual terms in the Ramco Conversion

Agreement, the parol evidence rule does not exclude the 2019 Memo under the law

of New Jersey, as I understand it.

      While Plaintiffs do not contend that USARE failed to deliver the exact number

of shares required under the Ramco Conversion Agreement, Plaintiffs have stated a

claim for breach of contract because USARE failed to maintain Ramco’s equity

interest when converting Ramco’s shares from Morzev. It is reasonably conceivable

                                           14
that such was the bargain of the parties. Therefore, USARE’s motion to dismiss

Count I is denied.

             2. Count II for Breach of the Implied Covenant of Good Faith and
             Fair Dealing that Inhered in the Ramco Conversion Agreement

      Plaintiffs also assert a breach of the implied covenant of good faith and fair

dealing against USARE for its failure to abide by the inherent obligations set forth

in the 2019 Memo and the Ramco Conversion Agreement.75 Specifically, Plaintiffs

allege that USARE was impliedly required to affect a 1:1 transfer of Ramco’s equity

interest from Morzev to USARE without change or diminution, which USARE

failed to do.76 USARE seeks dismissal of Count II on the grounds that (i) it is

duplicative of Count I; (ii) there is no such thing as an obligation by implication

when the terms of an agreement are unambiguous; and (iii) this Court cannot invoke

the implied covenant to correct Plaintiffs’ mistake regarding the terms of the Ramco

Conversion Agreement.77 Both parties agree that, because Plaintiffs seek to invoke

the implied covenant with respect to the Ramco Conversion Agreement, New Jersey

law applies to Count II.

      New Jersey recognizes that “[i]n every contract there is an implied covenant

that neither party shall do anything which will have the effect of destroying or

75
   Id. at 32.
76
   Id.
77
   Def. USA Rare Earth LLC’s Reply Br. Supp. Mot. Dismiss Am. Compl. 9–12, Dkt. No. 40.
                                           15
injuring the right of the other party to receive the fruits of the contract[.]” 78 The

implied covenant of good faith and fair dealing is breached when a party that has

discretion under a contract “exercises its discretionary authority arbitrarily,

unreasonably, or capriciously, with the objective of preventing the other party from

receiving its reasonably expected fruits under the contract.”79 Courts in New Jersey

view the implied covenant liberally; they apply the covenant in three ways: (1) to

“permit[] the inclusion of terms and conditions which have not been set forth in the

written contract . . . . The covenant acts in such instances to include terms the parties

must have intended because they are necessary to give business efficacy to the

contract;” (2) “to allow redress for the bad faith performance of an agreement even

when the defendant has not breached any express term;” and (3) “to permit inquiry

into a party’s exercise of discretion expressly granted by a contract’s terms.”80

       Plaintiffs assert that the spirit of the 2019 Memo and Ramco Conversion

Agreements required USARE to transfer the Ramco’s interest in Morzev to USARE

without change or diminution.81 As I have already found above in Section II.B.1,

the Ramco Conversion Agreement, when read in conjunction with the 2019 Memo,

is an ambiguous contract. Therefore, the implied covenant may be invoked under

78
   Wilson v. Amerada Hess Corp., 773 A.2d 1121, 1126 (N.J. 2001) (citation omitted).
79
   Id. at 1130.
80
   Seidenberg v. Summit Bank, 791 A.2d 1068, 1076 (N.J. Super. Ct. App. Div. 2002) (citations
and internal quotations omitted).
81
   Pls.’ AB 34.
                                             16
New Jersey law to read into the Ramco Conversion Agreement terms that the parties

must have intended to give the contract meaning or to ensure that Ramco was not

denied the benefit of its bargain. Here, Plaintiffs have sufficiently stated that the

21,123,677 shares of USARE promised to Ramco in the Ramco Conversion

Agreement were intended by the parties to represent an equivalent interest in

USARE that Ramco previously held in Morzev. Therefore, under the law of New

Jersey and at this stage of the proceedings, Plaintiffs have sufficiently pled that the

Ramco Conversion Agreement lacks business efficacy because it lacks terms

explaining what the 21,123,677 shares in USARE represents, or has been performed

so as to deny Plaintiffs the benefit of their bargain. Accordingly, USARE’s motion

to dismiss Count II is denied.

      C. Counts IX–XII: The Tort Actions

      Plaintiffs assert two claims for fraud: Count X pertains to the Ramco

Conversion Agreement, which contains a New Jersey choice of law provision, and

Count XII pertains to the DinSha Conversion Agreement, which contains a Western

Australia choice of law provision. Plaintiffs also state two claims for negligent

misrepresentation: Count IX pertains to the Ramco Conversion Agreement and

Count XI pertains to the DinSha Conversion Agreement. Undergirding these four

tort claims, Plaintiffs allege that USARE knowingly made false representations to

Plaintiffs regarding their post-conversion interest in USARE and Plaintiffs relied on

                                          17
those false representations when agreeing to execute their respective conversion

agreements.82

       The tort claims are an awkward fit, brought against USARE, as will become

apparent. Originally, the claims were brought against Gutnick and Morzev as well—

these claims may still be pursued against those defendants, but not here—as I have

found, this Court lacks in personam jurisdiction over those parties.83

       USARE mounts six arguments in favor of dismissing these claims: (1)

Plaintiffs signed the unambiguous conversion agreements that did not guarantee

either an exact percentage equity holding in USARE; (2) Counts IX and XI are

duplicative of the breach of contract claim; (3) USARE did not make the challenged

representations; (4) the 2019 Memo did not represent that Plaintiffs would receive

exactly the same percentage interest in USARE as they previously held in Morzev;

(5) promissory statements cannot support claims for negligent misrepresentation;

and (6) Plaintiffs have otherwise failed to pled the fraud claims with the specificity

required under Court of Chancery Rule 9(b).84

       Plaintiffs assert that these tort claims arise from the Ramco Conversion

Agreement and DinSha Conversion Agreement such that the choice-of-law

provisions (favoring application of Western Australian and New Jersey laws) in

82
   See id. at 53.
83
   See Ramco I, 2023 WL 6939263, at *7.
84
   USARE’s OB 29–31.
                                          18
those contracts apply to the tort claims.85 In the alternative, Plaintiffs assert that

New Jersey law applies to all tort claims because New Jersey has the most significant

relationship to these claims.86 With respect to choice-of-law, USARE notes that the

choice-of-law provisions in the Ramco Conversion Agreement and DinSha

Conversion Agreement are narrow, limited only to disputes arising out of the

agreements themselves.87 USARE also notes that it is not a party nor signatory to

the DinSha Conversion Agreement, so USARE is not bound to that agreement’s

choice-of-law provision.88

       “Where the parties agreed to the application of a state’s law in their contract,

Delaware courts are ‘strongly inclined’ to respect the parties’ freedom of contract

and enforce the contract provision[.]”89 With respect to tort claims that relate to a

contract, the Court must determine whether the scope of the choice-of-law provision

is broad enough to encompass those claims arising from the parties’ contractual

relationship.90 The question turns on the intent of the parties.

85
   Pls.’ Suppl. Mem. 2, 5–6.
86
   Id. at 7–11.
87
   Letter to the Hon. Sam Glasscock III from E. Wade Houston, Esq. on Behalf of Def. USARE 1,
Dkt. No. 65.
88
   Id. at 1–2.
89
   Travelers Cas. and Sur. Co. of Am. v. Blackbaud, Inc., 2024 WL 1298762, at *7 (Del. Super.
Mar. 27, 2024) (quoting Wind Point P’rs VII-A, L.P. v. Insight Equity A.P. X Co., LLC, 2020 WL
5054791, at *18 (Del. Super. Aug. 17, 2020)).
90
   See Gloucester Hldg. Corp. v. U.S. Tape and Sticky Prods., LLC, 832 A.2d 116, 124 (Del. Ch.
2003) (“There are certain circumstances where courts have held that a broad choice of law clause
in a contract could encompass tort claims that relate to contract formation.”).
                                              19
       The choice-of-law provision in the Ramco Conversion Agreement provides

that “[t]his Letter is governed by the laws in force from time to time in New Jersey,

USA.”91 Likewise, the DinSha Conversion Agreement provides that “[t]his Letter

is governed by the laws in force from time to time in Western Australia.” 92 The

plain language of these provisions is not broad enough to encompass tort claims

relating to the formation of those contracts. These provisions do not contain

language that expands the application thereof beyond contract claims; they do not

purpose “to cover litigation that arises out of or relates to the” agreements.93

       Since the choice-of-law provisions are not broad enough to encompass

Plaintiffs’ tort claims, the normal next step would be to conduct a choice-of-law

analysis to determine which jurisdiction’s laws apply to these claims. Where parties

91
   Ramco Conversion Agreement at 2 (emphasis added).
92
   DinSha Conversion Agreement at 2 (emphasis added).
93
   Gloucester Hldg. Corp., 832 A.2d at 124. Plaintiffs rely on two cases to advocate for a broad
reading of these provisions, namely Weil v. Morgan Stanley DW Inc., 877 A.2d 1024 (Del. Ch.
2005), and Abry Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006). Pls.
Suppl. Mem. 5–7. Neither case is persuasive because neither dealt with the application of a choice-
of-law provision to tort claims arising from the contract’s formation. The choice-of-law provision
in Weil explicitly stated that the contract was entered “in the State of California and shall be
construed, and the rights and liabilities of the parties determined, in accordance with the laws of
the State of California.” 877 A.2d at 1032. The Court determined that the scope of this provision
was broad enough to conclude that Morgan Stanley was a fiduciary who owed duties to its
customers because the fiduciary relationship arose from the contract containing the California
choice-of-law provision. Id. at 1032–35. In Arby Partners, the choice-of-law provision provided
that the agreement was to “be governed by, and construed in accordance with, the Laws of the
State of Delaware, regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.” 891 A.2d at 1046. The Court determined that the choice-of-law provision
was applicable where a party was attempting to avoid the contract by challenging the enforceability
of the contract that contained the provision. Id. at 1048–50.
                                                20
dispute which jurisdiction’s law applies, Delaware courts use a two-part test to

determine which states’ laws apply: “first, the court determines whether there is an

actual conflict of law between the proposed jurisdictions. If there is a conflict, the

court determines which jurisdiction has the ‘most significant relationship to the

occurrence and the parties[.]’”94 Where the laws do not conflict, “the Court should

avoid the choice-of-law analysis altogether.”95

       However, before I reach a choice-of-law analysis, there is a predicate analysis,

that is, whether Plaintiffs’ have met the procedural hurdle to adequately plead these

tort claims that arise from averments of fraud. I find this analysis is dispositive. “As

a general rule, the law of the forum governs procedural matters.”96 Thus I must

determine whether Plaintiffs have met the heightened pleading standards under

Court of Chancery Rule 9(b).97 Under Rule 9(b), “[i]n all averments of fraud or

mistake, the circumstances constituting fraud or mistake shall be stated with

particularity. Malice, intent, knowledge and other condition of mind of a person

may be averred generally.”98 “Delaware courts routinely apply the more stringent

Rule 9(b) standard to negligent misrepresentation claims, as a negligent

94
   Bell Helicopter Textron, Inc. v. Arteaga, 113 A.3d 1045, 1050 (Del. 2015).
95
   Deuley v. DynCorp Int’l, Inc., 8 A.3d 1156, 1161 (Del. 2010).
96
   Chaplake Hldgs., LTD v. Chrysler Corp., 766 A.2d 1, 5 (Del. 2001) (citations omitted).
97
   See inVentiv Health Clinical, LLC v. Odonate Therapeutics, Inc., 2021 WL 252823, at *7 (Del.
Super. Jan. 26, 2021) (explaining that while another jurisdiction’s substantive law governed the
matter, fraud claims must still meet the heightened pleading standards under Delaware rules of
civil procedure).
98
   Ct. Ch. R. 9(b).
                                              21
misrepresentation claim must be stated with the same particularity required for

fraud.”99 To satisfy Rule 9(b), a plaintiff “must allege: (1) the time, place, and

contents of the false representation; (2) the identity of the person making the

representation; and (3) what the person intended to gain by making the

representations.”100

       Plaintiffs generally allege that Kleiner, the principal of Ramco and grantor of

DinSha, had “numerous” conversations with Gutnick by phone and in-person “in

approximately March, April, and May 2019.”101 Gutnick “specifically” told Kleiner

“in sum and substance” that Plaintiffs would have exactly what they had in Morzev

in the new entity and that Plaintiffs would get exactly what they were owed. 102 In

further support of their fraud allegations, Plaintiffs point to the 2019 Memo, which

was drafted by Plaintiffs, to argue that Gutnick represented to Plaintiffs they would

receive the exact percentages in USARE as sought by Plaintiffs, despite Gutnick’s

handwritten notes indicating those percentages were not yet finalized. 103 These

pleadings, when read as a whole, do not meet the heightened pleading standards of

Rule 9(b). Plaintiffs fail to plead the time when or place where these representations

occurred; what representations are attributable to USARE; and do not allege what

99
   Otto Candies, LLC v. KPMG LLP, 2019 WL 994050, at *4 (Del. Ch. Feb. 28, 2019) (collecting
cases) (alterations, citations, and internal quotations omitted).
100
    Arby P’rs V, L.P., 891 A.2d at 1050.
101
    Am. Compl. ¶ 28.
102
    Id.
103
    See id. ¶¶ 35–37, 44–46.
                                            22
USARE intended to gain from these representations. USARE was not even formed

until May 6, 2019, and the Amended Complaint, therefore, does not state with

specificity that the false statements could have been made on behalf of USARE. In

other words, USARE is not put in a position to defend against these fraud and

negligent misrepresentation claims. Therefore, Counts IX–XII are dismissed for

failure to satisfy the heightened pleading required under Rule 9(b). Accordingly, I

need not reach USARE’s other arguments about the insufficiency of the fraud and

negligent misrepresentation claims.

          D. Counts VII–VIII: The Delaware LLC Counts

                  1. Count VII for Breach of Fiduciary Duty

          USARE’s Operating Agreement unambiguously disclaims common-law

fiduciary duties.          Plaintiffs allege, however, that Althaus and Gutnick (the

“Individual Defendants”) breached fiduciary duties owed to Plaintiffs from July

2019, when Plaintiffs executed their respective conversion agreements, through

August 26, 2019, the day before USARE’s first operating agreement, which

disclaimed such fiduciary duties, was executed.104 Specifically, Plaintiffs assert that

the Individual Defendants were duty-bound to ensure that Plaintiffs’ “first day”

equity percentages in USARE were exactly the same as Plaintiffs’ “last day” equity

104
      Pls.’ AB 42. Plaintiffs refer to this time as the “Fiduciary Period.” Id. at 44.
                                                   23
percentages in Morzev.105 Instead, the Individual Defendants actively took steps to

diminish Plaintiffs’ investments during the conversion to USARE, without

disclosing that diminution to Plaintiffs.106 The Individual Defendants contend that

Plaintiffs fail to state a claim because (1) the LLC Agreement that disclaimed

fiduciary duties was effective in July 2019, so there is no period where the Individual

Defendants owed Plaintiffs such duties and (2) Plaintiffs lack standing to bring this

claim because it is derivative in nature.107

        To state a claim for breach of fiduciary duty, a plaintiff must allege (1) the

existence of a fiduciary duty and (2) a breach of that duty by the defendant. 108 The

Court determines whether a claim for breach of fiduciary duty is direct or derivative

by considering “(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)[.]”109 If the

breach of fiduciary duty claim is derivative in nature, the plaintiff must plead that

105
    Id. at 42.
106
    Id. at 42–43.
107
     Opening Br. of Def. Pini Althaus Supp. Mot. Dismiss Am. Compl. 16–20, Dkt. No. 33
(“Althaus’ OB”); Opening Br. of Defs. Morzev Pty Ltd., Mordechai Gutnick ATF the Morzev
Trust, and Mordechai Gutnick Supp. Mot. Dismiss Pls.’ Am. Verified Compl. 19–22, Dkt. No. 32
(“Gutnick’s OB”). Althaus also advocates for dismissal on the grounds that the actions occurred
prior to Plaintiffs obtaining their equity interest in USARE and that Count VII is duplicative of
Count II. Althaus’ OB 20–21.
108
    Beard Rsch., Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010).
109
    Tooely v. Donaldson, Lufkin & Jennette, Inc., 845 A.2d 1031, 1033 (Del. 2004).
                                               24
(1) a demand was made on the entity or (2) reasons why making such demand on the

entity would be futile.110

       To the extent that the Plaintiffs allege that only they were diluted compared

with their holdings in Morzev,111 that does not state a fiduciary duty claim on the

part of the Defendants. If USARE’s managers had a duty to distribute units to

Plaintiffs, that duty arises in contract. Absent some contractual duty, the Individual

Defendant managers were not obliged to distribute any particular number of USARE

shares, as fiduciaries.

       To the extent that Plaintiffs rely upon their respective conversion agreements

to assert this breach of fiduciary duty claim directly, the breach of fiduciary duty

claim is improper bootstrapping. “[T]he 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.”112 Plaintiffs here seek to enforce contractual obligations. “It is a

well-settled principle that where a dispute arises from obligations that are expressly

addressed by contract, that dispute will be treated as a breach of contract claim.”113

110
    Ct. Ch. R. 23.1(a)(1); see also United Food and Com. Workers Union v. Zuckerberg, 250 A.3d
862, 877 (Del. Ch. 2020).
111
    To the extent Plaintiffs are claiming a fiduciary breach by issuance of USARE units without
value generally, the action would be derivative, and, given lack of compliance by Plaintiffs with
Rule 23.1, would be dismissed under that rationale.
112
    Grunstein v. Silva, 2009 WL 4698541, at *6 (Del. Ch. Dec. 8, 2009).
113
    Nemec v. Shrader, 991 A.2d 1120, 1129 (Del. 2010).
                                               25
I have already concluded above in Section II.B.1 that Ramco has stated a claim for

breach of contract under New Jersey law.             DinSha and US Trading Company both

have their own respective agreements governing the conversion of their Morzev

interests to USARE. Accordingly, any claim related to the Individual Defendants’

purported failure to properly convert DinSha and US Trading Company’s shares

without diminution would be governed by their respective contracts and is not

properly brought as a breach of fiduciary duty claim. Count VII is dismissed.114

               2. Count VIII for Breach of the Implied Covenant of Good Faith and
               Fair Dealing that Inhered in the USARE LLC Agreement

       In Count VIII, Plaintiffs allege that the Individual Defendants breached the

implied covenant of the duty of good faith and fair dealing inhering in USARE’s

LLC Agreement.115 Specifically, as members, managers, and/or majority owner of

USARE, the Individual Defendants were duty-bound to ensure that Plaintiffs

received a 1:1 equity interest in USARE, without diminution.116 The Individual

Defendants’ duties arise under the original and third amended and restated USARE

Company Agreements that provide that managers of USARE have contractual

obligations to act in accordance with the implied covenant.117 In response, the

114
    Because Count VII is dismissed for the reasons above, I decline to reach the fact-intensive issue
of when USARE adopted the operating agreement that disclaimed fiduciary duties and whether
there exists a so-called “Fiduciary Period,” as Plaintiffs advocate. See Pls.’ AB 44–46; Am.
Compl. ¶¶ 52–59, 91.
115
    Am. Compl. ¶ 101.
116
    Id. ¶¶ 96–99.
117
    Pls.’ AB 38.
                                                26
Individual Defendants argue that Count VIII should be dismissed because Plaintiffs

have failed to allege that any contractual gaps existed in the LLC Agreement.118

       “The implied covenant is inherent in all contracts and is used to infer contract

terms ‘to handle developments or contractual gaps that the asserting party pleads

neither party anticipated.’”119 The purpose of the implied covenant is to “ensure[]

that parties do not frustrate the fruits of the bargain by acting arbitrarily or

unreasonably.”120 Delaware courts do not use the implied covenant “as a backstop

to imply terms that parties failed to include but which could easily have been

drafted.”121 To plead a claim for the breach of the implied covenant, “the plaintiff

must allege a specific implied contractual obligation, a breach of that obligation by

the defendant, and resulting damage to the plaintiff.”122 The implied covenant,

however, “cannot be used . . . to create a free-floating duty unattached to the

underlying legal documents.”123

       Plaintiffs failed to sufficiently plead a claim for a breach of the implied

covenant that inheres in USARE’s LLC Agreement. While Plaintiffs insist that the

Individual Defendants had implied duties to ensure that Plaintiffs received a 1:1

118
    Althaus’ OB 23–25; Gutnick’s OB 22–23.
119
    Dieckman v. Regency GP LP, 155 A.3d 358, 367 (Del. 2017) (quoting Nemec, 991 A.2d at
1125).
120
    Baldwin v. New Wood Res. LLC, 283 A.3d 1099, 1116 (Del. 2022) (internal quotations omitted).
121
    Id. at 1117.
122
    Cantor Fitzgerald, L.P. v. Cantor, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998).
123
    Lonergan v. EPE Hldgs., LLC, 5 A.3d 1008, 1017 (Del. Ch. 2010) (internal quotations omitted).
                                               27
equity interest in USARE, Plaintiffs do not point to a specific implied contractual

obligation in the LLC Agreement that imposed this alleged duty on the Individual

Defendants. Rather, Plaintiffs generally aver that because the LLC Agreement

required the Individual Defendants to comply with the implied covenant, the

Individual Defendants were therefore required to use their authority as managers of

USARE to ensure Plaintiffs’ desired conversion under separate contracts. Merely

citing the provisions that require the Individual Defendants to comply with the

implied covenant is insufficient to allege a specific implied obligation in the LLC

Agreement itself.124

       While Plaintiffs allege that, had they foreseen that the Individual Defendants

would diminish their holdings upon converting Plaintiffs’ equity from Morzev to

USARE, Plaintiffs would have insisted upon language in the LLC Agreement to

prevent such diminution,125 such allegation does not overcome the fact that the LLC

Agreement is completely silent as to what interests in USARE investors would

receive if they converted their equity previously held in Morzev. The language of

the LLC Agreement also does not indicate that all parties would have agreed to such

an obligation had the parties negotiated the issue,126 nor does the LLC Agreement,

124
    See Cantor Fitzgerald, L.P., 1998 WL 842316, at *1 (explaining that a “plaintiff must advance
provisions of the agreement . . . in order to allege sufficiently a specific implied contractual
obligation”).
125
    Pls.’ AB 38–39.
126
    See Cantor Fitzgerald, L.P., 1998 WL 842316, at *1.
                                               28
even read as a whole, sufficiently speak to suggest that such an obligation was

intended.127 Plaintiffs’ assertion of a claim for breach of the implied covenant

inhering in the LLC Agreement appears to me to be an attempt to use an “implied”

duty in the LLC Agreement to vindicate what they agreed to, or wish they had agreed

to, i.e., exact percentages in USARE. This Court, however, will not rewrite a

contract simply because Plaintiffs wish they had gotten a better deal. 128 And here,

the contracts that would determine Plaintiffs’ ownership in USARE are Plaintiffs’

respective conversion agreements, not the LLC Agreement. Therefore, Count VIII

for breach of the implied covenant inhering in the LLC Agreement is dismissed.

                                      III. CONCLUSION

          For the foregoing reasons, the Defendants’ motions to dismiss are DENIED

in part and GRANTED in part. The parties should submit an appropriate form of

order in accordance with this memorandum opinion.

127
      See Lonergan, 5 A.3d at 1017 (internal quotations omitted).
128
      See Nemec, 991 A.2d at 1125–26.
                                                 29