Court Opinion

ID: 4706438
Source: CourtListenerOpinion
Date Created: 2021-07-26 18:05:46.198282+00
Date Added: 2024-06-11T08:06:36.641517
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PARTNERS & SIMONS, INC. and                      )
HY CONNECT, INC.,                                )
                                                 )
                            Plaintiffs,          )
                                                 )
              v.                                 )    C.A. No. 2020-0776-MTZ
                                                 )
SANDBOX ACQUISITIONS, LLC,                       )
SANDBOX ADVERTISING, INC.,                       )
ALARIS ROYALTY CORP., NOVO                       )
ADVISORS, LLC AND CURTIS                         )
KRAWETZ,                                         )
                                                 )
                            Defendants.          )

         ORDER DENYING DEFENDANTS’ MOTION TO DISMISS
          PURSUANT TO COURT OF CHANCERY RULE 12(B)(6)

       WHEREAS, upon consideration of the Motion to Dismiss filed on

December 2, 2020 (the “Motion”) by Defendants Sandbox Acquisitions, LLC

(“Acquisitions”), Alaris Royalty Corp. (“Alaris,” and collectively with Acquisitions

and Defendant Sandbox Advertising Inc., the “Sellers,” and each a “Seller”), and

Curtis Krawetz (together with Sellers, “Defendants”),1 as well as any oppositions

thereto, it appears as follows:2

1
 Docket Item (“D.I.”) 23; D.I. 24; D.I. 25. Acquisitions moved separately, but joined
Alaris and Krawetz’s motion; the parties briefed the motions together. See D.I. 23; D.I. 70.
Therefore, I refer to the motions collectively as one Motion.
2
  I draw the following facts from the Verified Complaint, available at D.I. 1
[hereinafter “Compl.”], as well as the documents attached to and integral to it. See, e.g.,
Himawan v. Cephalon, Inc., 2018 WL 6822708, at *2 (Del. Ch. Dec. 28, 2018); In re
Gardner Denver, Inc. S’holders Litig., 2014 WL 715705, at *2 (Del. Ch. Feb. 21, 2014).

                                             1
         A.    Plaintiffs Partners & Simons, Inc. and HY Connect, Inc.

(collectively, “Buyers”)3 bring claims for fraud and breach of contract against

Sellers, former equityholders of several affiliated entities that together comprised

the advertising agency known as Sandbox (“Sandbox” or the “Company”).4 Buyers

purchased all equity interests in Sandbox for $60 million (the “Transaction”),

pursuant to an Equity Purchase Agreement (the “EPA”) dated February 28, 2020

(the “Closing”).5 Buyers allege Sellers exercised their leverage and influence over

Sandbox to knowingly perpetrate an accounting fraud, with assistance from their

advisors, in connection with the Transaction.

         B.    In fall 2019, Buyers and Sellers began discussing Buyers’ potential

acquisition of Sandbox. On December 13, the parties agreed Buyers would buy all

the equity in Sandbox for $62.5 million, subject to due diligence.

         C.    Sandbox’s preferred unitholder, Alaris, held “step-in” rights to control

the Company’s management structure and composition and formally effectuate a

sale if Alaris so desired.6 Shortly after Buyers agreed to the purchase terms, Alaris

3
 Partners & Simons, Inc. is a Delaware corporation with its principal place of business in
Boston, Massachusetts. HY Connect, Inc. is a Delaware corporation with its principal
place of business in Chicago, Illinois.
4
 Those affiliated entities included Underline Communications, LLC; UNISON Resource
Company, LLC; Goble & Associates, LLC; and Sandbox Advertising LP.
5
    Compl. Ex. A [hereinafter “EPA”].
6
 Compl. ¶ 22. Alaris acquired this right in October 2018 when it purchased Sandbox’s
outstanding senior debt for $14 million.

                                            2
exercised those rights to change Sandbox’s management structure in order to

leverage a deal more favorable to Alaris.         On December 19, Alaris removed

Sandbox’s managers and board members and installed Krawetz as the Company’s

sole manager and board member.7 Krawetz had been Alaris’s V.P. of Investments

and Investor Relations and managed Alaris’s Sandbox investment.

         D.    Alaris also engaged two different firms to assist with the sales process:

Lincoln International (“Lincoln”) and Novo Advisors, LLC (“Novo”). In January

2019, at Alaris’s direction, Sandbox engaged Lincoln to position the Company for

acquisition and advise on the sales process. And in June 2019, Alaris directed

Sandbox to appoint Novo as Alaris’s “eyes and ears” to monitor Sandbox’s business,

specifically by managing cash operations; providing technical accounting support

during due diligence; and conducting routine financial analyses.8

         E.    Plaintiffs allege that between December 19 and Closing, with Krawetz

controlling Sandbox on Alaris’s behalf and overseeing Novo and Lincoln, Sellers

cooked Sandbox’s books to inflate its valuation and the Transaction’s ultimate

purchase price.       Plaintiffs’ allegations of the fraud are detailed, but as their

7
 The Complaint defines the “Company” and “Sandbox” as a group of affiliated entities,
and does not specify which entity or entities Krawetz managed in these roles.
See id. ¶¶ 1, 23. Krawetz signed the EPA as Acquisitions’s Manager, and it appears
Acquisitions was the holding company for all the Sandbox equity interests that were sold.
See EPA, Preamble & Signature Pages.
8
    Compl. ¶ 24(b).

                                            3
particularity is not challenged by the instant Motion, I do not relate them here. For

now, it is enough to say that Sandbox’s accounting practices were improper and

inconsistent with GAAP and the Company’s own revenue recognition policy, as

Sellers overstated reported revenues and accrued accounts receivable (“accrued

AR”) and understated various expenses and liabilities. And as Closing loomed,

Krawetz and Sandbox’s executives leaned into the fraud, directly manipulating the

Company’s invoicing system.         As alleged, the fraudulent acts were “common

knowledge” to Sandbox’s pre-Closing accounting and finance staff, Sellers, and

their advisors, and everyone involved was or should have been aware that they

violated GAAP standards.9

          F.    Sellers and their advisors actively concealed the fraud from Buyers and

continued to make false and misleading representations to push the Transaction

toward Closing. Again, Plaintiffs tell a detailed and colorful story of Krawetz

avoiding transparency for Buyers by controlling the flow of information to Buyers,

including by controlling the Company’s executives and advisors; and shielding

himself and Alaris by communicating with Buyers through intermediaries, but also

directly making knowingly false statements to Buyers about the accuracy of the

Company’s financial records.

9
    Id. ¶ 54.

                                            4
          G.     As Closing neared, Krawetz, Sellers, Novo, and other Company

representatives strove to withhold information with the goal of “running out the

clock.”10 Suspicious, Buyers refused to proceed to Closing without additional

information and assurances regarding the Company’s accrued AR. Sellers induced

Buyers to proceed to Closing by agreeing to (1) an approximately $5 million

reduction in purchase price; and (2) additional representations and warranties

affirming that the remaining accrued AR was valid, collectible, and supported by

customer documentation. Sellers knew these representations and warranties were

inaccurate, but agreed to them anyway to induce Buyers to close at the still-inflated

price.

          H.     Sellers allegedly did all this to benefit themselves by driving up

Sandbox’s pre-Closing revenue and earnings to support an inflated purchase price.

The Company grossly overstated the bases for the EBITDA projections in Buyers’

valuation model.         The Company’s accounting fraud created approximately

$6.1 million of fabricated EBITDA for 2019.             Buyers relied on Sellers’

representations and warranties, and proceeded to Closing; they purchased Sandbox

for $60 million, subject to post-Closing adjustments. Because of the accounting

10
     Id. ¶ 71.

                                           5
fraud, Buyers overpaid by approximately $37.2 million. Krawetz executed the EPA

as Acquisitions’s Manager.11

          I.      On their own behalf and on behalf of the Company, Sellers made

numerous representations and warranties in the EPA that were knowingly false when

made in view of the accounting fraud.12 Specifically, Section 4.7 was false and

therefore breached because the financial statements delivered to Buyers were

materially inaccurate, incomplete, and not in accordance with GAAP. Section 7 of

the EPA requires Sellers to indemnify Buyers for breaches of false representations

and warranties according to certain terms and processes.13 Section 1.4 of the EPA

governs the dispute process for a purchase price reduction.14

          J.      Section 5.6 of the EPA provides:

          Reliance. Each Buyer acknowledges and agrees that in making its
          decision to enter into this Agreement and to consummate the
          transactions contemplated hereby, such Buyer has relied solely upon its
          own investigation and the express representations and warranties set
          forth in Article III and Article IV, except in the case of fraud.15

          K.      Despite doing extensive diligence with the assistance of Ernst &

Young, Buyers did not discover the inflated EBITDA and underlying reasons for it

11
     See EPA, Signature Pages.
12
     See id. §§ 4.5(o)–(p), 4.7(b)–(d), (f), 4.14, 4.24(b), 4.26.
13
     Id. § 7.1.
14
     Id. § 1.4.
15
     Id. § 5.6.

                                                 6
before Closing. Post-Closing, Buyers gained access to the Company’s personnel,

books, and records, and discovered the discrepancies and inaccuracies in the

Company’s finances. Buyers pursued the dispute resolution procedures in EPA

Sections 1.4 and 7.4.

             a.    On May 28, 2020, pursuant to Section 1.4(a), Buyers provided

Sellers with a Final Closing Statement seeking approximately $6 million more than

the number in Seller’s Estimated Closing Statement. On June 28, Sellers delivered

a Closing Statement Protest Notice challenging Buyers’ calculations. Under Section

1.4(c), the parties were then required to refer their disagreement to an arbitrating

accountant. On July 2, Buyers invited Sellers to begin the process of selecting that

arbitrating accountant. Sellers responded on July 7, refusing to engage an arbitrating

accountant. After Buyers’ additional requests, Sellers refused again on July 24 and

August 11.

             b.    On May 28, Buyers made a direct claim for indemnification

under Section 7.4. Sellers timely responded on June 26, triggering the 30-day

negotiation period for Buyers’ claim. On July 7, Sellers also made a direct claim for

indemnification, to which Buyers timely responded on August 5 and triggered a

separate 30-day negotiation period. As of July 17, the parties agreed to engage in

good faith negotiations; they held a call on July 24. Sellers would not discuss

Buyer’s fraud allegations, claiming that they were without merit or any “shred of

                                          7
evidence.”16 On July 26, the negotiation period for Buyers’ indemnification claim

ended.

         L.      On September 11, 2020, Buyers filed the Complaint in this action.

Count I asserts fraud against Sellers. Count II asserts fraudulent conspiracy against

Novo and Krawetz. Count III asserts a claim against Sellers for indemnification

relating to Sellers’ breaches of the EPA’s representations and warranties. And

Count IV asserts a breach of contract claim against Sellers relating to the EPA’s

dispute resolution process.

         M.      On December 2, Acquisitions, Alaris, and Krawetz moved to dismiss

Counts I, II, and IV pursuant to Court of Chancery Rule 12(b)(6).17 That same day,

Novo and Krawetz moved to dismiss all claims against them pursuant to Court of

Chancery Rule 12(b)(2) for lack of personal jurisdiction.18 The parties briefed the

Motion, as well as the jurisdictional issues; I held argument on April 23, and took

the Motion under advisement.19

         N.      In a separate decision, filed contemporaneously with this Order, I

considered Novo and Krawetz’s motions pursuant to Rule 12(b)(2); held that this

Court lacks personal jurisdiction over both of them; and dismissed Count II.

16
     Compl. ¶ 90.
17
     D.I. 23; D.I. 24.
18
     D.I. 22; D.I. 25.
19
     D.I. 76; D.I. 77.

                                           8
          O.       This decision considers Counts I and IV against Sellers for fraud and

breach of contract. The standards governing a motion to dismiss under Rule 12(b)(6)

for failure to state a claim for relief are well settled:

          (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 to proof.”20

Thus, the touchstone “to survive a motion to dismiss is reasonable

‘conceivability.’”21 This standard is “minimal”22 and plaintiff-friendly.23 “Indeed,

it may, as a factual matter, ultimately prove impossible for the plaintiff to prove his

claims at a later stage of a proceeding, but that is not the test to survive a motion to

dismiss.”24 Despite this forgiving standard, the Court need not accept conclusory

allegations unsupported by specific facts or draw unreasonable inferences in favor

20
     Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted).
21
  Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537
(Del. 2011).
22
     Id. at 536.
23
  See, e.g., Clouser v. Doherty, 175 A.3d 86 (Del. 2017) (TABLE); In re USG Corp.
S’holder Litig., 2021 WL 930620, at *3–4 (Del. Ch. Mar. 11, 2021); In re Trados Inc.
S’holder Litig., 2009 WL 2225958, at *8 (Del. Ch. July 24, 2009).
24
     Cent. Mortg. Co., 27 A.3d at 536.

                                              9
of the nonmoving party.25 “Moreover, the court is not required to accept every

strained interpretation of the allegations proposed by the plaintiff.”26

         P.     To state a claim for fraud,

         the plaintiff must plead facts supporting an inference that: (1) the
         defendant falsely represented or omitted facts that the defendant had a
         duty to disclose; (2) the defendant knew or believed that the
         representation was false or made the representation with a reckless
         indifference to the truth; (3) the defendant intended to induce the
         plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable
         reliance on the representation; and (5) the plaintiff was injured by its
         reliance.27

Under Court of Chancery Rule 9(b), the elements of a fraud claim must be pled with

particularity, although “[m]alice, intent, knowledge and other condition of mind of

a person may be averred generally.”28 “To satisfy Rule 9(b), a complaint 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.”29 At bottom, “the plaintiff is required to allege the

25
     See, e.g., Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009).
26
 Trados Inc., 2009 WL 2225958, at *4 (internal quotation marks omitted) (quoting In re
Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006)).
27
     Abry P’rs V, L.P. v. F & W Acq. LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).
28
     Ct. Ch. R. 9(b).
29
     Abry P’rs, 891 A.2d at 1050.

                                               10
circumstances of the fraud with detail sufficient to apprise the defendant of the basis

for the claim.”30

           Q.    “Under Delaware law, a breach of contract claim comprises three

elements: (1) the existence of a contract; (2) a breach of an obligation imposed by

that contract; and (3) resultant damages.”31

           IT IS HEREBY ORDERED, this 26th day of July, 2021:

           1.    The Motion is DENIED.

           2.    Defendants contend that Count I must be dismissed because “Delaware

law requires that the fraud damages must state with particularity how they derive

from the fraud.”32 But as this Court has recognized, Delaware law does not mandate

a plaintiff plead damages arising from fraud with particularity.

           Even when a plaintiff asserts a fraud claim, damages do not have to be
           pled with particularity. What has to be pled with particularity are the
           circumstances constituting fraud or mistake. Unless a complaint seeks
           special damages, damages can be pled generally. A plaintiff adequately
           pleads damages resulting from fraud when the complaint sufficiently
           puts defendants on notice of the precise way in which defendant may
           have been harmed.33

30
     Id.
31
   E.g., Wenske v. Blue Bell Creameries, Inc., 2018 WL 3337531, at *9 (Del. Ch.
July 6, 2018).
32
     D.I. 25 at 5.
33
  Swipe Acq. Corp. v. Krauss, 2020 WL 5015863, at *9 (Del. Ch. Aug. 25, 2020) (quoting
Bamford v. Penfold, L.P., 2020 WL 967942, at *21 (Del. Ch. Feb. 28, 2020), and Carlton
Invs. v. TLC Beatrice Int’l Hldgs., Inc., 1996 WL 189435, at *6 (Del. Ch. Apr. 16, 1996));
see also H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 145 (Del. Ch. 2003) (“Under
Rule 9(b), the circumstances that must be stated with particularity are the time, place, and

                                             11
Plaintiffs have adequately pled harm from overpaying under the EPA.34

          3.     Defendants next contend that Count I must be dismissed as duplicative,

in that “Plaintiffs seek the same damages there as they do in their breach of contract

claim in Count III.”35 But that argument falls short at the pleading stage. Even if a

breach of contract and fraud claim are presumably based on the same conduct, “it is

quite possible that the measure of damages for the fraud claim would be different

given the public policy against fraud.”36 “As a matter of black-letter law, the

measure of damages for a tort like fraud is broader, more flexible, and more

encompassing than the remedy for a breach of contract, even when expectancy is the

contents of the false representation, the identity of the person(s) making the representation,
and what he intended to obtain thereby.”); id. at 146–47 (“The court is unconvinced that
Wexford has not adequately alleged damages. Wexford has alleged that it suffered
damages because of its decision to participate in the February 2001 Offering, which was
based on the false representations made by the defendants. This allegation is stated with
enough particularity to satisfy the requirements of Rule 9(b).”); Carlton Invs., 1996 WL
189435, at *6 n.8 (stating that “[a]lthough defendants contend that Rule 9(b) requires that
the plaintiff allege the damage element of fraud with particularity, I note that the Rule only
requires that the circumstances constituting fraud be stated with particularity,” as damages
are adequately pleaded where an allegation is more than conclusory and sufficiently puts
defendants on notice of plaintiff’s harm (alterations and internal quotation marks omitted)).
 See Am. Auto. Ass’n of N. Calif. v. Barnes Assocs., Inc., 2020 WL 4729063, at *5–6 (Del.
34

Ch. Aug. 13, 2020) (ORDER).
35
     D.I. 25 at 5.
36
   Kainos Evolve, Inc. v. InTouch Techs., Inc., 2019 WL 7373796, at *3 (Del. Ch.
Dec. 31, 2019) (ORDER) (“Even if one assumes for the sake of argument that InTouch’s
contract claim for breach of Section 17.2 and its fraud claim based on statements made in
Section 17.2 involved the same conduct, it is quite possible that the measure of damages
for the fraud claim would be different given the public policy against fraud.”).

                                             12
measure.”37 Thus, at the pleading stage, a plaintiff is not required to articulate

exactly how the fraud and breach of contract damages diverge: “[i]t is simply not

the case that damages in tort are generally likely to be co-extensive with damages in

contract, and at a minimum, it is not possible to say that at the pleading stage.”38

          4.      Plaintiffs have sufficiently differentiated fraud and contract damages,

including by seeking rescissory damages for the fraud claims.39 Further, Plaintiffs’

contract claims for breaches of the EPA’s representations and warranties are subject

to a $300,000 “mini-basket” and a $7.5 million damages cap.40 Plaintiffs’ fraud

claim for $37 million is not subject to these strictures. These distinctions are

37
     Barnes, 2020 WL 4729063, at *1.
38
     Id. at *5.
39
  See, e.g., ITW Glob. Invs. Inc. v. Am. Indus. P’rs Cap. Fund IV, L.P., 2015 WL 3970908,
at *7 n.103 (Del. Super. Ct. June 24, 2015) (“Additionally, because Count II alleges
damages for rescission or rescissory damages, it is not barred as a ‘rehash’ of the
Complaint’s breach of contract damages.”); Novipax Hldgs. LLC v. Sealed Air Corp., 2017
WL 5713307, at *14 (Del. Super. Ct. Nov. 28, 2017) (“This Court has twice held that a
claim for rescission or recessionary damages separates a fraudulent inducement claim from
breach of contract damages.”); Firmenich Inc. v. Nat. Flavors, Inc., 2020 WL 1816191, at
*10 (Del. Super. Ct. Apr. 7, 2020) (“Under the facts pled in this case, the Court finds that
Firmenich’s Amended Complaint for rescissory damages sufficiently distinguishes the
breach of contract claim from the fraudulent inducement claim. It does not appear to the
Court to matter whether the difference in damages is based on the actual method of
calculation, or whether the difference in actual recoverable damages constitutes a legal
distinction. The Court finds that the fraud and contract claims alleged in this case may
proceed in a parallel manner.”).
40
     See EPA § 7.7(b)–(c).

                                             13
sufficient to carry Plaintiffs’ fraud claims over the Motion, as “[q]uite obviously, the

measures are not the same.”41

         5.     Defendants next contend that Plaintiffs’ fraud claim is barred by the

EPA’s anti-reliance provision in Section 5.6.42 Delaware courts enforce clear anti-

reliance provisions.43 “[A] party cannot promise, in a clear integration clause of a

negotiated agreement, that it will not rely on promises and representations outside

of the agreement and then shirk its own bargain in favor of a ‘but we did rely on

those other representations’ fraudulent inducement claim.”44 “To be effective, a

contract must contain language that, when read together, can be said to add up to a

clear anti-reliance clause by which the plaintiff has contractually promised that it did

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

41
   See Barnes, 2020 WL 4729063, at *5–6 (“It is simply not the case that damages in tort
are generally likely to be co-extensive with damages in contract, and at a minimum, it is
not possible to say that at the pleading stage. . . . In this case, the distinction is even more
striking because the Agreement contains baskets and caps that limit a contractual recovery.
Under those provisions, the Buyer’s maximum recovery is approximately $1,020,000.
Under a fraud recovery, it is uncapped and thus could exceed $65 million. Quite obviously,
the measures are not the same.”).
42
   EPA § 5.6 (“Each Buyer acknowledges and agrees that in making its decision to enter
into this Agreement and to consummate the transactions contemplated hereby, such Buyer
has relied solely upon its own investigation and the express representations and warranties
set forth in Article III and Article IV, except in the case of fraud.”).
43
  See, e.g., Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35 (Del. Ch. 2015);
Abry P’rs, 891 A.2d at 1058–59; Kronenberg v. Katz, 872 A.2d 568, 593 (Del. Ch. 2004).
44
     Abry P’rs, 891 A.2d at 1057.

                                              14
contract.”45 Such provisions must “identify the specific information on which a

party has relied and which foreclose reliance on other information.”46 To be

effective against fraud claims, a disclaimer must unambiguously “ensure the

preclusion of fraud claims for extra-contractual statements.”47

          6.       Here, Section 5.6 cannot operate to bar Plaintiffs’ fraud claim because

it does not unambiguously disclaim reliance on extracontractual statements in the

event of fraud.48 To the contrary: Section 5.6 expressly excludes fraud from its

purview. Plaintiffs agreed that, when entering into the EPA, they relied only upon

their “own investigation and the express representations and warranties set forth in

Article III and Article IV, except in the case of fraud.”49

          7.       This exception for fraud is consistent with several other EPA provisions

that limit rights and remedies except in the context of fraud. Section 8.18 includes

a “Special Rule for Fraud”:50

45
  Prairie Cap., 132 A.3d at 51 (internal quotation marks omitted) (quoting Kronenberg,
872 A.2d at 593).
46
  Id. at 50 (citing RAA Mgmt., LLC v. Savage Sports Hldgs., Inc., 45 A.3d 107, 118–19
(Del. 2012)).
47
  See FdG Logistics LLC v. A&R Logistics Hldgs., Inc., 131 A.3d 842, 860 (Del. Ch. 2016),
aff’d, 148 A.3d 1171 (Del. 2016) (TABLE).
48
  See id. (“Because the [anti-reliance provision] does not contain this type of unambiguous
anti-reliance disclaimer by Buyer, those provisions are not sufficient to preclude its
common law fraud claim relating to the Pre–Merger Materials.”).
49
     EPA § 5.6 (emphasis added).
50
     Id. § 8.18.

                                               15
           Notwithstanding anything herein to the contrary, in no event shall any
           limit or restriction on any rights or remedies set forth in this Agreement
           limit or restrict the rights or remedies of any party for the fraud by any
           other party or any Affiliate or representative of such other party.51

And Section 7.8 identifies the indemnification rights outlined in Article VII as the

parties’ sole and exclusive remedy in connection with the EPA—“[o]ther than . . .

in the event of fraud.”52 Section 5.6’s carveout for fraud means Defendants cannot

rely on that provision to dismiss Plaintiffs’ fraud claims.53

           8.     In addition, Plaintiffs’ fraud claims are premised on Sellers’ specific

representations and warranties in the EPA.54 “Delaware law permits representations

and warranties in a contract to form the basis for fraud claims even where a purchaser

has disclaimed reliance on extracontractual representations in the contract.”55 This

is because anti-reliance provisions generally “define the universe of information that

is in play for purposes of a fraud claim,”56 and such provisions permit a plaintiff to

51
     Id.
52
     Id. § 7.8.
53
     See id. §§ 7.7(a), 7.7(b), 7.7(c), 7.8, 8.18.
54
     See id. §§ 4.5(o)–(p), 4.7(b)–(d), (f), 4.14, 4.24(b), 4.26.
55
  Swipe Acq. Corp., 2020 WL 5015863, at *10 (quoting Prairie Cap., 132 A.3d at 49–59
(analyzing the effect of an anti-reliance clause and holding that the fraud claim “largely
survives at the pleading stage to the extent that [plaintiff] relies on representations in the
SPA”), and citing ChyronHego Corp. v. Wight, 2018 WL 3642132, at *4–8 (Del. Ch.
July 31, 2018) (holding that an anti-reliance clause did not bar a fraud claim based on a
representation in the contract)).
56
     Prairie Cap., 132 A.3d at 52.

                                                     16
“rel[y] on representations and warranties.”57 The Complaint includes detailed

factual allegations that give rise to the reasonable inference that Sellers knowingly

misrepresented information about the Company’s finances and accounting practices

that were the subject of Sellers’ representations and warranties.58 And to the extent

Plaintiffs’ fraud claims rely on “extra-contractual” statements, they “may use

external sources of information to plead that a contractually identified fact was false

or misleading.”59 The Motion is denied as to Count I.

         9.     Finally, Plaintiffs claim Sellers breached Section 1.4(c) of the EPA by

refusing to refer a dispute regarding Buyers’ Final Closing Statement to an

arbitrating accountant. Defendants argue that Count IV must be dismissed because

Plaintiffs waived their right to pursue EPA’s post-Closing dispute resolution

procedures when Plaintiffs failed to timely deliver the Final Closing Statement

within 90 days after the Closing Date, or no later than May 28, 2020. Defendants

rely on an email attached as an exhibit to the Motion in support of this theory.60 But

that document is outside the Complaint, and therefore I do not consider it on the

57
     Swipe Acq. Corp., 2020 WL 5015863, at *10.
58
     See D.I. 56 at 27–28.
59
  Prairie Cap., 132 A.3d at 52 (“A party may use external sources of information to plead
that a contractually identified fact was false or misleading, but a party cannot point to extra-
contractual information and escape the contractual limitation by arguing that the extra-
contractual information was incomplete.”).
60
     See D.I. 25 at 24–26.

                                              17
Motion.61 Plaintiffs have alleged that they timely delivered the Final Closing

Statement by May 28, and I must accept that allegation as true at the pleading stage.62

Accordingly, the Motion to dismiss Count IV is denied.

                                                           /s/ Morgan T. Zurn
                                                     Vice Chancellor Morgan T. Zurn

61
   See, e.g., Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004)
(“Matters extrinsic to a complaint generally may not be considered in a ruling on a motion
to dismiss. Court of Chancery Rule 12(b) provides that if the court considers matters
outside the pleadings, the motion shall be ‘treated as one for summary judgment’ and the
parties must be given an opportunity to take discovery. On a motion to dismiss, the Court
may consider documents that are ‘integral’ to the complaint, but documents outside the
pleadings may be considered only in ‘particular instances and for carefully limited
purposes.’” (footnotes omitted) (quoting Ct. Ch. R. 12(b), and In re Santa Fe Pac. Corp.
S’holder Litig., 669 A.2d 59, 69 (Del. 1995))). “Whether a document is integral to a claim
and incorporated into a complaint is largely a facts-and-circumstances inquiry,” and “[t]he
Court’s context-specific analysis to determine whether a document is integral cautions
against an effort to synthesize this precedent into a bright-line rule.” In re Gardner Denver,
Inc., 2014 WL 715705, at *3 (Del. Ch. Feb. 21, 2014). However, “a general tendency is
that the Court may conclude a document is integral to the claim if it is the source for the
facts as pled in the complaint.” Id. (alterations and internal quotation marks omitted).
       Defendants argue that “Plaintiffs here have incorporated the contents of the Final
Closing Statement into the Complaint and rely on the timely transmission of the document
to support its breach of contract claim in Count IV. Judicial notice [of the email from
Plaintiffs’ counsel attaching the Final Closing Statement], therefore, is appropriate.”
D.I. 25 at 25 n.4 (citing Compl. ¶¶ 80, 135). The Complaint’s allegations that mention the
Final Closing Statement and its delivery are insufficient to render the email attached to the
Motion incorporated by reference or integral to it. The Complaint does not reference the
email, nor does it quote a portion of it. See Gardner Denver, 2014 WL 715705, at *8
(citing Latesco, L.P. v. Wayport, Inc., 2009 WL 2246793, at *1 n.1 (Del. Ch.
July 24, 2009)). At most, the Complaint incorporates the Final Closing Statement by
reference. On the Motion, I therefore do not consider the email cited by Defendants.
62
     E.g., Savor, 812 A.2d at 896–97.

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