Court Opinion

ID: 2704893
Source: CourtListenerOpinion
Date Created: 2014-08-04 22:03:50.001104+00
Date Added: 2024-06-11T12:55:00.986945
License: Public Domain

COURT OF CHANCERY

OF THE
STATE OF DELAWARE
Knv\ E_ AvvAzn/>.N @HANC§§;h<;%\;§';H<>\JSE
MASTER |N CHANCER¥ GEORGETOWN.DELAWARE19947
AND
NEW CASTLE COUNTY COURTHOUSE
500 NORTH K|NG STREET,SU|TE11400
W|LM|NGTON, DELAWARE 19980-3734
July l4, 20 l 4

Gregory D. Stewart, Esquire

Law Ofi`ice of Gregory D. Stewart, P.A.
715 North Tatnall Street

PO Box 756

Wilmington, DE 19801

Brian M. Gottesman, Esquire

Berger Harris, LLP

1105 N. market screer, 11‘*‘ Fioor

Wilmington, DE 19801

RE: Agnieszka Kostyszyn and Marek Kostyszyn v. Gianmarco l\/lartuscelli,
Gilda Martuscelli, The Estate of Brett J. Harris, Frozen Endeavors, Inc., a
Delaware Corporation, AJT, Inc., a Delaware C0rporation, and Chesapeake
Inn, Inc., a Maryland Corporation
C.A. No. 8828-MA

Dear Counsel:
This action involves a dispute between the purchasers and seller of an

ongoing business known as Paciugo Gelato and Cafe, (hereinafter "the Business"),

which is located in the Christiana Mall in Newark, Delaware. The purchasers seek

indemnification, monetary darnages, and cancellation of the documents underlying

Page l ofl9

the agreement they made with the seller in December 2011 to purchase the assets
of the Business for a purchase price of $272,500.0(). The purchasers contend that
the seller misrepresented the financial condition of the Business and breached
seller’s agreement to continue purchasing gelato from the Business for sale in its
other three retail businesses.

Nearly two years after purchasing the Business, purchasers filed a Verified
Amended Complaint (the "Complaint") on September 5, 2013, against the seller
and several other defendants.' The Complaint alleges: (i) breach of contract; (ii)
breach of warranty; (iii) indemnification; (iv) equitable fraud; (v) fraud; (vi)
negligent misrepresentation; (vii) intentional misrepresentation; and (viii) breach
of the covenant of good faith and fair dealing. The Complaint contains nine
prayers for relief, seeking declaratory relief, money damages, cancellation of the
documents underlying the sale of the Business, an accounting, and "[s]uch other
and further relief as this Court deems just and equitable under the circumstances."z

On October 22, 2013, seller and the other defendants moved to dismiss the

Complaint under Court of Chancery Rules 9(b), l2(b)(l), and l2(b)(6).3 Following

briefing on the motion, oral argument took place on March 20, 2014, at the

conclusion of which I reserved decision.

‘ The original complaint was filed on August 22, 2013, but misstated the name of Frozen
Endeavors, Inc. and did not include AJT, Inc. or Chesapeake Inn, Inc. as defendants Docket
Item No. l (hereinafter "DI No. #).

2 DI No. 8.

Page 2 ofl9

Defendants have moved to dismiss the Complaint in its entirety on the
grounds that this Court lacks subject matter jurisdiction over plaintiffs’ claims and,
in any event, that plaintiffs have failed to plead their fraud claims with sufficient
particularity, and have failed to state a claim upon which relief may be granted in
all counts as well. See Rules 9(b), l2(b)(l), and (b)(6). In this draft report, I
recommend that the Court dismiss plaintiffs’ equitable claim (Count IV) with
prejudice under Rule l2(b)(6), but allow plaintiffs to transfer their remaining legal
claims to a court of law.

Factual Background4

The plaintiffs are Agnieszka and Marek Kostyszyn, who purchased the
Business in December 2011 from Defendant Frozen Endeavors, Inc. The other
defendants are the Estate of Brett J. Harris,$ Gianmarco and Gilda Martuscelli,
AJT, Inc., and Chesapeake Inn, Inc. The Martuscellis are principals in Frozen
Endeavors, Inc., AJT, Inc., and Chesapeake Inn, Inc. AJT, Inc. owns and operates
La Casa Pasta Restaurant in Newark, Delaware, while Chesapeake Inn, Inc. owns
and operates the Chesapeake Inn, in Chesapeake City, Maryland, and formerly
owned and operated the Canal Creamery and Sweet Shoppes (the "Creamery") also

in Chesapeake City, l\/laryland.

3 DI No. l8.

4 The facts set forth herein are drawn from the Complaint and from documents incorporated by
reference in the Complaint.

Page 3 of 19

 

On December l, 201l, plaintiffs entered into an agreement of sale with
Frozen Endeavors to purchase the Business for $272,500.00. The decision to
purchase the Business and the purchase price was based upon sales information
reported to Marek by Gianmarco and Harris at their first meeting, and subsequent
statements provided to Marek regarding business earnings, on-site sales, catering
sales, and profit analysis.6 Plaintiffs timely paid the purchase price in three
installments, with the final installment being paid on December 31, 201l. The
assets of the Business already had been transferred to plaintiffs on December 1,
2011. As part of the transaction, the Business’s ten-year lease with Christiana Mall
was assumed by plaintiffs.

At the first meeting between the parties, Gianmarco and Harris produced an
earnings statement that reflected a profit of $7,186.21 on retail sales of
$282,473.03 and catering sales of $74,882.00 (gross sales equaling $357,355.04)
from the opening in July 2010 through August 2011.7 The agreement was drawn
to reflect the importance of catering sales as consideration for the purchase.
Section 5.d of the Agreement states that: "Seller shall continue to purchase gelato

for Chesapeake Inn, Canal Creamery & Sweet Shoppe ("Creamery") and La Casa

5 At his death on December 28, 2012, Brett Harris was a principal in Frozen Endeavors and the
business manager of Chesapeake Inn, lnc. Defendants’ Opening Brief at 4n.2.

61 use first names here to avoid confusion and unnecessary repetition, and mean no disrespect by
this practice.

7 Complaint, Plaintiffs’ Ex. 1.

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Pasta for a period of ten years so long as Buyer does not breach its obligations
under this agreement of Buyer’s lease with Christiana Mall, LLC."$

Following the sale of the Business to plaintiffs, catering sales dropped in
2012 to $18,475.00. 1n August 2011, defendants Gianmarco, Harris, Gilda, and
Chesapeake Inn had begun offering ice cream at the Creamery without notifying
plaintiffs. Furthermore, by agreeing to purchase gelato for a period of ten years,
defendants had represented that they would continue to operate the Creamery for a
period of ten years when, in fact, they only held a three-year lease on the property
where that business was located. 1n an email to Marek dated July 2, 2013,
Gianmarco admitted that he sold his interest in the Creamery prior to the end of the
three-year lease because he had been losing money at that location for the past two
years (2011 and 2012). The Business’s catering sales for the period of January 1,
2013 to August 13, 2013, to the Chesapeake Inn and La Casa Pasta totaled only
$3,300.00. 1n another email to Marek dated July 3, 2013, Gianmarco stated that:

1 lost money at [the Business] and the Creamery but 1 tried my best and it

wasn’t good enough. [Harris] and 1 sold [the Business] because we were

both losing too much money ([Harris] lost all his savings and had nothing

lef`t). We sold you the business while still owing the bank over $70k in a

loan that 1 just finished paying off this year. We didn’t make any money

from you or anything associated with [the Business]. We were absentee
owners who couldn’t afford to pay the bills any longer.g

:Complaint, Plaintiffs’ Ex. 2 at p. 3.
Id.

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Plaintiffs now allege that the overstatement of the continuing agreement to
purchase gelato, along with defendants’ improper representations, assurances,
business practices and financial statements, which were false and misleading,
directly resulted in plaintiffs calculating a purchase price that was more than they
would otherwise have been willing to pay for the Business. Furthermore,
defendants’ failure to disclose that the Business was "losing too much money"
caused the plaintiffs to enter into a long tenn lease with Christiana Mall, exposing
the assets of the Business to potential claims and the plaintiffs to personal liability
under the terms of the lease if the Business were to fail.

Issues

Defendants have moved to dismiss the Complaint on three grounds. First,
they contend that under Rule 12(b)(1), this Complaint should be dismissed for lack
of subject matter jurisdiction because plaintiffs’ only claims sounding in equity -
equitable fraud/negligent misrepresentation - fail as a matter of law under Rule
12(b)(6). Defendants argue that the only other potential basis for equitable
jurisdiction, i.e., plaintiffs’ prayers for relief requesting cancellation/rescission and
an accounting, also fail because plaintiffs waited too long to seek rescission and
have failed to plead a predicate basis for which they would be entitled to the
remedy of an accounting. According to defendants, plaintiffs have failed to state a

claim under Rule 12(b)(6) and failed to meet the pleading requirements set forth in

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Rule 9(b) for fraud, misrepresentation, equitable fraud, and negligent
misrepresentation, and have failed to state a claim under Rule 12(b)(6) for breach
of contract, breach of express warranty, indemnification, and breach of the implied
covenant of good faith and fair dealing.

Plaintiffs oppose the motion, arguing that as to the Court’s subject matter
jurisdiction, their pleadings contain prayers for equitable relief, specifically for
cancellation of the agreement and an accounting, and in general as justice requires.
Furthermore, they argue that all of defendants’ arguments regarding the substantive
law of Delaware are nonresponsive, irrelevant and moot because the sales
agreement executed by the parties contains an express choice of law provision
stating that the agreement shall be governed by Maryland law.'O Plaintiffs contend
that they have sufficiently pled their tort claims against the defendants based on
defendants’ failure to disclose information regarding catering sales, the intended
closing of the Creamery, the material change to the operation of the Creamery, and
the misstatements and misrepresentations of the financial condition of Frozen
Endeavors and the Creamery, Finally, plaintiffs point out that defendants have
failed to cite any relevant Maryland authority to support their contention that
plaintiffs have failed to state a claim under Rule 12(b)(6) in connection with their

breach of contract claims.

‘° Complaint, Plaintiffs’ Ex. 2 at jj 9(i).

Page 7 of 19

1n reply, defendants argue that plaintiffs have failed to state a claim for
equitable fraud under both Maryland and Delaware law. Defendants maintain that
the equitable remedy of an accounting is not available because the Complaint fails
to allege the existence of: (1) mutual accounts between the parties; (2) a fiduciary
relationship where the defendant has a duty to account; or (3) the accounts are on
one side but there are circumstances of great complication, citing Business
Funa’z'ng Group, Inc. v. Architectural Renovators, Inc., 1993 WL 104611, at *2
(Del. Ch. Mar, 13, 1993). Finally, defendants argue that plaintiffs’ request for the
equitable remedy of cancellation is untimely. According to defendants, not only
have plaintiffs failed to allege that they are ready, willing and capable of returning
and restoring the status quo ante, but also the facts alleged in the Complaint show
that the status quo ante is incapable of being restored because plaintiffs’ request
for cancellation comes after nearly two years of operating the company as a going
concern. Since money damages lie at the core of the Complaint, however,
defendants argue that dismissing these equitable remedies will not result in any
prejudice to plaintiffs.
Analysis
"This Court will dismiss an action under Rule 12(b)(1) ‘if it appears from

the record that the Court does not have subject matter jurisdiction over the claim."’

Zebroski v. Progressive Direct Ins. Co., 2014 WL 2156984, at *3 (Del. Ch. Apr.

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30, 2014) (quoting Envo, Inc. v. Walters, 2009 WL 5173807, at *4 (Del. Ch. Dec.
30, 2009)). The party seeking relief in this Court has the burden of establishing
the Court’s subject matter jurisdiction. Ia’. However, when a challenge under Rule
12(b)(1) is directed to the face of the complaint, the court accepts the plaintiffs
allegations of facts. Ia’. (citing Dz`ebola’ Computer Leasz`ng, Inc. v. Commercial
Crea’it Corp., 267 A.2d 586, 588 (Del. 1970)).

There are only three avenues by which the Court acquires subject matter
jurisdiction over a case: (1) the invocation of an equitable right; (2) the request for
an equitable remedy where there is no adequate remedy at law; or (3) a statutory
delegation of subject matter jurisdiction. Ia’. (citing Candlewooa’ Timber Gp., LLC
v. Pan Am. Energy, LLC, 859 A.2d 989, 997 (Del. 2004), 10 Del. C. §§ 341, 342)).
Where a complete remedy otherwise exists, but the plaintiff has requested some
type of traditional equitable relief as a means of gaining access to this Court, the
Court will not exercise subject matter jurisdiction. Ia’. (citing Mea’ek v. Medek,
2008 WL 4261017, at *3 (Del. Ch. Sept. 10, 2008)).

In determining whether a legal, as opposed to an equitable remedy, is
available and sufficiently adequate, the court must determine whether the nature of
both the wrong alleged and the relief sought supports a finding that only equity can
provided a remedy. Zebroski, 2014 WL 2156984, at *4 (Del. Ch.). Here, in Count

1V of the Complaint, plaintiffs are asking the Court to cancel, i.e., to rescind, the

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agreement of sale, the promissory notes, the assignment of the lease with
Christiana Mall, and the security interest on the ground of equitable fraud."
Defendants have moved to dismiss this count under Rules l2(b)(l) and l2(b)(6).
Since a cause of action for equitable fraud can be adjudicated only in a court of
equity, Zebroski, 2014 WL 2156984, at *6 (Del. Ch.), and because plaintiffs are
seeking equitable rescission as a remedy for alleged equitable fraud, 1 first will
address the issue whether plaintiffs have stated a claim for equitable fraud.

When considering a motion to dismiss under Rule 12(b)(6), the Court will
accept:

all well-pleaded factual allegations in the Complaint as true, accept even

vague allegations in the Complaint as ‘well-pleaded’ if they provide the

defendant notice of the claim, draw all reasonable inferences in favor of the

plaintiff, and deny the motion unless the plaintiff could not recover any

reasonably conceivable set of circumstances susceptible of proof.

Cent. Mortg. C0. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d
531, 536 (Del. 2011). Thus, if the factual allegations of the complaint would
entitle plaintiff to relief under a "reasonable conceivable set of circumstances," the
court must deny the motion to dismiss. Zebroski, 2014 WL 2156984, at *6 (Del.

Ch.). However, the failure to plead an element of a claim precludes entitlement to

relief, and the court may dismiss a claim for that basis. Ia’.

" In the same count, plaintiffs are also asking for monetary damages in an amount to be
determined at trial.

Page 10 of19

Under Delaware law, the elements of equitable fraud are similar to those for
common law fraud, except that the claimant need not show that respondent acted
knowingly or recklessly - innocent or negligent omissions are sufficient. Envo,
Inc., 2009 WL 5173807, at *6 (Del. Ch.). Despite the lack of a scienter
requirement, the scope of equitable fraud is more narrow than common law fraud.
lt arises only when the claimant pleads the existence of: (1) "a special relationship
between the parties or other special equities, such as some form of fiduciary
relations"; or (2) a "justification for a remedy that only equity can afford."
Zebroskz`, 2014 WL 2156984, at *7 (Del. Ch.) (quoting Narrowstep, Inc. v.
Onstream Mea'z`a Corp., 2010 WL 5422405, at * 13 (Del. Ch. Dec. 22, 2010) and
Envo, 2009 WL 5173807, at *6 (Del. Ch.)).

1n Maryland law, there is no specific claim of equitable fraud; instead
Maryland has a single claim of constructive fraud that may lie in law or equity.
Maryland Envz`ronmental Trust v. Gaynor, 803 A.2d 5 12, 517 (Md. 2002) (quoting
Ellerz`n v. Faz'rfax Savings, 652 A.2d 1117, 1126 n.ll (Md. 1995)) ("in order to
succeed in establishing constructive fraud that justifies the rescission of a contract,
a plaintiff must show the "breach of a legal or equitable duty which, irrespective of
the moral guilt of the fraud feasor, the law declares fraudulent because of its
tendency to deceive others, to violate public or private confidence or injure public

interests."). Constructive fraud in Maryland often involves the breach of a

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fiduciary duty, see Dz'erker v. Eagle National Bank, 888 F. Supp. 2d 645, 656
(D.Md. 2012) (citing Alleco Inc. v. Harry & Jeannette Wez`nberg Found., Inc., 665
A.2d 103 8, 1049 n.6 (1995) (constructive fraud usually arises from a breach of
duty where a relationship of trust and confidence exists)), but may also arise on the
basis of a legal duty of care under negligence principles. See Dierker, 888 F.
Supp.2d at 656 ("no authority bars a constructive fraud claim on the basis of a
legal duty of care under negligence principles.") (citing Jones v. State, 38 A.3d
333, 343 (Md. 2012)).

Nowhere in the Complaint have plaintiffs pled the existence of a fiduciary,
special, or confidential relationship between the parties that would give rise to a
claim sounding in equity and, hence, subject matter jurisdiction in this Court. The
parties here engaged in an arm’s length business transaction, and courts in
Maryland and Delaware are reluctant to impute the principles of fiduciary
relationships between parties in cases like this one. See Gegeas v. Sherrz`ll, 147
A.223 (Md. 1958); Zebroski, 2014 WL 2156984, at *8 (Del. Ch.) (citing Wal-Mart
Stores, Inc. v. A1G Lzfe Ins. C0., 901 A.2d 106, 114 (Del. 2006)). Therefore, under
both Delaware and Maryland law, 1 conclude that plaintiffs’ claim of equitable
fraud should be dismissed with prejudice under Rule l2(b)(6) for failure to state a

claim.

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Nor have plaintiffs shown that special circumstances exist such that only
equity can afford a remedy here. 1n Delaware, the remedy of rescission also may
be awarded by law courts. E.l. DuP0nt De Nemours ana' C0. v. HEM Research,
Inc., 1989 WL 122053, at *3 (Del. Ch. Oct. 13, 1989). An application for
rescission of a contract in this Court is governed by the following equitable
principles: (1) a party who discovers that he has been misled into entering into a
contract by fraud must act with reasonable diligence if he seeks rescission rather
than affirming the contract and suing for damages; and (2) rescission will not be
granted unless the Court can restore the parties substantially to the same position
which they occupied before making the contract. See Grzybowski v. Tracy, 2013
WL 4053515, at *7 (Del. Ch. Aug. 9, 2013). Thus, if a plaintiff is seeking the
remedy of rescission, the status quo ante of the plaintiff and of the defendant as
well must be restored. 1f that result cannot be substantially accomplished,
rescission as an equitable remedy will be denied. See Hessler, Inc. v. Ellz`s, 167
A.2d 848, 851 (Del Ch. 1961) (denying prayer for rescission and cancellation of a
lease agreement because complaint failed to disclose any offer to restore assignee
of lease to former status).

Plaintiffs have failed to allege anywhere in the Complaint that they are
ready, willing and able to retum defendants to the status quo ante. Plaintiffs have

made no such allegation. This case involves an ongoing business and it is not

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likely the current operation of the Business is the same as that which prevailed at
the time of the sale in December 201l. See Craft v. Barz'glz`o, 1984 WL 8207, at
**12-13 (Del. Ch. March 1, 1984). 1n one material respect, it cannot be the same
since the Creamery no longer exists and, therefore, cannot purchase gelato from
the Business as before. lt does not appear that this Court could realistically
effectuate an order that would restore the parties to the status that existed on
December 1, 201l. Thus, equitable rescission or cancellation is not available here.
1n addition, plaintiffs have not shown that, if the Court were to cancel all the
legal documents underlying the sale of the Business, that any further equitable
relief would be required, such as reestablishing title or recovery possession of
property. Zebroskz', 2014 WL 2156984, at *5 (citing E.l. DuP0nt a’e Nemours &
C0., 1989 WL 122053 at *3 (Del. Ch.)). Since plaintiffs have failed to
demonstrate that legal rescission would be inadequate here, 1 conclude that their
request for the remedy of equitable rescission does not establish subject matter
jurisdiction in this Court.
Plaintiffs are also seeking the remedy of an accounting for all improper

accounting activity prior to and including the date of the agreement of sale on
December 1, 2011. An action for an accounting is properly cognizable in equity.

Business Funa’ing Group, Inc. v. Architectural Renovators, Inc., 1993 WL 104611,

Page 14 of19

at "‘1 (Del.Ch. Mar. 31, 1993). The only allegation of improper accounting activity

in the Complaint, however, is found in Count V (Fraud) where plaintiffs claim that:

[o]n information and belief, Defendants, Gianmarco, Harris, Gilda and
[Frozen] Endeavors knew or should have known, in the exercise of
reasonable care, that improper accounting methods were being employed at
[the Business] and that the result of those improper accounting methods was
to inflate the revenue and projections of the [Business] on its financial
statements. '2
While plaintiffs may request the remedy of an accounting, this request does
not necessarily confer jurisdiction in the Court "because the Court may go beyond
the prayers of the complaint and look at the substance of what the plaintiff seeks,
to determine whether or not what the plaintiff really seeks is obtainable at law."
Ia’. (citing Hughes T00l C0. v. Fawcett Publicatz`ons, Inc., 297 A.2d 428 (Del. Ch.
1972), rev ’a’ on other grounds, 315 A.2d 577 (Del. 1974)). The core of plaintiffs’
complaint is that they did not receive the benefit of their bargain and have suffered
financial losses due to fraud, misrepresentation, and breach of contract by
defendants, What the plaintiffs are really seeking in this action are money
damages, not an accounting.
1n Delaware, a party may be entitled to the remedy of an accounting only
where there are mutual accounts between the parties, a fiduciary relationship exists

and defendant has a duty to account, or the accounts are all on one side but there

are circumstances of great complication. Business Fundz`ng Group, Inc., 1993 WL

Page 15 of19

10461 1, at *2 (Del. Ch.) (citations omitted.) There are no allegations of any
fiduciary relationship between the parties, or the existence of mutual accounts.
Plaintiffs have not alleged any circumstances of great complications involving the
sale of the Business. lt appears to have been a straightforward, arm’s length
business transaction. As a result, 1 conclude that this Court lacks subject matter
jurisdiction over this Complaint because plaintiffs are not entitled to the remedy of
an accounting.

At oral argument, defendants maintained that, even if 1 concluded that the
Court lacks subject matter jurisdiction, 1 nonetheless should address plaintiffs’
remaining legal claims under the Court’s clean up doctrine, and dismiss them with
prejudice under Rules 9(b) and l2(b)(6). Thus, defendants would have me review
the sufficiency of plaintiffs’ seven remaining counts of intentional and negligent
misrepresentation, indemnification, breach of warranty, breach of contract, and
breach of the covenant of good faith and fair dealing at the pleading stage.

1n Sunrz`se Ventures, LLC, v. Rehoboth Canal Ventures, LLC, 2010 WL
363845, at * 10 (Del. Ch. Jan. 27, 2010), after plaintiffs’ equitable claims had been
dismissed under the doctrine of laches, the Court declined to exercise clean up
jurisdiction over one of the plaintiff’s assignee claims for lack of a timely equitable

claim. Nevertheless, because the Court found that the time-barred claims for

‘2 Complaint, at 11 59.

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rescission would have stated a claim for rescission had they not been barred by
laches, and because the parties had invested scarce resources in briefing the
validity of the claims pled, the Court addressed the pleading stage merits of the
assignee claims for the sake of judicial efficiency so that the case would be
"modestly less burdensome to the Superior Court." Ia’. at "‘9. Ultimately, the
Court dismissed all but two of the claims with prejudice for failure to state a claim.
Ia’. at *13. The remaining two claims were dismissed without prejudice so that
plaintiff might transfer them to Superior Court. Ia’.

There are a variety of reasons why this Court may exercise its discretionary
jurisdiction to hear legal claims, including to: (i) resolve a factual issue which must
be determined in the proceedings; (ii) avoid a multiplicity of suits; (iii) promote
judicial efficiency; (iv) do full justice; (v) avoid great expense; (vi) afford
complete relief in one action; and (vii) overcome insufficient modes of procedure
at law. Shore Investments, Inc., v. BHole, Inc., 2009 WL 2217744, at *3, (Del. Ch.
July 14, 2009) (citing Clark v. Teeven Holding C0., Inc., 625 A.2d 869, 881 (Del.
Ch. 1992)). See also Zebroskz`, 1014 WL 2156984, at *9, (Del. Ch.). However,
another important aspect to consider is whether the facts involved in the legal and
in the equitable claims "are so intertwined that it would be undesirable or
impossible to sever them." Shore Investments, Inc., 2009 WL 2217744, at *3 (Del.

Ch.) (citing Clarke, 625 A.2d at 881)).

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None of the reasons enumerated above apply in this case. ln particular, no
factual issue had to be determined at this stage in order for me to recommend
dismissal with prejudice of plaintiffs’ equitable claim under Rule 12(b)(6) and their
requested equitable relief under Rule 12(b)(1), lt would be more efficient for the
adequacy of plaintiffs’ seven legal claims based on fraud, tort, and contract to be
decided in the first instance by a Superior Court judge, rather than have the parties
brief exceptions to a Master’s draft report and final report in order to obtain a final
decision by this Court, which might still result in a transfer to Superior Court and,
thus, a multiplicity of suits. Therefore, l recommend that the Court decline to
exercise its clean up doctrine over plaintiffs’ purely legal claims for money
damages and legal rescission relating to the purchase of the Business.

Conclusion

For the above reasons, 1 recommend that this Court dismiss Count lV of the
Complaint with prejudice for failure to state a claim under Rule 12(b)(6), and
dismiss the remaining counts without prejudice for lack of subject matter
jurisdiction under Rule 12 (b)(l) in order to allow plaintiffs to transfers their legal
claims to Superior Court in accordance with 10 Del. C. § 1902. ln addition, l
recommend that this Court decline to exercise its clean up doctrine over plaintiffs’

legal claims.

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Sincerely,
/s/ Kim E. Ayvazian

Kim E. Ayvazian
Master in Chancery
KEA/kekz

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